Recommendation for a COUNCIL DECISION giving notice to Belgium to take measures for the deficit reduction judged necessary in order to remedy the situation of excessive deficit
Date: 2013-05-29
Institutions: European Commission
Subjects: Belgium, budget deficit, budgetary equilibrium, stability pact

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 382 final 

Recommendation for a 

COUNCIL DECISION 

giving notice to Belgium to take measures for the deficit reduction judged necessary in 
order to remedy the situation of excessive deficit 

{SWD(2013) 381 final}

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Recommendation for a 

COUNCIL DECISION 

giving notice to Belgium to take measures for the deficit reduction judged necessary in 
order to remedy the situation of excessive deficit 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(9) thereof, 

Having regard to the recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

According  to  Article  126  Treaty  on  the  Functioning  of  the  European  Union  (TFEU) 
Member States shall avoid excessive government deficits. 

The Stability and Growth Pact is based on the objective of sound government finances 
as a means of strengthening the conditions for price stability and for strong sustainable 
growth conducive to employment creation. 
On 2 December 2009, the Council decided1, in accordance with Article 126(6) TFEU, 
that an excessive deficit existed in Belgium and issued a recommendation to correct it 
by 2012 at the latest, in accordance with Article 126(7) TFEU and Article 3 of Council 
Regulation  (EC)  No  1467/97  of  7  July  1997  on  speeding  up  and  clarifying  the 
implementation  of  the  excessive  deficit  procedure2.  In  order  to  bring  the  general 
government  deficit  below  3%  of  GDP  in  a  credible  and  sustainable  manner,  the 
Belgian authorities were recommended to (a) implement the deficit-reducing measures 
in 2010 as planned in the draft budget for 2010 and strengthen the planned fiscal effort 
in 2011 and 2012; (b) ensure an average annual fiscal effort of ¾% of GDP over the 
period 2010-2012, 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; (c) specify the measures that are 
necessary  to  achieve  the  correction  of  the  excessive  deficit  by  2012,  cyclical 
conditions  permitting,  and  to  accelerate  the  reduction  of  the  deficit  if  economic  or 
budgetary  conditions  turned  out  better  than  expected  at  the  time  the  EDP 
recommendations  were  issued;  and  (d)  strengthen  the  monitoring  mechanisms  to 
ensure  that  fiscal  targets  are  respected.  In  its  recommendations,  the  Council 
established a deadline of 2 June 2010 for effective action to be taken in line with the 
provisions of Article 3(4) of Regulation (EC) No 1467/97. 

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2 

All documents related to the excessive deficit procedure of Belgium can be found at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/belgium_en.htm 
OJ L 209, 2.8.1997, p. 6. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

According to the provisions of Article 126(8) TFEU, the Council decided on [21 June 
2013]  that  Belgium  did  not  take  effective  action  in  response  to  the  December  2009 
Council recommendation within the period laid down in that recommendation.  

According to Article 10(3) of Regulation (EC) No 1467/97, if actual data pursuant to 
Regulation (EC) No 479/2009 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  126(7),  the  Council  shall  immediately  take  a  decision  under 
Article 126(9), that is, give 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. 

The Commission services' 2013 Spring  Forecast, projects real GDP to remain flat in 
2013  with  domestic  demand  continuing  the  contraction  initiated  in  2012.  While 
household consumption is likely to stagnate, investment is expected to drop, driven by 
an economy-wide lack of confidence, a depressed construction sector, tightening credit 
conditions and an industry featuring ample spare capacity. Both private consumption 
and  investment  are  anticipated  to  gain  pace  only  as  of  2014  when  domestic  demand 
would  become  the  main  driver  behind  a  real  GDP  growth  rate  of  1.2%.  Against  the 
background of this more robust domestic demand, import growth is assumed to catch 
up  with  export  growth.  This  would  limit  further  gains  from  net  exports  in  2014, 
contrary to 2013 when positive net foreign demand growth is expected to prevent GDP 
from contracting. 

