Regarding Hungary, the budgetary stance in its updated programme seems broadly consistent with a durable correction of the excessive deficit by 2009. But for this to happen, the government needs to implement the planned budgetary measures and structural reforms fully and effectively. Hungary is at high risk with regard to the long-term sustainability of its public finances, while the United Kingdom is at medium risk and Sweden at low risk[2].
“The three convergence programmes examined today show how diverse Member States' fiscal policy challenges and responses are. Sweden expects to run a budget in surplus throughout the programme period, already has low and rapidly declining debt, and is at low risk with regard to the long-term sustainability of its public finances. In the UK, the budgetary situation is expected to deteriorate significantly in the present fiscal year and the projections for the following years appear rather optimistic considering that it is facing a less favourable economic situation. Consequently, the UK should aim to substantially improve its budgetary position and significantly strengthen the pace of fiscal consolidation throughout the programme period. Hungary must take adequate action to ensure the correction of the excessive deficit as planned, where necessary through additional measures. Reinforcing fiscal governance and completing the structural reforms which are essential to improve the long-term sustainability of public finances are crucial in moving towards lasting convergence”, said Economic and Monetary Affairs Commissioner Joaquín Almunia.

Today the Commission has assessed the updated Convergence Programmes of Hungary, Sweden and the United Kingdom. It also assessed the Stability Programmes of Finland, Germany, Luxembourg and the Netherlands (see IP/08/75). On 30 January it will examine a second group of programmes. All the programmes are expected to be then discussed at the 12 February EU Finance Ministers Council. The remaining programmes will be assessed by the Commission in February.

HUNGARY

Hungary submitted a new update of its convergence programme on 30 November 2007, covering the period 2007-2011.

The programme plans to continue the correction of the high deficits of the past years through a frontloaded adjustment effort. (See tables attached for growth and budgetary projections of Hungary and the other countries concerned).

Thanks to the consolidation measures and structural reforms, Hungary is set to considerably outperform its 6.8% of GDP deficit target for 2007. It also improves the target for 2008 to 4% of GDP compared to the previous programme which, in view of the better-than-expected outcome in 2007, is both feasible and desirable. However, the lower deficit targets are combined with higher-than-previously-planned expenditures on the back of better-than-expected revenues, which cannot be counted on after 2008. Moreover, from 2009 the achievement of the budgetary targets is subject to increasing risks, linked mainly to possible expenditure overruns if the wide-ranging reform agenda is not fully carried out. Ensuring the adjustment is durable requires a strengthening of fiscal governance and the completion of structural reforms. This is also crucial in order to improve the long-term sustainability of public finances, for which Hungary remains at high risk, and to move towards lasting convergence.

In view of the Commission assessment and of the recommendation under Article 104(7) of 10 October 2006[3] and given the need to ensure sustainable convergence, the Council should invite Hungary to: (i) rigorously implement the 2008 budget, take adequate action to ensure the correction of the excessive deficit by 2009 as planned; where necessary through additional measures; and allocate the better-than-expected revenues to further deficit reduction, also given the insufficient margin in 2009 in view of the risks, thereby also contributing to accelerating the pace of debt reduction towards the 60% of GDP threshold; (ii) ensure permanent expenditure moderation by continuing to enhance fiscal rules and institutions and by adopting and swiftly implementing the remaining streamlining measures announced in the fields of public administration, healthcare, and the education system; (iii) in view of the level of debt and the increase in age-related expenditure, improve the long-term sustainability of public finances by making adequate progress towards the MTO, and continue to reform the pension system as announced after the initial steps taken in 2006-2007.

SWEDEN

Sweden submitted a new update of its convergence programme on 27 November 2007, covering the period 2007-2010.

Sweden is expected to have recorded a general government surplus of 3% in 2007, which is above its objective for the medium-term of +1%. While the planned fiscal stance in 2008 might be mildly pro-cyclical given the good economic times enjoyed by Sweden, this is linked to continued structural reforms aimed at encouraging labour force participation, which would increase the growth potential. In the last two years of the programme the government surplus is expected to be again above 3%.

Sweden also has a debt level of well below 60% and decreasing and the long-term sustainability of its public finances is considered to be at low risk on account of the pension reform adopted in the past.

No formal recommendations are required.

UNITED KINGDOM

The United Kingdom submitted a new update of its convergence programme on 30 November 2007, covering the period 2007/08-2012/13[4].

The programme confirms a significant deterioration in the United Kingdom’s budgetary position that, coupled with a probably weaker macroeconomic context than envisaged, carries a very substantial risk of breaching the 3% of GDP deficit reference value in the near term. While the programme envisages some modest fiscal tightening from 2008/09 through a progressive increase in the tax burden and a reduction in the previously rapid growth in current expenditure, there are risks to this scenario. These stem primarily from the deterioration in macroeconomic prospects, uncertainties concerning the government's ability to meet its spending targets, and the assumption by the government of substantial and accumulating contingent liabilities in the financial sector.

From a position of less than 40% in the fiscal year 2004/5, the debt ratio is expected to increase to more than 45% by 2009/10, only stabilising in the following years. In view of this the long-term sustainability of the UK public finances has deteriorated somewhat but remains at medium risk.

In view of the Commission assessment, the Council should invite the United Kingdom to: (i) implement measures to substantially improve the budgetary position in the near term, especially in 2008/09; and (ii) strengthen the pace of fiscal consolidation throughout the programme period, which would also address the increased risks to the long-term sustainability of its public finances. The United Kingdom is again invited to improve compliance with the data requirements of the code of conduct.- Source: By European Union