2005/843/EC: Council Decision of  8 November 2005  establishing, in accordance with Article 104(8) of the Treaty establishing the European Community, that the action taken by Hungary in response to the recommendation of the Council of  8 March 2005  pursuant to Article 104(7) of the Treaty is proving to be inadequate
Date: 2005-11-08
Institutions: Council of the European Union
Subjects: Hungary, economic stabilisation, gross domestic product, loss, public finance, stability programme

L 314/18

EN

Official Journal of the European Union

30.11.2005

II

(Acts whose publication is not obligatory)

COUNCIL

COUNCIL DECISION

of 8 November 2005

establishing, in accordance with Article 104(8) of the Treaty establishing the European Community,
that the action taken by Hungary in response to the recommendation of the Council of 8 March
2005 pursuant to Article 104(7) of the Treaty is proving to be inadequate

(2005/843/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community, and in particular Article 104(8) thereof,

establishing the European

Having regard to the recommendation from the Commission,

Whereas:

(1)

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

(3)

(4)

(5)

The Resolution of the European Council on the Stability
and Growth Pact in Amsterdam of 17 June 1997 (2)
solemnly invites all parties, namely the Member States,
the
the Council and the Commission,
Treaty and the Stability and Growth Pact
in a strict
and timely manner.

to implement

By Council Decision 2004/918/EC of 5 July 2004, the
Council decided, in accordance with Article 104(6), that
an excessive deficit exists in Hungary (3).

the Treaty and
In accordance with Article 104(7) of
Article 3(4) of Regulation (EC) No 1467/97, on 5 July
2004 the Council also adopted a recommendation (4)
addressed to the Hungarian authorities and calling on
them to bring the existence of an excessive deficit to
an end as rapidly as possible and to take action in a
medium-term framework to achieve the objective of
bringing the deficit below 3 % of GDP by 2008 in a
credible and sustainable manner,
in accordance with
the path for deficit reduction specified in the convergence
programme submitted by the authorities and endorsed in
the Council of 5 July 2004 (5). That
the opinion of
recommendation
5
November 2004 for
to
take effective action regarding the measures envisaged
to achieve the original 2005 deficit target of 4,1 % of
GDP.

of
the Hungarian Government

established

deadline

the

(2)

as

sound

finances

a means

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. The Stability
includes
Council Regulation (EC) No 1467/97 of 7 July 1997
on speeding up and clarifying the implementation of
the excessive deficit procedure (1), which was adopted
in order to further the prompt correction of excessive
general government deficits.

and Growth Pact

(1) OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC)

(5) http://register.consilium.eu.int/pdf/en/04/st11/st11194.en04.pdf#

No 1056/2005 (OJ L 174, 7.7.2005, p. 5).

page=2

(2) OJ C 236, 2.8.1997, p. 1.
(3) http://ue.eu.int/ueDocs/cms_Data/docs/pressData/en/ecofin/81342.

pdf#page=8 (OJ L 389, 30.12.2004, p. 27).

(4) http://register.consilium.eu.int/pdf/en/04/st11/st11218.en04.pdf#

page=2

30.11.2005

EN

Official Journal of the European Union

L 314/19

(6)

(7)

(8)

On 18 January 2005, in accordance with Article 104(8)
of the Treaty, on the basis of a recommendation by the
Commission, the Council recognised that a number of
measures had been taken to reduce the government
in 2004 and 2005 by the deadline of 5
deficit
November 2004. However, it considered that they were
not sufficient to achieve the targets and would not avoid
a deviation from the planned adjustment path of the
Hungarian convergence programme of May 2004.
Moreover, it considered that the continued commitment
of the government to correct the excessive deficit by
2008 needed to be underpinned by decisive measures
of further fiscal consolidation and a more determined
pursuit of structural reforms. Against that background,
the Council decided that Hungary had not taken effective
action by 5 November 2004 in response to the recom-
mendation of 5 July 2004.

