COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Current state of the excessive deficit procedure in the Member States   and assessment of the action taken by Cyprus, Finland, Bulgaria and Denmark in response to the Council Recommendation of 13 July 2010 with a view to bringing an end to the situation of excessive government deficit    SEC(2011) 113 final SEC(2011) 114 final SEC(2011) 115 final SEC(2011) 116 final
Date: 2011-01-27
Institutions: European Commission
Subjects: Bulgaria, Cyprus, Denmark, EU Member State, Finland, loss, monetary crisis

EN 

EN 

   EN 

 
EUROPEAN COMMISSION 

Brussels, 27.1.2011 
COM(2011) 22 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Current state of the excessive deficit procedure in the Member States  

and assessment of the action taken by Cyprus, Finland, Bulgaria and Denmark in 
response to the Council Recommendation of 13 July 2010 with a view to bringing an end 
to the situation of excessive government deficit 

SEC(2011) 113 final 
SEC(2011) 114 final 
SEC(2011) 115 final 
SEC(2011) 116 final 

EN 

   EN 

 
 
  
 
 
 
 
1. 

INTRODUCTION AND CONTEXT 

The  Stability  and  Growth  Pact  requires  the  Commission  to  initiate  the  excessive  deficit 
procedure (EDP) whenever the deficit of a Member State exceeds the 3% of GDP reference 
value set in the Treaty on the Functioning of the  European  Union  (TFEU).  The  majority  of 
EU  Member  States  currently  have  general  government  deficits  above  the  3%  of  GDP 
reference  value.  The  origin  of  the  often  strong  deterioration  in  the  deficit  and  the  debt 
positions  must  be  seen  in  the  context  of  the  unprecedented  global  financial  crisis  and 
economic downturn in 2008-2009. Recognising the important role of budgetary policies, the 
Commission called for a fiscal stimulus in its November 2008 European Economic Recovery 
Plan, which was endorsed by the European Council in December 2008.  

In  October  2009,  capitalizing  on  first  signs  of  recovery,  the  European  Council  endorsed  an 
ambitious  fiscal  exit  strategy,  which  should  be  coordinated  across  Member  States  in  the 
framework of consistent implementation of the Stability and Growth Pact and include a timely 
withdrawal of the fiscal stimulus. Provided that the Commission forecasts continue to indicate 
that the recovery is strengthening and becoming self-sustaining, fiscal consolidation in all EU 
Member States should start in 2011 at the latest. Specificities of country situations should be 
taken into account, and a number of countries need to consolidate before then. Moreover, the 
planned pace of the fiscal consolidation should be ambitious, and will have to go well beyond 
the benchmark of 0.5% of GDP per annum in structural terms in most Member States. Finally, 
important  flanking  policies  to  the  fiscal  exit  will  include  strengthened  national  budgetary 
frameworks  for  underpinning  the  credibility  of  consolidation  strategies  and  measures  to 
support  long-term  fiscal  sustainability,  as  emphasised  by  the  SGP.  In  addition,  structural 
reform  efforts  should  be  strengthened  to  enhance  productivity  and  to  support  long-term 
investment. The establishment of the European semester of policy coordination and ongoing 
reform of economic governance in the EU are supporting this consolidation process. 

The Commission services' autumn 2010 forecast confirmed that the real economy has shown 
signs  of  improvement  in  some  quarters,  while  uncertainties  remain.  Periods  of  renewed 
confidence  in  the  return  to  growth  alternate  with  setbacks,  also  due  to  the  risks  associated 
with  the  sovereign  debt  market.  European  economies  face  major  adjustments.  The  financial 
sector  has  not  yet  returned  to  normal  conditions  and  there  are  situations  of  vulnerability  to 
stress  and  dependency  on  state-support.  In  this  context,  the  Ecofin  Council  agreement  of  9 
May 2010 and the establishment of financial backstops represent important steps to safeguard 
the stability of the euro area and EU economies. 

Against this background, the Commission launched the first European Semester of economic 
policy  coordination  with  the  Annual  Growth  Survey  on  12  January  2011.  The  European 
Semester will provide the framework for aligning the timing and assessment of the Stability 
and Convergence Programmes on macroeconomic outlook and fiscal plans, with the National 
Reform  Programmes  on  the  progress  towards  the  Europe  2020  targets.  The  Annual  Growth 
Survey  focuses  on  an  integrated  approach,  which  encompasses  the  need  for  rigorous  fiscal 
consolidation for enhancing economic stability, labour market reforms for higher employment 
and  growth-enhancing  measures.  Specifically,  all  Member  States,  especially  those  in 
excessive deficit procedure, should keep public expenditure growth firmly below the rate of 
medium term trend GDP growth, while prioritising sustainable growth friendly expenditure in 
areas such as research, education and energy. Moreover, Member States in excessive deficit 
procedure should set out the expenditure path and the broad measures they intend to take in 
order to eliminate their excessive deficits. Finally, Member States facing very large structural 

EN 

2 

   EN 

budget  deficits,  very  high  levels  of  public  debt  or  high  levels  of  financial  distress  need  to 
frontload  their  efforts  in  2011.  In  cases  where  economic  growth  or  revenues  turn  out  to  be 
higher than expected, fiscal consolidation should be accelerated. 

2. 

CURRENT STATE OF THE EXCESSIVE DEFICIT PROCEDURE IN THE MEMBER STATES 

Currently, all Member States except Estonia, Luxembourg and Sweden are in the Excessive 
Deficit  Procedure.  Following  the  positive  assessment  of  action  taken  by  the  Member  States 
concerned, the EDP for nineteen Member States is now held in abeyance1. Based on currently 
available information, most are on good path to reduce their deficit in line with the Council’s 
recommendations.  However,  in  spite  of  the  positive  current  assessment,  the  Commission 
considers that a number of risks still exist in some of the Member States concerned.  

With  respect  to  the  remaining  Member  States,  the  Commission  has  now  carried  out  an 
assessment of action taken by Cyprus, Finland, Bulgaria and Denmark in line with Art. 9(3) 
of  Regulation  (EC)  No  1467/972  (see  Section  3  and  the  Annex).  For  Ireland,  for  which  the 
Council issued its latest recommendations under Art. 126(7) on 7 December, the Commission 
will  make  a  similar  assessment  after  the  deadline  of  7  June  as  foreseen  in  the  latter 
recommendation. 

As  required  by  the  Stability  and  Growth  Pact,  the  Commission  continues  monitoring  the 
budgetary  developments  closely  and  will  adopt  the  necessary  recommendations  for  the 
Council to take further steps under the EDP at any time when action by a Member State is not 
being  implemented  or  is  proving  to  be  inadequate,  according  to  the  Treaty  and  Regulation 
(EC) No 1467/97.  

The  Commission  services  2010  autumn  forecast  projects  the  general  government  deficit  to 
decline from 6.8% of GDP in 2010 to 5.1% of GDP in 2011 in the EU and from 6.3% to 4.6% 
for  the  euro  area.  The  fiscal  effort  by  Member  States,  expressed  as  the  improvement  in  the 
structural  deficit  (the  deficit  net  of  the  cyclical  impact  and  temporary  policy  measures),  is 
estimated to amount to 1 percentage point of GDP in the EU (1.1 percentage point in the euro 
area) in 2011. The emphasis on structural (i.e. lasting) measures is important in view of the 
Council  recommendation  that  Member  States  should  bring  the  general  government  deficit 
below 3 % of GDP in a credible and sustainable manner. 

