EU Updates On Member States Progress Under Excessive Deficit Procedure

by Ulrika Lomas, Tax-News.com, Brussels

29 January 2010

The European Commission has published a progress report on member states Malta, Lithuania, Latvia and Hungary, with respect to their efforts to reduce their state deficits.

The Commission announced that it is to extend the deadline for Malta and Lithuania, in light of the worsening economic situation, to 2011 and 2012 respectively. As to Hungary and Latvia, the Commission concluded that they had complied with the Council recommendations but they will need to pursue efforts to bring their deficits below 3% of GDP by the agreed deadlines of 2011 and 2012 respectively.

"I am pleased to be able to conclude that Malta, Lithuania, Hungary and Latvia have all undertaken adequate steps towards correcting their budget deficits," said Joaquín Almunia, Commissioner for Economic and Monetary Affair. "In the case of Malta and Lithuania, however, the worsening in the economic situation since the recommendations were made justifies extending the deadline by one year. Hungary and Latvia, which are benefitting from conditional balance-of-payments support, seem on track to bring their deficits to below 3% by the agreed deadlines but they need to pursue their efforts to ensure this happens," he added.

In spring 2009, the Commission proposed to open the excessive deficit procedure (EDP) for Malta, Lithuania and Latvia on the basis of budget deficits above 3% in 2008, and recommended their correction by 2010, 2011 and 2012 respectively. In the case of Hungary, which has been under the EDP since 2004, the Commission proposed to revise the recommendation under Article 126.7 (previously Article 104.9) of the Lisbon Treaty with a new deadline of 2011 in view of the deterioration of the economic situation. The Council endorsed the Commission's recommendations on all four countries in July 2009, setting a deadline of January 7, 2010, to assess whether effective action has been taken. The Commission has concluded that:

• Malta has agreed with the Commission on a 2010 deficit target of 3.9% of GDP, as set in the budget. In 2011, further consolidation measures will be needed to provide a further 0.75% of GDP.
• Lithuania has been granted a deadline of 2012, representing an average annual fiscal effort of 2.25% of GDP between 2010 and 2012.
• Hungary respected the 2009 deficit target of 3.9% of GDP by adopting fiscal consolidation measures amounting to 1.5% of GDP in 2009. This year’s budget will bring the deficit to 3.8% of GDP, with further consolidation to come in 2011 to bring the deficit within the Maastricht Criterion; however, the Commission warns that in view of already agreed non-compensated tax cuts in 2011, additional measures will have to be introduced to ensure the deficit falls below the 3% threshold in 2011.
• Latvia's 2009 deficit is projected to be close to, but below, 10% of GDP, in line with the target set in the Council's July 2009 recommendations. The 2010 budget adopted by Parliament on December 1 should be sufficient to deliver the 8.5% of GDP deficit target set for 2010. Looking beyond 2010, further measures have been outlined in the context of the balance of payments assistance program.

The Commission will assess whether Romania and Poland, the two other countries for which the Council adopted recommendations in July 2009, have taken effective action in the coming weeks.

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