The Stability and Growth Pact

Author:Secretariat General
Profession:Council of the European Union
Pages:99-158
SUMMARY

Resolution of the European Council on the Stability and Growth Pact Amsterdam, 17 June 1997 -The Member States- The Commission- The Council- Declaration by the Council (Ecofin) and the ministers meeting in that Council issued on 1 May 1998 - European Council Brussels 22 and 23 March 2005 Presidency conclusions (extract)- I. Stability and Growth Pact- Annex II: Improving the implementation of the Stability and Growth Pact - Council Report to the European Council - 1. Improving governance- 1.1. Cooperation and communication- 1.2. Improving peer support and applying peer pressure- 1.3. Complementary national budgetary rules and institutions- 1.4. A stability programme for the legislature- 1.5. Involvement of national Parliaments- 1.6. Reliable macroeconomic forecasts- 1.7. Statistical governance- 2. Strengthening the preventive arm- 2.1. Definition of the medium-term budgetary objective- 2.2. Adjustment path to the medium-term objective- 2.3. Taking structural reforms into account- 3. Improving the implementation of the excessive deficit procedure- 3.1. Preparing a Commission report under Article 104(3)- 3.2. An 'exceptional and temporary' excess of the deficit over the reference value- 3.3. 'All other relevant factors'- 3.4. Taking into account systemic pension reforms- 3.5. Increasing the focus on debt and sustainability- 3.6. Extending deadlines for taking eective action and measures- 3.7.Initial deadline for correcting the excessive deficit- 3.8. Revising the deadlines for correcting the deficit- Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community - Section 1 Definitions- Article 1- Article 2- Article 3- Section 2 Rules and Coverage of Reporting- Article 4- Article 5- Article 6- Article 7- Article 8- Section 2a Quality of Data- Article 8a- Article 8b- Article 8c- Article 8d- Article 8e- Article 8f- Section 2b Provision of Data by the Commission- Article 8g- Article 8h- Section 2c General Provisions- Article 8i- Article 8j- Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies - Section 1 Purpose and Definitions- Article 1- Article 2- Section Ia Medium-Term Budgetary Objectives- Article 2a- Section 2 Stability Programmes- Article 3- Article 4- Article 5- Article 6- Section 3 Convergence Programmes- Article 7- Article 8- Article 9- Article 10- Section 4 Common Provisions- Article 11- Article 12- Article 13- Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure- Section 1 Definitions and Assessments- Article 1- Article 2- Section 2 Speeding up the Excessive Deficit Procedure- Article 3- Article 4- Article 5- Article 6- Article 7- Article 8- Section 3 Abeyance and Monitoring- Article 9- Article 10- Section 4 Sanctions- Article 11- Article 12- Article 13- Article 14- Article is- Article 16- Section 5 Transitional and Final Provisions- Article 17- Article 18- Annex: Time Limits Applicable to the United Kingdom

 
CONTENT

Resolution of the European Council on the Stability and Growth Pact Amsterdam, 17 June 1997

I. Meeting5 in Madrid in December 1995, the European Council conrmed the crucial importance of securing budgetary discipline in Stage III of economic and monetary union (EMU). In Florence, six months later, the European Council reiterated this view and in Dublin, in December 1996, it reached an agreement on the main elements of the Stability and Growth Pact. In Stage III of EMU, Member States shall avoid excessive general government decits: this is a clear Treaty obligation 6.The European Council underlines the import ance of safeguarding sound government nances as a means to strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. It is also necessary to ensure that national budgetary policies support stability-oriented monetary policies. Adherence to the object ive of sound budgetary positions close to balance or in surplus will allow all Member States to deal with normal cyclical fluctuations while keeping the gov ernment decit within the reference value of 3 % of GDP.

II. Meeting in Dublin in December 1996, the European Council requested the preparation of a Stability and Growth Pact to be achieved in accordance with the principles and procedures of the Treaty. This Stability and Growth Pact in no way changes the requirements for participation in Stage III of EMU, either in the rst group or at a later date. Member States remain responsible for their national budgetary policies, subject to the provisions of the Treaty; they will take the necessary measures in order to meet their responsibilities in accord ance with those provisions.

III. The Stability and Growth Pact, which provides both for prevention and deterrence, consists of this Resolution and two Council Regulations, one on the strengthening of the surveillance of budgetary positions and the surveil lance and coordination of economic policies and another on speeding up and clarifying the implementation of the excessive decit procedure.

IV. The European Council solemnly invites all parties, namely the Member States, the Council of the European Union and the Commission of the European Communities, to implement the Treaty and the Stability and Growth Pact in a strict and timely manner. This Resolution provides rm political guidance to the parties who will implement the Stability and Growth Pact. To this end, the European Council has agreed upon the following guidelines.

The Member States

1. commit themselves to respect the medium-term budgetary objective of positions close to balance or in surplus set out in their stability or convergence programmes and to take the corrective budgetary action they deem necessary to meet the objectives of their stability or convergence programmes, when ever they have information indicating actual or expected signicant divergence from those objectives;

2. are invited to make public, on their own initiative, the Council recommendations made to them in accordance with Article 103(4);

3. commit themselves to take the corrective budgetary action they deem nec essary to meet the objectives of their stability or convergence programmes once they receive an early warning in the form of a Council recommendation issued under Article 103(4);

4. will launch the corrective budgetary adjustments they deem necessary without delay on receiving information indicating the risk of an excessive decit;

5. will correct excessive decits as quickly as possible after their emergence; this correction should be completed no later than the year following the identication of the excessive decit, unless there are special circumstances;

6. are invited to make public, on their own initiative, recommendations madein accordance with Article 1O4c(7);

7. commit themselves not to invoke the benet of Article 2 (3) of the Council Regulation on speeding up and clarifying the excessive decit procedure unless they are in severe recession; in evaluating whether the economic downturn is severe, the Member States will, as a rule, take as a reference point an annual fall in real GDP of at least 0.75 %.

The Commission

1. will exercise its right of initiative under the Treaty in a manner that facilit ates the strict, timely and eective functioning of the Stability and Growth Pact;

2. will present, without delay, the necessary reports, opinions and recommenda tions to enable the Council to adopt decisions under Article 103 and Art icle 104c; this will facilitate the eective functioning of the early warning system and the rapid launch and strict application of the excessive decit procedure;

3. commits itself to prepare a report under Article iO4c(3) whenever there is the risk of an excessive decit or whenever the planned or actual government decit exceeds the reference value of 3 % of GDP, thereby triggering the procedure under Article 1040(3);

4. commits itself, in the event that the Commission considers that a decit exceeding 3 % of GDP is not excessive and this opinion diers from that of the Economic and Financial Committee, to present in writing to the Council the reasons for its position;

5. commits itself, following a request from the Council under Article i09d, to make, as a rule, a recommendation for a Council decision on whether an excessive decit exists under Article 1040(6).

The Council

1. is committed to a rigorous and timely implementation of all elements of the Stability and Growth Pact in its competence; it will take the necessary decisions under Article 103 and Article 104c as quickly as is practicable;

2. is urged to regard the deadlines for the application of the excessive de cit procedure as upper limits; in particular, the Council, acting under Art icle 1040(7), shall recommend that excessive decits will be corrected as quickly as possible after their emergence, no later than the year following their identi cation, unless there are special circumstances;

3. is invited always to impose sanctions if a participating Member State fails to take the necessary steps to bring the excessive decit situation to an end as recommended by the Council;

4. is urged always to require a non-interest bearing deposit, whenever the Council decides to impose sanctions on a participating Member State in accordance with Article 1040(11);

5. is urged always to convert a deposit into a ne after two years of the decision to impose sanctions in accordance with Article 1040(11), unless the excessive decit has in the view of the Council been corrected;

6. is invited to always state in writing the reasons which justify a decision not to act if at any stage of the excessive decit or surveillance of budgetary positions procedures the Council did not act on a Commission recommendation and, in such a case, to make public the votes cast by each Member State.

Declaration by the Council (Ecofin) and the ministers meeting in that Council issued on 1 May 1998

1. On 71 January 1999, the euro will be a reality, marking the end of a process culminating in the fullment of the economic conditions necessary for its suc cessful launch. The Council (Econ) and the ministers meeting in that Council welcome the signicant progress that has been made in all Member States in achieving price stability and sounder public nances. The convergence process has contributed to a high degree of exchange rate stability and historically low interest rates, and thus to the improved economic conditions in our econom ies.

2. The move to the single currency enhances further the conditions for strong, sustained and non-inflationary growth conducive to more jobs and rising liv ing standards. It eliminates the exchange rate risk among participating Member States, reduces transaction costs, creates a broader and more ecient nancial market, and increases price transparency and competition. It thus provides the decisive step for a truly single market.

3. We, the ministers, are strongly committed to the actions necessary to real ise the full benets of economic and monetary union and the single market in the interest of all our citizens. These actions include closer coordination of economic policies. We are condent that the full implementation of the con clusions of the Dublin, Amsterdam and Luxembourg European Councils pro vides a sound basis for a permanently high degree of nancial stability and the smooth functioning of EMU.

4. For the coming years, strong, sustained and non-inflationary growth will continue to be based in all Member States on economic convergence. Moreover, sound and sustainable public nances are prior conditions for growth and higher employment. The Stability and Growth Pact provides the means for securing this objective and for increasing the scope in national budgets to deal with future challenges.

5. In accordance with that Pact, we will start to implement the Regulation on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies 8 on 1 July 1998 in the following way.

- we are committed to ensure that the national budget objectives set for 1998 are fully met, if necessary by taking timely corrective action,

- the Council agrees to have an early consideration of Member States' budgetary intentions for 1999 in light of the framework and objectives of the Stability and Growth Pact.

On these rst two points, the ministers of the States participating in the euro area have decided to meet informally, in the course of the coming months, to start their monitoring work in accordance with the Luxembourg European Council Resolution,

- if economic conditions develop better than expected, Member States will use the opportunity to reinforce budgetary consolidation so as to reach the medium-term objective of government nancial positions close to balance or in surplus, as embodied in the commitments of the Stability and Growth Pact,

- the higher the debt-to-GDP ratios of participating Member States, the greater must be their eorts to reduce them rapidly. To that end, in addi tion to maintaining appropriate levels of primary surpluses in compliance with the commitments and the objectives of the Stability and Growth Pact, other measures to reduce gross debt should be put in place. Furthermore, debt management strategies should reduce budgets' vulnerability,

- each of the ministers undertakes to submit, at the latest by the end of 1998, national stability or convergence programmes which will reflect these important elements.

6. The Council reiterates that the responsibility for budgetary consolidation lies and remains with the Member States and that, in accordance with the pro visions of Article iO4b(i) TEC, the Community in particular shall not be liable for or assume the commitments of Member States. Without prejudice to the objectives and provisions of the Treaty, it is agreed that economic and mon etary union as such cannot be invoked to justify specic nancial transfers.

7. Our work on budgetary consolidation will be complemented by increased eorts for improving the eciency of our economies so as to enhance the favourable environment for growth, high employment and social cohesion. In this context, we look forward to our meeting shortly with the social partners on economic and monetary union. Together with the social partners and all other concerned parties, we will take all necessary initiatives to create the conditions for combating unemployment, particularly for young people, the long-term unemployed and the low skilled. In following up the conclusions of the Lux embourg meeting of the European Council, we commit ourselves to play our part in implementing rapidly the national employment action plans drawn up in the light of the employment policy guidelines. The Council (Econ) will consider these plans in contributing to the preparation of the Cardi European Council and subsequent European Councils.

8. We will attach particular importance to increasing the degree to which growth can be translated into additional employment. We will thus put em phasis, inter alia, on the following structural reforms:

- making product, labour and capital markets more ecient,

- improving the adaptability of labour markets in order to better reflect wage and productivity developments,

- ensuring that national education and training systems are eective and rel evant to employment,

- seeking to encourage entrepreneurship, notably by attacking the administrative obstacles which it faces,

- enabling easier access to capital markets and to venture capital funds, particularly for small and medium-sized enterprises,

- increasing tax eciency and avoiding harmful tax competition,

- addressing all aspects of social security systems in view of ageing populations.

9. The Council intends to establish a light procedure, fully respecting the subsidiarity principle, for monitoring progress on economic reform. From next year, the preparation of the broad economic policy guidelines will draw on short assessments of progress and plans by Member States and the Commission on product and capital markets, as well as on the employment action plans.

European Council Brussels 22 and 23 March 2005 Presidency conclusions (extract)

I. Stability and Growth Pact

3. The European Council endorses the report of the Council (Econ) of 20 March 2005 (see Annex II) entitled 'Improving the implementation of the Stability and Growth Pact' and approves its ndings and proposals. The report updates and complements the Stability and Growth Pact, which consists of the European Council Resolution of Amsterdam and Council Regulation (EC) No 1466/97 and (EC) No 1467/97. The Commission is invited to bring forward rapidly proposals for amending the Council Regulations.

