Official Journal C 219/2012

(3) OJ C 210, 16.7.2011, p. 8.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) OJ L 376, 27.12.2006, p. 36.

(5) Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission services on the basis of the information provided in the Programme, using the commonly agreed methodology.

(7) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/5

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Belgium and delivering a Council opinion on the Stability Programme of Belgium, 2012-15

2012/C 219/02

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Belgium’s National Reform Programme for 2011 and delivered its opinion on Belgium’s updated Stability Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Belgium as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

On 2 March 2012, the European Council endorsed the priorities for ensuring financial stability, fiscal consolidation and action to foster growth. It underscored the need to give priority to growth-friendly fiscal consolidation, to restore normal lending conditions to the economy, to promote growth and competitiveness, to tackle unemployment and the social consequences of the crisis, and to modernise public administration.

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(9)

On 30 April 2012, Belgium submitted its Stability Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed in an in-depth review, under Article 5 of Regulation (EU) No 1176/2011, whether Belgium is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Belgium is experiencing an external imbalance, although not an excessive one.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in that Programme is plausible for the years 2012 and 2013 and optimistic for the years 2014 and 2015 as it foresees GDP growth to be substantially higher than the latest estimates of potential growth emerging from the Commission services 2012 spring forecast. The objective of the budgetary strategy outlined in the Stability Programme is to bring the deficit below 3 % of GDP in 2012 (to 2,8 % of GDP, down from 3,7 % of GDP in 2011) and to zero in 2015. The Stability Programme confirms the previous medium-term budgetary objective (MTO) of a surplus of 0,5 % of GDP in structural terms, which adequately reflects the requirements of the Stability and Growth Pact. The planned 2012 headline deficit complies with the deadline set by the Council for the correction of the excessive deficit and the planned fiscal effort complies with the Council recommendation under the excessive deficit procedure of a minimal average annual effort of ¾ % of GDP in structural terms. The planned growth rate of government expenditure, taking into account discretionary revenue measures, complies with the expenditure benchmark of the Stability and Growth Pact in the period 2013-15, but not in 2012. Based on the (recalculated) structural budget balance (5), the Stability Programme projects the structural balance to improve by 1,1 percentage point of GDP in 2012 and by about 0,8 % of GDP on average over the period 2013-15.

However, there are risks stemming from the fact that the additional measures to be taken from 2013 onwards are not yet specified and that the macroeconomic scenario from 2014 onwards is too optimistic. According to the Stability Programme, the government debt, which at 98,0 % of GDP in 2011 is well above the 60 % threshold, is expected to stabilise and then to decline to 92,3 % in 2015, which would imply sufficient progress towards meeting the debt reduction benchmark of the Stability and Growth Pact.

Moreover, implicit liabilities stemming from the guarantees given to the financial sector are particularly large. The rules-based multiannual framework for general government, particularly with regard to expenditure, would benefit from enforcement mechanisms and/or commitments from Belgium’s regions and communities, as well as from the local level, in order to meet their allocated deficit targets.

(11)

The costs associated with ageing should be addressed and a structural decline in the deficit should be achieved to reduce the high public debt. The new Federal Government agreed in December 2011 on a reform of the Belgian old-age social security system. An effective implementation and monitoring of the initiated statutory reforms is now necessary, with a view to raising the effective retirement age. Underpinning the reform of old-age social security by measures that stimulate active ageing and longer working are crucial, while further reforms, such as linking the statutory retirement age to life expectancy, would also help to achieve this goal.

(12)

The Belgian financial system still faces considerable challenges. Restructuring of the Belgian banks is ongoing, and state aid granted in 2008/09 as a response to the financial crisis has not yet been fully repaid. Moreover, given the high level of guarantees, the risks facing the banking and public sectors are interrelated.

(13)

The current account is gradually deteriorating over time. The improvement of the services balance does not make up for the deterioration in the trade balance for goods. Belgian exports of goods have lost ground not only with respect to expanding world trade, but also with respect to other euro area Member States and the euro area on average pointing to unfavourable domestic cost developments in unit labour costs compared to Belgium’s main trading partners (the Netherlands, France, Germany) and the euro area as a whole. Given the existence of an automatic wage-indexation system, the efforts of the Government to limit real wage increases to no more than 0,3 % in the period 2011-12 may not have prevented nominal wage growth from exceeding that pertaining in the neighbouring countries. Although productivity levels are high, Belgium’s growth is weak and also the costs of intermediary inputs, mainly energy, are high. Retail gas and electricity prices have been frozen in order to limit inflation, but no concrete measures have been taken with respect to reforming the wage-bargaining and wage-indexation system itself. The research and development (R & D) intensity of the private sector has stagnated in recent years and shortage of skilled professionals, particularly in sciences and engineering, could become a major barrier in terms of further improving the innovation performance of the Belgian economy.

(14)

Some structural measures have been taken to boost employment of younger and older workers and to bring more of the unemployed into the work force. Belgium has engaged in a wide reform of its unemployment benefit system. However structural problems in the labour market persist and more could be done to tackle them. Increasing the lifelong learning participation rate and pursuing the reforms in vocational education and training (VET) are crucial to improving the effectiveness of active labour market policies (ALMP), in particular for older workers and disadvantaged groups, such as people with a migrant background. No significant headway has been made on the reduction of the tax burden on labour. A new tax credit for the lowest wages was introduced in June 2011 but it has not proved sufficient to remedy the significant unemployment traps at the bottom of the pay scale. No shift of the fiscal burden away from labour towards consumption and/or eco-taxes has been undertaken.

(15)

Prices for many goods and services are generally higher than in other Member States, reflecting weak competitive pressures — especially in the retail sector and network industries — and a weak supervisory framework. In the retail sector, barriers and operational restrictions remain high. In particular, competition-restricting regulations still restrict opening hours, protect incumbents against new entry and inhibit the spread of new business models and technologies. A common competition problem in the network sectors in Belgium is the strong position of the incumbent and the high entry barriers compared to other Member States, meaning that former monopolists in these sectors can still charge higher prices than a competitive market would allow. The Belgian Competition authority is being reformed but it remains unclear whether the reformed authority will be sufficiently independent and have adequate resources.

(16)

While Belgium is on track to meet the target to increase the share of renewable energy in the economy, progress towards reaching the 15 % reduction target for greenhouse gas emissions in the non-ETS (6) sectors is forecast to be insufficient. Belgium did not adopt sufficient measures or policy initiatives in 2011 to address this situation.

(17)

Belgium has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to improving competitiveness, raising the employment rate, boosting the sustainability of public finances and strengthening financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations below.

(18)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Belgium’s economic policy. It has assessed both the Stability Programme and the National Reform Programme and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Belgium but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input to future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

(19)	In the light of this assessment, the Council has examined the Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below.

(20)

In the light of the results of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendations (1), (4), (5) and (6) below,

HEREBY RECOMMENDS that Belgium take action within the period 2012-13 to:

Implement the budget for the year 2012 to make sure that the excessive deficit is corrected by 2012. Additionally, specify the measures necessary to ensure implementation of the budgetary strategy for the year 2013 and beyond, thereby ensuring that the excessive deficit is corrected in a durable manner and that sufficient progress is made towards the MTO, including meeting the expenditure benchmark, and ensure progress towards compliance with the debt reduction benchmark. Adjust the fiscal framework to ensure that the budgetary targets are binding at federal and sub-federal levels, and increase transparency of burden-sharing and accountability across government layers.

