Economics, EU – Baltic States, Financial Services, Latvia, Legislation, Lithuania

Within the batch of countries assessed on Wednesday, only Denmark and Luxemburg have kept their general government deficits below 3% in 2009, although their fiscal situation is set to deteriorate markedly in 2010. For most countries this year will mark a fiscal consolidation process consistent with the recommendation set out in the EDPs and, in the case of Latvia, Hungary and Romania, with the conditions set out in the international financial assistance programmes. As to the budgetary targets set out in the programmes, the growth assumptions underlying these projections are in several cases optimistic especially in outer years, while the budgetary consolidation strategy is often not sufficiently backed up by concrete measures from 2011 onwards. "The economic and financial crisis has taken its toll on public finances. Fiscal stimulus was necessary to support the recovery but the past two years have wiped out 20 years of fiscal consolidation. This means that we have to come back gradually to budgetary rigour next year at the latest," said Economic and Monetary Affairs Commissioner Olli Rehn.

Lithuania envisages a continuation of sizeable fiscal consolidation measures with a view to bringing the deficit from 9.1% of GDP in 2009 to 3% of GDP by 2012, as recommended by the Council on 16 February 2010. Yet, the budgetary outcomes could turn out worse than projected, given the reliance on favourable growth assumptions for 2010 and the limited information on measures to underpin the achievement of the targets in outer years. The Lithuanian economy is currently emerging from a severe recession, informs ELTA/LETA.

Average growth is projected to remain considerably lower over the medium-term than in the upswing of the previous cycle. The current economic challenge is to restore sustainable growth while avoiding any relapse into significant internal and external imbalances. Ambitious structural reforms that aim to strengthen the sustainability of public finances and to underpin the economic recovery are needed, as foreseen in the programme. Against this background, the invitations to Lithuania refer to strengthening the budgetary strategy to correct the excessive deficit and backing up the consolidation path with specific measures, implementing structural reforms, and improving the medium-term fiscal framework.