Friday, 4 June 2010

EU: Stability programme Germany

For some background remarks on economic policy coordination, you can read the blog post EU: Useful stability and convergence programmes? (3 June 2010).

The EU Council opinion about the stability programme of Germany has been published in the Official Journal of the European Union (OJEU):

COUNCIL OPINION on the updated stability programme of Germany, 2009-2013; OJEU 29.5.2010 C 140/12

The Council of the European Union began its 26 April 2010 assessment of the German economy with the following introductory remarks:

After a sharp, export-driven contraction at the turn of 2008/09, real GDP rebounded strongly in mid-2009, thanks to expansionary policies and a revival of foreign demand. However, a renewed loss of momentum towards the end of 2009 underscored the fragility of the current economic recovery. While the labour market has remained resilient so far, reflecting partly State-funded short-time working arrangements, the banking sector suffered considerable losses and write-downs from investments in structured assets.

Due to sizeable fiscal stimulus measures (in 2009 and 2010) adopted in line with the European Economic Recovery Plan (EERP) as well as crisis-related revenue shortfalls and higher expenditure, the general government budget shifted from a balanced position in 2008 to a deficit of above 3 % of GDP in 2009. These developments have led to the opening of the excessive deficit procedure for Germany on 2 December 2009 with the Council setting a deadline of 2013 for the correction of the excessive deficit. While in the medium-term the recovery should be supported by past structural reforms, notably in the labour market, sound corporate and household balance sheets and a strong competitive position, a key challenge will be to raise potential growth, in particular by strengthening domestic sources of growth. Combining the necessary fiscal consolidation with the stabilisation of the banking sector, ensuring access to finance by the non- financial sector and further enhancing the adjustment capacity of the labour market will be pivotal elements to support the economic recovery.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 126(7) TFEU of 2 December 2009, the EU Council invited Germany to:

(i) specify the measures necessary to underpin the envisaged consolidation; implement the budgetary strategy for 2011- 2013 as outlined in the programme to correct the excessive deficit by 2013; seize, as prescribed in the EDP [excessive deficit procedure] recommendation, any opportunity beyond the fiscal efforts, including from better economic conditions, to accelerate the reduction of the gross debt ratio back towards the 60 % of GDP reference value;

(ii) ensure full implementation of the new constitutional budgetary rule at all levels of government, and reverse the deviation from the pension adjustment formula in 2008 as envisaged.

Germany 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.

Germany is also invited to improve compliance with the data requirements of the code of conduct.

Ralf Grahn