Ladies and gentlemen,
Let me start by saying a few words about our Spring Forecast. Growth in the euro area is expected to accelerate from 0.4% in 2003 to 1.7% in 2004 and 2.3% in 2005. For the EU 15 growth rates are marginally higher at 2.0% for 2004 and 2.4% for 2005. Growth is supported by external demand, accommodative macroeconomic policy conditions and supportive financial conditions. In some countries there is a positive effect from the progress in structural reforms.
The economies of the acceding countries have done better growing at a robust 3½% rate in 2003. In 2004-2005, average growth is expected to accelerate to around 4%. The new Member States enjoy particularly strong private consumption and export growth. They should continue to receive a growth stimulus from accession, lower interest rates, the flow of EU funds and market integration.
All in all however, although prospects for the world economy are more favourable than foreseen in our Autumn Forecast of last year, we have to acknowledge the hard truth that the EU economy is not participating fully in the positive global economic performance.
Against this background the Commission renewed its commitment to the economic strategy set out in the Broad Economic Policy Guidelines and the Employment Guidelines. And we reached once again the conclusion that the problem is not the strategy but the implementation. Or to be more precise- the inadequate implementation of this strategy by member states.
Let me state here clearly today, in my last press conference as Commissioner of Economic and Monetary Affairs, that after almost 5 years I am still as convinced as ever that the core of our economic strategy is sound. And the way I see this strategy that: (i) There cannot be more sustainable growth without sound public finances and (ii) There cannot be more growth without structural reforms.
These are the principles that have led us to the creation of the our single currency the euro. I have been extremely happy to be part of this historic process. But I also know that our currency is young and we have to stick to our principles in order to help it grow-up and become a stable reference in the world economy. We could improve the implementation of rules. We should improve our economic governance. But we should certainly stick to our Economic and Monetary Union principles if we are to be successful.
I have been identified over the past few years with the rigour of the Stability and Growth Pact. I am happy for that as I believe that sound public finances are necessary. Not sufficient but necessary. I also believe that we should not live at the expense of future generations particularly in front of the demographic situation that we are facing in Europe. Therefore member states should not run high deficits because somebody would have to pay them back later on. European governments should not accumulate high public debts because this is not fair for our children. It is as simple as that.
I am happy to see that despite what I read frequently in the press, European leaders and Finance Ministers continue to reaffirm these principles again and again in the various summits. There are short term problems that we all know, there are declarations from time to time, but when it comes to putting things on paper they all agree that this are the right principles on which our single currency is based. The new Constitution will reaffirm these principles and I hope this will convince those of you that are still sceptical.
Above all I am particularly happy that this Commission has throughout the last five year shared these principles. All decisions that we took on budgetary surveillance have been consensual.
Today, in front of the new Spring Forecast, our commitment requires to consider action. At the start of the year the Commission set out a strategy for economic policy co-ordination and surveillance in the aftermath of the 25 November Ecofin Council conclusions. In particular we committed to continue to exercise fully our role in budgetary surveillance as required by the Treaty and the Stability and Growth Pact. We also aggred to make carefull case- by case assessments taking the economic cycle into account and to pay more attention to public debt during our budgetary surveillance.
We have done this during the last few months when assessing the stability and convergence programmes. And we decided to do the same with the cases we analysed today. We did not take a package approach. Each case is different.
Let me start with a comment for the member states that are already in excessive deficit procedure.
In Germany there are signs of improvement in the budgetary situation compared to our Autumn forecast. There are still risks for 2005 but it looks as Germany is on the road to complying with the November Ecofin recommendations. Moreover, the declaration of the government that it stands ready to take additional measures next year, if necessary, provide additional comfort.
The budgetary situation in France does not give yet grounds for revising our forecasts for the better. There is still a risk that the French government might fail to achieve its consolidation commitments. At this stage no initiative seems to be necessary on our part. The new French finance minister confirmed at the informal ECOFIN Council last week that the French government is committed to bringing the deficit below 3% of GDP next year and this is a welcome development.
Finally Portugal seems on the way out. The deficit has been kept under 3% of GDP in both 2002 and 2003. Portugal has therefore complied with the excessive deficit recommendation addressed to it in 2002. The Commission has decided today to start preparing the decision for the abrogation of excessive deficit. The situation of public finances, however, remains fragile. But the Portuguese Finance Minister has confirmed last week-end the government's commitment to take all necessary measures to avoid the re-occurrence of an excessive deficit in 2004.
