Stability Council comprising only participating Member States would implement the
framework (Costello (2001)).
However, the end product was far less mechanical than the initial proposal. Instead, the
Commission set up a framework that (i) clarified the meaning of the provisions of the
Maastricht Treaty regarding the excessive deficit procedure, and (ii) committed the members
of the monetary union to a medium-term budgetary objective of 'close to balance or in
surplus'.
On the basis of 1997 outcomes, 11 countries qualified for EMU (Greece joined later in 2000)
after making significant fiscal consolidation efforts. Overall, the ‘quality’ of the
consolidation, mainly on the expenditure side, was considerable, even if some ‘creative
accounting’ and other one-off measures on the margin also helped bring government deficits
under the ceiling. 1998 was a good year in terms of economic growth and the automatic
stabilisers further reduced deficits, overall creating some margin for manoeuvre within the 3
% reference value, thus setting the scene for a good start of the EMU on 1 January 1999.
2.2. Setting sail and enjoying fair winds: 1999-first half of 2001
Building on the 1997-98 developments, the SGP got off to a smooth virgin voyage. In 1999,
the first operational year of the SGP, the euro-area Member States’ budgetary deficits
continued to improve on the back of continued good growth conditions and the working of the
automatic stabilisers.
Figure 1 presents the weighted budget balance for the euro area and the projections made
across consecutive generations of stability programmes. It shows clearly that on average
budget deficits in 1999-2000 came out better than planned. For 1999, the main explanation
was the composition of economic growth which turned out to be very ‘budget-friendly’
yielding higher-than-expected tax receipts.4 The easy sailing with high growth continued in
2000.5 Eight out of twelve euro-area countries showed budget surpluses. Only Greece, France,
Italy and Portugal still had deficits close to or above 1.5 per cent of GDP.
4 A better than foreseen outcome of the 1998 budgets, a reduced interest burden and a changeover from ESA79
to ESA95 accounting standards played a role.
5 In 2000, the average budget position in the EU was a surplus of 0.9% of GDP. However, this included sizeable
one-off receipts from the sale of Universal Mobile Telecommunications System (UMTS) licences in several
countries; netting out UMTS resulted in a deficit of 0.3 per cent of GDP.
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