Proposal for a Council Regulation amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
Date: 2005-04-20
Institutions: European Commission
Subjects: Community budget, Economic and Monetary Union, coordination of EMU policies, economic convergence, economic policy, multilateral surveillance

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.4.2005 
COM(2005) 154 final 

2005/0064 (SYN) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of 
budgetary positions and the surveillance and coordination of economic policies 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

Meeting in Amsterdam on 17 June 1997, the European Council agreed on a Stability 
and Growth Pact in accordance with the principles and procedures of the Treaty. The 
European  Council  noted  however  in  June  2004  the  need  to  foster  transparency  and 
national  ownership  of  the  EU  fiscal  framework  and  to  improve  enforcement  of  its 
rules  and  provisions.  The  Commission  issued  a  Communication  on  3  September 
2004  on  “strengthening  economic  governance  and  clarifying  the  implementation  of 
the Stability and Growth Pact” in which it provided an orientation for the future set-
up  of  the  Stability  and  Growth  Pact  and  suggested  enhancing  its  economic 
underpinnings and strengthening its credibility and enforcement. 

Following  the  Commission  Communication,  the  Council  and  the  Commission 
engaged in discussions in order to reach consensus on a reform of the Stability and 
Growth  Pact.  On  20  March  2005,  the  Council  adopted  a  report  on  “Improving  the 
implementation  of  the  Stability  and  Growth  Pact”.  In  its  report,  the  Council  gave 
consideration to enhancing  the governance and  the  national  ownership  of  the fiscal 
framework, to strengthening the economic underpinnings and the effectiveness of the 
Pact, both in its preventive and corrective arms, to safeguarding the sustainability of 
public  finances  in  the  long  run,  to  promoting  growth  and  to  avoiding  imposing 
excessive burdens on future generations. 

On 22 and 23 March 2005 the European Council endorsed this report, stating that it 
updates and complements the Stability and Growth Pact, which consists of Council 
Regulations  (EC)  No  1466/97  and  (EC)  No  1467/97  and  the  Resolution  of  the 
European Council on the Stability and Growth Pact of 7 July 1997. 

In the Presidency conclusions of its meeting of 22 and 23 March 2005, the European 
Council  invited  the  Commission  to  bring  forward  proposals  for  amending  the 
Council  Regulations  in  accordance  with  the  Council  report,  which  expressed  the 
Council’s preference for keeping changes to the existing Regulations to a minimum.  

2. 

In  addition  to  the  amendments  reflecting  the  agreement  mentioned  above,  some 
amendments  mainly  of  a  technical  nature  are  introduced  to  Regulation  (EC)  No 
1466/97  in  order  to  ensure  consistency  with  the  Council  report.  In  particular, 
experience  has  shown  that  deadlines  set  for  the  examination  of  stability  and 
convergence  programmes  by  the  Council  were  overly  tight.  An  extension  of  these 
deadlines is proposed. 

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2005/0064 (SYN) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of 
budgetary positions and the surveillance and coordination of economic policies 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
99(5) thereof, 

Having regard to the proposal from the Commission1, 

Acting in accordance with the procedure referred to in Article 252 of the Treaty, 

Whereas: 

(1) 

(2) 

The  Stability  and  Growth  Pact  initially  consisted  of  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 policies2, Council Regulation (EC) 
No 1467/97 on speeding up and clarifying the implementation of the excessive deficit 
procedure3 and the Resolution of 17 June 1997 on the Stability and Growth Pact4. The 
Stability  and  Growth  Pact  has  proven  its  usefulness  in  anchoring  budget  deficits, 
thereby  contributing  to  a  high  degree  of  macroeconomic  stability  with  low  inflation 
and  low  interest  rates,  which  is  necessary  to  induce  sustainable  growth  and 
employment creation. 

