CELEX: 52008SC0571
Language: en
Date: 2008-05-07 00:00:00
Title: Recommendation for a Council Decision abrogating Decision 2005/185/EC on the existence of an excessive deficit in the Czech Republic

EN
EN    EN
 ---pagebreak---    COMMISSION OF THE EUROPEAN COMMUNITIES
                                    Brussels, 7.5.2008
                                    SEC(2008) 571 final
                  Recommendation for a
                 COUNCIL DECISION
    abrogating Decision 2005/185/EC on the existence
      of an excessive deficit in the Czech Republic
              (presented by the Commission)
EN                                                      EN
 ---pagebreak---                                     EXPLANATORY MEMORANDUM
   1.        BACKGROUND
   Article 104 of the Treaty establishes that Member States should avoid excessive deficits and
   lays down a procedure for their identification and correction. The excessive deficit procedure
   (EDP) is further specified in Council Regulation (EC) No 1467/97 on “speeding up and
   clarifying the implementation of the excessive deficit procedure”1, which is part of the
   Stability and Growth Pact. According to Article 104(2) of the Treaty, the Commission has to
   monitor compliance with budgetary discipline on the basis of two criteria, namely: (a)
   whether the planned or actual government deficit exceeds the reference value of 3% of GDP
   (unless either the deficit ratio has declined substantially and continuously and reached a level
   that comes close to the reference value; or, alternatively, the excess over the reference value is
   only exceptional and temporary and the ratio remains close to the reference value); and (b)
   whether government debt exceeds the reference value of 60% of GDP (unless the debt ratio is
   sufficiently diminishing and approaching the reference value at a satisfactory pace).
   In accordance with the Protocol on the excessive deficit procedure annexed to the Treaty, the
   Commission provides the data for the implementation of the EDP. As part of the application
   of this Protocol, Member States have to notify data on government deficits and debt and other
   associated variables twice a year, namely before 1 April and before 1 October, in accordance
   with Article 4 of Council Regulation (EC) No 3605/932,3.
   On 12 May 2004, the Commission initiated the EDP for the Czech Republic with the adoption
   of a report under Article 104(3), based on a general government deficit of 12.9% of GDP in
   20034 (5.9% of GDP excluding a major one-off operation related to imputed state guarantees).
   On 5 July 2004, the Council decided, on a recommendation from the Commission, that the
   Czech Republic was in excessive deficit according to Article 104(6)5. At the same time, and
   also based on a Commission recommendation, the Council addressed recommendations under
   Article 104(7) to the Czech Republic with a view to bringing the situation of an excessive
   government deficit to an end, by 2008 at the latest.
   1
           OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174,
           7.7.2005, p. 5).
   2
           OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337,
           22.12.2005, p. 1).
   3
           The most recent notification of the Czech Republic can be found at:
           http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2373,58110711&_dad=portal&_schema=portal.
   4
           SEC(2004) 575. In the meantime the 2003 deficit outturn has been revised downwards to 6.6% of GDP
           (no longer including any one-offs).
   5
           OJ L 62, 9.3.2005, p. 20.
EN                                                        2                                                  EN
 ---pagebreak---    In view of the forecast of a marked budgetary slippage in 2007 and a continuing excess of the
   deficit over the reference value in 2008, based on budgetary plans proposed before the June
   2006 general election, the Council adopted a decision under Article 104(8) on 10 July 2007,
   based on a recommendation from the Commission, stating that the action being taken by the
   Czech Republic did not appear to be adequate to correct the excessive deficit by the deadline
   of 2008. On 10 October 2007, the Council issued a new recommendation under Article
   104(7), based on a recommendation from the Commission, recommending the Czech
   Republic to further contain the budgetary deterioration in 2007 and confirming the original
   target year of 2008 to put an end to the excessive deficit situation. The Czech authorities had
   to bring the deficit below the 3% of GDP reference value in a credible and sustainable
   manner. To this end, on the basis of then available projections the Council recommended the
   Czech authorities to ensure an improvement in the structural balance (i.e. the cyclically-
   adjusted balance net of one-off and other temporary measures) of at least ¾% of GDP in 2008
   compared to 2007. The Council set a deadline of 9 April 2008 for the Czech authorities to
   take effective action.
   In addition, the Council invited the Czech Republic “to ensure that budgetary consolidation
   towards its medium-term objective (MTO) for the budgetary position of a structural deficit of
   1% of GDP is sustained after the excessive deficit has been corrected and to achieve the MTO
   by the original deadline of 2012 at the latest.”