Some Member States (Germany, the Netherlands, Finland, Bulgaria and Malta) are projected 
to correct the excessive deficit within the forecast period at or even before the respective time 
limit set by the Council. In most cases, the fiscal effort in 2011 would (significantly) exceed 
the  average  annual  fiscal  effort  recommended  by  the  Council  in  the  context  of  the  EDP.  In 
Austria and Denmark, the deficit is projected to come close to the reference value already in 
2012,  the  year  before  the  deadline  set  by  the  Council.  In  Austria,  additional  measures  in 
December would bring the deficit even closer to the reference value. 

In  most  cases  the  improvement  in  the  structural  balance  in  2011  is  broadly  in  line  with  the 
recommended fiscal effort, which, given the exceptional circumstances, was usually given in 

1 

2 

EN 

For  each  Member  State  the  assessment  of  action  taken  following  the  6  month  deadline  in  the 
recommendations was communicated to the Council. All Commission Communications as well as other 
documents  related  to  the  EDP  for  each  Member  State  (past  and  ongoing)  are  available  at:

http://ec.europa.eu/economy_finance/sgp/deficit/countries/index_en.htm.  

OJ L 209, 2.8.1997, p. 6.  

3 

   EN 

                                                 
 
terms of an annual average until the time limit for correction. In 2011 the improvement in the 
structural  balance  in  Portugal,  Spain,  France  and  Romania  is  projected  to  be  above  the 
required  average  annual  fiscal  effort.  An  improvement  in  the  structural  balance  in  line  with 
the required average annual fiscal effort is foreseen for the UK. Based on current information, 
the  remaining  average  annual  effort  needed  to  correct  the  excessive  deficit  by  2012  for 
Romania,  2013  for  Portugal,  Spain  and  France,  and  by  financial  year  2014/15  for  the  UK 
appears to be within reach. 

In Italy and Slovenia, the improvement of the structural balance in both 2010 and 2011 falls 
somewhat  short  of  the  required  average  annual  fiscal  effort,  and  the  general  government 
deficit is higher than anticipated in the latest update of the stability programme (in particular 
in Slovenia). The remaining average annual effort needed to correct the excessive deficit by 
2012 for Italy and by 2013 for Slovenia appears limited and within reach. In case of Slovakia, 
budgetary developments in 2010 turned out much worse than anticipated in the latest stability 
programme update. However, the 2011 budget contains a significant package of consolidation 
measures  that  is  forecast  to  bring  the  fiscal  consolidation  back  on  track.  For  the  Czech 
Republic  the  Council  recommended  for  2010  a  target  in  terms  of  the  general  government 
balance, which the autumn forecast projects to be met, followed by slightly faster decline that 
foreseen in the last update of the convergence programme, on the back of improved cyclical 
conditions.  Although  for  2011  the  improvement  in  the  structural  balance  falls  below  the 
required  average  annual  fiscal  effort,  the  additional  annual  average  fiscal  effort  needed  to 
bring the deficit down to 3% of GDP by the deadline is well within reach.  

Following the 2010 autumn forecast, Cyprus and Latvia adopted further measures which will 
bring the budgetary situation in line with the Council’s recommendations. For Lithuania, the 
forecast  does  not  yet  include  the  impact  of  a  contingency  clause  in  the  budget,  which  will 
trigger  a  supplementary  budget  in  case  the  EDP  targets  would  come  at  risk.  For  Belgium 
(where  the  budgetary  outturn  for  2010  was  better  than  expected),  the  forecast  does  not  yet 
include  the  budget  for  2011,  but  in  the  meantime  the  authorities  have  announced  their 
commitment to bring the deficit below 4% in 2011, which is better than foreseen in the latest 
stability programme update. 

To Greece, the Council adopted in May 2010 a revised decision to give notice under Article 
126(9)  and  136  TFEU,  setting  2014  as  the  deadline  for  correcting  the  excessive  deficit. 
Greece should achieve a deficit of 8% of GDP in 2010, 7.6% in 2011, 6.5% in 2012, 4.9% in 
2013 and 2.6% in 2014. To this aim, an improvement in the structural balance of at least 10% 
of  GDP  will  have  to  be  achieved  over  the  period  2009-2014.  In  its  Communication  of  9 
December, the Commission concluded that Greece is satisfactorily complying with the May 
Council Decision. 

Overall,  in  view  of  the  autumn  2010  forecast  and  subsequent  information  after  the  forecast 
publication,  the  Commission  does  not  consider  action  taken  by  any  of  the  Member  States 
mentioned above to correct the excessive deficit proving to be inadequate.  

For  those  Member  States,  where  the  fiscal  effort  in  2011  (and  in  2010  where  applicable) 
would lie below the required annual average effort, the additional effort for the remainder of 
the  consolidation  period  appears  well  in  reach.  However,  the  larger  the  required  budgetary 
adjustment, the more pressing is the need to avoid any slippage and to frontload the necessary 
budgetary measures. 

EN 

4 

   EN 

In particular the Commission calls on those Member States, where the adjustment effort so far 
has  been  below  the  average  annual  effort  recommended  by  the  Council,  to  step  up  their 
consolidation efforts and, where necessary, underpin their consolidation strategy through the 
announcement of decisive, concrete and structural measures, in particular in the preparation of 
the stability and convergence programmes to be submitted to the Council and the Commission 
in April in the new European Semester. 

For Hungary, the autumn forecast projected a deficit of 4.7% of GDP in 2011.However, the 
one-off  impact  of  the  subsequently  adopted  changes  to  the  pension  system  could  bring  the 
nominal  budget  deficit  below  3%  of  GDP  in  2011.  Nevertheless,  the  structural  balance 
continues to worsen in 2011, which would prompt the budget to rebound into deficit of about 
5% of GDP in 2012 if no additional measures are taken. Additional significant consolidation 
efforts  would  be  needed,  starting  from  2011,  to  ensure  a  sustainable  correction  of  the 
excessive deficit by 2011, the time limit set by the Council. In Poland, the deficit for 2010 is 
projected at 7.9%, which is 1.0 pp. higher than foreseen in the 2010 convergence programme, 
and  is  lacking  structural  improvement.  Following  the  2010  autumn  forecast,  Poland 
announced  additional  measures,  which,  if  adopted,  could  bring  the  fiscal  effort  in  2011 
broadly  in  line  with  the  recommended  average  annual  fiscal  effort.  Additional  significant 
consolidation  efforts  would  be  needed  in  the  period  between  2011  and  2012  to  bring  the 
general  government  deficit  below  3%  of  GDP  in  2012,  the  time  limit  set  by  the  Council. 
Given the above, Commissioner Rehn has addressed a letter to Hungary and to Poland asking 
to  reconfirm  their  commitment  to  fully  respect  the  recommendations  by  the  Council  and  to 
soon  announce  permanent,  concrete  and  specific  measures  necessary  to  underpin  this 
commitment. 

3. 

