EC sends signal on Bulgaria's deficit

EC sends signal on Bulgaria's deficit

The European Commission (EC) said on May 12 2010 that it had adopted reports under the corrective arm of the Stability and Growth Pact for Bulgaria, Cyprus, Denmark, Finland and Luxembourg.Taking due account of the most recent economic outlook and all other relevant factors, the reports examine whether the general government deficit remains close to the three per cent of GDP reference value and whether the excess is exceptional and temporary.The EC said that it had concluded that only in the case of Luxembourg had all these three conditions been fulfilled."The economic and financial crisis has put public finances in the EU under strain. As a result, a vast majority of member states currently have a general government deficit in excess of three per cent of GDP," the EC said."The Commission services' spring 2010 forecast shows that the recovery is underway in the EU, although it is set to be a gradual one. Our attention should therefore turn to returning sustainable public finances as soon as possible."European Economic and Monetary Affairs Commissioner Olli Rehn.said that a "rigorous application" of the Stability and Growth Pact was the best way to assure financial markets that the reduction of deficit and debt levels will be conducted properly and timely".The Stability and Growth Pact requires the EC to prepare a report whenever the actual or planned deficit of an EU member states exceeds the three per cent reference value.According to EU rules, after the economic and financial committee and then the EC decide whether an excessive deficit exists in an EU member state, the EC sends a recommendation to the European Council, including a proposed deadline for the country with an excessive deficit to correct it.BulgariaThe data reported by the Bulgarian authorities in the April 2010 EDP notification show that the general government deficit in Bulgaria reached 3.9 per cent of GDP in 2009, the EC said.The excess over the three per cent of GDP reference value can be qualified as exceptional, as it results from a severe economic downturn, according to the EC."According to the spring forecast, the deficit is temporary as the deficit forecast is below three per cent of GDP this year, although considerable uncertainties prevail as to the outcome."However, since the deficit cannot be considered close to the reference value, the Commission concluded that the deficit criterion in the Treaty is not fulfilled," the EC said.CyprusIn the April 2010 EDP notification, the Cypriot authorities notified a general government deficit of 6.1 per cent of GDP in 2009, while the general government gross debt stood at 56.2 per cent of GDP on a rising trend.Resulting from a severe economic downturn, the Commission said that it considered the excess over the three per cent to be exceptional.Clearly above the three per cent, the deficit cannot be considered close to the reference value.The spring forecast shows the breach is not temporary, the EC said."The Commission therefore concluded that the deficit criterion in the Treaty is not fulfilled. As the government debt ratio is forecast to exceed the 60 per cent of GDP reference value in 2010 according to both the stability programme and the spring forecast, the Commission concluded that the debt criterion in the Treaty is not fulfilled either."DenmarkThe Danish authorities reported a planned general government deficit of 5.4 per cent of GDP for 2010 in the April 2010 EDP notification, the EC said. The planned excess over the reference value is exceptional as it results from a severe economic downturn, the Commission said.Clearly above the three percent, the deficit cannot be considered close to the reference value. The planned deficit is not temporary, as is evidenced by the spring forecast. The Commission therefore concluded that the deficit criterion in the Treaty is not fulfilled.FinlandThe Finnish authorities reported a planned general government deficit of 4.1 per cent of GDP for 2010 in the April 2010 EDP notification.The planned excess over the reference value is exceptional, resulting from a severe economic downturn.The planned deficit is temporary, as the spring forecast projects the deficit to diminish to 2.9 per cent of GDP under a no policy change assumption, narrowly below the reference value.However, at 4.1 per cent of GDP, the planned deficit cannot be considered close to the reference value. The Commission therefore concluded that the deficit criterion in the Treaty is not fulfilled.LuxembourgAccording to the April 2010 EDP notification, the general government deficit in Luxembourg is planned to reach 4.2 per cent of GDP in 2010.The excess is considered to be exceptional, as it results from the effects of the economic downturn."However...the Commission spring forecast is only 3.5 per cent, which can be considered close. Furthermore, as result of the policy decision taken after the spring forecast deficit in 2010 can be considered temporary. The Commission therefore concluded that the deficit criterion in the Treaty is fulfilled."

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