Council opinion of 21 January 2003 on the updated stability programme for Germany, 2002 to 2006
Date: 2003-01-21
Institutions: Council of the European Union
Subjects: Germany, budget policy, economic policy, gross domestic product, public finance, stability programme

4.2.2003

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Official Journal of the European Union

C 26/1

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(Information)

COUNCIL

COUNCIL OPINION

of 21 January 2003

on the updated stability programme for Germany, 2002 to 2006

(2003/C 26/01)

THE COUNCIL OF THE EUROPEAN UNION,

have once more been expenditure overruns in the health sector
which contributed to a deterioration of the underlying balance.

Having regard to the Treaty establishing the European
Community,

Having regard to Council regulation (EC) No. 1466/97 of 7
July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic
policies (1), and in particular Article 5(3) thereof;

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 21 January 2003 the Council examined the updated
stability programme for Germany, which covers the period
2002 to 2006. The updated programme projects general
government finances to improve from a deficit of 3¾ % of
GDP in 2002 to a balanced position in 2006. Government
gross debt
is expected to decrease from 61 % of GDP in
2002 to 57½ % in 2006.

The Council notes that the new update broadly complies with
the requirements of the revised ‘code of conduct on the content
and format of stability and convergence programmes’, although
there is still some need for improvement, notably concerning
the degree of precision of
information
provided. While the deficit targets set in the Broad Economic
Policy guidelines
the
adjustment path planned in the programme
is broadly
consistent with the Broad Economic Policy Guidelines (BEPG).

(BEPGs) have not been achieved,

the quantitative

The Council decided on 21 January that an excessive deficit
exists in Germany and issued a recommendation to Germany
according to Article 104(7) of the Treaty. According to this
recommendation: (i) the German Government should put an
end to the excessive deficit situation as rapidly as possible in
accordance with Article 3(4) of Council Regulation (EC) No
1467/97; (ii) the German authorities should implement with
resolve their budgetary plans for 2003 which, on the basis of a
GDP growth projection of 1½ % in 2003, aim at reducing the
general government deficit
In
addition, the Council noted the commitment of the German
authorities to ensure that the momentum of budgetary consoli-
dation is maintained throughout the period covered by the
updated stability programme, namely through a reduction of
the underlying budgetary deficit by more than 0,5 % of GDP
per year which in turn requires the introduction of structural
reforms.

in 2003 to 2¾ % of GDP.

in the light of

The Council notes that
the weakening of
economic indicators in recent months, the 1½ % growth rate
It requires an early
expected for 2003 appears optimistic.
through
restoration of
implementation
adjustment
consistent
programme. Furthermore, the average growth rates of 2¼ %
assumed for the years 2004 to 2006 are above the estimated
long-term growth potential of the German economy, which
reflects the programme assumption that the output gap will
be closed.

economic
of

confidence, not

budgetary

least

a

The Council notes that the projected deficit outcome for 2002
(3¾ % of GDP) is clearly higher than projected in the lower-
growth scenario of the December 2001 update (2½ % of GDP).
The Council regrets that it has proved not to be possible for
the German authorities to fulfil
their commitment of 12
February 2002 and the BEPG Recommendation for 2002 not
to breach the 3 % of GDP reference value for the general
government deficit in 2002. The Council notes that the rise
in the nominal deficit from 2001 to 2002 cannot be explained
only by the unexpected slowdown in growth, and that there

(1) OJ L 209, 2.8.1997, p. 1.

However, the level of growth potential in Germany is currently
low. It is in the hands of the German Government to raise it
significantly through coherent reforms, notably of the labour
market. The Council strongly urges the German Government to
undertake the necessary steps.

The Council considers that there is a non-negligible risk that
the general government deficit in 2003 may again exceed the
3 % of GDP reference value. Therefore, the German authorities
should ensure a rigorous budgetary execution and a thorough
implementation of the measures announced in the budget for
2003.