According to the Commission services' 2013 Spring Forecast, the general government 
deficit  is  projected  to  decrease  to  2.9%  of  GDP  in  2013.  The  initial  2013  budget 
targeted  a  nominal  deficit  of  2.15%  of  GDP.  However,  since  the  drafting  of  the 
budget,  the  official  growth  projections underpinning  the  budget  (+0.7%,  in  line  with 
the  Commission  services'  2012  Autumn  Forecast)  have  been  substantially  revised 
downwards,  to  0.2%  in  the  2013  Stability  Programme  and  0.0%  in  the  Spring 
Forecast. Therefore, the government abandoned the nominal deficit target and replaced 
it  by  a  commitment  to  improve  the  structural  balance  by  1.0  %  of  GDP.  In  March 
2013, the government took additional measures amounting to 0.2% of GDP on top of 
around 0.75% of GDP of measures taken in the initial 2013 budget, which have been 
taken  into  account  in  the  Commission  services'  2013  Spring  Forecast.  This  forecast 
projects  a  structural  improvement  of  ¾  %  of  GDP  in  2013,  including  a  ¼  pp. 
contribution from lower interest expenditure.  

At  unchanged  policy,  the  Commission  services'  2013  Spring  Forecast  projects  the 
deficit  to  rise  again  above  the  reference  value  in  2014,  to  3.1%  of  GDP,  despite  the 
projected growth above potential. This new rise is due to the autonomous rising trend 
in social transfers and the fact that the 2013 budget also included around 0.4% of GDP 
of  one-off  and  temporary  revenues,  such  as  a  fiscal  amnesty,  the  sale  of  telecom 
licenses and an exceptionally high dividend from the National Bank of Belgium. 

Public  debt  rose  from  84%  of  GDP  in  2007  to  almost  100%  of  GDP  in  2012.  The 
dynamics of the deficit and of GDP account for around 6.5 pps. of the increase, while 
exogenous  factors  amount  to  around  9  pps.,  mainly  due  to  rescue  operations  in  the 
financial  sector  in  the  form  of  equity  injections.  According  to  the  Commission 
services'  2013  Spring  Forecast,  it  is  expected  to  increase  to  over  102%  of  GDP  in 
2014. The Belgian government intends to sell financial assets in order to keep the debt 
below  100%  of  GDP  in  2013.  In  this  context,  the  Belgian  government  announced 
recently the sale of Royal Park Investment (the special purpose vehicle created in the 

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context of the Fortis rescue operation) which would reduce the debt level by 0.2% of 
GDP. 

(10)  The European Commission Fiscal Sustainability Report 2012 shows that Belgium does 
not appear to face a risk of fiscal stress in the short term. However, fiscal sustainability 
risks are high in a medium- to long-term perspective. The long-term budgetary impact 
of  ageing  in  Belgium  is  well  above  the  EU  average,  which  is  mainly  the  result  of  a 
rapid  increase  in  pension  expenditure  as  a  share  of  GDP  over  the  coming  decades. 
Although  the  December  2011  pension  reform  was  an  important  positive  step, 
additional  measures  appear  necessary  to  fully  restore  the  long-term  sustainability  of 
public finances. 

(11)  Measures  taken  in  the  initial  2013  budget  and  the  March  2013  budget  control  are 
currently expected to bring the deficit below 3% of GDP in 2013. However, according 
to the Commission services' 2013 Spring Forecast, the safety margin against breaching 
the Treaty reference value is very narrow. Moreover, the correction is currently not yet 
sustainable. 

(12)  Against  the  background  of  high  uncertainties  regarding  economic  and  budgetary 
developments, the budgetary target recommended for the final year of the correction 
period should be set at a level clearly below the reference value, in order to guarantee 
an effective and lasting achievement of the correction within the requested deadline.  