ASSESSMENT OF ACTION TAKEN IN CYPRUS, FINLAND, BULGARIA AND DENMARK 

In accordance with Article 9(3) of Council Regulation 1467/97, which states that, following 
the expiry of the deadline for a Member State to take measures following a recommendation 
under Art. 126(7) of the Treaty, "…the Commission shall inform the Council if it considers 
that the measures 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", this section (and the 
Annex  to  this  communication)  assesses  the  action  taken  by  Cyprus,  Finland,  Bulgaria  and 
Denmark  in  response  to  the  Council’s  recommendation  of  13  July  2010,  with  a  view  to 
bringing the situation of an excessive deficit to an end. These recommendations were based 
on the Commission services' spring 2010 forecast and on the agreed principles underlying the 
fiscal exit strategy. The Council set the date of 13 January 2011 for taking effective action in 
response to the recommendations.  

According  to  Regulation  (EC)  No  1467/972  and  the  revised  Code  of  Conduct3,  a  Member 
State should be considered to have taken effective action if it has acted in compliance with the 
Article  126(7)  TFEU  recommendation.  The  Code  of  Conduct  states  that  the  assessment  of 
effective  action  should  in  particular  take  into  account  whether  the  Member  State  concerned 
has  achieved  the  annual  improvement  of  its  cyclically  adjusted  balance,  net  of  one-off  and 

3 

EN 

“Specifications  on  the  implementation  of  the  Stability  and  Growth  Pact  and  guidelines  on  the  format 
and  content  of  stability  and  convergence  programmes”,  endorsed  by  the  ECOFIN  Council  of  10 
at:
November 

available 

2009, 

http://ec.europa.eu/economy_finance/sgp/deficit/legal_texts/index_en.htm.  

5 

   EN 

                                                 
 
other temporary measures, initially recommended by the Council. It also stipulates that should 
the  observed  adjustment  proves  to  be  lower  than  recommended,  a  careful  analysis  of  the 
reasons for shortfall should be made. In case of a multi-annual adjustment, the Code of Conduct 
specifies  that  the  assessment  should  mainly  focus  on  the  measures  taken  in  order  to  ensure  an 
adequate fiscal adjustment in the year following the identification of the excessive deficit.  

Against this background, the Commission has made an assessment of action taken by Cyprus, 
Finland, Bulgaria and Denmark, in response to the Council recommendations of 13 July 2010. 
It appears, on the basis of currently available information, that Cyprus, Finland, Bulgaria and 
Denmark  have  taken  action  representing  adequate  progress  towards  the  correction  of  the 
excessive deficit with the time limits set by the Council. The Commission therefore considers 
that, for these Member States, no further steps in the excessive deficit procedure are needed at 
present. Details of this assessment are presented in the country-specific sections in the Annex 
to this communication. 

The  Commission  will  continue  to  closely  monitor  budgetary  developments  in  Cyprus, 
Finland,  Bulgaria  and  Denmark  in  accordance  with  the  Treaty  and  the  provisions  of  the 
Stability and Growth Pact. 

EN 

6 

   EN 

ANNEX 

1. 

CYPRUS 

1.1. 

Excessive deficit procedure and most recent recommendations 

According  to  the  April  2010  EDP  notification,  the  general  government  deficit  in  Cyprus 
reached 6.1% of GDP in 2009 from a surplus of 0.9% in 2008. This was a result of a severe 
economic downturn and discretionary measures in response to the economic downturn (in line 
with  the  European  Economic  Recovery  Plan  (EERP))  but  also  of  rather  large  composition 
effects  on  account  of  a  much  less  tax-rich  GDP  growth  pattern.  In  parallel,  the  general 
government gross debt stood at 56.2% of GDP, below the 60% of GDP reference value but on 
a  rising  trend.  Against  this  background,  on  13  July  2010,  the  Council  decided  that  an 
excessive  deficit  existed  and  addressed  recommendations  to  Cyprus  in  accordance  with 
Article  126(7)  TFEU  with  a  view  to  bringing  an  end  to  the  situation  of  an  excessive 
government deficit by 2012.4 In its recommendations, the Council established a deadline of 13 
January 2011 for effective action to be taken. 

In particular, the Council recommended Cyprus to bring the general government deficit below 
3  %  of  GDP  in  a  credible  and  sustainable  manner  by  taking  action  in  a  medium-term 
framework. Specifically, to this end, Cyprus should: (a) take necessary measures to reduce the 
2010 deficit to at most 6% of GDP and define an expenditure-driven consolidation strategy, in 
order to bring the deficit below the reference value by 2012; (b) to this end ensure an average 
annual fiscal effort of at least 1½  % of  GDP over the period 2011-2012, which should also 
contribute  to  bringing  the  government  gross  debt  ratio  back  on  a  declining  path  that 
approaches  the  reference  value  at  a  satisfactory  pace  by  restoring  an  adequate  level  of  the 
primary surplus; and (c) specify and rigorously implement the measures that are necessary to 
achieve  the  correction  of  the  excessive  deficit  by  2012,  cyclical  conditions  permitting,  and 
accelerate the reduction of the deficit if economic or budgetary conditions turn out better than 
currently expected.  

To  limit  risks  to  the  adjustment,  a  strengthening  of  the  binding  nature  of  Cyprus’  medium-
term  budgetary  framework  and  better  monitoring  of  budget  execution  throughout  the  year 
were requested. In addition, the Cypriot authorities were recommended to improve the long-
term  sustainability  of  public  finances  by  implementing  reform  measures  to  control  pension 
and health care expenditure in order to curb the projected increase in age-related expenditure. 
Finally, Cyprus was recommended to seize any opportunity beyond the fiscal effort, including 
from  better  economic  conditions,  to  accelerate  the  reduction  of  the  gross  debt  ratio  back 
towards the 60% of GDP reference value.  

The Council established the deadline of 13 January 2011 for Cyprus to take effective action to 
take  necessary  measures  to  reduce  the  2010  deficit  to  at  most  6%  of  GDP  and  define  an 
expenditure-driven  consolidation  strategy,  in  order  to  bring  the  deficit  below  the  reference 
value by 2012, by ensuring an average annual fiscal effort of at least 1½ % of GDP over the 
period 2011-2012. 

4 

All EDP-related documents for Cyprus can be found at the following website: 
http://ec.europa.eu/economy_finance/sgp/deficit/countries/cyprus_en.htm 

EN 

7 

   EN 

                                                 
The Commission makes its assessment of action taken after the adoption by the government 
of  the  2011  budget  in  tandem  with  a  package  of  fiscal  consolidation  measures,  on  16 
December, and based on the Commission services' autumn 2010 forecast, which incorporated 
the draft budget. 

1.2. 

Assessment of action taken 

The Commission services' autumn 2010 forecasts, on the basis of available information at the 
time - including the draft budget, estimated that the budget deficit appeared to have stabilised 
in  2010  at  a  level  similar  to  the  previous  year,  at  5.9%  of  GDP,  as  a  marginal  increase  in 
revenues  is  set  to  have  been  fully  offset  by  a  rise  in  expenditures.  However,  recently 
published cash data of the consolidated accounts of the central government and administered 
funds  for  the  period  January  –  November  2010  appear  to  support  the  estimate  for  a  lower-
than-expected budget deficit, as they demonstrate a reduction of the deficit an improvement 
by 0.5 percentage points over the same period of 2009.  

The Commission therefore concludes that the budgetary outcome of 2010 is expected to be in 
line  with  the  Council  recommendation  of  reducing  the  2010  deficit  to  at  most  6%  of  GDP. 
Furthermore,  as  economic  conditions  are  turning  out  better  than  expected  at  the  time  the 
Council  issued  its  recommendations,  there  was  a  slight  acceleration  in  the  reduction  of  the 
deficit.  