Continue to improve the long-term sustainability of public finances by curbing age-related expenditure, including health expenditure. In particular, implement the reform of pre-retirement and pension schemes and take further steps to ensure an increase in the effective retirement age, including through linking the statutory retirement age to life expectancy.

3.	Stimulate capital increase of the weakest banks to underpin the strength of the banking sector so that it can play its normal role in lending to the economy.

To boost job creation and competitiveness, take steps to reform, in consultation with the social partners and in accordance with national practice, the system of wage bargaining and wage indexation. As a first step, ensure that wage growth better reflects developments in labour productivity and competitiveness, by (i) ensuring the implementation of ex post correction mechanisms foreseen in the ‘wage norm’ and promoting all-in agreements to improve cost-competitiveness and (ii) facilitating the use of opt-out clauses from sectoral collective agreements to better align wage growth and labour productivity developments at local level.

Significantly shift taxes from labour to less growth-distortive taxes including for example environmental taxes. Pursue the initiated reform of the unemployment benefit system to reduce disincentives to work and strengthen the focus of employment support and activation policies on older workers and vulnerable groups, in particular people with a migrant background. Take advantage of the planned further regionalisation of labour market competencies to boost interregional labour mobility and to strengthen the coherence between education, lifelong learning, vocational training and employment policies. Extend existing activation efforts to all age groups.

Continue to strengthen competition in the retail sector by lowering barriers and reducing operational restrictions. Introduce measures to strengthen competition in the network industries by revising regulatory barriers and reinforcing the institutional arrangements for effective enforcement of state aid rules.

7.	Take further measures to enhance the progress towards reaching the targets for reducing greenhouse gas emissions from non-ETS activities, in particular by ensuring a significant contribution to this goal from transport.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 209, 15.7.2011, p. 1.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) In Belgium only 37,9 % of emissions come from sectors included in the EU Emission Trading Scheme (ETS). Of the more important non-ETS sectors, road transport (21,5 %) and energy use (38,9 %) are the most important sources of greenhouse gas emissions in the country.

(7) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/9

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Bulgaria and delivering a Council opinion on the Convergence Programme of Bulgaria, 2012-15

2012/C 219/03

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Bulgaria’s National Reform Programme for 2011 and delivered its opinion on Bulgaria’s updated Convergence Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Bulgaria as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

On 2 March 2012, the European Council endorsed the priorities for ensuring financial stability, fiscal consolidation and action to foster growth (in line with the Council’s conclusions of 9 December 2011 and further to the Commission’s Annual Growth Survey 2012). It underscored the need to pursue differentiated, growth-friendly fiscal consolidation, to restore normal lending conditions to the economy, to promote growth and competitiveness, to tackle unemployment and the social consequences of the crisis, and to modernise public administration.

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)

On 12 April 2012, Bulgaria submitted its Convergence Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Bulgaria is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Bulgaria is experiencing an internal macroeconomic imbalance, although not an excessive one.

(10)

According to the first 2012 notification of deficit and debt figures by Bulgaria for the years 2008-11 for the application of the excessive deficit procedure (EDP), the general government deficit in 2011 was below the 3 % of GDP reference value of the Treaty. Moreover, the Commission services’ 2012 spring forecast projects the general government deficit to stay below the reference value of the Treaty and to further decline over the forecast period. As a result, and in line with the provisions of the Stability and Growth Pact, on 30 May 2012 the Commission adopted a recommendation for a Council decision (5) abrogating the decision on the existence of an excessive deficit under Article 126(12) of the Treaty.

(11)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that compared with the Commission services’ 2012 spring forecast the macroeconomic scenario underpinning the budgetary projections in the Convergence Programme is optimistic for the 2012-13 period, when annual growth is expected to reach 1,4 % in 2012 and 2,5 % in 2013. The Commission services’ 2012 spring forecast foresees a GDP growth of 0,5 % in 2012 and 1,9 % in 2013. After the correction of the excessive deficit in 2011, the objective of the budgetary strategy outlined in the programme is to achieve a budgetary position which is close to balance, both in terms of the structural and headline budget balances, by the end of the programme period. The medium-term budgetary objective (MTO), defined in structural terms, has been marginally revised from a deficit of 0,6 % of GDP to a deficit of 0,5 % of GDP. The new MTO adequately reflects the requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget balance (6), Bulgaria plans to achieve its MTO over the Convergence Programme period.

In 2012-14, the growth rate of government expenditure, taking into account discretionary revenue measures, would respect the expenditure benchmark of the Stability and Growth Pact, yet breach it in 2015. Planned fiscal consolidation faces a number of risks stemming from (i) lower revenue given the optimistic macroeconomic scenario and the less tax-rich underlying growth structure of the economy, and (ii) inefficiencies in the public sector, particularly with respect to arrears in healthcare, which may lead to considerable expenditure pressures. The debt ratio is below 60 % of GDP and, according to the Convergence Programme, it is expected to peak at close to 20 % of GDP in 2012 and then to decrease over the programme period. There is considerable scope for improvement in tax compliance and advancing in this area would allow Bulgaria to support higher growth enhancing expenditures. A requirement to keep the budget deficit below 2 % and limiting government expenditure to 40 % of GDP was adopted as an amendment to the Organic Budget Law, thus strengthening the binding nature of the fiscal framework and improving the predictability of budgetary planning. However, challenges remain with respect to further improving the contents of the medium-term budgetary framework and strengthening the reporting on accrual basis including through improving the quality and timeliness of reporting by state-owned enterprises and sub-national governments.

(12)

The Government has made considerable progress on some of the pension-reform measures including those on the pensionable age for both men and women and on the length of service for army and police-sector employees. However, addressing the shortcomings in the adequacy of pension provision remains a key challenge in the medium term. The changes do not envisage steps to make the statutory retirement age the same for men and women. Also, they fall short in reducing effectively early retirement options for employees. A key challenge remains the inclusion of people not paying contributions, as well as tightening controls and criteria for the allocation of invalidity pensions.

(13)

Bulgaria has the highest rate of people at risk of severe material deprivation in the Union, with the elderly and children being particularly affected. Comprehensive measures are needed. Priority should be given to making social transfers more effective. Only half of the economically active Roma are employed. The recently adopted National Strategy for Roma Integration targets multiple barriers but still needs to be underpinned by a detailed Action Plan if it is to be operational over the period 2012-20.

(14)

The crisis has had a particularly strong impact on low-skilled workers (who account for the largest group of the unemployed) and has significantly raised youth unemployment. Moreover, since 2009, the increase in long-term unemployment has been significantly faster than in the rest of the Union and principally reflecting an increase in skills and geographical mismatches as job cuts were concentrated in the low-skilled segment. A review of the system setting minimum thresholds for social security contributions should be undertaken to balance the need to reduce undeclared work and to ensure that low-skilled workers are not priced out. Measures undertaken by the Government to freeze the public sector wage bill in 2010-12 have constituted a relevant and adequate response, also contributing to bring labour costs closer to productivity levels. A national initiative has been launched to comprehensively address the integration of young people in the labour market. Public employment services are still of relatively low quality and staff training should be intensified, in particular with respect to ‘Roma mediators’. Further measures are needed to improve services dealing with activation, job search, matching, retraining and individualised services for the low-skilled.

