European Council: ”Ambition and additional efforts”

In the blog post 'European Council Res Gestae (SGP & EU2020)' 29 June 2011, we looked at how the great men recorded their deeds with regard to the Stability or Convergence Programme and the National Reform Programme (NRP) of each EU member state.

In the entry 'European semester: ”More of the same” (European Council)' 1 July 2011, we noted that the summit gave its approval to the new planning instrument and prepared the road for future rounds (paragraph 1).

The blog post also tried to provide interested readers with relevant materials for further study.

We return to the relevant conclusions of the European Council, wrapping up the first new style planning cycle called the European semester (pages 2 to 4):

European Council 23/24 June 2011: Conclusions (EUCO 23/11; 16 pages)

For those who want a detailed, but clear overview of the issues of economic governance in the European Union, I recommend the memorandum mentioned in the previous blog post:

EU Economic governance: a major step forward; 31 May 2011, MEMO/11/364


Progress and challenges

The second paragraph of the European Council conclusions referred to the assessment by the Commission:

2. Based on the assessment provided by the Commission, the European Council discussed the policies and measures presented by Member States. These constitute a good starting point for sustaining Europe's recovery, for addressing fiscal challenges and for driving more ambitious reforms at national level. The European Council notes the clear determination of all Member States to do everything that is required to fully implement the Stability and Growth Pact. Member States have made good progress in defining action to attain the headline targets and goals of the Europe 2020 Strategy for jobs and sustainable growth. Some of the targets are on track but others (concerning employment, energy efficiency, R&D, poverty and tertiary education) require additional efforts. Priority should also be given to ensuring a sound macroeconomic environment, restoring fiscal sustainability, correcting macroeconomic imbalances and strengthening the financial sector.

Country-specific recommendations

The press release 'Delivering on growth and jobs: Commission presents 2011 country-specific recommendations' (7 June 2011 IP/11/685) was published in 22 languages, containing advice for the coming twelve to eighteen months.

There is one set of recommendations for the eurozone as a whole and 27 ones for the individual EU member states.

The memorandum published in the working languages of the Commission, English, French and German, provides more information, including on the papers published:

2011 Country-Specific Recommendations in the context of the European Semester: Frequently Asked Questions (7 June 2011 MEMO/11/382).

The memo explained why five countries received only one recommendation each:

Specific recommendations have not been addressed to the five Member States in receipt of financial assistance from the EU and IMF: euro area countries Greece, Ireland and Portugal and non-euro area countries Latvia and Romania. The assistance these countries are receiving is tied to the fulfilment of ambitious, tailored policy programmes focused on fiscal consolidation and structural economic reforms. The priority for these five Member States is to implement the programme as agreed, hence the single recommendation for each of them to do so.

For the same reason, Portugal and Greece have not submitted Stability Programmes this year.

The memo contains general observations about the Stability or Convergence Programmes and the National Reform Programmes (EU2020), as well as procedural information.

On the face of it, we can see that the European Council conclusions were more or less in line with the Commission findings at a general level, acknowledgeing the national programmes, but calling for more ambitious measures with regard to both public finances and Europe 2020 reforms.


Ecfin web page

On a single web page 'Stability and Convergence programmes (or updates) and National Reform Programmes 2011...', the European Commission's DG Economic and Financial Affairs (Ecfin) manages to provide links to Stability or Convergence Programmes, National Reform Programmes, Commission Staff Working Papers and Commission Recommendations. We are still waiting for the Council to adopt its formal recommendations, following the benign nod from the European Council.



Ralf Grahn



P.S. Yesterday, Poland took over the presidency of the Council (of ministers) of the European Union.

Stability, convergence and EU2020 compliance: EU member states and Commission

The spring meeting of the European Council 24 to 25 March 2011 (EUCO 10/11, paragraph 2 and footnote 1) outlined the the next steps within the framework of the European semester and endorsed the the priorities for fiscal consolidation and structural reform ”in line with” the Council's conclusions of 15 February and 7 March 2011 and further to the Commission's Annual Growth Survey, while also referring to the synthesis report of 16 March 2011 by the Hungarian presidency of the Council of the European Union.

The conclusions of the Ecofin Council (Economic and Financial Affairs) 15 February 2011 on the European Semester stated that the Stability and Convergence Programmes and National Reform Programmes for the period 2011/2012 were to be submitted by the EU member states preferably by mid-April or end April at the latest (paragraph 1).

During our pre-deadline peek on 22 April 2011 we found both programmes, but mainly in the national languages, from four countries (Belgium, Bulgaria, Hungary and Finland) plus the Stability programme of Slovenia posted on the web pages of DG Economic and Financial Affairs (Ecfin) of the European Commission.

The next day we looked for updates on the website of the Europe 2020 strategy, but found none.

However, by searching for documents from the EU member states, we unearthed and provided links to the posted language versions of the first Stability Programmes, Convergence Programmes or National Reform Programmes stashed away on the website (Germany, Bulgaria, Belgium and Hungary).

We also provided direct links to the different language versions of the programmes posted on the Ecfin web page.

In part, different sets had been posted on the two Commission websites. At the time, even after combining the EU2020 and Ecfin websites, we still had no programmes from 21 out of 27 EU member states, and only one programme each from two of the six countries posted on the websites of the European Commission. Only Hungary and Finland offered both programmes in English.


Submission deadline

We have passed the 30 April 2011 deadline and we have entered what the Elisabethan writer Thomas Dekker called ”The Merry Month of May”.

The final version of the Stability Programme of each eurozone country or the Convergence Programme from each EU member progressing towards euro adoption, plus the National Reform Programme for every member, is its main contribution towards fulfilling its obligations according to the Stability and Growth Pact, the European Semester and the growth-enhancing reforms in line with the EU2020 strategy.

The drafts were submitted last autumn, but have been under wraps. It is high time for the European public to be able to access the final programmes, the new language versions (especially English) and possible related improvements and updates on the EU2020 and Ecfin websites.


Europe 2020 improvements and updates

The latest updates on the EU2020 website are press releases from the Commission.

If we search for Latest documents, the last addition is from 25 March 2011, namely a link to the conclusions of the [European] Council, which include the agreed text on the Euro Plus Pact.

In other words, the Commission has not improved its presentation since our latest visit.

In my humble opinion, on a pan-EU website such as Europe 2020, all the EU institutions and the member states should be treated on an equal basis.

Forewarned, or inspired enough to search for Member states' documents, you find six NRPs added to the ones we found on our previous visit: from Poland (in Polish), Lithuania (in English), Luxembourg (in French), the Czech Republic (in Czech), Ireland (in English) and the United Kingdom (in English).

