Overall fiscal balance 1999 1.6 2000 1.3

( b ) On the basis of primary fiscal balances ( as a percentage of GDP )

Primary fiscal balance 1999 5.8 2000 5.8

Cyclical component of the budget balance shows the effect on the budget balance of the output gap , as estimated by the European Commission .

Chart A Fiscal developments , 1998 2007 ( as a percentage of GDP ) budget balance cyclically adjusted budget balance 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Sources European Commission ( AMECO database ) and ECB calculations . Note Budget balance figures exclude proceeds from the sale of UMTS licences .

Non cyclical changes in the government budget balance have , on average , had a broadly neutral impact on the balance .

Non cyclical changes in the government budget balance had a positive impact on the balance , in particular in 2002 .

Deficit debt adjustments , reflecting among other things financial transactions which leave the deficit unaffected but have an impact on debt , exerted an upward effect of 0.3 percentage point on the euro area average debt ratio in 2000 .

on the contribution of fiscal consolidation efforts as reflected in the primary balance

G L O S S A RY Cyclical component of the budget balance shows the effect on the budget balance of the output gap , as estimated by the European Commission .

constant overall balance 65 60 55 50 45 2000

Note Budget balance figures exclude proceeds from the sale of UMTS licences .

Subsequently , non cyclical factors contributed to a deterioration of the budget balance in 1999 , while they helped to improve the balance in 2000 and 2001 .

Accordingly , the general government budget balance recorded a deficit in each year throughout that period .

However , the fiscal position benefits from a strong economy , with the structural balance probably being in a slight deficit position .

constant overall balance 120 100 80 60 40 20 2000 2001 2002 2003 2004

These budgetary developments were mainly the result of strong output growth and revenue windfalls and , only to a small extent , effective fiscal consolidation .

Greece Potential future debt ratios under alternative assumptions for fiscal balance ratios ( as a percentage of GDP )

Sweden Potential future debt ratios under alternative assumptions for fiscal balance ratios ( as a percentage of GDP )

was close to zero and that in the near future economic conditions would continue to exert a positive influence on the budget balance .

Germany Potential future debt ratios under alternative assumptions for fiscal balance ratios ( as a percentage of GDP ) Constant overall balance Constant primary balance Balanced budget

In the area of economic policy , the Commission produces Integrated Guidelines for Growth and Jobs , containing the Broad Economic Policy Guidelines and the Employment Guidelines , and reports to the EU Council on economic developments and policies . It monitors public finances within the framework of multilateral surveillance and submits reports to the EU Council .

Spain Potential future debt ratios under alternative assumptions for fiscal balance ratios ( as a percentage of GDP ) Constant overall balance 70 Constant primary balance Balanced budget

Austria Potential future debt ratios under alternative assumptions for fiscal balance ratios ( as a percentage of GDP ) Constant overall balance 65 Constant primary balance Balanced budget

Keeping this in mind , both the operation of automatic stabilisers and the expansionary fiscal stance adopted in the euro area countries are assessed to have had a sizeable negative impact on the budget balance .

Compared with the previous year , the fiscal balance has improved by 1.3 percentage points and the debt ratio has decreased by 6.4 percentage points .

The third article examines the differences between the government budget balance and the change in government debt in the euro area .

Deterioration of budget balances in 2001 The average budget balance in the euro area deteriorated in 2001 for the first time since 1993 .

The structural primary budget balance, the International Monetary Fund s preferred measure of fiscal thrust, tightened by an additional 1 1.5 of GDP each year from 2010 to 2012, after which it remained broadly stable.

It was the first time since 1993 that the overall fiscal position of the euro area had deteriorated .

On the one hand , the overall fiscal position of the euro area has improved significantly in recent years .

Net

Net

Net I.

The most commonly used measures of effective exchange rates employ trade weights . Elderly dependency ratio shows the proportion of the population of a country aged 65 and over in comparison with the population aged 15 64

FISCAL POLICIES Fiscal policies in the non euro area EU Member States continued to be heterogeneous in 2006 .

Sweden Potential future debt ratios under alternative assumptions for fiscal balance ratios ( as a percentage of GDP ) Constant overall balance 75 70 65 60 55 1998 1999 2000 2001 Constant primary balance Balanced budget

Netherlands Potential future debt ratios under alternative assumptions for fiscal balance ratios ( as a percentage of GDP ) Constant overall balance 70 65 60 55 1998 1999 2000 2001 2002 Constant primary balance Balanced budget

constant primary balance

The demographic trend over the next few decades will have an adverse effect on the current surpluses in the pension system , thereby making improvements in the general government fiscal balance essential .

European Commission estimates suggest only a marginal improvement in the cyclically adjusted primary balance to GDP ratio ( i.e. the budget balance excluding government debt interest payments and corrected for cyclical influences ) for the euro area as a whole in 1999 .

Budget balance ratios remained broadly stable in Belgium , Ireland and Portugal between 1998 and 1999 , whereas more significant progress was made in the remaining countries with the exception of Luxembourg , where the budget surplus to GDP ratio declined .

The global economic slowdown and sharp equity price declines Chart 27

During the 1990s a pattern of initially sharply deteriorating and subsequently improving outturns can be observed in the budget balanceto GDP ratio .

Compared with the previous year , the fiscal balance has improved by 1.4 57 percentage points , moving into surplus , while the debt ratio has fallen by 5.5 percentage points .