Recommandation de décision du Conseil sur l'existence d'un déficit excessif en Allemagne - Application de l'article 104, paragraphe 6, du traité instituant la Communauté européenne
Date: 2003-01-08
Institutions: European Commission
Subjects: Germany, budget deficit, budgetary expenditure, public debt, public finance, stability programme

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COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels, 8.1.2003 
SEC (2003) 9  final 

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Recommendation for a 

COUNCIL DECISION 

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

(presented by the Commission) 

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EXPLANATORY  MEMORANDUM 

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On  13 November  2002, the  Commission  released  its  Autumn  ec( ilopic  forecast,  projectmg 
for  Germany  a  general  government  deficit  of  3.8%  of  GDP  for  ^^*^f^VTy""wyfiffnif*fh^ 
reference  value of  3%  of  GDP. Based on this prima facie  evidence, the Commission  initiated 
the Excessive Deficit Procedure for Germany on  19 November 2002, with the adoption of the 
report  foreseen  in  Article  104.3 .of  the  Treaty.  On  18  December  2002,  the  Commission 
received the updated  Stability Programme of Germany, which confirmed  a government  deficit 
figure of 3 V* % of GDP for 2002. The application-of the excessive deficit procedure (EDP) is 
governed  by  Article  104  of  the  Treaty  (ex  104c),  Council  Regulation  N01467/97  "on  the 
speeding up  and  clarifying  the  implementation  of the  excessive  deficit  procedure",  which  is 
part  of  the  Stability  and  Growth -Pact.  It  is  also  affected  by  the  political  commitments 
enshrined in the Resolution of the Amsterdam European Council on the Stability and Growth 
Pact of 17 June 1997. 

In an initial step of the EDP, the Commission prepared  a report according to Art.  104.3 of the 
Treaty.  That  report  was  adopted  by  the  Commission  on  19 November.  It  concluded  that  in 
2002,  the  general  government  deficit  in  Germany  was  likely  to  reach  3.8%  of  GDP, 
significantly  exceeding  the reference  value  of  3%.  Gross  government  debt  was  projected  to 
reach  60.9%  of  GDP  by  end-2002,  also  rising  above  the  respective  reference  value  of  the 
Treaty (60% of GDP). The  excess of the German deficit  in 2002 over the reference  value did 
not result from an unusual  event  outside the control of the German  authorities, nor was it the 
result  of  a  severe  economic  downturn.  On  developments  in  2003  the  report  concluded  that, 
while it was clear that the deficit  would be reduced, it was not yet possible to assess whether 
the deficit would come to fall below the 3% of GDP reference value. Moreover,  given that the 
debt-to-GDP  ratio  was  projected  to  rise  to  close  to  62%  of  GDP  by  the  end  of  2003,  any 
slippage  in  budgetary  execution  or  a  deceleration  in  nominal  GDP  growth  would  imply  an 
additional deterioration of the debt ratio. 

Treaty Art.  104.4  states  that  "the  Committee  provided  for  in Article  114  (i.e. the Economic 
and Financial  Committee)  shall  formulate  an opinion  on the report  of the  Commission".  The 
Committee issued its opinion  on 29 November 2002 (document  EFC/ECFIN/593/02),  largely 
subscribing to the Commission's Assessment. In particular, the EFC concluded that budgetary 
developments  in  Germany  in  2002  were  such  that  both  the  deficit  and  the  debt  criterion 
referred  to  in  Article  104(2)  were  not  respected.  Consideration  of  other  relevant  factors 
supported the assessment based on these criteria. While taking note of the strong commitment 
by the German  authorities to introduce all the necessary measures to correct the situation, the 
EFC, following  the report by the Commission,  considered that there was a risk of the general 
government deficit  exceeding the Treaty's reference value again in 2003. The Committee also 
underlined that  gross debt was unlikely to reverse its rising trend to comply with the Treaty's 
reference value of 60 percent of GDP. 

