Thursday, 27 May 2010

Eurozone: Budget consolidation in Austria

On 26 April 2010 the Council examined the updated stability programme of Austria, which covers the period 2009 to 2013:

COUNCIL OPINION on the updated stability programme of Austria, 2009-2013; OJEU 27.5.2010 C 137/7.

The Opinion describes the effects of the financial and economic crisis, which pushed the Austrian economy into the deepest recession in post-war history. Public finances deteriorated significantly. The Council decided on 2 December 2009 that an excessive deficit existed in Austria and issued a recommendation to correct the deficit by 2013.

In comparison with the 3 per cent government deficit and 60 per cent government debt to GDP, the reference values of the Stability and Growth Pact, the Opinion offers the following picture:

The Austrian stability programme estimates the general government deficit in 2009 at 3.5 % of GDP. Government gross debt is estimated at 66.5 % of GDP in 2009, up from 62.5 % in the year before.

The Council makes the evaluation that overall, in 2010 the budgetary strategy set out in the programme is consistent with the Council recommendation under Article 126(7) TFEU. However, from 2011 on, taking into account the risks, the budgetary strategy may not be consistent with the Council recommendation under Article 126(7) TFEU.

The consolidation path outlined in the programme, starting in 2011 is not underpinned by appropriate measures. In addition, the budgetary strategy is not sufficient to bring debt-to-GDP ratio back on a downward path.

In view of the new assessment and in the light of the recommendation under Article 126 TFEU of 2 December 2009, the Council of the European Union invited Austria to:

(i) substantiate the measures deemed necessary to underpin the planned consolidation from 2011 onwards, in order to achieve the recommended average annual fiscal effort of 0,75 % of GDP and bring the general government deficit below the 3 % of GDP reference value by 2013; and seize, as prescribed in the EDP recommendation, any opportunities 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;

(ii) further improve the budgetary framework to reinforce fiscal discipline at all levels of government through enhanced transparency and accountability notably by aligning legislative, administrative and financing responsibilities between the different levels of government and by strengthening enforcement mechanisms under the internal stability pact.

Austria is also invited to submit in time for the assessment of the effective action under the excessive deficit procedure an addendum to the programme to report on progress made in the implementation of the Council recommendation under Article 126(7) of 2 December 2009 and to outline in some detail the consolidation strategy that will be necessary to progress towards the correction of the excessive deficit.

The Opinion is useful as an example of the periodic assessment of a eurozone government’s economic and budgetary policies, as well as peer pressure towards action.

Ralf Grahn