Annex II: Improving the implementation of the Stability and Growth Pact - Council Report to the European Council

This report presents proposals for strengthening and clarifying the implementation of the Stability and Growth Pact, with the aim of improving the coordination and monitoring of economic policies according to Article 99 of the Treaty and of avoiding excessive decits as required by Article 104(1) of the Treaty.

The Council conrms that the Stability and Growth Pact, built on Treaty Articles 99 and 104, is an essential part of the macroeconomic framework of economic and monetary union. By requesting Member States to coordinate their budgetary policies and to avoid excessive decits, it contributes to achieving macroeconomic stability in the EU and plays a key role in securing low inflation and low interest rates, which are essential contributions for delivering sustainable economic growth and job creation.

The Council recalls the Declaration on Article III-184 (annexed to the Final Act of the Constitution), which rearmed the European Council's commitment to the goals of the Lisbon Strategy - job creation, structural reforms, and social cohesion - and which stated on budgetary policy: 'The Union aims at achieving balanced economic growth and price stability. Economic and budgetary policies thus need to set the right priorities towards economic reforms, innovation, competitiveness and strengthening of private investment and consumption in phases of weak economic growth. This should be reflected in the orientations of budgetary decisions at the national and Union level in particular through restructuring of public revenue and expenditure while respecting budgetary discipline in accordance with the Constitution and the Stability and Growth Pact'.

The two nominal anchors of the Pact - the 3 % of GDP reference value for the decit ratio and the 60 % of GDP reference value for the debt ratio - have proven their value and continue to be the centrepiece of multilateral surveillance. However, the European Council noted in June 2004 the need to strengthen and to clarify the implementation of the Stability and Growth Pact, in order to foster transparency and national ownership of the EU scal framework and to improve enforcement of its rules and provisions.

The Pact has to be applied across countries in a fair and consistent way and be understood by public opinion. The Council rearms that a rules-based system is the best guarantee for commitments to be enforced and for all Member States to be treated equally. In strengthening and clarifying the Pact it is essential to secure a proper balance between the higher degree of economic judgement and policy discretion in the surveillance and coordination of budgetary policies and the need for keeping the rules-based framework simple, transparent and enforceable.

However, in a European Union of 25 countries, characterised by considerable heterogeneity and diversity and given the experience of ve years in EMU, an enriched common framework with a stronger emphasis on the economic rationale of its rules would allow to better cater for dierences in economic situations across the EU. The objective is therefore to enhance the economic underpinnings of the existing framework and thus strengthen credibility and enforcement. The aim is not to increase the rigidity or flexibility of current rules but rather to make them more eective.

On this basis, the reform aims at better responding to the shortcomings experienced so far through greater emphasis to economic developments and an increased focus on safeguarding the sustainability of public nances. Also, the instruments for EU economic governance need to be better interlinked in order to enhance the contribution of scal policy to economic growth and support progress towards realising the Lisbon strategy.

Following the Commission Communication of 3 September 2004 on 'Strengthening economic governance and clarifying the implementation of the Stability and Growth Pact', the Council has worked in order to make concrete proposals for a reform of the Stability and Growth Pact.

The Council, in reviewing the Stability and Growth Pact provisions, detected mainly ve areas where improvements could be made:

(i) enhance the economic rationale of the budgetary rules to improve their credibility and ownership;

(ii) improve 'ownership' by national policy-makers;

(iii) use more eectively periods when economies are growing above trend for budgetary consolidation in order to avoid pro-cyclical policies;

(iv) take better account in Council recommendations of periods when economies are growing below trend;

(v) give sucient attention in the surveillance of budgetary positions to debt and sustainability.

In making the proposals for a reform of the Stability and Growth Pact, the Council gave due consideration to enhance the governance and the national ownership of the scal framework, to strengthen the economic underpinnings and the eectiveness of the Pact, both in its preventive and corrective arms, to safeguard the sustainability of public nances in the long run, to promote growth and to avoid imposing excessive burdens on future generations.

In accordance with the Luxembourg Resolution on economic policy coordination, the Council conrms that enhanced coordination of scal policies must adhere to the Treaty principle of subsidiarity, respecting the prerogatives of national governments in determining their structural and budgetary policies, while complying with the provisions of the Treaty and the Stability and Growth Pact.

Ministers indicate in the present report the necessary legislative changes in order to make operational their views on the reform of the Stability and Growth Pact. They intend to keep changes to a minimum and look forward to proposals of the Commission to put their views into eect.

1. Improving governance

In order to increase the legitimacy of the EU scal framework and to strengthen support for its goals and institutional arrangements, the Council considers that Member States, the Commission and the Council, while avoiding any institutional shift, must deliver on their respective responsibilities, in particular:

(1) The Commission and the Council respect the Member States' responsibil ity to implement the policies of their choice within the limits set by the Treaty, in particular by Articles gg and 104, while the Member States have to comply with the recommendations of the Council;

(2) The Commission has to exercise its right of initiative in a timely manner and apply the rules eectively, while the Council and the Member States respect the Commission's responsibility as guardian of the Treaty and its procedures;

(3) The Council has to exercise responsibly its margin of discretion, while the Member States and the Commission respect the Council's responsibility for the coordination of economic policies within the European Union and its role for the proper functioning of economic and monetary union;

(4) The Member States, the Council and the Commission should rearm their commitment to implement the Treaty and the Stability and Growth Pact in an eective and timely manner, through peer support and peer pressure, and to act in close and constructive cooperation in the process of economic and scal surveillance, in order to guarantee certainty and eectiveness to the rules of the Pact.

The Council emphasises the importance of improving governance and strengthening national ownership of the scal framework through the proposals outlined hereafter.

1.1. Cooperation and communication

The Council, the Commission and the Member States should apply the Treaty and the Stability and Growth Pact in an eective and timely manner. Parties should act in close and constructive cooperation in the process of economic and scal surveillance in order to guarantee certainty and eectiveness to the rules of the Pact.

In the spirit of transparency and accountability, due consideration should be given to full and timely communication among institutions as well as with the general public. In particular, in order to foster a frank and condential exchange of views, the Council, the Commission and the Member States should commit to exchange advance information on their intentions at all stages of the budgetary monitoring and excessive decit procedure, without prejudice to their respective prerogatives.

1.2. Improving peer support and applying peer pressure

The Council agrees that increasing the eectiveness of peer support and peer pressure is an integral part of a reformed Stability and Growth Pact. The Council and the Commission should commit to motivate and to make public their positions and decisions at all appropriate stages of the procedure of the Pact.

Peer support and peer pressure at euro area level should be given in the framework of the coordination carried out in the Eurogroup and be based on a horizontal assessment of national budgetary developments and their implications for the euro area as a whole. Such an assessment should be done at least once a year before the summer.

1.3. Complementary national budgetary rules and institutions

The Council agrees that national budgetary rules should be complementary to the Member States' commitments under the Stability and Growth Pact. Conversely, at EU level, incentives should be given and disincentives removed for national rules to support the objectives of the Stability and Growth Pact. In this context, the Council points out disincentives stemming from the impact in the scal framework of certain ESA95 accounting and statistical rules.

The implementation of existing national rules (expenditure rules, etc.) could be discussed in stability and convergence programmes, with due caution and as far as they are relevant for the respect of EU budgetary rules, as Member States are committed at European level to respect the latter, and compliance with EU budgetary rules constitutes the focus of the assessment of the stability and convergence programmes.

The Council considers that domestic governance arrangements should complement the EU framework. National institutions could play a more prominent role in budgetary surveillance to strengthen national ownership, enhance enforcement through national public opinion and complement the economic and policy analysis at EU level.

1.4. A stability programme for the legislature

The Council invites Member States, when preparing the rst update of their stability/convergence programme after a new government has taken oce, to show continuity with respect to the budgetary targets endorsed by the Council on the basis of the previous update of the stability/convergence programme and - with an outlook for the whole legislature - to provide information on the means and instruments which it intends to employ to reach these targets by setting out its budgetary strategy.

1.5. Involvement of national Parliaments

The Council invites Member States' Governments to present stability/convergence programmes and the Council opinions thereon to their national Parliaments. National Parliaments may wish to discuss the follow-up to recommendations in the context of the early warning and the excessive decit procedures.

1.6. Reliable macroeconomic forecasts

The Council recognises that it is important to base budgetary projections on realistic and cautious macroeconomic forecasts. It also recognises the important contribution that Commission forecasts can provide for the coordination of economic and scal policies.

In their macroeconomic and budgetary projections, Member States, in particular euro area Member States and Members States participating in ERM2, should use the 'common external assumptions' if provided by the Commission in due time. Member States are free to base their stability/convergence programmes on their own projections. However, divergences between the national and the Commission forecasts should be explained in some detail. This explanation will serve as a reference when assessing a posteriori forecast errors.

Given the inevitability of forecast errors, greater emphasis should be placed in the stability/convergence programmes on conducting comprehensive sensitivity analyses and/or developing alternative scenarios, in order to enable the Commission and the Council to consider the complete range of possible scal outcomes.

1.7. Statistical governance

The Council agrees that the implementation of the scal framework and its credibility rely crucially on the quality, reliability and timeliness of scal statistics. Reliable and timely statistics are not only essential for the assessment of government budgetary positions; full transparency of such statistics will also allow the nancial markets to better assess the creditworthiness of the dierent Member States, providing an important signalling function for policy errors.

The core issue remains to ensure adequate practices, resources and capabilities to produce high quality statistics at the national and European level with a view to ensuring the independence, integrity and accountability of both national statistical oces and Eurostat. Furthermore, the focus must be on developing the operational capacity, monitoring power, independence and accountability of Eurostat. The Commission and the Council in the course of 2005 are dealing with the issue of improving the governance of the European statistical system.

Member States and EU institutions should arm their commitment to produce high quality and reliable budgetary statistics and to ensure mutual cooperation to achieve this goal. Imposing sanctions on a Member State should be considered when there is infringement of the obligations to duly report government data.

2. Strengthening the preventive arm

There is broad consensus that periods of growth above trend should be used for budgetary consolidation in order to avoid pro-cyclical policies. The past failure to reach the medium-term budgetary objective of 'close to balance or in surplus' calls for a strengthening of the preventive arm of the Stability and Growth Pact, through a renewed commitment by Member States to take the budgetary action necessary to converge towards this objective and respect it.

2.1. Definition of the medium-term budgetary objective

The Stability and Growth Pact lays down the obligation for Member States to adhere to the medium term objective (MTO) for their budgetary positions of 'close to balance or in surplus' (CTBOIS).

In light of the increased economic and budgetary heterogeneity in the EU of 25 Member States, the Council agrees that the MTO should be dierentiated for individual Member States to take into account the diversity of economic and budgetary positions and developments as well as of scal risk to the sustain-ability of public nances, also in the face of prospective demographic changes.

The Council therefore proposes developing medium-term objectives that, by taking account of the characteristics of the economy of each Member State, pursue a triple aim. They should rstly provide a safety margin with respect to the 3 % decit limit. They should also ensure rapid progress towards sus-tainability. Taking this into account, they should allow room for budgetary manoeuvre, in particular taking into account the needs for public investment.

MTOs should be dierentiated and may diverge from CTBOIS for individual Member States on the basis of their current debt ratio and potential growth, while preserving sucient margin below the reference value of -3 % of GDP. The range for the country-specic MTOs for euro area and ERM2 Member States would thus be, in cyclically adjusted terms, net of one-o and temporary measures, between -1 % of GDP for low debt/high potential growth countries and balance or surplus for high debt/low potential growth countries.

The long-term sustainability of public nances would be supported by the convergence of debt ratios towards prudent levels.

Implicit liabilities (related to increasing expenditures in the light of ageing populations) should be taken into account, as soon as criteria and modalities for doing so are appropriately established and agreed by the Council. By the end of 2006, the Commission should report on progress achieved towards the methodology for completing the analysis by incorporating such implicit liabilities.

The Council stresses however that scal policy cannot be expected in the short term to cope with the full structural eects of demographic ageing and it invites Member States to pursue their eorts in implementing structural reforms in the areas related to the ageing of their populations as well as towards increasing employment and participation ratios.

Medium-term budgetary objectives could be revised when a major reform is implemented and in any case every four years, in order to reflect developments in government debt, potential growth and scal sustainability.

2.2. Adjustment path to the medium-term objective

The Council considers that a more symmetrical approach to scal policy over the cycle through enhanced budgetary discipline in periods of economic recovery should be achieved, with the objective to avoid pro-cyclical policies and to gradually reach the medium term objective, thus creating the necessary room to accommodate economic downturns and reduce government debt at a sat- isfactory pace, thereby contributing to the long-term sustainability of public nances.

