2006/344/EC: Council Decision of  14 March 2006  giving notice to Germany, in accordance with Article 104(9) of the Treaty establishing the European Community, to take measures for the deficit reduction judged necessary in order to remedy the situation of excessive deficit
Date: 2006-03-14
Institutions: Council of the European Union
Subjects: Germany, budget deficit, budget policy, multilateral surveillance, public debt, stability pact

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Official Journal of the European Union

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II

(Acts whose publication is not obligatory)

COUNCIL

COUNCIL DECISION

of 14 March 2006

giving notice to Germany,
in accordance with Article 104(9) of the Treaty establishing the
European Community, to take measures for the deficit reduction judged necessary in order to
remedy the situation of excessive deficit

(2006/344/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community, and in particular Article 104(9) thereof,

establishing the European

Having regard to the recommendation from the Commission
pursuant to Article 104(9) of the Treaty,

Whereas:

(1)

(2)

According to Article 104(1) of the Treaty, Member States
are to avoid excessive government deficits.

as

sound

finances

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).

and Growth Pact

a means

(4)

(5)

solemnly invites all parties, namely the Member States,
the
the Council and the Commission,
in a strict
Treaty and the Stability and Growth Pact
and timely manner.

to implement

By Decision 2003/89/EC (3),
in
accordance with Article 104(6) of the Treaty, that an
excessive deficit existed in Germany.

the Council decided,

In accordance with Article 104(7) of
the Treaty and
the
Article 3(4) of Regulation (EC) No 1467/97,
Council addressed a recommendation to Germany on
21 January 2003, calling on Germany to bring the
excessive deficit to an end as rapidly as possible and
by 2004 at the latest. The recommendation was made
public. As stated in the Commission Communication of
14 December 2004, with which the Council concurred
on 18 January 2005, in view of the unique circumstances
created by the Council conclusions of 25 November
the European Court of
2003 and of
Justice of 13 July 2004,
the year 2005 should be
considered to be the relevant deadline for the correction
of the excessive deficit.

the ruling of

(3)

The Resolution of the Amsterdam European Council of
17 June 1997 on the Stability and Growth Pact (2)

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

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

(2) OJ C 236, 2.8.1997, p. 1.

(6)

The general government deficit in Germany has been
well above the 3 %-of-GDP Treaty reference value since
2002. The debt-to-GDP ratio has increased from below
the 60 % of GDP Treaty reference value in 2001 to a
projected 69 % of GDP in 2006.

(3) OJ L 34, 11.2.2003, p. 16.

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(7)

(8)

(9)

the general
According to data provided by Eurostat,
government deficit in Germany amounted to 3,3 % of
GDP in 2005. These data, pending a further assessment
of their quality, are based upon a provisional notification
from Germany pursuant to Regulation (EC) No 3605/93
of 22 November 1993 on the application of the Protocol
on the excessive deficit procedure annexed to the Treaty
establishing the European Community (1), submitted to
the Commission on 24 February 2006. Additionally,
on the basis of information currently available, taking
into account the budgetary plans adopted so far by the
German government, the general government deficit will
also remain above the Treaty reference value in 2006,
which confirms that the excessive deficit has not been
corrected.

According to Article 10(3) of Regulation (EC) No
1467/97, if actual data pursuant to Regulation (EC) No
3605/93 indicate that an excessive deficit has not been
corrected by a participating Member State within the
time limits specified in a recommendation issued under
Article 104(7) of the Treaty, the Council shall
imme-
the
diately take a decision under Article 104(9) of
Treaty giving notice to the Member State to take,
within a specified time limit, measures for the deficit
reduction which is judged necessary by the Council
in
order to remedy the situation.

basis,

Commission

The Commission services’
autumn 2005 forecast
projected the 2005 deficit at 3,9 % of GDP (2). On a
services’
the
no-policy-change
forecast projected the deficit at 3,7 % and 3,3 % of
GDP in 2006 and 2007 respectively. Real GDP growth
was projected at 0,8 % in 2005, 1,2 % in 2006 and
1,6 % in 2007, with the output gap not fully closing
over the forecast period. Against this background, and
fragile economic situation,
in view of
the
the still
following the elections on 18
German government,
September 2005, devised a
strategy to bring the
general government deficit below the Treaty reference
value by 2007. The government began to implement
this consolidation strategy in December 2005, with the
adoption of the first measures foreseen therein. On 22
February 2006, the government adopted the draft federal
budget for 2006 and, notably, also adopted the draft law
to raise the central VAT rate from 16 % to 19 % as from
1 January 2007.

