Council Opinion of 18 February 2003 on the updated convergence programme of Denmark, 2002 to 2010
Date: 2003-02-18
Institutions: Council of the European Union
Subjects: Denmark, economic policy, gross domestic product, public finance, stability programme

C 51/2

EN

Official Journal of the European Union

5.3.2003

The Council considers that the fiscal consolidation projections
in the 2002 updated programme represent the minimum effort
required in order to meet the challenge of a rapid reduction in
the still very high debt ratio and to prepare for the budgetary
implications of population ageing. The Council considers that,
given projected real GDP growth accelerating to 2,1 %, further
budgetary adjustment would be warranted in 2003. The
Council recommends to the Belgian authorities to seek every
opportunity to realise further budgetary adjustment in 2003
and in subsequent years. The Council urges the Belgian auth-
orities to maintain primary surpluses at around 6 % of GDP per
year and to continue to respect the limit of 1,5 % per year on
real primary expenditure growth for Entity I, over the period
covered by the programme.

The Council welcomes the measures adopted in 2001 with a
view to improving the monitoring of
the sustainability of
public finances as part of
the annual budgetary planning
process, which include regular assessments of the budgetary
impact of ageing populations. On the basis of current
sustaining high
policies, and in particular
primary surpluses, Belgium should be able to meet
the
budgetary costs of ageing populations. However, it should be
borne in mind that long-run budgetary developments in a high
debt country like Belgium are very sensitive to medium-term
budget target being achieved and sustained over the long-run.

the policy of

A failure to continue the policy of running large primary
surpluses would mean that the risk of unsustainable public
finances could not be excluded. To ensure the sustainability
of public finances, debt reduction needs to be complemented
with measures to raise employment rates, especially amongst
older workers as the effective retirement age is one amongst
the lowest of all EU countries.

administrative procedures

The Council notes with satisfaction the progress made in
implementing structural reforms including draft legislation for
the
setting up the framework for supplementary pensions,
simplification of
for business
activity and continued implementation of tax reform aimed
and
at
encouraging employment creation. The Council deems
it
important
reforms,
the budgetary cost of
notably those involving tax and non-tax burden reduction, be
kept consistent with the targeted budgetary adjustment and the
reduction of the government debt ratio be ensured.

the performance

improving

structural

economy

that

the

of

The Council welcomes the renewed agreement between the
various parts of government to set budgetary objectives and
the commitment
the Council
stability programmes’ particularly
considers
appropriate in the federal institutional framework of Belgium.

to ensure their achievement;

such ‘internal

COUNCIL OPINION

of 18 February 2003

on the updated convergence programme of Denmark, 2002 to 2010

(2003/C 51/02)

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 9(3) thereof,

Having regard to the recommendation of the Commission,

(1) OJ L 209, 2.8.1997.

On 18 February 2003 the Council examined Denmark's
updated convergence programme, which covers the period
2002 to 2010. The programme is
rich in information
especially with regard to the amount of data provided for
the analysis of medium- and long-term challenges of
the
Danish public finances and complies with the code of
conduct. The economic policies as reflected in the planned
measures in the convergence programme update comply with
the 2002 Broad Economic Policy Guidelines.

5.3.2003

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Official Journal of the European Union

C 51/3

The economy has largely developed as foreseen in the 2001
update. The slowdown of economic growth in 2001 was
estimated to result in GDP growth at 1,1 %. The latest figure
is 1,4 %. For 2002 a small increase in GDP growth to 1,5 % is
expected which is in line with what was foreseen in the
previous update.
growth is
estimated at 1,8 % and 2,1 % driven solely by domestic
demand. The Council notes that the macroeconomic projection
seems plausible and it is in line with the Commission's Autumn
forecast.

In 2003 and 2004 GDP

The Council notes with satisfaction that Denmark has
continued to fulfil
the convergence criteria on inflation,
long-term interest rate, the exchange rate and public finances.

The public finance strategy presented is largely unchanged
from previous years and continues to have a strong focus on
in the medium- and
ensuring sustainable public finances
long-term. The foundation for the strategy continues to be
both the maintenance of general government surpluses in the
order of 1,5 to 2,5 % of GDP on average towards 2010 and the
tax freeze, which is also intended to help ensure expenditure
control. In order to obtain the budgetary targets stipulated in
the medium term projection it is acknowledged by the Danish
further labour market
government
that
reforms are needed. The Council welcomes
the tax
freeze has
levels of
all
so far been implemented for
government, a development which is in line with the Broad
Economic Policy Guidelines.

in the programme that

The Council notes with satisfaction that public finances in
Denmark continue to remain healthy. The outcome for 2001
was better than expected. For 2002 to 2004 the update
forecasts budget surpluses of 1,6, 1,9 and 2,4 % of GDP,
which is broadly in line with the Commission's estimates. For
the rest of the period (2005 to 2010) the programme projects
surpluses around 2 % of GDP. The debt is expected to decrease
from 44 % of GDP in 2002 to 26 % of GDP in 2010.

The Council notes that also in underlying terms public finances
should remain sound over the projection period with surpluses
of around 2 % of GDP. Denmark will therefore continue to
comply fully with the requirements of
the Stability and
Growth Pact.

The achievement of the medium term public finance targets
hinges to a large extent on the realisation of some ambitious
labour market goals which include increasing the labour force
participation rates from their already high level. The Council
notes that the programme acknowledges that to obtain these
goals further labour market reforms are required. Compared to
the previous update a quantification has been made of the
consequences in the event that the reforms are not imple-
mented. The Council welcomes this innovation and notes
that a short-fall due to non-realisation of the labour market
reaching the
goals may have important
if
projected developments of public finances. Furthermore,
the current downturn in the labour market is prolonged it
may also pose a risk to the projected surpluses. The Council
therefore encourages the Danish authorities to proceed with
these reforms with determination.

implications

for

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
running of budget surpluses, and a projected accumulation of
large net assets in both pension funds and government.

The Council notes the intention of the Danish authorities to
reduce the tax ratio by 2010, and considers that this can be
achieved while at the same time ensuring the sustainability of
public finances. However, the tax ratio in Denmark will remain
and
industrialised
high
consideration could be given to further
in a
framework of sound public finances.

countries,
reductions,

compared

other

to