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31980H0823

80/823/EEC: Commission recommendation of 29 July 1980 on the rational use of energy in industrial enterprises

Official Journal L 239 , 12/09/1980 P. 0026 - 0037 Greek special edition: Chapter 12 Volume 2 P. 0056  Spanish special edition: Chapter 12 Volume 4 P. 0008  Portuguese special edition Chapter 12 Volume 4 P. 0008

COMMISSION RECOMMENDATION of 29 July 1980 on the rational use of energy in industrial enterprises (80/823/EEC)    THE COMMISSION OF THE EUROPEAN COMMUNITIES,  Having regard to the Treaty establishing the European Economic Community,  Whereas by its resolution of 17 December 1974 the Council instituted a Community action programme on the rational utilization of energy (1), and whereas the Commission, in its communications to the Council of 24 February 1977 (2) and 15 June 1979 (3), drew up further Community action programmes in this field;  Whereas the conclusions reached by the European Council on 12 and 13 March 1979 reaffirmed the targets for the efficient use of energy for 1985 and widened their scope;  Whereas the resolution of the European Council of 9 June 1980 (4) concerning new lines of action by the Community in the field of energy saving invites the Member States to take energy saving measures in all the principal sectors including industry;  Whereas a large part of the programme in question is concerned with the industrial sector, which can make a significant contribution to improved utilization of energy without compromising its own economic objectives;  Whereas the efficient use of energy in industry sometimes encounters obstacles which are difficult to overcome without assistance from outside, unless appropriate use is made of reciprocal information facilities and the opportunities for spreading know-how which exist, particularly at Community level, are exploited;  Whereas the difficulty of effecting energy savings is particularly acute in undertakings of modest size or undertakings for which energy is a marginal factor of production cost ; whereas, however, the total consumption of energy by these same categories of undertakings accounts for a very large share of the total energy consumption in the industrial sector;  Whereas, in order to achieve Community energy saving objectives, it is vital to identify the potential savings existing in small and medium-sized undertakings by means of official measures, together with private initiatives;  Whereas the number and scattered location of small and medium-sized undertakings, as well as their comparative isolation from research, information, consultation or assistance centres justify the use of appropriate means to carry out checks and analyses of energy consumption in such undertakings as request them;  Whereas one of the most appropriate means is a mobile service involving vehicles (energy buses) equipped with computers and measuring instruments and manned by specialists;  Whereas such a system not only makes it possible to identify a significant part of the potential savings in such enterprises, but also allows the collection of data which will provide the persons responsible for energy problems with a basis for defining a rational energy policy;  Whereas the optimum use of such a system would be its integration in a Community information and evaluation service such as to ensure the dissemination of information and an exchange of energy data between the Member States, whilst guaranteeing confidentiality;  Whereas the aid to promote the efficient use of energy in the industrial sector which already exists in some Member States, notably in the form of consultancy services, could benefit from the introduction of such a system;  Whereas the Joint Research Centre could be given the task of centralizing and evaluating data at Community level;  Whereas the establishment of this system at Community level may profit from the offer of cooperation from the Canadian Government, which is willing to make available to the Community its own experience  (1) OJ No C 153, 9.7.1975, p. 5.  (2) COM(77) 39 final.  (3) COM(79) 312 final and COM(79) 313 final.  (4) OJ No C 149, 18.6.1980, p. 3.   in this sector, under the Framework Agreement for commercial and economic cooperation between the European Communities and Canada;  Whereas the national systems should adopt certain common specifications which would inter alia make it possible to use the software available in the context of the Canadian energy bus programme;  Whereas the Member States and industry have shown interest in this initiative;  Whereas attainment of the objectives of this Community programme necessitates the conclusion of an agreement between the Commission and interested parties defining the respective obligations in relation to participation in the programme ; whereas participation should be restricted to non-profit-making bodies and natural or legal persons which, in so participating, have no objective other than to promote the rational use of energy, such as the sale of products or services likely to call into question the objectivity of the consultation,  RECOMMENDS THAT THE MEMBER STATES:       1. Promote, in the context of their programmes for the rational use of energy, the setting-up of consultation and technical assistance services, particularly for small and medium-sized undertakings, based on the "energy bus" principle described in Annex I;       2. Promote solutions capable of being incorporated into a Community information and evaluation system set up at the Ispra Establishment (1) of the Joint Research Centre and, in order to facilitate such incorporation, suggest to interested parties that they adopt the common specifications described in Annex II;       3. Invite interested parties to contact the Commission  (2) with a view to concluding an agreement, the model for which is set out in Annex III.     Done at Brussels, 29 July 1980.  For the Commission  Étienne DAVIGNON  Member of the Commission  (1) European Data System for Energy Savings, Joint Research Centre - Ispra Establishment, 21020 ISPRA (Varese) - Italy.  (2) Directorate-General for Internal Market and Industrial Affairs, Rue de la Loi, 200, 1049 Brussels.    ANNEX I THE COMMUNITY ENERGY BUS PROGRAMME PROGRAMME FOR TECHNICAL ADVICE AND SUPPORT IN THE FIELD OF RATIONAL USE OF ENERGY      1. Introduction  This programme aims at intensifying the advisory and technical assistance that is available within the European Community in the field of rational use of energy.  The programme is intended to assist mainly small and medium-sized industrial firms to save energy. Unlike large companies the small and medium ones often have neither sufficient knowledge nor the technical resources to identify either potential energy savings in their factories and workshops or, moreover, to determine appropriate energy saving measures.  The "energy bus system" has proved to be an appropriate tool for this kind of assistance and the Canadian Department of Energy, Mines and Resources (EMR) has, as part of its "National energy bus program", run such a mobile system since 1977 with great success.  Due to this, the Community programme has been based on the principle of the "energy bus system" which comprises a certain number of vehicles and an organization responsible for their operation.  The main Community characteristic of the programme is the establishment of "national energy bus systems" in the Member States by the participants in this programme and the mutual exchange of knowledge and experience, gained through the operation of their systems, between them.  In order to facilitate this exchange, a common information and evaluation service (hereunder called "Central Service") is set up at the Joint Research Centre in its Ispra Establishment (JCR - Ispra).           2. The energy bus  The energy bus according to the Canadian model, is devised to perform on-site energy audits in firms, in order to give practical advice on the rational use of energy. The bus is equipped with a computer, measuring instruments and video display units and manned by an engineer and a technician. During the advisory visit, which on average lasts one day, the firm's energy use pattern is analysed by means of the on-board computer and the potential energy savings are identified.  The advisory service includes the following:        - computer-assisted energy audits, using energy data provided beforehand by the client, supplemented by data obtained on-site by the bus personnel;               - presentation of the energy audits results to plant management via video display and hard-copy printouts;               - demonstration of the possibilities for rational energy use by means of models and audio-visual techniques;               - discussion with the plant management on the nature and magnitude of potential energy savings and preliminary advice on measures that can be taken by the client;               - a report on the results of the advisory visit which is subsequently forwarded to the client.                 The energy saving measures recommended to the client are generally simple technical solutions which can immediately be put into operation and require no or only small capital expenditure.  As to the more complicated technical problems that are identified, the client is recommended to contact a qualified consultancy firm. Therefore the energy bus is by no means to be regarded as a competitor to private consultants ; on the contrary it prepares work for them.            3. Cooperation EC/Canada  For the setting up of the energy bus system in the Community and for its operation, use will be made of the Canadian experience.  A Memorandum of Understanding concerning the cooperation between the European Community and Canada in the field of the energy bus was signed on 17 December 1979. The main objective of this cooperation is an increasing two-way flow of information and data, gained through the energy bus programmes, between the European Community and Canada.  On the basis of this Memorandum of Understanding, Canada will among other things support the Community energy bus programme in the following ways:        - making available its know-how in the field of the energy bus, including the computer software;               - training of the first European energy bus crews.               - sending to Europe for about two months a fully equipped energy bus to make demonstration visits to all interested Member States.                         4. The national energy bus system  In the Member States the participants in the Community programme establish their own energy bus system. It consists of a certain number of energy buses and an organization responsible for their operation.  The participants run their energy bus system independently and at their own discretion. However with regard to the use of common software and the exchange of software, the on-board bus computers and their peripherals should correspond to common technical specifications (see Appendix II).  The participants transmit, as specified in Appendix II, to the Central Service at Ispra anonymous information and data which they gain during the operation of their energy bus systems.  The Central Service evaluates this information and data and makes the results of this evaluation available to the participants.  In order to facilitate the exchange of computer software, it is intended that the national energy bus systems use a common computer language (BASIC).  The initial software for the on-board computers of the energy buses is made available to the participants by the Commission of the European Communities. This software oonsists of a set of computer programs developed by the Canadian Department of Energy, Mines and Resources (EMR). All computer software being developed later on by the participants and by the Central Service will be freely exchanged between these parties.  The training of the bus crews is the concern of the participants, however, Canada is prepared to train the first European crews without charge. With the assistance of these crews it should be possible to train further crews. This training could be based on a joint training scheme.  The further instruction and training of the bus crews and the mutual exchange of experience could take place largely at Community level, e.g. by means of Community seminars, symposia, periodicals and booklets.       5. The Central Information and Evaluation Service  This Central Service to be established in the Joint Research Centre at Ispra (JRC - Ispra) has the task of ensuring the exchange of information and energy data between the energy bus systems in the Member States and other partners cooperating in this field, especially the Canadian EMR.  To fulfil this task the Central Service will:   - Set up and operate a common data base containing the following types of information:      (a) the basic description of energy users,           (b) data pertaining to their energy consumption,           (c) potential energy savings,           (d) actual energy savings.   The information will be collected in the form of reports or case studies, showing how energy savings were made.      - Use the data that is fed into the data base to give statistically derived information (1) which will be made available to all partners of the Community energy bus programme.           - Set up a computer library for the field of energy saving containing especially programs and program documentation originating in energy bus systems.           - Participate in the adaptation of the Canadian software to the European conditions.           - Participate in the development and improvement of software for on-board energy bus computers.           - Organize seminars and workshops in the field of the energy bus.                  6. Start-up and duration of programme  The first phase is taken up with fulfilling the organizational and technical prerequisites for operating the buses and exchanging information and data. This means setting up the national energy bus systems and the central service at Ispra, training the bus crews and adapting the Canadian software to European conditions.  