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

C 43/8

EN

Official Journal of the European Union

19.2.2004

COUNCIL OPINION

of 10 February 2004

on the updated stability programme of Greece, 2003-2006

(2004/C 43/06)

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 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 Greece which covers the period
2003 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.
An update of the analysis of long-term sustainability of public
the previous
finances would have been helpful
assessment
long-term
clearly pointing out
imbalances.

in light of
the

risk of

The budgetary stance underlying the update is based on main-
taining high primary surpluses over the programme period,
consistent with a reduction in the expenditure ratio and an
accelerating decline in the debt ratio. At the same time, a
significant programme of public investment is expected to be
implemented.

The 2003 update projects real GDP growth to accelerate from
an estimated 4,0 % in 2003 to 4,2 % in 2004 and decelerate
somewhat afterwards, averaging 4 % in the period 2004-2006,
from an expected average rate of growth of 3,8 % in the 2002
the stability programme. Employment growth is
update of
projected to decelerate from 1,7 % in 2004 to 1,2 % on
average
expected to decline
gradually,
the private consumption deflator decelerating to
2,6 % by 2006 from 3,0 % in 2004. On the basis of
currently available information, the macroeconomic scenario
in the update seems optimistic. In particular, the evolution of
rather
potential growth over

the medium-term reflects

in 2005-2006.

Inflation is

(1) OJ L 209, 2.8.1997.

the contribution of capital
favourable assumptions about
in a context of such robust demand,
formation. Moreover,
pressures on costs and prices can be stronger than expected
in the update, putting even more at risk the control of some
government expenditure items, and thus endangering the
external competitiveness of
regard,
some government expenditure items, such as the wage bill,
increased substantially in 2003 and should therefore be
contained in the coming years.

the economy.

In this

The update targets a general government deficit of 1,2 % of
GDP in 2004 as against an expected deficit of 1,4 % of GDP in
2003. In cyclically-adjusted terms, based on Commission calcu-
lations according to the commonly agreed methodology,
in
remains unchanged at
2004 the cyclically-adjusted deficit
1,7 % of GDP. For 2005 and 2006, the projections are for
headline deficits of 0,5 % of GDP and balance in 2006. In
cyclically-adjusted terms,
the corresponding deficits amount
to 1,2 % and 0,9 % of GDP respectively. In the light of the
high debt ratio, the overall proposed adjustment is limited
while a more balanced ‘policy mix’ would call for a stricter
stance of fiscal policy and an effective use of the opportunity
provided by favourable growth prospects.

Although the budgetary targets in the programme seem to
provide a sufficient margin against breaching the 3 % deficit
threshold with normal macroeconomic fluctuations throughout
the programme period, there are risks linked to the macro-
economic scenario, the likely underestimated deficit in 2003
and the lack of information on envisaged measures to contain
primary expenditure. It is noted, however, that lower primary
expenditures after the Olympic Games in 2004 should help to
reduce deficits. Under plausible macroeconomic and budgetary
assumptions,
the Stability and Growth Pact medium-term
objective of a budgetary position of close-to-balance or in
surplus would not be achieved over the programme period.

The government debt ratio is projected to gradually decline
from 101,7 % of GDP in 2003 to 90,5 % of GDP in 2006.
Developments in the debt ratio are likely to be less favourable
than projected, given the risks to the deficit outcome and
possible negative developments in stock-flow adjustment, the
latter having been a persistent source of debt accumulation in
recent years.

there is a risk of severe
On the basis of current policies,
budgetary imbalances emerging in Greece in the future due
to an ageing population, taking also into account the high
debt ratio. Thus, the budgetary challenges posed by ageing
population should be
comprehensive
strategy that includes further reform of the pension system.

tackled through a

19.2.2004

EN

Official Journal of the European Union

C 43/9

The economic policies as reflected in the 2003 update are not
fully consistent with the recommendations
in 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.
Moreover, the projected decline in the debt ratio is subject to
the need for an effective control of
risk and there is
government current primary expenditure,
in particular of its
like the wage bill and social transfers.
inelastic components,

COUNCIL OPINION

of 10 February 2004

on the updated Convergence Programme of the United Kingdom, 2002-03 to 2008-09

(2004/C 43/07)

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 9(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 United
Kingdom's updated Convergence Programme, which covers
the period financial years 2002-03 to 2008-09. 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.

The budgetary strategy underlying the update continues to be
the maintenance of sustainable public finances as part of an
integrated strategy for achieving high and stable economic
growth. The projections
in the update would
set out
increase, over the programme period, both the revenue and
rise in the
the expenditure ratios to GDP with a slight
modest debt-to-GDP ratio. A significant programme of public
investment is being implemented.

The programme draws a distinction between its central macro-
economic projection and the GDP growth rates used for public
finance projections; for caution, the latter are set one quarter

(1) OJ L209, 2.8.1997

percentage point per annum lower. The update centrally
projects real GDP growth to accelerate from an estimated
2 % in 2003 to 3 to 3,5 % in 2004 and 2005. In 2006, the
final year for which detailed macroeconomic projections are
provided, growth falls back to trend at 2,5 to 3 % and the
present negative output gap is expected to close. Underlying
trend employment growth is estimated at 0,2 % per annum.
HICP inflation is forecast to rise gradually from 1,5 % in 2003
to 2 %, the recently recalibrated inflation target, in 2006. The
central macroeconomic scenario is close to the Commission's
evaluation and the slightly lower growth rates used for the
public
even closer.
However, projected growth in the latter is still slightly higher
than forecast by the Commission in the short term.

finance projections

in the update

In cyclically-adjusted terms,

The update projects a general government deficit of 2,6 % of
GDP in 2004-05, compared to an expected deficit of 3,3 % in
2003-04. For 2005-06, 2006-07, 2007-08 and 2008-09, the
projections are for headline deficits of 2,4 %, 2,1 %, 2,0 % and
1,8 % of GDP respectively.
the
update projects an improvement
in the deficit between
2003-04 and 2004-05 of 0,4 percentage points to 2,0 % of
In the following years, the deficits amount to 2,2 %,
GDP.
2,1 %, 2,0 % and 1,8 % of GDP. Commission calculations of
the cyclically-adjusted changes, according to the commonly-
agreed methodology, are similar. The gross debt
ratio is
projected to rise gradually, from 37,9 % of GDP in 2002-03
to stabilise at 41,5 % in 2008-09.

in 2003-04.

The budgetary stance in the programme is expected to rise
above the 3 % of GDP reference value on a financial year
basis
this could constitute an
If confirmed,
excessive deficit. Looking ahead,
the projection includes a
strong increase in the revenue-to-GDP ratio. Despite an
expected narrowing of the cyclically-adjusted deficit to 1,8 %
in 2008-09, in no year of the update period does it seem to
provide a sufficient safety margin according to Commission
calculations against rising above the 3 % of GDP reference
value with normal macroeconomic fluctuations. According to
the Stability and
the budgetary projections in the update,