Council Decision of 4 December 2012 amending Decision 2011/734/EU addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit (2013/6/EU)

Council Decision

of 4 December 2012

amending Decision 2011/734/EU addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit

(2013/6/EU)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 126(9) and Article 136 thereof,

Having regard to the recommendation from the European Commission,

Whereas:

(1) Article 136(1)(a) of the Treaty on the Functioning of the European Union (TFEU) provides for the possibility of adopting measures specific to the Member States whose currency is the euro with a view to strengthening the coordination and surveillance of their budgetary discipline.

(2) Article 126 TFEU establishes that Member States are to avoid excessive government deficits and sets out the excessive deficit procedure to that effect. The Stability and Growth Pact, which in its corrective arm implements the excessive deficit procedure, provides the framework supporting government policies for a prompt return to sound budgetary positions taking account of the economic situation.

(3) On 27 April 2009, the Council decided, in accordance with Article 104(6) of the Treaty establishing the European Community, that an excessive deficit existed in Greece.

(4) On 10 May 2010, the Council adopted Decision 2010/320/EU(1) addressed to Greece under Article 126(9) and Article 136 TFEU with a view to reinforcing and deepening Greece’s fiscal surveillance and giving it notice to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit at the latest by 2014. The Council also set annual targets for the government deficit.

(5) Decision 2010/320/EU was substantially amended several times. Since further amendments were to be made, it was recast, in the interest of clarity, on 12 July 2011, by Council Decision 2011/734/EU(2). This decision was amended for the first time on 8 November 2011(3).

(6) On 13 March 2012(4), following a recommendation from the Commission, Decision 2011/734/EU was again amended in a number of respects, including the fiscal adjustment path, while the deadline for remedying the excessive deficit was kept unchanged. That Decision confirmed the recommendation that Greece would have to take measures to correct the situation of excessive deficit by 2014 at the latest, by ensuring an improvement in the structural balance of at least 10 percentage points of GDP over the 2009-2014 period.

(7) In accordance with Article 5(2) of Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure(5), if effective action has been taken in compliance with Article 126(9) TFEU and unexpected adverse economic events with major unfavourable consequences for government finances occur after the adoption of that notice, the Council may decide, on a recommendation from the Commission, to adopt a revised notice under Article 126(9) TFEU.

(8) Economic activity is currently projected to be much weaker than what was expected when the latest amendment to Decision 2011/734/EU was adopted in March 2012. Both real and nominal GDP are expected to be at much lower levels in 2012 and 2013. The recent revision of the Greek national accounts in October 2012 revealed a steeper contraction of real GDP, as compared to the underlying figures in Decision 2011/734/EU. According to the Commission services’ 2012 Autumn Forecast, real GDP is projected to contract in 2012 by 6,0 % and by a further 4,2 % in 2013 (against a contraction of 4,7 % and a stagnation at 0,0 % in Decision 2011/734/EU, for 2012 and 2013, respectively), before growing by 0,6 % in 2014. This marked worsening of the economic scenario implies a corresponding deterioration of the outlook for public finances given unchanged policies.

(9) In 2012, the general government deficit is expected to have reached 6,9 % of GDP, well within the ceiling of a government deficit (based on the European System of Accounts 1995, set up by Regulation (EC) No 2223/96(6)) of 7,3 % of GDP for 2012 established by Decision 2011/734/EU. In nominal terms, the 2012 general government deficit is expected to have reached EUR 13,4 billion, compared with a EUR 14,8 billion deficit ceiling prescribed in Decision 2011/734/EU. The primary deficit, however, is expected to be slightly higher than the targeted 1,0 % of GDP, largely because of the deeper-than-expected recession. Greece is estimated to have improved its structural deficit by 13,4 percentage points of GDP from a 14,7 % deficit in 2009 to an estimated 1,3 % deficit in 2012. Greece has thus ensured an improvement in the structural balance in the 2009-2012 period which is already larger than the at least 10 percentage points of GDP over the 2009-2014 period recommended by the Council. On 11 November 2012, the budget for 2013 was adopted by the Greek Parliament that is expected to bring savings of more than EUR 9,2 billion, over 5 % of GDP. The 2013 budget forms part of the 2013-2016 medium-term fiscal strategy (‘MTFS’) that was adopted by the Greek Parliament a few days earlier on 7 November 2012. The MTFS and the relevant legislation to implement it set out a very sizeable and front-loaded fiscal consolidation amounting to over 7 % of GDP by 2016, with a comprehensive set of structural measures underlying a substantial fiscal consolidation. Taking into account these developments, the policy conditionality in the Memorandum of Understanding on the economic adjustment programme of Greece needs to be updated. The commitment undertaken by Greece concerns not only the fiscal consolidation measures, but also those measures needed to enhance growth and to minimise any negative social impact. Overall, therefore, Greece has taken effective action in 2012 to reduce its deficit in compliance with Decision 2011/734/EU.