Eight National Reform Programmes out of 27 EU member states, but only four programmes in English.


Ecfin improvements and updates

Through the Ecfin web page 'Stability and Convergence programmes (or updates) and National Reform Programmes 2011 – programmes received to date' we find thirteen Stability or Convergence programmes and nine NRPs, but most English versions are not yet available.

The DG Ecfin offers a dedicated web page and the available programmes can be seen at a glance. In addition to the submitted programmes, the page contains space for the later stages: Staff Working Paper, Commission recommendation and Council recommendation.

Clearly, someone has done some thinking. Perhaps the people responsible for the Europe 2020 strategy and website could pay a visit.

The missing Swedish version of the NRP from Finland I remarked about has not been added in the meantime.

***

Hopefully, we are going to see improvements within the next few days, by the EU member states as well as the Commission, because the deadline for proposed recommendations is approaching (late May, early June).



Ralf Grahn



P.S. Infopolitics.eu is a public service dedicated to news and opinion concerning netizens' rights and freedoms. It is a joint project by the Greens-EFA in the European Parliament and Piratpartiet.

Europe 2020: National Reform Programmes posted

Yesterday we noted that the Stability or Convergance programmes and National Reform Programmes 2011 from Belgium, Bulgaria, Hungary and Finland had been posted on the web pages of DG Economic and Financial Affairs (Ecfin) of the European Commission. In addition, there was the Stability programme of Slovenia.


EUROPE 2020

In this blog post we look for possible updates on the website of the Europe 2020 strategy. No updates are visible on the EU2020 front page.

You do not find them even under latest documents, but if you are inspired enough to search for member states' documents, you can find the first national programmes stashed away on the Europe 2020 website.

I do not know why the presentation has to be as discreet as this.

I do not understand why we find a slightly different set of documents on the EU2020 pages than the ones posted on the Ecfin pages.

Anyway, here are the six programmes you find if you look for member states' documents through the Europe 2020 pages right now.


Germany

The German National Reform Programme, in German:

Nationales Reformprogramm Deutschland 2011; Berlin 6. April 2011 (about 46 pages)


Bulgaria

The Bulgarian Convergence Programme and National Reform Programme, in Bulgarian:

(Bulgaria: Convergence Programme 2011-2014)

(Bulgaria: National Reform Programme 2011-2015)


Belgium

Belgium's National Reform Programme has been posted on the EU2020 website in French and in Dutch:

Programme national de réforme Belgique 2011; 15 avril 2011 (128 pages)

Nationaal Hervormingsprogramma België 2011; 15 april 2011 (121 pages)


Hungary

Both the Hungarian Convergence Programme and the National Reform Programme have been posted on the Europe 2020 web pages, in English:

Convergence Programme of Hungary 2011 – 2015 Based on the Széll Kálmán plan; Budapest, April 2011

National Reform Programme of Hungary Based on the Széll Kálmán Plan; April 2011 (86 pages)


ECFIN

Nine programmes in all have been posted on the Ecfin website (DG Economic and Financial Affairs).

Let us just fill in the missing programmes and versions.


Belgium

The Stability Programme from Belgium is not yet available in English, but we have versions in the national languages, Dutch and French:

Het Stabiliteitsprogramma van België (2011-2014); version 14 April 2011

Le programme de stabilité de la Belgique; version 14 April 2011


Slovenia

The Stability Programme of Slovenia is available, in Slovenian:

Program stabilnosti Dopolnitev 2011; Ljubljana, april 2011


Finland

SP

The Stability Programme of Finland is available in English, Finnish and Swedish:

Stability programme update for Finland 2011

Suomen vakausohjelman tarkistus 2011

Uppdatering av Finlands stabilitetsprogram

NRP

The National Reform Programme (NRP) of Finland has been given another heading, with the English and Finnish versions posted on the Ecfin page:

Europe 2020 Strategy – Finland's National Programme Spring 2011

Eurooppa 2020 -strategia – Suomen kansallinen ohjelma, kevät 2011

We can find the missing Swedish version through the web pages of the Finnish Ministry of Finance, concluding a full set:

Europa 2020-strategin – Finlands nationella program, våren 2011


Missing links

Even after combining the EU2020 and Ecfin websites, we still have no programmes from 21 out of 27 EU member states, and only one programme each from two of the six countries posted on the websites of the European Commission. Only Hungary and Finland offer both programmes in English.

A few working days remain until the end of April, when the programmes are due at the latest.



Ralf Grahn



P.S. Jon Worth, one of the best known and most widely read Eurobloggers, has returned with a number of interesting blog posts within a few days. Highly recommended.

European Council: More ambitious reforms from EU member states?

In a series of blog posts I corralled the latest entries published on my four blogs and in three languages: Grahnlaw (EN), Grahnblawg (SV), Eurooppaoikeus (FI) and Grahnlaw Suomi Finland (EN, FI, SV).

The practices of the European Council and possible reform of this (now) official EU institution, as well as the conclusions of the spring summit regarding economic policy, sustainable public finances and growth-enhancing Europe 2020 reforms were discussed in the articles mentioned. This latest compilation, divided into five parts, covered blog posts published between 25 March and 9 April 2011: One, Two, Three, Four and Five.


Inspiration from spring European Council?

Guidance from the spring European Council was intended to inspire possible improvements in the final versions of the Stability Programme or Convergence Programme and in the National Reform Programme (NPR) of each member state.

However, the economic policy paragraphs (2 to 5) we have looked at in the conclusions were sketchy enough to add no new substance to earlier Integrated Guidelines, EU2020 headline targets, the Annual Growth Survey (AGS) from the Commission, or conclusions from different Council configurations (summarised in the synthesis report by the Hungarian Council presidency):

European Council 24/25 March 2011; Brussels, 25 March 2011 (EUCO 10/11; 34 pages)

If the paragraphs concerning the implementation of the European Semester contained no added value, they did not visbly detract from the goals, proposals and conclusions mentioned.

The European Council conclusions clearly endorsed public deficit reduction (paragraph 3) and they backed structural reforms in a number of wide areas (paragraph 4), plus they reiterated the next steps in accordance with European Semester procedures (paragraph 5).

In this respect, the conclusions by the spring European Council could be described as neutral.

Beside the EU level EU2020 Flagship initiatives and Single Market reform, the concrete actions to reduce public deficits and debt levels to tolerable levels and to reform product and labour markets are in the hands of the EU member states, and the previously agreed targets are general enough to offer as much room as national governments need (and much more than most of them are willing or able to contemplate).