On  20  March  2005  the  Council  adopted  a  report  entitled  “Improving  the 
implementation  of  the  Stability  and  Growth  Pact”  which  aims  to  enhance  the 
governance  and  the  national  ownership  of  the  fiscal  framework  by  strengthening  the 
economic underpinnings and the effectiveness of the Pact, both in its preventive and 
corrective  arms,  to  safeguard  the  sustainability  of  public  finances  in  the  long  run,  to 
promote growth and to avoid imposing excessive burdens on future generations. The 
report  was  endorsed  by  the  European  Council  in  its  conclusions  of  23  March  20055, 
which stated that the report updates and complements the Stability and Growth Pact. 

(3) 

The  Stability  and  Growth  Pact  needs  to  be  strengthened  and  its  implementation 
clarified,  with  the  aim  of  improving  the  coordination  and  monitoring  of  economic 
policies.  In  doing  so,  due  account  should  be  taken  of  changing  circumstances,  in 

1  
2 
3 
4 
5 

OJ C […]. 
OJ L 209, 2.8.1997, p. 1. 
OJ L 209, 2.8.1997, p. 6. 
OJ C 236, 2.8.1997, p. 1. 
See annex 2 of conclusions of the European Council of 22-23 March 2005.  

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(4) 

(5) 

(6) 

particular the increased economic heterogeneity in the Community of 25 Members and 
the prospects of demographic changes.  

Regulation  (EC)  No  1466/97  needs  to  be  amended  in  order  to  allow  the  full 
application  of  the  agreed  improvement  of  the  implementation  of  the  Stability  and 
Growth Pact. 

Adherence to the medium-term budgetary objective will allow Member States to deal 
with normal cyclical fluctuations while keeping the government deficit below the 3 % 
of GDP reference value and ensure rapid progress towards fiscal sustainability. Taking 
this into account, it will allow room for budgetary manoeuvre, in particular for public 
investment. 

The  medium-term  budgetary  objectives  should  be  differentiated  for  individual 
Member States to take into account the diversity of economic and budgetary positions 
and prospects. The country-specific medium-term budgetary objectives should be set 
and revised regularly by the Council upon a recommendation of the Commission.  

(7)  Member  States  that  have  not  yet  achieved  the  medium-term  budgetary  objective 
should pursue a minimum annual improvement of their cyclically-adjusted balance net 
of one-off and temporary measures. The improvement should be higher in economic 
good times; it could be more limited in bad times. 

(8)  When  examining  and  monitoring  the  stability  and  convergence  programmes  and  in 
particular  the  medium-term  budgetary  objective  or  the  targeted  adjustment  path 
towards it, the Council should take into account the implementation of major structural 
reforms which have direct long-term cost-saving effects, including by raising potential 
growth,  and  therefore  a  verifiable  impact  on  the  long-term  sustainability  of  public 
finances.  To  this  end,  stability  and  convergence  programmes  should  provide  a 
description of major structural reforms and a comprehensive and detailed assessment 
of their quantitative effects on the budgetary position over time. 

(9) 

Deadlines  set  for  the  examination  of  stability  and  convergence  programmes  by  the 
Council have been overly tight and should be extended. 

(10)  Regulation (EC) No 1466/97 should therefore be amended accordingly, 

HAS ADOPTED THIS REGULATION: 

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Regulation (EC) No 1466/97 of 7 July 1997 is amended as follows: 

Article 1 

(1) The following article 2a is inserted: 

“Article 2a 

Medium-term  objectives  of  budgetary  positions  close  to  balance  or  in  surplus  shall 
be  set  for  every  Member  State  in  the  framework  of  the  procedure  referred  to  in 
Article  99(2)  of  the  Treaty.  These  medium-term  budgetary  objectives  shall  be 
regularly reviewed and, where appropriate, revised. These country-specific medium-
term budgetary objectives shall be set at a level which allows Member States to deal 
with normal cyclical fluctuations while keeping the government deficit below the 3% 
of  GDP  reference  value,  ensure  rapid  progress  towards  fiscal  sustainability  and, 
taking  this  into  account,  allow  room  for  budgetary  manoeuvre,  in  particular  for 
public investment. 