In accordance with Article 104(7) of
the Treaty and
Article 3(4) of Regulation (EC) No 1467/97, on 8
March 2005 the Council adopted a second recommen-
dation (1) addressed to the Hungarian authorities and
calling on them to bring the existence of an excessive
deficit to an end as rapidly as possible and to take action
in a medium-term framework to achieve the objective of
bringing the deficit below 3 % of GDP by 2008 in a
credible and sustainable manner,
in accordance with
the path for deficit reduction specified in the convergence
programme update submitted by the Hungarian autho-
rities in December 2004 and endorsed in the opinion of
the Council of 8 March 2005. Among other things, that
recommendation established the deadline of 8 July 2005
for the Hungarian government to take effective action
regarding the measures envisaged to achieve the 2005
deficit target of 3,6 % of GDP (2).

the time,
the Government

On 13 July 2005 the Commission adopted a Commu-
nication on Hungary. On the basis of the information
including corrective measures
available at
decided by
in March and June
totalling 1,5 % of GDP to compensate for slippages and
the firm commitment of the Hungarian government to
carry out further measures if necessary, it stated that the
Hungarian authorities had taken effective action by the
deadline of 8 July 2005, although the situation remained
fragile and further measures would be needed in the
future.

(9)

However, the recent developments show that the action
taken by the Hungarian authorities is now proving to be
inadequate:

(1) http://europa.eu.int/comm/economy_finance/about/activities/sgp/edp/

com_ass_hu_22_dec_en.pdf

(2) The difference to the previous target of 3,8 % of GDP is based on
the increase in the contribution to the second pillar pension scheme
by 0,2 percentage point of GDP in the March 2005 fiscal notifi-
cation.

— the 2005 target of 3,6 % of GDP referred to in the
recommendation of the Council (and endorsed in the
opinion of the Council of March 2005 December
2004 update of the convergence programme) will
be missed by a sizeable margin and the Government
has decided not to take new action to correct any
slippages contrary to earlier commitments;
this is
confirmed by the revised EDP notification by the
Hungarian authorities on 20 September 2005 of a
deficit of 6,1 % of GDP for 2005. The outcome for
2005 will be worse if further slippages occur (not
excluded particularly on the expenditure side) and
are also not compensated by corrective measures.
According to this notification, the debt-to-GDP ratio
in 2005 will remain below the 60 % threshold, at
57,1 %,

the

update

— the target for 2006 contained in the convergence
recommendation
and
programme
adopted by the Council on 8 March 2005 that the
to 2,9 % of GDP has been
deficit be brought
abandoned by the
substantially
authorities. The
higher new target of 5,2 % of GDP (3) contained in
the draft budget for 2006 could be missed in the
absence of substantial expenditure reduction since
the planned tax reform is
expected to reduce
revenue by 1,1 % of GDP and the recently adopted
for 2006 does not contain compre-
draft budget
hensive measures of a structural nature that would
support such a substantial reduction in expenditure,

— the implementation of tax cuts in 2006 in particular
is contrary to the recommendation of the Council
that the timing and implementation of any tax cuts
be made conditional upon the achievement of the
deficit
convergence programme
update submitted in December 2004,

targets of

the

— the substantial deviation, both in 2005 and 2006,
from Hungary’s deficit adjustment path aiming at
correcting the excessive deficit by 2008, which was
set by the Hungarian government and endorsed in
the Council of 8 March
the recommendation of
2005, puts
this
correction and, together with the slow progress in
needed
structural
improvement in the macroeconomic imbalances.

into question the credibility of

jeopardises

reforms,

the

(3) This includes the standard recording of the purchase of military
that add 0,5 % of GDP to the announced new deficit

aircraft
target of 4,7 % of GDP in 2006.

L 314/20

EN

Official Journal of the European Union

30.11.2005

(10)

In line with the Resolution of the European Council of
the Stability and Growth Pact, Hungary agreed to make
the Council’s recommendation of 8 March 2005 public,

Article 2

This decision is addressed to the Republic of Hungary.

HAS ADOPTED THIS DECISION:

Article 1

The action taken by Hungary is proving to be inadequate in
response to the recommendation of the Council of 8 March
2005.

For the Council
The President

G. BROWN

Done at Brussels, 8 November 2005.