CELEX: 52010SC0744
Language: en
Date: 2010-06-15 00:00:00
Title: Recommendation for a Council Recommendation with a view to bringing an end to the situation of an excessive government deficit in Denmark

EN
EN    EN
 ---pagebreak---                   EUROPEAN COMMISSION
                                                   Brussels, 15.6.2010
                                                   SEC(2010) 744 final
                                  Recommendation for a
                           COUNCIL RECOMMENDATION
   with a view to bringing an end to the situation of an excessive government deficit in
                                        Denmark
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 ---pagebreak---                                          Recommendation for a
                                     COUNCIL RECOMMENDATION
       with a view to bringing an end to the situation of an excessive government deficit in
                                               Denmark
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular
   Article 126(7) thereof;
   Having regard to the recommendation from the European Commission;
   Whereas:
   (1)     According to Article 126 of the Treaty Member States shall avoid excessive
           government deficits.
   (2)     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.
   (3)     The 2005 reform of the Stability and Growth Pact sought to strengthen its
           effectiveness and economic underpinnings as well as to safeguard the sustainability of
           the public finances in the long run. It aimed at ensuring that in particular the economic
           and budgetary background was taken into account fully in all steps in the EDP. In this
           way, the Stability and Growth Pact provides the framework supporting government
           policies for a prompt return to sound budgetary positions taking account of the
           economic situation.
   (4)     The Council has decided on [13 July 2010], in accordance with Article 126(6) of the
           Treaty, that an excessive deficit exists in Denmark.
   (5)     In accordance with Article 126(7) of the Treaty and Article 3 of Council Regulation
           (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive
           deficit procedure1 (which is part of the Stability and Growth Pact), the Council is also
           required to make recommendations to the Member State concerned with a view to
           bringing the situation of excessive deficit to an end within a given period. The
           recommendation has to establish a deadline of six months at the most for effective
           action to be taken by the Member State concerned to correct the excessive deficit as
           well as a deadline for the correction of the excessive deficit, which should be
           completed in the year following its identification unless there are special
           circumstances. In deciding whether special circumstances exist, “relevant factors” as
           clarified in Article 2(3) of Regulation (EC) No 1467/97 should be taken into account.
   1
           OJ L 209, 2.8.1997, p. 6.
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 ---pagebreak---        Furthermore, in a recommendation to correct an excessive deficit the Council should
       request the achievement of a minimum annual improvement in the structural balance,
       i.e. the cyclically-adjusted balance excluding one-off and other temporary measures, of
       0.5% of GDP as a benchmark.
   (6) Special circumstances, which are relevant for the greater flexibility in the application
       of the EDP introduced with the 2005 reform of the Stability and Growth Pact, are
       deemed to exist in the case of Denmark. In particular, the 2009 recession reflected the
       abrupt decline in private consumption, investment, and exports as a consequence of
       the financial crisis and the global recession, in particular the slump in demand from
       the main trading partners (Germany, United Kingdom, Sweden and Norway). The
       deficit in 2010 is a consequence of both the economic downturn and the stimulus
       measures taken in line with the EERP by the Danish authorities. The existence of
       special circumstances authorises the Council to allow the correction of the excessive
       deficit in a medium-term framework.
   (7) According to the April 2010 EDP notification, the general government deficit in
       Denmark is planned to reach 5.4% of GDP in 2010 taking into account the economic
       downturn and the fiscal impact of the economic recovery plan fleshed out in the
       February 2010 update of the Convergence Programme. The Commission services'
       spring 2010 forecast projects the government deficit to widen from 2.7% of GDP in
       2009 to 5.5% of GDP in 2010, declining to 4.9% of GDP in 2011 on a no-policy
       change basis. This assumption does not take into account consolidation measures for
       2011 which were announced by the government on 25 May 2010 or measures which
       have not yet been sufficiently specified. Benefiting from budget surpluses prior to
       2009, Denmark adopted fiscal stimulus measures in line with the EERP reaching 2.2%
       of GDP in 2009 and 1.3% in 2010. The recovery measures are split between
       permanent tax cuts and temporary public investment measures.
