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

4.2.2003

EN

Official Journal of the European Union

C 26/7

COUNCIL OPINION

of 21 January 2003

on the updated stability programme of Italy, 2002 to 2006

(2003/C 26/05)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Com-
munity,

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 Italy's updated
stability programme, which covers the period 2002 to 2006.

The new update broadly complies with the data requirements
of the revised Code of Conduct on the content and format of
stability and convergence programmes. However, the lack of
Information on the additional measures foreseen to achieve the
in line with the
budgetary targets beyond 2003 is not
requirements of the code.

The Council considers that the economic policies as reflected in
the planned measures in the updated programme complies
partly with the
the 2002 Broad
recommendations of
Economic Policy Guidelines.

The Council welcomes Italy's goal of keeping high primary
surpluses throughout the programme period, while allowing
for some easing in the tax burden. The Council notes that
the cyclically-adjusted
according to Commission forecasts,
deficit improved by 0,6 percent of GDP in 2002, largely due
to one-off measures. It notes that, following a much worse
deficit in 2001 than estimated in last year's programme and
the delayed recovery in the economy, and in spite of corrective
the projected
measures adopted in the course of the year,
deficit for 2002 significantly exceeds the original objectives.
In turn, this implies that the ‘close-to-balance’ position would

(1) OJ L 209, 2.8.1997.

be reached, according to the Government's own projections, in
2004 rather than in 2003. The Council regrets that the decline
in the debt ratio has slowed down considerably since 2001, in
a context of weak growth and slower-than-envisaged progress
in the privatisation programme due to the conditions in
ratio below
financial markets. The reduction of
to
100 % of GDP is now envisaged by the Government
occur in 2005 two years later than in the commitment made
by Italy in 1998.

the debt

The programme's macroeconomic scenario assumes a pick-up
in economic activity, which in the short
term reflects the
expected recovery of
the world economy and in domestic
demand and then the assumption that the output gap will be
closed. However, in light of the more recent developments, the
recovery is likely to be slower than anticipated, and growth
assumptions, both nominal and potential, appear to be opti-
mistic. Also,
in the medium-term, a growth assumption of
2,5 % per year seems to be more plausible, which, together
with a downward revision of the potential growth rate to
2 %, would result in an underlying deficit of 1,1 % in 2006.
This would imply that, under this scenario, the medium-term
objective of close to balance or in surplus would not be
reached in the programme period. However,
the Council
takes note of the commitment of Italy to reach the objective
of close to balance in 2004.

the cyclically-adjusted budget position may fail

The programme projects the cyclically-adjusted budget position
in 2003 to improve by 0,7 %. The Council observes that the
budgetary target for 2003 relies heavily, as in the previous
year, on one-off measures. According to Commission calcu-
lations based on the Italian programme update, the cyclically-
adjusted deficit will remain at 0,9 % of GDP in 2003, still not
complying with the requirement of the Stability and Growth
Pact to achieve a budget position close to balance or in surplus.
Even assuming that such one-off measures yield the expected
results,
to
the risks to the trend
improve as planned on account of
budgetary projections, thus putting in jeopardy the attainment
the minimum adjustment of 0,5 % of GDP. While the
of
for
Council welcomes
stricter control on public expenditures,
Italy to
implementation of the measures planned for
ensure the full
2003,
in the
so that, as a minimum, an improvement
underlying balance of 0,5 % of GDP is ensured. The Council
notes that attainment of the budgetary targets for 2004 and
the close-to-balance
including the achievement of
beyond,
objective, hinges strongly on the replacement of
the main
one-off measures implemented in 2003 by measures of a
more permanent character together with corrections in order
to achieve the reduction of at least 0,5 % in underlying terms.

recently introduced measures

it urges

the

The Council considers that, in order to implement a sustained
path of consolidation, Italy should replace one-off measures
with structural ones on the expenditure side. The Council
notes that Italy undertakes to set out as a matter of urgency

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.