(15)

Bulgaria has the highest share of low achievers in reading and in mathematics and science in the Union (according to the OECD Programme for International Student Assessment (‘PISA’) 2009), indicating the existence of considerable structural obstacles to ensuring quality education. The low educational achievements are linked to weak access to education of disadvantaged groups, in particular the Roma population, insufficient autonomy of schools, lack of incentives for better performance, a poor national assessment system and insufficient accountability. In higher education, progress remains very limited even though some promising efforts have been made recently. The planned amendments to the Higher Education Act need to be implemented as a top priority for growth and accompanied by adequate governance, investment and political determination.

(16)

Bulgaria has a low level of investments in research and innovation (R&I). The R&I investment have to be raised in order to reach a national target of 1,5 % of GDP by 2020 and an appropriate innovation strategy must be elaborated. The R&I administration in Bulgaria is fragmented. Bulgaria needs to strengthen its universities and develop a strategy to engage higher education institutions in innovation activities. Frameworks fostering collaboration between universities and the private sector have to be further developed, and funding should be allocated in a competitive, merit-based and transparent way. Bottlenecks remain for start-up companies and innovative small and medium-sized enterprises (SMEs) seeking finance. Public financial instruments and guarantees for young and innovative enterprises are in the early stage of implementation and their effect needs to be seen.

(17)

Currently, the administrative capacity of Bulgaria is insufficient to properly manage and maintain road, rail and water infrastructures projects. The administrative reform has focused mainly on reducing public sector staff with limited attempts to remove other sources of inefficiency. The use of EU funds remains low despite consistent progress in the last two years. The main reasons are the existence of complicated administrative procedures and the difficulty encountered by enterprises in securing co-financing. Significant challenges also remain in terms of further improving the business and regulatory environment and achieving progress in increasing the administrative capacity of the public sector. The implementation of e-government has been delayed many times. The tax system in Bulgaria is characterised by significant tax evasion and low administrative efficiency. Administrative costs for tax collection are high, as are the time costs businesses face in paying taxes.

(18)

The new legislation on public procurement is an important step towards a better system for the monitoring, prevention and sanctioning of irregularities. These efforts should be supplemented on two fronts: (i) the sanctions foreseen need to be effectively applied; and (ii) ex officio powers should be entrusted to the Public Procurement Agency.

(19)

Despite initiated reforms, Bulgaria still maintains some restrictions to entry into network sectors such as rail transport, telecommunications and energy. The functioning of energy markets at both wholesale and retail levels remains problematic. Areas of particular concern in need of improvement include the lack of electricity and gas exchanges and of a functioning balancing market as well as regulated prices for consumers. Moreover, Bulgaria should ensure regulatory independence for the transmission system. Bulgaria is highly dependent on a single energy route and its domestic energy market functions inadequately, exposing it to risks of significant supply shocks. Existing measures aimed at addressing energy dependency need to be improved. So far, the construction of new gas infrastructure has been too slow. Although some desirable reforms were formally adopted and the share of renewable energy increased in 2011, their implementation remains unsatisfactory due to procurement, the capture of public policies by private interests, and poor management of state-owned energy companies.

(20)

Bulgaria has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to improved public finance sustainability, fostering employment, boosting public-sector competitiveness and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(21)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Bulgaria’s economic policy. It has assessed the Convergence Programme and the National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Bulgaria but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

(22)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (7) is reflected in particular in recommendation (1) below.

(23)	In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendations (3) and (5) below,

HEREBY RECOMMENDS that Bulgaria take action within the period 2012-13 to:

Continue with sound fiscal policies to achieve the MTO by 2012. To this end, implement the budgetary strategy as envisaged, ensuring compliance with the expenditure benchmark, and stand ready to take additional measures in case risks to the budgetary scenario materialise. Strengthen efforts to enhance the quality of public spending, particularly in the education and health sectors and implement a comprehensive tax-compliance strategy to further improve tax revenue and address the shadow economy. Further improve the contents of the medium-term budgetary framework and the quality of the reporting system.

2.	Take further steps to reduce risks to the sustainability and to improve adequacy of the pension system by making the statutory retirement age the same for men and women with full career contributions. Introduce stricter criteria and controls for the allocation of invalidity pensions.

Accelerate the implementation of the national Youth Employment Initiative. Ensure that the minimum thresholds for social security contributions do not discourage declared work. Step up efforts to improve the Public Employment Service’s performance. To alleviate poverty, improve the effectiveness of social transfers and the access to quality social services for children and the elderly and implement the National Roma Integration Strategy.

Speed up the reform of relevant legal acts on schools and higher education and of accompanying measures by focusing on modernising curricula, improving teacher training, and ensuring effective access to education for disadvantaged groups. Improve the access to finance for start-ups and SMEs, in particular those involved in innovative activities.

Step up efforts to enhance administrative capacity and reforms by reducing red tape and the cost of tax compliance and collection, and further improving the absorption of EU funds, in particular in road and rail transport and water management. Improve the quality and independence of the judicial system and speed up the introduction of e-government. Strengthen public administrative capacity in key transport sectors and regulatory authorities.

6.	Ensure sound implementation of public procurement legislation. Strengthen the prevention of irregularities and effectively apply the sanctions under the Public Procurement Law and those of the Law on Conflict of Interest.

Take measures to remove market barriers, guaranteed profit arrangements and price controls. Ensure the independence of transmission and distribution system operators; complete the market design in particular for the energy exchanges and balancing markets. Improve electricity and gas connections, boost energy efficiency and enhance the capacity to cope with disruptions.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 209, 15.7.2011, p. 5.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(5) The resulting Council Decision 2012/370/EU was adopted on 22 June 2012 (OJ L 179, 11.7.2012, p. 19).

(6) Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission services on the basis of the information provided in the Programme, using the commonly agreed methodology.

(7) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/13

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Cyprus and delivering a Council opinion on the Stability Programme of Cyprus, 2012-2015

2012/C 219/04

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Cyprus’s National Reform Programme for 2011 and delivered its opinion on Cyprus’s updated Stability Programme for 2011-2014 (‘2011 Council Recommendation’).

