Council opinion of 21 January 2003 on the updated convergence programme of Sweden, 2002 to 2004
Date: 2003-01-21
Institutions: Council of the European Union
Subjects: Sweden, economic policy, public finance, stability programme

C 26/8

EN

Official Journal of the European Union

4.2.2003

in the

in its 2003 medium-term budgetary planning process the
broad measures of a permanent nature that would ensure
that a minimum improvement
cyclically-adjusted
balance of 0,5 % of GDP per year until the close-to-balance
objective can be considered achieved. Generally, the Council
invites Italy to clarify its fiscal strategy, particularly in the
the goal of reducing the tax burden, which the
light of
Council
shares, but which can be safely and effectively
achieved only within a comprehensive reform plan on both
the expenditure and the revenue side.

It notes

the past years.

the experience of

The Council considers that in the light of Italy's very high debt
ratio the pace of its reduction should be significantly faster
than is
the
slowdown in the rate of debt reduction projected toward the
end of the programme period also in connection with some
‘below the line’ operations. The Council is especially concerned
that the risks to the programme deficit targets might imply too
slow a pace of reduction in the debt ratio. The Council
therefore urges Italy to act on all
the factors under the
Government's control to ensure that debt is sufficiently dimin-
ishing. In this respect, it recommends that measures of tran-
sitory nature, particularly sales of assets through securitisation

to accelerate the
operations, be considered as a means
reduction of the debt and not as a substitute for corrective
action on the deficit side.

The Council recalls that
the achievement of a position of
underlying budget balance in the medium term is critical to
placing public finances on a sustainable footing. On the basis
of current policies, the risk of unsustainable public finances in
light of ageing populations cannot be excluded. Given Italy's
high debt, primary surpluses in the order of 5 % of GDP will
have to be maintained for many years. The Council notes that
Italy's ability to cope with the budgetary consequences of
the major pension
ageing is based on implementation of
reforms adopted in the 1990s and a large increase in the
participation rate. In line with its Opinion on the previous
updated programmes
Policy
Guidelines for 2002, the Council encourages Italy to adopt
further measures to promote supplementary privately-funded
pension schemes and to address the outstanding critical issue
in the public pension system, namely,
the long transition
period to the new contributions-based system. This should be
coupled with the measures necessary to raise participation rates
and to control the evolution of age-related expenditures.

the Broad

Economic

and

COUNCIL OPINION

of 21 January 2003

on the updated convergence programme of Sweden, 2002 to 2004

(2003/C 26/06)

THE COUNCIL OF THE EUROPEAN UNION,

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 9(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 Sweden's updated
convergence programme, which covers the period 2002 to
including
2004. This update provides detailed information,

the analysis of the long-term sustainability of public finances,
which is broadly in line with code of conduct. The lack of
detailed information for 2005 in the programme is not in
line with the code of conduct. However, the Council recognises
that the Government's Budget Bill for 2003 did not include
budgetary plans for 2005 as a result of prolonged negotiations
with respect to forming a government in autumn 2002.

considers

is
The Council
consistent with the previous Council Opinion (2) and the
Broad Economic Policy Guidelines.

the updated programme

that

envisages

continued

the updated
The Council notes with satisfaction that
surpluses
programme
throughout
the period to 2004 as Sweden maintains its
medium term objective of a budget surplus of 2 % of GDP
on average over the business cycle. The strategy of maintaining
sound public finances is supported by a commitment
to
continue to adhere to the ceilings for central government

government

(1) OJ L 209, 2.8.1997.

(2) OJ C 33, 6.2.2002.

4.2.2003

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Official Journal of the European Union

C 26/9

expenditure, which has been instrumental in strengthening the
credibility of sound public finances in recent years, and a
balanced budget constraint for local governments. This has
been accompanied by tax cuts, of which the third step out
of four was implemented in 2002. The Council further notes
with satisfaction that
ratio remains below the
reference value of 60 % of GDP, and is projected to continue
on a downward trend over the remainder of the programme
period.

the debt

The macroeconomic scenario presented in the programme,
with GDP growth of 2,1 % in 2002 and 2,5 % in 2003
appears somewhat optimistic and the Council considers that
there are downside risks to growth. Indeed, the Commission's
autumn forecast is for growth of 1,6 % in 2002 and 2,2 % in
2003, suggesting a more subdued economic recovery, as there
are signs of some fragility both externally and domestically.
Economic growth can therefore be expected to return only
gradually to the potential growth rate.

The Council considers that Sweden continues to fully respect
the Stability and Growth Pact's requirement of a fiscal position
‘close to balance or in surplus’ over the programme period.
in the underlying budgetary
Indeed, continued surpluses
position in each year over
the
the period underpin that
public finances should remain sound. However, the Council
notes that, on the basis of
the
underlying budgetary position is expected to remain in
surplus but below Sweden's 2 % of GDP fiscal rule in the
years to 2004. This results from the fact that the considerable
fiscal stimulus in 2001 and 2002 is only partially reversed in
the following years. Moreover, some restraining measures may
be necessary in order to ensure adherence to the expenditure
ceilings.

the Commission's analysis,

The Council welcomes the attention paid to the sustainability
in the convergence programme, and
of public finances
considers that prudent assumptions should be used as regards
the potential evolution of non-age related spending. The
Council considers that on the basis of current policies, public

finances appear to be on a sustainable footing to meet the
budgetary costs of ageing populations, benefiting from the
sustained running of budget surpluses and the ambitious
reform of the pension system implemented during the 1990s.
The Council welcomes the budgetary objective of running
budget surpluses of 2 % of GDP up to 2015 with a view to
running down public debt at a fast pace. This may however
prove difficult for such a sustained period. A challenge will be
to
the
achievements of the past decade of placing public finances
on a sustainable path.

reform while

safeguarding

complete

the

tax

Inflation in Sweden fell back towards the inflation target of 2 %
that Sweden
in the spring of 2002. The Council notes
continues to fulfil the convergence criterion on price stability
and is expected to continue do so in the years to 2004.
Long-term interest rates in Sweden over the past year have
been in line with the trend in the international bond and
equity markets. Sweden continues
the long-term
interest rate convergence criterion. Regarding the exchange
rate, the krona has not participated in the ERM2 and it has
exhibited some volatility since the submission of the previous
update. Hence, Sweden does still not fulfil the exchange rate
convergence criterion. The Council considers, as stated in its
previous Opinion (1), that ‘Sweden needs to demonstrate its
ability to stay in line with an appropriate parity between the
krona and the euro over a sufficient period of time without
severe tensions. To this end, the Council expects Sweden to
decide to join the ERM2 in due course.’

to fulfil

In order to obtain high and sustainable economic growth, the
strategy of previous programmes is continued and structural
measures in this regard have been implemented and proposed,
in line with the Broad Economic Policy Guidelines. To this end,
the Council considers that completing the tax reform and
regarding
efforts
employment, social security recipients and days of sick-leave
should be given high importance within the framework of
sound public finances.

objectives

policy

reach

key

the

to

(1) OJ C 33, 6.2.2002, p. 4.