Communication from the Commission to the Council and the European Parliament - Public finances in EMU – 2005 {SEC(2005) 723}
Date: 2005-06-01
Institutions: European Commission
Subjects: Economic and Monetary Union, European Union, activity report, budget policy, economic policy, public finance

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, xxx 
COM(2005) yyy final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Public finances in EMU – 2005 

{SEC(2005) 723} 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Public finances in EMU – 2005 

This  Communication  draws  the  main  policy  messages  from  the  Public  Finances  in  EMU- 
2005 report prepared by the Commission services1. The report is published yearly since 2000. 
It presents an overview of recent budgetary developments in the EU, tracks the evolution in 
EU fiscal surveillance, and carries out analysis on fiscal policy issues of relevance for the EU-
wide policy debate.  

Large budgetary imbalances persist in some countries…  

After  deteriorating  for  three  consecutive  years,  reflecting  to  a  large  extent  the  economic 
slowdown, the euro-area general government deficit improved marginally in 2004 (from 2.8 
% of GDP in 2003 to 2.7 % in 2004). The deficit of the EU-25 aggregate also fell (from 2.9 to 
2.6  %  of  GDP),  largely  as  a  consequence  of  the  considerable  improvement  of  deficits  in  a 
number  of  recently  acceded  Member  States.  According  to  the  Spring  2005  Commission 
forecasts, the euro-area and EU deficits will remain roughly stable in 2005 and 2006, based 
on the assumption of unchanged policy. Conversely, debt ratios are projected to grow both for 
the euro-area and the EU aggregate, reaching, respectively, 71.9 and 64.2 % of GDP in 2006. 
Aggregate  deficit  figures  mask  noteworthy  differences  between  countries.  In  2004,  six  EU 
countries,  including  three  euro-area  countries,  exhibited  budget  positions  in  balance  or  in 
surplus.  In  contrast,  in  four  euro-area  Member  States  (Greece,  Germany,  France,  Italy)  and 
seven  non-euro-area  countries  (Czech  Republic,  Cyprus,  Hungary,  Malta,  Poland,  Slovakia 
and  the  UK)  deficits  were  above  the  3%  of  GDP  reference  value.  While  the  deficit  is 
projected to be reduced in 2005 or 2006 in a number of countries that are currently subject to 
the  excessive  deficit  procedure  (Germany,  France,  Cyprus,  Malta),  Italy  and  Portugal  are 
expected to have deficits above the 3 % of GDP ceiling in 2005 on the basis of their current 
policies.  

…and further action under the excessive deficit procedures has been necessary 

Since  the  summer  of  2004,  ten  EU  countries  have  been  subject  to  the  excessive  deficit 
procedure (EDP). In December 2004, the Commission and the Council clarified their position 
regarding  the  EDP  for  Germany  and  France,  following  the  Court  of  Justice  ruling  of  July 
2004. Since both countries had taken measures which could plausibly result in the excessive 
deficit being corrected in 2005, it was decided that at that stage no further action under the 
EDP  was  necessary.  In  the  case  of  the  EDP  for  the  Netherlands,  the  Council  concluded  in 
October 2004 that effective action was being taken by the Dutch government. Following the 
March 2005 fiscal notifications indicating that the deficit of the Netherlands fell to 2.5% of 
GDP  in  2004,  the  Commission  proposed  on  18  May  2005  to  abrogate  the  decision  on  the 
existence of the excessive deficit. In the case of the Czech Republic, Cyprus, Hengary, Malta, 
Poland  and  Slovakia,  after  their  accession  to  the  EU,  the  Council  decided  that  an  excessive 
deficit  existed  in  each  of  them,  and  consequently  decided  to  issue  recommendations  under 
Article 104(7) of the Treaty. A further recommendation under the same article of the Treaty 
was addressed in February 2005 to Hungary which, unlike the other five new Member States, 
had failed to take effective action in response to the first recommendation. 

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Available on: http://europa.eu.int/comm/economy_finance/publications/publicfinance_en.htm. 

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For  the  first  time,  on  February  2005,  the  Council  decided  to  issue  a  notice  under  Article 
104(9),  the  last  step  before  sanctions.  This  notice  was  addressed  to  Greece  and  contained  a 
deadline for correcting the excessive deficit postponed by one year, i.e. until 2006, as a result 
of  substantial  revisions  in  deficit  figures.  At  the  occasion  of  the  fiscal  notifications  of 
September  2004  and  March  2005,  the  fiscal  data  of  Greece  underwent  a  revision  of 
unprecedented  large  magnitude:  deficit  ratios  dating  back  to  1997  were  revised  upward  and 
the 2003 and 2004 deficits jumped, respectively, to 5.2% and 6.1% of GDP.  

