20.10.2005 Official Journal of the European Union L 274/91 COUNCIL DECISION of 20 September 2005 on the existence of an excessive deficit in Portugal (2005/730/EC) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 104(6) thereof, Having regard to the recommendation from the Commission, Having regard to the observations made by Portugal, Whereas: According to Article 104 of the Treaty Member States shall avoid excessive government deficits. The Stability and Growth Pact is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. The excessive deficit procedure under Article 104 provides for a decision on the existence of an excessive deficit. The Protocol on the excessive deficit procedure annexed to the Treaty sets out further provisions relating to the implementation of the excessive deficit procedure. Council Regulation (EC) No 3605/93 of 22 November 1993 (1) lays down detailed rules and definitions for the application of the provision of the said Protocol. Article 104(5) of the Treaty requires the Commission to address an opinion to the Council if the Commission considers that an excessive deficit in a Member State exists or may occur. The Commission addressed such an opinion on Portugal to the Council on 20 July 2005. Having taken into account its report in accordance with Article 104(3) of the Treaty and having regard to () O) L 332, 31.12.1993, p. 7. Regulation as last amended by Commission Regulation (EC) No 351/2002 (O] L 55, 26.2.2002, p. 23). the opinion of the Economic and Financial Committee in accordance with Article 104(4) of the Treaty, the Commission concluded that there exists an excessive deficit in Portugal. In delivering its assessment, the Commission took into account the Ecofin Report to the European Council on ‘Improving the implementation of the Stability and Growth Pact’, endorsed by the latter on 22 March 2005. Article 104(6) of the Treaty lays down that the Council should consider any observations which the Member State concerned may wish to make before deciding, after an overall assessment, whether an excessive deficit exists. In the case of Portugal, this overall assessment leads to the following conclusions. According to the June 2005 update of the Portuguese stability programme, the planned general government deficit is 6,2 % of GDP for 2005. The deficit is in excess of the 3 % of GDP reference value and not close to it. The excess of the deficit over the reference value does not result from an unusual event outside the control of the Portuguese authorities, nor is it the result of a severe economic downturn. While the rate of GDP growth has declined sharply since 2000, the economy returned to positive economic growth in 2004 and, according to the Commission services Spring 2005 forecasts and the June 2005 updated stability programme, it is expected to remain on a gradual, even if moderate, upward trend for the years to come. Moreover, although the negative output gap is sizeable and not expected to narrow significantly in the coming years, the deterioration of the government balance is out of proportion with the recent widening of the output gap. Therefore, the excess over the reference value cannot be considered as resulting from a severe economic downturn. According to Commission services Spring 2005 forecast, the government deficit ratio is projected to exceed its Treaty reference value by a large margin also in 2006, when the recovery of the economy is expected to gradually take hold. In fact, the June 2005 update of the Portuguese stability programme foresees the government deficit to narrow over the coming years, but to exceed the reference value until 2007. The excess over the reference value cannot be considered temporary in the sense of the Treaty and the Stability and Growth Pact. This indicates that the Treaty requirement concerning the deficit criterion is not fulfilled.