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Cyprus as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)

On 7 May 2012, Cyprus submitted its Stability Programme covering the period 2012-2015 and on 10 May 2012 its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Cyprus is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Cyprus experiences an internal imbalance due to its banking sector and the indebtedness of the corporate sector and an external and an internal imbalance on its fiscal dynamics and competitiveness, although not excessive ones.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme appears optimistic in 2012-2014. Although incorporating a major downward revision of the growth outlook, the macroeconomic scenario underpinning the budgetary projections in the Stability Programme remains subject to downside risks, relating in particular to the evolution of domestic demand in 2012-2013. The objective of the budgetary strategy outlined in the Stability Programme is to correct the excessive deficit by 2012 and to reach the medium-term budgetary objective (MTO) by 2014, and to stay at MTO in 2015. The Stability Programme confirms the previous MTO of a balanced budget in structural terms, which adequately reflects the requirements of the Stability and Growth Pact. The planned correction of the excessive deficit is in line with the deadline set by the Council recommendation issued in the context of the excessive deficit procedure on 13 July 2010. Based on the (recalculated) structural budget balance (5), the average annual fiscal effort planned at 1,5 % of GDP for the period 2011-2012 is equal to the effort recommended by the Council. The envisaged progress towards the MTO in 2013 is sufficient as it is higher than the 0,5 % of GDP benchmark of the Stability and Growth Pact both according to the Commission services 2012 spring forecast and the Stability Programme.

The growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact in 2013-2014, but not in 2015. There are risks accompanying the budgetary targets of the Stability Programme linked to the macroeconomic scenario appearing optimistic in 2012-2014 and the planned consolidation effort in 2013, partly relying on not fully specified measures. According to the Stability Programme, the debt-to-GDP ratio, which amounted to 71,6 % in 2011, is to increase to 72,1 % in 2012 before gradually dropping to 65,4 % in 2015. In terms of the debt reduction benchmark of the Stability and Growth Pact, Cyprus will be in a transitional period in the years 2013-2015 and the plans presented in the Stability Programme would ensure sufficient progress towards compliance with the debt reduction benchmark. However, there are risks attached to this projection linked to the possible rescue operations of financial corporations.

(11)

The efficiency of the tax administration needs considerable improvement as administrative costs in relation to revenue collection in Cyprus are very high. Tax collection is relatively low. In particular, tax administration expenditure as a share of GDP and the administration costs in relation to net revenue collection are high and on a rising trend. Measures to encourage a move away from informal/undeclared work and tackle tax evasion are necessary. Furthermore, initiatives to render tax collection more efficient should be reinforced.

(12)

Given the wide exposure of Cyprus’s banking institutions to the Greek economy, the banks’ asset performance, profitability, capital and liquidity buffers have been negatively affected by the restructuring of the Greek government debt, and by the increasing number of non-performing loans (NPLs) extended to Greek borrowers. Total exposure of the consolidated Cypriot banking sector to Greece is very high. The Parliament adopted, on 14 December 2011, two bills to strengthen the financial system’s resilience against banking crises. However, progress with the strengthening of supervision of the cooperative credit societies, which hold about 40 % of all domestic deposits, has so far not been satisfactory.

(13)

Cyprus faces challenges in ensuring the long-term sustainability of public finances, in particular in the area of pensions. Cyprus has implemented two important structural measures to reform its pension system. However, while the measures adopted are relevant and credible, the response of Cyprus is not sufficiently ambitious to secure sustainability and adequacy, and improve the system’s fairness in the longer term. Measures are still required to maintain the employability of workers within enterprises and underpin the increase in the effective retirement age. In terms of poverty of the elderly, Cyprus has only partly addressed their high at-risk-of-poverty rate. The adopted measures are insufficient to improve the short-term adequacy of income for pensioners at risk of poverty.

(14)

Inequality and inefficiencies in the healthcare sector have not been tackled in a meaningful manner. In spite of the 2011 Council Recommendation, recommendation (3) thereof, no clear timeline for proceeding with the National Health Insurance System has been presented so far. This poses risks to the long-term control and sustainability of public finances and the quality of healthcare provided.

(15)

The Government has taken some steps to respond to the 2011 recommendation on wage indexation (cost of living allowance — COLA), in particular by adopting a two-year pay freeze in the broader public sector. The Government and social partners also agreed to initiate a dialogue with the aim of reviewing the COLA system by the end of June 2012. A comprehensive reform of the system should be pursued, in consultation with social partners and in accordance with national practices, with a view to strengthening the link between real wages and productivity developments and making the system more equitable. This would not only support Cyprus’s competitiveness, but would also lead to a more efficient allocation of labour. While these developments are first steps in the right direction, their relevance and credibility depend crucially on the degree of ambition and enforcement of the final outcome of the social dialogue currently under way regarding the reform of the wage indexation system.

(16)

The worsening of the macroeconomic outlook adversely affected the Cypriot labour market, raising the unemployment rate and causing a large increase in youth unemployment. Cyprus has taken a number of positive steps to address this challenge. These measures are relevant but not ambitious enough, in particular in education and vocational training where implementation should be speeded up. Further efforts are required for resolving youth unemployment as well as for the re-skilling and up-skilling of the workforce to facilitate the necessary transitions in the labour market, focusing in particular on those groups with a low participation rate in lifelong learning activities such as the low-skilled and older workers.

(17)

As regards the service sector, Cyprus transposed Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (6) (‘Services Directive’) by way of a horizontal law accompanied by a number of sector-specific amending laws and regulations. However, in some sectors (e.g. retail, tourism, and construction services) the adoption of sector-specific legislation is still pending. Although Cyprus ranks favourably in relation to the EU average with regard to the regulation of professional services and, of the 90 regulated professions in Cyprus, only four are in business services, there are a few regulated professional services where fixed or minimum tariffs still exist, such as for lawyers and architects.

(18)

On the basis of the analysis in the in-depth review, it can be concluded that Cyprus is affected by imbalances. In particular, macroeconomic developments in the current account, public finances and the financial sector require close monitoring and urgent economic policy attention in order to avert any adverse effects on the functioning of the economy and economic and monetary union. More specifically, the Cypriot economy has experienced persistent and sizeable current account deficits, driven by deficits in the volume of trade due to a gradual loss in price/cost competitiveness, imbalances in the government finances that have swung to annual deficits which have widened even as the economy recovered from recession, and increasing private indebtedness. In particular, non-financial corporations are very vulnerable due to their high indebtedness coupled with their low profitability, resulting to a significant increase in non-performing loans in this sector. Also, the high exposure of the banking sector to sovereign Greek bonds and the Greek economy is very risky. Moreover, growth prospects are dim which further hinders the relatively slow unwinding of imbalances.

(19)

Cyprus has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to improving competitiveness, improving the employment rate, the sustainability of public finances, and strengthening financial sustainability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(20)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Cyprus’s economic policy. It has assessed the Stability Programme and National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Cyprus but also their observance of EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

(21)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (7) is reflected in particular in recommendation (1) below.

(22)

HEREBY RECOMMENDS that Cyprus take action within the period 2012-2013 to:

Take additional measures to achieve a durable correction of the excessive deficit in 2012. Rigorously implement the budgetary strategy, supported by sufficiently specified measures, for the year 2013 and beyond to ensure the achievement of the MTO by 2014 and compliance with the expenditure benchmark and ensure sufficient progress with the debt reduction benchmark. Accelerate the phasing-in of an enforceable multiannual budgetary framework with a binding statutory basis and corrective mechanism. Take measures to keep tight control over expenditure and implement programme and performance budgeting as soon as possible. Improve tax compliance and fight against tax evasion.

Further harmonise the supervisory and the regulatory framework for the cooperative credit societies in line with the standards applied for the commercial banks. Strengthen regulatory provisions for the efficient recapitalisation of the financial institutions in order to limit exposure of the financial sector to external shocks.

