Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Belgium in response to the Council Recommendation of 2 December 2009
Date: 2013-05-29
Institutions: European Commission
Subjects: Belgium, aid to undertakings, banking system, budget deficit, budgetary equilibrium, stability pact

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 381 final 

Recommendation for a 

COUNCIL DECISION 

establishing that no effective action has been taken by Belgium in response to the 
Council Recommendation of 2 December 2009  

{SWD(2013) 381 final} 

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Recommendation for a 

COUNCIL DECISION 

establishing that no effective action has been taken by Belgium in response to the 
Council Recommendation of 2 December 2009  

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(8) thereof, 

Having regard to the recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

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According  to  Article  126  of  the  Treaty,  Member  States  are  to  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.  The  Stability  and  Growth  Pact  includes 
Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the 
implementation  of  the  excessive  deficit  procedure1,  which  was  adopted  in  order  to 
further the prompt correction of excessive general government deficits. 

The  Council,  acting  upon  a  recommendation  by  the  Commission,  decided  on  2 
December  2009,  in  accordance  with  Article 126(6)  of  the  Treaty,  that  an  excessive 
deficit  existed  in  Belgium2.  On  the  same  day,  and  also  on  the  basis  of  a 
recommendation  by  the  Commission,  the  Council  adopted  recommendations  under 
Article  126(7)  asking  the  Belgian  authorities  to  take  action  in  a  medium-term 
framework in order to bring the deficit below 3 % of GDP by 2012 at the latest. 

Specifically, 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 

OJ L 209, 2.8.1997, p. 6. 
OJ L 125, 21.5.2010, p. 34. 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 

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contribute to bringing the 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 
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. 

targets  are  respected.  In 

that  fiscal 

to  ensure 

(5) 

(6) 

(7) 

The Commission services’ 2009 Autumn Forecast, which was underlying the Council 
recommendation  under  Article  126(7)  of  the  TFEU  of  2  December  2009,  projected 
that the Belgian economy would expand by 0.6% in 2010 and 1.5% in 2011. The year 
2012 was beyond that forecast's horizon, but under the hypothesis of a gradual closure 
of the large negative output gap by 2015, higher growth than in 2011 was expected for 
2012. GDP growth in 2010 was substantially above that expected in the Commission 
services'  2009  Autumn  Forecast,  in  2011  it  was  slightly  above  the  projected  1.5%, 
while in 2012 the Belgian economy went through a contraction of 0.2%. 

On 15 June 2010, the Commission concluded that based on the Commission services' 
2010  Spring  Forecast,  Belgium  had  taken  effective  action  in  compliance  with  the 
Council  recommendation  of  2  December  2009  to  bring  its  government  deficit  below 
the 3% of GDP reference value and considered that no additional step in the excessive 
deficit procedure was therefore necessary at that point in time.  

Based on the Commission Services' 2011 Autumn forecast, there was clear evidence 
of  compliance  risks  with  the  2009  EDP  recommendation,  given  the  still  significant 
excess over the 3% of GDP deficit threshold close to the deadline in the absence of a 
2012  budget  and  the  fact  that  the  fiscal  effort  achieved  until  then  fell  short  of  the 
recommended  one.  Therefore,  the  Commission  expressed  its  concerns  and  urged 
Belgium to take the necessary measures in time to avoid a stepping up of their EDP. In 
December 2011, the newly constituted Belgian government agreed on a draft budget. 
On  11  January  2012  the  Commission  concluded  that,  based  on  the  macroeconomic 
scenario  prevailing  at  that  moment  (a  growth  projection  of  0.9%  according  to  the 
Commission  services'  2011  Autumn  Forecast),  the  consolidation  measures  in  the 
budget and the additional freeze, the deficit would reach 2.9% of GDP in 2012. Hence 
the Commission considered that no further steps in the excessive deficit procedure of 
Belgium were needed at that point in time. 

(8) 

A new assessment of the action taken by Belgium to correct the excessive deficit by 
2012 in response to the Council recommendation under Article 126(7) of the Treaty, 
leads to the following conclusions:  

–  Following  the  EDP  notification  of  the  2012  general  government  deficit  and  its 
validation  by  the  Commission  (Eurostat),  the  2012  deficit  came  out  at  3.9%  of 
GDP.  This  was  partly  due  to  the  urgent  need  to  recapitalize  the  banking  group 
Dexia  at  the  end  of  2012,  which  had  a  negative  impact  of  0.8%  of  GDP  on  the 
government deficit. However, also without this operation the deadline would have 
been missed, with a deficit of 3.2% of GDP excluding the one-off negative impact 

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of  that  operation.  Moreover,  the  2012  budget  contained  substantial  deficit 
reducing one-off measures, estimated at around 0.4% of GDP. 

–  The primary balance improved from a deficit of 1.9% of GDP in 2009 to 0.4% of 
GDP in 2010, while remaining broadly stable in 2011. In 2012, the primary deficit 
deteriorated to 0.5% because of the impact of the Dexia recapitalization, without 
which the primary balance would have shown a surplus of 0.3% of GDP.  

