Sunday, 6 June 2010

EU: Convergence programme Poland

Stability programmes for eurozone countries on the one hand, convergence programmes for member states still without the euro. You can start by reading the background remarks on economic policy coordination in the European Union, in the blog post EU: Useful stability and convergence programmes? (3 June 2010).

You can then move on to the EU Council opinion on the convergence programme of Poland, published in the Official Journal of the European Union (OJEU):

COUNCIL OPINION on the updated convergence programme of Poland, 2009-2012; OJEU 2.6.2010 C 143/17

Economic background

On 26 April 2010 the EU Council examined the updated convergence programme of Poland, which covers the period 2009 to 2012. The Council began its assessment with a brief description of the economic situation:

With real GDP estimated to have increased by 1.7 %, Poland was the only EU country that recorded positive growth in 2009. This performance reflects a constellation of favourable factors including sound fundamentals at the outset of the crisis, a well capitalised and sound financial sector, the relatively low degree of openness of the economy, a sizeable depreciation of the Polish currency at an early stage of the crisis, as well as timely accommodative monetary and fiscal policies.

While some of the factors that supported growth are of temporary nature — the margin for supportive fiscal policy has largely disappeared and the exchange rate is now appreciating — Poland's economic outlook has improved significantly in recent months. Key challenges for the years ahead will be to bring government finances back to a sustainable position and secure a sustained catching-up process without compromising fiscal and macroeconomic stability. Poland did not use the good economic times (2006-2008) to consolidate its public finances, and the structural government deficit (i.e. the cyclically-adjusted balance net of one-off and other temporary measures calculated in accordance with the commonly agreed method on the basis of the data in updated programme) is estimated to have reached 7 % of GDP in 2009. Based on the April 2009 EDP [excessive deficit procedure] notification by the Polish authorities of a 2008 government deficit of 3.9 % of GDP, on 7 July 2009 the Council decided on the existence of an excessive deficit and recommended its correction by 2012.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 104(7) TEC of 7 July 2009, as well as given the need to ensure sustainable convergence, the Council of the European Union invited Poland to:

(i) implement the 2010 budget rigorously, under-executing primary current expenditure plans wherever possible and allocating windfall revenue to deficit reduction;

(ii) strengthen the planned budgetary adjustment in 2011 in order to achieve the recommended average annual fiscal effort of 1.25 % of GDP in line with the Article 104(7) Recommendation and stand ready to adopt further consolidation measures in 2011 and 2012 in case risks related to the fact that the programme scenario is more favourable than the scenario underpinning the recommendation under Article 104(7) TEC materialise;

(iii) proceed with strengthening the fiscal framework, including through introduction of an expenditure rule covering a larger share of the general government primary expenditure than the ‘temporary’ rule presented in the Convergence Programme, with appropriate monitoring and enforcement mechanisms. This would require to reduce the share of statutory spending in total expenditures.

Poland is also invited to add, in its next update of the convergence programme, more precise information in the separate chapter on progress made to bring the excessive deficit situation to an end, as requested by the Council in its recommendations under Article 104(7) of 7 July 2009.

Convergence reports 2010

For a wider view and comparison between nine EU member states still outside the euro area, you can study the convergence reports published by the European Central Bank and the European Commission:

European Central Bank: Convergence Report May 2010 (273 pages)

European Commission: Convergence Report 2010 (Prepared in accordance with Article 140(1) of the Treaty); Brussels, 12.5.2010 COM(2010) 238 final (30 pages)

Commission staff working document accompanying the Convergence Report 2010; Brussels, 12.5.2010 SEC(2010) 598 final (197 pages)

Ralf Grahn