Figure 1: General government budget balance of the euro area
Budget plans of successive stability programmes vs. outcomes
-------1998 ----1999 ------- 2000 ---Ж---2001
--Ж--2002 ---Ж--- 2003 ■ 2004 -------Actual
Sources: National stability and convergence programmes and the European Commission.
The improvement of actual deficits concealed the fact that underlying budgetary positions did
not change as much. Indeed, according to the current Commission estimates the euro-area
cyclically-adjusted budget deficit was close to 2 % over the 1997-2000-period and the
primary cyclically-adjusted balance deteriorated.
Over this first period, from a procedural perspective there were few problems. The mirage of
the improving actual budget figures deflected a debate about the implementation of the SGP.
Some discussion nevertheless started on how to make the framework binding in good times as
well as bad. Some commentators, including the Commission, argued that it would be better to
pay more attention to cyclically-adjusted budget figures.
Even so, there was a certain degree of consolidation fatigue and also a call to broaden the
scope of the budgetary policy debate. Issues like how to improve the composition (‘the
quality’) of government expenditures and how to achieve the necessary conditions to finance
tax cuts surfaced. There were also some procedural upsets. In an effort to upgrade the status
of the Broad Economic Policy Guidelines (BEPGs)6 as an instrument to guide also fiscal
policies, the Commission took the Irish government to task, despite Ireland being in a surplus
position, for conducting pro-cyclical polices. However, the Irish government rejected the
6 The BEPGs give advice on macroeconomic policies including product and labour market policies. As regards
budgetary policies, the ‘quality’ aspects would fall under the BEPGs but policies under the SGP must be
consistent with the BEPGs introducing a procedural link between the BEPGs and the SGP.
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