The  exceptionally  large  revision  in  the  Greek  government  accounts  came  at  a  time  when 
increasing emphasis was being put on improving statistical governance in the budgetary field. 
The Council called on the Commission to improve the monitoring of the quality of reported 
fiscal  data  and  to  make  proposals  designed  to  strengthen  EU  statistical  governance.  In  its 
December  2004  Communication  “Towards  a  European  governance  strategy  for  fiscal 
statistics”,  the  Commission  outlined  three  lines  of  action  to  this  end:  (i) building  up  the 
legislative  framework,  (ii)  developing  the  operational  capacity  of  the  Commission,  and  (iii) 
defining  European  standards  on  the  independence  of  statistical  institutes.  The  Commission 
also  took  initiatives  for  the  implementation  of  these  lines  of  action.  On  2  March  2005,  it 
adopted  a  proposal  for  the  amendment  of  Council  Regulation  (EC)  No  3605/93,  which 
governs  the  reporting  of  fiscal  data,  with  the  purpose  of  improving  the  quality  of  statistical 
data used in the EDP. Moreover, the Commission adopted on 25 May 2005 a Communication 
including a recommendation to Member States on EU-wide standards on statistical institutes 
including  principles  on,  inter-alia,  professional  independence,  confidentiality,  reliability  and 
timeliness of data, and adequacy of resources of statistical institutes. 

A  good  fiscal  framework,  but  which  needed  to  be  improved:  the  2005  Stability  and 
Growth Pact reform  

The  EU  fiscal  framework  delivered  over  the  last  decade  important  achievements,  with  the 
very  high  deficits  of  the  beginning  of  the  1990s  brought  under  control,  and  comfortable 
surpluses attained by a number of Member States. However, over time the need emerged for 
reconsidering some of its elements in order to strengthen its effectiveness.  

The review process leading to the 2005 Stability and Growth Pact (SGP) reform was launched 
by  the  Commission  with  its  Communication  “Strengthening  economic  governance  and 
clarifying  the  implementation  of  the  Stability  and  Growth  Pact”2.  In  response  to  the 
Commission  Communication,  the  Eurogroup,  the  ECOFIN  Council  and  the  Commission 
engaged  in  several  rounds  of  intense  discussions  in  order  to  reach  consensus,  discussions 
which  benefited  from  technical  input  from  the  Commission  and  Member  States.  The 
negotiations revealed differing views among Member States on how much room for discretion 
was  necessary  to  properly  take  account  of  economic  developments  in  the  assessment  of 
budgetary  performance.  The  need  for  some  margin  for  judgement  was  weighed  against  the 
objectives of preserving simple, transparent rules and ensuring equal treatment.  

At  the  extraordinary  ECOFIN  meeting  of  20  March  2005,  the  Council  adopted  the  report 
“Improving the implementation of the Stability and Growth Pact” with a view to improving 
the  EU  fiscal  framework.  The  report,  subsequently  endorsed  by  the  European  Council  of 
22/23 March 2005, updates and complements the existing legal framework of the SGP. The 
agreement  encapsulated  in  the  ECOFIN  report  entails  changes  to  both  the  preventive  and 

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COM(2004) 581, 3.9.2004. 

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corrective arms of the Pact and contains recommendations for improving fiscal and statistical 
governance at both the EU and the national level.  

The preventive arm of the Pact has been strengthened by ensuring that due attention is given 
to the fundamentals of fiscal sustainability when setting medium-term budgetary objectives. It 
is  further  underpinned  by  the  Member  States’  commitment  to  actively  consolidating  public 
finances when they are experiencing favourable  economic  conditions  and  the  possibility  for 
the Commission to act by directly addressing policy advice to a Member State if it fails to do 
so.  The  new  agreement  also  includes  incentives  for  Member  States  to  carry  out  structural 
reforms,  with  a  view  to  making  the  fiscal  framework  more  consistent  with  the  renewed 
Lisbon  strategy3.  In  particular,  the  implications  of  major  structural  reforms  that  have  a 
verifiable positive impact on fiscal sustainability over the long-term will be taken into account 
in the assessment of budgetary policies. 

