Council Regulation (EC) No 1056/2005 of 27 June 2005 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure
Date: 2005-06-27
Institutions: Council of the European Union
Subjects: European Union membership, budget deficit, stability pact

7.7.2005

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Official Journal of the European Union

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COUNCIL REGULATION (EC) No 1056/2005

of 27 June 2005

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

THE COUNCIL OF THE EUROPEAN UNION,

(3)

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 Commission,

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

Having regard to the opinion of the European Parliament (2),

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 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.

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 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.

(1) OJ C 144, 14.6.2005, p. 16.
(2) Opinion of 9 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.
(6) Annex 2 of conclusions of the European Council of 22 and 23

March 2005.

(4)

(5)

(6)

(7)

(8)

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
in order to guarantee
economic and fiscal surveillance,
certainty and effectiveness in the rules of the Pact.

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

to allow the full application of
the implementation of

The guiding principle for the application of the excessive
deficit procedure is the prompt correction of an excessive
deficit. The procedure should remain simple, transparent
and equitable.

resulting from a severe

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

In its report,

The Commission should always prepare a report on the
basis of Article 104(3) of the Treaty.
it
should examine whether the exceptions provided for in
Article 104(2) apply. The Commission report under
Article 104(3) should appropriately reflect developments
in the medium-term economic position and in the
Furthermore, due
medium-term budgetary position.
consideration should be given to any other
factors
which, in the opinion of the Member State concerned,
are relevant in order to comprehensively assess in quali-
tative terms the excess over the reference value.

system that

a multi-pillar

Careful consideration should be given in all budgetary
assessments in the framework of the excessive deficit
procedure to an excess close to the reference value
which reflects the implementation of pension reforms
a
introducing
mandatory, fully funded pillar, because the implemen-
tation of
those reforms leads to a short-term dete-
rioration of the budgetary position, while the long-term
In
sustainability of public finances clearly improves.
particular, when assessing under Article 104(12) of the
Treaty whether the excessive deficit has been corrected,
the Commission and the Council should assess devel-
opments in EDP deficit figures while also considering
the net cost of the reform to the publicly managed pillar.

includes

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(9)

The procedural deadlines for Council decisions in the
excessive deficit procedure should be extended in order
to allow the Member State concerned to better frame its
action within the national budgetary procedure and to
In
develop a more coherent package of measures.
particular,
to decide on
the deadline for the Council
the existence of an excessive deficit in accordance with
Article 104(6) of the Treaty should be set, as a rule, to
four months after the reporting dates established in
and (3) of Council Regulation (EC)
Article 4(2)
No 3605/93 of 22 November 1993 on the application
the Protocol on the excessive deficit procedure
of
annexed to the Treaty
the European
Community (1). 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.

establishing

(10)

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
to achieve an annual minimum fiscal
improvement in
their cyclically adjusted balance, net of one-off and
temporary measures. As a benchmark, countries
in
excessive deficit will be required to achieve an annual
minimum fiscal effort in cyclically adjusted terms, net
of one-off and temporary measures.

(11) 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.

(12)

(13)

If the Member State concerned has taken effective action
in response to a recommendation under Article 104(7) of
the Treaty or a notice issued under Article 104(9) and
unexpected adverse economic events with major negative
consequences
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).

finances prevent

for government

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 possi-
bility to issue revised recommendations under Article
104(7) of the Treaty or revised notices under Article
104(9). The overall maximum period should therefore
be adjusted in accordance with these amendments.

(14)

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,

(1) OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regu-

lation (EC) No 351/2002 (OJ L 55, 26.2.2002, p. 23).

HAS ADOPTED THIS REGULATION:

Article 1

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

1.

in Article 2, paragraphs 2 and 3 shall be replaced by the
following paragraphs:

‘2.
The Commission and the Council, when assessing and
deciding upon the existence of an excessive deficit
in
accordance with Article 104(3) to (6) 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 annual GDP volume
growth rate or from an accumulated loss of output during a
protracted period of very low annual GDP volume growth
relative to its potential.

the

cyclical

conditions,

the Treaty shall

The Commission, when preparing a report under
3.
take into account all
Article 104(3) of
relevant
factors as indicated in that Article. The report
shall appropriately reflect developments in the medium-
term economic position (in particular potential growth,
prevailing
implementation of
policies in the context of the Lisbon agenda and policies
to foster research and development and innovation) and
developments in the medium-term budgetary position (in
particular, fiscal consolidation efforts in “good times”, debt
sustainability, public investment and the overall quality of
the Commission shall give
public finances). Furthermore,
in the
due consideration to any other
opinion of
in
order to comprehensively assess in qualitative terms the
excess over the reference value and which the Member
forward to the Commission and to the
State has put
Council.
special consideration shall be
given to budgetary efforts towards increasing or maintaining
at a high level financial contributions to fostering interna-
tional 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.
these
A balanced overall assessment shall encompass all
factors.

the Member State concerned, are relevant

In that context,

factors which,

If the double condition of the overarching principle —
4.
that, before the relevant factors mentioned in paragraph 3
are taken into account,
the general government deficit
remains close to the reference value and its excess over
the reference value is temporary — is fully met,
these
factors
in the steps
shall also be taken into account
leading to the decision on the existence of an excessive
deficit, foreseen in paragraphs 4, 5 and 6 of Article 104
of the Treaty. The balanced overall assessment to be made
by the Council shall encompass all these factors.