   Table 1: Adjustment endorsed by the Council on 10 October 2007
   % of GDP, unless indicated otherwise                     2006              2007                   2008
   General government balance                               -2.7        better than -3.3          deficit < 3
   change in structural balance                                                                   at least ¾
   p.m.: Real GDP growth (%)                                 6.0               5.0                    4.9
   Notes: Structural balance = cyclically-adjusted balance excluding one-off and other temporary measures.
   Source: Council recommendation under Article 104(7), adopted on 10 October 2007, and Commission services’
   Spring 2007 forecast
   After the expiry of the deadline set by the Council, the Commission habitually makes a formal
   assessment of the action taken by the authorities in response to the Council’s
   recommendations, taking into account the most recent Commission services’ forecasts. This
   represents an intermediate assessment of whether the country is on track to correct the
   excessive deficit in time. In the case of the Czech Republic, this intermediate assessment is
   subsumed under and replaced by the current document. It takes into account the Czech
   government’s note on corrective measures adopted under the EDP of April 20086.
   According to Article 104(12), a Council decision on the existence of an excessive deficit is to
   be abrogated, on the basis of a Commission recommendation, when the excessive deficit in
   the Member State concerned has, in the view of the Council, been corrected.
   6
            Letter of 10 April 2008 addressed by the Czech Minister of Finance to the Commissioner for Economic
            and Monetary Affairs.
EN                                                         3                                                    EN
 ---pagebreak---    2.         RECENT DEFICIT DEVELOPMENTS
   The general government deficit reached a high of 6.6% of GDP in 2003. Thereafter, with the
   exception of 2005 (3½% of GDP), the general government deficit has not been above 3% of
   GDP. The nominal deficit developments since 2004 have been better than the recommended
   (nominal) deficit reduction path in the 104(7) recommendation of 5 July 2004. The
   improvement in the general government deficit has been due to better-than-expected revenues
   from higher-than-anticipated growth, which has exceeded 6% annually since 2005, as well as
   expenditure restraint. General government expenditure has fallen gradually as a percentage of
   GDP from 45% of GDP in 2004 to 42.4% of GDP in 2007. This is partly due to government
   consumption which has been lowered by about 2% of GDP and also diminishing costs related
   to the consolidation of the banking sector7.
   Based on data provided by the Commission (Eurostat), following the reporting by the Czech
   Republic before April 20088,9, the general government deficit stood at 1.6% of GDP in 200710
   which is significantly below the target of 4% of GDP, set in the March 2007 update of the
   convergence programme. In the outturn, revenues, as a percentage of GDP, were 0.8% of
   GDP higher than projected in the March 2007 convergence programme, and government
   expenditure was 1.8% of GDP lower. The much better-than-expected outturn appears to
   mainly reflect containment of social expenditure, which was projected to rise by about 1% of
   GDP. Other elements of public expenditure including compensation of employees and
   intermediate consumption were also contained. In addition, growth turned out at 6.5% of GDP
   compared to 4.9% of GDP, as expected in the March 2007 convergence programme, and tax
   elasticities were better than predicted.
   Both revenues and expenditures were positively affected by a stronger than expected rise in
   employment. Social contributions grew more than anticipated and social transfers only
   increased marginally, as a percentage of GDP.
   Compared to 2006, the headline deficit declined by 1.1% of GDP, of which about one half is
   due to measures taken, as illustrated by the improvement in the structural balance, and the
   other half is thanks to stronger growth. Total expenditures decreased by 1.2% of GDP while
   total revenues decreased by 0.2% of GDP. The improvement in 2007 represents an
   overachievement of the Council’s recommendation to “further contain the budgetary
   deterioration” that was at the time expected for 2007.
   7
            In the context of privatisation of the banking sector, the Czech government bore much of the costs
            related to non-performing loans, in particular, through the creation of the Czech Consolidation Agency.
            Over time, the proportion of these assets has declined.
   8
            Eurostat News Release No 54/2008 of 18 April 2008.
   9
            In accordance with Article 8g(1) of Regulation (EC) No 3605/93.
   10
            Deficit ratios are usually revised – upwards or downwards – after the publication of the first outcome in
            the spring notification. For most EU Member States, the revisions are usually relatively small and on
            average insignificantly different from zero. For the Czech Republic, in view of the distance between the
            currently reported deficit for 2007 and the deficit reference value, there is a low probability that any
            potential future revision in government accounts will raise the 2007 deficit ratio to a level in excess of
            3% of GDP.