The main modifications to the corrective arm of the Pact concern the definition of “excessive 
deficits”  and  the  modalities  for  their  correction,  which  now  permit  a  more  comprehensive 
economic  assessment  of  budgetary  developments  in  the  implementation  of  the  EDP.  In 
particular, the new rules allow the one-year deadline for the correction of an excessive deficit 
to be extended by an additional year (on economic grounds) and certain steps in the EDP to 
be repeated (if unexpected adverse economic events occur and provided that effective action 
has  been  taken  by  the  Member  State  concerned  in  full  compliance  with  recommendations). 
The new agreement specifies a set of “relevant factors” that the Commission and the Council 
can  take  into  account  when  taking  decisions  on  the  EDP.  These  factors  include,  inter  alia, 
developments in potential growth and prevailing cyclical conditions, but also considerations 
with respect to debt sustainability and the implementation of policies geared towards meeting 
the  objectives  of  the  Lisbon  agenda.  Budgetary  discipline  and  the  prompt  correction  of 
excessive deficits are ensured. Countries with deficits above 3% of GDP that are not close to 
the  reference  value  or  that  are  not  temporary  would  be  considered  in  an  excessive  deficit 
position.  Furthermore,  Member  States  in  EDP  are  requested  to  undertake  a  minimum  fiscal 
effort. Finally, when assessing whether the excessive deficit has been corrected, the Council 
shall carefully consider an excess of the reference value which reflects the implementation of 
pension reforms implying a mandatory partial or total shift from pay-as-you go to funding.  

In  order  to  fully  restore  the  Pact’s  credibility  and  strengthen  the  enforcement  of  budgetary 
discipline,  the  ECOFIN  report  contains  complementary  elements  to  improve  fiscal 
governance. First, with a view to strengthening peer support, the Council and the Commission 
commit to publicly explaining their positions at the relevant stages of EU fiscal surveillance. 
Second, it is suggested that national-level rules and institutions could play a more prominent 
role  in  domestic  budgetary  surveillance,  thereby  underpinning  and  complementing  the 
surveillance procedures at the EU level. Third, with due respect to the national prerogative in 
this  area,  the  report  calls  for  a  greater  involvement  of  national  parliaments  in  the  EU  fiscal 
surveillance process, including by discussing stability and convergence programmes or action 
taken in response to EDP recommendations. Finally, the agreement underpins the work under 
way towards strengthening the governance of fiscal statistics. 

The  European  Council  of  22/23  March  2005  invited  the  Commission  to  put  forward 
legislative proposals to adapt the existing regulations in line with the new agreement. On 20 

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Commission Communication to the European Council “Working together for growth and jobs. A new 
start for the Lisbon Strategy” - COM(2005) 24, 2.2.2005.  

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April,  the  Commission  adopted  proposals  for  amending  Council  Regulations  (EC)  No 
1466/97 and (EC) No 1467/974. These proposals need to be adopted by the Council after due 
involvement of the European Parliament and the European Central Bank5. 

Overall, the way ahead with the implementation of SGP will be characterized by more room 
for  economic  judgement  in  the  fiscal  surveillance  procedure  and  in  the  assessment  of 
individual country cases. This allows for a more constructive and transparent policy dialogue 
between the Commission and the Council and among Member States and will help to restore 
a  sense  of  national  ownership  of  the  rules.  The  agreement  will  be  tested  in  the  months  and 
years ahead. The greater room for judgement stresses the importance of ensuring both equal 
treatment and effective enforcement in the implementation of the new system, thereby putting 
a  greater  responsibility  on  both  the  Commission  as  it  assesses  budgetary  developments  and 
the Council as it decides on what steps to take in the surveillance procedure.  

Developments in EU budgetary surveillance 

The  Public  Finances  in  EMU  report  regularly  provides  analytical  work  aimed  at  improving 
the  understanding  of  public  finance  issues  in  the  EU  and  upgrading  budgetary  surveillance. 
This  year  the  report  presents,  among  other  topics,  analysis  on  the  discrepancy  between 
budgetary  plans  presented  in  stability  and  convergence  programmes  and  results,  on  the 
determinants of debt dynamics, and on the long-term sustainability of public finances.  

