Council Regulation (EC) No 1055/2005 of 27 June 2005 amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
Date: 2005-06-27
Institutions: Council of the European Union
Subjects: multilateral surveillance, stability pact

7.7.2005

EN

Official Journal of the European Union

L 174/1

I

(Acts whose publication is obligatory)

COUNCIL REGULATION (EC) No 1055/2005

of 27 June 2005

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
Community, and in particular Article 99(5) thereof,

establishing the European

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Central Bank (1),

Acting in accordance with the procedure laid down in Article
252 of the Treaty (2),

Whereas:

(1)

initially consisted of
The Stability and Growth Pact
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 (3), Council Regulation (EC) No
1467/97 of 7 July 1997 on speeding up and clarifying
the implementation of the excessive deficit procedure (4)
and the Resolution of the European Council of 17 June
1997 on the Stability and Growth Pact (5). The Stability
and Growth Pact has proven its usefulness in anchoring
fiscal discipline, 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.

(2)

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

(1) OJ C 144, 14.6.2005, p. 17.
(2) Opinion of

the European Parliament of 9 June 2005 (not yet
published in the Official Journal), Council Common Position of 21
June 2005 (not yet published in the Official Journal) and Decision of
the European Parliament of 23 June 2005 (not yet published in the
Official Journal).

(3) OJ L 209, 2.8.1997, p. 1.
(4) OJ L 209, 2.8.1997, p. 6.
(5) OJ C 236, 2.8.1997, p. 1.

(3)

(4)

(5)

strengthening the economic underpinnings and the effec-
tiveness 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 2005 (6), which stated that the report updates
and complements the Stability and Growth Pact, of
which it is now an integral part.

According to the 20 March 2005 Ecofin report endorsed
by the Spring 2005 European Council,
the Member
States, the Council and the Commission reaffirm their
commitment to implement the Treaty and the Stability
and Growth Pact
in an effective and timely manner,
through peer support and peer pressure, and to act in
close and constructive cooperation in the process of
economic and fiscal surveillance,
in order to guarantee
certainty and effectiveness in the rules of the Pact.

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

to allow the full application of
the implementation of

In the light of

their budgetary positions of
(CTBOIS).

The Stability and Growth Pact lays down the obligation
to adhere to the medium-term
for Member States
‘close to
objective for
balance or in surplus’
the
economic and budgetary heterogeneity in the Union,
the medium-term budgetary objective should be differen-
tiated for individual Member States, to take into account
the diversity of economic and budgetary positions and
developments as well as of fiscal risk to the sustainability
of public finances, also in the face of prospective demo-
graphic changes. The medium-term budgetary objective
may diverge from CTBOIS for individual Member States.
For euro area and ERM2 Member States, there would
country-specific
thus be
medium-term budgetary objectives, in cyclically adjusted
terms, net of one-off and temporary measures.

a defined range

the

for

(6) Annex 2 of conclusions of the European Council of 22 and 23

March 2005.

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Official Journal of the European Union

7.7.2005

(6)

(7)

(8)

(9)

A more symmetrical approach to fiscal policy over the
cycle through enhanced budgetary discipline in economic
good times should be achieved, with the objective to
avoid pro-cyclical policies and to gradually reach the
medium-term budgetary objective. Adherence to the
medium-term budgetary objective should 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 should allow
room for budgetary manoeuvre, in particular for public
investment.

Member States that have not yet reached their medium-
term budgetary objective should take steps to achieve it
over the cycle.
In order to reach their medium-term
budgetary objective, Member States of the euro zone or
of ERM2 should pursue a minimum annual adjustment
in cyclically adjusted terms, net of one-offs and other
temporary measures.

In order to enhance the growth-oriented nature of the
Pact, major structural reforms which have direct long-
including by raising potential
term cost-saving effects,
growth, and therefore a verifiable impact on the long-
term sustainability of public finances, should be taken
into account when defining the adjustment path to the
medium-term budgetary objective for countries that have
not yet
reached this objective and in allowing a
temporary deviation from this objective for countries
that have already reached it.
In order not to hamper
structural reforms that unequivocally improve the long-
term sustainability of public finances, special attention
should be paid to pension reforms introducing a multi-
pillar system that
fully funded
pillar, because these reforms entail a short-term dete-
rioration of public finances during the implementation
period.

includes a mandatory,

set

for

the examination of

stability and
Deadlines
convergence programmes by the Council
should be
extended in order to allow for a thorough assessment
of stability and convergence programmes,

HAS ADOPTED THIS REGULATION:

‘SECTION 1A

MEDIUM-TERM BUDGETARY OBJECTIVES

Article 2a

Each Member State shall have a differentiated medium-term
objective for its budgetary position. These country-specific
medium-term budgetary objectives may diverge from the
requirement of a close to balance or in surplus position.
They shall provide a safety margin with respect to the 3 %
of GDP government deficit ratio; they shall ensure rapid
progress
into
account, they shall allow room for budgetary manoeuvre,
considering in particular the needs for public investment.

sustainability

towards

taking

and,

this

Taking these factors into account, for Member States that
have adopted the euro and for ERM2 Member States the
country-specific medium-term budgetary objectives shall be
specified within a defined range between – 1 % of GDP and
balance or surplus, in cyclically adjusted terms, net of one-off
and temporary measures.

