Proposal for a Council Regulation amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure
Date: 2005-04-20
Institutions: European Commission
Subjects: Economic and Monetary Union, European accounting system, budget deficit, public administration, public debt

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.4.2005 
COM(2005) 155 final 

2005/0061 (CNS) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 1467/97 on speeding up and clarifying the 
implementation of the excessive deficit procedure  

(presented by the Commission) 

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1. 

2. 

EXPLANATORY MEMORANDUM 

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.  

The  Commission  followed  the  Council’s  preference  for  keeping  changes  to  the 
existing Regulations to a minimum. Legislative changes were introduced only where 
strictly  necessary  to  ensure  full  implementation  of  the  agreement  endorsed  by  the 
European Council. The proposals amending Regulation (EC) No 1467/97 introduce 
the four changes explicitly requested by the Council report, in particular concerning 
the  definition  of  a  ‘severe  economic  downturn’,  the  definition  and  role  of  ‘other 
relevant factors’, the extension of the deadlines for taking action in the context of the 
excessive deficit procedure, and to allow the repetition of steps in the procedure, in 
particular recommendations under Article 104(7) and notices under Article 104(9). In 
addition  to  these  amendments,  some  amendments  mainly  of  a  technical  nature  are 
introduced  to  Regulation  (EC)  No  1467/97  in  order  to  ensure  consistency  with  the 
Council report and smoothen the application of the excessive deficit procedure.  

In particular, the deadline for the Council to decide on the existence of an excessive 
deficit  in  accordance  with  Article  104(6)  shall  be  set  taking  as  a  reference  the 
adoption by the Commission of a Report in accordance with Article 104(3), instead 
of  the  reporting  dates  established  in  Regulation  (EC)  No  3605/93.  This  would 
address  the  cases  in  which  the  budgetary  data  has  not  been  validated  by  the 
Commission  (Eurostat)  shortly  after  the  reporting  dates  established  in  Council 

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Regulation  (EC)  No  3605/93.  It  is  also  motivated  by  the  fact  that  the  Commission 
may  need  more  time  to  prepare  its  reports  under  Article  104(3)  in  order  to 
appropriately assess the influence of the ‘other relevant factors’ mentioned in Article 
104(3) of the Treaty. 

In addition, with the amendments to Regulation (EC) No 1467/97, the definition of 
an  overall  maximum  period  of  10  months  from  the  reporting  dates  established  in 
Article  4(2)  and  (3)  of  Regulation  (EC)  No  3605/93  until  the  decision  to  impose 
sanctions  should  be  amended  to  become  consistent  with  the  amended  deadlines  in 
each  step  of  the  procedure  and  the  possibility  to  issue  revised  recommendations 
under Article 104(7) or notices under Article 104(9). 

3. 

Some  of  the  changes  that  were  agreed  by  the  European  Council  do  not  require 
amendments to Regulation (EC) No 1467/97. The Commission will draw up a Code 
of Conduct setting out how these are to be implemented. In particular, it will set out 
how the Commission and the Council, in all budgetary assessments in the framework 
of the excessive deficit procedure, will give due consideration to the implementation 
of  pension  reforms  in  accordance  with  section  3.4  of  the  above-mentioned  Council 
report. 

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2005/0061 (CNS) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 1467/97 on speeding up and clarifying the 
implementation of the excessive deficit procedure  

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular  the 
second subparagraph of Article 104(14) thereof, 

Having regard to the proposal from the Commission1, 

Having regard to the opinion of the European Parliament2, 

Having regard to the opinion of the European Central Bank3, 

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 policies4, Council Regulation (EC) 
No 1467/97 on speeding up and clarifying the implementation of the excessive deficit 
procedure5 and the Resolution of 17 June 1997 on the Stability and Growth Pact6. 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  20057, 
which stated that the report updates and complements the Stability and Growth Pact. 

1 
2 
3 
4 
5 
6 
7 

OJ C […] 
OJ C […] 
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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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

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The Stability and Growth Pact needs to be strengthened and its implementation to be 
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 
particular the increased economic heterogeneity in the Community of 25 Members and 
the prospects of demographic changes.  