Achieving an effective budgetary planning and its surveillance 

The process of fiscal surveillance has provided a wealth of data on budgetary plans, outcomes 
and  assessments,  which  has  been  used  with  a  view  to  comparing  actual  budgetary 
developments  relative  to  plans  and  to  evaluate  how  the  Commission  assessment  of  stability 
and convergence programmes evolved over the years. On the first aspect, the data show that 
slippages  between  budgetary  plans  and  outcomes  have  been  frequent  and  sizeable  in  some 
years,  even  controlling  for  growth  surprises.  Such  slippages  seem  mainly  associated  with 
differences  between  planned  and  realised  expenditure/GDP  ratios,  discrepancies  in  revenue 
ratios having played a minor role. Such analysis highlights the importance of finding ways to 
avoid  spending  slippages  and  better  plan  expenditure  patterns  in  a  manner  which  increases 
their quality - also to better match the new Lisbon priorities - and ensures their sustainability. 
The Commission has responded to the discrepancy between budgetary plans and outcomes by 
increasingly focusing its assessment on the credibility of the adjustment path described in the 
stability and convergence programmes, and by assessing Member States’ fiscal policies more 
comprehensively  over  time,  thereby  taking  into  greater  account  also  aspects  relating  to  the 
sustainability and quality of public finances.  

Understanding the determinants of debt dynamics 

In EU fiscal surveillance, increased focus is put on debt developments. The dynamics of the 
debt-to-GDP ratio depend on the realised budget balance, nominal growth, and the so called 
“stock-flow  adjustment”,  capturing  the  residual  discrepancy  between  the  change  in  the 
outstanding debt stock and the general government deficit, as defined in the Protocol to the 
Maastricht  Treaty.  The  usual  analysis  focuses  on  deficits  and  nominal  growth,  while  much 

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COM(2005) 154 and COM(2005) 155, 20.4.2005. 
The  Treaty  foresees  the  cooperation  procedure  for  Council  Regulation  (EC)  No  1466/97  and  the 
consultation procedure for Council Regulation (EC) No 1467/97. 

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less attention has been given to the stock-flow adjustment. However, this component conveys 
relevant information about the evolution of government assets and liabilities (e.g., as a result 
of privatisation operations) and the discrepancy between cash and accrual deficits. The Public 
Finances in EMU report aims to fill this gap by analysing the determinants of the stock-flow 
adjustment for EU Member States. It shows that the stock-flow adjustment in past years has, 
on  average,  been  positive  (consequently  adding  to  the  build-up  of  debt)  and  that  in  some 
countries 
is  partly  associated  with  cash  deficits  being 
systematically  higher  than  “Maastricht  deficits”.  This  evidence  further  supports  the 
importance of paying attention to debt dynamics in budgetary surveillance. 

the  stock-flow  adjustment 

Increasing focus on the long-term sustainability of public finances  

The  looming  budgetary  implications  of  ageing  populations  and  the  need  to  finance  in  a 
sustainable  way  the  European  social  model  are  broadening  the  focus  of  public  finance 
management and budgetary surveillance in the EU to encompass considerations of long-term 
sustainability.  In  line  with  the  renewed  Lisbon  strategy  and  the  Integrated  Guidelines  for 
Growth  and  Jobs6,  many  countries  have  implemented  important  reforms  with  a  view  to 
strengthening  sustainability.  The  impact  of  such  reforms  on  sustainability,  however,  is  not 
easily quantifiable, nor easily comparable across countries. 

At the EU level, sustainability analysis is carried out by the Commission services since 2001 
in the context of the assessment of the stability and convergence programmes, on the basis of 
data  provided  therein  and  estimates  of  age-related  expenditures  up  to  2050.  The  Public 
Finance in EMU-2005 report indicates that without a medium-term budgetary consolidation a 
sustainable  position  will  not  be  reached  for  most  Member  States.  Sustainability  risks  are 
identified in ten Member States (Belgium, Czech Republic, Germany, Greece, France, Italy, 
Cyprus,  Hungary,  Malta  and  Slovenia).  The  report  also  describes  the  current  Commission 
approach to carrying out sustainability analysis, discusses the robustness of debt projections 
and  sustainability  indicators  with  respect  to  the  major  assumptions  underlying  the  analysis, 
and outlines suggestions for possible improvements.  

In  light  of  the  2005  SGP  reform  package,  long-term  considerations  will  be  given  greater 
prominence  in  EU  budgetary  surveillance.  In  this  respect,  increased  information  exchange 
among  Member  States  and  with  the  Commission  on  national  age-related  expenditure 
projections  would  increase  transparency  and  lead  to  a  better  assessment  of  the  long-term 
sustainability  of  public  finances  and  of  their  implications  for  the  setting  of  medium-term 
objectives7. 