Member States should commit at a European level to actively consolidate public nances in good times. The presumption is to use unexpected extra revenues for decit and debt reduction.

Member States that have not yet reached their MTO should take steps to achieve it over the cycle. Their adjustment eort should be higher in good times; it could be more limited in bad times. In order to reach their MTO, Member States of the euro zone or of ERM2 should pursue an annual adjustment in cyclically adjusted terms, net of one-os and other temporary measures, of 0.5 % of GDP as a benchmark. 'Good times' should be identied as periods where output exceeds its potential level, taking into account tax elasticities.

Member States that do not follow the required adjustment path will explain the reasons for the deviation in the annual update of the stability/convergence programmes. The Commission will issue policy advice to encourage Member States to stick to their adjustment path. Such policy advice will be replaced by early warnings in accordance with the Constitution as soon as it becomes applicable.

2.3. Taking structural reforms into account

The Council agrees that, in order to enhance the growth oriented nature of the Pact, structural reforms will be taken into account when dening the adjustment path to the medium-term objective for countries that have not yet reached this objective and in allowing a temporary deviation from this objective for countries that have already reached it, with the clear understanding that a safety margin to ensure the respect of the 3 % of GDP reference value for the decit has to be guaranteed and that the budgetary position would be expected to return to the MTO within the programme period.

Only major reforms which have direct long-term cost-saving eects, including by raising potential growth, and therefore a veriable positive impact on the long-term sustainability of public nances, will be taken into account. A detailed cost-benet analysis of those reforms from the budgetary point of view would need to be provided in the framework of the annual update of stability/convergence programmes.

These proposals should be introduced into Council Regulation (EC) No 1466/ 97-

Moreover, the Council is mindful that the respect of the budgetary targets of the Stability and Growth Pact should not hamper structural reforms that unequivocally improve the long-term sustainability of public nances. The Council acknowledges that special attention must be paid to pension reforms introducing a multi-pillar system that includes a mandatory, fully funded pil-lar. Although these reforms entail a short-term deterioration of public nances during the implementation period, the long-term sustainability of public nances is clearly improved. The Council therefore agrees that Member States implementing such reforms should be allowed to deviate from the adjustment path towards the MTO, or from the MTO itself. The deviation from the MTO should reflect the net cost of the reform to the publicly managed pillar, provided the deviation remains temporary and an appropriate safety margin to the reference value is preserved.

3. Improving the implementation of the excessive deficit procedure

The excessive decit procedure should remain simple, transparent and equitable. Nevertheless, the experience of recent years shows possible scope for improvement in its implementation.

The guiding principle for the application of the procedure is the prompt correction of an excessive decit.

The Council underlines that the purpose of the excessive decit procedure is to assist rather than to punish, and therefore to provide incentives for Member States to pursue budgetary discipline, through enhanced surveillance, peer support and peer pressure. Moreover, policy errors should be clearly distinguished from forecast errors in the implementation of the excessive decit procedure. If nevertheless a Member State fails to comply with the recommendations addressed to it under the excessive decit procedure, the Council has the power to apply the available sanctions.

3.1. Preparing a Commission report under Article 104(3)

In order to avoid excessive government decits, as called for by Article 104(1) of the Treaty, the reports, prepared by the Commission according to Article 104(3) of the Treaty as a result of its monitoring, form the basis of the EFC opinion, the ensuing Commission assessment and ultimately the Council decision on the existence of an excessive decit as well as on its recommendations, including on the deadlines for the correction of the decit.

The Council and the Commission are resolved to clearly preserve and uphold the reference values of 3 % and 60 % of GDP as the anchors of the monitoring of the development of the budgetary situation and of the ratio of government debt to GDP in the Member States. The Commission will always prepare a report on the basis of Article 104(3) of the Treaty. The Commission shall examine in its report if one or more of the exceptions foreseen respectively in Article i04(2)(a) and (b) apply. The Council hereafter proposes revisions or clarications to the scope of those exceptions.

As foreseen by the Treaty, the Commission shall moreover take into account in its report whether the Member State's government decit exceeds govern-ment investment expenditure and take into account all other relevant factors, including the medium-term economic and budgetary position of the Member State. The Council hereafter proposes clarications to the concept of 'all other relevant factors'.

3.2. An 'exceptional and temporary' excess of the deficit over the reference value

The Treaty provides, in Article io4(2)(a) second indent, for an exception if an excess over the reference value is only exceptional and temporary and if the ratio remains close to the reference value.

Whereas, in order to benet from that exception, the ratio has always to remain close to the reference value, Regulation (EC) No 1467/97 gives denitions as to when an excess over the reference value, but still close to it, shall be considered exceptional and temporary: in order to be considered as exceptional, the excess has to result from an unusual event outside the control of the Member State and with a major impact on the nancial position of the general government, or it has to result from a severe economic downturn. In order for the excess to be temporary, the Commission's budgetary forecast must indicate that the decit will fall below the reference value following the end of the unusual event or the severe economic downturn.

A severe economic downturn is presently dened - as a rule - as an annual fall of real GDP of at least 2 %. Moreover, in the case of an annual fall of real GDP of less than 2 %, Regulation (EC) No 1467/97 still allows the Council to decide that no excessive decit exists, in the light of further evidence, in particular on the abruptness of the downturn or on the accumulated loss of output relative to past trends.

The Council considers that the current denition of'a severe economic downturn' given in Article 2(2) of Regulation (EC) No 1467/97 is too restrictive. The Council considers that paragraphs (2) and (3) of Article 2 in Regulation (EC) No 1467/97 need to be adapted in order to allow both the Commission and the Council, when assessing and deciding upon the existence of an excessive decit, according to paragraphs (3) to (6) of Article 104 of the Treaty, to consider as exceptional an excess over the reference value which results from a negative growth rate or from the accumulated loss of output during a protracted period of very low growth relative to potential growth.

3.3. 'All other relevant factors'

Article 104(3) of the Treaty requests that, in preparing the report on the non-fullment of the criteria for compliance with budgetary discipline, the Commission 'shall also take into account whether the government decit exceeds government investment expenditure and take into account all other relevant factors, including the medium-term economic and budgetary position of the Member State'. A balanced overall assessment has to encompass all these factors.

The Council underlines that taking into account 'other relevant factors' in the steps leading to the decision on the existence of an excessive decit (Article 104, paragraphs (), () and (6)) must be fully conditional on the overarching principle that - before other relevant factors are taken into account - the excess over the reference value is temporary and the decit remains close to the reference value.

The Council considers that the framework to take into account 'all other relevant factors' should be claried. The Commission's report under Article 104(3) should appropriately reflect developments in the medium-term economic position (in particular potential growth, prevailing cyclical conditions, the implementation of policies in the context of the Lisbon agenda and policies to foster R & D and innovation) and developments in the medium-term budgetary position (in particular, scal consolidation eorts in 'good times', debt sustainability, public investment and the overall quality of public nances). Furthermore, due consideration will be given to any other factors, which in the opinion of the Member State concerned, are relevant in order to comprehensively assess in qualitative terms the excess over the reference value. In that context, special consideration will be given to budgetary eorts towards increasing or maintaining at a high level nancial contributions to fostering international solidarity and to achieving European policy goals, notably the unication of Europe if it has a detrimental eect on the growth and scal burden of a Member State.

Clearly no redenition of the Maastricht reference value for the decit via the exclusion of particular budgetary items should be pursued.

If the Council has decided, on the basis of Article 104(6), that an excessive decit exists in a Member State, the 'other relevant factors' will also be considered in the subsequent procedural steps of Article 104. However, they should not be taken into account under Article 104(12), i.e. in the decision of the Council as to whether a Member State has corrected its excessive decit.

These proposals should be introduced into Regulation (EC) No 1467/97.

3.4. Taking into account systemic pension reforms

The Council agrees that an excess close to the reference value which reflects the implementation of pension reforms introducing a multi-pillar system that includes a mandatory, fully funded pillar should be considered carefully. Although the implementation of these reforms leads to a short-term deterioration of the budgetary position, the long-term sustainability of public nances clearly improves.

The Commission and the Council, in all budgetary assessments in the framework of the EDP, will give due consideration to the implementation of these reforms.

In particular, when assessing under Article 104(12) whether the excessive decit has been corrected, the Commission and the Council will assess developments in EDP decit gures while also considering the net cost of the reform to the publicly managed pillar. Consideration to the net cost of the reform will be given for the initial ve years after a Member State has introduced a mandatory fully-funded system, or ve years after 2004 for Member States that have already introduced such a system. Furthermore, it will also be regressive, i.e. during a period of ve years, consideration will be given to 100, 80, 60, 40 and 20 % of the net cost of the reform to the publicly managed pillar.

3.5. Increasing the focus on debt and sustainability

In line with the provisions of the Treaty, the Commission has to examine compliance with budgetary discipline on the basis of both the decit and the debt criterion. The Council agrees that there should be increased focus on debt and sustainability, and rearms the need to reduce government debt to below 60 % of GDP at a satisfactory pace, taking into account macroeconomic conditions. The higher the debt to GDP ratios of Member States, the greater must be their eorts to reduce them rapidly.

The Council considers that the debt surveillance framework should be strengthened by applying the concept of 'suciently diminishing and approaching the reference value at a satisfactory pace' for the debt ratio in qualitative terms, by taking into account macroeconomic conditions and debt dynamics, including the pursuit of appropriate levels of primary surpluses as well as other measures to reduce gross debt and debt management strategies. For countries above the reference value, the Council will formulate recommendations on the debt dynamics in its opinions on the stability and convergence programmes.

No change to the existing Regulations is required to that eect.

3.6. Extending deadlines for taking eective action and measures

The Council considers that the deadline for adoption of a decision under Article 104(6) establishing the existence of an excessive decit should be extended from three to four months after the scal notication deadline. Moreover, the Council considers that the timing for taking eective action following a recommendation to correct the excessive decit under Article 104(7) could be extended from four to six months, in order to allow the Member State to better frame the action within the national budgetary procedure and to develop a more articulated package of measures. This could facilitate the adoption of corrective packages of structural (as opposed to largely temporary) measures. Furthermore, with longer deadlines it would be possible to take an updated

Commission forecast into account, so that measures taken and signicant changes in growth conditions that could justify an extension of the deadlines would be assessed together. For the same reasons, the one-month deadline for the Council to take a decision to move from Article 104(8) to Article 104(9) should be extended to two months, and the two-month deadline under Article 104(9) should be extended to four months.

These proposals would require changes to the relevant Articles of Regulation (EC) No 1467/97.

3.7.Initial deadline for correcting the excessive deficit

The Council considers that, as a rule, the deadline for correcting an excessive decit should be the year after its identication and thus, normally, the second year after its occurrence. The Council agrees however that the elements to be taken into account in setting the initial deadline for the correction of an excessive decit should be better specied and should include, in particular, an overall assessment of all the factors mentioned in the report under Article 104(3).

As a benchmark, countries in excessive decit will be required to achieve an annual minimum scal eort of at least 0.5 % of GDP in cyclically adjusted terms, net of one-o measures, and the initial deadline for the correction of the excessive decit should be set taking into account this minimum scal eort. If this eort seems sucient to correct the excessive decit in the year following its identication, the initial deadline need not be set beyond that year.

However the Council agrees that in case of special circumstances, the initial deadline for correcting an excessive decit could be set one year later, i.e. the second year after its identication and thus normally the third year after its occurrence. The determination of the existence of special circumstances will take into account a balanced overall assessment of the factors mentioned in the report under Article 104(3).

The initial deadline will be set without prejudice to the taking into account of systemic pension reforms and without prejudice to deadlines applying to new and future Member States.

3.8. Revising the deadlines for correcting the deficit

The Council agrees that deadlines for correcting the excessive decit could be revised and extended if unexpected adverse economic events with major unfavourable budgetary eects occur during the excessive decit procedure. Repetition of a recommendation under Article 104(7) or a notice under Article 104(9) of the Treaty is possible and should be used if eective action has been taken by the Member State concerned in compliance with the initial recommendation or notice. This should be specied in Regulation (EC) No 1467/97.

Member States would be required to give evidence of having taken eective action following recommendations. If eective action was taken in response to previous recommendations and unforeseeable growth developments justify a revision of the deadlines for correcting the excessive decit, the procedure would not move to the next step. The growth forecast contained in the Council recommendation would be the reference against which unforeseeable growth developments would be assessed.

Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community

Amended by9:

- Council Regulation (EC) No 475/2000 of 28 February 2000 10

- Commission Regulation (EC) No 351/2002 of 25 February 2002 11

- Council Regulation (EC) No 2103/2005 of 12 December 2005 12

THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular the third subparagraph of Article iO4c(i4) thereof, Having regard to the proposal from the Commission 13, Having regard to the opinion of the European Parliament 14, Whereas the denitions of 'government', 'decit' and 'investment' are laid down in the Protocol on the excessive decit procedure by reference to the European system of integrated economic accounts (ESA) 15; whereas precise denitions referring to the classication codes of ESA are required; whereas these denitions may be subject to revision in the context of the necessary harmonisation of national statistics or for other reasons; whereas any revision of ESA will be decided by the Council in accordance with the rules on competence and procedure laid down in the Treaty; Whereas the denition of'debt' laid down in the Protocol on the excessive decit procedure needs to be amplied by a reference to the classication codes of ESA; Whereas Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonisation of the compilation of gross national product at market prices 16 provides an adequate, detailed denition of gross domestic product at market prices; Whereas, pursuant to the terms of the Protocol on the excessive decit procedure, the Commission is required to provide the statistical data to be used in that procedure; Whereas detailed rules are required to organise the prompt and regular reporting by the Member States to the Commission of their planned and actual decits and of the levels of their debt; Whereas, pursuant to Article 1040(2) and (3) of the Treaty, the Commission is to monitor the development of the budgetary situation and of the stock of government debt in the Member States and to examine compliance with budgetary discipline on the basis of criteria relating to government decit and government debt; whereas, if a Member State does not full the requirements under one or both criteria, the Commission must take into account all relevant factors; whereas the Commission has to examine whether there is a risk of an excessive decit in a Member State, HAS ADOPTED THIS REGULATION:

Section 1 Definitions

Article 1

1. For the purposes of the Protocol on the excessive decit procedure and of this Regulation, the terms given in the following paragraphs are dened according to the European system of national and regional accounts in the Community (hereinafter referred to as 'ESA 95'), adopted by Regulation (EC) No 2223/96 17- The codes in brackets refer to ESA 95.

2. 'Government' means the sector of'general government' (S.13), that is 'cent ral government' (S.1311), 'state government' (S.1312), 'local government' (S.1313) and 'social security funds' (S.1314), to the exclusion of commercial operations, as dened in ESA 95.

The exclusion of commercial operations means that the sector of'general government' (S.13) comprises only institutional units producing non-market services as their main activity.

3. 'Government decit (surplus)' means the net borrowing (net lending) of the sector of'general government' (EDP B.9), as dened in ESA 95. The interest comprised in the government decit is the interest (EDP D.41), as dened in ESA 95.

4. 'Government investment' means the gross xed capital formation (P.51) of the sector of'general government' (S.13), as dened in ESA 95.

5. 'Government debt' means the total gross debt at nominal value outstanding at the end of the year of the sector of'general government' (S.13), with the exception of those liabilities the corresponding nancial assets of which are held by the sector of 'general government' (S.13).

Government debt is constituted by the liabilities of general government in the following categories: currency and deposits (AF.2); securities other than shares, excluding nancial derivatives (AF.33) and loans (AF.), as dened in ESA 95.

The nominal value of a liability outstanding at the end of the year is the face value.

The nominal value of an index-linked liability corresponds to its face value adjusted by the index-related change in the value of the principal accrued to the end of the year.

Liabilities denominated in a foreign currency, or exchanged from one foreign currency through contractual agreements to one or more other foreign currencies shall be converted into the other foreign currencies at the rate agreed on in those contracts and shall be converted into the national currency on the basis of the representative market exchange rate prevailing on the last working day of each year.

Liabilities denominated in the national currency and exchanged through contractual agreements to a foreign currency shall be converted into the foreign currency at the rate agreed on in those contracts and shall be converted into the national currency on the basis of the representative market exchange rate prevailing on the last working day of each year.

Liabilities denominated in a foreign currency and exchanged through contractual agreements to the national currency shall be converted into the national currency at the rate agreed on in those contracts.

Article 2

For the purposes of the Protocol on the excessive decit procedure and of this Regulation, gross domestic product means gross domestic product at current market prices (GDP mp) (B.i*g), as dened in ESA 95.

Article 3

1. Planned government decit and government debt level gures mean the gures established for the current year by the Member States. They shall be the most recent ocial forecasts, taking into account the most recent budgetary decisions and economic developments and prospects. They should be produced in as short a time as possible before the reporting deadline.

2. Actual government decit and government debt level gures mean estimated, provisional, half-nalised or nal results for a past year. The planned data together with the actual data must form a consistent time series as far as the denitions and concepts are concerned.

Section 2 Rules and Coverage of Reporting

Article 4

1. As from the beginning of 1994, Member States shall report to the Commission their planned and actual government decits and levels of government debt twice a year, the rst time before 1 April of the current year (year n) and the second time before 1 October of year n.

Member States shall inform the Commission which national authorities are responsible for the excessive decit procedure reporting.

2. Before 1 April of year n, Member States:

- shall report to the Commission their planned government decit for year n, an up-to-date estimate of their actual government decit for year n-i and their actual government decits for years n-2, n-3 and n-,

- shall simultaneously provide the Commission with their planned data for year n and the actual data for years n-i, n-2, n-3 and n- of their corres ponding public accounts budget decits in accordance with the denition which is given most prominence nationally and with the gures which explain the transition between the public accounts budget decit and their government decit for the sub-sector S.1311,

- shall simultaneously provide the Commission with their actual data for years n-i, n-2, n-3 and n- of their corresponding working balances and with the gures which explain the transition between the working balances of each government sub-sector and their government decit for the sub- sectors S.1312, S.1313 and S.1314,

- shall report to the Commission their planned level of government debt at the end of year n and their levels of actual government debt at the end of years n-i, n-2, n-3 and n-,

- shall simultaneously provide the Commission, for years n-i, n-2, n-3 and n- , with the gures which explain the contribution of the government decit and other factors relevant to the variation in the level of their government debt by sub-sector.

3. Before 1 October of year n, Member States shall report to the Commission:

- their updated planned government decit for year n and their actual gov ernment decits for years n-i, n-2, n-3 and n- and shall comply with the requirements of the second and third indents of paragraph 2,

- their updated planned level of government debt at the end of year n and their levels of actual government debt at the end of years n-i, n-2, n-3 and n-, and shall comply with the requirements of the fifth indent of para graph 2.

4. The gures for the planned government decit reported to the Commission in accordance with paragraphs 2 and 3 shall be expressed in national currency and in budget years.

The gures for actual government decit and actual government debt level reported to the Commission in accordance with paragraphs 2 and 3 shall be expressed in national currency and in calendar years, with the exception of the up-to-date estimates for year n-i, which maybe expressed in budget years.

Where the budget year diers from the calendar year, Member States shall also report to the Commission their gures for actual government decit and actual government debt level in budget years for the two budget years preceding the current budget year.

Article 5

Member States shall, in accordance with the procedure laid down in Article 4(1), (2) and (3), provide the Commission with the gures for their government investment expenditure and interest expenditure (consolidated).

Article 6

Member States shall provide the Commission with a forecast of their gross domestic product for year n and the actual amount of their gross domestic product for years n-i, n-2, n-3 and n-, under the same timing conditions as those indicated in Article 4(1).

Article 7

1. Member States shall inform the Commission, as soon as it becomes available, of any major revision in their actual and planned government decit and debt gures already reported.

2. Major revisions in the actual decit and debt gures already reported shall be properly documented. In any case, revisions which result in the reference values as specied in the relevant Treaty Protocol being exceeded, or revisions which mean that a Member State's data no longer exceed the reference values, must be reported and properly documented.

Article 8

Member States shall make public the actual decit and debt data and other data for past years reported to the Commission in accordance with Articles , , 6 and 7.

Section 2a Quality of Data

Article 8a

1. The Commission (Eurostat) shall regularly assess the quality both of actual data reported by Member States and of the underlying government sector accounts compiled according to ESA 95 (hereinafter referred to as government accounts). Quality of actual data means compliance with accounting rules, completeness, reliability, timeliness, and consistency of the statistical data. The assessment will focus on areas specied in the inventories of Member States such as the delimitation of the government sector, the classication of govern ment transactions and liabilities, and the time of recording.

2. Member States shall provide the Commission (Eurostat), as promptly as possible, with the relevant statistical information requested for the needs of the data quality assessment, without prejudice to the provisions relating to statist ical condentiality of Regulation (EC) No 322/97.

'Statistical information' referred to in the rst subparagraph should be limited to the information strictly necessary to check the compliance to ESA rules. In particular, statistical information means:

- data from national accounts,

- inventories,

- EDP notication tables,

- additional questionnaires and clarication related to the notications.

The questionnaires' format shall be dened by the Commission (Eurostat) after consultation of the Committee on Monetary, Financial and Balance of Payments Statistics (hereinafter referred to as CMFB) established by Council Decision 91/115/EEC 18.

3. The Commission (Eurostat) shall report regularly to the European Parliament and to the Council on the quality of the actual data reported by Member States. The report shall address the overall assessment of the actual data reported by Member States as regards to the compliance with accounting rules, completeness, reliability, timeliness, and consistency of the data.

Article 8b

1. Member States shall provide the Commission (Eurostat) with a detailed inventory of the methods, procedures and sources used to compile actual de cit and debt data and the underlying government accounts.

2. The inventories shall be prepared in accordance with guidelines adopted by the Commission (Eurostat) after consultation of CMFB.

3. The inventories shall be updated following revisions in the methods, procedures and sources adopted by Member States to compile their statistical data.

4. Member States shall make their inventories public.

5. The issues referred to in paragraphs 1, 2 and 3 maybe addressed in the visits mentioned in Article 8d.

Article 8c

1. In the event of a doubt regarding the correct implementation of the ESA 95 accounting rules, the Member State concerned shall request clarication from the Commission (Eurostat). The Commission (Eurostat) shall promptly exam ine the issue and communicate its clarication to the Member State concerned and, when appropriate, to the CMFB.

2. For cases which are either complex or of general interest in the view of the Commission or the Member State concerned, the Commission (Eurostat) shall take a decision after consultation of the CMFB. The Commission (Eurostat) shall make decisions public, together with the opinion of the CMFB, without prejudice to the provisions relating to statistical condentiality of Regulation (EC) No 322/97.

Article 8d

The Commission (Eurostat) shall ensure a permanent dialogue with Member States' statistical authorities. To this end, the Commission (Eurostat) will carry out in all Member States regular dialogue visits, as well as possible methodological visits. The methodological visits should only be undertaken in cases where substantial risks or potential problems with the quality of the data are identied, especially as they relate to the methods, concepts and classication applied to the data, which Member States are obliged to report.

The dialogue visits are designed to review reported data, to examine methodological issues, to discuss statistical processes and sources described in the inventories, and to assess compliance with the accounting rules. The dialogue visits should be used to identify risks or potential problems about the quality of the reported data. The methodological visits are designed to monitor the processes and the government accounts which justify the reported actual data and to draw detailed conclusions as to the quality of reported data, as dened in Article 8a(i). The methodological visits should not go beyond the purely statistical domain. This should be reflected in the composition of the delegations referred to in Article 8e.

When organising dialogue and methodological visits, the Commission (Eurostat) shall transmit its provisional ndings to the Member States concerned for comments.

Article 8e

1. When carrying out methodological visits in Member States, the Commis sion (Eurostat) may request the assistance of national accounts experts, pro posed by other Member States on a voluntary basis, and of ocials from other Commission departments.

The list of national accounts' experts from which the Commission may request assistance, will be constituted on the basis of proposals sent to the Commission by the national authorities responsible for the excessive decit reporting.

2. Member States shall take all necessary measures to facilitate the meth odological visits. These visits should be conned to the national authorities involved in the excessive decit procedure reporting. Member States shall, however, ensure that their services which are directly or indirectly involved in the production of government accounts and debt, and where necessary their national authorities which have a functional responsibility for the control of the public accounts, provide the Commission ocials or other experts referred to in paragraph 1 with the assistance necessary to carry out their duties, including making documents available to justify the reported actual decit and debt data and the underlying government accounts. Condential records of the national statistical system should only be provided to the Commission (Eurostat).

Without prejudice to the general obligation of the Member States to take all measures required to facilitate the methodological visits, the interlocutors of Eurostat for the methodological visits referred to in the rst subparagraph are, in each Member State, the services responsible for the excessive decit procedure reporting.

3. The Commission (Eurostat) shall ensure that ocials and experts participating in these visits meet every guarantee as regards technical competence, professional independence and observance of condentiality.

Article 8f

The Commission (Eurostat) shall report to the Economic and Financial Committee on the ndings of dialogue and methodological visits, including any comments on these ndings made by the Member State concerned. These reports, along with any comments made by the Member State concerned, after having been transmitted to the Economic and Financial Committee, shall be made public, without prejudice to the provisions concerning statistical condentiality in Regulation (EC) No 322/97.