Regulation  (EC)  No  1467/97  needs  to  be  amended  in  order  to  allow  the  full 
application  of  the  agreed  improvement  of  the  implementation  of  the  Stability  and 
Growth Pact. 

The  concept  of  exceptional  excess  over  the  reference  value  resulting  from  a  severe 
economic downturn should be revised. In doing so, due account should be taken of the 
increased economic heterogeneity in the European Union. 

The definition and the scope of application of all other relevant factors to be taken into 
account  need  to  be  clarified.  The  Commission  report  shall  appropriately  reflect 
developments  in  the  medium-term  economic  position  (in  particular  potential  growth, 
prevailing  cyclical  conditions,  the  implementation  of  policies  in  the  context  of  the 
Lisbon  agenda  and  policies  to  foster  R&D  and  innovation)  and  in  the  medium-term 
budgetary  position  (in  particular  fiscal  consolidation  efforts  in  “good  times”,  debt 
sustainability,  public  investment  and  the  overall  quality  of  public  finances). 
Furthermore, due consideration will be given to any other factors which, in the opinion 
of  the  Member  State  concerned,  are  relevant  in  order  to  comprehensively  assess  in 
qualitative  terms  the  excess  over  the  reference  value.  In  that  context,  special 
consideration will be given to budgetary efforts towards increasing or maintaining at a 
high level financial contributions to fostering international solidarity and to achieving 
European policy goals, notably the unification of Europe if it has a detrimental effect 
on the growth and fiscal burden of a Member State.  

The  deadline  for  the  Council  to  decide  on  the  existence  of  an  excessive  deficit  in 
accordance  with  Article  104(6)  of  the  Treaty  should  be  set  with  reference  to  the 
adoption by the Commission of a report in accordance with Article 104(3), instead of 
the reporting dates established in Article 4(2) and (3) of Council Regulation (EC) No 
3605/93  of  22  November  1993  on  the  application  of  the  Protocol  on  the  excessive 
deficit procedure annexed to the Treaty establishing the European Community8. This 
would address the cases in which the budgetary statistical data has not been validated 
by  the  Commission  (Eurostat)  shortly  after  the  reporting  dates  established  in 
Regulation  (EC)  No  3605/93.  It  would  also  allow  the  Commission  more  time  to 
prepare its reports under Article 104(3) in order to appropriately assess the influence 
of the ‘other relevant factors’ mentioned in Article 104(3) of the Treaty. 

The procedural deadlines for Council decisions in the excessive deficit procedure have 
been excessively tight and should be extended. 

In order to ensure a prompt correction of excessive deficits, it is necessary for Member 
States that are in a situation of excessive deficit to take effective action and achieve a 

OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Commission Regulation (EC) No 351/2002 
(OJ L 55, 26.2.2002. p.23). 

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minimum  improvement  in  their  cyclically-adjusted  balance  net  of  one-off  and 
temporary measures every year. 

(10)  Maximum time periods within which Member States are to take effective action and 
measures  should  be  extended  to  allow  better  framing  of  the  action  in  the  national 
budgetary procedures and the development of more articulated packages of measures. 

(11) 

If  the  Member  State  concerned  has  taken  effective  action  in  response  to  a 
recommendation  under  Article  104(7)  or  a  notice  issued  under  Article  104(9)  and 
unexpected  adverse  economic  events  with  major  negative  consequences  for 
government  finances  prevent  the  correction  of  the  excessive  deficit  within  the  time 
limit  set  by  the  Council,  it  should  be  possible  for  the  Council  to  issue  a  revised 
recommendation under Article 104(7) or a revised notice under Article 104(9). 

(12)  The  current  overall  maximum  period  of  10  months  from  the  reporting  dates 
established in Article 4(2) and (3) of Regulation (EC) No 3605/93 until the decision to 
impose sanctions would be inconsistent with the amended deadlines in each step of the 
procedure  and the possibility  to issue  revised recommendations under Article 104(7) 
or revised notices under Article 104(9). The overall maximum period should therefore 
be adjusted in accordance with these amendments. 

(13)  The provisions applicable to the implementation of the excessive deficit procedure in 
the case of the United Kingdom, which are set out in the Annex to Regulation (EC) No 
1467/97, also need to be modified to reflect those changes.  