EN                                                          4                                                          EN
 ---pagebreak---    The overall reduction in government expenditure is reflected in the increase in the size of the
   reserve funds which are estimated to have expanded to 2¾% of GDP (from about 2% in
   2006), of which about ¾% of GDP is non-EU funds related expenditure that is deferred
   expenditure which may swell future deficits. The other 2% are EU-funds related and backed-
   up by revenues.
   In structural terms, the deficit decreased from 2.9% of GDP in 2006 to 2.3% of GDP in 2007
   due to continued government expenditure restraint including public sector wages.
   3.        DEFICIT PROJECTIONS FOR 2008 AND BEYOND
   According to the Commission services’ spring 2008 forecast, the general government deficit
   is projected to decline further, reaching 1.4% of GDP in 2008 and, under a no-policy change
   assumption, 1.1% of GDP in 2009. This is due to the balance of measures included in the
   stabilisation package, approved on 19 September 2007, which is estimated to have a positive
   impact amounting to around 0.3% of GDP for each year (see box I). The level of social
   transfers is expected to fall, as a percentage of GDP, in 2008 and 2009 as a result of
   legislative measures in the stabilisation package. In addition to legislative measures, the
   consolidation also relies on continuing public sector wage restraint and a reduction in public
   consumption as a percentage of GDP. Revenues are expected to remain stable as a percentage
   of GDP, although the range of tax measures occurring at the same time makes forecasting
   difficult. The Commission services’ deficit projections in the spring forecast are in line with
   the planned deficit reported in the spring notification (1.5% of GDP).
   Based on the Commission services’ spring 2008 forecast, the structural balance is expected to
   improve from -2¼% of GDP in 2007 to around -2% of GDP in 2008. The improvement is
   lower than recommended by the Council (at least ¾% of GDP) in light of the much better
   headline deficit in 2007, underpinned by a structural improvement in 2007, of about ½% of
   GDP, which was not anticipated at the time of the recommendation.
   The medium-term objective (MTO) of the Czech Republic is a structural deficit to 1% of
   GDP, which according to the most recent convergence programme submitted in November
   2007 should be achieved by 2012. The Council opinion of 4 March 2008 on the programme11
   invited the Czech authorities to “exploit the high rate of growth in the economy by
   strengthening the pace of adjustment so as to build a safety margin against breaching the
   reference value as soon as possible, and achieve the MTO by 2012 at the latest”.
            Box I: Summary of measures in the stabilisation package of September 2007
     The stabilisation package has shifted the overall tax burden from direct to indirect taxation.
     From 1 January 2008, a 15% flat rate of personal income tax was introduced, albeit on an
     expanded base, which is planned to be further reduced to 12.5% in 2009. From 1 January
     2008, the corporate income tax rate was reduced from 24% to 21% and will decline further
     to 19% by 2010. Indirect taxes were increased in January 2008 through an increase in the
     lower band of VAT from 5 to 9 %, increases to excise taxes, and the introduction of an
     environmental tax on electricity, natural gas and solid fuels. A ceiling has also been
     introduced on the maximum base for payment of social contributions which will reduce
   11
           OJ C 74, 20.3.2008, p. 24.
EN                                                  5                                               EN
 ---pagebreak---      revenue.
     The stabilisation package introduced new legislation aimed at reducing expenditure in
     primarily the area of social benefits, including child benefits, social care benefits, parental
     allowances, maternity benefits, foster care benefits, benefits for school supplies, and funeral
     benefits. In addition to fixed reductions, most social care benefits have ceased to be indexed
     to the minimum subsistence level, which in turn has been changed to a discretionary basis
     by the government. The stabilisation package also introduced service charges for healthcare
     services from January 2008. This includes charges for medical consultations, prescription
     medicines, and hospitalisation. These changes are estimated to have a small positive impact
     on government revenues by generating additional income and reducing expenditure by
     lowering demand.
   The government tabled a proposal on 23 January 2008 to compensate churches for confiscated
   religious property (see box II). Pursuant to its approval by the Czech parliament, the financial
   compensation will be registered as a one-off deficit-increasing expenditure amounting to
   2.2% of GDP in the year in which the government liability is recognised, though most
   effective payment will be deferred over a very long period of 60 years. This transaction was
   not considered in the Commission services’ spring 2008 forecasts based on the usual no-
   policy change assumption, since it was not clear whether and when the government proposal
   would be adopted by Parliament. This transaction was not considered either in the projections
   of the convergence programme. In case the proposal became effective in 2008 or 2009, the
   government deficit (including this transaction) would on current projections be temporarily in
   excess of 3% of GDP for that year.
