Netherlands out of excessive deficit procedure

The European Commission yesterday recommended closing the excessive deficit procedure for the Netherlands after the Dutch government cut the deficit to below 2.3 per cent of GDP in 2004 from 3.2 per cent in 2003.

The deficit is projected to decline further this year and next ensuring that the Netherlands is firmly back on the path of healthy fiscal consolidation.

Although Malta has considerably improved its financial situation over the past year, as confirmed by the EU last January, it is still being considered by the Commission as having an excessive deficit and thus the procedure initiated last summer against Malta still stands.

Besides Malta, another eight countries are left in the excessive deficit procedure, the Commission said.

According to EU rules, a member state should not exceed the three per cent deficit mark in its government finances. The government has pledged to reduce the deficit to under three per cent by the end of next year.

Following an analysis last December, the European Commission concluded that Malta was on track to correct its financial deficit and no further recommendations were required at that stage.

The Commission had said that "based on current information and on the basis of the measures detailed in the 2005 budget, it appears that the Maltese government has taken effective action regarding the measures envisaged to achieve the 2005 deficit target in response to the Council recommendation".

Brussels sources said that the Commission will soon start a new analysis in order to verify that the plans submitted by Malta for the current year are being met.

Economy and Monetary Affairs Commissioner Joachim Almunia said that the Dutch case shows that budgetary consolidation undertaken with resolve can lead to quick and sustainable results.

The Commission said that according to the latest budgetary data supplied by the Netherlands, the general government deficit fell to 2.3 per cent of GDP already in 2004, which means that deficit was corrected a full year ahead of the deadline established by the Council. This figure, which reflects more complete information on local government finances, is even better than the one reported to Eurostat in the March notification (2.5 per cent).

The deficit is also expected to fall further to two per cent in 2005 and 1.6 per cent in 2006, according to the Commission's latest forecasts, therefore staying well below the three per cent reference value. This lasting reduction in the deficit can be attributed to the substantial and largely structural savings measures taken by the Dutch authorities.

The Commission said that the underlying budgetary position has also improved markedly and should continue to do so in 2005 and 2006.

As a result, the Commission recommended to the Ecofin Council to abrogate its June 2004 decision, thereby closing the excessive deficit procedure against the Netherlands.

Finance Ministers are expected to abrogate the procedure at their next meeting on June 7.