Council Opinion of 18 February 2003 on the updated stability programme of Spain, 2002 to 2006
Date: 2003-02-18
Institutions: Council of the European Union
Subjects: Spain, budget policy, economic policy, gross domestic product, stability programme

C 51/4

EN

Official Journal of the European Union

5.3.2003

COUNCIL OPINION

of 18 February 2003

on the updated stability programme of Spain, 2002 to 2006

(2003/C 51/03)

THE COUNCIL OF THE EUROPEAN UNION,

the aim of giving greater incentives for labour market partici-
pation, geographical mobility and long-term saving.

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 18 February 2003 the Council examined Spain's updated
stability programme, which covers the period 2002 to 2006.

The information provided in the updated programme is
broadly in line with the revised code of conduct. However,
the updated programme was submitted approximately four
weeks late.

The Council considers that the economic policies as reflected in
in the programme update comply
the planned measures
broadly with the 2002 Broad Economic Policy Guidelines.

that

implementation in 2002 of

the
The Council notes
previous update has been broadly successful. Slightly weaker
than expected growth and some primary expenditure overrun
both contributed to a modest deficit of 0,2 % of GDP
(cyclically-adjusted on the basis of trend GDP, 0,3 % of GDP).
The negative outturn was most divergent for the autonomous
communities, while the social security sector achieved a higher-
than-expected surplus. The debt ratio fell broadly in line with
plans, reaching an estimated 55,2 % of GDP at the end of
2002. Structural
implemented as
reform measures were
planned and in accordance with the 2002 Broad Economic
Policy Guidelines, notably including the passage of legislation
(to take effect from 2003) reforming personal income tax with

for

the

that

level

relative

remainder of

to potential. However,

The update's macroeconomic scenario is centred on GDP
growth recovering from 2,2 % in 2002 to 3,0 % in 2003
and remaining at
the
programme period. Although this may be slightly optimistic
the medium-term projection may actually be
for 2003,
somewhat prudent
the
the private
inflation projection of 2,5 % (in terms of
consumption deflator) per annum should not be accepted
complacently.
It underlines the need for further structural
reforms in the service sector, in particular in retail distribution
and land regulation. More generally, it underlines the need for
increasing overall productivity. Phasing out wage indexation
recommended in
while maintaining wage moderation, as
recent Council Opinions (2), would also be instrumental
in
this regard.

The Council broadly welcomes the update's confirmation of the
existing fiscal strategy, though revenue and expenditure shares
are higher than in the previous update and the tax ratio now
rises slightly during the period despite the 2003 personal
income tax reform. Primary current expenditure is planned to
decline modestly by around a half-percentage point during the
programme period while the reduction in interest costs is
balanced by strengthening investment. In contrast, the debt-
to-GDP ratio is set
to decline slightly more quickly than
previously foreseen, resulting mainly from a level of inflation
almost a half-percentage point higher than projected a year
ago, to a relatively low 47 % of GDP by 2006.

The underlying budget balance rises by over a half-percentage
point over the programme period, to a surplus of 0,3 % of
GDP in 2006. The programme
including their
evaluation in underlying terms, thus clearly respect the ‘close-
to-balance or in surplus’ objective of the Stability and Growth
Pact throughout the period. The Council therefore considers
that Spain continues to be in conformity with the provisions
of the Stability and Growth Pact, with the targets set to meet
the objective with an increasingly comfortable margin.

targets,

By general government subsectors, the update implies some
lending during the programme
sharp sectoral shifts in net
period. Notably,
the
framework of the General Law of Budgetary Stability which
prescribes
that budgets of each public entity should be
drawn up to be in balance or surplus, are called upon in

governments, within

territorial

(1) OJ L 209, 2.8.1997.

(2) OJ C 51, 26.2.2002, OJ C 109, 10.4.2001 and OJ C 98, 6.4.2000.

5.3.2003

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Official Journal of the European Union

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2003 to eliminate the deficit estimated for 2002. Especially in
the light of the phased transfer underway of important tax and
spending powers to regional authorities, the Council welcomes
the fiscal discipline framework set by the General Law of
Budgetary Stability. This needs to be implemented effectively
while preserving adequate margins of manoeuvre for
the
working of the automatic stabilisers in either direction.

The Council welcomes the fact that the updated programme
gives greater weight compared with the previous update to the
issue of the long-term sustainability of the public finances. It
notes the commitment to achieve balanced budget positions
leading to a continuous debt reduction as well as that some
measures to increase employment rates and the incentives for
active ageing and private pension schemes were taken. It never-
theless considers that these are just steps towards the adequate
reorientation of policy in line with its previous opinions.
Although the
revised demographic projections presented
would imply a somewhat more moderate budgetary impact
than earlier projections,
the Council considers that on the
basis of current policies the risk of unsustainable public
finances in terms of emerging budgetary imbalances in the
long run cannot be excluded: such a risk essentially stems
from the large projected increase in age-related spending on
public pensions. Strengthening long-term sustainability should
therefore remain of primary concern in the framework of an

ambitious three-pronged strategy. In this respect, the Council
notes that no major review of the public pension system has
yet been undertaken, in contrast with the recommendations in
both the previous opinion and the 2002 Broad Economic
Policy Guidelines. The Council urges the Spanish authorities
to agree a timetable for reaching policy conclusions and
implementation of
the pension
system to align more closely contributions and benefits.
Assets of the public pensions reserve fund created in 2000
to finance future liabilities will stand in 2003 slightly above
1 % of GDP, which compares to a target of 1 % in 2004. New
targets which will substantially reinforce the fund now need to
be set if this fund is to make a substantial contribution to
meeting the costs of ageing populations.

the envisaged reform of

labour,

in these areas

further progress

and product markets.

Finally, the Council welcomes recent initiatives for structural
It
reform in the
capital
recommends
to support
employment-oriented and non-inflationary growth with lower
although
inflation
improvement in the labour market in recent years has been
notable, persistence of
and female
relatively
employment and wide regional unemployment disparities call
for sustained efforts. Such efforts would be consistent with the
2002 Broad Economic Policy Guidelines.

Particularly,

low total

recorded

hitherto.

than

COUNCIL OPINION

of 18 February 2003

on the 2002 update of Ireland's Stability Programme, 2003 to 2005

(2003/C 51/04)

THE COUNCIL OF THE EUROPEAN UNION,

After consulting the Economic and Financial Committee,

Having regard to the Treaty establishing the European
Community,

HAS DELIVERED THIS OPINION:

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,

(1) OJ L 209, 2.8.1997.

On 18 February 2003 the Council examined the 2002 update
of Ireland's stability programme, which covers the period 2003
to 2005. The update broadly complies with the data
requirements of the revised ‘code of conduct’ on the content
and format of stability and convergence programmes. However,
compliance would be strengthened by explaining the nature
and significance of the large ‘contingency provisions’ included
in the public finance projections for the final two years of the
programme. The economic policies as reflected in the planned
measures in the programme update broadly comply with the
Broad Economic Policy Guidelines for 2002.