In addition, higher levels of ambition are expressed elsewhere in the European Council conclusions.


Euro Plus Pact

Single Market reform, free trade agreements, the proposed ”six-pack” legislation on economic governance and (more rigorous) new stress tests of banks received complementary backing from the European Council.

The European Council also took a step towards establishing the new and permanent European Stability Mechanism (ESM), intended to replace the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM) in providing external financial assistance to euro-area Member States after June 2013. (See EUCO 10/11 Annex II.)

However, the higher reform ambitions we spoke about were expressed in the Euro Plus Pact, with Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania joining the 17 euro area states in order to enhance competitiveness and convergence. An annual cabal of heads of state or government is supposed to bring additional national commitments to the table. (See EUCO 10/11 Annex I.)

The goals are wide enough to house almost any economic reform plans and pledges:

§ Foster competitiveness
§ Foster employment
§ Contribute further to the sustainability of public finances
§ Reinforce financial stability

Concrete new reform commitments?

The first batch of more ambitious commitments is supposed to find its way into the national programmes due in April (EUCO 10/11 paragraph 12):

12. The Member States that have signed up to the Pact are committed, on the basis of the indicators and principles it contains, to announce a set of concrete actions to be achieved within the next twelve months. A number of Member States have already announced first commitments. All participating Member States will present their commitments as soon as possible and in any event on time for their inclusion in their Stability or Convergence Programmes and National Reform Programmes to be submitted in April and for their assessment at the June European Council.

I have seen no EU level compilation of first commitments already announced. At least the National Reform Programmes (NRPs), if not the Stability and Convergence Programmes, should start appearing on the Commission's web pages for the Europe 2020 strategy, but this morning the search for member states' documents still returns zilch.

The DG Economic and Financial Affairs (Ecfin) pages with the Stability and convergence programmes concern the 2009-2010 round (last update 6 October 2010), so we remain in waiting mode at EU level with regard to final versions 2011.

Naturally, for more energetic souls there is the opportunity to scout for the programmes government by government (and a few updates have appeared during the last days), but I leave systematic search along this avenue to the more ardent researchers.



Ralf Grahn


P.S. Eva en Europa, by Eva Peña (on Twitter @evaeuropa), is one of the top Euroblogs and a fine representative of the lively Spanish scene of citizen-bloggers dedicated to European affairs. She writes reasoned posts with a long shelf-life, mainly in Spanish, but has published occasionally in English and Catalan.

EMU: Format and content of stability and convergence programmes

Improved economic governance, or even economic government, is a hot topic in the European Union. In order to assess various suggestions (and refusals) it is useful to look at the current rules on multilateral budget surveillance in the framework of the Stability and Growth Pact (SGP).



The so called Code of Conduct (21 pages), was endorsed by the Ecofin Council 10 November 2009. It consists of two sections:

• Specifications on the implementation of the Stability and Growth Pact; and

• Guidelines on the format and content of Stability and Convergence Programmes



Both are of interest to those who want to know more about what the monitoring of economic policies entails.



The list of contents of the first section was put on view in the blog post EMU: Implementing the Stability and Growth Pact (SGP).

The second section of the Code of Conduct consists of guidelines on the content and format of the stability and convergence programmes:

SECTION II - GUIDELINES ON THE FORMAT AND CONTENT OF STABILITY AND CONVERGENCE PROGRAMMES

1) Status of the programme and of the measures

2) Content of Stability and Convergence Programmes


ANNEX 1 - MODEL STRUCTURE FOR THE STABILITY AND CONVERGENCE PROGRAMMES


ANNEX 2 - TABLES TO BE CONTAINED IN THE STABILITY AND CONVERGENCE PROGRAMMES

The Code of Conduct was endorsed before the Lisbon Treaty entered into force. Even without any substantive reforms of the procedures under the Stability and Growth Pact, the references to the old treaty provisions (TEC) will hopefully be substituted by references to the TFEU in the following update of the Code of Conduct.




Ralf Grahn

EU: Convergence programme and budget cuts United Kingdom

Britain’s prime minister David Cameron is a busy man. He met Herman Van Rompuy, a man the politically illiterate crew in Downing Street brand as the “EU President”, when in fact he is the president of the European Council (without a vote). They also refer to the “EU Council”, when they clearly mean the upcoming meeting of the European Council 17 June 2010, where Cameron sits together with the other heads of state or government from the EU member states. (Luckily, the press release was short; only two obvious misnomers.)



Today, Cameron also spoke on the economy, preparing the ground for budget cuts:

This year – at least according to the previous government’s forecasts – [the budget deficit] is set to be over 11 per cent of GDP. Today, our national debt stands at £770 billion.

Within just five years it is set to nearly double, to £1.4 trillion.

The cuts will be specified in an emergency budget in two weeks.

Cameron referred to the G20 meeting as an endorsement for the UK plans, but references to the European Union were mostly confined to the terrifying example of Greece.



Convergence report

Despite the UK’s soloist streak, it is a member of the European Union. The Commission monitors Britain’s economy and the Council issues opinions, as for other member states. The latest opinion of the Council of the European Union has been published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated convergence programme of the United Kingdom, 2009/2010-2014/2015: published OJEU 4.6.2010 C 146/18



Economic situation


On 26 April 2010 the EU Council examined the updated convergence programme of the United Kingdom, which covers the period 2009/2010 to 2014/2015. The Council began its assessment with a brief description of the economic situation:

The economic and financial crisis, which began in 2007 after several years of strong growth, saw UK economic output fall cumulatively by around 6 %, with modest recovery starting to appear in the final quarter of 2009. The crisis was preceded and partly aggravated by a period of progressive increases in leverage of the household and financial sectors, such that a dependence on net capital inflows was large and persistent. In response to the unfolding crisis, the Bank of England responded with an aggressive programme of interest rate reductions, liquidity support for the banking sector and, from March 2009, quantitative easing. The government also intervened extensively to stabilise the financial system, including by major equity injections, deposit guarantees and the provision of liability insurance. In line with the EERP [European Economic Recovery Plan], the government implemented a sizeable fiscal stimulus, which in combination with the operation of automatic stabilisers and the effects on revenue of falls in asset prices contributed to a major deterioration in public finances. The weakening of the sustainability of UK public finances was aggravated by the fact that the primary balance was already in substantial structural deficit in the period leading up to the crisis, leading to the general government headline deficit soon going well above the 3 % of GDP reference value as the crisis unfolded. Accordingly, the United Kingdom was made subject to an excessive deficit procedure on 8 July 2008 and on 2 December 2009 the Council issued the latest recommendations in accordance with Article 126(7) of the Treaty on the Functioning of the European Union (TFEU) to correct the deficit by 2014/2015. The main challenges for the UK economy over the next years are to stabilise the public finances in the context of ongoing efforts by the household sector to reduce outstanding gearing; to achieve adequate levels of credit provision from a still fragile financial system, with many credit providers having reduced their lending capacity; and to underpin a shift of production towards greater tradeable output so as to permanently improve its external balance.

