| Author (Person) | Bower, Helen | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Publisher | ProQuest Information and Learning | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Title | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Details | 24.2.03 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Publication Date | 24/02/2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content Type | News, Overview, Topic Guide | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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With the spectre of a possible war against Iraq weakening market sentiment across Europe and leading to Europe's shares falling to their lowest level for three months, the European Commission published its annual update of the stability and convergence programmes of the EU's fifteen Member States in early 2003. At the Economic and Financial Affairs Council meeting on 18 February 2002 at which the first programmes were examined, the Member States called on the European Union to make the rules governing the Stability and Growth pact more flexible in the face of worsening economies in the year ahead. Background The concept of the stability and convergence programmes was introduced as part of the EU's Stability and Growth Pact in 1999 in order to strengthen and clarify Treaty provisions on multilateral economic surveillance and budgetary discipline during the third stages of EMU. On an annual basis, all Member States are required to prepare either stability or convergence programmes and to submit them to the European Commission and the Council of the European Union as public documents. Those Member States that have adopted the single currency are required to prepare stability programmes whilst those outside the eurozone - the United Kingdom, Sweden and Denmark - prepare convergence programmes. Content of Stability and Convergence Programmes The first stability and convergence programmes were submitted by 1 March 1999. The information included in the report must cover the current and preceding year and at least the following three years. The range of information that must be included in both the stability and the convergence programmes is as follows:
In addition, convergence programmes must provide information on the medium-term monetary policy objectives and the relationship of those objectives to price and exchange rate stability. Examination of Stability and Convergence Programmes The stability and convergence programmes are examined by the Council of the European Union within two months of submission following assessments by the European Commission and the Economic and Financial Committee. In relation to the stability programmes, the Council pays particular attention to three key areas:
The Council also looks at whether the content of the stability programme facilitates the closer co-ordination of economic policies and whether the economic policies of the Member State concerned are consistent with the broad economic policy guidelines. If the Council identifies significant divergence of the budgetary position from the medium-term budgetary objective, it may recommend to the Member State concerned to take the necessary adjustment measures in order to avoid an excessive deficit. If subsequent monitoring shows that the divergence is continuing the Council will make a recommendation to the Member State concerned to take prompt corrective measures. The Council's examination of the convergence programmes focuses on the same key areas as those examined for the stability programme but in addition the Council seeks to ensure that the policies of non-participating Member States are geared to stability, thus avoiding real exchange rate misalignments and excessive nominal exchange rate fluctuations. 2003 Stability and Convergence Programmes The first 2003 annual updates of the stability and convergence programmes were presented by the European Commission on 8 January 2003. The programmes tend to be issued in batches hence the stability programmes of France, Italy and Germany along with the convergence programme of Sweden were presented first, followed by those relating to Belgium, Ireland, Spain, the United Kingdom and Denmark on 30 January 2003 and those relating to Portugal and Luxembourg on 19 February 2003. The programmes relating to the other Member States will follow. All the updates of each of the Member States' stability or convergence programmes since 1999 can be found on the Council's website in the economic and monetary union section. The information is also available from the European Commission's DG Economic and Financial Affairs website along with a timetable for the assessment of the current programmes. The main issues raised by the updates in 2003 concerned the excessive deficit procedure with two of the EU's largest Member States - Germany and France - struggling to keep their budget deficit within the target of 3% of GDP. European Commissioner for economic and Financial Affairs, Pedro Solbes said that the European Commission would recommend to the Council to decide that an excessive deficit exists in Germany following the updated stability programme's confirmation that the 2002 deficit reached 3.75% of GDP. The European Commission also warned that Germany looks set to exceed the deficit in 2003 and that the projected growth scenario appears optimistic. It therefore called on the country to reform the labour market and introduce new reforms of the social security and benefit systems and the reduction of administrative burden in the economy. The European Commission also stated that its early-warning of an excessive deficit in France was valid based on the updated stability programme, which projects a deficit of 2.6% of GDP in 2003, following a 2.8% of GDP deficit in 2002. The European Commission emphasised the need for implementation of structural expenditures cuts, in particular in the health sector and for France to balance its budgets before 2006 when the budgetary impact of ageing accelerates as early as from 2006. Pedro Solbes' comments on Italy, Finland and Sweden can also be found in the statement he made at a press conference on 8 January 2003. Another key country to come under attack following the publication of its annual update of its convergence programme has been the United Kingdom, although this was largely at the Council rather than from the European Commission, which stated that "UK public finances are overall judged to be in a sound position". However, EU finance ministers attacked UK Chancellor Gordon Brown for being too "optimistic" about a turn around in the UK's economy and criticised his plans for more public spending. Three countries (Belgium, Denmark and Spain) objected to the European Commission's proposal to let the UK run a small deviation from the balanced budget rules. Meanwhile, the European Commission's assessment of Sweden stated that the country would still not be ready to join the single currency even if the Swedish citizens supported it. The European Commission said that the country fails to meet one of the four convergence criteria, namely the exchange rate criterion, since relevant legislation in Sweden "was not compatible with the Treaty and the ESCB Statute". The publication of the annual updates of the stability and convergence programmes. With a possible war against Iraq looming, Member States fear the negative effect that it will have on their economy and are pushing hard for the European Commission and the European Central Bank to come up with changes to the stability and growth pact, which would make it more flexible and allow countries to come through difficult economic times. However, the European Commission remains steadfast that tight budgetary rules are essential to the success of the single European currency. Yet with disarray between EU Member States over a common EU foreign policy approach to Iraq, the European Union will be keen to avoid major disputes over its economic affairs. Further information within European Sources Online
Further information can be seen in these external links: EU Institutions National Organisations
Helen Bower 22 February 2003 Background and reporting on the week's main stories in the European Union and the wider Europe. |
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| Subject Categories | Economic and Financial Affairs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