The actual energy bus programme will follow this preparatory phase as soon as energy buses in at least two Member States have been put into operation.  The evaluation of the effectiveness of the results of the cooperation at Community level will be done by the working group "Rational use of energy in industry" after three years of execution . On the basis of this evaluation, the group will furnish an opinion allowing the participants to decide on the continuation and/or possible modifications of the programme.   (1) Specific energy consumption, potential savings, average savings by industrial sector.    ANNEX II COMMON TECHNICAL SPECIFICATIONS  These specifications contain the minimum conditions to assure the good functioning of the exchange of information, data and computer programs between the participants in the Community energy bus programme and between them and other cooperating partners, especially Canada. They will be completed and extended in so far as the further development of the energy bus systems makes it necessary.      1. Software  As a future exchange of software developed by the participants in the Community energy bus programme is envisaged, only one computer language will be used for such software. At present the only computer program system available is written in the language BASIC. Therefore in order to maintain a minimum of compatibility with the existing system, new programs must also be written in BASIC.           2. Hardware  Data and computer programs will be sent on magnetic tapes to the central information and evaluation service (1). Therefore the computers used by the participants must be capable of writing on such tapes, or have the possibility of being linked with a computer that can. (The type of tape is indicated in 5.)  Finally if the programs are to be as interchangeable as possible the hardware should consist of those peripherals demanded by the system of the Canadian EMR (2).           3. Common data base  A common data base has been set up at the JRC Ispra with the aim of storing data that will be used to give information on energy saving in different industrial sectors.  It is envisaged that these data, each group of which will refer to a single visit, will be sent by the participants to Ispra on a magnetic tape. In this case, some information and data will be sent in the form of codes, details of which are to be found in Table I. Initially a limited amount of data may be sent in written form, but this of course seriously reduces the speed with which data can be stored on the data base.  Each group of data coming from visits should include, if possible, most of the elements below.  General  Visit number, country, region, date of visit.  Year of construction for buildings or year of commissioning for processes.  Type of business (NACE 1970/NIPRO 1976).  Degree-days per month, for each of the 12 months prior to the visit.  Floor space in commercial, production and other zones (m2) that are conditioned.  Number of employees.  Operating hours/week.  Operating weeks/year.  Days in the heating season.  Average inside temperature ºC.  Product name (less than 16 characters), annual production, annual gross sales in local currency.  Raw material (less than 16 characters), quantity purchased, total annual raw material cost.  (1) European Data System for Energy Savings, Joint Research Centre - Ispra Establishment, 21020 Ispra (Varese), Italy.  (2) Department of Energy, Mines and Resources.  Annual energy use  Type of energy, annual consumption, annual cost, where it is used, quantity for each use.  Waste products  Name, temperature ºC, quantity, specific heat or high heating value.  Annual energy savings  Type of energy (resource code), savings method (savings code), potential savings, pay-back on investment in years, actual savings, textually described method of achieving energy savings.  Units are assumed to be those used in this paragraph and in the resource code (Table I).  Those participants not having a bus programme, but some form of energy saving scheme, will also make information of this kind available so that an exchange between them and the bus programme members can be instigated.  Instructions for transmitting data (magnetic tape)  Basic information:  With each tape an accompanying sheet is required giving the following information:  Origin of the tape - country and region if relevant, number of files (i.e. number of groups of data referring to single visits).  (Mailing and tape instructions : see 5 and 6.)           4. Program library  In order to put a computer program into the JRC program library Eurocopi, certain information is requested and a few simple instructions must be followed.  Basic information  Program identification.  Author(s).  Software components  Computer program (magnetic tape, listing or cards).  Test data.  Complete computer-printed output of the compilation and results of the test run.  Users' manual.  Completed program abstract preferably in a computer readable form (see Eurocopi program short description form).           5. Mailing instruction >PIC FILE= "T0018833">            6. Tape instructions >PIC FILE= "T0018834">                TABLE I Various codes to be used on the data base      1. Energy savings code   1. Building insulation           2. Infiltration reduction           3. Solar gain increase           4. Air ventilation volume reduction           5. H.V.A.C. equipment improvement (HVAC ; heating, ventilation, air-conditioning)           6. Stratification reduction          7. Domestic hot-water reduction       8. Temperature set-back       9. Combustion efficiency improvement       10. Heat recovery installation       11. Process efficiency improvement       12. Tanks and piping improvement       13. Process water reduction       14. Refrigeration improvement       15. Lighting reduction       16. Power factor improvement       17. Load factor improvement       18. Electrical equipment improvement       19. Reduction of operating hours          2. Pay-back code    1. Up to three months       2. Three to 12 months       3. One to three years       4. Over three years   3. Resource code >PIC FILE= "T0018835">     4. Country code      1. France           2. Belgium           3. The Netherlands           4. Germany            5. Italy       6. The United Kingdom       7. Ireland       8. Denmark       9. Luxembourg  31. Canada          5. Regional code (to be given by Member States)    6. Industrial classification codes  General industrial classification of economic activities within the European Community, NACE 1970.  Common nomenclature of industrial products, NIPRO 1976.      ANNEX III AGREEMENT  >PIC FILE= "T0018836">    Article 1 Purpose  The purpose of this Agreement is to establish cooperation between the parties and signatories to identical agreements, hereinafter called "participants", in connection with the Community energy bus programme described in Appendix I to the Commission recommendation of 29 July 1980.   The programme is to include cooperation with Canada(1) , in accordance with the Memorandum of Understanding signed by the Commission and the Government of Canada on 17 December 1979 and the exchange of letters relating thereto of ... I.    Article 2   Obligations of the Commission  The Commission:   1.   (a) shall place at the disposal of the Contractor the initial software consisting of a number of computer programs developed by the Canadian Department of Energy, Mines and Resources and intended for use in energy bus systems;   (b) shall provide, by sending the Contractor program abstracts, information on computer programs, hereinafter called "programs", prepared for or used in energy bus systems by itself, participants and Canada;   (c) shall transmit, at the Contractor's request, those programs over which it has the right of disposal;   (d) shall offer its services to help the Contractor acquire the right to use programs over which it does not have the right of disposal;   (e) undertakes not to transmit to third parties other than participants and Canada programs which have been placed at its disposal by the Contractor, without the latter's prior consent;    (1) Cooperation with the Canadian Department of Energy, Mines and Resources.    2.   (a) shall transmit periodically to the Contractor the results of analyses carried out by it of data collected as a result of the operation of energy bus systems and communicated by participants - including the Contractor - and Canada. Such results shall especially include:    - statistics concerning energy consumption and the potential energy savings in the various sectors of industry and production processes;       - information on measures to save energy in the various sectors of industry and production processes;          (b) undertakes not to communicate to third parties any information and data transmitted to it by the Contractor which have been declared confidential by the Contractor or are not in anonymous form;   (c) shall allow the Contractor, participants and Canada free access to its common data base containing exclusively information and data in anonymous form which are not confidential or which have acquired these characteristics after processing.      Article 3   Obligations of the Contractor  The Contractor:   1.   (a) shall transfer free of charge to the Commission those programs over which it has the right of disposal;   (b) shall transmit to the Commission abstracts of those programs over which it does not have the right of disposal;   (c) undertakes to use programs placed at its disposal by the Commission only for energy conservation purposes;   (d) undertakes not to request, in respect of the programs placed at its disposal by the Commission, compensation of a financial or other nature from those receiving its assistance in energy conservation matters;   (e) undertakes not to communicate to third parties programs which have been placed at its disposal by the Commission, without the latter's prior consent;   2.   (a) shall transmit periodically to the Commission information and data in anonymous form collected as a result of the operation of its energy bus system, as indicated in Annex II to the Commission recommendation of 29 July 1980;   (b) agrees to the use of such information and data by the Commission for processing, to the storage together with the results of the processing in the Commission's data base and to their being placed at the disposal of the participants and Canada, with the exception of information and data which are declared confidential and have not lost their confidential nature after processing;   (c) undertakes not to communicate to third parties any information and data obtained from the Commission pursuant to this Agreement without the Commission's prior consent.      Article 4   Duration  This Agreement shall terminate on 30 June 1983. It may be renewed, on each occasion for a period of one year, by common agreement reached between the parties at least three months before its expiry.    Article 5   Liability  Each party shall be solely liable for any loss, damage or injury caused by it to third parties in performing this Agreement. It shall be directly responsible for making compensation therefor and shall indemnify the other party in respect of any action for compensation for such loss, damage or injury which might be brought against it.      Article 6   Sub-contracts    (a) The Contractor may not, without the prior express authorization of the Commission, assign all or part of the rights and obligations arising under this Agreement or sub-contract the performance of the Agreement, even in part.        (b) Even where the Contractor receives the authorization of the Commission to sub-contract part of the work, it shall not be released from its obligations under this Agreement towards the Commission.       (c) Save as otherwise expressly agreed by the Commission, the Contractor shall be required to include in sub-contracts all terms and conditions enabling the Community in respect of subcontractors to exercise the same rights and enjoy the same guarantees as in the case of the Contractor itself.           Article 7   Amendments or additions to the Agreement  The provisions of this Agreement may be amended or supplemented only by means of a supplementary agreement signed by each of the parties or by a representative authorized to act on their behalf.    Article 8  Financial provisions  The performance by a party of the obligations resulting from this Agreement shall not entitle it to a financial contribution from the other party.   Article 9 Non-performance or late performance    (a) Each party shall inform the other party without delay, providing it with all the relevant information, of any event likely to prejudice performance of this Agreement. The parties shall determine by common agreement the measures to be taken.       (b) In the event of non-performance by the Contractor of one or more of its obligations under this Agreement and in the absence of the agreement provided for in paragraph (a), the Commission may, by registered post, serve notice upon the Contractor. If on the expiry of one month following such service the Contractor is still in breach of its obligations, the Commission shall be entitled, irrespective of the consequences provided for in the law applicable to the Agreement, to terminate the Agreement without further formality.            Article 10  Law applicable  This Agreement is governed by ... law.(1)    Article 11  Clause conferring jurisdiction  Where a dispute arises between the parties concerning this Agreement and they are unable to reach a settlement themselves, the Court of Justice of the European Communities shall have sole jurisdiction.  (1) I.e. the law of the country in which the Contractor is established.


