Output growth is projected to increase gradually, in line with the recovery in the euro area, allowing unemployment to fall in 2006. Notwithstanding progress in reducing the relatively high level of government spending, tax reductions in 2005 and 2006 will be mostly deficit-financed, providing a comparatively large stimulus to growth. While the planned pension harmonisation will damp ageing-related spending in the future, substantial further reductions in general government outlays are necessary to ensure the long-run sustainability of government finances, while further steps to improve incentives to work among older workers and women would help offset the adverse economic impact of ongoing demographic change. ...