Council opinion of 10 February 2004 on the updated stability programme of Ireland, 2003-2006
Date: 2004-02-10
Institutions: Council of the European Union
Subjects: Ireland, stability programme

C 43/4

EN

Official Journal of the European Union

19.2.2004

COUNCIL OPINION

of 10 February 2004

on the updated stability programme of Ireland, 2003-2006

(2004/C 43/03)

THE COUNCIL OF THE EUROPEAN UNION,

information,
update seems realistic.

the macroeconomic

scenario underlying the

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 updated
stability programme of
the period
2004 to 2006. The updated programme largely complies
with the data requirements of the revised ‘code of conduct’
on the content and format of
stability and convergence
programmes.

Ireland, which covers

The budgetary strategy underlying the update is based on
broadly stabilising the government balance
from 2004
onwards by lowering the rate of increase of public spending.
Better expenditure control leads to a cut in the expenditure-
to-GDP ratio, although not enough to offset a further marked
decline in the revenue ratio. The latter reflects a one-off
bringing forward of capital gains tax receipts to a current
technical assumptions and decreasing
year basis in 2003,
‘other revenues’ as a share of GDP, rather than a programme
of tax cuts. At the same time, a significant programme of
public investment is being implemented.

The update projects real GDP growth to accelerate from an
estimated 2,2 % in 2003 to 3,3 % in 2004 and to 5 % on
average in 2005-2006. HICP inflation is forecast to decline
rapidly from 4 % in 2003 to 2,3 % in 2004 and to stabilise
currently available
at 2 % thereafter. On the basis of

(1) OJ L 209, 2.8.1997, p. 1.

The update targets a general government deficit of 1,1 % of
GDP in 2004, compared to an expected deficit of 0,1 % in
2003. In cyclically-adjusted terms, based on Commission calcu-
lations according to the commonly agreed methodology, and
taking account of the one-off related to capital gains tax, there
is an improvement by 0,5 percentage points to 0,4 % of GDP.
For 2005 and 2006, the projections are for deficits of 1,4 %
and 1,1 % of GDP respectively in nominal terms and 0,8 % and
0,5 % of GDP respectively in cyclically-adjusted terms. The debt
ratio is projected to stabilise at one-third of GDP.

in all previous updates,

The Stability and Growth Pact's medium-term objective of a
budgetary position of close to balance should be achieved by
the end of the programme period, although there are some
risks to the trend budgetary projections. A number of other
factors should be borne in mind. First, stronger than expected
tax revenues in 2003 may have a positive impact on the
budget balance. Second, as
the
the final
budgetary projections for
two years incorporate
‘contingency provisions’
against unforeseen developments
which eventually may not be fully spent. Third, the estimation
of the output gap and hence of the cyclically-adjusted balance
presents unusual margins of uncertainty due to the special
features of the Irish economy; at the same time,
it must be
noted that the projected nominal deficits of just above 1 % of
GDP in 2005-2006 coincide with the return to Ireland's
sustainable growth rate. Finally,
it has to be noted that the
projected balances reflect to a significant extent the implemen-
tation of an intensive programme of public investment, with a
government investment-to-GNP ratio of 5 % on average over
the programme period, compared to an EU-average of 2,4 % in
2003. The budgetary stance in the programme should provide
a sufficient safety margin against breaching the 3 % of GDP
deficit threshold with normal macroeconomic fluctuations.

On the basis of current policies, Ireland seems to be on a
sustainable path but some risk due to an ageing population
may emerge in the long run. In order to address this risk,
measures have been adopted for
reform in the
pensions area in relation to the public service. In addition, it
has to be noted that the Irish debt ratio is currently quite low
and that assets are being built up at a rate of 1 % of GNP
annually in the National Pensions Reserve Fund specifically to
meet the costs associated with ageing. Securing an adequate
primary surplus is essential to ensure that the public finances
are on a sustainable footing.

further

19.2.2004

EN

Official Journal of the European Union

C 43/5

The economic policies as reflected in the updated programme
are broadly consistent with the recommendations in the Broad
Economic Policy Guidelines, specifically those with budgetary
system of multi-annual
implications.

In particular,

the

the
budgeting has been extended to all capital spending,
reform of health care system should address value for money
concerns and further progress is being made with the roll-out
of the National Development Plan.

COUNCIL OPINION

of 10 February 2004

on the updated stability programme of France, 2003-2007

(2004/C 43/04)

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 the 2003 update
of the stability programme of France which covers the period
2003 to 2007. The updated programme largely complies with
the requirements of
the revised ‘code of conduct’ on the
content and format of stability and convergence programmes.
Even if it is not compulsorily required in the code of conduct,
the presence in the programme of explicit projections for
general government revenues and expenditures categories on
a national accounting basis would have allowed a deeper
analysis of the quality of the projected budgetary adjustment.

On 3 June 2003, on the basis of a Commission Recommen-
dation the Council decided in accordance with Article 104(6)
EC that an excessive deficit existed in France and issued a
recommendation based on article 104(7) EC requesting
the
France to bring this situation to an end by 2004 at
latest. On 8 and 21 October 2003 respectively,
the
Commission adopted two recommendations on the basis of
Article 104(8) and 104(9) respectively for the Council
to
decide 1. that no effective action had been taken by France
in response to the recommendation of 3 June and 2. to give
notice to France to take the necessary measures to bring the
government deficit below 3 % of GDP in 2005 at the latest. On

(1) OJ L 209, 2.8.1997.

the Council did not adopt

25 November 2003,
the two
Commission recommendations but adopted instead a set of
conclusions endorsing, among other things, the commitments
made by France to reduce the cyclically-adjusted deficit by 0,8
per cent of GDP in 2004, and by 0,6 per cent of GDP or a
larger amount
the general
government deficit is brought below 3 per cent of GDP in
2005.

in 2005 so as to ensure that

The medium-term projections of the 2003 updated programme
are based on the same budgetary strategy already adopted in
previous updates. The cornerstone of this strategy is the setting
of multi-annual targets for the increase in real government
expenditures, implying a fall of the expenditure to GDP ratio
and a decline in the general government deficit. In the 2003
update, this strategy is complemented by two new budgetary
rules: 1. any higher-than-expected revenue stemming from
more favourable cyclical developments will be allocated to
deficit
reduction; and 2. any budgetary margin stemming
from a slower-than-planned increase in expenditures will be
allocated to tax relief.

A strategy based on clear norms for expenditure growth is
appropriate as it supports a transparent budgetary adjustment.
In this respect, the ability to contain state expenditure demon-
strated in 2003 is positive but the previously set expenditure
targets for general government as a whole, in particular social
security, were missed by a large margin. Appropriate measures
should be taken in order to improve the compliance with the
expenditure targets. Beyond the impact on deficit outcomes,
the non respect of expenditure ceilings could,
if repeated,
damage the overall credibility of the budgetary strategy, given
the relevance of these norms as an anchor. In order to secure
the French authorities should
the attainment of objectives,
introduce a mechanism ensuring automatic compensation
across years of eventual overspending in the government
sector. Concerning the first of the new budgetary rules,
in
the event of more favourable cyclical developments, it would
be appropriate to accelerate the reduction in the cyclically-
adjusted deficit
through the implementation of additional
measures. Concerning the second rule and taking the need to
accelerate the deficit reduction into account, any budgetary
margin stemming from a slower-than-planned increase in