     Box II: The Czech proposal for compensation for the confiscation of religious property
     On 23 January 2008, the Czech Government tabled in parliament a proposal to compensate
     the church for religious property confiscated during the period 1948-1990. Two ways of
     compensation are foreseen: restitution in kind and financial compensation when restitution
     in kind is no longer possible. According to the proposal, as far as the financial compensation
     is concerned, the churches will receive from the government 60 yearly cash instalments of
     CZK 4274.9 million (0.1% of the 2008 GDP). Given an annual interest rate of 4.85%, this
     corresponds to a principal of CZK 83.0 billion (2.2% of the 2008 GDP) and CZK 173.5
     billion of interest12.
     The Czech statistical office has required Eurostat to clarify the appropriate accounting
     implications of the proposal for compensation. Eurostat clarified that the restitutions in kind
     have no impact on the government deficit. When the returned asset is the same as
     confiscated in the past, the transaction is recorded in ESA accounts as other changes in
     volume without any direct impact on the government revenue and expenditure accounts.
     When the returned good is not the same, the restitution is booked as a capital transfer paid
     offset by negative investment.
     In relation to the financial compensation, Eurostat clarified that, according to its
     interpretation of ESA accounting rules, the principal to be paid should be booked as
     government expenditure when the legal act is approved, instead of when cash payments take
   12
            According to information provided by the Czech authorities, part of the compensation deal is also that
            state support to churches (e.g. payment of priests’ salaries) will be phased out. This state support
            amounts to CZK 1406 million (0.04% of GDP in 2008).
EN                                                      6                                                          EN
 ---pagebreak---      place. Interest will be booked as government expenditure over the 60 following years.
     Eurostat also clarified that the outstanding liability vis-à-vis the churches will be booked as
     accounts payable13.
     Therefore, in the year the Czech Parliament adopts the law and the latter enters into force,
     the Czech government accounts will include a very large one-off deficit-increasing
     transaction amounting to 2.2% of GDP. The fact that the liability vis-à-vis the churches will
     be booked as accounts payable means that it will not constitute government debt in the sense
     of Regulation (EC) No 3605/93. At the moment the expenditure is booked, the stock-flow
     adjustment will include an exceptionally large negative cash-accrual difference, which will
     be progressively offset over 60 years.
   4.        DEBT DEVELOPMENTS AND PROJECTIONS
   Despite significant general government deficits since 2004, the increase of the level of debt
   has been largely contained. Due to record growth since 2005, and a substantial reduction in
   the general government deficit in 2007 compared to 2006, the level of government debt has
   decreased from 30.4% of GDP in 2004 to 28.7% of GDP in 2007.
   On the basis of the Commission services’ spring 2008 forecast, the debt ratio is expected to
   continue on a downward path to below 28% of GDP in 2009, due to continuing fiscal
   consolidation and sustained macroeconomic growth.
   5.        CONCLUSIONS
   Despite the expectation of a strong fiscal expansion in 2007, the general government balance
   improved from -2.7% of GDP in 2006 to -1.6% of GDP in 2007. This was due in part to
   expenditure savings as well as higher growth. The structural balance, i.e. the cyclically-
   adjusted balance net of one-off and other temporary measures, improved by ½% of GDP in
   2007.
   The Czech government has introduced a range of legislative measures, effective from 2008,
   with the aim of consolidating public finances in 2008 and 2009, including through the
   containment of social spending and the introduction of service charges for healthcare, which
   will have a net positive impact on public finances. Combined with continuing expenditure
   restraint, and a close monitoring of the impact on revenues of the wide range of tax measures
   implemented in 2008, these measures are expected to lead to a further reduction in the general
   government deficit. According to the Commission services’ spring 2008 forecast, the headline
   deficit is expected to improve further to 1.4% of GDP in 2008 and, on a no-policy change
   basis, to 1.1% in 2009. This indicates that the deficit has been brought below the 3% of GDP
   ceiling in a credible and sustainable manner.
   General government gross debt declined from 29.4% of GDP in 2006 to 28.7% in 2007, well
   below the 60% of GDP reference value. According to the Commission services’ spring 2008
   forecast, the debt ratio is expected to fall further to below 28% of GDP by 2009 (on a no-
   policy change basis).