On the basis of the 2011 draft budget available at the time, the Commission services autumn 
2010 forecast5 projected a deficit of 5.7% of GDP for 2011.  

For  2011,  the  Budget  Law6  targets  a  deficit  of  5.4%  of  GDP,  on  the  basis  of  an  estimated 
deficit  for  2010  of  just  below  6%  of  GDP.  On  the  revenue  side,  the  budget  does  not 
incorporate any additional measures, apart from the phasing-out of the tax-relief, which was 
part of the stimulus measures, and the harmonisation of excise duties on petroleum products, 
in effect since last July. Nevertheless, these are partly offset by a reduction in other current 
revenues.  On  the  expenditure  side,  the  budget  aims  at  savings  through  a  reduction  of 
operational expenditure, as well as restraint in public investment and employment. However, 
these elements are fully offset by a rise in the public wage bill, interest payments and in social 
outlays. 

With a view to reducing the budget deficit to 4.5% of GDP in  line  with last July’s Council 
recommendations  to  bring  an  end  to  the  situation  of  an  excessive  government  deficit  (EDP 
126.7),  the  Cypriot  authorities  adopted  a  fiscal  consolidation  package  in  tandem  with  the 
adoption  of  the  Budget.  As  explained  in  the  letter  sent  by  Minister  of  Finance  Stavrakis  to 
Commissioner  Rehn  on  7  January  2011,  the  authorities  estimate  the  consolidation  arising 
from this package at 1 percentage point (pp.) of GDP, out of which 0.6 pp. of GDP are on the 
revenue  side  and  of  permanent  nature.  In  addition,  the  coalition  parties  have  agreed  on  an 
additional set of measures, which will be submitted to the Parliament for approval in February 
2011.  This  is  estimated  by  the  authorities  to  yield  an  additional  0.6  pp.  of  GDP  of 
consolidation in 2011, from both revenue supporting and expenditure containing measures. 

5 

6 

The Commission services autumn 2010 forecasts were published on 29 November 2010. The data cut-
off date was 15 November 2010. 
The 2011 Budget Law was adopted by the Parliament on 16 December 2010. 

EN 

8 

   EN 

                                                 
The  Commission  services’  autumn  2010  forecast  does  not  incorporate  the  recently  adopted 
package of consolidation measures, as this was not available as at the data cut-off date. This 
forecast implies an improvement in the structural balance (the cyclically-adjusted balance net 
of one-off and other temporary measures) by ¾ pp. of GDP in 2011, after a neutral impact in 
2010. The adoption of the aforementioned fiscal consolidation package, taken at face value, 
would improve both the headline and the structural balance by a 1 percentage point of GDP. 
The  adoption  of  the  additional  set  of  pending  measures,  accounting  for  0.6  pp.  of  GDP  is 
expected to have a similar impact. Overall, the improvement of the headline and the structural 
balance  in  2011  would  be  around  2¼  pp.  of  GDP.  Benefiting  from  the  base-effect  of  the 
lower-than-expected deficit outturn in 2010 (by 0.4 percentage points of GDP), the headline 
balance would thus be expected to amount to 3¾% of GDP in 2011. 

However, there are risks to the achievement of the deficit targets, mainly stemming from the 
standard practise of adopting supplementary budgets during the course of the year. Slippages in 
social transfers due to pressure to adopt measures to alleviate the impact of indirect tax rises and 
the impact of the wage indexation (COLA) on the public wage bill, in case of a higher-than-
expected increase in inflation, also pose a considerable risk. Moreover, there are risks for the 
budgetary impact of announced yet not adopted consolidation measures due to pressures from 
affected parties. 

Against this background, the Commission concludes that Cyprus has ensured a fiscal effort of 
at least 1½ percentage points of GDP in 2011 and has taken effective action to put an end to 
the present situation of excessive deficit by 2012. However, the bulk of the fiscal consolidation 
measures  adopted  by  Cyprus  have  been  on  the  revenue  side  despite  the  Council 
recommendation for an expenditure-driven consolidation strategy. 

In  the  autumn  2010  forecast,  the  Commission  services  estimate  Cyprus’  gross  debt-to-GDP 
ratio  to  increase  to  65.2%  by  2011,  on  account  of  a  higher  primary  deficit.  The  Cypriot 
authorities  project  the  general government  debt  to  increase  to  almost  62%  of  GDP  in  2010, 
from  58%  in  2009,  mainly  due  to  the  negative  impact  of  primary  deficit.  For  2011,  the 
authorities  project  a  slight  rise  in  the  debt  ratio,  to  63.8%,  again  due  to  the  primary  deficit. 
However, the adoption of the fiscal consolidation package is expected to stabilise the debt-to-
GDP-ratio in 2011 at levels similar to 2010, through the containment of the primary deficit. 
The continuation of consolidation measures in 2012, coupled with the acceleration of growth, 
should contribute in reversing debt to a declining trend. 

In light of the Commission services' projections and measures taken after the cut-off date of 
the forecast, Cyprus is expected to bring the general government gross debt ratio back on a 
declining path within the forecast horizon. 

Finally, no progress has been reported in the area of strengthening fiscal governance, such as 
accelerating the implementation and strengthening the binding nature of Cyprus’ three-year 
medium-term budgetary framework (MTBF). Plans for further reforms to the pension system 
are still under discussion. 

EN 

9 

   EN 

1.3. 

Conclusions 

On  the  basis  of  currently  available  information,  it  appears  that  Cyprus  has  taken  action 
representing adequate progress towards the correction of the excessive deficit within the time 
limits set by the Council. In particular, it has taken measures to correct the excessive deficit 
by  2012,  while  ensuring  an  adequate  fiscal  effort  in  2011,  in  line  with  the  Council’s 
recommendations. 

However, there are risks to the achievement of the deficit targets, mainly stemming from the 
standard practise of adopting supplementary budgets during the course of the year, but also due 
to possible slippages in social transfers and the impact of the wage indexation (COLA) on the 
public  wage  bill.  In  light  of  these  risks,  the  Cypriot  authorities  must  closely  monitor 
budgetary  developments  and  be  ready  to  take  corrective  measures  should  any  of  these  risks 
materialise. 

Furthermore,  the  Commission  is  of  the  opinion  that  Cyprus  needs  to  be  more  effective  in 
strengthening  the  binding  nature  of  its  medium-term  budgetary  framework  and  introducing 
measures aimed at addressing the long-term sustainability of Cyprus’ public finances, in line 
with the Council recommendations. 

In  view  of  the  above  assessment,  the  Commission  considers  that  no  further  steps  in  the 
excessive deficit procedure of Cyprus are needed at present. The Commission will continue to 
closely  monitor  budgetary  developments  in  Cyprus  in  accordance  with  the  Treaty  and  the 
provisions of the Stability and Growth Pact. 

EN 

10 

   EN 

Table: Comparison of key macroeconomic and budgetary projections 

2008 

2009 

2010 

2011 

Real GDP 
(% change) 

Output gap 
(% of potential GDP) 

General government balance 
(% of GDP) 

Primary balance 
(% of GDP) 

Cyclically-adjusted balance 
(% of GDP) 

Structural balance3 
(% of GDP) 

Government gross debt 
(% of GDP) 

Notes: 

COM  
CY 
SP 
COM2 
CY 
SP1 
COM 
CY 
SP 
COM 
CY 
SP 
COM 
CY 
SP1 
COM 
CY 
SP 
COM 

CY 

SP 

3.6 
3.6 
3.6 
3.1 
n.a. 
2.9 
0.9 
0.9 
0.9 
3.7 
3.7 
3.7 
-0.3 
n.a. 
-0.2 
-0.3 
n.a. 
-0.2 
48.3 

48.3 

48.4 

-1.7 
-1.7 
-1.7 
-1.2 
n.a. 