title: Proposal for a COUNCIL REGULATION concluding the Agreement between the European Economic Community and the Federal Republic of Brazil on trade in textiles products (submitted to the Council by the Commission)

text:
ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (76) 431
Vol. 1976/0129
 ---pagebreak--- Disclaimer
Conformément au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983
concernant l'ouverture au public des archives historiques de la Communauté économique
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983,
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit
règlement.
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983
concerning the opening to the public of the historical archives of the European Economic
Community and the European Atomic Energy Community (OJ L 43, 15.2.1983, p. 1), as
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243,
27.9.2003, p. 1), this file is open to the public. Where necessary, classified documents in this
file have been declassified in conformity with Article 5 of the aforementioned regulation.
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom 1.
Februar 1983 über die Freigabe der historischen Archive der Europäischen
Wirtschaftsgemeinschaft und der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983,
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. September 2003
(ABI. L 243 vom 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5
der genannten Verordnung freigegeben.
 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                           COM(76)431 final.
                                           Brussels , 29 July 1976 .
                                                               I
  1
                 •'                    \
                            Proposal for a
                          COUNCIL REGULATION
                 concluding the Agreement between the
                      European Economic Community
                               and the
                      Federal Republic of Brazil
                    on trade m textiles products
           ( submitted to the Council Toy the Commission)
 COM (76) 431 final .
 ---pagebreak---                       EXPLANATORY STATEMENT
 1.       On 18 March 1975 » "the Council decided to authorise the
 Commission to open negotiations with the Federal Republic of Brazil
 for the conclusion of an Agreement on trade in textile products .
 2.       In conformity with this Council Decision and in consultation with the
Art . 113 Committee , the Commission negotiated with representatives
 of the Brazilian government during October and December 1975 an<l
 January, February and March 197 6 . Following these negotiations
 a draft Agreement was drawn up and initialled by the heads of
 delegation on 1 April 1976 .
 3.       In particular, the draft Agreement provides restraint levels
 for Brazilian exports of certain defined textiles products to the Community
 and a checking system to be operated by Community authorities on imports
 of such products . The Community measures relating to the checking
 system for the products in question were laid down in Commission
                                                (1)
 Regulation (EEC ) No . 790/ 76 of 6 April 1976 , subsequently confirmed
 in Council Regulation (EEC ) NO . 1169/76 of 17 May 1976 ( 2 ).
 4.       The Agreement further provides that , for the products covered
 by the Agreement , the Community shall suspend all quantitative restrictions
 existing in the Community and refrain from invoking the provisions of
 Article 3 of the M.F.A. So far as quantitative restrictions on products
 other than those covered by the Agreement cire concerned , the Agreement
 provides that , unless justified under the provisions of the GATT or
 included in agreements negotiated or measures adopted pursuant to
Article 3 of the Geneva Arrangement- these shall be suspended at the
 latest by 31 March 1977 *
 5»      With the exception of cotton grey cloth , imports of the textile
products oovered by the Agreement into the Community for immediate
re–export or for re–export after processing, are not subject to the
quantitative limits established under the Agreement .
 OJ No . L 92 of 7.4.1976
 OJ No . L 131 of 20.5.1976
 ---pagebreak--- 6.     A general consultation procedure , which may be invoked "by
either party , is set out ir Article 4 of the Agreement .  It may "be used to
seek solutions to any problems arising between the parties as to the
application of the Agreement .
7.     Possibilities for carry-over , carry–forward and inter–category
flexibility are provided in the Agreement , in accordance with the
requirements of the Geneva Arrangement .
8.     The Agreement is to enter into force , upon conclusion , with
effect fx*om 1 January 1976 . It will remain in force until 31 December 1977
9.     In the Commission's opinion , the Agreement negotiated is
fully in conformity with the guidelines laid down by the Council
of Ministers and the Commission therefore proposes that the
Council adopt the draft Regulation annexed hereto ,
concluding . the Agreement on behalf of the fiommimi ty.
 V
   Vc
     \
\ \
 ---pagebreak---                            COUNCIL REGULATION ( EEC ) No .
          concluding the Agreement between the European Economic Community and
          the Federal Republic of Brazil on trade in textiles products
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Economic Community,
 and in particular Article 113 thereof ,
 Having regard to the recommendation from the Commission ,
 Whereas the Agreement on trade in textile products negotiated between the
 European Economic Community and the Federal Republic of Brazil should be
 concluded ,
 HAS ADOPTED THIS REGULATION :
                               Article 1
The Agreement between the European Economic Community and the Federal
Republic of Brazil on trade in textile products is hereby ooncluded on
behalf of the Community.
The text of the Agreement is annexed to this Regulation .
                                                           I
                              Article 2
The President of the Council shall notify the other Contracting Party of the
completion by th9 Comiauriity of the proc&dures required for the entry into
force of the Agreement ( l )»
( l ) The date of entry into force of the Agreement will be published in the
Official Journal of the European Communities .
 ---pagebreak---                        Article 3
This Regulation shall enter into force on the third day following
its publication in the Official Journal of the European Communities .
This Regulation shall be binding in its entirety and directly
applicable in all Member States «
Done at                                     Por the Council
                                             The President
 ---pagebreak---                             Draft
The Council of the European Communities
                            of the one part ,
The Government of the Federal Republic of BRAZIL
                            of the other part ,
 desiring to ensure the orderly and equitable development of trade
 in textiles between the European Economic Community ( hereinafter re
 ferred to as " the Community ") and Brazil ,
 Having regard to the provisions of the Arrangement regarding Inter
 national Trade in Textiles ( hereinafter referred to as " the Geneva
 Arrangement ") and in particular Article k' thereof ,
 Have decided , in a spirit of mutual co-operation and in conforr.ity
 with the Geneva Arrangement , to conclude this Agreement and to this
 have designated as their Plehipotentiairi es :
     COUNCIL OF THE EUROPEAN COMMUNITIES
 THE GOVERNMENT OF THE FEDERAL REPUBLIC OF BRAZIL
 VKG HAVE AGREED AS FOLLOWS :
Φ1 '
 ---pagebreak---                       Article 1
     The Parties recognise and confirm that , subject to the
provisions of this Agreement and without prejudice to their
rights and obligations under the General Agreement on Tariffs
and Trade , the conduct of their mutual trade in textiles shall
be governed by the provisions of the Geneva Arrangement .
  !
 ---pagebreak---                              Article 2
!•      In respect of those categories of textiles products which are set
out in Ar.nex I , being textiles products originating in and despatched
frcn Brazil , and subject to the satisfactory operation of this Agreement ,
the Community shall not introduce new quantitative restrictions , shall
Euspcna the operation of any previously in force , and shall refrain from
invoking the provisions of Article 3 of the Geneva Arrangement , provided
th-.t exports to the Community of such textiles products originatir; <- in
ar.d despatched from Brazil do not exceed the agreed quantitative limits#
2,      The' Government of Brazil shall establish quantitative limits on
exports to the Community in accordance with Annex I , and undertakes to
tike the appropriate measures to ensure that the quantitative limits shown
therein are not exceeded *
3o      The Community shall not object to the aforementioned quantitative
lir.its "being exceeded in the event of additional demand developing cn
the market of the Community, on the understanding that the additional
cru^ntities shall "be fixed "by common agreement "between "both Parties .
         Quantities of the quota shares set out in Annex I not taken up
"by a Kerr/ter State of the Community may "be re-allocated to another Ke~ber
Z     a in accordance with the pi^ocedures in force in the Community. The
Corjrjr.ity undertakes to respond within 4 weeks of its receipt to ar.y
reruest made by the Brazilian Government for such re-allocation » It is
xir.dsrstood that any re–allocation so effected would not need to be ccn-
fir.od within any limits set in flexibility provisions established else-
wrere in this Agreement «
5«      All other quantitative restrictions which have been notified by
the Community to the Textiles Surveillance Body under Article 2 ( l ) of
the Ger.eva Arrangement , shall , unless justified under the provisions of
GAT! or included in agreements negotiated or measures adopted pursuant
to the provisions of Article 3 of the Geneva Arrangement , be ev v.pended
as coon as possible after the conclusion of the Agreeir ?nt and in any case
by 31 Karch 1977#
c•      The Parties shall co-operate in implementing the measures necessary
for the purpose of this Article *
 \\ \                                                                 /JU,
 ---pagebreak---                           Article 3
1.     #ith the exception of Category Nc . . 2 ( cotton cloth , unbleached
or bleached ), imports into the Community of the textile products sho>m
in hnnex I wiiich are for immediate rs-exncrt or for inv/ard processing
and subsequent re-export outside the Community shall rot be subject
to quantitative limits established under this Agreement , pro vided they
are entered as such under an administrative system of control in force
for this purpose within the Community «
2.    In any case where the competent authorities within the Community
a-cortain that imports described m paragraph 1 above have been retai
ned for consumption within the Community , the latter will notify the
Government of Brazil  on a quarterly basis of the amounts involved .
Brazil shall in such  cases and at the request of the Community , charre
such amounts against  the quantitative limit or limits in question for
the current calendar  year or for the next following year-
3-    In any case where the competent authorities within the Community
ascertain under an administrative system of control in force that
imports of textiles products shown in Annex I have been charged against
quantitative limits established therein but subsequently re-exported
outside the Community , the competent authority concerned will inform
the Brazilian authorities on a quarterly basis of the quantities which
shall not be charged to the quantitative limits .
 ψ
 ---pagebreak---                           Article 4
1*     The Parties shall enter promptly into consultations with each other ,
at the request of either and in conformity with the provisions of the
Geneva Arrangement , on any problems arising from the application of this
Agreement# Consultations held voider the provisions of this Article   shall
"be approached "by both Parties in a spirit of compromise and with a view to
the conciliation of differences existing between them#
 2#    The Parties shall consult as soon as possible within 30 days following
 the request and will make their best efforts to complete such consultations
within 30 days of their commencement#
 3.    In the event that the Parties are unable , within a reasonable period
 of tine , to reach a satisfactory solution during the consultations provided
 for in this article , either of the Parties may refer the matter to the