Council recommendation

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

(i) avoid any further measures contributing to the deterioration of public finances in 2010/2011 and in the event of weaker economic growth than foreseen in the programme contain the government deficit in 2010/2011 to at most that forecast in the January 2010 programme in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) recommendation materialise;

(ii) target a more ambitious reduction of the government deficit to less than the 3 % of GDP Treaty reference value by 2014/2015 at the latest, including by strengthening the planned pace of fiscal effort from 2011/2012 onwards in line with the Council recommendation under Article 126(7), and seize any further opportunities, including from better-than-expected economic and market conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value, thereby also improving the long-term sustainability of public finances;

(iii) publish in 2010 the detailed departmental spending limits underlying the overall expenditure projections for at least the three-year period beyond 2010/2011;

(iv) implement the expenditure efficiency savings identified in the Operational Efficiency Programme (OEP) and in other value for money initiatives.

The United Kingdom is also invited to improve compliance with the data requirements of the code of conduct.

The United Kingdom 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 Council reiterates its invitation that all subsequent updates should also provide a chapter with this information as long as a Member State remains subject to an excessive deficit procedure.

The gloomy prospects prime minister David Cameron referred to today can hardly have come as a surprise, after the new coalition government took office. The 26 April 2010 assessments by the Council and its recommendations to the member states were public knowledge, although it took the EU more than a month to publish them in the OJEU.

Until the promised budget cuts take effect, the UK’s government borrowing pace is breath-taking. Luckily, the sky-rocketing debt level was fairly low before the financial and economic crisis.



The latest UK House of Commons Library research paper (10/39) Economic Indicators June 2010 contains valuable information about the real economy, finance and UK public finances.



Convergence reports 2010


Because of their opt-outs, Denmark and the United Kingdom are the two loners among the EU’s non-euro member states. Therefore, they are not examined in the convergence reports 2010.

Still, for a European perspective and comparison with the nine other 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)



Naturally, Britain takes part in the Ecofin Council (and other Council configurations), but it does not participate in the unofficial Euro Group, which met today in Luxembourg.




Ralf Grahn

EU: Convergence programme Sweden

Brownie points for those who read and think about these EU documents, despite the Swedish hoop-la surrounding the upcoming (19 June) wedding of the Crown Princess, the future Queen Victoria, and the global commotion caused by the FIFA World Cup in South Africa.

Importance is a word with several meanings.



Competitive and social and with healthy public finances, Sweden has been able to weather the financial and economic crisis better than most countries, despite its unilateralist approach to treaty compliance.

The basic division of stability programmes for eurozone countries and convergence programmes for member states still without the euro means that Sweden is assessed together with the EU economies with more catch-up to do.



The blog post EU: Useful stability and convergence programmes? (3 June 2010) presents some reasons for reading and thinking about these country by country examinations.



You can then move on to the EU Council opinion on the convergence programme of Sweden, a country outside the eurozone despite a treaty obligation to join. The opinion was published in the Official Journal of the European Union (OJEU):




COUNCIL OPINION on the updated convergence programme of Sweden, 2009-2012; OJEU 4.6.2010 C 146/7



Economic background


On 26 April 2010 the Council of the European Union examined the updated convergence programme of Sweden, which covers the period 2009 to 2012. The EU Council started its assessment with a brief introduction to the economic situation in Sweden:

After being severely hit by the recession at the end of 2008, the Swedish economy has stabilised, but with GDP growth being negative throughout 2009. Somewhat uncharacteristically at this stage of the cycle, the Swedish economy has been mainly driven by consumer demand while industrial production, investment activity and exports have merely bottomed out after previous deep falls. Household spending has been helped by supportive fiscal and monetary policies and a stabilisation of the situation in the financial markets. An improving labour market outlook, rising stock market indices and a resumption of the previous upward trend in house prices have also contributed to strengthening consumer confidence. As the economy slipped into recession, the Swedish currency weakened by almost 30 % on a trade- weighted basis in less than a year, but has since recovered about three quarters of its lost value. Its recent appreciation should contribute to dampen inflationary pressures, already subdued by significant slack in the economy. The recession and the fiscal policy response it triggered have swung the public sector balance from a surplus of 2.5 % of GDP in 2008 to a deficit of 0.8 % of GDP in 2009. In order to ensure a sustainable development of public finances, a key challenge will be to avoid that a potentially rather job- anaemic recovery leads to lasting negative effects on long-term unemployment and a permanent loss of labour supply. Ensuring that active labour market policies remain of high quality even as they expand in scope will be important in this regard. Another challenge for policy makers will be to carefully calibrate the withdrawal of the various stimulus measures so as to neither nip the recovery in the bud nor contribute to the build-up of potentially destabilising household-sector imbalances.

Council recommendation


After a detailed discussion, and given the need to ensure sustainable convergence, while recognising the exemplary performance of Swedish fiscal policy in line with the Stability and Growth Pact in recent years, the Council of the European Union invited Sweden to:

(i) implement the 2010 fiscal policy as planned in line with the EERP [European Economic Recovery Plan], while aiming to avoid breaching of the 3 %-of-GDP reference value;

(ii) ensure that the nominal budgetary adjustment projected in the programme is achieved, if necessary by timely adoption of consolidation measures to ensure that lower-than- expected growth does not derail the envisaged consolidation of government finances in the outer years of the programme, as well as to ensure progress towards the MTO [medium-term objective],

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

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

EU: Convergence programme Romania

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 Romania, published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated convergence programme of Romania, 2009-2012; OJEU 3.6.2010 C 144/12



Economic background


On 26 April 2010 the Council of the European Union examined the updated convergence programme of Romania, which covers the period 2009 to 2012. The EU Council started its assessment with a brief introduction to the economic situation in Romania:

With an average annual GDP growth rate of 6.8 % between 2004 and 2008, Romania was one of the fastest growing EU Member States. Growth was driven by a domestic demand boom for both consumption and investment, which was fuelled by a rapid financial deepening, high capital inflows and steadily increasing income expectations. This, together with high wage inflation, caused the sharp increase in the current account deficit to 12.3 % of GDP in 2008. In addition, years of pro-cyclical budgetary policies led to a sizeable deterioration in the underlying fiscal position, with the structural deficit (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) rising to 8.5 % of GDP in 2008. The sudden increase in risk aversion during the financial crisis caused markets to become increasingly concerned about these imbalances. Capital inflows plunged and pressures on the exchange rate increased, resulting in a cumulative depreciation by about 30 % of the leu against the euro between August 2007 and January 2009. The drop in capital inflows, the balance-sheet effects of the currency depreciation and a sharp decline in export demand caused a severe recession in late 2008 and the first half of 2009, which was reflected in a 7.1 % decline of GDP in 2009. The National Bank of Romania lowered its key rate by a total 325 basis points to 7.0 % between February 2009 and February 2010. The current account deficit narrowed to around 4.25 % of GDP in 2009.

Council recommendation

After a detailed discussion, and in the light of the recommendation of 16 February 2010 under Article 126(7) TFEU, as well as given the need to ensure sustainable convergence, the Council of the European Union invited Romania to:

(i) rigorously implement the fiscal consolidation measures for 2010 agreed as part of the balance-of-payments support programme and take further corrective action, if needed, to achieve the 2010 target for the general government deficit. The Romanian authorities are also invited to specify, in the context of the Medium-Term Budgetary Framework to be prepared by end May 2010, the fiscal consolidation measures necessary to achieve the programme budgetary targets in 2011 and 2012;

(ii) improve the fiscal framework by adopting and implementing the fiscal responsibility law. In particular, take into account the analysis of the Fiscal Council in the design and conduct of fiscal policy;

(iii) adopt and implement the draft pension law which would contribute to significantly improve the long-term sustainability of public finances.

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

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

EU: Convergence programme Lithuania

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 Lithuania, published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated convergence programme of Lithuania, 2009-2012; OJEU 2.6.2010 C 143/6



Economic background


On 26 April 2010 the EU Council examined the updated convergence programme of Lithuania, which covers the period 2009 to 2012. The Council began its assessment of this non-euro state by presenting a brief description of the economic situation:

Lithuania is emerging from one of the strongest recessions in the EU. Several years of rapid and increasingly unsustainable growth, mainly driven by domestic demand and a real estate boom, came to a halt in 2008 when the bursting of the domestic bubble was reinforced by the impact of the global financial crisis reducing external demand and sharply tightening access to credit. The sharp decline in domestic demand and the opening up of spare capacity helped narrow existing imbalances, reducing inflation and eliminating the external deficit, largely through a collapse in imports.

The current account balance, substantially negative in the boom years and financed by capital imports associated with the banking sector, leading to a rapid increase in net external liabilities, in 2009 reached an estimated surplus of 3.1 % of GDP. The sharp decline in government revenues resulting from the economic contraction, together with the consequences of an expansionary fiscal policy before the parliamentary elections in 2008, nevertheless left Lithuania facing significant fiscal challenges. A strong policy response was put in place by the government by pursuing fiscal consolidation to contain the deterioration in public finances and to limit debt accumulation, thereby inter alia supporting the credibility of the currency board arrangement. Given the wide internal and external imbalances accumulated during the boom years and the difficulty of securing new international financing once the global financial crisis set in, this was a prudent response in line with the European Economic Recovery Plan (EERP). Nevertheless, Lithuania was made subject to an EDP [excessive deficit procedure] procedure, with the Council deciding on 7 July 2009 that an excessive deficit existed. Revised Council recommendations (Article 126(7), issued on 16 February 2010), called for correcting the excessive deficit by 2012. Ambitious fiscal consolidation is thus needed (an average fiscal effort of 2.25 % of GDP per annum), underpinned by structural reforms. So as to provide some support to the ailing economy, Lithuania has increased and frontloaded the absorption of EU structural funds. Throughout the crisis the economy has proved a high degree of flexibility as a significant adjustment has occurred via decreases in prices and wages. Large increases in unemployment, which could become structural, nevertheless pose major risks to long-term convergence. With a view to restoring positive and sustainable growth and avoiding any relapse into unsustainable internal and external imbalances, the main economic challenges relate to ensuring that wage developments are in line with productivity, improving competitiveness and promoting sectoral transformation towards tradable sectors as well as encouraging further reorien- tation towards medium- and high-tech products. A major adjustment of public finances to the expected lower growth in the coming years has already been initiated, but further progress remains to be secured in the medium term.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 126 TFEU of 16 February 2010, as well as given the need to ensure sustainable convergence and a smooth participation in ERM II, the Council of the European Union invited Lithuania to:

(i) consider additional corrective measures in 2010 if necessary to achieve the envisaged consolidation, in addition to implementing rigorously those planned in the budget;

(ii) specify the necessary measures to underpin fully the required adjustment over the programme period recommended by the Council under Article 126(7), and stand ready to adopt further consolidation measures in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise;

(iii) implement planned social security system reforms, including pension reform, so as to reduce the high risks to long-term sustainability of public finances due to significant projected increases of pension expenditure during the coming decades;

(iv) strengthen fiscal governance and transparency, by enhancing the medium-term budgetary framework and improving reporting of budgetary data, ensuring comparability of the budgetary indicators on cash and accrual bases.

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

EU: Convergence programme Latvia

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 Latvia, published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated convergence programme of Latvia, 2009-2012; OJEU 1.6.2010 C 142/19



Economic background


The updated convergence programme of Latvia covers the period 2009 to 2012. The EU Council began its 26 April 2010 assessment with the following remarks on the economic situation:

The global financial crisis amplified the shock of the reversal of Latvia's domestic lending and house price boom by tightening credit availability and conditions. The concomitant downturn in external markets hit the tradeables sector. Furthermore, the depreciation of the currencies of certain principal trading partners added to the competitiveness losses of previous years.

