2005/730/EC: Council Decision of 20 September 2005 on the existence of an excessive deficit in Portugal
Date: 2005-10-20
Institutions: Council of the European Union
Subjects: Portugal, budget deficit, public finance, stability pact

20.10.2005

EN

Official Journal of the European Union

L 274/91

COUNCIL DECISION

of 20 September 2005

on the existence of an excessive deficit in Portugal

(2005/730/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community, and in particular Article 104(6) thereof,

establishing the European

Having regard to the recommendation from the Commission,

Having regard to the observations made by Portugal,

Whereas:

(1)

According to Article 104 of the Treaty Member States
shall avoid excessive government deficits.

(5)

(6)

(2)

(3)

(4)

sound

government

The Stability and Growth Pact is based on the objective
of
of
strengthening the conditions for price stability and for
strong sustainable growth conducive to employment
creation.

a means

finances

as

The
excessive deficit procedure under Article 104
provides for a decision on the existence of an excessive
deficit. The Protocol on the excessive deficit procedure
annexed to the Treaty sets out further provisions relating
to the implementation of the excessive deficit procedure.
Council Regulation (EC) No 3605/93 of 22 November
1993 (1) lays down detailed rules and definitions for the
application of the provision of the said Protocol.

Article 104(5) of the Treaty requires the Commission to
address an opinion to the Council
if the Commission
considers that an excessive deficit in a Member State
exists or may occur. The Commission addressed such
an opinion on Portugal
to the Council on 20 July
2005. Having taken into account its report in accordance
with Article 104(3) of the Treaty and having regard to

(1) 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).

the Treaty,

the opinion of the Economic and Financial Committee in
accordance with Article 104(4) of
the
there exists an excessive
Commission concluded that
the
deficit
in Portugal.
Commission took into account
to
the European Council on ‘Improving the implementation
of the Stability and Growth Pact’, endorsed by the latter
on 22 March 2005.

In delivering its assessment,

the Ecofin Report

Article 104(6) of the Treaty lays down that the Council
should consider any observations which the Member
State concerned may wish to make before deciding,
after an overall assessment, whether an excessive deficit
In the case of Portugal, this overall assessment
exists.
leads to the following conclusions.

it

is it

result

According to the June 2005 update of the Portuguese
the planned general government
stability programme,
deficit
is in
is 6,2 % of GDP for 2005. The deficit
excess of the 3 % of GDP reference value and not close
to it. The excess of the deficit over the reference value
from an unusual event outside the
does not
control of
the
the Portuguese authorities, nor
result of a severe economic downturn. While the rate
of GDP growth has declined sharply since 2000, the
economy returned to positive economic growth in
2004 and,
according to the Commission services
Spring 2005 forecasts and the June 2005 updated
stability programme,
is expected to remain on a
gradual, even if moderate, upward trend for the years
to come. Moreover, although the negative output gap is
sizeable and not expected to narrow significantly in the
coming years,
the government
the deterioration of
balance is out of proportion with the recent widening
the
of
reference value cannot be considered as resulting from
a severe economic downturn. According to Commission
services Spring 2005 forecast,
the government deficit
ratio is projected to exceed its Treaty reference value
by a large margin also in 2006, when the recovery of
the economy is expected to gradually take hold. In fact,
the
stability
programme foresees the government deficit to narrow
to exceed the reference
over
value until 2007.

the output gap. Therefore,

June 2005 update of

the coming years, but

the excess over

the Portuguese

(7)

The excess over the reference value cannot be considered
temporary in the sense of the Treaty and the Stability
that
and Growth Pact. This
the Treaty
requirement
criterion is not
fulfilled.

indicates
concerning the deficit

L 274/92

EN

Official Journal of the European Union

20.10.2005

(8)

(9)

contained

the Treaty in 2003,

The debt-to-GDP ratio breached the 60 % of GDP
reference value of
reaching to
61,9 % in 2004, an increase of some 8,5 percentage
points of GDP since 2000. The increase in the debt
ratio can be explained by a very low primary surplus,
the existence of a sizeable debt-increasing stock-flow
adjustment and also by the low nominal GDP growth.
Moreover, the projected debt figures for the years 2005
to 2007,
June 2005 stability
in the
programme update, and broadly in line with the debt
projections of
the Commission services Spring 2005
forecast, suggest a further sharp increase in the debt
ratio up to a peak of just below 68 % in 2007. This
conflicts with the Treaty requirement that, in the event
of an excess over the 60 % of GDP reference value, the
‘debt ratio is sufficiently diminishing and approaching the
reference value at a satisfactory pace’. This indicates that
the Treaty requirement concerning the debt criterion is
not fulfilled either.

According to the Ecofin Report to the European Council
on ‘Improving the implementation of the Stability and
Growth Pact’, taking into account other relevant factors
in the Council decision on the existence of an excessive
deficit in accordance with Article 104(6) of the Treaty,
‘must be fully conditional on the overarching principle
that — before other relevant
factors are taken into
account — the
is
reference value

excess of

the

remains

and the deficit

to the
temporary
reference value’. In the case of Portugal, this condition
is not met. Therefore, for the purpose of the Council
the
decision in accordance with Article 104(6) of
taken into
factors
Treaty, other
account in the case of Portugal,

are not

relevant

close

HAS ADOPTED THIS DECISION:

Article 1

From an overall assessment it follows that an excessive deficit
exists in Portugal.

Article 2

This decision is addressed to the Portuguese Republic.

Done at Brussels, 20 September 2005.

For the Council
The President

M. BECKETT