3.	Further improve the long-term sustainability and adequacy of the pensions system and address the high at-risk-of-poverty rate for the elderly. Ensure an increase in the effective retirement age, including through aligning the statutory retirement age with the increase in life expectancy.

4.	Complete and implement the national healthcare system without delay, on the basis of a roadmap, which should ensure its financial sustainability while providing universal coverage.

Improve the skills of the workforce to reinforce their occupational mobility towards activities of high growth and high value added. Take further measures to address youth unemployment, with emphasis on work placements in companies and promotion of self-employment. Take appropriate policy measures on the demand side to stimulate business innovation.

6.	Remove unjustified obstacles in services markets, in particular by improving the implementation of the Services Directive in service sectors with the most growth potential (including tourism) and by opening up the provision of professional services.

Improve competitiveness, including through the reform of the system of wage indexation, in consultation with social partners and in line with national practices, to better reflect productivity developments. Take steps to diversify the structure of the economy. Redress the fiscal balance by restraining expenditure.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 210, 16.7.2011, p. 12.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) OJ L 376, 27.12.2006, p. 36.

(7) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/17

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of the Czech Republic and delivering a Council opinion on the Convergence Programme of the Czech Republic, 2012-2015

2012/C 219/05

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on the Czech Republic’s National Reform Programme for 2011 and delivered its opinion on the updated Czech Republic’s Convergence Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify the Czech Republic as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 25 April 2012, the Czech Republic submitted its Convergence Programme covering the period 2012-2015 and, on 13 April 2012, its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(9)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is plausible. According to the Convergence Programme, GDP growth is expected to reach 0,2 % and 1,3 % in 2012 and 2013 respectively, compared to 0 % and 1,5 % in 2012 and 2013 respectively in the Commission services 2012 spring forecast. The objective of the budgetary strategy outlined in the Convergence Programme is to reach a balanced budget in 2016. The general government deficit target of 2,9 % of GDP in 2013 is in line with the deadline for correcting the excessive deficit set out in the Council recommendations of 2 December 2009. The average annual fiscal effort of 0,9 % of GDP over the period 2010-2013, based on the (recalculated) structural budget balance (5), is slightly below the effort of 1 % of GDP recommended by the Council. The Convergence Programme confirms the previous medium-term budgetary objective (MTO) of a deficit of 1 % of GDP, which adequately reflects the requirements of the Stability and Growth Pact, to be reached in 2015. The progress towards the MTO is 0,8 % and 0,7 % of GDP in 2014 and 2015 respectively, based on the (recalculated) structural budget balance and the rate of growth of government expenditure complies with the expenditure benchmark of the Stability and Growth Pact.

The budgetary projections of the Convergence Programme are subject to several risks. The law on financial compensation to churches, currently discussed in Parliament, would increase the general government deficit by 1,5 % of GDP once in the year of entry into force. More generally, the nature and extent of the envisaged consolidation measures on both the revenue and the expenditure side entails a considerable risk for the sustainability of the fiscal adjustment beyond the programme period. Budgetary adjustment has so far relied mostly on across-the-board cuts, which affect also growth-enhancing expenditure. Additional savings in public administration expenditures amounting to almost 1 % of GDP are planned for 2013-2015, but details are not sufficiently specified in the programme. Finally, most of the planned revenue measures are of a temporary nature and should expire in 2015. According to the Convergence Programme, the debt-to-GDP ratio is expected to peak at 45,1 % of GDP in 2013 and decline thereafter, mainly on account of the projected continuous improvement of the primary balance.

(10)

In 2011, the Czech authorities approved an increase in the reduced VAT rate and in excise duties on tobacco; they also approved a major tax reform affecting labour taxation which should enter into force in 2014. Further changes to the tax system were agreed at government level in April 2012. Some of those changes concern environmental and housing taxation, which are currently below the EU average. The proposed temporary nature of provisions in labour taxation would create additional compliance costs and reduce predictability for taxpayers. Furthermore, the low effective taxation of the self-employed compared to employees on account of an extensive recourse to lump-sums and tax deductibles would only be partly addressed by the new proposals. Finally, the government adopted measures to combat fraud in the area of VAT and fuel taxes and took first steps to introduce the single collection point. However, tax compliance still remains an issue and the current tax collection system is not based on an articulated and comprehensive tax compliance strategy.

(11)

The Government approved, and partly implemented, a reform of the pension system, aimed at restoring fiscal sustainability and raising retirement savings. However, due to the gradual rise in pension expenditure expected to gather pace from 2030 onwards, the projected fiscal imbalances in the pension system are still high relative to the EU average. The reform strengthens the link between the statutory retirement age and life expectancy but does not include a mechanism that would ensure a timely response to future changes. The capacity of the new funded pillar to contribute to higher average pensions in the future depends on the proportion of workers, especially of younger ones, participating in it and on the expected rate of return over the long run. However, no measures were announced to stimulate effective participation in this pillar and more guidance for potential savers would be appropriate. Moreover, the new early retirement scheme envisaged by the government in agreement with the social partners represents a considerable risk to credibility and ambition of the reforms to achieve both an effective increase in the retirement age and adequate pensions.

(12)

The overall unemployment rate is below the EU average but women with children and other vulnerable groups struggle to realise their potential in the labour market. An earlier return from parental leave, which would prevent the loss in skills, is contingent on greater availability of childcare, especially for children below the age of three. In this regard, the government eased the technical requirements for setting up company-based kindergartens and envisages providing tax incentives for a greater take-up of private childcare, thereby partially implementing the recommendations. However, as only 3 % of children younger than three years attend formal childcare (compared to 24 % in the EU-27, 2009), further measures are needed with a view to enhancing labour market participation of parents with young children.

(13)

Several measures were adopted to improve the performance of the public employment service (PES). Regional labour offices were put under the responsibility of a new central labour office and, as part of a broader social-benefits reform, the responsibility for payment of non-insurance social benefits was transferred from the municipalities to labour offices. However, the resulting increased workload will put further strain on the PES staff, whose number declined by 12 % in 2011. To improve placement services, a system for outsourcing employment services to private agencies was introduced. A large part of the fees is to be paid up-front, which will need to be re-examined in the future to ensure that the incentives are aligned with labour market outcomes. Further efforts are needed to ensure better quality and effectiveness of training, job search assistance and individualised services. The necessary means and incentives need to be provided. Efficiency assessment should be introduced to improve the targeting if interventions and funding of activation programmes are to be linked to performance.

(14)

There is still ample scope for improving the efficiency of public administration, despite recent improvements in some areas, such as e-government services and the reduction of the administrative burden for businesses. An anti-corruption strategy for 2011-2012 is currently in place. A new strategy for the period beyond 2012 is under preparation and will be adopted in the course of 2012. The adoption of the new Public Procurement Act, which has been in force since April 2012, has been the main achievement of the current strategy. Nevertheless, proper enforcement and implementation will be crucial for its credibility and effectiveness. The issue of anonymous share holding has not been addressed yet. The Public Servants Act is still under preparation but needs to be adopted without delay in order to provide the administration with the necessary stability. Furthermore, irregularities in public procurement and sub-optimal functioning of the management and control systems for public administration have been significant sources of problems with respect to the implementation of the EU Funds.