Section 2b Provision of Data by the Commission

Article 8g

1. The Commission (Eurostat) shall provide the actual government decit and debt data for the application of the Protocol on the excessive decit proced ure, within three weeks after the reporting deadlines referred to in Article 4(1) or after revisions as referred to in Article 7(1). This provision of data shall be eected through publication.

2. The Commission (Eurostat) shall not delay the provision of the actual gov ernment decit and debt data of Member States where a Member State has not reported its own data.

Article 8h

1. The Commission (Eurostat) may express a reservation on the quality of the actual data reported by the Member States. No later than three working days before the planned publication date, the Commission (Eurostat) shall commun-icate to the Member State concerned and to the President of the Economic and Financial Committee the reservation it intends to express and make public. Where the issue is resolved after publication of the data and the reservation, withdrawal of the reservation shall be made public immediately thereafter.

2. The Commission (Eurostat) may amend actual data reported by Member States and provide the amended data and a justication of the amendment where there is evidence that actual data reported by Member States do not comply with the requirements of Article 8a(i). No later than three working days before the planned publication date, the Commission (Eurostat) shall communicate to the Member State concerned and to the President of the Economic and Financial Committee the amended data and the justication for the amendment.

Section 2c General Provisions

Article 8i

1. Member States shall ensure that the actual data reported to the Commis sion are provided in accordance with the principles established by Article 10 of Regulation (EC) No 322/97. In this regard, the responsibility of the National Statistical Authorities is to ensure the compliance of reported data with Art icles 1 and 2 and the underlying ESA 95 accounting rules.

1. Member States shall take all appropriate measures to ensure that ocials responsible for the reporting of the actual data to the Commission and of the underlying government accounts act in accordance with the principles estab lished by Article 10 of Regulation (EC) No 322/97.

Article 8j

In the event of a revision of ESA 95 or of an amendment to its methodology decided on by the European Parliament and the Council or the Commission in accordance with the rules of competence and procedure laid down in the Treaty and in Regulation (EC) No 2223/96, the Commission shall introduce the new references to ESA 95 into Articles 1, 2 and 4 .

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies

Amended by:

- Council 19

Regulation (EC) No 1055/2005 of 27 June 200520 [No 1466/97 of 7 July 1997] 21

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 103(5) thereof,

Having regard to the proposal from the Commission 22,

Acting in accordance with the procedure referred to in Article 189c of the Treaty 23,

(1) Whereas the Stability and Growth Pact is based on the objective of sound government nances as a means of strengthening the conditions for price sta bility and for strong sustainable growth conducive to employment creation;

(2) Whereas the Stability and Growth Pact consists of this Regulation which aims to strengthen the surveillance of budgetary positions and the surveil lance and coordination of economic policies, of Council Regulation (EC) No 1467/9724 which aims to speed up and to clarify the implementation of the excessive decit procedure and of the Resolution of the European Council of 17 June 1997 on the Stability and Growth Pact 25, in which, in accordance with Article 4 of the Treaty on European Union, rm political guidelines are issued in order to implement the Stability and Growth Pact in a strict and timely manner and in particular to adhere to the medium term objective of budget ary positions of close to balance or in surplus, to which all Member States are committed, and to take the corrective budgetary action they deem necessary to meet the objectives of their stability and convergence programmes, when ever they have information indicating actual or expected signicant divergence from the medium-term budgetary objective;

(3) Whereas in stage three of Economic and Monetary Union (EMU) the Member States are, according to Article 104 of the Treaty, under a clear Treaty obligation to avoid excessive general government decits; whereas under Article 5 of Protocol (No 11) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland to the Treaty, Article 104(1) does not apply to the United Kingdom unless it moves to the third stage; whereas the obligation under Article 116(4) to endeavour to avoid excessive decits will continue to apply to the United Kingdom;

(4) Whereas adherence to the medium-term objective of budgetary positions close to balance or in surplus will allow Member States to deal with normal cyclical fluctuations while keeping the government decit within the 3 % of GDP reference value;

(5) Whereas it is appropriate to complement the multilateral surveillance procedure of Article 99 (3) and () with an early warning system, under which the Council will alert a Member State at an early stage to the need to take the necessary budgetary corrective action in order to prevent a government decit becoming excessive;

(6) Whereas the multilateral surveillance procedure of Article 99(3) and () should furthermore continue to monitor the full range of economic develop ments in each of the Member States and in the Community as well as the con sistency of economic policies with the broad economic guidelines referred to in Article 99(2); whereas for the monitoring of these developments, the pre sentation of information in the form of stability and convergence programmes is appropriate;

(7) Whereas there is a need to build upon the useful experience gained during the rst two stages of economic and monetary union with convergence pro grammes;

(8) Whereas the Member States adopting the single currency, hereafter referred to as 'participating Member States', will, in accordance with Article 121, have achieved a high degree of sustainable convergence and in particular a sustain able government nancial position; whereas the maintenance of sound budget ary positions in these Member States will be necessary to support price stabil ity and to strengthen the conditions for the sustained growth of output and employment; whereas it is necessary that participating Member States submit medium-term programmes, hereafter referred to as 'stability programmes'; whereas it is necessary to dene the principal contents of such programmes;

(9) Whereas the Member States not adopting the single currency, hereafter referred to as 'non-participating Member States', will need to pursue policies aimed at a high degree of sustainable convergence; whereas it is necessary that these Member States submit medium-term programmes, hereafter referred to as 'convergence programmes'; whereas it is necessary to dene the principal contents of such convergence programmes;

(10) Whereas in its Resolution of 16 June 1997 on the establishment of an exchange rate mechanism in the third stage of economic and monetary union, the European Council issued rm political guidelines in accordance with which an exchange rate mechanism is established in the third stage of EMU, hereafter referred to as 'ERM2*; whereas the currencies of non-participating Member States joining ERM2 will have a central rate vis-à-vis the euro, thereby provid ing a reference point for judging the adequacy of their policies; whereas the ERM2 will also help to protect them and the Member States adopting the euro from unwarranted pressures in the foreign-exchange markets; whereas, so as to enable appropriate surveillance in the Council, non-participating Member States not joining ERM2 will nevertheless present policies in their convergence programmes oriented to stability thus avoiding real exchange rate misalign ments and excessive nominal exchange rate fluctuations;

(11) Whereas lasting convergence of economic fundamentals is a prerequisite for sustainable exchange rate stability;

(12) Whereas it is necessary to lay down a timetable for the submission ofstability programmes and convergence programmes and their updates;

(13) Whereas in the interest of transparency and informed public debate it is necessary that Member States make public their stability programmes and their convergence programmes;

(14) Whereas the Council, when examining and monitoring the stabil ity programmes and the convergence programmes and in particular their medium-term budgetary objective or the targeted adjustment path towards this objective, should take into account the relevant cyclical and structural characteristics of the economy of each Member State;

(15) Whereas in this context particular attention should be given to signic ant divergences of budgetary positions from the budgetary objectives of being close to balance or in surplus; whereas it is appropriate for the Council to give an early warning in order to prevent a government decit in a Member State becoming excessive; whereas in the event of persistent budgetary slippage it will be appropriate for the Council to reinforce its recommendation and make it public; whereas for non-participating Member States the Council may make recommendations on action to be taken to give eect to their convergence pro grammes;

(16) Whereas both convergence and stability programmes lead to the full ment of the conditions of economic convergence referred to in Article 104c, HAS ADOPTED THIS REGULATION:

[No 1055/2005 of 27 June 2005]

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 99(5) thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Central Bank 26,

Acting in accordance with the procedure laid down in Article 252 of the Treaty 27,

Whereas:

(1) The Stability and Growth Pact initially consisted of Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic poli cies 28, Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive decit procedure 29 and the Resolution of the European Council of 17 June 1997 on the Stability and Growth Pact 30. The Stability and Growth Pact has proven its usefulness in anchoring scal discipline, thereby contributing to a high degree of macroeco- nomic stability with low inflation and low interest rates, which is necessary to induce sustainable growth and employment creation;

(2) On 20 March 2005 the Council adopted a report entitled 'Improving the implementation of the Stability and Growth Pact' which aims to enhance the governance and the national ownership of the scal framework by strength ening the economic underpinnings and the eectiveness of the Pact, both in its preventive and corrective arms, to safeguard the sustainability of public nances in the long run, to promote growth and to avoid imposing excess ive burdens on future generations. The report was endorsed by the European Council in its conclusions of 23 March 2005 31, which stated that the report updates and complements the Stability and Growth Pact, of which it is now an integral part;

(3) According to the 20 March 2005 Econ report endorsed by the spring 2005 European Council, the Member States, the Council and the Commission re arm their commitment to implement the Treaty and the Stability and Growth Pact in an eective and timely manner, through peer support and peer pressure, and to act in close and constructive cooperation in the process of economic and scal surveillance, in order to guarantee certainty and eectiveness in the rules of the Pact;

(4) Regulation (EC) No 1466/97 needs to be amended in order to allow the full application of the agreed improvement of the implementation of the Stability and Growth Pact;

(5) The Stability and Growth Pact lays down the obligation for Member States to adhere to the medium-term objective for their budgetary positions of 'close to balance or in surplus' (CTBOIS). In the light of the economic and budgetary heterogeneity in the Union, the medium-term budgetary objective should be dierentiated for individual Member States, to take into account the diversity of economic and budgetary positions and developments as well as of scal risk to the sustainability of public nances, also in the face of prospective demographic changes. The medium-term budgetary objective may diverge from CTBOIS for individual Member States. For euro area and ERM2 Member States, there would thus be a dened range for the country-specic medium-term budgetary objectives, in cyclically adjusted terms, net of one-o and temporary measures;

(6) A more symmetrical approach to scal policy over the cycle through enhanced budgetary discipline in economic good times should be achieved, with the objective to avoid pro-cyclical policies and to gradually reach the medium-term budgetary objective. Adherence to the medium-term budget ary objective should allow Member States to deal with normal cyclical fluctu ations while keeping the government decit below the 3 % of GDP reference value and ensure rapid progress towards scal sustainability. Taking this into account, it should allow room for budgetary manoeuvre, in particular for pub lic investment;

(7) Member States that have not yet reached their medium-term budgetary objective should take steps to achieve it over the cycle. In order to reach their medium-term budgetary objective, Member States of the euro zone or of ERM2 should pursue a minimum annual adjustment in cyclically adjusted terms, net of one-os and other temporary measures;

(8) In order to enhance the growth-oriented nature of the Pact, major struc tural reforms which have direct long-term cost-saving eects, including by raising potential growth, and therefore a veriable impact on the long-term sustainability of public nances, should be taken into account when dening the adjustment path to the medium-term budgetary objective for countries that have not yet reached this objective and in allowing a temporary deviation from this objective for countries that have already reached it. In order not to hamper structural reforms that unequivocally improve the long-term sustain ability of public nances, special attention should be paid to pension reforms introducing a multi-pillar system that includes a mandatory, fully funded pillar, because these reforms entail a short-term deterioration of public nances during the implementation period;

(9) Deadlines set for the examination of stability and convergence programmes by the Council should be extended in order to allow for a thorough assessment of stability and convergence programmes, HAS ADOPTED THIS REGULATION:

Section 1 Purpose and Definitions

Article 1

This Regulation sets out the rules covering the content, the submission, the examination and the monitoring of stability programmes and convergence programmes as part of multilateral surveillance by the Council so as to prevent, at an early stage, the occurrence of excessive general government decits and to promote the surveillance and coordination of economic policies.

Article 2

For the purpose of this Regulation 'participating Member States' shall mean those Member States which adopt the single currency in accordance with the Treaty and 'non-participating Member States' shall mean those which have not adopted the single currency.

Section Ia Medium-Term Budgetary Objectives

Article 2a

Each Member State shall have a dierentiated medium-term objective for its budgetary position. These country-specic medium-term budgetary objectives may diverge from the requirement of a close to balance or in surplus position. They shall provide a safety margin with respect to the 3 % of GDP government decit ratio; they shall ensure rapid progress towards sustainability and, taking this into account, they shall allow room for budgetary manoeuvre, considering in particular the needs for public investment.

Taking these factors into account, for Member States that have adopted the euro and for ERM2 Member States the country-specic medium-term budgetary objectives shall be specied within a dened range between - 1 % of GDP and balance or surplus, in cyclically adjusted terms, net of one-o and temporary measures.

A Member State's medium-term budgetary objective can be revised when a major structural reform is implemented and in any case every four years.

Section 2 Stability Programmes

Article 3

1. Each participating Member State shall submit to the Council and Com mission information necessary for the purpose of multilateral surveillance at regular intervals under Article gg of the Treaty in the form of a stability pro gramme, which provides an essential basis for price stability and for strong sustainable growth conducive to employment creation.

