Public finances in EMU - 2007(6 MB)
(European Economy. 3. June 2007.
Luxembourg. 330pp. Tab. )
KC-AR-07-003-EN-C ISBN: 978-92-79-04948-4 ISSN: 0379-0991
Compared to a couple of years ago, the overall conditions of public finances have improved significantly in 2006 in both the euro area and the EU as a whole. This year the Public Finances in EMU report focuses on ways to keep up the momentum of fiscal adjustment so as to make rapid progress towards the achievement of sustainable fiscal positions.
The current situation supports the conclusion that following the reform of the Stability and Growth Pact (SGP) in 2005, the corrective arm of the Pact has re-gained credibility. Countries with an excessive deficit have made substantial progress and based on current plans, all but two of these countries will have brought the deficit below the 3% of GDP threshold of the Treaty by the end of 2008. However, concerns remain as to whether the positive momentum of fiscal adjustment is maintained beyond the correction of excessive deficits so as to prepare for the impending budgetary impact of ageing populations.
In 2006, the better-than-expected budgetary outturn in the euro area and the EU as a whole was primarily driven by important positive surprises in tax revenues, a part of which is likely to be temporary. In some countries these windfalls were used to finance higher-than-planned expenditure and some Member States are planning to take advantage of higher-than-expected revenues to cut taxes. Overall, the budgetary plans of countries currently not in excessive deficit and those relating to the period after the correction of an excessive deficit are not particularly ambitious and not in line with the requirements of the Pact.
Against this background, the main challenge in the coming years is to ensure a better operation of the preventive arm of the SGP. In particular, the objective is to fully take advantage of currently economic good times to accelerate the convergence towards sustainable fiscal positions. This year's report reviews and examines a number of areas where progress may help achieve this objective.