52000AG0418(02)

Council Opinion

of 13 March 2000

on the updated stability programme of Luxembourg, 1999 to 2003

(2000/C 111/02)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to 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(1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 13 March 2000 the Council examined the 1999 update of the stability programme of Luxembourg which covers the period 1999 to 2003. The Council notes with satisfaction that the situation of public finances improved further in the last two years and the budgetary targets set in the initial stability proramme of Luxemburg have been exceeded. The general government surplus for 1999 in now estimated at 2,3 % of GDP compared to 1,2 % initially projected, while the general government gross debt was reduced further to about 4,3 % of GDP. The Council considers that the updated stability programme is consistent with the broad economic policy guidelines.

The Council notes that continuing commitment to sound economic policies, in particular budgetary policies, enabled Luxembourg to achieve high GDP growth rates and created the conditions for improved growth prospects in the years ahead; real GDP growth is estimated to have reached 4,9 % in 1999, while forecasts for 2000 and 2001 point to growth rates clearly above 5 %.

The Council notes that the updated programme, based on better budgetary outcomes in the last wo years and improved economic prospects, is projecting more ambitious budgetary outcomes than the initial programme; the general government surplus is projected to rise to 2,5 % of GDP in 2000 and to 3,1 % in 2003. The Council considers that the underlying financial position of the general government corresponding to the projected surpluses over the period of the programme to 2003 provides an adequate safety margin against breaching the 3 % of GDP deficit threshold, under normal circumstances.

The Council acknowledges that policies aimed at enhancing the capacity of a small open economy such as Luxembourg to face unfavourable external influences are appropriate; it commends in this regard the measures aimed at strengthening the reserve funds; it also commends building sufficient reserves in the area of pension provision and social security in general; it encourages the government to continue combining such prudential measures with policies and reforms aimed at enhancing the potential of the economy; it welcomes the increased resources allocated to government investment.

The Council notes the commitment, included in the initial stability programme, to limit the increase in central government expenditure. The Council acknowledges, that the public finance projections of the updated programme show a decline in total expenditure to GDP ratio by almost two percentage points at central government level, between 2000 and 2003, a development which would allow the recuction in the revenue to GDP ratio in the same period; it encourages the Luxembourg government to pursue these expenditure targets.

The Council encourages the government to be ready to tighten the stance of fiscal policy in the event of risks of inflationary pressure, notably in view of the current and prospective high rates of economic growth.

(1) OJ L 209, 2.8.1997, p. 1.