2. A stability programme shall present the following information:

(a) the medium-term budgetary objective and the adjustment path towards this objective for the general government surplus/decit and the expected path of the general government debt ratio;

(b) the main assumptions about expected economic developments and impor tant economic variables which are relevant to the realisation of the stabil ity programme such as government investment expenditure, real gross domestic product (GDP) growth, employment and inflation;

(c) a detailed and quantitative assessment of the budgetary and other economic policy measures being taken and/or proposed to achieve the objectives of the programme, comprising a detailed cost-benet analysis of major struc tural reforms which have direct long-term cost-saving eects, including by raising potential growth;

(d) an analysis of how changes in the main economic assumptions would aect the budgetary and debt position;

(e) if applicable, the reasons for a deviation from the required adjustment path towards the medium term budgetary objective.

3. The information about paths for the general government surplus/decit ratio and debt ratio and the main economic assumptions referred to in para graph 2(a) and (b) shall be on an annual basis and shall cover, as well as the current and preceding year, at least the following three years.

Article 4

1. Stability programmes shall be submitted before i March 1999. Thereafter, updated programmes shall be submitted annually. A Member State adopting the single currency at a later stage shall submit a stability programme within six months of the Council Decision on its participation in the single currency.

2. Member States shall make public their stability programmes and updated programmes.

Article 5

1. Based on assessments by the Commission and the Committee set up by Article 114 of the Treaty, the Council shall, within the framework of multilateral surveillance under Article 99 of the Treaty, examine the medium-term budgetary objective presented by the Member State concerned, assess whether the economic assumptions on which the programme is based are plausible, whether the adjustment path towards the medium-term budgetary objective is appropriate and whether the measures being taken and/or proposed to respect that adjustment path are sucient to achieve the medium-term objective over the cycle.

The Council, when assessing the adjustment path toward the medium-term budgetary objective, shall examine if the Member State concerned pursues the annual improvement of its cyclically-adjusted balance, net of one-o and other temporary measures, required to meet its medium-term budgetary objective, with 0.5 % of GDP as a benchmark. The Council shall take into account whether a higher adjustment eort is made in economic good times, whereas the eort maybe more limited in economic bad times.

When dening the adjustment path to the medium-term budgetary objective for Member States that have not yet reached this objective and in allowing a temporary deviation from this objective for Member States that have already reached it, under the condition that an appropriate safety margin with respect to the decit reference value is preserved and that the budgetary position is expected to return to the medium-term budgetary objective within the programme period, the Council shall take into account the implementation of major structural reforms which have direct long-term cost-saving eects, including by raising potential growth, and therefore a veriable impact on the long-term sustainability of public nances.

Special attention shall be paid to pension reforms introducing a multi-pillar system that includes a mandatory, fully funded pillar. Member States implementing such reforms shall be allowed to deviate from the adjustment path to their medium-term budgetary objective or from the objective itself, with the deviation reflecting the net cost of the reform to the publicly managed pillar, under the condition that the deviation remains temporary and that an appropriate safety margin with respect to the decit reference value is preserved.

The Council shall furthermore examine whether the contents of the stability programme facilitate the closer coordination of economic policies and whether the economic policies of the Member State concerned are consistent with the broad economic policy guidelines.

2. The Council shall carry out the examination of the stability programme referred to in paragraph 1 within at most three months of the submission of the programme. The Council, on a recommendation from the Commission and after consulting the Committee set up by Article 114, shall deliver an opinion on the programme. Where the Council, in accordance with Article 99, consid ers that the objectives and contents of a programme should be strengthened, the Council shall, in its opinion, invite the Member State concerned to adjust its programme.

3. Updated stability programmes shall be examined by the Committee set up by Article 114 on the basis of assessments by the Commission; if necessary, updated programmes may also be examined by the Council in accordance with the procedure set out in paragraphs 1 and 2 of this Article.

Article 6

1. As part of multilateral surveillance in accordance with Article 99(3), the Council shall monitor the implementation of stability programmes, on the basis of information provided by participating Member States and of assessments by the Commission and the Committee set up by Article 114, in particular with a view to identifying actual or expected signicant divergence of the budgetary position from the medium-term budgetary objective, or the adjustment path towards it, as set in the programme for the government surplus/decit.

2. In the event that the Council identies signicant divergence of the budget ary position from the medium-term budgetary objective, or the adjustment path towards it, it shall, with a view to giving early warning in order to pre vent the occurrence of an excessive decit, address, in accordance with Art icle 99(4), a recommendation to the Member State concerned to take the nec essary adjustment measures.

3. In the event that the Council in its subsequent monitoring judges that the divergence of the budgetary position from the medium-term budgetary objec tive, or the adjustment path towards it, is persisting or worsening, the Council shall, in accordance with Article 99(4), make a recommendation to the Mem ber State concerned to take prompt corrective measures and may, as provides in that Article, make its recommendation public.

Section 3 Convergence Programmes

Article 7

1. Each non-participating Member State shall submit to the Council and the Commission information necessary for the purpose of multilateral surveillance of regular intervals under Article gg in the form of a convergence programme, which provides an essential basis for price stability and for strong sustainable growth conducive to employment creation.

2. A convergence programme shall present the following information in particular on variables related to convergence:

(a) the medium-term budgetary objective and the adjustment path towards this objective for the general government surplus/decit and the expected path of the general government debt ratio; the medium-term monetary policy objectives; the relationship of those objectives to price and exchange rate stability;

(b) the main assumptions about expected economic developments and import ant economic variables which are relevant to the realisation of the conver gence programme, such as government investment expenditure, real GDP growth, employment and inflation;

(c) a detailed and quantitative assessment of the budgetary and other economic policy measures being taken and/or proposed to achieve the objectives of the programme, comprising a detailed cost-benet analysis of major struc tural reforms which have direct long-term cost-saving eects, including by raising potential growth;

(d) an analysis of how changes in the main economic assumptions would aect the budgetary and debt position;

(e) if applicable, the reasons for a deviation from the required adjustment path towards the medium term budgetary objective.

3. The information about paths for the general government surplus/decit ratio, debt ratio and the main economic assumptions referred to in paragraph 2(a) and (b) shall be on an annual basis and shall cover, as well as the current and preceding year, at least the following three years.

Article 8

1. Convergence programmes shall be submitted before 1 March 1999. Thereafter, updated programmes shall be submitted annually.

2. Member States shall make public their convergence programmes and updated programmes.

Article 9

1. Based on assessments by the Commission and the Committee set up by Article 114 of the Treaty, the Council shall, within the framework of multilateral surveillance under Article 99 of the Treaty, examine the medium-term budgetary objective presented by the Member State concerned, assess whether the economic assumptions on which the programme is based are plausible, whether the adjustment path towards the medium-term budgetary objective is appropriate and whether the measures being taken and/or proposed to respect that adjustment path are sucient to achieve the medium-term objective over the cycle.

The Council, when assessing the adjustment path toward the medium-term budgetary objective, shall take into account whether a higher adjustment eort is made in economic good times, whereas the eort may be more limited in economic bad times. For ERM2 Member States, the Council shall examine if the Member State concerned pursues the annual improvement of its cyclically adjusted balance, net of one-o and other temporary measures, required to meet its medium-term budgetary objective, with 0.5 % of GDP as a benchmark.

When dening the adjustment path to the medium-term budgetary objective for Member States that have not yet reached this objective and in allowing a temporary deviation from this objective for Member States that have already reached it, under the condition that an appropriate safety margin with respect to the decit reference value is preserved and that the budgetary position is expected to return to the medium-term budgetary objective within the programme period, the Council shall take into account the implementation of major structural reforms which have direct long-term cost-saving eects, including by raising potential growth, and therefore a veriable impact on the long-term sustainability of public nances.

Special attention shall be paid to pension reforms introducing a multi-pillar system that includes a mandatory, fully funded pillar. Member States implementing such reforms shall be allowed to deviate from the adjustment path to their medium-term budgetary objective or from the objective itself, with the deviation reflecting the net cost of the reform to the publicly managed pillar, under the condition that the deviation remains temporary and that an appropriate safety margin with respect to the decit reference value is preserved.

The Council shall furthermore examine whether the contents of the convergence programme facilitate the closer coordination of economic policies and whether the economic policies of the Member State concerned are consistent with the broad economic policy guidelines.

2. The Council shall carry out the examination of the convergence programme referred to in paragraph 1 within at most three months of the submission of the programme. The Council, on a recommendation from the Commission and after consulting the Committee set up by Article 114, shall deliver an opinion on the programme. Where the Council, in accordance with Article 99, consid ers that the objectives and contents of a programme should be strengthened, the Council shall, in its opinion, invite the Member State concerned to adjust its programme.

3. Updated convergence programmes shall be examined by the Committee set up by Article 114 on the basis of assessments by the Commission; if neces sary, updated programmes may also be examined by the Council in accordance with the procedure set out in paragraphs 1 and 2 of this Article.

Article 10

1. As part of multilateral surveillance in accordance with Article 99(3), the Council shall monitor the implementation of convergence programmes on the basis of information provided by non-participating Member States in accord ance with Article 7(2) (a) of this Regulation and of assessments by the Commis sion and the Committee set up by Article 114 of the Treaty, in particular with a view to identifying actual or expected signicant divergence of the budgetary position from the medium-term budgetary objective, or the adjustment path towards it, as set in the programme for the government surplus/decit.

In addition, the Council shall monitor the economic policies of non-participating Member States in the light of convergence programme objectives with a view to ensure that their policies are geared to stability and thus to avoid real exchange rate misalignments and excessive nominal exchange rate fluctuations.

2. In the event that the Council identies signicant divergence of the budget ary position from the medium-term budgetary objective, or the adjustment path towards it, it shall, with a view to given early warning in order to prevent the occurrence of an excessive decit, address in accordance with Article 99(4), a recommendation to the Member State concerned to take the necessary adjust ment measures.

3. In the event that the Council in its subsequent monitoring judges that the divergence of the budgetary position from the medium-term budgetary objec tive, or the adjustment path towards it, is persisting or worsening, the Council shall, in accordance with Article 99(4), make a recommendation to the Mem- ber State concerned to take prompt corrective measures and may, as provided in that Article, make its recommendation public.

Section 4 Common Provisions

Article 11

As part of the multilateral surveillance described in this Regulation, the Council shall carry out the overall assessment described in Article 99(3).

Article 12

In accordance with the second subparagraph of Article 99(4) the President of the Council and the Commission shall include in their report to the European Parliament the results of the multilateral surveillance carried out under this Regulation.

Article 13

This Regulation shall enter into force on 1 July 1998.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure

Amended by:

- Council 32 Regulation (EC) No 1056/2005 of 27 June 2005 33 [No 1467/97 of 7 July 1997]34

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular the second subparagraph of Article 104c (14) thereof,

Having regard to the proposal from the Commission 35, Having regard to the opinion of the European Parliament 36 Having regard to the opinion of the European Monetary Institute,

(1) Whereas it is necessary to speed up and to clarify the excessive decit pro cedure set out in Article 104c of the Treaty in order to deter excessive gen eral government decits and, if they occur, to further their prompt correction; whereas the provisions of this Regulation, which are to the above eect and adopted under Article iO4c(i4) second subparagraph, constitute, together with those of Protocol (No ) to the Treaty, a new integrated set of rules for the application of Article 104c;

(2) Whereas the Stability and Growth Pact is based on the objective of sound government nances as a means of strengthening the conditions for price sta bility and for strong sustainable growth conducive to employment creation;

(3) Whereas the Stability and Growth Pact consists of this Regulation, of Coun cil Regulation (EC) No 1466/97 37 which aims to strengthen the surveillance of budgetary positions and the surveillance and coordination of economic pol icies and of the Resolution of the European Council of 17 June 1997 on the Sta bility and Growth Pact 38, in which, in accordance with Article 4 of the Treaty on European Union, rm political guidelines are issued in order to implement the Stability and Growth Pact in a strict and timely manner and in particular to adhere to the medium term objective for budgetary positions of close to balance or in surplus, to which all Member States are committed, and to take the corrective budgetary action they deem necessary to meet the objectives of their stability and convergence programmes, whenever they have information indicating actual or expected signicant divergence from the medium-term budgetary objective;

(4) Whereas in Stage III of economic and monetary union (EMU) the Member States are, according to Article 104c of the Treaty, under a clear Treaty obligation to avoid excessive government decits; whereas under Article 5 of Protocol (No 11) to the Treaty, paragraphs 1, 9 and 11 of Article 104c do not apply to the United Kingdom unless it moves to the third stage; whereas the obligation under Article 1096(4) to endeavour to avoid excessive decits will continue to apply to the United Kingdom;

(5) Whereas Denmark, referring to paragraph 1 of Protocol (No 12) to the Treaty has notied, in the context of the Edinburgh decision of 12 December 1992, that it will not participate in the third stage; whereas, therefore, in accordance with paragraph 2 of the said Protocol, paragraphs 9 and 11 of Article 104c shall not apply to Denmark;

