Commission assesses Stability and Convergence Programmes

Commission assesses Stability and Convergence Programmes of Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Hungary, the Netherlands, Poland, Sweden, Finland and the United Kingdom

Today (February 18) the European Commission examined the updated Stability and Convergence Programmes of 17 EU countries including Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Hungary, the Netherlands, Poland, Sweden, Finland and the United Kingdom (see IP/09/274 for separate programmes). These assessments are seen against the background of a sharp economic slowdown. A majority of the countries concerned (the Czech Republic, Denmark, Germany, the Netherlands, Poland, Sweden, Finland and the United Kingdom) have adopted fiscal stimulus measures in 2009 to cope with the economic crisis, in line with the Economic Recovery Plan proposed by the Commission and endorsed by EU leaders. In the UK, the expansionary measures coupled with the adverse impact of the downturn have significantly weakened the country's budgetary position. Hungary has made considerable progress to put its public finances on a sounder footing and needs to sustain this effort to secure investor confidence. Similarly, in Bulgaria and Estonia, the fiscal policy stance is appropriately geared towards diminishing macro-economic imbalances.

"We are going through a very serious crisis that is taking its toll on public finances. Fortunately, many countries have entered the crisis with public finances in a solid position, allowing them to the respond to the European Council's call for stimulus measures in 2009. Implemented swiftly and effectively, these measures should help to create, together with the bank rescue plans and the significant easing of monetary policy, the conditions for a gradual recovery in the second half of the year. If in 2010, as we believe, economic activity gathers momentum, fiscal policy needs to revert to a consolidation path. This is also important for Member States which are in a relatively favourable position in order to avoid a permanent deterioration in the sustainability of their public finances. In this context it is important that the Stability and Growth Pact remains the framework within which the Commission and the Council advices Member States on their conduct of fiscal policy ", said Economic and Monetary Affairs Commissioner Joaquín Almunia.

THE CZECH REPUBLIC 
Starting from relatively low government deficit and debt levels, the programme targets a general government deficit of 1.6% and 1.5% of GDP in 2009 and 2010 respectively, based on favourable growth assumptions.

Against the background of the recent improvement in public finances, the Czech Republic adopted a sizeable fiscal stimulus package. This package is in line with the EU Recovery Plan, in being timely and well-target to sectors of the economy likely to be most severely affected by the slowdown. It will be important to reverse them once economic conditions improve.

While pension and health care reforms have been introduced that will reduce expenditure, concerns remain regarding long term fiscal sustainability due to a rapidly ageing population.

In view of the Commission assessment, and also given the need to ensure sustainable convergence, the Czech Republic is invited to: (i) implement the measures in line with the EERP as planned.; (ii) reverse the adverse budgetary impact of the fiscal stimulus once the economy recovers and back-up the budgetary strategy with specific measures for reducing expenditure in 2010-2011 and (iii) continue with the necessary pension and health care reforms, given the projected increase in age-related expenditures, in order to improve the long-term sustainability of public finances.