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in the framework of

The Commission and the Council,

in all budgetary
5.
assessments
the excessive deficit
procedure, shall give due consideration to the implemen-
tation of pension reforms introducing a multi-pillar system
that includes a mandatory, fully funded pillar.

6.
If the Council has decided, on the basis of Article
104(6) of the Treaty, that an excessive deficit exists in a
Member State, the Commission and the Council shall take
into account the relevant factors mentioned in paragraph 3
also in the subsequent procedural steps of Article 104,
including as specified in Articles 3(5) and 5(2) of this Regu-
lation. However those relevant factors shall not be taken into
account
the Council under Article
104(12) of the Treaty on the abrogation of some or all of
its decisions under paragraphs 6 to 9 and 11 of Article 104.

the decision of

for

the cost of

7.
In the case of Member States where the deficit exceeds
the reference value, while remaining close to it, and where
this excess reflects the implementation of a pension reform
introducing a multi-pillar system that includes a mandatory,
fully funded pillar, the Commission and the Council shall
also consider
the reform to the publicly
managed pillar when assessing developments in EDP deficit
figures. For that purpose, consideration shall be given to the
net cost of the reform on a linear degressive basis for a
transitory period of five years. This net cost shall be taken
into account also for the decision of the Council under
Article 104(12) of the Treaty on the abrogation of some
or all of its decisions under paragraphs 6 to 9 and 11 of
the deficit has declined substantially and
Article 104,
continuously and has reached a level that comes close to
the reference value.’;

if

2. Article 3 is hereby amended as follows:

(a) paragraph 3 shall be replaced by the following:

‘3.
The Council shall decide on the existence of an
excessive deficit in accordance with Article 104(6) of
the Treaty, as a rule within four months of
the
reporting dates established in Article 4(2) and (3) of
Regulation (EC) No 3605/93. 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) of the Treaty.’;

(b) paragraph 4 shall be replaced by the following para-

graphs:

‘4.
The Council recommendation made in accordance
with Article 104(7) of
the Treaty shall establish a
deadline of six months at most for effective action to
be taken by the Member State concerned. The Council
recommendation shall also establish a deadline for the
the excessive deficit, which should be
correction of

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 of at least 0,5 % of
GDP as a benchmark, in its 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.

that

5.
If effective action has been taken in compliance
with a recommendation under Article 104(7) and unex-
pected adverse economic events with major unfavourable
consequences for government finances occur after the
adoption of
the Council may
recommendation,
decide, on a recommendation from the Commission, to
adopt a revised recommendation under Article 104(7).
The revised recommendation, taking into account the
relevant factors mentioned in Article 2(3) of this Regu-
lation, may notably extend the deadline
the
correction of
the excessive deficit by one year. The
Council shall assess the existence of unexpected adverse
economic events with major unfavourable consequences
for government finances against the economic forecasts
in its recommendation.’;

for

3. Article 5 shall be replaced by the following:

‘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) of the Treaty
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
least 0,5 % of GDP as a
benchmark, in its 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.

improvement of at

2.
If effective action has been taken in compliance with a
notice under Article 104(9) of the Treaty and unexpected
adverse economic events with major unfavourable conse-
quences for government finances occur after the adoption
of that notice, the Council may decide, on a recommen-
to adopt a revised notice
dation from the Commission,
the Treaty. The revised notice,
under Article 104(9) of
taking into account
factors mentioned in
this Regulation, may notably extend the
Article 2(3) of
deadline for the correction of the excessive deficit by one
year. The Council shall assess the existence of unexpected
adverse economic events with major unfavourable conse-
quences
the economic
forecasts in its notice.’;

finances against

for government

the relevant

4.

in Article 6, second sentence, the words ‘two months’ shall
be replaced by the words ‘four months’;

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5. Article 7 shall be replaced by the following:

‘Article 7

to impose sanctions,

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) of the Treaty, the decision of the
Council
in accordance with Article
104(11), shall be taken as a rule within sixteen months of
the reporting dates established in Article 4(2) and (3) of
Regulation (EC) No 3605/93. In case Article 3(5) or 5(2)
of this Regulation is applied, the sixteen-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 hereby amended as follows:

(a) paragraph 2 shall be 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 6 nor in the period referred to in Article 7
of this Regulation.’;

(b) the following paragraph shall be added:

‘3.
Following the expiry of the period referred to in
the first sentence of Article 3(4) and following the expiry
the period referred to in the second sentence of
of
the Commission shall
this Regulation,
Article 6 of
the measures
if
inform the Council
it considers that
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 104c, 109e, 109f and 201 of the Treaty
shall be replaced throughout the Regulation by references to
Articles 104, 116, 117 and 269, respectively. Reference to
Article D of the Treaty on European Union is replaced by
reference to Article 4;

8. the Annex to Regulation (EC) No 1467/97 shall be replaced

by the Annex to this Regulation.

Article 2

This Regulation shall enter into force on the 20th day following
the European
that of
Union.

its publication in the Official

Journal of

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

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ANNEX

‘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

“as a rule, within four months of the reporting dates estab-
lished in Article 4 (2) and (3) of Council Regulation (EC)
No 3605/93”
(Article 3(3))

“the year following its identification”
(Article 3(4))

“as a rule, within sixteen months of reporting dates estab-
lished in Article 4(2)
and (3) of Regulation (EC)
No
3605/93”
(Article 7)

“as a rule, within six months after the end of the budgetary
year in which the deficit occurred”

“the budgetary year following its identification”

“as a rule, within eighteen months from the end of the
budgetary year in which the deficit occurred”

“the preceding year”
(Article 12(1))

“the preceding budgetary year” ’