Sunday 6 June 2010

EU: Stability programme Slovakia

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 stability programme of the latest eurozone entrant Slovakia, published in the Official Journal of the European Union (OJEU):

COUNCIL OPINION on the updated stability programme of Slovakia, 2009-2012; OJEU 3.6.2010 C 144/17

Economic background

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

With an average real GDP growth rate of over 7 % over the period 2003-2008, Slovakia was one of the best performing EU countries during the boom phase. Sound macroeconomic policies over that period allowed avoiding large macroeconomic imbalances, which enabled Slovakia to adopt the euro in January 2009. However, given its large trade openness, the Slovak economy was strongly affected by the crisis. Real GDP is estimated to have fallen by 4.7 % in 2009, and the depreciation of neighbouring countries’ currencies implied a further appreciation of Slovakia's real effective exchange rate.

To contain the effects of the crisis, the authorities allowed a full operation of automatic stabilisers and, in line with the European Economic Recovery Plan, adopted anti-crisis measures in November 2008 and February 2009 (0.5 % of GDP for both 2009 and 2010). With the government deficit expected at some 6 % of GDP in 2009, on 2 December 2009 the Council decided on the existence of an excessive deficit and recommended its correction by 2013. Considering the weakening of Slovakia’s external competitiveness due to temporary depreciation of neighbouring countries’ currencies and widening fiscal imbalances during the crisis, a credible and sustainable reduction of the government deficit should be a key element of the authorities’ strategy for the coming years.

Council recommendation

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

(i) implement the deficit reducing measures in 2010 as planned in the budget, and back up the consolidation path for the following years with specific measures to secure the correction of the excessive deficit if possible by 2012, and by 2013 at the latest;

(ii) continue reforms of the pension system with a view to ensuring the sustainability of government finances;

(iii) implement the envisaged measures to further strengthen the fiscal framework, in particular the introduction of enforceable multiannual expenditure ceilings.

Eurozone financial stability

On 31 May the European Central Bank (ECB) published its Financial Stability Review June 2010, which assesses the stability of the euro area financial system both with regard to the role it plays in facilitating economic processes and with respect to its ability to prevent adverse shocks from having inordinately disruptive impacts (page 7).

The Financial Stability Review (225 pages) offers a view of the inter-related financial markets and the consolidation measures of eurozone governments.

Naturally, Slovakia is represented in the Euro Group, which plays an important part in the efforts to restore fiscal stability in the euro area. The Euro Group president is Jean-Claude Juncker, the prime minister of Luxembourg, where the next meeting is going to take place Monday, 7 June 2010.

Ralf Grahn

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