2002/923/EC: Council Decision of 5 November 2002 on the existence of an excessive deficit in Portugal — Application of Article 104(6) of the Treaty establishing the European Community
Date: 2002-11-05
Institutions: Council of the European Union
Subjects: Portugal, budget deficit, gross domestic product, public debt

L 322/30

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Official Journal of the European Communities

27.11.2002

II

(Acts whose publication is not obligatory)

COUNCIL

COUNCIL DECISION

of 5 November 2002

on the existence of an excessive deficit in Portugal — Application of Article 104(6) of the Treaty
establishing the European Community

(2002/923/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Commu-
nity, and in particular Article 104(6) thereof,

Having regard to the recommendation from the Commission
under the said Article 104(6),

Having regard to the observations made by Portugal,

Whereas:

(1)

(2)

(3)

(4)

In stage three of Economic and Monetary Union (EMU),
according to Article 104 of the Treaty Member States
shall avoid excessive government deficits.

The Stability and Growth Pact is based on the objective
of sound government finances as a means of strength-
ening the conditions for price stability and for strong
sustainable growth conducive to employment creation.

The Amsterdam Resolution of the European Council of
17 June 1997 on the Stability and Growth Pact solemnly
invites all parties, namely the Member States, the Council
and the Commission to implement the Treaty and the
Stability and Growth Pact in a strict and timely manner.

The excessive deficit procedure under Article 104 of the
Treaty provides for a decision on the existence of an
excessive deficit; the Protocol on the excessive deficit
procedure annexed to the Treaty sets out further provi-
sions relating to the implementation of the excessive

deficit procedure; Regulation (EC) No 3605/93 (1) lays
down detailed rules and definitions for the application of
the provision of the said Protocol.

(5)

Article 104(5) of the Treaty requires the Commission to
address an opinion to the Council
if the Commission
considers that an excessive deficit in a Member State
exists or may occur; the Commission has addressed such
an opinion on Portugal to the Council on 16 October
2002; according to this opinion:

(a) Portugal has reported information on its budgetary
situation to the Commission by September 2002.
Thereupon, the Commission has, in accordance with
Article 4 of the Protocol on the excessive deficit
procedure, provided the statistical data for the appli-
cation of the said Protocol;

(b) in accordance with Article 104(3) of the Treaty, the
Commission has prepared in September 2002 a
report on Portugal which takes account of the rele-
vant factors;

(c) in accordance with Article 104(4) of the Treaty, the
Economic and Financial Committee has formulated
an opinion on the report of the Commission;

(d) the Commission considers that there exists an exces-

sive deficit in Portugal.

(6)

Article 104(6) of the Treaty lays down that the Council
should consider any observations which the Member
State concerned may wish to make before the Council
decides after an overall assessment whether an excessive
deficit exists.

(1) OJ L 332, 31.12.1993, p. 7. Regulation as last amended by
Commission Regulation (EC) No 351/2002 (OJ L 55, 26.2.2002, p.
23).

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(7)

The overall assessment leads to the following conclu-
sions: in the late 1990s, when Portugal enjoyed strong
economic growth, progress in fiscal consolidation has
been limited, with the general government deficit
remaining well above 2 % of GDP. Thus, there had been
little budgetary leeway to accommodate for the effects of
a cyclical slowdown or for such changes in accounting
as required to comply with the European System of
Accounts 1995. From 1999 to 2001,
the deficit
increased from 2,4 % to 4,1 % of GDP, significantly
exceeding the reference value of 3 % in 2001. Over the
same period, government gross debt remained below
60 % of GDP, but rose from 54,4 % to 55,5 % of GDP.
Part of the deficit increase in 2001 was due to the rectifi-
cation of government accounts, the other part to devia-
tions of budget execution from targets. While economic
growth has slowed markedly, the fiscal slippage mainly
reflects a weakening in the underlying budgetary posi-
tion. A rectifying budget adopted in June 2001 proved
insufficient as to prevent the deficit from breaching the
threshold set by the Treaty. A new government that
came into office in April 2002 adopted a rectifying
budget providing for, inter alia, an increase in the stan-
dard VAT rate and, on the expenditure side, cuts in
public investment. While the Portuguese government
has declared its firm commitment to its new deficit
target of 2,8 % of GDP set for 2002, it is yet uncertain

whether the excessive deficit situation will actually be
corrected. Moreover, government debt is projected to
rise to 59,3 % of GDP in 2002, a level just under the
60 % reference value. Thus, any slippage in budgetary
execution and/or a deceleration in nominal GDP growth
could imply a deficit above 3 % of GDP and a breach of
the government debt reference value,

HAS ADOPTED THIS DECISION:

Article 1

From an overall assessment it follows that an excessive deficit
exists in Portugal.

This decision is addressed to the Portuguese Republic.

Article 2

Done at Brussels, 5 November 2002.

For the Council

The President

T. PEDERSEN