(10) The general government consolidated debt was expected in the Commission Autumn 2012 forecast to decline by EUR 11,1 billion in 2012, against EUR 26,95 billion set in Decision 2011/734/EU. This is due to lower-than-expected privatisation receipts, a lower-than-expected consolidation of government debt and worse-than-expected cash-accruals and other interest adjustments. Owing to a lower nominal GDP following the statistical data revision and in light of worse macroeconomic prospects, the debt-to-GDP ratio would rise to 176,7 %, before agreed initiatives by Member States whose currency is the euro and certain debt-reducing measures considered by Greece are implemented in December 2012, which would reduce the debt to slightly above 160 % of GDP by the end of 2012. These measures should improve the sustainability of debt, and certain debt-reducing measures considered by Greece should improve the sustainability of the debt trajectory, without altering the fiscal path for the primary surplus. Taking also into account a narrowing of the budget deficit and stronger nominal GDP growth resulting from structural policy measures, the debt-to-GDP ratio is expected to peak in 2013. The debt-to-GDP ratio would start declining from 2014 onwards to reach below 160 % of GDP in 2016.

(11) Despite the effective action undertaken, the marked worsening of the economic scenario implies a corresponding deterioration of the outlook for public finances given unchanged policies and makes it difficult to complete the correction of the excessive deficit by 2014, as requested by the Council in Decision 2011/734/EU. Given the adverse economic events, an extension of the deadline for the adjustment period is warranted. In particular, the deadline that was set in the Council Decision needs to be extended by two years to 2016. Under a revised Economic Adjustment Programme path, the primary balance targets should be set at 0 %, 1,5 %, 3 % and 4,5 % of GDP respectively for the 2013-2016 period. The revised path means that the general government budget deficit will fall below 3 % of GDP in 2016. The debt-reducing measures to be implemented in December 2012 could reduce interest payments by up to 1 % of GDP, making it possible to bring the budget deficit below 3 % of GDP already in 2015. These numbers could be estimated to translate into an improvement in the cyclically-adjusted primary balance to GDP ratio from 4,1 % in 2012 to 6,2 % in 2013 and at least 6,4 % of GDP in 2014, 2015 and 2016 and into a cyclically-adjusted government deficit to GDP ratio at – 1,3 % in 2012, 0,7 % in 2013, 0,4 % in 2014, 0,0 % in 2015 and – 0,4 % in 2016, reflecting the original profile of interest payments. Notwithstanding the extension of the deadline for remedying the excessive deficit, however, the fiscal effort needed to achieve the target remains very large in 2013-2014, and heavily frontloaded. This revision of the deadline will therefore maintain the credibility of the economic adjustment programme, while considering the economic and social impact of the consolidation and the need to maintain confidence in the capacity of the Greek Government to address the fiscal challenge.

(12) Each measure required by this Decision is instrumental in achieving the required budgetary adjustment. Some measures have a direct impact on the budgetary situation of Greece, while the others are structural measures that will result in improved fiscal governance and a sounder budgetary situation in the medium term.

(13) The very severe deterioration of the financial situation of the Greek Government has led the Member States whose currency is the euro to decide to provide stability support to Greece, with a view to safeguarding the financial stability of the euro area as a whole, in conjunction with multilateral assistance provided by the International Monetary Fund. Since March 2012, support provided by the Member States whose currency is the euro takes the form of both a bilateral Greek loan facility and a loan from the European Financial Stability Facility. The lenders have decided that their support shall be conditional on Greece complying with Decision 2011/734/EU, as amended by this Decision. In particular, Greece is expected to carry out the measures specified in this Decision in accordance with the calendar set out herein,

HAS ADOPTED THIS DECISION:

(1)

OJ L 145, 11.6.2010, p. 6.

(2)

OJ L 296, 15.11.2011, p. 38.

(3)

Council Decision 2011/791/EU (OJ L 320, 3.12.2011, p. 28).

(4)

Council Decision 2012/211/EU (OJ L 113, 25.4.2012, p. 8).

(5)

OJ L 209, 2.8.1997, p. 6.

(6)

Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (OJ L 310, 30.11.1996, p. 1).