Latvia's financial markets and banking sector came under significant pressure from October 2008 onwards. This prompted the Latvian authorities to seek international financial assistance, which was provided at the end of 2008 and made conditional on major fiscal consolidation as well as financial system and structural reforms. Subsequently, in view of a much larger than expected deterioration in economic and budgetary conditions in the first half of 2009, the government implemented additional fiscal consolidation measures, partly underpinned by structural reforms. The above mentioned developments led the Council to decide on the existence of an excessive deficit in Latvia on 7 July 2009 and to recommend its correction in accordance with Article 104(7) TEC by 2012. In the second half of 2009, the export-oriented sector of the economy stabilised and started to show some early signs of a recovery. However, the fall of domestic demand remained very severe, due mainly to a sharp deterioration on the labour market and negative credit growth. Nevertheless, the disbursements of international financial assistance, the rigorous implementation of the 2009 budget and the successful adoption of the 2010 budget with further fiscal consolidation measures helped to stabilise confidence and improved market sentiment towards Latvia. The main challenge for economic policy remains economic stabilisation and a return to a well-founded catching-up process. Economic stabilisation depends to a great extent on anchoring long-term expectations for which the implementation of the planned fiscal consolidation path is crucial. Economic stabilisation also hinges directly on taking structurally sound and socially equitable fiscal measures and also on the progress with restructuring the economy towards the tradeable sector. In view of the significant deterioration in external competitiveness during the boom years, there appears to be some further need for domestic price adjustment and productivity improvement. The use of EU structural funds should contribute to the strengthening of the tradeable sector and cushion the recession.

The sharp decline in domestic demand and the opening up of spare capacity helped unwind existing imbalances, reducing inflation and eliminating the external deficit, largely through a collapse in imports. The external account balance, substantially negative in the boom years and financed by capital imports associated with the banking sector, leading to a rapid increase in net external liabilities, reached in 2009 an estimated surplus of over 8 % of GDP, and is set to remain in significant surplus over the programme period.

The financial rescue package was described in the following terms:

The up to EUR 7.5 bilion financing package is jointly funded by the EU, IMF, World Bank, EBRD, Nordic countries, Czech Republic, Estonia and Poland and is provided to Latvia in several instalments up to end-2011, in a front-loaded manner.

Council recommendation

Despite the measures undertaken and endured, arduous times still lie ahead for the government and people of Latvia.

After a detailed discussion, and in the light of the recommendation under Article 104(7) TEC, as well as given the need to ensure sustainable convergence and a smooth participation in ERM II, the EU Council invited Latvia to:

(i) fully implement the 2010 budget as adopted on 1 December 2009; prepare a menu of budgetary options producing savings or additional revenues allowing the adoption of a 2011 budget in accordance with the consolidation needs; adopt a 2012 budget also consistent with the targeted fiscal path, in line with the Council Recommendation under Article 104(7);

(ii) carry out the thorough and forward-looking analysis needed for a wide-ranging social benefits reform, with a view to implement such a reform in the course of 2011 together with further measures on the revenue side;

(iii) improve fiscal governance and transparency, inter alia by adopting the draft fiscal discipline law, by strengthening the binding nature of the medium-term budgetary framework, and by putting in place effective sanction procedures for individuals’ misuses of public funds; strengthen control, coordination and sanction mechanisms aiming at tackling the grey economy;

(iv) foster economic growth by promoting the shift towards the tradeable sector and productivity improvements, including by ensuring that the available EU structural funds reach the real economy, and restructuring state-owned banks in a timely manner, within a medium-term strategy.

Convergence reports


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

EU: Convergence programme Hungary

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

The EU Council opinion on the convergence programme of Hungary has been published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated convergence programme of Hungary, 2009-2012;
OJEU 1.6.2010 C 142/1



The Council began its 26 April 2010 assessment of the updated convergence programme of Hungary, which covers the period 2009 to 2012, with the following introductory remarks:

Hungary was in a fragile economic condition when the financial crisis broke out in autumn 2008. The mid- 2006 fiscal policy reversal, which was aimed at correcting the existing economic imbalances and restraining the accumulation of the public debt, successfully reduced the budget deficit to 3.8 % of GDP by 2008 (compared to 9.3 % of GDP in 2006) but the adjustment was incomplete when the global financial crisis hit. Moreover, the share of foreign-exchange-denominated debt was relatively high.

Gross financing needs became more difficult to meet, reflecting investors’ concerns about the sustainability of the budgetary position, the country's high external debt, and the drop in potential growth. Taken together, these factors required a stronger economic policy response, measures to support the banking sector, and significant external assistance from international institutions of EUR 20 billion, including EUR 6.5 billion from the EU (of which EUR 5.5 billion have been disbursed). Since the second half of March 2009, against the background of strong stabilisation and adjustment efforts, access to market-based financing has been regained. Moreover, due to the significant contraction in domestic demand in 2009, a dramatic improvement was registered in the current account, mostly through the trade balance. The exchange rate remained broadly stable since July 2009 and the central bank was able to cut the main policy rate by cumulative 375 basis points between mid-2009 and early 2010. Given the lack of fiscal space and investors’ concerns, the Government has continued to implement its fiscal consolidation policy and only adopted budgetary neutral measures to support the economic recovery. Continuing fiscal consolidation to bring the debt on a declining path and further improve the long-term sustainability of public finances remains a key challenge for Hungary.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 104(7) TCE of 7 July 2009, the EU Council invited Hungary to:

(i) ensure that the 3,8 % of GDP deficit target for 2010 is achieved through tight expenditure control as well as through a possible freezing of budgetary reserves and the implementation of contingency expenditure cuts if needed;

(ii) specify the measures underlying the budgetary targets from 2011 onwards and stand ready to strengthen the fiscal effort in case risks related to the fact that the programme scenario is more favourable than the scenario underpinning the Article 104(7) TEC recommendation materialise to ensure that the deficit is brought below 3 % of GDP in 2011; and considerably strengthen the strategy for 2012 to ensure an adjustment towards the MTO [medium-term objective] in line with the requirements of Stability and Growth Pact;

(iii) improve the quality of public finances by preparing and adopting a 2011 budget in full compliance with the fiscal framework and by supporting expenditure moderation through a further reform of public administration and by addressing the situation of loss-making enterprises through structural reforms.

These assessments and Council opinions are hardly “media sexy”, but they are important. Should you take an interest?



Ralf Grahn

EU: Convergence programme Estonia

Despite a deep recession, Estonia is preparing for the euro changeover in 2011. The European Union offers a snapshot of the Estonian economy.