 Textiles Surveillance Body in accordance with Article 11 (4 ) of the Geneva
 Arrangement# The Party choosing to adopt such a course of action   shall
 notify the other of its intention#
 ---pagebreak---                              Art icle 5
       If , having regard to the provisions of the Geneva Arrangement , eitb
Party considers that it is being placed in an inequitable position in
respect of trade in textiles as compared with a third country , that Party
v.zy seek consultations with the other with a view to talcing appropriate
remedial action#
                                                                  Au.,
 ---pagebreak---                            Artide 6
1#      Portions of any quantitative limit shown in Annex I which are r.ot
used during any calendar year may "be carried over and added to the corres
ponding quantitative limit in the following year , within a limit of lCf!
of the latter#
2«      V7ithin a limit of lOfo of each of the quantitative limits shown in
Annex I', advance deliveries shall "be authorised from the corresponding
quantitative limit established for the following year . Amounts delivered
in advance shall be deducted from the quantitaiva limits for the products
in rrucstien for the following year .
3#      Within any one calendar year, unused portions of quantitative lir.its
shov.T. in Annex I in respect of any region of the Community market may be
transferred to another quantitative limit established for that same region
cf the Community market within a ceiling of ,7$ of the recipient quantita
tive limit#
        The preceding flexibility provisions shall not , in any given year ,
re cult in a quantitative limit for any category being exceeded by izore then
15f: of the quantitative limit for that category for that year#
••      The flexibility provisions contained in this Article may only "be ap
plied by Brazil following written notification to the Community by the
Brazilian authorities#
 ---pagebreak---                             Article 7
       Brazil shall endeavour to ensure that exports of all textiles
roducts for which quantitative limits are shown in Annex I are spaced
ut as evenly as possible over each calendar year , due account being
a1<en , in particular , of seasonal factors#
                                                               W t4. N
  I
 ---pagebreak---                                Article 8
           The Parties shall exchange all useful information concerning
■t 'r. Fir mutual trade in textiles in order to ensure the euccecEful
icple-entation of this Agreement *
   Λ
                                         »
 ---pagebreak---                         Article 9
       The quantitative limits shown in Annex I shall be adminis
tered under a system of double control , the details of which are
set but in Annex II to this Agreement .
\\
 ---pagebreak---                          Article 10
1.      The Parties shall take all possible measures to ensure
that traditional channels and methods of trade between them
are n^aintained .
2.      Should either Party inform the other that the application
of this Agreement has given rise to difficulties regarding the
maintenance of existing commercial relations between importers
in the Community and their suppliers in Brazil , the Parties will
consult together in accordance with the procedures set out in
Article    above .
   \                                    •               Å l*~ s
                                                          r
 ---pagebreak---                             Article 11
       This Agreement shall apply to the territories where the
Treaty establishing the European Economic Community applies ,
on the conditions established in the said Treaty , and to the
territory of the . Federal Republic of Brazil .
 , I                                                  4     .
 ---pagebreak---                           Article 12
1.      This Agreement shall enter into force on the first day of
the month following the date on which the Parties have notified
each other of the completion of the procedures necessary for the
purpose . It shall remain in force until 31 December 1977 *
2e      This Agreement shall have effect from 1 January 1976 .
3»      Either Party may at any time propose modifications to this
Agreement or denounce it provided that notice is given at least
120 days before the expiry of any twelve-month period ; in the
latter event the Agreement will come tQ an end at the expiry of
the said twelve-month period .
k,      Tne Annexes to this Agreement shall form an integral part
tl-»reof .
   , ι
4
 ---pagebreak---                            Article 13
        This Agreement shall be drawn up in two copies in the
Danish , Dutch , English , French , German , Italian and Portuguese
languages , each of these texts being equally authentic *
 ---pagebreak---            Products for which        Brazil           will exercise restraint towards
           the whole Community from the entry into force of this Agreement .
           The Community hereby notifies Brazil that the quantitative limits
            for the textile products listed below will be allocated between
            the Member States as follows :
                                                                                I
              I
                                                 Member i
                                                           Quantitative limits ( metric tons ) :
              I
              I         Product category
    C ^ J
  ::«- s«r              or sub- category         State 1        19 7 6           1 9 7 7         I
                                                         I
      1             55.05                         FRG            11 . 175         11.552
!                                                 F               2.830            3.370
                    Cotton yarn ,                 I               3.839            4.162
                                                  BNL             6.732            6.7C6
                                                  UK                  452            678
i
I
          ■ I I '                                 Irl
                                                  DK
                                                                  1.113
                                                                      359
                                                                                1.119
                                                                                443
                                                  EEC            26.500           23.090
                                               1
      2          ex 55.09                      j FRG              6.700            6.786
                    Vioven fabrics of cotton .
                                                  F               1.396            1.51$
                    unbleached and bleached
                                                  T
                                                  J.              3.337            3.3Ô1         '
                                                  BNL             2.396            2.423
                                                  UK                  830            977
                                                  Irl                 200            203
                                                  DK                  141            157
                                                                          i
                                                  EEC            15.000           15.450
               J                                                          i
      3          ex 55.09                         FRG                 618 I          632
              I     Woven fabrics of cotton ,
                                                  F                   225            2t,0
              ι                                   I                   510            523
                    other than unbleached
                    and bleached
                                                  BNL                 553            556
                                                  UK                  364            411
                                                                                t: r . 1
             I                                    Irl                 500
                                                  DK                   80            ^66       !I
                                                  EEC             2.850            3.021        j
                                                                                i
      *             62.02                         FRG             3.900            3.920
              i
              I
                                                  F                   360            432       !
                    Bed linen , table linen ,
                    toilet linen and
                                                  I                   340            406       ;
                                                  BNL                 400            464
                    kitchen linen of cotton
                                                  UK                  740            660
                                                  Irl                 110            111
                                                  DK                  150            167
                                                  EEC             6.000            6.360
 ---pagebreak---                                                                  ANNEX II
As agreed between the Parties in Article 9 of the Agreement , the ad
ministration of textiles imports from BRAZIL will be based on a systec
of double checking . The details of this system have been agreed between
the Parties and are set out below .
                                                  will
The competent authorities within the Community fautoraatically and without
delay , Accept imports of textile products on submission of the importer' s
application together with the original export certificate . The competent
authorities within the Community shall be entitled to require the pre
sentation of an export certificate in respect of goods originating in
35AZIL of the categories shown in Annex I.
These exoort certificates will be validated by the Brazilian authorities
uo to the total amount of the agreed ceilings .
                                                         i
The export certificates issued by the Brazilian authorities shall be
applicable to the products shown in Annex I.
The export certificate must specify or contain :
    1 . destination within the Community ;
    2 . sériai number ;
    Z * importer 's name and address ;
    k , exporter 's name and address ;
    fr . net. weight ( in kilograms or metric tons ) and value ;
    6 . category and description of product ;
    7# certification by the Brazilian authorities that the quantity
         has been debited against the agreed ceiling for exports to
         the Community or , where appropriate , is for immediate re-export
         or for inward-processing and subsequent re-export outside the
         Community .
                                                                          • « •/ • • «
 ---pagebreak---                                                                         r:::zv n
                                  2 -
 i he competent authorities within the Community will not raise diffi
 culties in the event of a discrepancy "between the weight indicated
 in the export certificate and the shipment or import weight provided
 it is within reasonable limits , while the Brazilian authorities , for
their part , will endeavour to keep amy discrepancies to a n.iniiran .
 In the evcr.t of total or partial withdrawal of an export certificate
the Brazilian authorities will notify the competent authorities within
the Community of such total or partial withdrawal . The authorities of
the T'smbcr States of the Community will take the appropriate aeasures
 in accordance with their existing administrative provisions .
The Brazilian authorities will forward to the competent authorities
•.sithin the Community , via the Representations of the Member litates of
the Corr^unity and directly to the Commission , quarterly returns cho
the total net weight in metric tons covered by the export certificates
issued against the quantitative limits for exports to the Ilember States
of the Conniunity , for all categories of textiles exports to the Cornnur.ity
to which this Agreement applies .
Che Cc:;jr,unity will forward to the authorities of Brazil , on a ruartcrly
basis , precise statistical information of imports of such products into
the Corjninity .
Γ
     1