(2) Article 3(2) is amended as follows:  

(a) point (a) is replaced by the following: 

“(a)  the  adjustment  path  towards  the  medium-term  budgetary  objective  for  the 
general government surplus/deficit and the expected path of the general government 
debt ratio;” 

(b) point (c) is replaced by the following: 

“(c)  a  description  of  budgetary  and  other  economic  policy  measures  being  taken 
and/or proposed to achieve the objectives of the programme, and, in the case of the 
main budgetary measures as well as major structural reforms, a comprehensive and 
detailed  assessment  of  their  quantitative  effects  on  the  budgetary  position  over  the 
short-, medium- and long-term.” 

(3) Article 5 is amended as follows:  

(a) The first subparagraph of paragraph 1 is replaced by the following: 

“1. Based on assessments by the Commission and the Committee set up by Article 
114  of  the  Treaty,  the  Council  shall,  within  the  framework  of  multilateral 
surveillance  under  Article  99,  examine  whether  the  adjustment  path  in  the 
programme  is  sufficiently  ambitious,  whether  the  economic  assumptions  on  which 
the  programme  is  based  are  realistic  and  whether  the  measures  being  taken  and/or 
proposed are sufficient to achieve the targeted adjustment path towards the medium-
term  budgetary  objective.  The  Council,  when assessing  the  adjustment  path  toward 
the  medium-term  budgetary  objective,  shall  consider  whether  the  Member  State 
concerned  pursues  a  minimum  annual  improvement  of  its  cyclically-adjusted 
balance,  net  of  one-off  and  other  temporary  measures  and  whether  a  larger 
improvement  is  pursued  in  economic  good  times.  The  Council  shall  also  take  into 
account the implementation of major structural reforms which have direct long-term 

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cost-saving effects, including by raising potential growth, and therefore a verifiable 
impact on the long-term sustainability of public finances;” 

(b)  In  paragraph  2,  the  words  “two  months”  are  replaced  by  the  words  “three 
months”. 

(4) Article 7(2) is amended as follows:  

(a) point (a) is replaced by the following: 

“(a)  the  adjustment  path  towards  the  medium-term  budgetary  objective  for  the 
general government surplus/deficit and the expected path of the general government 
debt  ratio;  the  medium-term  monetary  policy  objectives;  the  relationship  of  those 
objectives to price and exchange rate stability;” 

(b) point (c) is replaced by the following: 

“(c)  a  description  of  budgetary  and  other  economic  policy  measures  being  taken 
and/or proposed to achieve the objectives of the programme, and, in the case of the 
main budgetary measures as well as major structural reforms, a comprehensive and 
detailed  assessment  of  their  quantitative  effects  on  the  budgetary  position  over  the 
short-, medium- and long-term.” 

(5) Article 9 is amended as follows:  

(a) The first subparagraph of paragraph 1 is replaced by the following: 

“1. Based on assessments by the Commission and the Committee set up by Article 
114  of  the  Treaty,  the  Council  shall,  within  the  framework  of  multilateral 
surveillance  under  Article  99,  examine  whether  the  adjustment  path  in  the 
programme  is  sufficiently  ambitious,  whether  the  economic  assumptions  on  which 
the  programme  is  based  are  realistic  and  whether  the  measures  being  taken  and/or 
proposed are sufficient to achieve the targeted adjustment path towards the medium-
term  budgetary  objective.  The  Council,  when assessing  the  adjustment  path  toward 
the  medium-term  budgetary  objective;  shall  consider  whether  the  Member  State 
concerned  pursues  a  minimum  annual  improvement  of  its  cyclically-adjusted 
balance,  net  of  one-off  and  other  temporary  measures  and  whether  a  larger 
improvement  is  pursued  in  economic  good  times.  The  Council  shall  also  take  into 
account the implementation of major structural reforms which have direct long-term 
cost-saving effects, including by raising potential growth, and therefore a verifiable 
impact on the long-term sustainability of public finances;” 

(b)  In  paragraph  2,  the  words  “two  months”  are  replaced  by  the  words  “three 
months”. 

(6) References to Article 103 are replaced throughout the Regulation by references to Article 
99. 

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This Regulation shall enter into force on the twentieth day following that of publication in the 
Official Journal of the European Communities. 

Article 2 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels,  

For the Council 
The President 

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