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



Convergence programme Estonia

The Council has published its opinion on the convergence programme of Estonia in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated convergence programme of Estonia, 2009-2013;
OJEU 29.5.2010 C 140/1



Economic background


The Council begins its 26 April 2010 examination of the updated convergence programme of Estonia, which covers the period 2009 to 2013, with the following remarks:

The Estonian economy is currently emerging from a severe recession. Whilst the recession has led to marked pressures on public finances, the reversal of unsustainable domestic demand and bursting of a real estate boom has resulted in a rapid unwinding of previously high internal and external imbalances. Taking into account the substantial macroeconomic imbalances prior to the downturn, the wide- ranging and decisive action by the government to contain the negative impact of the economic downturn on public finances was a prudent response in line with the European Economic Recovery Plan. It helped to contain economic, budgetary and financial system risks and contributed to restoring competitiveness through price and wage adjustment in the economy. Maintaining robust monetary buffers to support exchange rate stability and prudent financial sector policies, including enhanced cross-border co-operation, helped to avoid adverse developments. High debt levels accumulated by the private sector are now being gradually reduced but will nevertheless weigh on the recovery, holding back consumption and investment. Key policy challenges ahead include raising the productivity of the economy to further improve competitiveness and progress towards long-lasting convergence and containing the risk of skill losses through long-term unemployment. More broadly, the economic challenge is to restore positive and sustainable growth while avoiding any relapse into significant internal and external imbalances. A major adjustment of public finances to the expected lower growth in the coming years has already been made, but further progress remains to be achieved in the medium term.

Council recommendation

After a detailed discussion, the Council invited Estonia to:

(i) ensure that the general government deficit remains below 3 % of GDP and take the necessary measures to underpin the targeted return to the MTO [medium-term objective] in the medium term;

(ii) strengthen the medium-term budgetary framework, particularly by improving expenditure planning, and further strengthen the system of monitoring the strategic targets and reporting on them.

If you are interested in the Estonian economy, you can read the blog post Euro introduction: Estonia 2011 (31 May 2010). The blog post contains links to the convergence reports published by the European Central Bank and the European Commission, useful for context and comparison.




Ralf Grahn

EU: Useful stability and convergence programmes?

In the wake of the financial and economic crisis, how should the economies of the EU member states be launched on a growth and reform path? Where are the structural weaknesses and sudden pitfalls? How should the governments return to budget discipline?

The continuing dialogue concerning economic policy coordination between the European Union and the member states has resulted in a spate of country by country Council opinions, freshly published in the Official Journal of the European Union (OJEU).

The opinions we have not mentioned this far concern Estonia, France, Germany, Hungary, Ireland, Italy, Latvia, Belgium, Lithuania, Luxembourg, Poland, Malta, Portugal, Romania, Slovakia and Slovenia.



Council Regulation 1466/97

The procedure is laid down in:



COUNCIL REGULATION (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies; link to the consolidated version of 27 July 2005.


Council Regulation 1466/97 sets out the rules covering the content, the submission, the examination and the monitoring of stability programmes and convergence programmes as part of multilateral surveillance by the Council so as to prevent, at an early stage, the occurrence of excessive general government deficits and to promote the surveillance and coordination of economic policies (Article 1).


Each participating (eurozone) state submits a stability programme (Article 3). There are now 16 euro area member states, which at some point reached the third stage of economic and monetary union (EMU), and the Commission has proposed that Estonia should be allowed to introduce the euro currency from 1 January 2011.

Each non-participating state (which has not adopted the euro) submits a convergence programme (Article 7). Of the 11 member states outside the eurozone, nine have an obligation to join and two have opted out (Denmark and the UK), leaving the door open for later changeover.

According to Article 5(3) the updated stability programmes are examined by the Economic and Financial Committee on the basis of assessments by the Commission and, if necessary, by the Council.

The corresponding provision for convergence programmes is Article 9(3).



Useful?

Individual stability and convergence programmes and opinions are hardly the best way to form a picture of the state of the economy or public finances in the eurozone or the European Union as a whole, although each country plays its part.

The main addressees are the national governments and parliaments in their work to devise economic policy, launch growth-enhancing reforms and guard against excessive deficits.

However, for a wider public (businesses, media and citizens) it is worthwhile to study the outside opinion offered by the EU, because it assesses the challenges in store and the strengths and weaknesses of government action this far.

In many cases government medium-term projections are virtuous, but they may be optimistic. In most instances the governments have not announced the needed reform policies or the corrective measures, such as savings or tax increases, beyond the immediate future.

The propaganda war in domestic politics is not always the best guide to the real issues, so it is worth the time and effort to check a second opinion from a fairly objective source, such as the EU or the OECD.




Ralf Grahn

EMU: Convergence programme Denmark

What if we should look less to the daily fluctuation of market sentiments and more to the mundane coordination of economic policy between the European Union and the member states?


The Council Opinion on the convergence programme of Denmark has been published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated convergence programme of Denmark, 2009-2015; published OJEU 28.5.2010 C 138/6.



Council Regulation 1466/97

The procedure refers to Article 9(3) of:



COUNCIL REGULATION (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies; link to the consolidated version of 27 July 2005.


Council Regulation 1466/97 sets out the rules covering the content, the submission, the examination and the monitoring of stability programmes and convergence programmes as part of multilateral surveillance by the Council so as to prevent, at an early stage, the occurrence of excessive general government deficits and to promote the surveillance and coordination of economic policies (Article 1).


Each participating (eurozone) state submits a stability programme (Article 3). There are now 16 euro area member states, which at some point reached the third stage of economic and monetary union (EMU), and Estonia has been proposed to introduce the euro currency from 1 January 2011.

Each non-participating state (which has not adopted the euro) submits a convergence programme (Article 7). Of the 11 member states outside the eurozone, nine have an obligation to join and two have opted out, leaving the door open for later changeover.

Article 9(3) concerns the examination of updated convergence programmes.

Denmark has not adopted the euro currency and it is one of the two EU member states to have opted out of the obligation to introduce the euro (the UK being the other one).



Economic background


The Council starts its examination of 26 April 2010 of the updated Danish convergence programme, which covers the period 2009 to 2015, with the following observations about the economic background:

The economic crisis hit the Danish economy hard in 2009, pushing Denmark into its deepest recession since the end of the Second World War. Denmark entered the crisis from a relatively comfortable position after a period of sustained strong growth with substantial surpluses in the current account and government finances and low public debt. The downturn began in 2008 when the housing bubble burst and was aggravated by falling exports, reflecting the collapse in world trade and declining investment on the back of receding final demand and tighter financing conditions. Despite disposable incomes still rising, private consumption weakened significantly, as the bleak economic outlook, falling real estate prices and rising unemployment affected consumer confidence. In response to the sharp fall in output, the Danish authorities adopted several large fiscal stimulus measures in line with the European Economic Recovery Plan (EERP) comprising tax cuts, investment projects and raising public consumption expenditures. On top of the fiscal support to economic activity, two bank rescue packages were adopted, providing guarantees and capital injections. These measures are expected to turn a comfortable budget surplus in 2008 into a deficit as from 2009 that is set to exceed the 3 %-of-GDP reference value of the Stability and Growth Pact between 2010 and 2012. Public debt, while moving up in parallel, is still expected to remain below the 60 %-of-GDP reference value. The exchange rate has been stabile throughout 2009 and the interest rate spread vis-à-vis the ECB has come down substantially. In order to ensure a sustainable development of public finances, a key challenge will be to ensure continued reform to increase labour supply. Another challenge for the Danish authorities will be to ensure that the scaling back of stimulus measures takes place in a timely manner once the recovery is self-sustaining.