Avis juridique important

|

31981H0494

81/494/EEC: Commission recommendation of 1 July 1981 to the Government of the Italian Republic pursuant to Article 108 (1) (Only the Italian text is authentic)

Official Journal L 189 , 11/07/1981 P. 0060

****  COMMISSION RECOMMENDATION   OF 1 JULY 1981   TO THE GOVERNMENT OF THE ITALIAN REPUBLIC PURSUANT TO ARTICLE 108 ( 1 )  ( ONLY THE ITALIAN TEXT IS AUTHENTIC )  ( 81/494/EEC )   1 .  IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 108 ( 1 ) OF THE TREATY , AND FOLLOWING THE DECISION TAKEN ON 27 MAY BY THE GOVERNMENT OF THE ITALIAN REPUBLIC TO INTRODUCE A COMPULSORY DEPOSITION-PURCHASES OF CURRENCIES , THE COMMISSION HAS CARRIED OUT AN IN-DEPTH EXAMINATION OF THE ECONOMIC AND FINANCIAL SITUATION IN ITALY .   2 .  THE COMMISSION HAS ESTABLISHED THAT THE ITALIAN CURRENT ACCOUNT OF THE BALANCE OF PAYMENTS , AFTER HAVING RECORDED A SUBSTANTIAL DEFICIT  -  IN THE REGION OF 2.5 % OF EXPENDITURE GDP  -  IN 1980 , CONTINUED TO DETERIORATE DURING THE FIRST FEW MONTHS OF 1981 . THE COMMISSION HAS ALSO ESTABLISHED THAT DURING THE OPENING MONTHS OF 1981 THE ITALIAN MONETARY AUTHORITIES WERE REQUIRED TO COVER THE DEFICIT MAINLY THROUGH USE OF THE OFFICIAL RESERVES .   THE COMMISSION CONSIDERS THAT THE INCREASE IN THE VALUE OF THE DOLLAR ACCOUNTS PARTLY FOR THE DIFFICULTIES OBSERVED . IT CONSIDERS NEVERTHELESS THAT THE DIFFICULTIES STEM PRIMARILY FROM INSUFFICIENT CONTROL OVER THE DOMESTIC ECONOMY DURING THE OPENING MONTHS OF THIS YEAR . AFTER PICKING UP IN THE CLOSING MONTHS OF 1980 , DOMESTIC DEMAND THEN REMAINED AT A RELATIVELY HIGH LEVEL INSTEAD OF FALLING BACK AS WAS NECESSARY IN ORDER TO STRENGTHEN THE TREND TOWARDS IMPROVEMENT IN THE REAL BALANCE OF FOREIGN TRANSACTIONS .   IT APPEARED THAT THESE DIFFICULTIES WERE MADE APPRECIABLY WORSE BY THE EVOLUTION OF A LARGE TREASURY BUDGETARY DEFICIT FROM THE FINAL MONTHS OF 1980 ONWARDS AND THE STRONG INJECTION OF LIQUIDITY TO WHICH IT GAVE RISE , WHICH WAS DUE IN PARTICULAR TO THE TRANSFER TO THE BANKING SYSTEM BY SEVERAL PUBLIC BODIES OF CREDITS HELD AT THE TREASURY . UNDER THESE CIRCUMSTANCES , THE MEASURES TO RESTRICT CREDIT WHICH WERE INTRODUCED ON 31 JANUARY AND 22 MARCH WERE UNABLE TO PREVENT LIQUIDITY IN THE ECONOMY FROM INCREASING EXCESSIVELY AND FROM REVIVING INFLATIONARY EXPECTATIONS . THE RAISING OF THE LIQUIDITY SITUATION , ALREADY RATHER UNRESTRICTIVE , ENABLED COMPANIES TO ACT ON THEIR EXPECTATIONS , INEVITABLY TO THE DETRIMENT OF THE EXTERNAL BALANCE .   3 .  THE COMMISSION OBSERVES THAT THESE DIFFICULTIES WOULD HAVE BEEN LESS ACUTE IF THE ACCOMPANYING BUDGETARY MEASURES , WHICH WERE ENVISAGED AT THE TIME OF THE ADJUSTMENT OF THE CENTRAL RATE OF THE LIRE ON 22 MARCH , HAD BEEN APPLIED QUICKLY , AND IF INTEREST RATES ON PUBLIC SECURITIES , TOGETHER WITH THE DISCOUNT RATE , HAD BEEN SET AT A LEVEL SUFFICIENT TO MAINTAIN MARKET INTEREST IN SUCH INVESTMENT AND THUS REDUCE THE IMPACT ON LIQUIDITY OF THE WIDENING OF THE PUBLIC SECTOR DEFICIT .   THE COMMISSION NOTES THAT THE GOVERNMENT OF THE ITALIAN REPUBLIC CONSIDERED THAT , IN THE SITUATION THUS CREATED , IT WAS OF THE UTMOST IMPORTANCE TO ACT SO AS TO REDUCE THE LIQUIDITY OF COMPANIES AND THEREBY , OR AT LEAST REDUCE , THE RISK OF ADDITIONAL LOSSES OF OFFICIAL RESERVES . IT FURTHER NOTES THAT THE DEVICE ADOPTED BY THE GOVERNMENT OF THE ITALIAN REPUBLIC IS CONSIDERED BY THAT GOVERNMENT TO HAVE BEEN THE ONLY POSSIBILITY OPEN TO IT  -  TECHNICALLY AND LEGALLY  -  OF RAPIDLY ATTAINING THE DESIRED OBJECTIVE .   AS REGARDS THE PROCEDURE FOLLOWED , THE COMMISSION REGRETS THAT THERE WAS NO PRIOR CONSULTATION .   4 .  ON THE SUBSTANTIVE QUESTION , THE COMMISSION CONSIDERS THAT IT IS ESSENTIAL TO PLACE THE ITALIAN BALANCE OF PAYMENTS DIFFICULTIES AND THE ACTION UNDERTAKEN TO MEET THEM IN THE CONTEXT OF THE CURRENT COMMUNITY AND WORLD SITUATION . THE COMMUNITY ECONOMY IS IN THE MOST DIFFICULT POSITION SINCE 1958 : NEVER HAS THE DEFICIT ON THE CURRENT ACCOUNT OF THE BALANCE OF PAYMENTS BEEN SO HIGH , NOR HAS SO LARGE A PERCENTAGE OF ITS WORKFORCE BEEN UNEMPLOYED . THE GREAT MAJORITY OF MEMBER STATES ARE SHOWING BALANCE OF PAYMENTS POSITIONS COMPARABLE TO THAT OF ITALY , AND IN CERTAIN CASES THE SITUATION IS EVEN MORE SERIOUS . ALL THIS MUST BE SEEN IN A WORLD CONTEXT IN WHICH COMPETITION IN MANUFACTURED GOODS IS BECOMING INCREASING INTENSE , IN WHICH THE WEIGHT OF ECONOMIC AND POLITICAL UNCERTAINTY IN INTERNATIONAL RELATIONS IS UNPRECEDENTED , AND IN WHICH THE WORLD EXCHANGE AND PAYMENTS SYSTEM LACKS A SOUND AND ACCEPTED MONETARY FRAMEWORK .   IN THESE CIRCUMSTANCES , AND IN THE ABSENCE OF SUITABLE ACTION TO OVERCOME THE CRISIS THROUGH AN IMPROVED JOINT EFFORT AND INTERNATIONAL AND COMMUNITY COOPERATION , THERE IS AN INCREASING DANGER THAT COUNTRIES WILL LOOK FOR A SOLUTION TO THEIR ECONOMIC PROBLEMS IN UNILATERAL ACTION , CONTRARY TO THE PRINCIPLES ON WHICH , SINCE THE END OF THE WAR , EXPANSION OF INTERNATIONAL TRADE AND WORLD ECONOMIC GROWTH HAVE BEEN FOUNDED . THE COMMISSION WOULD EXPRESS ITS SERIOUS CONCERN OVER THE RISK OF PROTECTIONIST CHAIN REACTIONS IN OTHER COUNTRIES WHICH COULD BE PROVOKED BY MEASURES RESTRICTING TRADE .   ITALY , AMONG THE MEMBER COUNTRIES OF THE COMMUNITY , IS ONE OF THOSE WHICH HAVE BEST BEEN ABLE TO RESPOND TO THE CHALLENGE OF OPENING ITS BORDERS . ITALIAN INDUSTRY HAS BEEN ABLE TO MAKE ITS PARTICIPATION IN THE COMMON MARKET THE STARTING POINT FOR A REMARKABLE PROCESS OF GROWTH AND MODERNIZATION . THE COMMISSION IS CONVINCED THAT THE ITALIAN ECONOMY HAS THE DYNAMISM , AND CAN REGAIN THE FLEXIBILITY , NECESSARY TO SUCCESSFULLY OVERCOME THE PRESENT DIFFICULTIES AND RESUME THE PATH OF BALANCED GROWTH , WHILE FULLY BENEFITING FROM ITS PARTICIPATION IN ALL ASPECTS OF THE BUILDING OF THE COMMUNITY .   5 .  IT IS THE OPINION OF THE COMMISSION THAT BEYOND THE IMMEDIATE CAUSES AND PRESENT CONDITIONS WHICH HAVE LED , FOR THE THIRD TIME IN SEVEN YEARS , TO THE TAKING OF MEASURES WHICH ARE LIKELY TO HINDER TRADE , THE PROBLEMS OF THE ITALIAN ECONOMY ARE DETERMINED BY UNDERLYING FACTORS WHICH IT HAS BECOME URGENT TO TACKLE RESOLUTELY . THESE FACTORS MANIFEST THEMSELVES IN THE LACK OF CONTROL OVER THE PROCESSES OF PUBLIC AND COMPANY SECTOR SPENDING .   