(6) Whereas in Stage III of EMU Member States remain responsible for their national budgetary policies, subject to the provisions of the Treaty; whereas the Member States will take the necessary measures in order to meet their respons ibilities in accordance with the provisions of the Treaty;

(7) Whereas adherence to the medium-term objective of budgetary positions close to balance or in surplus to which all Member States are committed, con tributes to the creation of the appropriate conditions for price stability and for sustained growth conducive to employment creation in all Member States and will allow them to deal with normal cyclical fluctuations while keeping the government decit within the 3 % of GDP reference value;

(8) Whereas for EMU to function properly, it is necessary that convergence of economic and budgetary performances of Member States which have adopted the single currency, hereafter referred to as 'participating Member States', proves stable and durable; whereas budgetary discipline is necessary in stage three of EMU to safeguard price stability;

(9) Whereas according to Article 109^3) Articles iO4c(9) and (11) only apply to participating Member States;

(10) Whereas it is necessary to dene the concept of an exceptional and temporary excess over the reference value as referred to in Article iO4c(2)(a); whereas the Council should in this context, inter alia, take account of the pluri- annual budgetary forecasts provided by the Commission;

(11) Whereas a Commission report in accordance with Article iO4c(3) is also to take into account whether the government decit exceeds government invest ment expenditure and take into account all other relevant factors, including the medium-term economic and budgetary position of the Member State;

(12) Whereas there is a need to establish deadlines for the implementation of the excessive decit procedure in order to ensure its expeditious and eect ive implementation; whereas it is necessary in this context to take account of the fact that the budgetary year of the United Kingdom does not coincide with the calendar year;

(13) Whereas there is a need to specify how the sanctions provided for in Article 104c could be imposed in order to ensure the eective implementation of the excessive decit procedure;

(14) Whereas reinforced surveillance under the Council Regulation (EC)No 1466/97 together with the Commission's monitoring of budgetary positions in accordance with paragraph 2 of Article 104c should facilitate the eect ive and rapid implementation of the excessive decit procedure;

(15) Whereas in the light of the above, in the event that a participating Mem ber State fails to take eective action to correct an excessive decit, an overall maximum period of ten months from the reporting date of the gures indic ating the existence of an excessive decit until the decision to impose sanc tions, if necessary, seems both feasible and appropriate in order to exert pres sure on the participating Member State concerned to take such action; in this event, and if the procedure starts in March, this would lead to sanctions being imposed within the calendar year in which the procedure had been started;

(16) Whereas the Council recommendation for the correction of an exces sive decit or the later steps of the excessive decit procedure, should have been anticipated by the Member State concerned, which would have had an early warning; whereas the seriousness of an excessive decit in stage three should call for urgent action from all those involved;

(17) Whereas it is appropriate to hold the excessive decit procedure in abey ance if the Member State concerned takes appropriate action in response to a recommendation under Article 1040(7) or a notice issued under Article 1040(9) in order to provide an incentive to Member States to act accordingly; whereas the time period during which the procedure would be held in abeyance should not be included in the maximum period of ten months between the report ing date indicating the existence of an excessive decit and the imposition of sanctions; whereas it is appropriate to resume the procedure immediately if the envisaged action is not being implemented or if the implemented action is proving to be inadequate;

(18) Whereas, in order to ensure that the excessive decit procedure has a sucient deterrent eect, a non-interest-bearing deposit of an appropriate size should be required from the participating Member State concerned, whenever the Council decides to impose a sanction;

(19) Whereas the denition of sanctions on a prescribed scale is conducive to legal certainty; whereas it is appropriate to relate the amount of the deposit to the GDP of the participating Member State concerned;

(20) Whereas, whenever the imposition of a non-interest-bearing deposit does not induce the participating Member State concerned to correct its exces sive decit in due time, it is appropriate to intensify the sanctions; whereas it is then appropriate to transform the deposit into a ne;

(21) Whereas appropriate action by the participating Member State con cerned in order to correct its excessive decit is the rst step towards abroga tion of sanctions; whereas signicant progress in correcting the excessive de cit should allow for the lifting of sanctions in accordance with paragraph 12 of Article 104c; whereas the abrogation of all outstanding sanctions should only occur once the excessive decit has been totally corrected;

(22) Whereas Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive decit procedure annexed to the Treaty establishing the European Community (39) contains detailed rules for the reporting of budgetary data by Member States;

(23) Whereas, according to Article i09f(8), where the Treaty provides for a con sultative role for the European Central Bank (ECB), references to the ECB shall be read as referring to the European Monetary Institute before the establish ment of the ECB, HAS ADOPTED THIS REGULATION: [No 1056/2005 of 27 June 2005]

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular the second subparagraph of Article 104(14) thereof,

Having regard to the proposal from the Commission, Having regard to the opinion of the European Central Bank 40, Having regard to the opinion of the European Parliament 41, Whereas:

(1) The Stability and Growth Pact initially consisted of Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies 42, Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive decit procedure 43 and the Resolution of the European Council of 17 June 1997 on the Stability and Growth Pact (). The Stability and Growth Pact has proven its usefulness in anchoring scal discipline, thereby contributing to a high degree of macroeco-nomic stability with low inflation and low interest rates, which is necessary to induce sustainable growth and employment creation.

(2) On 20 March 2005 the Council adopted a report entitled 'Improving the implementation of the Stability and Growth Pact' which aims to enhance the governance and the national ownership of the scal framework by strength ening the economic underpinnings and the eectiveness of the Pact, both in its preventive and corrective arms, to safeguard the sustainability of public nances in the long run, to promote growth and to avoid imposing exces sive burdens on future generations. The report was endorsed by the European Council in its conclusions of 23 March 2005 (), which stated that the report updates and complements the Stability and Growth Pact, of which it is now an integral part.

(3) According to the 20 March 2005 Econ report endorsed by the spring 2005 European Council, the Member States, the Council and the Commis sion rearm their commitment to implement the Treaty and the Stability and Growth Pact in an eective and timely manner, through peer support and peer pressure, and to act in close and constructive cooperation in the process of eco nomic and scal surveillance, in order to guarantee certainty and eectiveness in the rules of the Pact.

(4) Regulation (EC) No 1467/97 needs to be amended in order to allow the full application of the agreed improvement of the implementation of the Stability and Growth Pact.

(5) The guiding principle for the application of the excessive decit procedure is the prompt correction of an excessive decit. The procedure should remain simple, transparent and equitable.

(6) The concept of exceptional excess over the reference value resulting from a severe economic downturn should be revised. In doing so, due account should be taken of the economic heterogeneity in the European Union.

(7) The Commission should always prepare a report on the basis of Article 104(3) of the Treaty. In its report, it should examine whether the exceptions provided for in Article 104(2) apply. The Commission report under Art icle 104(3) should appropriately reflect developments in 3the medium-term economic position and in the medium-term budgetary position. Furthermore, due consideration should be given to any other factors which, in the opinion of the Member State concerned, are relevant in order to comprehensively assess in qualitative terms the excess over the reference value.

(8) Careful consideration should be given in all budgetary assessments in the framework of the excessive decit procedure to an excess close to the refer ence value which reflects the implementation of pension reforms introducing a multi-pillar system that includes a mandatory, fully funded pillar, because the implementation of those reforms leads to a short-term deterioration of the budgetary position, while the long-term sustainability of public nances clearly improves. In particular, when assessing under Article 104(12) of the Treaty whether the excessive decit has been corrected, the Commission and the Council should assess developments in EDP decit gures while also con sidering the net cost of the reform to the publicly managed pillar.

(9) The procedural deadlines for Council decisions in the excessive decit procedure should be extended in order to allow the Member State concerned to better frame its action within the national budgetary procedure and to develop a more coherent package of measures. In particular, the deadline for the Council to decide on the existence of an excessive decit in accordance with Article 104(6) of the Treaty should be set, as a rule, to four months after the reporting dates established in Article 4(2) and (3) of Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive decit procedure annexed to the Treaty establishing the European Community 46. This would address the cases in which the budgetary statist ical data has not been validated by the Commission (Eurostat) shortly after the reporting dates established in Regulation (EC) No 3605/93.

(10) In order to ensure a prompt correction of excessive decits, it is necessary for Member States that are in a situation of excessive decit to take eective action and to achieve an annual minimum scal improvement in their cyclic ally adjusted balance, net of one-o and temporary measures. As a benchmark, countries in excessive decit will be required to achieve an annual minimum scal eort in cyclically adjusted terms, net of one-o and temporary measures.

(11) Maximum time periods within which Member States are to take eective action and measures should be extended to allow better framing of the action in the national budgetary procedures and the development of more articulated packages of measures.

(12) If the Member State concerned has taken eective action in response to a recommendation under Article 104(7) of the Treaty or a notice issued under Article 104(9) and unexpected adverse economic events with major negative consequences for government nances prevent the correction of the excessive decit within the time limit set by the Council, it should be possible for the Council to issue a revised recommendation under Article 104(7) or a revised notice under Article 104(9).

(13) The current overall maximum period of 10 months from the reporting dates established in Article 4(2) and (3) of Regulation (EC) No 3605/93 until the decision to impose sanctions would be inconsistent with the amended deadlines in each step of the procedure and the possibility to issue revised recommendations under Article 104(7) of the Treaty or revised notices under Article 104(9). The overall maximum period should therefore be adjusted in accordance with these amendments.

(14) The provisions applicable to the implementation of the excessive decit procedure in the case of the United Kingdom, which are set out in the Annex to Regulation (EC) No 1467/97, also need to be modied to reflect those changes, HAS ADOPTED THIS REGULATION:

Section 1 Definitions and Assessments

Article 1

1. This Regulation sets out the provisions to speed up and clarify the excessive decit procedure, having as its objective to deter excessive general government decits and, if they occur, to further their prompt correction.

2. For the purpose of this Regulation 'participating Member States' shall mean those Member States which adopt the single currency in accordance with the Treaty and 'non-participating Member States' shall mean those which have not adopted the single currency.

Article 2

1. The excess of a government decit over the reference value shall be consid ered exceptional and temporary, in accordance with Article 104(2) (a), second indent, when resulting from an unusual event outside the control of the Member State concerned and which has a major impact on the nancial position of the general government, or when resulting from a severe economic downturn.

In addition, the excess over the reference value shall be considered temporary if budgetary forecasts as provided by the Commission indicate that the decit will fall below the reference value following the end of the unusual event or the severe economic downturn.

2. The Commission and the Council, when assessing and deciding upon the existence of an excessive decit in accordance with Article 104(3) to (6) of the Treaty, may consider an excess over the reference value resulting from a severe economic downturn as exceptional in the sense of the second indent of Article io4(2)(a) if the excess over the reference value results from a negative annual GDP volume growth rate or from an accumulated loss of output during a protracted period of very low annual GDP volume growth relative to its potential.

3. The Commission, when preparing a report under Article 104(3) of the Treaty shall take into account all relevant factors as indicated in that Article. The report shall appropriately reflect developments in the medium-term economic position (in particular potential growth, prevailing cyclical conditions, the implementation of policies in the context of the Lisbon agenda and policies to foster research and development and innovation) and developments in the medium-term budgetary position (in particular, scal consolidation eorts in 'good times', debt sustainability, public investment and the overall quality of public nances). Furthermore, the Commission shall give due consideration to any other factors which, in the opinion of the Member State concerned, are relevant in order to comprehensively assess in qualitative terms the excess over the reference value and which the Member State has put forward to the Commission and to the Council. In that context, special consideration shall be given to budgetary eorts towards increasing or maintaining at a high level nancial contributions to fostering international solidarity and to achieving European policy goals, notably the unication of Europe if it has a detrimental eect on the growth and scal burden of a Member State. A balanced overall assessment shall encompass all these factors.

4. If the double condition of the overarching principle - that, before the relevant factors mentioned in paragraph 3 are taken into account, the general government decit remains close to the reference value and its excess over the reference value is temporary - is fully met, these factors shall also be taken into account in the steps leading to the decision on the existence of an excessive decit, foreseen in paragraphs , 5 and 6 of Article 104 of the Treaty. The balanced overall assessment to be made by the Council shall encompass all these factors.

5. The Commission and the Council, in all budgetary assessments in the framework of the excessive decit procedure, shall give due consideration to the implementation of pension reforms introducing a multi-pillar system that includes a mandatory, fully funded pillar.

6. If the Council has decided, on the basis of Article 104(6) of the Treaty, that an excessive decit exists in a Member State, the Commission and the Council shall take into account the relevant factors mentioned in paragraph 3 also in the subsequent procedural steps of Article 104, including as specied in Articles 3(5) and 5(2) of this Regulation. However those relevant factors shall not be taken into account for the decision of the Council under Article 104(12) of the Treaty on the abrogation of some or all of its decisions under paragraphs 6 to 9 and n of Article 104.