As we see, the financial crisis and the severe economic downturn strained even the most robust economies.



Recommendation

After a detailed discussion, the Council invited Denmark to:

(i) reinforce efforts ensuring that the planned breach of the 3 %-of-GDP reference value would remain contained as well as to swiftly correct the projected excess of the deficit over the reference value, and to

(ii) specify the measures to underpin fiscal consolidation for the MTO [medium-term objective] to be reached by 2015 as planned.

Ralf Grahn

EMU convergence programme Czech Republic

On 26 April 2010 the Council examined the updated convergence programme of the Czech Republic, which covers the period 2009 to 2012:



COUNCIL OPINION on the updated convergence programme of the Czech Republic, 2009-2012; published OJEU 28.5.2010 C 138/1.


In the wake of the financial and economic crisis, this is how the Council introduced the state of the Czech public economy:

The global crisis had a strong impact on the Czech economy. Following a three-year period of growth above 6 %, real GDP grew by only 2.5 % in 2008 and declined by 4 % in 2009, according to the updated convergence programme. The economy was mainly affected through the trade channel, but also through confidence effects, a tightening of credit conditions, and shrinking foreign investment inflows. The authorities reacted determinedly to the crisis.

The Czech National Bank reduced its key policy interest rate from 3.75 % in mid-2008 to 1 % currently, and the government designed and implemented a sizeable fiscal stimulus package in line with the European Economic Recovery Plan (EERP), amounting to 2,2 % of GDP in 2009. The Czech koruna depreciated by about one fifth against the euro between mid-July 2008 and mid-February 2009 (it then appreciated by some 14 % by mid-February 2010). In the current immediate post-crisis period, the Czech economy does not suffer from important macroeconomic vulnerabilities. The main challenge is to reduce the high structural government deficit, estimated at around 6 % of GDP in 2009, to a sustainable level. Furthermore, it is also important to ensure a rapid adjustment of the labour market to the downturn and progress towards long-lasting convergence. On 2 December 2009, in view of the planned deficit for 2009, the Council decided on the existence of an excessive deficit and issued recommendations to bring the deficit below the 3 % of GDP threshold by 2013.

After discussing various aspects and assumptions, with a view to sustainable convergence, the Council invited the Czech Republic to:

(i) implement the 2010 budget rigorously and avoid expenditure slippages; in line with the Council Recommendation under Article 126(7), target, in the context of the 2011 and 2012 budgets, a larger budgetary adjustment than the one planned in the programme and specify in more detail the measures that are necessary to correct the excessive deficit by 2013 at the latest;

(ii) take action to improve budgetary procedures and to enforce and monitor more rigorously the medium-term budgetary targets; in particular, avoid upward revisions of expenditure ceilings beyond the revisions permitted by the budgetary rules;

(iii) implement the necessary reforms in order to improve the long-term sustainability of public finances.

The Czech Republic is also invited to add in its next update of the convergence programme more substantial 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 126(7) of 2 December 2009.

Further reading

Since the date of the Council opinion on the Czech Republic, the European Central Bank (ECB) and the European Commission have published their convergence reports, which contain more detail and allow for comparison with other euro area hopefuls.



The ECB Convergence Report 2010 was published 12 May 2010. The 359 page report is available on the ECB website in 21 languages.



The Commission’s Convergence Report 2010 was published 12 May 2010 under the responsibility of the Directorate-General for Economic and Financial Affairs (226 pages).


The 2010 convergence reports examine nine countries, committed by the treaty to adopt the euro: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Sweden.




Ralf Grahn

EMU convergence programme Bulgaria

On 26 April 2010 the Council examined the updated convergence programme of Bulgaria, which covers the period 2009 to 2012:




COUNCIL OPINION on the updated convergence programme of Bulgaria, 2009-2012; published OJEU 27.5.2010 C 137/12.


The Council opinion presents the background:

Before the onset of the global economic and financial downturn Bulgaria had witnessed strong real GDP growth underpinned by fast credit expansion and large foreign investment inflows. The robust economic activity, however, was accompanied by increasing macroeconomic imbalances such as the build-up of a very large external deficit and private debt as well as substantial inflationary pressures. The FDI-led investment boom and high wage increases, far exceeding productivity gains, aggravated these imbalances. As the global economic crisis unfolded, economic activity was hit hard, resulting in a contraction of real GDP by 5 % in 2009.

The main goal of the medium-term budgetary strategy is to maintain a balanced general government budget throughout the programme period.

The government gross debt ratio is well below the Treaty reference value throughout the programme period. It is estimated at close to 15 % of GDP in 2009, slightly up from the year before.

As an EU member only from 2007, Bulgaria is not yet a part of the eurozone. The country has a lot to do to catch up with the rest of the union, which requires continued reform efforts.

After a more detailed discussion and given the need for sustainable convergence, the Council reached the following fairly benign conclusions, inviting Bulgaria to:

(i) continue implementing strict fiscal policies and adopt further consolidation measures to achieve the programme target for 2010 with a view to sustaining the on-going adjustment in the external imbalances and safeguarding investor confidence in the economy; in particular, contain public sector wage growth in order to contribute to overall wage moderation and improve competitiveness;

(ii) strengthen the efficiency of public spending by vigorously implementing the planned structural reforms in the area of public administration, healthcare, education, and pensions in order to boost productivity and ensure sustainable convergence within the European Union.

Further reading

Since the date of the Council opinion on Bulgaria, the European Central Bank (ECB) and the European Commission have published their convergence reports, which contain more detail and allow for comparison with other euro area hopefuls.



The ECB Convergence Report 2010 was published 12 May 2010. The 359 page report is available on the ECB website in 21 languages.



The Commission’s Convergence Report 2010, published 12 May 2010 under the responsibility of the Directorate-General for Economic and Financial Affairs (226 pages).




Ralf Grahn