A Member State’s medium-term budgetary objective can be
revised when a major structural reform is implemented and
in any case every four years.’;

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

(a) point (a) shall be replaced by the following:

‘(a)

and the
the medium-term budgetary objective
the
adjustment path towards
general
the
expected path of the general government debt ratio;’

this objective for

surplus/deficit

government

and

(b) point (c) shall be replaced by the following:

‘(c) a detailed and quantitative

assessment of

the
budgetary and other economic policy measures
the
being taken and/or proposed to achieve
objectives
a
detailed cost-benefit analysis of major structural
reforms which have direct
long-term cost-saving
effects, including by raising potential growth;’

programme,

comprising

the

of

Regulation (EC) No 1466/97 is amended as follows:

Article 1

(c)

the following point shall be added:

1. the following heading and Article shall be inserted;

‘(e)

if applicable, the reasons for a deviation from the
required adjustment path towards the medium term
budgetary objective.’;

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3. Article 5 is amended as follows:

the condition that the deviation remains temporary and
that an appropriate safety margin with respect to the
deficit reference value is preserved’;

(a)

the first subparagraph of paragraph 1 shall be replaced
by the following subparagraphs:

(b) In paragraph 2, ‘two months’ shall be replaced by ‘three

months’;

the Treaty,

‘1.
Based on assessments by the Commission and the
Committee set up by Article 114 of
the
Council
shall, within the framework of multilateral
the Treaty, examine
surveillance under Article 99 of
the medium-term budgetary objective presented by the
Member State concerned, assess whether the economic
assumptions on which the programme is based are
the
plausible, whether
medium-term budgetary objective is appropriate and
whether the measures being taken and/or proposed to
respect that adjustment path are sufficient to achieve the
medium-term objective over the cycle.

the adjustment path towards

concerned pursues

The Council, when assessing the adjustment path toward
the medium-term budgetary objective, shall examine if
the Member State
annual
its cyclically-adjusted balance, net of
improvement of
one-off and other
required to
meet its medium-term budgetary objective, with 0,5 %
of GDP as a benchmark. The Council shall take into
account whether a higher adjustment effort is made in
economic good times, whereas the effort may be more
limited in economic bad times.

temporary measures,

the

When defining the adjustment path to the medium-term
budgetary objective for Member States that have not yet
reached this objective and in allowing a temporary
deviation from this objective for Member States that
have already reached it, under the condition that an
to the deficit
appropriate safety margin with respect
reference value is preserved and that
the budgetary
position is expected to return to the medium-term
budgetary objective within the programme period, the
Council shall take into account the implementation of
major structural reforms which have direct long-term
cost-saving
potential
growth, and therefore a verifiable impact on the long-
term sustainability of public finances.

including

effects,

raising

by

Special attention shall be paid to pension reforms intro-
ducing a multi-pillar system that includes a mandatory,
fully funded pillar. Member States implementing such
reforms shall be allowed to deviate from the adjustment
path to their medium-term budgetary objective or from
the objective itself, with the deviation reflecting the net
cost of the reform to the publicly managed pillar, under

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

(a) point (a) shall be replaced by the following:

‘(a)

government

this objective for

and the
the medium-term budgetary objective
the
adjustment path towards
the
general
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;’

surplus/deficit

and

(b) point (c) shall be replaced by the following:

‘(c) a detailed and quantitative

assessment of

the
budgetary and other economic policy measures
the
being taken and/or proposed to achieve
objectives
a
detailed cost-benefit analysis of major structural
reforms which have direct
long-term cost-saving
effects, including by raising potential growth;’

programme,

comprising

the

of

(c)

the following point shall be added:

‘(e)

if applicable, the reasons for a deviation from the
required adjustment path towards the medium term
budgetary objective.’;

5. Article 9 is amended as follows:

(a) The first subparagraph of paragraph 1 shall be replaced

by the following subparagraphs:

‘1.
Based on assessments by the Commission and the
the
Committee set up by Article 114 of the Treaty,
shall, within the framework of multilateral
Council
surveillance under Article 99 of
the Treaty, examine
the medium-term budgetary objective presented by the
Member State concerned, assess whether the economic
assumptions on which the programme is based are
plausible, whether
the
medium-term budgetary objective is appropriate and
whether the measures being taken and/or proposed to
respect that adjustment path are sufficient to achieve the
medium-term objective over the cycle.

the adjustment path towards

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The Council, when assessing the adjustment path toward
the medium-term budgetary objective, shall
take into
account whether a higher adjustment effort is made in
economic good times, whereas the effort may be more
limited in economic bad times. For ERM2 Member
States, the Council shall examine if the Member State
concerned pursues
its
the annual
cyclically adjusted balance, net of one-off and other
temporary measures, required to meet its medium-term
budgetary objective, with 0,5 % of GDP as a benchmark.

improvement of

Special attention shall be paid to pension reforms intro-
ducing a multi-pillar system that includes a mandatory,
fully funded pillar. Member States implementing such
reforms shall be allowed to deviate from the adjustment
path to their medium-term budgetary objective or from
the objective itself, with the deviation reflecting the net
cost of the reform to the publicly managed pillar, under
the condition that the deviation remains temporary and
that an appropriate safety margin with respect to the
deficit reference value is preserved.’;

When defining the adjustment path to the medium-term
budgetary objective for Member States that have not yet
reached this objective and in allowing a temporary
deviation from this objective for Member States that
have already reached it, under the condition that an
to the deficit
appropriate safety margin with respect
reference value is preserved and that
the budgetary
position is expected to return to the medium-term
budgetary objective within the programme period, the
Council shall take into account the implementation of
major structural reforms which have direct long-term
cost-saving
potential
growth, and therefore a verifiable impact on the long-
term sustainability of public finances.

including

effects,

raising

by

(b) in paragraph 2, ‘two months’ shall be replaced by ‘three

months’;

6. references to Articles 103 and 109c of
the Regulation by

replaced throughout
Articles 99 and 114 respectively.

the Treaty are
to

references

Article 2

This Regulation shall enter into force on the 20th day following
its publication in the Official Journal of the European Union.

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

Done at Luxembourg, 27 June 2005.

For the Council
The President

J.-C. JUNCKER