7. In the case of Member States where the decit exceeds the reference value, while remaining close to it, and where this excess reflects the implementation of a pension reform introducing a multi-pillar system that includes a mandatory, fully funded pillar, the Commission and the Council shall also consider the cost of the reform to the publicly managed pillar when assessing developments in EDP decit gures. For that purpose, consideration shall be given to the net cost of the reform on a linear degressive basis for a transitory period of ve years. This net cost shall be taken into account also for the decision of the Council under Article 104(12) of the Treaty on the abrogation of some or all of its decisions under paragraphs 6 to 9 and 11 of Article 104, if the decit has declined substantially and continuously and has reached a level that comes close to the reference value.

Section 2 Speeding up the Excessive Deficit Procedure

Article 3

1. Within two weeks of the adoption by the Commission of a report issued in accordance with Article 104(3), the Economic and Financial Committee shall formulate an opinion in accordance with Article 104(4).

2. Taking fully into account the opinion referred to in paragraph 1, the Com mission, if it considers that an excessive decit exists, shall address an opinion and a recommendation to the Council in accordance with Article 104(5) and(6).

3. The Council shall decide on the existence of an excessive decit in accord ance with Article 104(6) of the Treaty, as a rule within four months of the report ing dates established in Article 4(2) and (3) of Regulation (EC) No 3605/93.

When it decides that an excessive decit exists, the Council shall at the same time make recommendations to the Member State concerned in accordance with Article 104(7) of the Treaty.

4. The Council recommendation made in accordance with Article 104(7) of the Treaty shall establish a deadline of six months at most for eective action to be taken by the Member State concerned. The Council recommendation shall also establish a deadline for the correction of the excessive decit, which should be completed in the year following its identication unless there are special circumstances. In the recommendation, the Council shall request that the Member State achieves a minimum annual improvement of at least 0.5 % of GDP as a benchmark, in its cyclically adjusted balance net of one-o and temporary measures, in order to ensure the correction of the excessive decit within the deadline set in the recommendation.

5. If eective action has been taken in compliance with a recommendation under Article 104(7) and unexpected adverse economic events with major unfavourable consequences for government nances occur after the adoption of that recommendation, the Council may decide, on a recommendation from the Commission, to adopt a revised recommendation under Article 104(7). The revised recommendation, taking into account the relevant factors mentioned in Article 2(3) of this Regulation, may notably extend the deadline for the correction of the excessive decit by one year. The Council shall assess the existence of unexpected adverse economic events with major unfavourable consequences for government nances against the economic forecasts in its recommendation.

Article 4

1. Any Council decision to make public its recommendations, where it is established that no eective action has been taken in accordance with Article 104(8), shall be taken immediately after the expiry of the deadline set in accord ance with Article 3(4) of this Regulation.

2. The Council, when considering whether eective action has been taken in response to its recommendations made in accordance with Article 104(7), shall base its decision on publicly announced decisions by the Government of the Member State concerned.

Article 5

1. Any Council decision to give notice to the participating Member State concerned to take measures for the decit reduction in accordance with Art icle 104(9) of the Treaty shall be taken within two months of the Council deci sion establishing that no eective action has been taken in accordance with Article 104(8). In the notice, the Council shall request that the Member State achieves a minimum annual improvement of at least 0.5 % of GDP as a bench mark, in its cyclically adjusted balance net of one-o and temporary measures, n order to ensure the correction of the excessive decit within the deadline set in the notice.

2. If eective action has been taken in compliance with a notice under Art icle 104(9) of the Treaty and unexpected adverse economic events with major unfavourable consequences for government nances occur after the adoption of that notice, the Council may decide, on a recommendation from the Commission, to adopt a revised notice under Article 104(9) of the Treaty. The revised notice, taking into account the relevant factors mentioned in Article 2(3) of this Regulation, may notably extend the deadline for the correction of the excessive decit by one year. The Council shall assess the existence of unexpected adverse economic events with major unfavourable consequences for government nances against the economic forecasts in its notice.

Article 6

Where the conditions to apply Article 104(11) are met, the Council shall impose sanctions in accordance with Article 104(11). Any such decision shall be taken no later than four months after the Council decision giving notice to the participating Member State concerned to take measures in accordance with Article 104(9).

Article 7

If a participating Member State fails to act in compliance with the successive decisions of the Council in accordance with Article 104(7) and (9) of the Treaty, the decision of the Council to impose sanctions, in accordance with Article 104(11), shall be taken as a rule within 16 months of the reporting dates established in Article 4(2) and (3) of Regulation (EC) No 3605/93. In case Article 3(5) or 5(2) of this Regulation is applied, the 16-month deadline is amended accordingly. An expedited procedure shall be used in the case of a deliberately planned decit which the Council decides is excessive.

Article 8

Any Council decision to intensify sanctions, in accordance with Article 104(11), other than the conversion of deposits into nes under Article 14 of this Regulation, shall be taken no later than two months after the reporting dates pursuant to Regulation (EC) No 3605/93. Any Council decision to abrogate some or all of its decisions in accordance with Article 104(12) shall be taken as soon as possible and in any case no later than two months after the reporting dates pursuant to Regulation (EC) No 3605/93.

Section 3 Abeyance and Monitoring

Article 9

1. The excessive decit procedure shall be held in abeyance:

- if the Member State concerned acts in compliance with recommendations made in accordance with Article 104(7),

- if the participating Member State concerned acts in compliance with notices given in accordance with Article 104(9).

2. The period during which the procedure is held in abeyance shall be included neither in the period referred to in Article 6 nor in the period referred to in Article 7 of this Regulation.

3. Following the expiry of the period referred to in the rst sentence of Art icle 3(4) and following the expiry of the period referred to in the second sentence of Article 6 of this Regulation, the Commission shall inform the Council if it con siders that the measures taken seem sucient to ensure adequate progress towards the correction of the excessive decit within the time limits set by the Council, provided that they are fully implemented and that economic developments are in line with forecasts. The Commission statement shall be made public.

Article 10

1. The Commission and the Council shall monitor the implementation of action taken:

- by the Member State concerned in response to recommendations made under Article 104(7),

- by the participating Member State concerned in response to notices given under Article 104(9).

2. If action by a participating Member State is not being implemented or, in the Council's view, is proving to be inadequate, the Council shall immediately take a decision under Article 104(9) or Article 104(11) respectively.

3. If actual data pursuant to Regulation (EC) No 3605/93 indicate that an excessive decit has not been corrected by a participating Member State within the time limits specied either in recommendations issued under Article 104(7) or notices issued under Article 104(9), the Council shall immediately take a decision under Article 104(9) or Article 104(11) respectively.

Section 4 Sanctions

Article 11

Whenever the Council decides to apply sanctions to a participating Member State in accordance with Article 104(11), a non-interest-bearing deposit shall, as a rule, be required. The Council may decide to supplement this deposit by the measures provided for in the rst and second indents of Article 104(11).

Article 12

1. When the excessive decit results from non-compliance with the criterion relating to the government decit ration in Article iO4(2)(a), the amount of the rst deposit shall comprise a xed component equal to 0.2 % of GDP, and a variable component equal to one tenth of the dierence between the decit as a percentage of GDP in the preceding year and the reference value of 3 % of GDP.

2. Each following year, until the decision on the existence of an excessive decit is abrogated, the Council shall assess whether the participating Member State concerned has taken eective action in response to the Council notice in accordance with Article 104(9). In this annual assessment the Council shall decide, in accordance with Article 104(11), and without prejudice to Article 13 of this Regulation, to intensify the sanctions, unless the participating Member State concerned has complied with the Council notice. If an additional deposit is decided, it shall be equal to one tenth of the dierence between the decit as a percentage of GDP in the preceding year and the reference value of 3 % of GDP.

3. Any single deposit referred to in paragraphs 1 and 2 shall not exceed the upper limit of 0.5 % of GDP.

Article 13

A deposit shall, as a rule, be converted by the Council, in accordance with Article 104(11), into a ne if two years after the decision to require the participating Member State concerned to make a deposit, the excessive decit has in the view of the Council not been corrected.

Article 14

1. In accordance with Article 104(12), the Council shall abrogate the sanctions referred to in the rst and second indents of Article 104(11) depending on the signicance of the progress made by the participating Member State concerned in correcting the excessive decit.

Article is

In accordance with Article 104(12), the Council shall abrogate all outstanding sanctions if the decision on the existence of an excessive decit is abrogated. Fines imposed in accordance with Article 13 of this Regulation will not be reimbursed to the participating Member State concerned.

Article 16

Deposits referred to in Articles 11 and 12 of this Regulation shall be lodged with the Commission. Interest on the deposits, and the nes referred to in Article 13 of this Regulation constitute other revenue referred to in Article 269 of the Treaty and shall be distributed among participating Member States without a decit that is excessive as determined in accordance with Article 104(6) in proportion to their share in the total GNP of the eligible Member States.

Section 5 Transitional and Final Provisions

Article 17

For the purpose of this Regulation and for as long as the United Kingdom has a budgetary year which is not a calendar year, the provisions of sections 2, 3 and 4 of this Regulation shall be applied to the United Kingdom in accordance with the Annex.

Article 18

This Regulation shall enter into force on 1 January 1999.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Annex: Time Limits Applicable to the United Kingdom

In order to ensure equal treatment of all Member States, the Council, when taking decisions in Sections 2, 3 and 4 of this Regulation, shall have regard to the dierent budgetary year of the United Kingdom, with a view to taking decisions with regard to the United Kingdom at a point in its budgetary year similar to that at which decisions have been or will be taken in the case of other Member States.

The provisions specied in Column I shall be substituted by the provisions specied in Column II.

-------------------

OJ C 236, 2.8.1997, pp. 1 and 2.

Under Article 5 of Protocol n, this obligation does not apply to the United Kingdom unless it moves to the third stage; the obligation under Article 1096(4) of the Treaty establishing the European Community to endeavour to avoid excessive decits shall continue to apply to the United Kingdom.

OJ L 139,11.5.1998, pp. 28 and 29.

Council Regulation (EC) No 1466/97 of 7 July 1997 (OJ L 209, 2.8.1997, p. 1).

OJ L 332, 31.12.1993, p. 7.

OJ L 58, 3.3.2000, p. 1.

OJ L , 26.2.2002, p. 23.

OJ L 337, 22.12.2005, P-1-

OJ C 324,1.12.1993, P- 8; and OJ C 340,17.12.1993, p. 8.

OJ C 329, 6.12.1993.

Statistical Oce of the European Communities, European System of Integrated Economic Accounts (ESA), second edition.

OJ L 49, 21.2.1989, p. 26.

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).

OJ L 59, 6.3.1991, p. 19.

OJ L 209, 2.8.1997, p. 1.

OJ L174,7-7.2005, p. 1.

NB: The preamble and the recitals of both the original and the amending Regulation are reproduced.

OJ C 368, 6.12.1996, p. 9.

Opinion of the European Parliament of 28 November 1996 (OJ C 380, 16.12.1996, p. 28), Council Common Position of 14 April 1997 (OJ C 146, 30.5.1997, p. 26) and Decision of the European Parliament of 29 May 1997 (OJ C182,16.6.1997).

Seep. 6 of this Ocial Journal.

OJ C 236, 2.8.1997, p. 1.

OJ C 144,14.6.2005, p. 17.

Opinion of the European Parliament of 9 June 2005 (OJ C 124 E, 25.5.2006, pp. 517-520), Council Common Position of 21 June 2005 (OJ C 188 E, 2.8.2005, pp.1-10), and Decision of the European Parliament of 23 June 2005.

OJ L 209, 2.8.1997, p. 1.

OJ L 209, 2.8.1997, p. 6.

OJ C 236, 2.8.1997, p. 1.

Annex 2 to conclusions of the European Council of 22 and 23 March 2005.

OJ L 209, 2.8.1997, p. 6.

OJ L 174, 7-7-2005, p. 4

NB: The preamble and the recitals of both the original and the amending Regulation are reproduced.

OJ C 368, 6.12.1996, p. 12.

OJ C 380,16.12.1996, p. 29.

See p. 1 of this Ocial Journal.

OJ C 236, 2.8.1997, p. 1.

OJ L 332, 31.12.1993, p. 7.

OJ C 144,14.6.2005, p. 16.

Opinion of 9 June 2005 (OJ C 124 E, 25.5.2006, pp. 524-526).

OJ L 209, 2.8.1997, p. 1.

OJ L 209, 2.8.1997, p. 6.

OJ C 236, 2.8.1997, p. 1.

Annex 2 to conclusions of the European Council of 22 and 23 March 2005.

OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 351/2002 (OJ L , 26.2.2002, p. 23).