(15)

The Czech economy needs to mobilise factors facilitating the transition to growth based on innovation, higher value added and human capital because opportunities for further real convergence based on capital-intensive growth seem rather limited. A reform of tertiary education is currently being discussed. Although it includes an overhaul of the current accreditation process, it is not sufficiently precise on the key issue of quality evaluation standards and, given the absence of systematic data collection and analysis, it lacks support from the academic community. In the light of the worsening achievements of Czech pupils, the Government has undertaken steps to ensure minimal learning outcomes and embarked on a strategy of nation-wide computer-based testing. However, these measures are too narrow to effectively increase the quality and equity of compulsory education.

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Czech Republic’s economic policy. It has assessed the Convergence Programme and the National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (6) below.

(17)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that the Czech Republic take action within the period 2012-2013 to:

Ensure planned progress towards the timely correction of the excessive deficit. To this end, fully implement the 2012 budget and specify measures of a durable nature necessary for the year 2013 so as to achieve the annual average structural adjustment specified in the Council recommendation under the excessive deficit procedure. Thereafter, ensure an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark. In this context, avoid across-the-board cuts, safeguard growth-enhancing expenditure and step up efforts to improve the efficiency of public spending. Exploit the available space for increases in taxes least detrimental to growth. Shift the high level of taxation on labour to housing and environmental taxation. Reduce the discrepancies in the tax treatment of employees and the self-employed. Take measures to improve tax collection, reduce tax evasion and improve tax compliance, including by implementing the Single Collection Point for all taxes.

2.	Introduce further changes to the public pension scheme to ensure its long-term sustainability. Reconsider plans to allow an earlier exit from the labour market. Promote effective participation of younger workers in the envisaged funded scheme to improve adequacy of pensions.

3.	Take additional measures to significantly increase the availability of affordable and quality pre-school childcare.

4.	Strengthen PES by increasing the quality and effectiveness of training, job search assistance and individualised services, including of outsourced services.

Adopt and implement as a matter of urgency the Public Servants Act to promote stability and effectiveness of the public administration in avoiding irregularities. Ensure adequate implementation of the new Public Procurement Act. Address the issue of anonymous share holding. Ensure correct implementation of EU Funds and step up the fight against corruption.

Adopt the necessary legislation to establish a transparent and clearly defined system for quality evaluation of higher education and research institutions. Ensure that the funding is sustainable and linked to the outcome of the quality assessment. Establish an improvement-oriented evaluation framework in compulsory education.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 212, 19.7.2011, p. 5.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/21

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Denmark and delivering a Council opinion on the Convergence Programme of Denmark, 2012-2015

2012/C 219/06

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Denmark’s National Reform Programme for 2011 and delivered its opinion on Denmark’s updated Convergence Programme for 2011-2015.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Denmark as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(9)

On 30 April 2012, Denmark submitted its Convergence Programme for the period 2012-2015 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission concluded in its in-depth review, under Article 5 of Regulation (EU) No 1176/2011, that Denmark is experiencing an internal and an external imbalance, although not excessive ones.

(10)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in that Programme is plausible. The scenario projecting GDP growth at 1,2 and 1,5 % in 2012 and 2013 is broadly in line with the Commission services 2012 spring forecast of 1,1 and 1,4 %. Accordingly, the government deficits are slightly smaller in the Convergence Programme (4,0 and 1,8 % of GDP in 2012 and 2013 respectively, compared with 4,1 and 2,0 % of GDP in the Commission services 2012 spring forecast). The objective of the budgetary strategy outlined in the Convergence Programme is to correct the excessive deficit by 2013 and to achieve the medium-term budgetary objective (MTO) of a structural deficit of no more than 0,5 % of GDP. The Government’s objective is also to reach at least a structurally balanced budget in 2020.

The Convergence Programme thereby confirms the previous MTO, which adequately reflects the requirements of the Stability and Growth Pact. The planned headline deficit in 2013 is consistent with a timely correction of the excessive government deficit and, based on the (recalculated) structural budget balance (5), the planned fiscal effort in 2013 complies with the Council recommendation issued under the excessive deficit procedure in July 2010. Net discretionary measures, as presented in the Convergence Programme, are estimated to yield a consolidation broadly in line with the recommendation issued under the excessive deficit procedure. The consolidation path has become more back-loaded than previously planned and a sizeable effort is needed in 2013 to ensure the required structural adjustment. Risks of falling short of the 3 % of GDP Treaty reference value in 2013 are limited; the Commission services 2012 spring forecast sees the government deficit at 2,0 % of GDP. Denmark is expected to reach its MTO in 2013. However, based on the (recalculated) structural budget balance, this is not the case from 2013 onwards, and the estimated budgetary improvement in the structural budget balance falls short of the 0,5 % of GDP required by the Stability and Growth Pact. At the same time, the growth rate of government expenditure, taking into account discretionary revenue measures, is expected to be in line with the expenditure benchmark of the Stability and Growth Pact. Part of the budget deficits will be financed by reducing the Government’s account with Denmark’s Nationalbank. Denmark’s gross public debt is projected to fall from 46,5 % of GDP in 2011 to 42,1 % in 2015, well below 60 % of GDP.

(11)

Increasing labour supply is a key priority for Denmark in order to ensure future welfare and fiscal sustainability. In 2011, Denmark concluded an ambitious reform of the voluntary early retirement pension scheme and brought forward the previously planned increase in the statutory retirement age and its link to life expectancy. The focus now needs to shift to reforming the disability pension and subsidised employment schemes (the ‘flex-job’ system). The Government has presented a proposal for reform in this area, which should be implemented without delay. The widening gap in employment outcomes between people with a migrant background and the rest of the working population also needs to be addressed.

(12)

Labour productivity growth in Denmark has slowed down over the last decades, one of the causes being a relatively weak performance in education. Despite a high level of spending on education, the quality of Danish school education — as measured by the OECD’s Programme for International Student Assessment (PISA) survey — is only average. Furthermore, students generally finish their studies at a later age than in other Member States and the drop-out rates from vocational education institutions are relatively high. To respond to the challenges in this field, the Government has announced a number of new measures for both compulsory and secondary education. The 2012 budget also supports the introduction of social clauses in public procurement calls and measures to make it financially beneficial for private companies to offer apprenticeships, in order to increase the number of available places. Increasing the provision of apprenticeships will also be addressed in tripartite negotiations and in the work of an inter-ministerial committee.

(13)

Another potential reason for slow productivity growth is the relatively weak degree of competition in Denmark. In 2011, a competition package was adopted, mainly targeting the construction sector, the retail sector, and health and public sector services. Competition for taxis and transportation services as well as the liberalisation of pharmacies are under investigation, in view of possible new measures. The issue of increasing public procurement in municipalities and regions is currently being negotiated with regional and local governments. In this context, a government committee recently concluded that the Danish competition law is in need of reinforcement, and that sanctions for infringements are currently too low to serve as a deterrent. Given that only limited concrete initiatives have been taken in this area over the past year, further steps are needed to adequately address this challenge.

