LUXEMBOURG (MNI) – Eurozone finance ministers Monday assessed
recent budgetary developments Eurozone member states. Here is the full
text:
“After an unprecedented recession, the euro area recovery is
expected to be gradual in view of the still weak private demand and
ongoing restructuring in the financial sector.
“The outlook is also surrounded by exceptional uncertainty and
characterised by a differentiation in the speed of the recovery between
countries, reflecting differences in adjustment challenges.
“In 2009, the average euro area budget deficit deteriorated by 4.3
p.p. to 6.3% of GDP, mainly reflecting the operation of automatic
stabilisers and to a lesser extent fiscal stimulus measures taken under
the European Economic Recovery Plan.
“Debt levels increased by 9.3 p.p., reaching 78.7% of GDP. This has
led to the opening of an excessive deficit procedure for most euro area
Member States and to recommendations with a view to bringing an end to
the situation of excessive deficit.
“These procedures reflect the principles for fiscal exit agreed by
the Ecofin Council in October 2009. In particular, in view of the
economic forecasts at the time, they require that Member States start
consolidation in 2011 at the latest and earlier in a number of
countries, depending on specific country situations.
“On 9 May, the Council strongly committed to ensure fiscal
sustainability and enhanced economic growth in all Member States and
therefore agreed that plans for fiscal consolidation and structural
reforms will be accelerated, where warranted.
“Against this background, Ministers fully recognise the priority of
halting and reversing the increase in the debt ratio and are committed
to take immediate action to that effect.
“The overall fiscal stance of the euro area will be neutral in
2010, as continued fiscal expansion in a limited number of countries is
counterbalanced by consolidation in the majority of Member States.
“The stance should become clearly restrictive as from 2011 when the
recovery is expected to gain momentum, both for the euro area as a whole
as well as for all individual Member States. A further coordinated
differentiation in the speed of consolidation is warranted.
“In particular, consolidation needs to be frontloaded in a number
of Member States in order to avoid adverse debt dynamics, also taking
into account macro-financial stability considerations.
“Furthermore, and especially as from 2011, Ministers commit to take
additional measures, where needed, in order to ensure the achievement of
the budgetary targets for 2010 and beyond, which have recently been
strengthened significantly in a number of countries.
“This should underpin the credibility of consolidation strategies.
A strong commitment to achieve the medium-term budgetary targets should
allow for a rapid return to deficit levels compatible with a durable
reduction in the government debt level in all Member States, which is
also necessary to ensure that public debt does not compromise the
economic recovery.
“Besides a clear role for frontloading in the case of certain
countries, the credibility of fiscal consolidation in all Member States
is enhanced through the permanent nature of the measures adopted and
their being embedded in a comprehensive strategy of structural reform.
“Concerning the composition of adjustment, the magnitude of the
required correction means that it is likely that a combination of
spending and tax measures will be necessary.
“While expenditure-based consolidation usually yields better
results in terms of enhancing medium-term growth dynamics, tax-based
fiscal consolidation may also assist in achieving structural fiscal
adjustment objectives. Ministers commit to strengthen national budgetary
frameworks.
“Specifically, in order to ensure confidence in the sustainability
of public finances and thereby financial stability, Ministers commit to:
– gear national fiscal strategies to stabilising government debt
ratios as a first step towards their subsequent reduction and
re-establishing and maintaining sizeable primary surpluses over the
medium term;
– achieve the announced budgetary targets for 2010 and 2011 in
nominal terms, which have recently been strengthened significantly in a
number of countries, and implement, where and when necessary, additional
measures to that effect;
– frontload consolidation based on measures which should be of a
permanent nature and be supportive of the economic recovery, focusing on
expenditure adjustment to the extent possible;
– pursue fiscal consolidation beyond 2011 to correct excessive
deficits in line with commitments and thereafter attain MTOs as part of
a comprehensive medium term adjustment strategy;
– strengthen national budgetary frameworks against the agreed
benchmarks to underpin the credibility of the budgetary targets and to
better reflect the obligations of budgetary discipline undertaken under
the Stability and Growth Pact at EU level;
– pursue structural reforms, notably in the area of pensions, the
labour market, product markets and the services sector to ensure the
long-term sustainability of public finances and to increase the growth
potential of the economy and its resilience to crises.
“Ministers are committed to fully and strictly implement the
surveillance framework defined by the SGP and to contribute actively to
the Task Force set up by the President of the European Council, which
will consider ways to strengthen the fiscal surveillance framework as
well as the surveillance of competitiveness developments in the euro
area.”
–Luxembourg: 0032 487 (0) 32 803 665, echarlton@marketnews.com
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