ANNUAL REPORT 2008 - Polymer Bank Notes of the World

1 EUROPEAN ISSUESIn 2008 the ECB continued to have regularcontacts with European institutions and fora,particularly with the European Parliament(see Chapter 6), the ECOFIN Council, theEurogroup and the European Commission. ThePresident of the ECB participated in meetingsof the ECOFIN Council when matters relatingto the objectives and tasks of the ESCB werediscussed, as well as in the meetings of theEurogroup. The President of the Eurogroup andthe Commissioner for Economic and MonetaryAffairs attended meetings of the GoverningCouncil when they deemed it appropriate.1.1 POLICY ISSUESTHE STABILITY AND GROWTH PACTIn 2008 the initially favourable macroeconomicenvironment supported the improvement ofbudget balances in most countries and hencethe abrogation of excessive deficit proceduresfor five out of the six Member States with anexcessive deficit at the end of 2007. In June2008 the ECOFIN Council brought to an endthe excessive deficit procedures for the CzechRepublic, Italy, Portugal and Slovakia, andtook the same step for Poland in July 2008. ForSlovakia, this removed a major obstacle to itsadoption of the euro in 2009. The revision ofthe Greek deficit for 2007 from 2.8% to 3.5% ofGDP did not lead to procedural steps under theexcessive deficit procedure.However, the deterioration of the macroeconomicenvironment in the course of the year and theimpact of the financial crisis on tax revenuesput pressure on public finances and led to there-emergence of high deficits, especially incountries which were vulnerable owing toinsufficient consolidation in good times. InJuly 2008 the ECOFIN Council launched anexcessive deficit procedure against the UnitedKingdom, recommending under Article 104(7)of the Treaty that the United Kingdom shouldbring the deficit below 3% of GDP by thefinancial year 2009/10. Hungary remainedsubject to an ongoing excessive deficit procedureduring 2008, with a deadline to correct thedeficit by 2009 at the latest. In addition, inMay 2008 the Commission issued “economicand budgetary policy advice” to France,inviting the country to carry out the necessaryconsolidation of public finances and to pursuestructural reforms. Reflecting on the need for abinding medium-term fiscal framework and therisk of the deficit exceeding 3% of GDP, theCommission also gave advice to Romania inJune 2008.In May the Eurogroup endorsed the policyframework set by the Stability and Growth Pact.Ministers noted that in several countries moreambitious policies would be needed to complywith the provisions of the preventive arm of thePact and achieve the budgetary objectives of the2007 Berlin agreement, namely that MemberStates would achieve their medium-termobjectives in 2008 or 2009 and that all of themshould aim for 2010 at the latest.As the financial turbulence increased overthe year, leading to diminishing confidencein the financial sector, the ECOFIN Councilcalled in October for fiscal prudence to supportconfidence. Ministers reiterated that the Pactremained the adequate framework and should befully applied. In particular, automatic stabilisersshould help to cushion the expected slowdown.With regard to the long-term sustainability ofpublic finances, the Council discussed proposalson how to include the ageing-induced fiscalburden in the definition of the medium-termobjectives.THE LISBON STRATEGYThe Lisbon strategy – the EU’s widerangingprogramme of economic, social andenvironmental reform – entered a new threeyearpolicy cycle in 2008, the second cycle sincethe review of the strategy in 2005.In spring 2008 the European Council confirmedthe Integrated Guidelines adopted for the2005-08 cycle and stressed that the focusduring the present cycle should be on theimplementation of agreed objectives. Italso complemented these guidelines with172 ECBAnnual Report2008