-1.3 
-6.0 
-6.0 
-6.1 
-3.4 
-3.4 
-3.6 
-5.5 
n.a. 
-5.6 
-5.7 
n.a. 
-5.6 
58.0 

58.0 

56.2 

0.5 
0.6 
0.5 
-2.2 
n.a. 

-2.4 
-5.9 
-5.9 
-6.0 
-3.6 
-3.6 
-3.7 
-5.1 
n.a. 
-5.1 
-5.7 
n.a. 
-5.2 
62.2 

61.9 

61.0 

1.5 
1.5 
1.5 
-1.8 
n.a. 

-2.5 
-5.7 
-5.4 
-4.5 
-3.3 
-3.0 
-2.1 
-5.0 
n.a. 
-3.5 
-5.0 
n.a. 
-3.6 
65.2 

63.8 

63.2 

1 Output gaps and cyclically-adjusted balances according to the programmes as recalculated by Commission services 
on the basis of the information in the programmes. 

2 Based on estimated potential growth of 2.5%, 1.5%, 1.1% and 1.1% respectively in the period 2009-2012. 

3 Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures 
are 0.3% of GDP in 2009 and 0.7% in 2010; all deficit-reducing.  

Source: 

April 2010 update of Stability programme (SP); Commission services’ autumn 2010 forecasts (COM); Commission 
services’ calculations 

2. 

FINLAND 

2.1. 

Excessive deficit procedure and most recent recommendations 

The  impact  of  the  economic  downturn  and  a  discretionary  fiscal  stimulus  triggered  a 
deterioration  of  public  finances  in  Finland.  According  to  the  April  2010  EDP  notification 
presented by the Ministry of Finance, the authorities targeted a general government deficit of 
4.1% of GDP in 2010. The Commission services' spring forecast projected a slightly smaller 
deficit  of  3.8%  of  GDP  in  2010.  Against  this  background,  on  13  July  2010,  the  Council 
decided  that  an  excessive  deficit  existed  and  addressed  recommendations  to  Finland  in 
accordance  with  Article  126(7)  TFEU  with  a  view  to  bringing  an  end  to  this  situation  by 

EN 

11 

   EN 

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
2011.7  In  its  recommendations,  the  Council  established  a  deadline  of  13  January  2011  for 
effective action to be taken. 

The  Council  recommended  Finland  to  bring  the  general  government  deficit  below  3  %  of 
GDP  in  a  credible  and  sustainable  manner.  Specifically,  to  this  end,  the  Finnish  authorities 
should  (a)  implement  the  fiscal  measures  in  2010  as  envisaged  in  the  latest  update  of  the 
stability  programme,  while  ensuring  that  the  planned  breach  of  the  3%-of-GDP  reference 
value  would  remain  contained  and  temporary;  (b)  ensure  a  fiscal  effort  of  at  least  0.5%  of 
GDP in 2011; and (c) specify measures to ensure that the planned correction of the excessive 
deficit in 2011 is secured.  

In  addition,  the  Council  invited  Finland  to  ensure  that  budgetary  consolidation  towards  the 
medium term objective for the budgetary position – a structural surplus of ½% of GDP – is 
sustained after the excessive deficit will have been corrected. 

The  Commission  makes  its  assessment  of  action  taken  based  on  the  Commission  services' 
autumn  2010  forecast,  which  incorporates  the  2011  budgetary  measures,  as  well  as  the 
Ministry of Finance forecast update from 20 December 2010.  

2.2. 

Assessment of action taken 

After  the  deterioration  of  public  finances  from  sizeable  general  government  surpluses  to  a 
deficit  of  2.5%  recorded  in  2009,  the  April  2010  EDP  notification  projected  the  deficit  to 
widen further to 4.1% of GDP in 2010. However, the latest forecasts by both the Commission 
services  and  the  authorities  project  a  much  more  limited  widening  of  the  deficit  in  2010. 
Reflecting the robust rebound of economic activity recorded since the second quarter of 2010, 
successive  forecasts  by  the  Commission  services  and  the  authorities  have  revised  for  the 
better the economic and fiscal outlook for 2010 and also for the following years. While after 
the  initiation  of  the  EDP  no  major  new  tax  or  expenditure  measures  were  announced 
specifically  for  2010,  the  improvement  in  economic  environment  has  automatically  boosted 
tax revenues. The Commission services' autumn 2010 forecast projects a deficit ratio of 3.1% 
of GDP in 2010, which will in turn improve the outlook for the following years compared to 
what was expected in spring 2010. This is a considerably better outcome than the deficit of 
4.1% of GDP targeted in the authorities' April 2010 EDP notification, which underpinned the 
Council recommendations of 13 July 2010. Similarly, the latest Ministry of Finance forecast 
update from December 2010 expects the deficit to reach 3.2% of GDP in 2010 (the October 
2010 EDP notification projected a deficit of 3.3% of GDP). 

On the aggregate, fiscal policy was expansionary in 2010. The Commission services autumn 
2010  forecast  estimates  the  structural  balance  to  have  weakened  by  1  p.p.  in  2010,  which 
reflects  the  share  of  the  fiscal  stimulus  programme  implemented  in  that  year.  The  stimulus 
programme  was  carried  out  as  envisaged  in  the  latest  update  of  the  stability  programme  of 
February 2010 and also as recommended by the Council. 

The  Commission 
the  Council 
recommendations, ensuring that the planned breach of the 3%-of-GDP reference value would 
remain contained and temporary. 

therefore  concludes 

that  Finland  has 

followed 

7 

All EDP-related documents for Finland can be found at the following website:   
http://ec.europa.eu/economy_finance/sgp/deficit/countries/finland_en.htm 

EN 

12 

   EN 

                                                 
For  2011,  the  deficit  outlook  has  improved  considerably  since  the  February  2010  update  of 
the  stability  programme  that  projected  a  deficit  of  3.0%  of  GDP  for  that  year.  The 
Commission services' autumn 2010 forecast projects a deficit of 1.6% of GDP for 2011. In its 
latest forecast from 20 December 2010 the authorities project a deficit-to-GDP ratio of 1.3% 
(similarly, in the October 2010 EDP notification a deficit of 1.4% was targeted). A major part 
of this improvement compared to forecasts from spring 2010 is explained by the better-than-
expected  economic  and  fiscal  outcome  in  2010,  which  carries  over  to  2011.  However,  also 
some  discretionary  tax  increases  have  been  settled  over  the  course  of  2010,  improving  the 
general government balance by some 0.6% of GDP in 2011. While no exceptional budget cuts 
have  been  announced,  expenditure  growth  is  also  expected  to  moderate,  as  some  of  the 
investment  projects  coming  from  the  earlier  stimulus  package  are  gradually  phased  out  and 
local  governments  are  likely  to  react  to  financing  constraints  by  making  savings  in  their 
budgets.  Both  the  central  and  local  governments  are  continuing  to  implement  long  term 
programmes  to  boost  public  sector  productivity,  which  should  also  yield  some  savings  in 
personnel costs. 

