2007/640/EC: Council Decision of 10 July 2007 establishing, in accordance with Article 104(8), that the action taken by the Czech Republic in response to the Recommendation of the Council in accordance with Article 104(7) of the Treaty establishing the European Community is proving to be inadequate
Date: 2007-07-10
Institutions: Council of the European Union
Subjects: Czechia, budget deficit, economic convergence, gross domestic product, stability pact

5.10.2007

EN

Official Journal of the European Union

L 260/13

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COUNCIL DECISION

of 10 July 2007

establishing, in accordance with Article 104(8), that the action taken by the Czech Republic in
response to the Recommendation of the Council in accordance with Article 104(7) of the Treaty
establishing the European Community is proving to be inadequate

(2007/640/EC)

THE COUNCIL OF THE EUROPEAN UNION,

accordance with Article 104(6) of the Treaty, that an
excessive deficit existed in the Czech Republic.

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

establishing the European

(4)

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.

On 5 July 2004, in accordance with Article 104(7) of the
Treaty and Article 3(4) of Regulation (EC) No 1467/97,
the Council, based on a recommendation from the
Commission, adopted a recommendation to the Czech
authorities with a view to bringing the excessive deficit
situation to an end as rapidly as possible and to taking
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 in
May 2004 and endorsed in the Council Opinion of 5
July 2004 on the Convergence Programme of the Czech
Republic, 2004-2007 (3), with the following intermediate
annual targets: 5,3 % of GDP in 2004, 4,7 % of GDP in
2005, 3,8 % of GDP in 2006, 3,3 % of GDP in 2007.
The Council established the deadline of 5 November
2004 to take effective action ‘regarding the measures
envisaged to achieve the 2005 deficit target’. The Czech
Republic agreed to make the recommendation public.

(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
includes
creation. The Stability
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 to
further
correction of excessive general
the prompt
government deficits.

and Growth Pact

(3)

By Council Decision 2005/185/EC (2),
it was decided,
following a recommendation from the Commission in

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

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

(2) OJ L 62, 9.3.2005, p. 20.

(5)

After the expiry of the deadline of 5 November 2004,
the Commission concluded, in its Communication to the
Council of 14 December 2004 (4), that no further steps
were necessary under the excessive deficit procedure for
the Czech Republic as the Czech government had taken
effective action regarding the measures envisaged to
achieve the 2005 deficit
target. The November 2005
update of
the convergence programme indicated a
deficit of 2,7 % of GDP for 2008 which was endorsed
by the Council on 24 January 2006.

(3) OJ C 320, 24.12.2004, p. 1.
(4) Communication from the Commission to the Council: The action
taken by the Czech Republic, Cyprus, Malta, Poland and Slovakia in
response to the Council recommendations under the excessive deficit
procedure — SEC(2004) 1630, 22.12.2004.

L 260/14

EN

Official Journal of the European Union

5.10.2007

(6)

the action taken by the Czech
The assessment of
Republic to correct
the excessive deficit by 2008 in
response to the Council recommendation under Article
104(7) leads to the following conclusions:

(7)

of

the

recent

— on 15 March 2007, the Czech Republic submitted
the most
convergence
update
programme, covering the period until 2009. The
programme contained the following annual deficit
projections: 4,0 % of GDP for 2007, 3,5 % of GDP
for 2008 and 3,2 % of GDP for 2009. The
‘declaration
programme also included an additional
the new government’ aiming to reduce the
of
general deficit to 3,2 % of GDP in 2008 and 2,8 %
of GDP in 2009 based on a wide range of as yet
unknown policy measures,

the consolidation path set

This leads to the conclusion that, while the Czech
Republic has so far overachieved the budgetary targets
in the
for 2004-2006 of
Council recommendation of 5 July 2004,
the 2007
deficit will be well above the target set by the Council
and the 2008 deficit will on current policies clearly
exceed the 3 % of GDP threshold. The Czech authorities’
budgetary targets are not in line with the recommen-
dations of the Council for a correction of the excessive
deficit by the 2008 deadline. No unexpected adverse
economic events with major unfavourable consequences
for government
in Article 3(5) of
Council Regulation (EC) No 1467/97 have occurred
since the adoption of
the recommendation. On the
for
contrary, developments in the economy relevant
public finances have been significantly more favourable
than expected,

finances as meant

— the Commission services’ spring 2007 forecast, which
projects that the deficit will reach 3,9 % of GDP and
3,6 % of GDP in 2007 and 2008 respectively on a
no-policy change basis, confirms that, on current
policies, the targets set in the Council recommen-
for 2007 (3,3 % of
dation under Article 104(7)
GDP) and 2008 (below 3 % of GDP) will be
missed. In structural terms (i.e. in cyclically-adjusted
terms net of one-off and other temporary measures),
the deficit would widen by 1¼ percentage points of
GDP in 2007, after deteriorations in both 2005 and
2006,

the time of

— the higher 2007 deficit comes against much stronger
the Council
growth than forecast at
recommendation and is mainly due to increases in
spending decided before the 2006 parlia-
social
mentary
is
elections. The higher 2007 deficit
projected to occur against the background of much
lower deficits in the preceding years than foreseen in
the Council recommendation. This was due mainly to
better than expected growth rather than durable cuts
in expenditure.

HAS ADOPTED THIS DECISION:

Article 1

The action taken by the Czech Republic in response to the
Council Recommendation of 5 July 2004 under Article
104(7) of the Treaty is proving to be inadequate to correct
the excessive deficit within the deadline fixed by the Recom-
mendation.

This Decision is addressed to the Czech Republic.

Article 2

Done at Brussels, 10 July 2007.

For the Council
The President

F. TEIXEIRA DOS SANTOS