IN THE PUBLIC SECTOR , THE SIZE OF THE DEFICIT AND THE ORIENTATION OF SPENDING ARE THE PRIME SOURCE OF ECONOMIC AND FINANCIAL IMBALANCES AND AN OBSTACLE TO THE CHANGING OF ECONOMIC STRUCTURES . PUBLIC-SECTOR DEFICITS EXERT EXCESSIVE PRESSURE ON THE MONEY SUPPLY . TOO LARGE A PROPORTION OF CURRENT PUBLIC EXPENDITURE STIMULATES CONSUMPTION AND IMPEDES THE GROWTH IN PUBLIC INVESTMENT WHICH WOULD BE NECESSARY TO IMPROVE PRODUCTIVITY . DESPITE REFORMS INTRODUCED DURING RECENT YEARS , BUDGETARY PROCEDURES HAVE PROVED TO BE INCAPABLE OF ASSURING A BUDGETARY EVOLUTION WHICH IS COMPATIBLE WITH ECONOMIC AND MONETARY STABILITY . CERTAIN PARTS OF THE TREASURY ARE INSUFFICIENTLY CONTROLLED , AS WITNESS FOR EXAMPLE THE RECENT EVOLUTION OF THE TREASURY BORROWING REQUIREMENT . IN ADDITION , FUNDS TO COVER NEW EXPENDITURE OF A CONTINUING NATURE ARE NOT ASSURED AT THE START OF THE FIRST YEAR OF SUCH EXPENDITURE .   IN THE COMPANY SECTOR , THE CUMULATIVE EFFECT OF INDEXATION AND THE OUTCOME OF WAGE NEGOTIATIONS HAVE , FOR SEVERAL YEARS , BEEN INCOMPATIBLE WITH A RETURN TO A LEVEL OF INFLATION IN LINE WITH THE COMMUNITY AVERAGE . RIGIDITIES IN CONDITIONS OF EMPLOYMENT OBSTRUCT THE GAINS IN PRODUCTIVITY WHICH ARE THE NECESSARY CONDITION FOR A NON-INFLATIONARY AND CONSEQUENTLY LASTING IMPROVEMENT IN REAL WAGES AND EMPLOYMENT . DISTORTIONS IN THE WAGE STRUCTURE CAUSED BY THE PRESENT SYSTEM OF INDEXATION ARE BOTH A SOURCE OF INFLATION AND AN INEFFICIENT MEANS OF ALLOCATING RESOURCES .   IT IS THE OPINION OF THE COMMISSION THAT NO MEASURE OF A PROTECTIONIST NATURE CAN LEAD TO A CORRECTION OF THESE FUNDAMENTAL FACTORS . ON THE CONTRARY , SUCH MEASURES WOULD GIVE RISE TO THE ILLUSION OF BEING ABLE TO PUT OFF FUNDAMENTAL ADJUSTMENTS WHICH MUST BE MADE URGENTLY AND WHICH ARE ESSENTIAL IF INTERNAL STABILITY AND EXTERNAL COMPETITIVITY ARE TO BE REGAINED .   6 .  THE COMMISSION IS AWARE THAT CERTAIN CORRECTIVE MEASURES ARE THE RESPONSIBILITY OF THE COMPANY SECTOR AND OTHER ECONOMIC AGENTS , AND DO NOT DEPEND ON GOVERNMENT OR PARLIAMENTARY ACTION . IT IS THEREFORE EVEN MORE NECESSARY THAT THE AUTHORITIES MAKE FULL USE OF THE LEGISLATIVE AND ADMINISTRATIVE INSTRUMENTS AT THEIR DISPOSAL AND THAT THEY USE ALL THEIR INFLUENCE TO GUIDE THE DECISIONS OF OTHER ECONOMIC AGENTS TOWARDS THE OBJECTIVE OF STABILITY .   THE RECOVERY PROCESS CANNOT BE COMPLETED QUICKLY . CONTINUOUS AND PROLONGED ACTION IS NEEDED TO OBTAIN LASTING RESULTS . IMMEDIATE ACTION IS THEREFORE EVEN MORE NECESSARY .   7 .  THE COMMISSION RECOMMENDS THAT THE GOVERNMENT OF THE ITALIAN REPUBLIC URGENTLY TAKE THE NECESSARY MEASURES IN ORDER THAT PUBLIC FINANCES CEASE TO CONSTITUTE A PERMANENT THREAT OF DISTURBANCE FOR THE SHORT-TERM ADMINISTRATION OF THE ECONOMY . TO THIS END , IT RECOMMENDS :   -  THAT EVERY EFFORT BE MADE TO KEEP NET DOMESTIC BORROWING BY THE PUBLIC SECTOR IN 1981 WITHIN THE LIMIT SET ( LIT 37 500 MRDS ),   -  THAT BY WAY OF A FIRST STEP TOWARDS THE DESIRABLE ESTABLISHMENT OF THE UNITY OF THE PUBLIC SECTOR TREASURY , THE PROVISIONS WHICH LIMIT THE ABILITY OF LOCAL AND REGIONAL AUTHORITIES TO HOLD LIQUID ASSETS IN THE BANKING SYSTEM BE APPLIED STRICTLY ,   -  THAT THE PRACTICE OF THE BANK OF ITALY OF BUYING AT THE TIME OF ISSUE TREASURY BONDS AND CERTIFICATES NOT TAKEN UP BY THE BANKS OR BY THE PUBLIC BE ENDED . THIS IMPLIES , FIRSTLY , THAT THE LEVEL OF INTEREST RATES APPLICABLE WILL HENCEFORTH BE DETERMINED BY THE MARKET , AND SECONDLY , THAT THE TREASURY SHOULD ENDEAVOUR TO AVOID TOO GREAT AN INSTABILITY IN THESE RATES , REGULARIZING AS FAR AS POSSIBLE ITS CALLS ON THE MARKET AND CONSEQUENTLY THE DEVELOPMENT OF ITS DEFICIT THROUGH THE YEAR .   FURTHER TO THESE URGENT MEASURES , THE COMMISSION RECOMMENDS THAT THE NECESSARY PROVISIONS BE ADOPTED AS QUICKLY AS POSSIBLE TO BRING ABOUT A LASTING IMPROVEMENT ON THOSE REQUIRED TO GUARANTEE FULL COMPLIANCE WITH CONSTITUTIONAL PROVISIONS PROHIBITING APPROVAL OF NEW UNCOVERED EXPENDITURE , A POSSIBLE EXTENSION OF THE ABILITY OF LOCAL AUTHORITIES TO RAISE TAXES , A REDUCTION OF THE UPWARD PRESSURE ON CERTAIN CHARGES BROUGHT ABOUT THROUGH AUTOMATIC MECHANISMS , AN IMPROVEMENT OF ADMINISTRATION AND KNOWLEDGE OF BUDGETARY FLOWS , AND THE ESTABLISHMENT OF A SINGLE TREASURY SERVICE FOR THE PUBLIC SECTOR .   THE COMMISSION RECOMMENDS FURTHERMORE THAT THE GOVERNMENT OF THE ITALIAN REPUBLIC PAY PARTICULAR ATTENTION TO THE RISK THAT INFLATIONARY IMPULSES RESULTING FROM THE PUBLIC SECTOR DEFICIT MAY SET IN MOTION A NEW INTENSIFICATION OF THE PRICE AND COST SPIRAL THROUGH THE MECHANISM OF VARIABLE PAY SCALES AND THE RENEWAL OF A NUMBER OF IMPORTANT COLLECTIVE AGREEMENTS . THE COMMISSION NOTES THAT THE PRESENT FRAMING OF CREDIT POLICY IS IN PRINCIPLE RELATIVELY STRICT . BUT IT CONSIDERS IT A MATTER OF SOME URGENCY THAT THE EFFORTS UNDERTAKEN BY THE GOVERNMENT OF THE ITALIAN REPUBLIC IN ACCORD WITH THE SOCIAL PARTNERS , TO DEFINE AND IMPLEMENT A POLICY OF VOLUNTARY REDUCTION IN THE RATE OF INCREASE IN NOMINAL INCOMES REACH A SATISFACTORY OUTCOME . THE COMMISSION CONSIDERS THAT SUCH A POLICY IS ESSENTIAL IN ORDER TO ENSURE THE COMPETITIVITY OF THE ECONOMY AND IN CONSEQUENCE THE STABILITY OF THE EXCHANGE RATE AND THE DISAPPEARANCE OF THE UNDERLYING PROPENSITY OF EXCHANGE MARKETS TO ANTICIPATE ITS DEPRECIATION .   8 .  THE COMMISSION WILL FOLLOW CLOSELY THE DEVELOPMENT OF THE ECONOMIC SITUATION IN ITALY AND CAREFULLY MONITOR THE APPLICATION OF THE MEASURES TAKEN ON 27 MAY 1981 . IT CONSIDERS IN ANY EVENT THAT 1 OCTOBER , THE DATE ON WHICH THESE HOLDING MEASURES ARE TO TERMINATE , CONSTITUTES A MAXIMUM TIME LIMIT AND THAT EFFORTS SHOULD BE MADE TO SHORTEN THIS PERIOD . IT RESERVES THE RIGHT TO INTERVENE AT ANY TIME , IN ACCORDANCE WITH THE PROVISIONS OF THE TREATY , IN ORDER THAT ANY MODIFICATIONS WHICH MAY BE JUDGED NECESSARY MAY BE MADE WITH REGARD TO THE SCOPE AND DURATION OF THE MEASURES .   DONE AT BRUSSELS , 1 JULY 1981 .   FOR THE COMMISSION   FRANCOIS-XAVIER ORTOLI   VICE-PRESIDENT