The  Commission  forecast  implies  an  improvement  in  the  structural  balance  by  slightly  less 
than  1  p.p.  in  2011.  This  estimate  broadly  corresponds  to  a  bottom-up  measurement  of  the 
size of the discretionary fiscal measures in 2011. 

Against this background, the Commission concludes that Finland has ensured a fiscal effort 
of at least of ½ pp. of  GDP  in  2011  and taken effective action to put an end to the present 
situation of excessive deficit by 2011. 

2.3. 

Conclusions 

On current information it appears that Finland has taken action representing adequate progress 
towards  the  correction  of  the  excessive  deficit  within  the  time  limits  set  by  the  Council.  In 
particular, Finland has taken measures to correct the excessive deficit by 2011, while ensuring 
an adequate fiscal effort in 2011, in line with the Council’s recommendations.  

In  view  of  the  above  assessment,  the  Commission  considers  that  no  further  steps  in  the 
excessive deficit procedure of Finland are needed at present. The Commission will continue 
to closely monitor budgetary developments in Finland in accordance with the Treaty and the 
SGP.  

EN 

13 

   EN 

Table: Comparison of key macroeconomic and budgetary projections 

Real GDP 
(% change) 

Primary balance 
(% of GDP) 

Output gap 
(% of potential GDP) 

General government 
balance 
(% of GDP) 

2012 
2.3 
2.7 
3.5 
-3.5 
n.a. 
-2.5 
-1.2 
-0.6 
-2.3 
0.4 
n.a. 
-0.2 
0.6 
n.a. 
-1.0 
0.6 
n.a. 
n.a. 
53.0 
51.3 
54.4 
Source:  COM  -  Commission  services’  2010  autumn  forecast;  FI  –Ministry  of  Finance  forecast  update  of  20 
December 2010; SP - Stability Programme February 2010. 
Note:* The general government deficit according to EDP reporting was 2.5% of GDP in 2009 

COM 
FI 
SP 
COM 
FI 
SP 
COM 
FI 
SP 
COM 
FI 
SP 
COM 
FI 
SP 
COM 
FI 
SP 
COM 
FI 
SP 

2009 
-8.0 
-8.0 
-7.6 
-6.0 
n.a. 
-5.0 
-2.5 
-2.7* 
-2.2 
-1.3 
n.a. 
-0.8 
0.6 
n.a. 
0.3 
0.6 
n.a. 
n.a. 
43.8 
43.8 
41.8 

2010 
2.9 
3.2 
0.7 
-5.0 
n.a. 
-5.2 
-3.1 
-3.2 
-3.6 
-1.8 
n.a. 
-2.3 
-0.6 
n.a. 
-1.1 
-0.5 
n.a. 
n.a. 
49.0 
47.9 
48.3 

2011 
2.9 
2.9 
2.4 
-4.0 
n.a. 
-4.3 
-1.6 
-1.3 
-3.0 
-0.3 
n.a. 
-1.2 
0.4 
n.a. 
-0.8 
0.4 
n.a. 
n.a. 
51.1 
50.0 
52.2 

2008 
0.9 
0.9 
1.0 
3.7 
n.a. 
3.6 
4.2 
4.2 
4.4 
5.6 
n.a. 
5.9 
2.4 
n.a. 
2.6 
2.4 
n.a. 
n.a. 
34.1 
34.1 
34.2 

Cyclically-adjusted 
balance 
(% of GDP) 

Government gross 
debt 
(% of GDP) 

Structural balance 
(% of GDP) 

3. 

BULGARIA 

3.1. 

Excessive deficit procedure and most recent recommendations 

The  impact  of  the  economic  downturn  and  expenditure  increases  stemming  from  sizable 
commitments  undertaken  by  the  outgoing  government  ahead  of  the  mid-year  parliamentary 
elections in 2009 triggered a deterioration of public finances in Bulgaria. Coupled with a shift 
towards  a less tax-intensive growth composition, this led to a  general government  deficit in 
Bulgaria  of  3.9%  of  GDP  in  2009  compared  to  a  surplus  of  1.8%  in  2008.8  Against  this 
background,  on  13  July  2010,  the  Council  decided  that  an  excessive  deficit  existed  and 
addressed recommendations to Bulgaria in accordance with Article 126(7) TFEU with a view 
to bringing an end to this situation by 2011.9 In its recommendations, the Council established 
a deadline of 13 January 2011 for effective action to be taken. 

In  particular,  Bulgaria  was  recommended  by  the  Council  to  bring  the  general  government 
deficit  below  3%  of  GDP  in  a  credible  and  sustainable  manner  by  2011  at  the  latest. 
Specifically, to this end, the Bulgarian authorities were invited to: (a) take necessary measures 
to  avoid  a  deterioration  of  the  2010  deficit  beyond  the  planned  3.8%  of  GDP;  (b) ensure  a 
fiscal effort of at least ¾% of GDP in 2011; and (c) specify and implement the measures that 

8 

9 

With the October 2010 EDP notification the general government balance outcomes in 2008 and 2009 
were  revised  to  a  surplus  of  1.7%  and  a  deficit  of  4.7%  of  GDP,  respectively.  The  main  reasons 
included methodological changes with respect to introducing time-adjusted cash recording of certain tax 
revenues as well as some additional government liabilities uncovered in the second half of 2010.  
All EDP-related documents for Bulgaria can be found at the following website:  
http://ec.europa.eu/economy_finance/sgp/deficit/countries/bulgaria_en.htm 

EN 

14 

   EN 

 
 
                                                 
are necessary to achieve the correction of the excessive deficit by 2011. To limit risks to the 
adjustment, the Bulgarian authorities were recommended to strengthen fiscal governance and 
transparency  by  reinforcing  the  Ministry  of  Finance's  spending  controls,  strengthening  the 
binding nature of the medium-term budgetary framework as well as improving the monitoring 
of the budget execution throughout the year. 

The Council established the deadline of 13 January 2011 for the Bulgarian government to take 
effective action and to specify measures that will be necessary to correct the excessive deficit.  

The  Commission  makes  its  assessment  of  action  taken  based  on  the  Commission  services' 
autumn  2010  forecast,  which  incorporates  the  budgetary  measures  envisaged  in  the  2011 
budget  as  well  as  taking  into  account  additional  information  provided  by  the  Bulgarian 
authorities in late December 2010 and January 2011. 

3.2. 

Assessment of action taken 

In  the  Commission  services'  autumn  2010  forecast  the  general  government  deficit  ratio  is 
projected to decrease to 3.8% of GDP in 2010, from 4.7% of GDP in 2009, in line with the 
target  set  in  the  revised  2010  budget  underpinning  the  Council  recommendation.  This 
projection is made against the background of a broadly unchanged economic outlook since the 
Commission services' spring 2010 forecast, which underpinned the Council recommendations 
of  13  July  2010.  Furthermore,  it  includes  a  one-off  deficit-increasing  item  resulting  from 
cancellation  of  third  countries'  debt  (0.1%  of  GDP)  and  incorporates  a  shortfall  in  current 
taxes and savings in capital expenditures  when  compared to the plans set out in the revised 
2010 budget. The authorities' latest forecast projects a slightly better deficit ratio in 2010, at 
3.6% of GDP. The Commission services' forecast suggests an improvement in the structural 
balance of around 1½% of GDP in 2010.  