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Official Journal of the European Union

4.2.2003

The Council acknowledges the projected improvement in the
underlying balance by more than 0,5 % of GDP per year up to
the new programme's horizon, with the exception of 2005 due
to the introduction of tax reforms; it notes that in underlying
terms the government accounts would at least be close to
balance by 2006. It is recalled, however that this adjustment
path hinges on the full
the announced
measures, the respect of agreed expenditure targets for 2003
and 2004 and an agreement on ambitious expenditure targets
for 2005 and 2006. The Council urges the German authorities
to ensure that the implementation of the next steps of tax
reform in 2004 and 2005 is compatible with a continuous
adjustment path towards overall budget balance.

implementation of

the
the confirmation of

The Council notes that this should lead to a balanced budget
by 2006, although this is two years later than planned in last
stability programme. The Council
year's update of
the 2006 target by the
welcomes
(financial planning council) of 27
German Finanzplanungsrat
November 2002. It urges the federal and regional authorities
to agree on ambitious expenditure targets for 2005 and 2006
and to ensure strict budgetary implementation at all levels of
government. As shown by budgetary developments in the past,
in order to attain the projected deficit
this will be crucial
targets, especially once growth recovers. While the Council
welcomes
the
(advanced)
revised law on budgetary procedures (Haushaltsgrundsätzegesetz),
the Council reiterates its view that the mechanism enshrined
therein is not yet sufficient to guarantee compliance with mu-
tually agreed objectives by all levels of government.

implementation of

recent

the

The Council takes note of the German authorities' intentions to
bring the debt level down below the Treaty's reference value by
2005 but notes that these intentions are subject to a number of
risks. Therefore the development of the debt ratio remains a
source of concern given the need to ensure the sustainability of
public finances. On the basis of current policies, the risk of
unsustainable public finances in light of ageing populations
cannot be excluded. If debt reduction is to make a noticeable
contribution towards meeting the budgetary cost of ageing
then reaching a balanced budget position by
populations,
2006 is essential; this should be part of an ambitious three-
pronged strategy to meet
the long-term budgetary conse-
quences of ageing and may have to include the running of
surpluses. Running sound public finances over the long run
will allow to achieve a significant reduction in the debt ratio
prior to the budgetary impact of ageing populations taking
hold.

again that

The Council considers it to be indispensable that fiscal consoli-
dation, in order to prove sustainable, should be underpinned
by far-reaching reforms to raise Germany's very low growth
potential. The Council
the German
stresses
economy, despite its large size, remains highly vulnerable to
external shocks and unable to generate an endogenous and
durable growth process. While acknowledging that this still
partially reflects the economic consequences of German unifi-
cation, the Council reiterates the need for urgent reforms not
only in the labour market, but also in social security and
benefit systems in general, and for a reduction in the regulatory
burden of the economy.

COUNCIL RESOLUTION

of 19 December 2002

on amendment of the liability for defective products Directive

(2003/C 26/02)

THE COUNCIL OF THE EUROPEAN UNION,

RECALLING THAT:

1. Council Directive 85/374/EEC of 25 July 1985 on the
approximation of the laws, regulations and administrative
provisions of the Member States concerning liability for
defective products (1), as amended by European Parliament
and Council Directive 1999/34/EC of 10 May 1999 (2),
seeks to achieve an approximation of
the
Member States concerning the liability of the producer for
damage caused by the defectiveness of his products because
the existing divergences may distort competition and affect
the movement of goods within the common market and
entail a differing degree of protection of
the consumer
to his
against damage caused by a defective product
health or property. To provide an adequate solution to

the laws of

(1) OJ L 210, 7.8.1985, p. 29.
(2) OJ L 141, 4.6.1999, p. 20.

the problem, peculiar to our age of increasing technicality,
of a fair apportionment of the risks inherent in modern
the Directive imposes liability
technological production,
on the producer without
for damage
fault on his part
caused by the defectiveness of his products.

2. The producer is considered to be the manufacturer of a
finished product, the producer of any raw material or the
manufacturer of a component part and any person who, by
putting his name, trade mark or other distinguishing feature
on the product, presents himself as the producer, cf. Article
3(1) of the Directive. Without prejudice to the liability of
the producer, any person who imports into the Community
a product for sale, hire, leasing or any form of distribution
in the course of his business shall be deemed to be a
producer and shall be responsible as a producer, cf.
Article 3(2) of the Directive.