   13
           The Eurostat letter of 14 March 2008 providing ex ante advice to the Czech statistical office is available
           at: http://epp.eurostat.ec.europa.eu/pls/portal/docs/PAGE/PGP_DS_GFS/PGE_DS_GFS_8/ADV%20-
           %20CZ%20-%202008.1%20-%20CONFISCATED%20PROPERTIES.PDF
EN                                                        7                                                           EN
 ---pagebreak---      From an overall assessment, it follows that the excessive deficit situation in the Czech
     Republic has been corrected. Accordingly, the Commission recommends to the Council to
     abrogate its decision on the existence of an excessive deficit in the Czech Republic.
     Table 2: Budgetary developments, 2003-2009
                                                  2003 2004 2005 2006           2007          2008          2009
   % of GDP, unless indicated otherwise                                    COM CP(2) COM CP(2) COM(3) CP(2)
   General government balance                     -6.6 -3.0 -3.6 -2.7 -1.6 -3.4 -1.4 -2.9               -1.1    -2.6
   - Total revenues                               40.7 42.2 41.4 41.0 40.8 39.8 40.7 39.5 40.7 38.1
   - Total expenditure                            47.3 45.2 44.9 43.6 42.4 43.3 42.2 42.4 41.8 40.7
     Of which : - interest expenditure             1.2 1.2 1.2        1.1    1.2    1.2    1.1    1.3    1.1     1.2
                - gross fixed capital formation 4.5 4.8 4.9           5.0    4.8    5.1    4.8    5.3    4.9     5.4
   Primary balance                                -5.5 -1.8 -2.4 -1.5 -0.4 -2.3 -0.3 -1.7                0.0    -1.3
   One-off and temporary measures                  0.0 -0.7 -1.1 -0.2 0.0           0.0    0.0    0.0    0.0     0.0
   Structural balance(1)                          -5.5 -1.3 -2.1 -2.9 -2.3 -4.1 -1.9 -3.4               -1.5    -2.8
   Structural primary balance(2)                  -4.4 -0.1 -1.0 -1.7 -1.2 -2.9 -0.8 -2.2               -0.4    -1.6
   Government gross debt                          30.1 30.4 29.7 29.4 28.7 30.4 28.1 30.3 27.2 30.2
   Pm        Real GDP growth (%)                   3.6 4.5 6.4        6.4    6.5    5.9    4.7    5.0    5.0     5.1
   Pm        Output gap                           -3.0 -2.6 -0.8 0.8         2.0    1.8    1.4    1.4    1.1     0.7
   (1)
              Cyclically-adjusted (primary) balance excluding one-off and temporary measures.
   (2)
              Cyclically-adjusted and structural balances and output gaps according to the programme as calculated by
              Commission services on the basis of the information in the programme.
   (3)
              No-policy change assumption.
   Sources: Commission services’ spring 2008 forecast (COM) and November 2007 update of the convergence
   programme (CP)
EN                                                           8                                                        EN
 ---pagebreak---                                           Recommendation for a
                                         COUNCIL DECISION
                            abrogating Decision 2005/185/EC on the existence
                              of an excessive deficit in the Czech Republic
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty establishing the European Community, and in particular
   Article 104(12) thereof,
   Having regard to the recommendation from the Commission,
   Whereas:
   (1)     By Council Decision 2005/185/EC14, following a recommendation from the
           Commission in accordance with Article 104(6) of the Treaty, it was decided that an
           excessive deficit existed in the Czech Republic. The Council noted that the general
           government deficit was 12.9% of GDP in 2003 (5.9% of GDP excluding a major one-
           off operation related to imputed state guarantees), well above the 3% of GDP Treaty
           reference value.
   (2)     On 5 July 2004, in accordance with Article 104(7) of the Treaty and Article 3(4) of
           Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the
           implementation of the excessive deficit procedure15, the Council made, based on a
           recommendation from the Commission, a recommendation addressed to the Czech
           Republic with a view to bringing the excessive deficit situation to an end by 2008 at
           the latest. The recommendation was made public.
