EC To Begin Excessive Deficit Procedures With Three States

by Ulrika Lomas, Tax-News.com, Brussels

22 June 2010

The European Commission on June 15 decided on the existence of excessive deficits in Cyprus, Denmark and Finland and recommended deadlines for their correction to the Council. These steps, taken under Article 126(5-7) of the Treaty, represent a follow-up of the reports under Article 126(3) that the Commission presented on May 12.

"The entry into the excessive deficit procedure of these countries, which until recently had surpluses, shows the severity of the economic and financial crisis we have gone through. Part of the deterioration comes as a consequence of the stimulus measures taken under the European Economic Recovery Plan (EERP), which has been instrumental in containing the crisis. However it is now time to focus on returning to sound public finances. The need for fiscal consolidation varies per country, however, and the deadlines and fiscal efforts we recommend today reflect these differences", said Economic and Monetary Affairs Commissioner Olli Rehn.

According to data notified to the Commission by the Cypriot authorities in April 2010, the general government deficit in Cyprus reached 6.1% of GDP in 2009, while the government debt is expected to reach 62% of GDP in 2010, thus breaching the 60% reference value of the Treaty. While the deficit can be qualified as exceptional, as it results from a severe economic downturn, the excess over the reference value can neither be qualified as close to 3% of GDP or temporary. The Commission recommends to the Council to set a deadline of 2012 for correction. In particular, Cyprus should reduce the 2010 deficit to below 6.0% of GDP and ensure an annual structural adjustment of 1.75% of GDP over the period 2010-2012.

According to data notified by the Danish authorities in April 2010, the general government deficit in Denmark is planned to reach 5.4% of GDP in 2010. The Commission said that while the deficit can be qualified as exceptional in view of the economic downturn, the excess over the reference value can neither be qualified as close to 3% of GDP or temporary. The Commission recommends to the Council to set a deadline of 2013 for correction, with budgetary consolidation beginning in 2011. In particular, Denmark should implement the fiscal measures in 2010 as planned and ensure an annual structural adjustment of 0.5% of GDP over the period 2011-2013.

According to data notified by the Finnish authorities in April 2010, the general government deficit is planned to rise to 4.1% of GDP in 2010. The deficit can be qualified as exceptional and temporary, the Commission said again it is not close to the reference value. The Commission recommends to the Council to set a deadline of 2011 for correction. To this end, Finland should implement the fiscal measures in 2010 as planned and ensure a structural adjustment of at least 0.5% of GDP in 2011.

The Ecofin Council is expected to decide on the recommendations at the upcoming meeting of July 13. The Member States concerned will then have six months to indicate what action they have taken or plan to take to progressively reduce their budget deficits.

In a separate statement on June 15, the Commission announced that steps taken by twelve member states have been effective, under the excessive deficit procedure.

“The action taken by Belgium, the Czech Republic, Germany, Ireland, Spain, France, Italy, the Netherlands, Austria, Portugal, Slovenia and Slovakia in response to the Council recommendations of December 2, 2009, relating to the correction of their respective excessive government deficits. The Commission concluded that the authorities have acted in accordance with the recommendations,” the Commission said.

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