Important legal notice

|

52005SC0229

Recommendation for a Council opinion in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Hungary, 2004-2008  /* SEC/2005/0229 final */

	Brussels, 16.2.2005SEC(2005) 229 finalRecommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Hungary, 2004-2008(presented by the Commission)EXPLANATORY MEMORANDUMCouncil Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[1] stipulates that non-participating Member States, that is, those which have not adopted the single currency, have to submit convergence programmes to the Council and the Commission. In accordance with Article 9 of this Regulation, the Council has to examine each convergence programme based on assessments prepared by the Commission and the Committee set up by Article 114 of the Treaty (the Economic and Financial Committee). On the basis of a recommendation from the Commission and after consulting the Economic and Financial Committee, the Council is required to deliver an opinion, following its examination of the programme. According to the Regulation, Member States need to submit annual updates of their convergence programmes, which may also be examined by the Council in accordance with these same procedures.The Member States that joined the EU on 1 May 2004 do not participate in the single currency, but are required to fulfil in due time the convergence criteria, including the one on the sustainability of the government financial position, in order to qualify for the adoption of the euro. In view of a general government deficit of 5.9%[2] of GDP recorded in 2004, the Council decided on 5 July that Hungary was in excessive deficit and recommended that the excessive deficit be corrected by 2008 at the latest in line with the May 2004 convergence programme. In particular, Hungary was recommended to “take effective action regarding the measures envisaged to achieve the 2005 deficit target”, and to “implement with vigour the measures envisaged in the May 2004 convergence programme, in particular to stand ready to introduce additional measures, if necessary, with a view to achieving the general government deficit target for 2004”. The Commission, while recognising that the Hungarian government had adopted some measures between July and November 2004, considered that they were insufficient to avoid a sizeable deviation from the targets for 2004 and 2005 and more generally from the multi-annual adjustment path until 2008. Therefore, it adopted on 22 December 2004 a recommendation for a Council decision under Article 104(8) that effective action was not taken in response of the 5 July 2004 Council recommendations. The Council adopted on 18 January 2005 such a decision.The first convergence programme of Hungary, covering the period 2004-2008, was submitted on 13 May 2004 and assessed by the Council on 5 July 2004. Its update was submitted on 1 December 2004. The Commission services have carried out a technical evaluation of this update, taking into account the results of the Commission services Autumn 2004 economic forecasts, and having regard to the code of conduct[3], the commonly agreed methodology for the estimation of potential output, the recommendations in the Broad Economic Policy Guidelines for the period 2003-2005 and the principles laid down in the Communication from the Commission to the Council and the European Parliament of 27 November 2002 on strengthening the coordination of budgetary policies[4]. This evaluation warrants the following assessment:-  The update of the Hungarian convergence programme was submitted on 1 December 2004 and covers the period between 2004 and 2008. It broadly complies with the data requirements of the “code of conduct on the content and format of stability and convergence programmes”. While it contains all the compulsory data, the primary balance is not calculated according to the conventional definition. Some optional data such as on long-term health care expenditure are also missing.-  The macroeconomic scenario presented in the update is rather favourable. It foresees a continuation of the recovery in economic activity with gradually increasing real GDP growth from 3.9% in 2004 to 4.6% in 2008. For the years 2005-2006, the projections of the update are slightly higher than those of Commission services in the autumn 2004 forecast, with real GDP growth being projected at 4.0% in 2005 and 4.2% in 2006 compared with 3.7% and 3.8%. Similarly, while Commission forecasts are not available for the other years, the growth projections in the update for the outer years also seem to be on the optimistic side. According to Commission services calculations applying the commonly agreed methodology to the figures of the programme, real GDP growth would be above potential over 2007-2008. The corresponding output gap decreases moderately from just above to just below -1% between 2004 and 2006; for the years 2007 and 2008 it drops sharply to almost zero.-  The renewed disinflation process that started in the second half of 2004 is projected to continue over the programme horizon and inflation would drop to 3% by 2008. The interest rate projections in the programme appear rather favourable. Their fulfilment would require an environment of significantly improved confidence, characterized by substantially lower inflation than currently is the case, improved fiscal and current account balances as well as renewed confidence of market participants in the euro adoption strategy. The update maintains the 2010 target date for euro adoption.-  The decision by Eurostat of 23 September 2004 allows a temporary classification until the March 2007 fiscal notification of second pillar pension funds inside the general government. The Hungarian authorities decided to avail themselves of this possibility and presented general government deficit figures excluding the second pillar burden created by the 1998 pension reform. Compared to the May 2004 programme, this reclassification lowers the yearly deficit figures by 0.8-1 percentage point between 2004 and 2008. For the sake of comparison with the previous programme and with the Commission services autumn 2004 forecast, and given that the final 2008 target will not benefit from this reclassification, figures used in the assessment both include and exclude such burden created by the pension reform.-  The update foresees the following general government deficit: 4.5% of GDP in 2004, 3.8% in 2005, 3.1% in 2006, 2.4 in 2007 and 1.8% of GDP in 2008. (Including the burden of the pension reform, the projected general government deficit path would be 5.3%, 4.7%, 4.1%, 3.4% and 2.8% of GDP between 2004 and 2008; hence it keeps the target date to correct the excessive deficit.) In the light of the sizeable deviation from the 2004 target of 4.6% of GDP including the burden of the pension reform contained in the May convergence programme - outturn estimated by the update at 4.5% of GDP (5.3% of GDP including the burden of the pension reform), which is in line with the revised target -, it changes the frontloaded adjustment path of the May 2004 programme to a more linear consolidation trend until the end of the programme period. After the estimated consolidation of 0.9 percentage point of GDP in 2004, it now projects an annual adjustment of some 0.6-0.7 percentage point for the remaining years, instead of the originally planned yearly adjustment of 0.5 percentage point. The update maintains a consolidation strategy based on a reduction of the expenditure ratio (from 44.8% of GDP in 2004 to 43.4% in 2008), which is supposed to be underpinned by structural reforms, and coupled with a more moderate decline in the revenue ratio. The most pronounced expenditure reduction would occur in 2005. However, this is mainly based on 0.5 percentage point decline in the interest burden, and by a 1.7 percentage point expenditure reduction for public investment. This large decline in public investment in 2005 would be partly compensated by higher investment in the following years, thereby leading to a decrease by 0.6 percentage point in the public investment ratio between 2004 and 2008. The drop in public investment expenditure would be compensated by increased recourse to PPP projects. The primary deficit, after an improvement by 1.2 percentage point in 2004, would register an annual decline of about 0.3-0.4 percentage point during the remaining years so that, including the burden of the pension reform, a slight surplus would be reached in 2008 when the transitory period provided by Eurostat until the March 2007 notification for the accounting of such item will already have expired.-  The adjustment path described in the programme and in particular the new deficit target for 2005 of 3.8% of GDP (4.7% of GDP including the burden of the pension reform) can be considered appropriate to correct the excessive deficit by 2008 provided that it is backed by sufficient measures. However, the final target of 2.8%[5] of GDP only leaves a small safety margin, which might be reduced further because of a change in the starting position as there are still some uncertainties linked to the outcome of the 2004 budget.[6] Furthermore, the budgetary outturn for 2005 to 2008 may be worse than projected. (i) The macroeconomic scenario being rather favourable indicates that revenues could turn out lower and expenditures higher than expected. As suggested by the Commission services Autumn 2004 forecast (projecting 5.2% of GDP for 2005 and 4.7% of GDP for 2006 including the burden of the pension reform; or 4.3% and 3.7% of GDP excluding this burden), meeting the budgetary targets for 2005 and 2006 seems to be subject to some risks. For 2005, this takes into account that the Government has established an “emergency” reserve package of 0.5% of GDP against a possible undershooting of the 2005 target. While the existence of this reserve is welcome, the amount allocated to it seems insufficient, in view of the risks surrounding the Budget 2005. Furthermore, there are concerns that freeing of these reserves could occur too early in the year, thereby reducing the incentives for a rigorous implementation of the 2005 budget. Missing the 2005 and 2006 targets would increase the further adjustment needed in the years 2007 and 2008. (ii) Possible cuts in VAT rates in the framework of the ongoing tax reforms could increase the risk to revenues even if they compensated by an increase in other rates; its timing would therefore require careful consideration and it would need to be made conditional upon the full achievement of deficit targets. (iii) The adoption of intended reform measures constituting the base of future expenditure cuts is not yet secured. Furthermore, most of the expenditure-reducing measures contained in the 2005 budget are not backed by comprehensive reforms. (iv) The interest rate assumptions of the update, which are conditional on a further restoration of confidence, may not materialise in the following years, with such favourable time profile. (v) It also appeared that VAT refunds originating from economic activities in 2004 may not be fully disbursed in time to avoid burdening the 2005 (accrual based) budget, but the authorities have committed to accelerate these refunds so that they will not burden the 2005 budget. On the other hand, this strengthened control on VAT refunds initiated end-2004 might contribute to a reduction of the expected shortfall of VAT revenues, which constitutes a positive risk.-  In view of this assessment, there is a risk that budgetary outcomes could be worse than projected in the update. Therefore, although the adjustment path contained in the programme seems adequate, the measures outlined in the programme do not appear to comply with this path and therefore may not ensure that the deficit (including the burden of the pension reform) is reduced to below 3% of GDP by 2008. In order to respect such an adjustment path, additional measures are needed. In particular, it seems paramount to meet the new 2005 target, which, in view of the above assessment, would imply that additional measures of at least 0.5 percentage point appear necessary.-  The debt ratio, which increased to 57.3% of GDP in 2004 (59.9% of GDP including the burden of the pension reform), is expected to gradually decrease again from 2005, triggered by the continuous lowering of the general government deficit and the declining interest burden on the debt stock. It is expected to fall below 50% of GDP in 2008 (or to reach just above 53% of GDP including the burden of the pension reform). This decline is planned to be supported by a change in the debt management strategy, resulting in savings on interest expenditure. Risks to the debt ratio correspond to those for the deficit projections.-  The May 2004 convergence programme announced structural reforms (in particular in the areas of public administration, education and health) to back the expenditure control underlying its strategy. The 2005 budget contains a number of measures aimed at improving efficiency in the central government sector. However, these do not correspond with the ambitious plans of the May programme. While the update gives more details about specific planned reform steps, it still does not quantify their expected effects nor does it detail their state of implementation. This suggests that the more comprehensive reforms of the health and education sector will indeed be postponed until after the elections in 2006, as recently indicated by the government.-  With regard to the long-term sustainability of the public finances, Hungary appears to be at some risk on grounds of the projected budgetary costs of an ageing population. Risks are in part related to the uncertainty regarding the long-term budgetary trends due to the lack of information on health-care expenditure projections. The reformed pension system, including the introduction of the funded second pillar, contribute consistently to reducing the budgetary impact of ageing and to reducing risks of unsustainable public finances. However, it is imperative to pursue other reforms, particularly in the field of health care as well as to resolutely implement the planned budgetary consolidation in the medium term.-  The economic policies outlined in the update are partly consistent with the country-specific broad economic policy guidelines in the area of public finances. The general government deficit was to be reduced “in a credible and sustainable way within a multi-annual framework in line with the decisions to be taken by the Council in the context of the budgetary surveillance exercise”. However, Hungary has not complied with the 104(7) recommendations of the Council of 5 July 2004 under the excessive deficit procedure, as decided by the Council on 18 January 2005 based on Article 104(8) of the Treaty. The update retains a multi-annual framework for correcting the excessive deficit by 2008, although there is a risk of a worse-than-projected budgetary outcome.