The Commission therefore concludes that the budgetary outcome of 2010 is expected to be in 
line with the Council recommendation to achieve a 2010 deficit target of 3.8% of GDP that 
was set in the revised 2010 budget. 

For 2011, the Commission services' autumn 2010 forecast projects a deficit of 2.9% of GDP, 
implying  an  annual  deficit  reduction  of  0.9%  of  GDP,  based  on  a  no-policy  change 
assumption, an expected improvement in the economic outlook and a prudent assessment of 
the  fiscal  consolidation  measures  envisaged  in  the  2011  budget.  The  authorities  expect  a 
slightly  lower  deficit  of  2.5%  of  GDP,  with  the  difference  mostly  explained  by  a  more 
optimistic projection of economic activity. They will aim to achieve this fiscal target through 
an increase in general government revenue, induced by the expected economic recovery and 
revenue-enhancing measures, as well as a containment of expenditure growth and improved 
spending  efficiency.  In  structural  terms,  the  Commission  services'  forecast  points  to  an 
improvement in the structural balance of ¾ % of GDP in 2011. 

Risks  to  the  achievement  of  the  2011  deficit  target  mainly  pertain  to  the  macroeconomic 
scenario underlying the 2011 budgetary projections. A slower economic recovery with a less 
revenue-rich  growth  composition  may  lead  to  unexpected  revenue  shortfalls  despite  the 
conservative  budget  revenue  estimates.  On  the  expenditure  side,  local  and  presidential 
elections scheduled for the second half of 2011 may create additional spending pressures. In 
light  of  these  risks,  the  Bulgarian  authorities  must  closely  monitor  budgetary  developments 
and be ready to take corrective measures should any of these risks materialise.  

EN 

15 

   EN 

Against this background, the Commission concludes that Bulgaria has ensured a fiscal effort 
of ¾ pp. of GDP and taken effective action to put an end to the present situation of excessive 
deficit by 2011. 

Finally, certain progress has been made in the area of fiscal governance and some initiatives 
have  been  undertaken  to  improve  the  efficiency  of  public  spending.  Measures  for  a  further 
reform of the pension system in the medium- to long term have been agreed with the social 
partners, the implementation of which will require further legislative actions.  

3.3. 

Conclusions  

On  current  information  it  appears  that  Bulgaria  has  taken  action  representing  adequate 
progress  towards  the  correction  of  the  excessive  deficit  within  the  time  limits  set  by  the 
Council. Bulgaria has taken the necessary measures to correct the excessive deficit by 2011 
namely by avoiding a deterioration of the 2010 deficit beyond the planned 3.8% of GDP and 
by  legislating  adequate  fiscal  efforts  in  the  2011  budget,  in  line  with  the  Council’s 
recommendations.  

Furthermore,  the  Commission  is  of  the  opinion  that  Bulgaria  needs  to  be  more  effective  in 
strengthening  the  binding  nature  of  its  medium-term  budgetary  framework  in  line  with 
Council recommendations.  

In  view  of  the  above  assessment,  the  Commission  considers  that  no  further  steps  in  the 
excessive deficit procedure of Bulgaria are needed at present. The Commission will continue 
to closely monitor budgetary developments in Bulgaria in accordance with the Treaty and the 
SGP.  

EN 

16 

   EN 

Table: Comparison of key macroeconomic and budgetary projections 

Real GDP 
(% change) 

Primary balance 
(% of GDP) 

Output gap 
(% of potential GDP) 

General government 
balance 
(% of GDP) 

2012 
3.8 
4.7 
4.8 
-2.7 
n.a. 
-2.5 
-1.8 
-1.5 
0.1 
-1.0 
-0.2 
1.1 
-0.9 
n.a. 
1.0 
-0.9 
n.a. 
1.0 
20.8 
18.2 
14.4 
Source: COM - Commission services’ 2010 autumn forecast; BG - Bulgaria's Budget for 2011 and additional 
information provided by the authorities in January 2011; CP -Convergence Programme January 2010. 

COM 
BG 
CP 
COM 
BG 
CP 
COM 
BG 
CP 
COM 
BG 
CP 
COM 
BG 
CP 
COM 
BG 
CP 
COM 
BG 
CP 

2009 
-4.9 
-4.9 
-4.9 
-2.9 
n.a. 
-3.5 
-4.7 
-4.7 
-1.9 
-3.9 
-3.9 
-1.3 
-3.6 
n.a. 
-0.7 
-3.6 
n.a. 
-0.7 
14.7 
14.7 
14.7 

2010 
-0.1 
0.2 
0.3 
-4.8 
n.a. 
-5.7 
-3.8 
-3.6 
0.0 
-3.1 
-2.9 
0.9 
-2.1 
n.a. 
1.9 
-2.2 
n.a. 
1.9 
18.2 
15.9 
14.6 

2011 
2.6 
3.6 
3.8 
-4.2 
n.a. 
-4.7 
-2.9 
-2.5 
0.1 
-2.1 
-1.7 
1.0 
-1.4 
n.a. 
1.7 
-1.4 
n.a. 
1.7 
20.2 
19.5 
14.5 

2008 
6.2 
6.2 
6.0 
4.9 
n.a. 
4.8 
1.7 
1.7 
1.8 
2.5 
2.5 
2.7 
-0.1 
n.a. 
0.2 
-0.1 
n.a. 
0.2 
13.7 
13.7 
14.1 

Cyclically-adjusted 
balance 
(% of GDP) 

Government gross 
debt 
(% of GDP) 

Structural balance 
(% of GDP) 

4. 

DENMARK 

4.1. 

Excessive deficit procedure and most recent recommendations 

The  impact  of  the  economic  downturn  and  a  discretionary  fiscal  stimulus  triggered  a 
deterioration of public finances in Denmark. The general government balance turned from a 
surplus  of  3.2%  of  GDP  in  2008  into  a  deficit  of  2.7%  of  GDP  in  2009,  widening  to  an 
expected  5.5%  of  GDP  in  2010.  Against  this  background,  on  13  July  2010,  the  Council 
decided  that  an  excessive  deficit  existed  and  addressed  recommendations  to  Denmark  in 
accordance  with  Article  126(7)  TFEU  with  a  view  to  bringing  an  end  to  the  situation  of  an 
excessive  government  deficit  by  201310.  In  its  recommendations,  the  Council  established  a 
deadline of 13 January 2011 for effective action to be taken. 

The  Council  recommended  Denmark  to  bring  the  general  government  deficit  below  3%  of 
GDP  in  a  credible  and  sustainable  manner  by  taking  action  in  a  medium-term  framework. 
Specifically, to this end, the Danish authorities should: (a) implement the fiscal measures in 
2010 as envisaged in the latest update of the convergence programme and start consolidation 
in 2011 in order to bring the deficit below the reference value by 2013; (b) ensure an average 
annual  fiscal  effort  of  at  least  0.5%  of  GDP  over  the  period  2011-2013;  (c)  specify  and 
rigorously  implement  the  measures  that  are  necessary  to  achieve  the  correction  of  the 
excessive deficit by 2013, cyclical conditions permitting, and accelerate the reduction of the 
deficit if economic or budgetary conditions turn out better than currently expected. 

