Swedes get tough on euro-zone budgets

Date: 18/01/01

By Tim Jones

Bosse Ringholm's warning comes as ministers and their officials start to wade through this year's crop of 12 'stability programmes' from euro-zone governments and three Union outsiders at their first meeting under his chairmanship tomorrow (19 January).

Rounds in 1999 and 2000 have come under veiled criticism from the European Central Bank and more overt attack from the financial markets and MEPs for pulling punches, especially against the French, German and Italian programmes.

All three states were criticised in discussions between officials for being 'pro-cyclical' - allowing spending to increase and taxes to fall when the economy was already in an upswing. This means they will have less room to manoeuvre if the euro-area economy slows down in reaction to a possible recession in the US.

"The situation is different in different countries, depending on where they are in the business cycle," said Ringholm. "For example, we put a tax cut into our budget but only for one year while other governments have included tax reductions in their programmes for three or four years. We don't have to coordinate what we do in this area but we do need to talk and analyse the effects of these tax cuts on the economy."

Under budget-coordination rules, stability programmes are put together by euro-zone states and updated to take account of developments in the economy and the annual budget.

Belgian Finance Minister Didier Reynders, who chairs the Euro Group of single-currency-area ministers, has complained that the six-month delay last year between approving the first and last programmes had hobbled euro-area fiscal policy-making and helped weaken the new currency.

Ringholm disagrees. "It's not really a question of how many months it takes, whether it's three, five or six months; the key thing is to make the process very serious and cautious and carry out a detailed analysis of the programmes. That means there has to be time for Ecofin members to have a serious discussion," he said.

Under his presidency, he claims, it will be difficult for ministers to get over-optimistic assumptions about growth, spending cuts or tax revenues past his colleagues.

"No country has anything to gain by coming forward with unrealistic plans or forecasts since they are going to be analysed by other ministers," Ringholm said.

The decisions taken at the Lisbon summit last year, which are due to be reviewed in Stockholm at the end of March, require that countries consider programmes more seriously, he said. In Lisbon, leaders agreed a ten-year strategy for turning round the Union economy, including as many as 60 targets for boosting employment, education and training.

"We have a lot of ambitious targets for 2010," Ringholm said. "If we are going to be realistic about hitting these, we are going to have to come up with a timetable and build these into our programmes."

Sweden's finance minister is putting his EU counterparts on notice that their updated three-year budget plans will face closer-than-usual scrutiny under his presidency.