Let me now say a few words about the Netherlands where the budgetary situation has deteriorated beyond expectations last year, reflecting the sharpest downturn in the economy in more than twenty years. According to the latest data the budget deficit exceeded 3% of GDP in 2003. Under these circumstances, the Commission is required to prepare a report on the existence of an excessive deficit under Article 104(3) of the Treaty. Minister Zalm has informed the Dutch Parlaiment and the Eurogroup last week that he is already preparing the necessary package of measures in order to correct the situation. It is in everybody's interest to adopt the necessary decisions as soon as possible.
In the UK the latest estimates show a budget deficit above 3.0% for 2003 in calendar and financial year basis. The Commission has therefore to prepare a report on the existence of an excessive deficit under Article 104(3) of the Treaty. The deficit however is expected to return to below the 3% of GDP threshold already this year according to our forecasts both in calendar and financial year basis. This would give margin to conclude that the deficit is temporary and therefore bring the procedure to an end.
Finally the cases of Italy and Greece, the member states with the highest public debt to GDP ratio in the Union.
In Italy, the budgetary situation is clearly deteriorating as the government is running out of one-off measures to bridge the gap between revenues and expenditure. In 2003 receipts from one-offs, in particular from a tax amnesty, reached a record level of slightly more than 2% of GDP. In 2004 one-offs are planned to yield slightly more than 1% of GDP. In the absence of further measures, the deficit is foreseen to deteriorate by almost 1% of GDP in both nominal and cyclically-adjusted terms exceeding for the first time the 3% of GDP threshold. In a medium-term perspective the Italian situation looks even more worrying: the bonus on interest payments from joining the euro, which is now coming to an end, has masked the steady deterioration in the primary surplus now at its lowest levels since the early 90s. The projected standstill in the reduction of the debt, which at 106% of GDP is the highest in the euro area in both relative and absolute terms, adds to the dangers of the situation. The situation requires an early-warning recommendation with a view to inducing an immediate change in policy and preventing the occurrence of an excessive deficit.
In Greece, the deterioration of the budgetary situation occurs in an economy that enjoys one of the fastest, if not the fastest, GDP growth in the euro area. The structural deficit was already deteriorating in our last year's forecasts. But the new Greek government undertook an audit of public accounts that has revealed a more worrying picture. They have now communicated an upwards revision of the 2003 deficit to 3% of GDP. They have still to provide the underlying data. Eurostat has often called the attention on the Greek public finance figures and this would be the second revision in two years. A Eurostat mission will be shortly dispatched to Athens to report on the situation. Based on the findings the Commission will have to decide on the appropriate procedures to follow.
Let me now say a few words about the second pillar of our economic strategy: reforms. I have probably been less successful in convincing all of you how strong an advocate I am of reforms. Pension reforms, labour market reforms, internal market reforms. In a way reforms are more important for Europe at the current juncture.
Personally, I don't like the term structural reforms as it gives the impression that this is something done once and for all. In fact the opposite is true. What we need in Europe is a continous modernisation of our economies. A continous adaptation to the challenges of globalisation, to the needs of our citizens. Modernisation is a permanent feature of economic life and we should convince our citizens about that. Reforms are not made in order to endanger our social acquis. They are made in order to create more growth and more jobs; in fact better jobs. They are made in order to allow Europe to be at par if not ahead of other developed areas in the world in economic terms. In order to create more wealth. In order to make sure that we can play our role in helping out the developing countries.
We are all concerned about the low growth in the euro area. But in the Commission's view the road to growth goes through difficult decisions on structural reforms and not through short term measures that pretend to stimulate demand. Certainly not policies that deteriorate our public finances and create debts for future generations.
And this is my message to new acceding member states for which we have adopted Broad Economic Policy Guideline recommendations for the first time today. The road to the euro and to more growth and jobs goes through:
- growth- and stability oriented macroeconomic policies;
- economic reforms to raise their growth potential; and
- policies that strengthen sustainability.
Thank you for your attention. And thank you for your support and fairness in putting out the European case to your readers throughout the last five years.