10 

All EDP-related documents for Denmark can be found at the following website: 
http://ec.europa.eu/economy_finance/sgp/deficit/countries/denmark_en.htm 

: 

EN 

17 

   EN 

 
 
                                                 
The  Commission  makes  its  assessment  of  action  taken  based  on  the  Commission  services' 
autumn  2010  forecast  and  in  the  light  of  the  2011  budget,  the  government's  December 
forecast  and  the  consolidation  measures  presented  by  the  government  on  25  May.  The 
assessment also takes in to account the information on effective action taken provided by the 
Danish Ministry of Finance to the Commission on 13 January 2011. 

4.2. 

Assessment of action taken 

The  Commission  services'  2010  autumn  forecast  points  to  an  improvement  in  the  general 
government budget balance of 1.6 pp. between 2010 and 2012 (from -5.1% of GDP in 2010 to 
-3.5% of GDP in 2012). In their  latest macroeconomic update (December 2010) the Danish 
authorities project the deficit ratio at 3.6% of GDP in 201011, increasing to 4.7% of GDP in 
2011 before declining to 3.4% of GDP in 2012, which would be close to the reference value 
one year before the time limit set by the Council.  

In May 2010 the Danish government secured parliamentary support for a set of consolidation 
measures  designed  to  fulfil  the  recommendations  of  the  EDP.  The  measures  include 
postponing previously planned tax cuts and temporarily suspending the automatic indexation 
of various tax thresholds (so-called §20 regulation) until 2014, reforming and shortening the 
unemployment benefit period from four to two years and introducing a ceiling on deductions 
for  trade  union  membership  fees.  In  addition,  government  consumption  growth  is  restricted 
between  2011  and  2013.  The  measures  from  the  May  consolidation  package  have  already 
been introduced into law, as recommended by the Council. In addition, the budget for 2011 
to  contain  government  consumption  growth. 
reconfirms 
Amendments to the way municipalities are financed and their expenditures controlled should 
reduce the risk of expenditure overruns.12 

the  government's 

intention 

the  Council 
The  Commission 
recommendation to implement the fiscal measures in 2010 as envisaged in the latest update of 
the convergence programme and start consolidation in 2011.  

that  Denmark  has 

therefore  concludes 

followed 

The expected average annual consolidation effort from these measures over the period 2011 to 
2013  amounts  to  about  ½%  of  GDP,  which  would  be  in  line  with  the  Council 
recommendation.  However,  while  a  marked  improvement  in  the  budget  balance  is  forecast 
until  2012,  the  structural  balance  is  estimated  to  deteriorate  slightly  over  the  period.  The 
underlying  potential  output  growth  in  2010-2013,  estimated  according  to  the  commonly 
agreed methodology, would be very low, which is unusual and could point to uncertainties in 
the calculation of Danish potential output at the current juncture. 

11 

12 

The Danish government's budget balance for 2010 is lower than the Commission services' 2010 autumn 
forecast primarily due to a temporary and unexpected boost of pension yield taxation revenues, which 
was not included in the Commission services' forecast.  
Two further initiatives underway are likely to have budgetary implications in the coming years. First, a 
students' grant reform is currently being negotiated, which could result in a reduction in the duration of 
student grants. The reform would thus be expected to further reduce government spending. Second, the 
government  has  proposed  a  phasing-out  of  the  early  retirement  scheme  by  2034  with  an  expected 
positive  impact  on  long-term  sustainability  but  with  short-term  budgetary  costs.  In  particular,  this 
reform might result in a significant one-off effect on the government budget balance in 2012. This one-
off cost would not impact on the correction of the excessive deficit by 2013. It is currently not possible 
to adequately quantify the budgetary impacts of these two initiatives. 

EN 

18 

   EN 

                                                 
In view of the above consolidation measures, the Commission has, at the current juncture, no 
indication  that  the  recommended  fiscal  effort  in  terms  of  the  annual  average  structural 
balance could not be reached within the medium-term framework between 2011 and 2013. It 
therefore considers that Denmark has, based on current information, taken effective action to 
put an end to the present situation of excessive deficit by 2013. 

4.3. 

Conclusions  

On  current  information,  it  appears  that  Denmark  has  taken  action  representing  adequate 
progress  towards  the  correction  of  the  excessive  deficit  within  the  time  limit  set  by  the 
Council. In particular, Denmark has implemented the fiscal measures in 2010 as envisaged in 
the latest update of the convergence programme and started consolidation in 2011, in line with 
the Council’s recommendations. 

In  view  of  the  above  assessment,  the  Commission  considers  that  no  further  steps  in  the 
excessive deficit procedure of Denmark are needed at present. The Commission will continue 
to closely monitor budgetary developments in Denmark in accordance with the Treaty and the 
SGP.  

Table 1: Comparison of key macroeconomic and budgetary projections 

Real GDP 
(% change) 

Primary balance 
(% of GDP) 

Output gap 
(% of potential GDP) 

General government 
balance 
(% of GDP) 

2009 
-5.2 
-5.2 
-4.3 
-5.6 
-3.3 
-2.4 
-2.7 
-2.8 
-3.0 
-0.9 
n.a. 
.3 
0.9 
n.a. 
-1.0 
0.9 
-0.4 
-0.6 
41.5 
41.5 
38.5 

COM 
DK 
CP 
COM 
DK 
CP 
COM 
DK 
CP 
COM 
DK 
CP 
COM 
DK 
CP 
COM 
DK 
CP 
COM 
DK 
CP 

2013 
n.a. 
n.a. 
2.3 
n.a. 
n.a. 
-1.4 
n.a. 
n.a. 
-1.9 
n.a. 
n.a. 
0.3 
n.a. 
n.a. 
-0.9 
n.a. 
-0.3 
-0.2 
n.a. 
n.a. 
48.1 
Source: COM - Commission services’ 2010 autumn forecast; DK – Danish authorities December 2010 forecast 
and Danish Ministry of Finance assessment of action taken for the Output gap and structural balance; CP – 
Convergence Programme February 2010. 
Notes: Statistics Denmark revised national accounts for 2008 and 2009, including total expenditure and total 
revenue,  in  November  2010,  as  a  result  also  the  net  lending/net  borrowing  was  revised.  However,  EDP  net 
lending/net borrowing has not been revised (it will be done for the EDP notification in April 2011) this might 
explain the difference between the two datasets. 

2011 
1.9 
1.7 
1.6 
-2.1 
-2.1 
-2.8 
-4.3 
-4.7 
-4.2 
-2.4 
n.a. 
-2.3 
-2.9 
n.a. 
-2.0 
-2.9 
-1.3 
-1.0 
47.5 
43.8 
46.2 

2012 
1.8 
1.5 
2.0 
-0.8 
-0.8 
-2.1 
-3.5 
-3.4 
-3.2 
-1.5 
n.a. 
-1.2 
-3.0 
n.a. 
-1.5 
-3.0 
-0.8 
-0.7 
49.2 
47.0 
48.3 

2010 
2.3 
2.0 
1.3 
-3.6 
-2.7 
-3.0 
-5.1 
-3.6 
-5.5 
-3.3 
n.a. 
-3.7 
-2.7 
n.a. 
-2.1 
-2.5 
-1.9 
-1.7 
44.9 
43.3 
41.8 

Cyclically-adjusted 
balance 
(% of GDP) 

Government gross 
debt 
(% of GDP) 

Structural balance 
(% of GDP) 

EN 

19 

   EN