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Finland, Ireland And Luxembourg Receive EC Scrutiny Over Stability Programmes

by Ulrika Lomas, for LawAndTax-News.com, Brussels

09 February 2007


The European Commission announced on Wednesday that having examined their updated stability programmes, the European Commission finds the present budgetary positions of Finland, Ireland and Luxembourg to be generally sound, and their projections for the coming years in line with their respective medium-term objectives.

The Commission stated that it need not give any specific policy invitations for Finland, which plans for budgetary surpluses that, albeit declining slightly, are above its target of 2%, has a low public debt and is well provisioned for ageing costs.

With regard to Ireland, the EC announced that:

"Ireland submitted a new update of its stability programme on 6 December 2006, covering the period 2006-2009. The programme is based on a plausible macroeconomic scenario, even though there are risks of a downturn in the residential construction sector and regarding property prices. Ireland plans for declining general government surpluses throughout the programme period."

"While the foreseen surpluses compare with moderate deficits in the previous update sent in 2005 and are in line with Ireland's MTO of a budget close to balance in structural terms, there is a risk that the fiscal policy in 2007 may become pro-cyclical. The debt ratio is set to decline further from an already low level, a prudent stance given that Ireland's finances are at medium risk in the long term from an a projected increase in age-related spending. "

"Overall, the Commission considers that the medium-term budgetary position is sound and, provided the fiscal stance in 2007 does not prove pro-cyclical, the budgetary strategy provides a good example of fiscal policies conducted in compliance with the Stability and Growth Pact. In any case, it would be prudent to maintain room for manoeuvre against any reversal of the current growth pattern which has been led by strong housing sector developments."

"In view of, in particular, the projected increase in age-related expenditure, the Council should invite Ireland to continue to implement measures to improve the long-term sustainability of its public finances."

With regard to Luxembourg, meanwhile, the Commission revealed that:

"Luxembourg submitted a new update of its stability programme on 24 November 2006, covering the period 2006-2009. Based on a plausible macroeconomic scenario, the programme aims at restoring budgetary balance at the latest in 2009 by a significant reduction of the expenditure ratio. The budgetary targets are roughly similar to those presented in the previous update. The MTO is a structural deficit of about 0.8% of GDP, which is aimed to be achieved by 2007."

"Given the prudence of revenue projections, budgetary outcomes might even be better than envisaged, especially in 2006 and 2007. The debt ratio is very low and the social security holds sizeable reserves, but the budgetary costs of ageing are projected to be among the highest in the EU. For this reason, Luxembourg is at medium risk as regards the long-term sustainability of its public finances."

Overall, the Commission considers that, in a context of strong growth prospects, the programme is making rapid progress towards the MTO, which should be achieved from 2007 onwards.

"In view of, in particular, the projected increase in age-related expenditure, the Council should invite Luxembourg to improve the long-term sustainability of public finances by implementing structural reform measures, especially in the area of pensions."

Concluding, Economic and Monetary Affairs Commissioner Joaquín Almunia observed that:

“All three countries run sound fiscal policies although in the case of Luxembourg it has yet to achieve its medium-term objective. They are encouraged to pursue prudent fiscal policies especially as they experience an economic growth well above the euro area average and, in the case of Ireland and Luxembourg, to be able to cater for the projected increase in the costs of an ageing population."


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