The  Commission,  having  examined  the  relevant  factors  taken  into  account  in  its report  and 
having regard  to  the  opinion  of the EFC, is  of the opinion  that  an  excessive  deficit  exists  in 
Germany.  This  opinion,  adopted  by  the  Commission  on  [8  January  2003],  is  herewith 
addressed  to  the  Council,  according  to  Article  104.5  of  the  Treaty.  The  Commission 
recommends  that  the  Council  shall  decide  accordingly,  in  conformity  with  Article  104.6. In 
addition,  the  Commission  is  submitting  to  the  Council  a  recommendation  for  a  Council 
recommendation  to be  addressed  to  Germany with  a view to bringing  an  end to the  situation 
of an excessive government deficit,  according to Treaty Article 104.7. 

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Recommendation  for a 

COUNCIL DECISION 

document 
a ete declasse 

15.  11.  2006 

LE: 

on the existence of an excessive deficit in Germany -  Application of Article 104 

Treaty establishing the European  Community 

THE COUNCIL-OF THE EUROPEAN UNION 

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

Having  regard  to  the  recommendation  from  the  Commission  under  article  104(6)  of  the 
Treaty, 

Having regard to the observations made by Germany, 

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 strengthening the conditions for price stability and for strong  sustainable 
growth conducive to employment creation. 

The Amsterdam Resolution of the European  Council on the Stability and Growth Pact 
of  17 June  1997  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 an timely manner. 

The  excessive  deficit  procedure  under  article  104  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  provisions relating to the implementation  of the 
excessive  deficit  procedure.  Council  Regulation  (EC)  3-605/93',  as  last  amended  by 
Commission Regulation  (EC)  351/20022  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  Germany  to  the 
Council on 8 January 2003. According to this opinion: 

OJ No L332, 31.12.1993, p.7. 
OJ No L 055, 26.02.2002 p. 23. 

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Following the publication of its own Autumn forecast on 13 November 2002  which 
showed  a  government  deficit  of  3.8%  of  GDP  in  2002  fS  G e™ 
Comm^on  m accordance with Article 104(3) of the Treaty, prepLd  ^ ^ er 
2002 a report on Germany which takes account of the relevanl factors; 

the 

e m b er 

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Committee has formulated an opinion on the report of the Commission; 

t he  T T^  **  Economic  and  Financial 

1 0 4 ( 4)  0f 

Gemany has submitted an updated Stability Programme in accordance with Article 3 
of Council Regulatiorr(EC) No.  1466/97, whiclhad been  a d o p S b y t e ^ e t al 
government on 18 December 2002. According to the update, the  govZmenfdefid 
vemment aeticit 
m 2002 amounted to 3 %% of GDP. 

The Commission considers that there exists an excessive -dcficiUn, Germany; 

icicle  104(6)  of  the  Treaty  lay*  down  that  the  Coimcil  should  consider  anv 
observati^s which the Member State concerned may wish to  m T E ^ S S^ 
decides after an overall assessment whether an excessive deficit exists; 

The overall  assessment  leads to  the  following  conclusions: in the  late  1990s  when 
w SeT^i&th T ^ f ™8  eCOn0miC V™*- *»**» in ^~Iti  n 
was linnted, with the general government deficit remaining at around 1 >/2% of GDP 
Thus,  here had  been  little budgetary  leeway  to  accomnLate  for  thetffec  s  5  a 
toTJrl 
cyclical  sowdown  or  for  any  unexpected  revenue  shortfalls  Sm 
7GWZ^2001-.fi
Z 
of GDP  m 2002  significantly exceeding the reference value of 3%  m that vear  W h^ 
general economic conditions have weakened m Germany as e sewhL  L  o v e rT n 
budgetary expenditure and the shortfall in revenue can only partial be  e x n W d bv 

l 0W  <*M  *  ^P  in 2000, the deficit rose" 

thetd o Ss ^ rr  i' 8overnirdebt is projected *L ^n^t  % 

FrO-a 

a 

of 60% of GDP 

e X C e e d m g'  ^^  S l i 8 h t l y'  ** r e sPe c t i ve -f-ence  value 

(6) 

(7) 

HAS ADOPTED THIS DECISION: 

From an overall assessment it follow* that an excessive deficit exists in Germany. 

Article 1 

Article 2 

This decision is addressed to the Federal Republic of Gemiany. 

Done at Brussels, 21 January 2003. 

For the Council 

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