Structural reforms and budgetary objectives 

The  Commission  mid-term  review  of  the  Lisbon  strategy  and  the  Integrated  Guidelines  for 
Growth  and  Jobs  drew  greater  attention  to  economic  reforms  which  increase  growth  and 
employment through action at the macro, micro and employment level. Part III of the Public 
Finances  in  EMU  report  reviews  and  discusses  the  link  between  the  implementation  of 
structural reforms and budgets in implementing the EU framework for fiscal policy, an under-
researched issue that is expected to become more relevant in EU budgetary surveillance. 

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COM(2005) 141, 12.4.2005. 
The Commission will report by the end of 2006 on the progress achieved on this front. 

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Reforms  can  substantially  improve  government  accounts  in  the  medium  to  long  term.  For 
example,  reforms  directly  aimed  at  containing  the  growth  of  certain  types  of  government 
expenditures  (for  instance,  pension  reforms  or  efficiency  improvements  in  the  health  care 
sector, allowing a more effective response to ageing-related pressures) can have an impact on 
the future path of government budgets and debt8. Reforms that improve potential output and 
growth  (including,  for  instance,  labour  and  product  market  reforms)  may  also  have  indirect 
positive  effects.  It  is  often  claimed  that  numerical  rules  to  limit  deficits  may  discourage 
structural  reforms.  A  first  reason  for  why  there  could  be  a  trade-off  between  reforms  and 
budgetary  objectives  is  the  presence  of  short-term  direct  budgetary  costs  of  reforms  (e.g., 
pension  reforms  introducing  a  funded  pillar  outside  the  government  sector  or  public 
investment  in  education  and  training  which  bring  long-term  benefits  that  may  more  than 
compensate the initial costs). A second reason is related to the fact that reforms can be costly 
to particular groups in the society, so that tax cuts or government transfers may be needed to 
overcome resistance to their introduction.  

The  analysis  contained  in  the  Public  Finances  in  EMU  report  considers  labour  and  product 
market and pension reforms (without contemplating growth-enhancing projects with up-front 
budgetary costs such as the development of physical infrastructure, education and training, or 
R&D) and focuses on two issues. First, which impact do reforms have on budgets in the short 
term?  Second,  is  there  evidence  that  fiscal  consolidations  prevent  reforms?  In  spite  of 
limitations  related  to  the  quality  and  availability  of  data  on  structural  reforms,  the  analysis 
provides  interesting  results.  The  expectation  that  reforms  are  less  frequent  in  years  where  a 
budgetary  consolidation  takes  place  does  not  seem  to  be  strongly  supported  by  the  data. 
However,  in  the  aftermath  of  reforms  there  is  in  general  a  slight  deterioration  in  budget 
balances. Results differ depending on the type of reforms considered and on how reforms are 
designed. The analysis gives some indications that the reform of the SGP has gone in the right 
direction,  but  also  that  caution  should  be  taken  on  the  way  structural  reforms  are  to  be 
considered  in  the  implementation  of  the  SGP.  In  light  of  the  high  variance  of  results,  a 
mechanistic,  one-size-fits-all  approach  where  all  reforms,  or  all  reforms  belonging  to  some 
broad  categories,  are  considered  the  same  way  should  be  avoided.  This  means  that  careful 
judgement  is  needed  on  a  case-by-case  basis  and  considering  the  relevant  features  of  the 
specific reforms at stake. 

The  2005  SGP  reform  package  includes  provisions  aimed  at  ensuring  that  the  budgetary 
objectives of the EU fiscal framework do not clash with structural reforms that may contribute 
to  sound  public  finances  and  increased  growth  in  the  medium  to  long  run.  Applying  them 
along  the  lines  above  could  support  an  efficient  contribution  of  public  finances  to  a 
sustainable Lisbon strategy. 

Fiscal challenges during convergence in the recently acceded Member States 

By  acceding  in  2004,  ten  Member  States  have  achieved  an  important  step  in  the  process  of 
integration to the EU. Economic integration however is expected to continue through catching 
up  of  their  income  levels  and  the  prospective  adoption  of  the  euro  as  their  currency.  Fiscal 
policy  can  make  a  key  contribution  in  this  process  of  these  countries  through  efficient  and 
sustainable  tax  and  expenditure  policies  and  by  supporting  a  stable  development  of  the 
economy. Over the long run, these two roles are complementary. Strong growth enhances the 

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Efficiency  gains  are  a  key  factor  for  a  positive  long-term  impact  of  structural  reforms  on  public 
finances. Improved public procurement practices could contribute to the realization of such gains. 