the Federal Statistical Office
(10) On 22 February 2006,
for GDP growth and the general
released figures
in 2005, at 0,9 % and 3,3 % of
government deficit
GDP respectively. The difference with respect
to the
Commission services’ autumn forecast can be found to
a large extent in better-than-expected revenues towards
the end of 2005. The Commission services’
interim
forecast, published on 21 February 2006, projects real
GDP to grow by 1,5 % in 2006, which is slightly above
the low potential growth rate. It should be noted that
this projection is biased upwards by the expected pre-
emptive response of domestic demand to the planned
increase in the VAT rate. Taking into account
the
subsequent economic effects, GDP growth in 2007 is
currently expected to be close to 1 %. In line with the
above macroeconomic forecast,
is
expected to stay slightly above 3 % of GDP in 2006,
but to drop clearly below the reference value in 2007.
After an improvement of slightly less than 0,5 % between
2004 and 2005, the structural deficit (i.e. the deficit in
cyclically-adjusted terms, net of one-off and temporary
measures)
to
remain broadly unchanged as a percentage of GDP
least
between 2005 and 2006 and to narrow by at
1 % of GDP in 2007.

is projected by Commission services

the nominal deficit

(11)

The following factors should be taken into account in
setting the deadline for the correction of the excessive
deficit. First,
the budgetary adjustment being imple-
mented is embedded in a comprehensive strategy with
the planned measures already well advanced in the
adoption process, which reduces uncertainty regarding
the effectiveness of the consolidation. These measures
are of a structural nature and do not contain one-offs.
Secondly, the limited effects in terms of reduction of the
structural deficit expected in 2006 reflect, at least in part,
the fact that some of the measures already implemented
will produce results only with a lag. Thirdly, a structural
adjustment of at least 1 % of GDP in 2006 and 2007
planned by the government can be considered as
including the
consistent with the SGP provisions,
required annual
improvement to the cyclically-adjusted
balance net of one-off and temporary measures of at
least 0,5 % of GDP as a benchmark. Based on the
overall macroeconomic forecast outlined in recital 10,
such an adjustment, which needs to be rigorously imple-
mented, would be sufficient
the excessive
deficit in a permanent and sustainable manner.

to correct

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

lation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1).

(2) This was broadly in line with the figure notified by the German
authorities on 1 September 2005 (3,7 % of GDP),
the main
difference stemming from the securitisation undertaken by the
pension office for former post office civil servants, which was not
treated as deficit-reducing in the autumn forecast.

(12)

In the light of these factors, it appears that the excessive
deficit should be corrected by 2007 at the latest. The
benchmark 0,5 % of GDP annual
improvement in the
structural balance should be respected in cumulative
terms in 2006 and 2007.

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the Treaty,

(13) According to the second subparagraph of Article 104(9)
of
the Council may request Germany to
submit reports in accordance with a specific timetable
in order to examine the adjustment efforts made in
order to comply with this Decision. Germany should
submit a report to the Commission by 14 July 2006
at the latest, outlining the measures taken and planned
to comply with this Decision. In particular, the report
should include a budgetary assessment of the measures,
quantifying their effects on the budgetary outcome in
both 2006 and 2007, to correct the excessive deficit
and analyse possible risks associated with the assumed
macroeconomic scenario. The Commission will evaluate
this report with a view to assessing progress made
towards the correction of the excessive deficit. Germany
should submit further reports in line with the deadlines
for reporting government deficits and debt provided for
by Article 4 of Regulation (EC) No 3605/93.

(14) Adjustment measures

a

secure

should

in the general government balance.

lasting
In
improvement
to ensure a sustained budgetary consolidation
order
towards Germany’s medium-term objective
a
balanced budget in structural terms, a reduction in the
structural deficit of at least 0,5 % of GDP per year is
necessary after the correction of the excessive deficit,

of

HAS ADOPTED THIS DECISION:

Article 1

Germany shall put an end to the present excessive deficit

1.
situation as rapidly as possible and at the latest by 2007.

2.
In 2006 and 2007, Germany shall ensure a cumulative
improvement in its cyclically-adjusted balance net of one-off
and temporary measures of at least one percentage point.

Article 2

1.
Germany shall submit to the Commission, by 14 July
2006 at the latest, a report outlining the measures taken to
comply with this Decision. The Commission will evaluate this
report with a view to assessing progress made towards the
correction of the excessive deficit.

Germany shall submit further reports to the Commission,
2.
by 1 October 2006, 1 April 2007, 1 October 2007 and 1 April
2008, examining progress made in complying with this
Decision.

Article 3

Germany shall
take the necessary measures to ensure that
budgetary consolidation towards its medium-term objective of
a balanced budget in structural terms is sustained through a
reduction in the structural deficit of at least 0,5 % of GDP per
year after the excessive deficit has been corrected.

Article 4

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 14 March 2006.

For the Council
The President

K.-H. GRASSER