-  In view of the above assessment and in the light of the recommendations made by the Council under Article 104(7), it would be appropriate for Hungary to (i) take action in a medium-term framework in order to bring the deficit (including the burden of the pension reform) below 3% of GDP by 2008 in a credible and sustainable manner, in particular through additional measures to achieve the new adjustment path including the new deficit target of 3.8% of GDP (4.7% of GDP including the burden of the pension reform) in 2005, and by seizing every opportunity to accelerate the fiscal adjustment; (ii) make the timing and implementation of any tax cuts conditional upon the achievement of the deficit targets of the convergence programme update submitted in December 2004; (iii) progress with the envisaged reforms of the public administration, health and education systems as committed also with a view to improving the long-term sustainability of the public finances.Based on this assessment, the Commission has adopted the attached recommendation for a Council Opinion on the updated convergence programme of Hungary and is forwarding it to the Council.Recommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Hungary, 2004-2008THE 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[7], and in particular Article 9(3) thereof,Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:On [8 March 2005] the Council examined the updated convergence programme of Hungary, which covers the period 2004 to 2008. The programme broadly complies with the data requirements of the “code of conduct on the content and format of stability and convergence programmes”. While it contains all the compulsory data, the primary balance is not calculated according to the conventional definition. Some optional data are also missing, such as long-term health care expenditure. Accordingly, Hungary is invited to achieve full compliance with the data requirements.The macro-economic scenario underlying the update envisages real GDP growth to gradually increase from 3.9% in 2004 to 4.6% until the end of the programme period. On the basis of currently available information, this scenario seems to reflect rather favourable growth assumptions. Both the projected growth in 2005 and 2006 and the projected evolution of growth in the medium term appear on the high side. The update’s projections for inflation appear broadly realistic.On 5 July 2004, the Council decided that an excessive deficit existed in Hungary and recommended that this be corrected by 2008. The update foresees the following deficit path: 4.5% of GDP in 2004, 3.8% in 2005, 3.1% in 2006, 2.4 in 2007 and 1.8% of GDP in 2008 These figures are reflecting the decision by Eurostat of 23 September 2004, which allows a temporary reclassification until the March 2007 fiscal notification of second pillar pension funds inside the general government. The Hungarian authorities decided to avail themselves of this possibility and presented the general government deficit figures excluding the second pillar burden created by the 1998 pension reform. According to these figures, the general government deficit path would be 5.3%, 4.7%, 4.1%, 3.4% and 2.8% of GDP between 2004 and 2008; hence the update keeps the target date for the correction of the excessive deficit. For the sake of comparison with the May convergence programme and with the Commission services Autumn 2004 forecast, not only the adjusted but also the figures excluding the burden of the pension reform are referred to in this opinion. After the estimated consolidation of 0.9 percentage point of GDP in 2004, the update projects an annual adjustment of some 0.6-0.7 percentage point for the remaining years. The update bases its consolidation strategy on a reduction of the expenditure ratio, underpinned by structural reforms, coupled with a more moderate decline in the revenue ratio. The most pronounced expenditure cut would be carried out in 2005, mainly based on 0.5 percentage point decline in the interest burden and a 1.7 percentage point reduction of public investment expenditure. The drop in public investment expenditure would be compensated by an increased recourse to PPP projects. Details about the foreseen timeframe and quantification of the outer years’ expenditure-reducing measures are not presented. The adjustment path of the primary deficit would be similar to the general government deficit reduction path. The primary deficit would turn into a slight surplus in 2008.The adjustment path described in the programme and in particular the new deficit targets for 2005 of 3.8% of GDP (4.7% including the burden of the pension reform) and of 2.8% of GDP in 2008 including the burden of the pension reform can be considered appropriate to correct the excessive deficit by 2008 provided that it is backed by sufficient measures. However, the final target of 2.8% of GDP (including the burden of the pension reform) only leaves a small safety margin, which might be reduced further because of a change in the starting position as there are still some uncertainties linked to the outcome of the 2004 budget[8]. The budgetary projections in the programme appear to be on the upside: (i) The macroeconomic scenario being rather favourable suggests that revenues could turn out lower and expenditures might be higher than expected. As suggested by the Commission services Autumn 2004 forecast, the deficit targets for 2005 and 2006 seem to be subject to upward risks. For 2005, this takes into account that the Government has established an “emergency” reserve package of 0.5% of GDP against a possible overshooting of the 2005 target. While the existence of this reserve is welcome, the amount allocated to it seems insufficient, in view of the risks surrounding the Budget 2005. Furthermore, there are concerns that freeing of these reserves could occur too early in the year, thereby reducing the incentives for a rigorous implementation of the 2005 budget. Missing the 2005 and 2006 targets would put increased pressure on the adjustment in the years 2007 and 2008. (ii) Expenditure cuts in 2005 and beyond are subject to risks since the reform measures included in the 2005 budget might not be fully implemented, and moreover, they are not embedded in a comprehensive reform strategy. (iii) The favourable interest rate assumptions of the update, which are conditional on a further restoration of confidence, constitute a further budgetary risk. (iv) There are also concerns about the credibility of the expenditure and revenue targets, since the objectives set in previous years were missed by a large margin. Moreover, any possible cut in VAT rates in the framework of the ongoing tax reforms could increase the risk to revenues even if the intention was to compensate it by an increase in other rates; its timing would therefore require careful consideration and it would need to be made conditional upon the full achievement of deficit targets. (v) There could also be a risk from the fact that VAT refunds related to economic activities in 2004 have been delayed, but the authorities have committed to accelerate these refunds so that they will not burden the 2005 budget. On the other hand, this strengthened control on VAT refunds initiated end-2004 might also contribute to a reduction of the expected shortfall of VAT revenues, which constitutes a downward risk.In view of this assessment, there is a risk that the budgetary outcomes could be worse than projected in the update. Therefore, although the adjustment path contained in the programme and in particular the new deficit target for 2005 of 3.8% of GDP (4.7% of GDP including the burden of the pension reform) can be considered appropriate to correct the excessive deficit by 2008, the fiscal stance in the programme does not appear to be sufficient to implement this path and therefore may not ensure that the deficit is reduced to below 3% of GDP by 2008. In order to make the adjustment path credible additional measures would be needed. In particular, it is paramount to meet the new 2005 target. In view of the above assessment, additional measures of at least 0.5 percentage point would be appropriate.The debt ratio is estimated to be 57.3% of GDP in 2004 (it would reach 59.9% of GDP including the burden of the pension reform, just below the 60% of GDP Treaty reference value). The programme projects the debt ratio to decline by about 7 percentage points over the programme period. Risks to the debt ratio correspond to those for the deficit projections.With regard to the long-term sustainability of the public finances, Hungary appears to be at some risk on grounds of the projected budgetary costs of an ageing population. Risks are in part related to the uncertainty regarding the long-term budgetary trends due to the lack of information on health-care expenditure projections. The strategy outlined in the programme is mainly based on the budgetary consolidation in the next few years and additional reform measures to be implemented in the future. The reformed pension system, including the introduction of the funded second pillar, contribute consistently to reducing the budgetary impact of ageing and to reducing risks of unsustainable public finances. However, it is important to pursue other reforms, particularly in the field of the health-care as well as to resolutely implement the planned budgetary consolidation in the medium-term.The economic policies outlined in the programme are partly consistent with the country-specific broad economic policy guidelines in the area of public finances. The general government deficit was to be reduced “in a credible and sustainable way within a multi-annual framework in line with the decisions to be taken by the Council in the context of the budgetary surveillance exercise”. However, Hungary has not complied with the 104(7) recommendations of the Council of 5 July 2004 under the excessive deficit procedure, as decided by the Council on 18 January 2005 based on Article 104(8) of the Treaty. The update retains a multi-annual framework for correcting the excessive deficit by 2008, even though there is a risk of worse-than-projected budgetary outcome.* * *In view of the above assessment and in the light of the recommendations made by the Council under Article 104(7) on [8 March 2005], the Council is of the opinion that Hungary should:(i) take action in a medium-term framework in order to bring the deficit including the burden of the pension reform below 3% of GDP by 2008 in a credible and sustainable manner, in particular through additional measures to achieve the new adjustment path including the new deficit targets of 3.8% of GDP (4.7% of GDP including the burden of the pension reform) in 2005 and of 2.8% of GDP including the burden of the pension reform in 2008, and by seizing every opportunity to accelerate the fiscal adjustment;(ii) make the timing and implementation of any tax cuts conditional upon the achievement of the deficit targets of the convergence programme update submitted in December 2004;(iii) progress with the envisaged reforms of the public administration, health and education systems as committed also with a view to improving the long-term sustainability of the public finances.Comparison of key macroeconomic and budgetary projections2004 | 2005 | 2006 | 2007 | 2008 |Real GDP (% change) | CP Dec. 2004 | 3.9 | 4.0 | 4.2 | 4.3 | 4.6 |COM | 3.9 | 3.7 | 3.8 | n.a. | n.a. |CP May 2004 | 3.3-3.5 | 3.5-4.0 | cca.4 | cca.3.5 | cca.3.0 |HICP inflation (%) | CP Dec. 2004 | 6.8 | 4.5 | 4.0 | 3.5 | 3.0 |COM | 6.9 | 4.6 | 4.2 | n.a. | n.a. |CP May 2004 | cca.6.5 | cca.4.5 | cca.4 | cca.3.5 | cca.3 |General government balance (% of GDP) | CP Dec. 2004 adjusted 1 | -4.5 | -3.8 | -3.1 | -2.4 | -1.8 |non adjusted | -5.3 | -4.7 | -4.1 | -3.4 | -2.8 |COM | -5.5 | -5.2 | -4.7 | n.a. | n.a. |CP May 2004 | -4.6 | -4.1 | -3.6 | -3.1 | -2.7 |Primary balance (% of GDP) | CP Dec. 2004 adjusted 1 non adjusted | -0.3 -1.1 | 0.0 -0.9 | 0.3 -0.7 | 0.7 -0.3 | 1.1 0.1 |COM | -1.1 | -1.2 | -1.1 | n.a. | n.a. |CP May 2004 | -0.5 | -0.2 | 0.1 | 0.3 | 0.4 |Government gross debt (% of GDP) | CP Dec. 2004 adjusted 1 | 57.3 | 55.3 | 53.0 | 50.6 | 48.3 |non adjusted | 59.9 | 58.6 | 56.8 | 54.9 | 53.2 |COM | 59.7 | 59.5 | 58.9 | n.a. | n.a. |CP May 2004 | 59.4 | 57.9 | 56.8 | 55.6 | 53.7. |Note: 1 The decision by Eurostat of 23 September 2004 allows a temporary reclassification until the March 2007 fiscal notification of second pillar pension funds inside the general government. The Hungarian authorities decided to avail themselves of this possibility and presented the deficit figures by subtracting the burden created by the 1998 pension reform from the general government deficit. Compared to the May 2004 programme, this lowers the yearly deficit figures by 0.8-1 percentage point between 2004 and 2008. For the sake of comparison with the previous programme and with the Commission services autumn 2004 forecast, and given that the final 2008 target will not benefit from this reclassification, not only adjusted but also non-adjusted figures are shown. Sources: Convergence programme (CP); Commission services autumn 2004 economic forecasts (COM); Commission services calculations. |[1] OJ L 209, 2.8.1997. All the documents referred to in this text can be found at the following websitehttp://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm.[2] It was based on the Commission Spring 2004 economic forecast, which took into consideration data reported by Hungary in March 2004. The September 2004 notification corrected the general government deficit upwards from 5.9% of GDP to 6.2% for 2003.[3] Revised Opinion of the Economic and Financial Committee on the content and format of stability and convergence programmes, endorsed by the ECOFIN Council on 10.7.2001.[4] COM(2002) 668, 27.11.2002.[5] This figure includes again the burden of the pension reform since according to Eurostat the exclusion of this item is only possible until the March 2007 fiscal notification.[6] The difference between the cash based and the accrual based data is not yet known. Due to EU accession related reasons, notably the changes in the collection of VAT on intra EU imports, this difference was assumed to be unusually high in 2004, amounting between 1.2-1.4 percentage point. However, there are accounting uncertainties related to agricultural subsidy payments and the payment of the 13th salary to public employees. Therefore, the difference between cash and accrual accounting might turn out lower, thereby increasing the accrual based deficit in 2004. If the refunds of VAT are accelerated, as was indicated by the Hungarian authorities, they might increase the (accrual based) deficit of 2004 by almost 0.7 percentage point.[7] OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm.[8] There are accounting uncertainties related to agricultural subsidy payments and the payment of the 13th salary to public employees which could reduce the difference between the cash based and the accrual based deficit, thereby increasing the accrual based deficit in 2004. If the refunds of VAT are accelerated, as was indicated by the Hungarian authorities, they might increase the deficit of 2004 by almost 0.7 percentage point.