(13)  Therefore, a further reduction of the 2013 deficit to 2.7% of GDP is warranted, which 
is  consistent  with  a  structural  improvement  of  1%  of  GDP  in  2013.  To  this  end, 
additional  measures  with  an  estimated  impact  of  ¼%  of  GDP  are  considered 
necessary, also in view of possible negative second round effects.  

(14)  Belgium  committed  in  its  Stability  Programme  to  achieve  a  balanced  budget  in 
structural  terms  in  2015,  before  reaching  its  MTO  of  a  surplus  of  0.75%  of  GDP  in 
structural terms in 2016. Subsequently, in a letter sent to the Commission on 28 May 
2013, the Belgian authorities committed to target a higher fiscal effort at ¾% of GDP 
in 2014. Also in view of the high level of debt this is an appropriate effort and it will 
comply  with  the  debt  reduction  benchmark.,  a  Thereafter,  Belgium  should  continue 
making  sufficient  progress  towards  its  medium-term  objective  including  meeting  the 
expenditure benchmark, and towards compliance with the debt reduction benchmark.  

(15)  Furthermore,  Belgium  should  strengthen  the  long-term  sustainability  of  the  pension 
and social security systems. In this respect, additional efforts are needed to close the 
gap between the effective and the statutory retirement age, while measures to link the 
statutory retirement age to developments in life expectancy would allow safeguarding 
the sustainability of the pension system in the long term. 

(16) 

In  addition,  Belgium  should  adopt  explicit  coordination  arrangements  to  ensure  that 
budgetary targets are binding at federal level and sub-federal levels within a medium-
term  planning  perspective,  including  through  the  prompt  adoption  of  a  rule  on  the 
general government budget balance/surplus that complies with the requirements of the 
Treaty  on  Stability,  Coordination  and  Governance  in  the  Economic  and  Monetary 
Union. 

(17)  Finally,  to  ensure  the  success  of  the  fiscal  consolidation  strategy,  it  will  also  be 
important to back the fiscal consolidation by comprehensive structural reforms, in line 
with  the  Council  recommendations  addressed  to  Belgium  in  the  context  of  the 
European Semester and in particular those related to the Macroeconomic Imbalances 
Procedure, 

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HAS ADOPTED THIS DECISION: 

1. 

2. 

3. 

4. 

1. 

2. 

3. 

4. 

Article 1 

Belgium shall put an end to the present excessive deficit situation by 2013. 

Belgium  shall  reduce  the  headline  deficit  to  2.7%  of  GDP  in  2013  This  nominal 
improvement  is  consistent  with  an  improvement  in  the  structural  balance  of 1%  of 
GDP in 2013, based on the Commission services' 2013 Spring Forecast.  

Belgium shall adopt and fully implement all the consolidation measures incorporated 
in the 2013 budget as well as additional measures of structural nature to achieve the 
recommended structural effort for 2013.  

Belgium  shall  stand  ready  to  adopt  further  measures  should  risks  to  the  budgetary 
plans  materialise.  Budgetary  consolidation  measures  should  secure  a  lasting 
improvement  in  the  general  government  structural  balance  in  a  growth-friendly 
manner. 

Article 2 

Belgium  shall  submit  to  the  Commission,  by  21  September  2013  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. 

Belgium  shall  submit  further  quarterly  reports  to  the  Commission,  examining 
progress made in complying with this decision.  

Belgium shall submit a report by 31 December 2013 on the intended implementation 
of  the  first  recommendation  issued  under  the  European  Semester  regarding  the 
adoption  of  explicit  coordination  arrangements  to  ensure  that  budgetary  targets  are 
binding  at  federal  level  and  sub-federal  levels  within  a  medium-term  planning 
perspective.  

Belgium  shall  present  structural  measures  for  2014  which  ensure  a  sustainable 
correction of the excessive deficit and appropriate progress towards its medium-term 
objective.  

This Decision is addressed to the Kingdom of Belgium. 

Done at Brussels,  

Article 3 

For the Council 
The President 

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