Council opinion of 9 March 2004 on the updated Stability Programme of Spain, 2003 to 2007
Date: 2004-03-09
Institutions: Council of the European Union
Subjects: Spain, stability programme

18.3.2004

EN

Official Journal of the European Union

C 68/1

I

(Information)

COUNCIL

COUNCIL OPINION

of 9 March 2004

on the updated Stability Programme of Spain, 2003 to 2007

(2004/C 68/01)

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 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 9 March 2004 the Council examined Spain's updated
stability programme, which covers the period 2003 to 2007.
The updated programme largely complies with the data
requirements of the revised ‘code of conduct on the content
and convergence programmes’.
and format of
However,
the
submitted six weeks after
deadline set in the code of conduct without any apparent
justification.

the update was

stability

The budgetary strategy underlying the update, essentially
unchanged from the previous programme, aims at maintaining
sound public finances defined by a budgetary position of close-
to-balance or in surplus. To this end, the programme envisages
keeping the ratios of revenue and non-interest expenditure-
to-GDP constant throughout the programme period, at 40 %
and 37,4 % respectively, while allowing for an increase in the
GDP share of capital expenditure and a corresponding decrease
in the current expenditure share. The resulting primary
surpluses are consistent with a balance or surplus on the
overall balance and a steady decline in the debt ratio, which
is envisaged to fall from 51,8 % of GDP in 2003 to 43,8 % in
2007.

The update projects real GDP growth to recover from an
estimated 2,3 % in 2003 to 3 % for 2004 onwards.
Employment is expected to strengthen from 1,8 % in 2003
to slightly above 2 % on average over the programme period.

(1) OJ L 209, 2.8.1997.

Inflation measured by the private consumption deflator is
projected to decline from 3,2 % in 2003 to 2,7 % in 2004
and to stabilise at 2,4 % thereafter. On the basis of currently
available information, the macroeconomic scenario underlying
the update seems realistic. In particular, the rate of growth of
the economy in the medium term is broadly in line with the
prevailing estimate of potential growth.

After the surplus estimated for 2003, the update retains an
objective of balance for 2004 and small, though increasing,
surpluses (0,1 %, 0,2 % and 0,3 % of GDP for 2005, 2006
and 2007, respectively) for the rest of the years in line with
previous projections.
In cyclically-adjusted terms, based on
Commission services' calculations, the surplus declines by half
a percentage point to 0,1 % of GDP in 2004. This reflects the
better than expected result estimated for 2003 and the main-
tenance of the previous year's balanced-budget target. For the
remaining programme period,
the cyclically-adjusted budget
balance improves by 0,2 percentage points to a surplus of
0,3 % of GDP in 2007.

The budgetary targets presented in the programme are
consistent with a position of close-to-balance or in surplus in
each year of
the projection. The risks can be considered
broadly balanced: in fact, the targets, especially the balanced
budget for 2004, appear cautious and may be overachieved
giving a margin against
less positive developments in the
economy. Therefore, the budgetary stance can be considered
sufficient
the SGP's close-
to-balance or in surplus objective throughout the programme
period. For the same reasons, it also provides a sufficient safety
margin against breaching the 3 % of GDP deficit threshold.

to ensure the maintenance of

On the basis of current policies, as reflected in the situation of
public finances and its medium-term evolution shown in the
programme as well as the long-term projections for age-related
expenditure provided in the programme, Spain seems relatively
well placed to cope with the budgetary costs of ageing popu-
lations. However, given the risks surrounding such long-term
projections of expenditure and the large increase of pension
expenditure projected in the very long term, current policies
need to be
the
emergence of unsustainable trends,
in particular a compre-
hensive reform of the pension system in line with the recom-
mendations of the multi-partisan agreement ‘Pacto de Toledo’.

supplemented by measures

to prevent

C 68/2

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Official Journal of the European Union

18.3.2004

The economic policies as reflected in the updated programme
are largely consistent with the recommendations of the Broad
Economic Policy Guidelines, specifically those with budgetary
implications. However, concerning the recommendations to

address the challenge of ensuring the long-term sustainability
of public finances in the face of population ageing, although a
number of positive measures have recently been adopted, no
steps to implement a major pension reform have been taken.

COUNCIL OPINION

of 9 March 2004

on the updated Stability Programme of Germany, 2003 to 2007

(2004/C 68/02)

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 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 9 March 2004 the Council examined the 2003 update of
the stability programme of Germany, which covers the period
2003 to 2007. The update was submitted on 5 December
2003;
responding to political developments an addendum
was submitted on 29 January 2004. The updated programme
largely complies with the requirements of the revised ‘Code of
and format of
conduct’ on the
and
content
convergence programmes,
although a greater degree of
precision of the data provided would have been desirable.

stability

On 21 January 2003, on the basis of a Commission Recom-
mendation, the Council decided in accordance with Article
104(6) EC that an excessive deficit existed in Germany and
issued a recommendation based on Article 104(7) EC recom-
mending ‘the German government to put an end to the present
excessive deficit situation as rapidly as possible in accordance
with Article 3(4) of Council Regulation (EC) No 1467/97’. On
18 November 2003, the Commission adopted two recommen-
dations on the basis of Articles 104(8) and 104(9) respectively,
the measures taken by
for the Council 1.

to decide that

(1) OJ L 209, 2.8.1997.

Germany in response to the recommendation of 21 January
2003 had proved inadequate to bring the excessive deficit to
an end; and 2. to give notice to Germany to take the necessary
measures to bring the government deficit below 3 % of GDP in
2005. On 25 November 2003, the Council did not adopt the
two Commission recommendations, but adopted instead a set
of conclusions
the
taking note, among other
commitments made by Germany to achieve a reduction of
the cyclically-adjusted deficit by 0,6 % and at least 0,5 % of
GDP in 2004 and 2005, respectively, so as to ensure that
the general government deficit is brought below 3 % of GDP.

things, of

states

revised its

that
fiscal policy targets

the German
The 2003 updated programme
government
in 2003 in
response to almost three years of persistent stagnation. The
budgetary strategy adopted in previous updates had been to
limit expenditure, flanked by structural measures to improve
the functioning of the labour market, strengthen social security
finances and broaden tax bases. While these objectives are
confirmed in the strategy contained in the 2003 update, the
aim of supporting business activity by fiscal policy has been
emphasised. Fiscal consolidation over and above the proposed
measures is regarded by the German authorities as putting the
that
cyclical upturn at
to budgetary
achieving a balanced budget remains central
policy but does not contain a target date.

risk. The 2003 update reiterates

Following the protracted stagnation over the last three years,
the 2003 update projects real GDP growth to resume from an
estimated – 0,1 % in 2003 to 1,7 % in 2004. In the period
2005 to 2007, growth is estimated to average 2,25 %.
Employment
is expected to pick up from zero growth
expected in 2004 to an average growth of 0,75 % from
2005 to 2007. The GDP deflator is forecast at 1 % for 2004
and to stay at an average of 1 % from 2005 to 2007.

The growth outlook for 2004 appears realistic and is close to
the Commission Autumn 2003 projection of 1,6 % for 2004.
However, the update is optimistic regarding the outlook for
2005 and subsequent years, with real growth of 2,25 %,
projected to continue to 2007. This
is attributed to an
expected rise in potential output, the underlying assumption