(14)  Regulation (EC) No 1467/97 should therefore be amended accordingly, 

HAS ADOPTED THIS REGULATION: 

Article 1 

Regulation (EC) No 1467/97 is amended as follows:  

(1) In Article 2, paragraphs 2 and 3 are replaced by the following:  

“2.  The  Commission  and  the  Council,  when  assessing  and  deciding  upon  the 
existence of an excessive deficit according to paragraphs 3 to 6 of Article 104 of the 
Treaty,  may  consider  an  excess  over  the  reference  value  resulting  from  a  severe 
economic  downturn  as  exceptional  in  the  sense  of  the  second  indent  of  Article 
104(2)(a) if the excess over the reference value results from a negative growth rate or 
an accumulated loss of output during a protracted period of very low growth relative 
to potential growth.  

3.  The  Commission,  when  preparing  a  report  under  Article  104(3)  shall  take  into 
account all other relevant factors. The report shall, in particular, appropriately reflect 
developments 
the  medium-term  economic  and  budgetary  position.  The 
Commission shall also give due consideration to factors which the Member State has 
put forward publicly and to the Commission within one month of the reporting dates 
established in Article 4(2) and (3) of Regulation (EC) No 3605/93. 

in 

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4.  The  Commission,  when  considering  whether  an  excessive  deficit  exists  or  may 
occur  for  non-fulfilment  of  the  criterion  mentioned  in  Article  104(2)  (a),  and  the 
Council,  when  deciding  on  the  existence  of  an  excessive  deficit,  shall  take  into 
account the relevant factors mentioned in paragraph 3 only if the general government 
deficit  remains  both  close  to  the  reference  value  and  its  excess  over  the  reference 
value is temporary.  

5. If the Council has decided, on the basis of Article 104(6), that an excessive deficit 
exists  in  a  Member  State,  the  Commission  and  the  Council  shall  also  take  into 
account the relevant factors mentioned in paragraph 3 in the subsequent procedural 
steps of Article 104. Such relevant factors shall not be taken into account in the cases 
referred to in Articles 3(5) and 5(2) of this Regulation or the decision of the Council 
under  Article  104(12)  on  the  abrogation  of  some  or  all  of  its  decisions  under 
paragraphs 6 to 9 and 11 of Article 104.” 

(2) Article 3 is amended as follows:  

(a) Paragraph 3 is replaced by the following: 

“3. The Council shall decide on the existence of an excessive deficit in accordance 
with  Article  104(6),  within  two  months  of  the  adoption  by  the  Commission  of  a 
Report in accordance with Article 104(3). When it decides that an excessive deficit 
exists,  the  Council  shall  at  the  same  time  make  recommendations  to  the  Member 
State concerned in accordance with Article 104(7).” 

(b) Paragraph 4 is replaced by the following:  

“4.  The  Council  recommendation  made  in  accordance  with  Article  104(7)  shall 
establish a deadline of six months at the most for effective action to be taken by the 
Member  State  concerned.  The  Council  recommendation  shall  also  establish  a 
deadline for the correction of the excessive deficit, which should be completed in the 
year  following  its  identification  unless  there  are  special  circumstances.  In  the 
recommendation,  the  Council  shall  request  that  the  Member  State  achieves  a 
minimum annual improvement in the cyclically-adjusted balance net of one-off and 
temporary measures, in order to ensure the correction of the excessive deficit within 
the deadline set in the recommendation.”  

5.  If  the  Member  State  concerned  has  taken  effective  action  in  compliance  with  a 
recommendation under Article 104(7) and unexpected adverse economic events with 
major unfavourable consequences for government finances occur after the adoption 
of  that  recommendation,  the  Council  may  decide,  on  a  recommendation  from  the 
Commission, to adopt a revised recommendation under Article 104(7). This revised 
recommendation may notably extend the deadline for the correction of the excessive 
deficit  by  one  year.  The  Council  shall,  in  particular,  consider  whether  the  Member 
State  concerned  has  taken  effective  action  in  order  to  achieve  a  minimum  annual 
improvement  in  the  cyclically-adjusted  balance  net  of  one-off  and  other  temporary 
measures.  The  Council  shall  assess  the  existence  of  unexpected  adverse  economic 
events  with  major  unfavourable  consequences  for  government  finances  against  the 
economic forecasts in the recommendation.” 