   (3)     In view of the forecast of a marked budgetary slippage in 2007 and a continuing
           excess of the deficit over the reference value in 2008, the Council adopted a decision
           under Article 104(8) on 10 July 2007, based on a recommendation from the
           Commission, stating that the action being taken by the Czech Republic did not appear
           to be adequate to correct the excessive deficit by the deadline of 200816. On 10
           October 2007, the Council issued a new recommendation under Article 104(7), based
           on a recommendation from the Commission, recommending the Czech Republic to
           further contain the budgetary deterioration in 2007 and reconfirming the excessive
           deficit had to be put to an end by 2008 at the latest, with a deadline of 9 April 2008 for
           the Czech authorities to take effective action. On the basis of then available
           projections the Council invited the Czech authorities to ensure an improvement in the
   14
           OJ L 62, 9.3.2005, p. 20.
   15
           OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174,
           7.7.2005, p. 5).
   16
           OJ L 260, 5.10.2007, p. 13.
EN                                                   9                                                EN
 ---pagebreak---        structural balance (i.e. the cyclically-adjusted balance net of one-off and other
       temporary measures) of at least ¾% of GDP in 2008 compared to 2007.
   (4) In accordance with Article 104(12) of the Treaty, a Council Decision on the existence
       of an excessive deficit is to be abrogated when the excessive deficit in the Member
       State concerned has, in the view of the Council, been corrected.
   (5) In accordance with the Protocol on the excessive deficit procedure annexed to the
       Treaty, the Commission provides the data for the implementation of the procedure. As
       part of the application of this Protocol, Member States are to notify data on
       government deficits and debt and other associated variables twice a year, namely
       before 1 April and before 1 October, in accordance with Article 4 of Council
       Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol
       on the excessive deficit procedure annexed to the Treaty establishing the European
       Community17.
   (6) Based on data provided by the Commission (Eurostat) in accordance with Article
       8g(1) of Regulation (EC) No 3605/93 following the notification by the Czech
       Republic before 1 April 2008 and on the Commission services’ spring 2008 forecast,
       the following conclusions are warranted:
         –     the general government deficit was reduced from 2.7% of GDP in 2006 to
               1.6% of GDP in 2007, which is below the 3% of GDP deficit reference value.
               This compares with a target of 4% of GDP in the March 2007 convergence
               programme,
         –     while tax revenues exceeded expectations due to higher-than-projected
               economic growth, the deficit reduction in 2007 was also the consequence of
               expenditure restraint, in particular with respect to the compensation of public
               sector employees and intermediate consumption. Most of the expenditure
               savings are of a permanent nature. The improvement in the structural balance
               (i.e. the cyclically-adjusted balance net of one-off and other temporary
               measures) is estimated at just above ½% of GDP in 2007,
         –     for 2008, the spring 2008 forecast projects the deficit to be reduced further, to
               1.4% of GDP, driven by additional expenditure savings measures, legislative
               measures to reduce social expenditure and the introduction of partial health
               charges. Revenue as a percentage of GDP is expected to remain broadly
               constant on the back of a wide range of tax measures implemented in 2008.
               The spring forecast is in line with the deficit target of 1.5% of GDP in the April
               fiscal notification. For 2009, the spring forecast projects, on a no-policy change
               basis, a further decline in the deficit to 1.1% of GDP. This indicates that the
               deficit has been brought below the 3% of GDP ceiling in a credible and
               sustainable manner. The structural balance is projected to improve by almost ½
               a percentage point of GDP in 2008 and again, on a no-policy change basis, in
               2009. This has to be seen against the need to make progress towards the
               medium-term objective (MTO) for the budgetary position, which for the Czech
   17
       OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337,
       22.12.2005, p. 1).
EN                                                  10                                                   EN
 ---pagebreak---                  Republic is a structural deficit of 1% of GDP, to be reached by 2012 according
                 to the November 2007 update of the convergence programme.
            –    government debt remains well below the 60% of GDP reference value. It
                 declined from 29.4% of GDP in 2006 to 28.7% in 2007. According to the
                 spring 2008 forecast, the debt ratio is projected to fall further to below 28% by
                 end-2009 (on a no-policy change basis).
   (7)    In the view of the Council, the excessive deficit in the Czech Republic has been
          corrected and Decision 2005/185/EC should therefore be abrogated.
   HAS ADOPTED THIS DECISION:
                                              Article 1
   From an overall assessment it follows that the excessive deficit situation in the Czech
   Republic has been corrected.
                                              Article 2
   Decision 2005/185/EC is hereby abrogated.
                                              Article 3
   This Decision is addressed to the Czech Republic.
   Done at ,
                                                For the Council
                                                The President
EN                                                11                                               EN