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economy’s financing capacity, while stability is crucial for private investment and sustainable 
catching  up.  In  the  short  run,  though,  some  of  the  new  Member  States  may  need  to  make 
choices:  higher  spending  on  infrastructure,  training  or  R&D  can  make  it  harder  to  contain 
budget deficits, and tax and pension reforms introducing funded pillars recorded outside the 
government sector may also involve up-front budgetary costs. Part IV of the Public Finance in 
EMU  –  2005  report  discusses  the  main  challenges  for  the  conduct  of  fiscal  policy  the  new 
Member States may face in the coming years. 

to  experience  a  degree  of  volatility 

The  new  Member  States  have  certain  advantages  that  allow  them  to  finance  part  of  their 
needs:  high  potential  growth  and,  in  some  cases,  low  public  debt.  However,  they  may 
continue 
their  public  finances,  reflecting 
transformations under way in the real economy and, for the Baltic region and Central Europe, 
in the financial sector. Moreover, the stock of contingent liabilities is relatively high in many 
recently  acceded  Member  States,  and  this  creates  the  risk  of  sudden  upward  jumps  in  debt 
levels  as  factors  triggering  government  payments  related  to  explicit  or  implicit  guarantees 
materialize.  

in 

Experience  in  other  Member  States  highlights  the  importance  of  using  periods  of  strong 
growth to achieve budgetary improvements and thus to ensure adequate headroom to stabilise 
the economy during a downturn. This lesson is of the highest relevance for the Member States 
of recent accession. In light of the possible emergence of credit and asset price booms in these 
countries,  it  will  be  important  that  in  setting  targets  for  fiscal  policy  there  is  no  over-
estimation of potential growth and that transitory elements are properly identified in assessing 
the  dynamics  of  tax  revenues.  In  the  run-up  to  euro  adoption,  moreover,  the  credibility  of 
budgetary plans and a balanced policy mix are particularly important. These factors call for 
prudence  in  setting  medium-term  fiscal  goals.  Meanwhile,  in  countries  that  retain  national 
currencies  for  an  extended  period,  care  is  needed  concerning  the  build-up  of  balance  sheet 
vulnerabilities associated with unhedged borrowing in foreign currencies. 

While acknowledging the differences among them, there is some scope for policy-makers in 
the new Member States to achieve synergies in pursuing growth and stability objectives. First, 
there is room to restructure existing expenditure programmes and enhance tax bases in ways 
that  both  strengthen  their  public  finances  and  improve  the  incentives  for  growth,  possibly 
already  in  the  short  term.  Second,  fiscal  institutions  could  be  improved  upon,  including 
through enhanced transparency of budgetary procedures and effective frameworks for multi-
annual  budgetary  planning  and  expenditure  control.  Third,  well-conceived  supervisory 
policies would improve risk management in the private sector, thereby containing government 
contingent  liabilities,  and  well-designed  monetary  policies  would  steer  market  expectations 
towards stability.  

* 

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* 

Overall,  the  analysis  carried  out  indicates  that  while  the  framework  for  economic  and 
budgetary  surveillance  in  EMU  has  provided  positive  results  -  in  terms  of  budgetary 
achievements  and  reforms  already  undertaken  by  most  Member  States  -  more  needs  to  be 
done to deliver the expected results. The reform of the Stability and Growth Pact, in parallel 
with the re-launch of the Lisbon strategy, have reinforced the correspondence of the rules and 
governance processes with the economic reality and needs of Europe and its Member States. 
The synergies between macroeconomic stability and the creation of growth and employment 
through  important  reforms  of  the  economy  should  now  be  exploited.  As  in  the  case  of  the 

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renewed Lisbon strategy, the reformed Stability and Growth Pact will be tested in the months 
and  years  ahead:  the  way  the  new  framework  will  be  implemented  from  the  start  will  be 
crucial for its credibility and the overall success of the ambitious approach which Europe has 
decided  to  embrace.  All  Member  States  of  the  EU  are  strongly  encouraged  to  pursue  this 
strategy by enhancing the quality and ensuring the sustainability of their public finances. 

EN 

9 

   EN