(3) Article 5 is replaced by the following: 

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“Article 5 

1. Any Council decision to give notice to the participating Member State concerned 
to take measures for the deficit reduction in accordance with Article 104(9) shall be 
taken within two months of the Council decision establishing that no effective action 
has  been  taken  in  accordance  with  Article  104(8).  In  the  notice,  the  Council  shall 
request  that  the  Member  State  achieves  a  minimum  annual  improvement  in  the 
cyclically-adjusted balance net of one-off and temporary measures, in order to ensure 
the correction of the excessive deficit within the deadline set in the notice. 

2.  If  the  Member  State  concerned  has  taken  effective  action  in  compliance  with  a 
notice  under  Article  104(9)  and  unexpected  adverse  economic  events  with  major 
unfavourable consequences for government finances occur after the adoption of that 
notice,  the  Council  may  decide,  on  a  recommendation  from  the  Commission,  to 
adopt a revised notice under Article 104(9). This revised notice may notably extend 
the  deadline  for  the  correction  of  the  excessive  deficit  by  one  year.  The  Council 
shall, in particular, consider whether the Member State concerned has taken effective 
action in order to achieve the required annual improvement in the cyclically-adjusted 
balance  net  of  one-off  and  other  temporary  measures.  The  Council  shall  assess  the 
existence  of  unexpected  adverse  economic  events  with  major  unfavourable 
consequences for government finances against the economic forecasts in the notice.” 

(4)  In  Article  6,  second  sentence,  the  words  “two  months”  are  replaced  by  the  words  “four 
months”. 

(5) Article 7 is replaced by the following:  

“Article 7 

If  a  participating  Member  State  fails  to  act  in  compliance  with  the  successive 
decisions of the Council in accordance with Article 104(7) and (9), the decision of 
the Council to impose sanctions, in accordance with Article 104(11), shall be taken 
within fourteen months of the adoption by the Commission of a Report in accordance 
with  Article  104(3).  In  case  Article  3(5)  or  5(2)  of  this  Regulation  is  applied,  the 
fourteen  month  deadline  is  amended  accordingly.  An  expedited  procedure  shall  be 
used  in  the  case  of  a  deliberately  planned  deficit  which  the  Council  decides  is 
excessive”. 

(6) Article 9 is amended as follows:  

(a) Paragraph 2 is replaced by the following: 

“2.  The  period  during  which  the  procedure  is  held  in  abeyance  shall  be  included 
neither in the period referred to in Article 7 nor in the period referred to in Article 6 
of this Regulation.” 

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(b) The following paragraph 3 is added: 

“3. Following the expiry of the period referred to in the first sentence of Article 3(4) 
and following the expiry of the period referred to in the second sentence of Article 6 
of this Regulation, the Commission shall inform the Council if it considers that the 
measures taken seem sufficient to ensure adequate progress towards the correction of 
the excessive deficit within the time limits set by the Council, provided that they are 
fully  implemented  and  that  economic  developments  are  in  line  with  forecasts.  The 
Commission statement shall be made public”. 

(7)  References  to  Article  104(c)  are  replaced  throughout  the  Regulation  by  references  to 
Article 104. 

(8) The Annex to Regulation (EC) No 1467/97 is replaced by the Annex to this Regulation. 

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

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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Annex 

Time limits applicable to the United Kingdom 

1. In order to ensure equal treatment of all Member States, the Council, when taking decisions 
in Sections 2, 3 and 4 of this Regulation, shall have regard to the different budgetary year of 
the United Kingdom, with a view to taking decisions with regard to the United Kingdom at a 
point in its budgetary year similar to that at which decisions have been or will be taken in the 
case of other Member States. 

2.  The  provisions  specified  in  Column  I  shall  be  substituted  by  the  provisions  specified  in 
Column II. 

Column I 

Column II 

“the year following its identification” 

“the budgetary year following its identification” 

(Article 3 (4))  

“the preceding year” 

(Article 12 (1)) 

 “the preceding budgetary year” 

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