   (8) Considering the special circumstances and the EERP framework, an average annual
       fiscal effort is recommended. The fiscal effort should take into account all factors
       relevant for achieving the fiscal policy objectives, starting with the level of the general
       government deficit and gross debt as well as other indicators, such as the current
       account position, the level of contingent liabilities of the financial sector, interest
       payments, risk premia and the expected change in age-related expenditure in the
       medium term. In calculating the average annual fiscal effort, the 2011 deficit in the
       Commission services' spring 2010 forecast is taken as the starting point. The total
       fiscal effort needed to reach the nominal deficit target of 3% by the deadline is then
       calculated by assuming a gradual closure of the output gap by 2015.
   (9) Against this background, it is appropriate to consider the correction of the excessive
       deficit in a medium-term framework with a deadline for the correction of 2013. In
       particular, in view of the absence of major economic imbalances, a credible and
       sustainable adjustment path would require the Danish authorities to implement the
       fiscal measures in 2010 as envisaged and ensure an average annual structural
       adjustment of ½% of GDP over the period 2011-2013; to specify 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.
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 ---pagebreak---    (10) As reflected by its budgetary track record, Denmark has benefited from a relatively
        strong fiscal framework, notable for its wide coverage and the transparency and
        visibility of its fiscal rules. General government consumption expenditure has,
        however, been prone to exceeding targets. Recent initiatives involving economic
        sanctions could enhance incentives for municipalities to adhere to agreed targets.
        Since 2002 the Danish tax policy has been centred on the tax-freeze, whereby no
        indirect or direct taxes can be raised. The tax-freeze has not stood in the way of a
        major tax reform in 2009, but strict observance of the tax-freeze may render further
        adjustments difficult.
   (11) According to data notified by the Danish authorities in April 2010, general
        government gross debt was 41.6% of GDP in 2009 and set to increase to 45.1% of
        GDP in 2010. According to the Commission services' 2010 spring forecast on a no-
        policy-change assumption, the debt level is expected to increase to 46% of GDP in
        2010 and further to 49.5% of GDP in 2011, which is still below the 60% reference
        value.
   (12) Enhanced surveillance under the EDP will require regular and timely monitoring of
        the progress made in the implementation of the fiscal consolidation strategy. In this
        context, a separate chapter in the forthcoming updates of the Danish convergence
        programme could usefully be devoted to this issue.
   (13) In general, in the view of the Council, budgetary consolidation measures should secure
        a lasting improvement in the general government balance, while being geared towards
        enhancing the quality of the public finances and reinforcing the growth potential of the
        economy.
   HAS ADOPTED THIS RECOMMENDATION:
   (1)  Recognising that Denmark's budgetary position in 2010 resulted from measures
        amounting to 2.2% of GDP in 2009 and 1.3% in 2010, which is an adequate response
        to the downturn and were in line with the European Economic Recovery Plan
        principles, as well as from the free play of automatic stabilisers, the Danish authorities
        should put an end to the present excessive deficit situation as rapidly as possible and at
        the latest by 2013.
   (2)  The Danish authorities should 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 ½% 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.
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 ---pagebreak---    (3)    The Council establishes the deadline of [13 January 2011] for the Danish government
          to take effective action to and to specify the measures that will be necessary to
          progress towards the correction of the excessive deficit. The assessment of effective
          action will take into account economic developments compared with the economic
          outlook in the Commission services' spring 2010 forecast.
   The Danish authorities should report on progress made in the implementation of these
   recommendations in a separate chapter in the forthcoming updates of the convergence
   programmes until the abrogation of the excessive deficit procedure.
   In addition, the Council highlights the importance of achieving the medium-term objective
   (MTO) for appropriate budgetary management of economic downturns. It therefore invites the
   Danish authorities to ensure that budgetary consolidation towards the medium-term objective
   for the budgetary position – structural balanced budget by 2015 – is sustained after the
   excessive deficit will have been corrected.
   This recommendation is addressed to The Kingdom of Denmark
   Done at Brussels, 15.6.2010
                                               For the Council
                                               The President
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