Speech Almunia over de EU-bewaking van de nationale begrotingen van de nieuwe EU-lidstaten (en)

Joaquín Almunia

Member of the European Commission responsible for Economic and Financial Affairs

Press conference, Breydel Press Room,

Ladies and Gentlemen,

Good afternoon. The 1st of May marked the historic enlargement of the Union to 25 Member States. For all new Member States this also marked the beginning of the process to join our single currency the euro. Economic and budgetary policies will remain a national competence but all member states have to coordinate their policies in order to ensure the smooth functioning of the Internal Market and the attainment of our economic policy objectives like the Lisbon agenda.

In that context all new Member States decided already a year ago to integrate voluntarily into the budgetary surveillance framework. In addition to the submission of the Pre-accession Economic Programmes, they agreed to submit all public finance data in line with European standards already last March. And to submit immediately upon accession convergence programmes so as to allow budgetary surveillance to start. In a way the voluntary co-operation that the Commission, the Council and the Economic and Financial Committee had over the last three years created a very solid basis for starting the surveillance exercise today.

For the countries with a deficit of more than 3% of GDP in 2003, the Commission adopted today a report. There are therefore reports for Cyprus, the Czech Republic, Hungary, Malta, Poland and Slovakia. Three of the other new Member States had a deficit below 3% and Estonia had a surplus, so no reports have been prepared for these countries.

I suppose this procedure sounds very familiar to you, here in Brussels that have been following budgetary developments in Germany and France over the last couple of years. But I would like to highlight two points that distinguish the situation of the new Member States as regards the excessive deficit procedure:

First, according to the Stability and Growth Pact, an excessive deficit should be corrected in the year following its identification unless there are "special circumstances". These special circumstances will have to be examined on a case by case basis, but, for example, the high level of the deficit upon accession and the structural shifts in the economy following accession could be a relevant factor. Indeed, as already indicated in our recommendation for the 2004 Broad Economic Policy Guidelines it could be appropriate to allow for a multi-annual adjustment period when correcting a deficit of more than 3%.

Second, the new Member States are not participating in the euro area. This means that they cannot be submitted to the last two steps of the excessive deficit procedure, namely 'enhanced budgetary surveillance' by the Council and ultimately sanctions.

I would not like to enter into details for each country here but it is possible to draw the following general conclusions:

First, as mentioned above, all six countries recorded a deficit above 3% of GDP in 2003, ranging from 3.6% of GDP in Slovakia to almost 13% in the Czech Republic.

Second, compared to 2002, the deficit widened in all countries except Hungary and Slovakia.

Third, while in some cases weak economic growth is partly to blame for the excess of the deficit over the 3% of GDP reference value, the excess did not result, in any of the six countries, from a "severe economic downturn" in the sense of the Stability and Growth Pact. Also, unusual events outside the control of the authorities cannot be held responsible for exceeding the 3% threshold.

Fourth, in each country, the deficit is expected to remain above 3% of GDP in 2004, both according to the Commission and the respective authorities' forecasts.

Looking forward, the Commission expects all countries to include in their convergence programmes, which we are receiving this week, a time-frame for correcting the excessive deficit situations. And we expect these time-frames to be realistic and in line with their ambitions to join the euro area over the medium term. The Commission will analyse policies on a case by case basis and make appropriate recommendations to the Council on the 23rd of June.

Compliance with the budgetary consolidation commitments and with the recommendations included in the Broad Economic Policy Guidelines, will mark the convergence path of the new Member States over the next few years. Together with ERM II membership at the appropriate moment, this path will lead them to euro membership.