Council opinion of 10 February 2004 on the updated stability programme of Italy, 2003-2007
Date: 2004-02-10
Institutions: Council of the European Union
Subjects: Italy, stability programme

19.2.2004

EN

Official Journal of the European Union

C 43/1

I

(Information)

COUNCIL

COUNCIL OPINION

of 10 February 2004

on the updated stability programme of Italy, 2003-2007

(2004/C 43/01)

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 co-ordination 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 10 February 2004 the Council examined Italy's updated
stability programme, which covers the period 2003-2007.
The programme was submitted on 1 December and largely
complies with the data requirements of the revised ‘code of
and format of
conduct on the
and
content
Information on the additional
convergence programmes’.
measures foreseen to achieve the budgetary targets beyond
to assess with
2004 would have been useful
in order
precision the path and composition of
the adjustment,
particularly given the commitment
to progressively reduce
reliance on one-off measures.

stability

The budgetary strategy relies on a progressive increase in the
primary balance, with a major part of the adjustment towards
the close to balance or in surplus position taking place in the
outer years of the programme. Given the government's stated
aim to reduce the tax and social security contributions burden,
the brunt of the adjustment is to be borne by primary expen-
together with
diture. The planned high primary surpluses,
sizeable privatisations, entail a steady decline in the debt
ratio throughout the programme period.

(1) OJ L 209, 2.8.1997.

in national accounts definition)

The macroeconomic framework in the update projects real
GDP growth to accelerate from an estimated 0,5 % in 2003
In the period 2005-2007, growth is
to 1,9 % in 2004.
estimated to average 2,4 %. Employment growth (full-time
equivalent
is expected to
strengthen from an estimated 0,9 % in 2004 to 1,1 % on
is
average in 2005-2007. HICP inflation, at 2,8 % in 2003,
planned to ease to 1,8 % in 2004 and to further decline to
1,4 % by 2007. Currently available information indicates that
projected growth underpinning the programme appears to be
on the high side of the current forecasting range. In particular,
the evolution of potential growth in the medium term reflects
rather favourable assumptions regarding the contribution by
capital.

In 2003 the deficit is expected at 2,5 % of GDP, below the 3 %
limit in spite of the adverse cyclical developments. For 2004,
the government targets a general government deficit of 2,2 %
of GDP;
in cyclically-adjusted terms, based on Commission
calculations according to the commonly agreed methodology,
there is an estimated improvement by 0,2 percentage point, to
1,6 % of GDP. For 2005, 2006 and 2007, the projections are
for headline deficits of 1,5 % and 0,7 % of GDP and a balance
in the final year, respectively. In cyclically-adjusted terms, the
corresponding improvements
a
percentage point of GDP on average.

to around half

amount

if economic conditions

seem to provide a sufficient

Indeed,
than currently foreseen,

Given the risks, the budgetary stance in the programme does
safety margin against
not
breaching the 3 % of GDP deficit threshold with normal macro-
economic fluctuations. The risks stem from an underestimation
of
the primary expenditure baseline projections and the
downside risks to the macroeconomic scenario mentioned
to be
above.
weaker
threshold may
already be breached in 2004. Also the envisaged measures in
the outer years of the programme need still to be defined,
including the replacement of one-off measures adopted in
2004. For the same reasons,
the budgetary stance in the
update may be insufficient to ensure that the Stability and
Growth Pact's medium-term objective of a budgetary position
close to balance or
is achieved within the
programme period.

turned out

in surplus

the deficit

C 43/2

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Official Journal of the European Union

19.2.2004

is projected to decline over

The debt ratio, which in 2003 fell more than assumed in the
programme,
the programme
period,
from 106 % of GDP in 2003 to 98,6 % in 2007.
This evolution is less ambitious than was foreseen in the
previous update. The evolution of the debt ratio may be less
to the deficit
favourable than projected, given the risks
outcomes mentioned above,
expected
and the
proceeds
from the privatisation programme. Concern is
expressed about the pace of debt reduction, so every oppor-
tunity should be taken by the Italian authorities to accelerate its
pace.

level of

On the basis of current policies, risks of budgetary imbalances
emerging in the future due to an ageing population cannot be
ruled out. Securing an adequate primary surplus is essential if
the debt
to make a noticeable contribution
towards meeting the costs of ageing. This should be comple-
mented by measures to raise employment rates, especially
among older workers and women, and control the evolution
of age-related spending. The plans to reform the pension

reduction is

system unveiled in late 2003, if implemented, would make a
substantial contribution to achieve these objectives. A further
postponement in the implementation of the draft legislation on
pension reform is not consistent with the pursuit of a sustain-
ability-oriented fiscal strategy.

The economic policies as reflected in the updated programme
are partly consistent with the recommendations of the Broad
Economic Policy Guidelines, specifically those with budgetary
implications, including the request to improve the cyclically-
adjusted budget position by at least 0,5 % of GDP each year as
calculated according to the commonly agreed methodology.
Risks persist on the planned
replacement of one-off
measures, the implementation of structural expenditure cuts
and the pace of reduction in the debt ratio. Finally,
the
timely implementation of the government draft legislation on
pension reform is essential in order to dampen the projected
increase in the ratio of pension expenditure to GDP over the
next twenty years.

COUNCIL OPINION

of 10 February 2004

on the updated stability programme of the Netherlands, 2001-2007

(2004/C 43/02)

THE COUNCIL OF THE EUROPEAN UNION,

the
content
programmes.

and format of

stability

and convergence

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 co-ordination 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 10 February 2004 the Council examined the 2003 update
of the stability programme of the Netherlands, which covers
the period 2001 to 2007. The updated programme complies
with the data requirements of the revised ‘code of conduct’ on

(1) OJ L 209, 2.8.1997.

The budgetary strategy underlying the update is based on
keeping real expenditure below predetermined ceilings over
the period 2004-2007, while at
the same time pursuing
significant
savings measures. Measures are frontloaded in
2004 and 2005 and for a large part consist of expenditure
cuts. In the strategy, expenditure windfalls can no longer be
used for automatic expenditure increases. Automatic stabilisers
on the revenue side of the budget should be allowed to work
freely as much as possible, except that an increase of the deficit
that would imply a violation of the Stability and Growth Pact
has to be countered by additional savings measures.

The update projects real GDP growth at 0 % in 2003, from
0,2 % in 2002. In 2004 growth is estimated to pick up to 1 %,
whereas it would average 2,5 % in 2005-2007. Employment
growth is expected to be – 0,5 % in 2004 and to increase to
slightly above 1 % on average in 2005-2007. HICP inflation is
forecast to remain stable at 1,5 % in 2004-2007. Currently
available information indicates that the macroeconomic devel-
opments in 2003 are less favourable than expected at the time
of the submission of the programme, and much in line with
the Commission Autumn 2003 forecast. Some downside risks
were noted to the Dutch projections for 2004.