(14)

As confirmed in the in-depth review under Article 5 of Regulation (EU) No 1176/2011, while the high household gross debt to some extent is a structural feature of the Danish economy, with household assets considerably exceeding liabilities, concerns regarding high household debt arise as developments in the housing market seem to have caused the debt to move beyond levels explained by structural factors such as housing and pension assets.

Furthermore, the composition of mortgage loans has changed since 2003, with instalment-free and variable-rate loans gaining in popularity over fixed-rate loans with instalment. For a given debt level, households are therefore currently more sensitive to interest rates hikes and fluctuations in property prices than they were a decade ago. This poses higher potential risks in terms of financial and economic stability. Relevant measures have been taken in Denmark to address vulnerabilities in the mortgage system. The Ministry of Business and Growth is currently analysing the composition of mortgage loans across households in light of income, labour market history and other socioeconomic variables. The aim is to determine households’ potential vulnerability in the event of different economic shocks, including interest rate fluctuations. However, measures should also be considered to prevent pro-cyclical developments in the housing market in the medium term, preferably by realigning the property value tax with actual market values. Removing the ceiling of the annual increase of the municipal land value tax could also prevent future pro-cyclical effects. Such measures should be introduced gradually, taking into account the current need for stabilisation in the housing market.

(15)

Denmark has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations below.

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Denmark’s economic policy. It has assessed the Convergence Programme and the National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Denmark but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (5) below.

(17)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

(18)

In the light of the results of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendations (3), (4) and (5) below,

HEREBY RECOMMENDS that Denmark take action within the period 2012-2013 to:

Implement the budgetary strategy as envisaged, to ensure a correction of the excessive deficit by 2013 and achieve the annual average structural adjustment effort specified in the Council recommendations under the excessive deficit procedure. Thereafter, ensure an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark.

2.	Take further steps to enhance long-term labour supply by reforming the disability pension, better targeting subsidised employment schemes (the ‘flex-job’ system) towards people with reduced work capacity, and improving the employability of people with a migrant background.

3.	Implement announced measures, without delay, to improve the cost-effectiveness of the education system, reduce drop-out rates, in particular within vocational education, and increase the number of apprenticeships.

4.	Continue efforts to remove obstacles to competition, in particular in local services, the retail and construction sector, including by further opening the municipal and regional procurement of services to competition and ensuring that competition law sanctions have a sufficiently deterrent effect.

Consider further preventive measures to strengthen the stability of the housing market and financial system in the medium term, including by taking account of the results of the ongoing study by the Ministry of Business and Growth on the distribution of assets and liabilities across households and by reviewing the property value tax system and the municipal land value tax system.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 213, 20.7.2011, p. 1.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/25

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Estonia and delivering a Council Opinion on the Stability Programme of Estonia, 2012-15

2012/C 219/07

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Estonia’s National Reform Programme for 2011 and delivered its opinion on Estonia’s Stability Programme for 2011-15.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Estonia as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

On 2 March 2012, the European Council endorsed the priorities for ensuring financial stability, fiscal consolidation and action to foster growth. It underscored the need to pursue differentiated, growth-friendly fiscal consolidation, to restore normal lending conditions to the economy, to promote growth and competitiveness, to tackle unemployment and the social consequences of the crisis, and to modernise public administration. It invited Member States to implement the Council’s country-specific recommendations for 2011 and to translate these priorities into concrete measures to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)	On 26 April 2012, Estonia submitted its Stability Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(10)

The MTO adequately reflects the requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget balance (5), the rate of growth of government expenditure, taking into account discretionary revenue measures, will meet the expenditure benchmark of the Stability and Growth Pact by 2015. In parallel, the Stability Programme aims at reaching headline surpluses as of 2014. The debt ratio is well below 60 % of GDP and, according to the programme, is likely to decrease after 2013 to about 10 % in 2015.

(11)

Estonia achieved a sizeable budget surplus in 2011. The projected rate of economic growth for 2012 in the Commission services’ 2012 spring forecast looks much weaker than for 2011, dropping from 7,6 % to 1,6 %, and therefore further control over efficiency of spending is necessary. Estonia plans to introduce a structural budget rule in 2012 to help keep control over expenditure. The rule should be complemented by strengthening the binding nature of the multiannual expenditure targets as soon as the budget rule is in place. Thus, Estonia has partially implemented the 2011 recommendation in this area.

(12)

As regards the labour market, a number of steps have been made in the area of labour taxation. However, the incentives to work can be improved by addressing the rising trend in take-up of disability and incapacity-for-work benefits and by making work pay for low and high-income earners receiving unemployment and parental benefits. While promising efforts have been made to reduce the high unemployment, long-term and youth unemployment is still high. As a result, the poverty risk of children in jobless households is increasing and needs to be addressed by effective social services, including family services. The family support itself could be made more efficient in a budget-neutral way by better targeting the allocation of parental and family benefits and by removing inefficient income tax exemptions related to children.

(13)

The measures in the National Energy Efficiency Action Plan are still insufficient given the current trend of modal shift away from public transport. The fleet of new cars in Estonia is the most energy intensive in EU. Fuel excise duties are insufficient in shifting consumer patterns. The transposition of several energy-related EU Directives has not yet been fully completed. Estonia still needs to diversify its energy supply. The electricity infrastructure could be upgraded to integrate increasing amounts of wind energy.

(14)

The quality and availability of vocational education has considerably improved and more modernisation measures are planned for 2012-13. However, the transition from general education to vocational education needs to be improved, and a generalisation of more work-based schemes could be considered. Lifelong learning participation is improving, but there is an insufficient focus on low-skilled workers. There are continuing problems with matching education outcomes with labour market needs. There is also a need to urgently reform upper-secondary education and for further improvement in the provision of education services by local authorities. Also, cooperation between the business sector and higher education institutions continues to be weak, while the knowledge-intensive part of the private sector should be further developed.

(15)

To reflect the declining demographic trend and ensure a balanced and competitive regional development, there is a longer-term need to ensure financial sustainability of local governments as well as to ensure a better provision of public services at local level and optimise the use of relatively dispersed resources. Being limited in size, the majority of local governments have difficulties in universally delivering the necessary social, health, labour market, transport and educational services.

(16)

Estonia has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness and enhancing sustainability of public finances. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(17)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Estonia’s economic policy. It has assessed the Stability Programme and the National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Estonia but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (5) below.

(18)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Estonia take action within the period 2012-13 to:

Preserve a sound fiscal position by implementing budgetary plans as envisaged, ensuring achievement of the MTO by 2013 at the latest, and compliance with the expenditure benchmark. Complement the planned budget rule with more binding multiannual expenditure rules within the medium-term budgetary framework, continue enhancing the efficiency of public spending and implementing measures to improve tax compliance.

Improve incentives to work by streamlining the social benefits system and increasing flexibility in the allocation of disability, unemployment and parental benefits, while ensuring adequate social protection. Improve delivery of social services, while better targeting family and parental benefits and removing distortionary income tax exemptions related to children. Increase the participation of the young and the long-term unemployed in the labour market.

