O L L I R E H N RUE DE LA LOÎ, 200
VICE-PRESIDENT OF THE EUROPEAN COMMISSION В-%049 B R U S S E L S
TEL. (+32-2) 2 9 5 . 7 9 . 5 7
Brussels, 5 January 2012
Dear Steven,
As you may know, right after the publication of the Commission Services 2011 Autumn Forecast of
10 November, I wrote a letter to your predecessor Minister Reyndersand recalled Belgium's
obligations under the EDP and asked for the adoption, as a matter of urgency, of a budget that ensures
a timely and lasting correction of the excessive deficit in 2012. I also said that the Commission
will apply the new rules of economic governance following from the six-pack from day one of their
entering into force. I sent similar letters to the authorities of Cyprus, Hungary, Malta and Poland.
In the meantime, your draft budget for 2012 has been submitted to Parliament, which I appreciate. The
Belgian authorities have also shared with my services numerous supportive documents, for which I am
very grateful. There have also been several technical meetings and other constructive and intensive
communication with your services and other parts of the government, and my services have shared the
outcome of their detailed assessment with the cabinets of MM. Di Rupo and Chastel and yours on 30
December and have further studied their response of 3 January.
On this basis, the Commission services have come to the conclusion that if the impact of the measures
on the budget are taken into account, including the second round effects on growth which is the
standard practice, the deficit forecast for Belgium in 2012 should be updated to about 3/4% of GDP,
compared to the Commission's no policy change forecast of 4.6% of GDP and the government's fiscal
target of 2.8% of GDP.
The divergence is notably the result of a 0.3% of GDP divergence in terms of the expected impact
of budgetary measures (concerning in particular the reform of notional interests and the increase in the
tax rate on interests and dividends, a part of the savings foreseen in healthcare expenditure and the
expected yield of the fight against tax evasion), whereas the minor divergence that existed on the wage
bill has been eliminated. In addition, it reflects an assumed 0.15% GDP of negative impact on the
deficit stemming from the slower growth that will result from the new consolidation measures.
Against this background, as the first-best solution, if the Belgian Government were to adopt in the
coming days measures of a structural nature amounting to at least 0.3-0.5% of GDP (about EUR 1.2 to
2billion), this would allow us to conclude for the moment, and based on the Commission
services Autumn forecast, that Belgium has undertaken the required fiscal effort, resulting in a deficit
below 3% of GDP in 2012.
Should the actual adoption of measures not be possible at this stage, as an alternative I would be
prepared to consider the creation of a budgetary reserve of the above-mentioned size by freezing (at
least temporarily) some additional budgetary expenditure in the 2012 budget. This would allow the
government to either use some of this budgetary reserve or to replace it by other consolidation
measures in the context of the February "budgetary control" exercise. It would of course be important
that the use of this reserve is limited, for instance by establishing a rale that it can only be used if the 1
October EDP notification to the Commission shows a deficit of at most 2.8% of GDP.
Given that the Commission intends to adopt the necessary EDP decisions on 11 January, we would
need to receive the information on concrete additional measures and/or budgetary reserve by the end
of the week, latest by Monday morning. My cabinet and services are at your disposal as always in case
you have any further inquiries on the matter.
Yours sincerely,
Olli Rehn
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