–  The  average  annual  fiscal  effort  since  2010  is  estimated  at  0.3%  of  GDP, 
significantly  below  the  ¾%  of  GDP  recommended  by  the  Council.  Also  after 
correction  for  the  effects  of  revised  potential  output  growth  and  revenue 
developments,  the  adjusted  average  fiscal  effort  is  less  than  half  of  the 
recommended effort. A bottom-up calculation estimates the cumulative net impact 
of discretionary measures of a permanent nature at around 2% of GDP over 2010-
2012.  This  calculation  includes  both  deficit-reducing  measures  as  well  as 
expenditure  increases  to  some  extent  due  to  policy  decisions  of  the  past  (e.g. 
welfare adaptations of social benefits, rapidly rising wage subsidies to companies) 
which partly offset the consolidation efforts. Moreover, the impact of these 2% of 
GDP  of  discretionary  measures  has  been  insufficient  to  offset  the  autonomously 
rising trend in public expenditure due to population ageing and at the same time 
achieve  the  recommended  improvement  of  the  structural  balance  over  the 
consolidation period.  

–  In 2010, Belgium broadly implemented the deficit-reducing measures as planned, 
which led to a structural improvement of ½ % of GDP, of which ¼ pp. thanks to a 
strong decline in interest expenditure. The nominal deficit fell from 5.6% of GDP 
in  2009  (which  included  0.6  pp.  of  negative  one-off  factors)  to  3.8%  of  GDP, 
substantially  lower  than  the  objective  of  4.8%  of  GDP  planned  by  the  Belgian 
authorities  in  the  January  2010  Stability  Programme,  thanks  to  the  better-than-
expected  macro-economic  outturn.  In  2010  GDP  grew  by  2.4%,  compared  to  a 
growth rate of 0.6% expected at the time of the EDP recommendation. 

–  Despite relatively favourable macro-economic conditions in the first half of 2011 
(annual GDP growth of 1.8%), the nominal balance fell only marginally that year, 
to  3.7%  of  GDP,  compared  to  a  target  of  3.6%  of  GDP  in  the  2011  Stability 
Programme.  The  structural  balance  deteriorated  by  0.1%  in  2011.  Therefore, 
Belgium  failed  to  take  advantage  of  the  relatively  favourable  economic  times  to 
reduce its deficit, partly due to the political deadlock at federal level between the 
June 2010 elections and December 2011. 

–  In  December  2011,  the  newly  constituted  Belgian  government  included  in  the 
2012  budget  a  series  of  consolidation  measures  amounting,  according  to  the 
budget  and  the  2012  Stability  Programme,  to  about  3%  of  GDP.  Additional 
measures  were  taken  in  March  2012  and  October  2012  in  order  to  offset  the 
negative impact of the economic slowdown on the budget. At the end of 2012, the 
Belgian  and  French  governments  needed  to  increase  the  capital  of  the  banking 
group  Dexia,  in  order  to  remedy  a  negative  net  asset  position  and  allow  the 
orderly  resolution  of  the  group  to  go  ahead.  For  Belgium,  this  had  a  one-off 
negative impact on the deficit of 0.8% of GDP. Moreover, despite a mechanism of 
reinforced  monitoring,  the  economic  downturn  impacted  government  revenue 
more  than  expected,  resulting  in  a  deficit  at  federal  level  of  2.7%  of  GDP 

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excluding  the  impact  of  the  Dexia  operation  compared  to  a  target  of  2.4%.  In 
addition,  in  the  April  2013  EDP  notification,  it  turned  out  that  the  local 
government level had missed its deficit target (-0.3% of GDP instead of -0.2%), 
which  was  only  partly  offset  by  a  better  than  expected  result  by  regions  and 
communities  (-0.1%  of  GDP  instead  of  -0.2%).  The  structural  budget  balance  is 
estimated  to  have  improved  by  ½  pp.  of  GDP  in  2012.  Sizeable  government 
measures have been partly offset by rising interest expenditure, a negative impact 
of the automatic indexation of wages and social benefits linked to past inflation, 
and a strong increase in pension expenditure.  

–  Public  debt  rose  from  84.0%  of  GDP  in  2007  to  99.6%  of  GDP  in  2012.  The 
dynamics  of  the  deficit  and  of  GDP  account  for  around  6.5  pp.  of  the  increase, 
while exogenous factors amount to around 9 pp., mainly due to rescue operations 
in the financial sector in the form of equity injections. 

(9) 

Belgium took some measures to strengthen the monitoring mechanisms to ensure that 
fiscal targets are respected, such as the instauration of a monitoring committee in 2010 
and  a  strengthened  monitoring  of  the  budget  execution  in  2012.  However,  no 
significant  progress  has  been  made  to  adjust  the  fiscal  framework  in  order  to  ensure 
that  the  budgetary  targets  are  binding  at  federal  and  sub-federal  levels,  and  increase 
transparency of burden-sharing and accountability across government layers. 

(10)  This  leads  to  the  conclusion  that  the  response  of  Belgium  to  the  Council 
recommendation  according  to  Article  126(7)  of  the  Treaty  of  2  December  2009  has 
been  insufficient.  Belgium  did  not  put  an  end  to  its  excessive  deficit  by  2012.  The 
fiscal  effort  falls  significantly  short  of  what  was  recommended  by  the  Council,  and 
was even entirely absent in 2011, 

HAS ADOPTED THIS DECISION:  

Belgium has not taken effective action in response to the Council recommendation according 
to Article 126(7) of the Treaty of 2 December 2009. 

Article 1 

Article 2 

This Decision is addressed to Belgium. 

Done at Brussels,  

For the Council 
The President 

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