Link training and education more effectively to the needs of the labour market, and enhance cooperation between businesses and academia. Increase opportunities for low-skilled workers to improve their access to lifelong learning. Foster prioritisation and internationalisation of the research and innovation systems.

Improve energy efficiency, in particular in buildings and transport, and strengthen environmental incentives concerning vehicles and waste, including by considering incentives such as the taxation of vehicles. Foster renewable energy use, including through upgraded infrastructure and legislation. Continue the development of cross-border connections to end relative market isolation.

Enhance fiscal sustainability of municipalities while improving efficiency of local governments and ensure effective service provision, notably through stronger incentives for the merger of or increased cooperation between municipalities. Relevant reform proposals should be put in place within a reasonable timeframe.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 213, 20.7.2011, p. 5.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/28

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Finland and delivering a Council opinion on the Stability Programme of Finland, 2012-2015

2012/C 219/08

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Finland’s National Reform Programme for 2011 and delivered its opinion on Finland’s updated Stability Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Finland as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(9)

On 19 April 2012, Finland submitted its Stability Programme covering the period 2012-2015 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Finland is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Finland is experiencing an imbalance, although not an excessive one.

(10)

The main budgetary goal of the Stability Programme is to reduce the central government deficit by limiting expenditures and increasing revenues. As the central government budget is the main source of the general government deficit, improving its position will contribute to the balancing of the general government budget. The medium-term budgetary objective (MTO) of a surplus of 0,5 % of GDP in structural terms reflects adequately the requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget balance (5), Finland has met the MTO in 2011 but would marginally deviate from it over 2012-2015. The rate of growth of government expenditure, taking into account discretionary revenue measures, complies with the expenditure benchmark of the Stability and Growth Pact in all years except 2015. The Stability Programme aims at balancing the general government budget by 2015 and reaching surpluses as from 2016. The debt ratio is well below 60 % of GDP and according to the Stability Programme, the debt level will peak in 2014 at close to 52 % of GDP and then start to decline. A notable sustainability gap still exists in Finland’s public finances, mainly stemming from a rapidly deteriorating dependency ratio caused by an ageing population. The sustainability gap in public finances needs to be continuously monitored and measures adjusted accordingly. Finland’s fiscal framework is anchored to multi-annual expenditure ceilings, but these do not currently apply for the municipal sector.

(11)

The productivity of public services has been in decline over the past decade. The Finnish authorities have already implemented several reforms to address the issue, but their implementation has been slow, especially at the local government level. In addition, a nation-wide municipal reform and a central government productivity programme are underway. Further productivity gains and cost savings could be achieved by encouraging more competition in shielded private and public service sectors, through further product and labour market deregulation.

(12)

Over the past year, the Government has introduced new measures to reduce youth and long-term unemployment. These measures have included a pilot programme to reduce long-term unemployment and introduction of a social guarantee for young people. The measures introduced are ambitious and relevant, but now need to be implemented with a clear focus on improving the skill levels and labour market position of the target groups. In view of demographic changes, raising the employment rate of older workers is important to ensure sustainable public finances and meet the demand for labour in the future. The increase in life expectancy has been more rapid than envisaged during the 2005 pension reform, and therefore over time the current statutory retirement age range could turn out to be too low. In its Stability Programme, the Government committed itself to increase the effective retirement age to 62,4 years by 2025. In March 2012, the social partners agreed to several measures to lengthen working careers. The Government has committed itself to carry out a pension reform no later than 1 January 2017. The focus now needs to be on implementing the agreed line of action in the short term.

(13)

Regulatory barriers in the services sector in Finland are still restrictive and market concentration is high not only in retail trade, but also in areas of production. In the grocery retail market, Finland has the highest degree of market concentration while food prices are among the highest in Europe. Competition law fines in Finland have traditionally been low, raising issues regarding their deterrent effect. There have been some policy developments on competition, such as the new Competition Act and a new law on land use planning and construction. The Government is also committed to launching a new programme on promoting competition. This should be brought forward without delay with a view to further strengthening the competition framework in product and service markets.

(14)

Productivity growth in Finland is stagnating and Finnish exporting firms’ market share in foreign markets has decreased over recent years. Unit labour costs have increased, although not in the manufacturing sector. Growth in some currently dominant industries, especially electronics and paper, appear to have peaked and, in general, the share of manufacturing in GDP is declining. Finland is exporting intermediate and investment goods mainly to mature, slowly-growing economies and its products have limited presence in developing economies. The Finnish economy needs to become more diversified both in terms of companies as in terms of export markets in order to develop multiple strong exporters in the future. Notwithstanding the past strong Finnish research and development (R&D) and innovation performance, without a significant increase in the number of innovative high-growth firms, Finland’s ranking as an EU innovation leader risks declining. This requires facilitating innovation, enabling the transformation from R&D into marketable products, and encouraging the penetration of fast growing export markets. In the short term, it will also be crucial to exploit and disseminate the extensive information and communication technology (ICT) know-how also in other industries in Finland, including the public sector. Regarding wage growth, the tripartite wage agreement of 2011 paves the way for modest wage increases in 2012 and 2013, which should improve Finland’s relative position vis-à-vis its main trading partners.

(15)

Finland has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to improving competitiveness, the employment rate and the sustainability of public finances, strengthening financial stability and ensuring tax coordination. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations below.

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Finland’s economic policy. It has assessed the Stability Programme and the National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Finland but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (5) below.

(17)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

(18)	In the light of the results of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendation (5) below,

HEREBY RECOMMENDS that Finland take action within the period 2012-2013 to:

Preserve a sound fiscal position in 2012 and beyond by correcting any departure from the MTO that ensures the long-term sustainability of public finances. To this end, reinforce and rigorously implement the budgetary strategy, supported by sufficiently specified measures, for the year 2013 and beyond, including meeting the expenditure benchmark. Continue to carry out annual assessments of the size of the ageing-related sustainability gap and adjust public revenue and expenditure in accordance with the long-term objectives and needs. Integrate the local government sector better in the system of multi-annual fiscal framework including through measures to control expenditure.

2.	Take further measures to achieve productivity gains and cost savings in public service provision, including structural changes and efficiency-enhancing territorial administrative reforms, also in order to respond to the challenges arising from an ageing population.

Implement the ongoing measures to improve the labour market position of young people and the long-term unemployed, with a particular focus on skills development. Take further steps to improve the employment rate of older workers, including by reducing early exit pathways. Take measures to increase the effective retirement age taking into account the improved life expectancy.

Continue enhancing competition in product and service markets, especially in the retail sector, by ensuring the effective implementation of the new Competition Act and the new programme on promoting healthy competition. Continue to take measures to increase the efficiency of municipal service provision, including increasing, where appropriate, the share of services subject to competitive bidding, and to ensure competition neutrality between private and public undertakings. Take further steps to ensure that competition law fines have a sufficiently deterrent effect.

In order to strengthen productivity growth and external competitiveness, continue efforts to diversify the business structure, in particular by hastening the introduction of planned measures to broaden the innovation base while continuing to align wage and productivity developments fully respecting the role of social partners and in line with national practices.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 216, 22.7.2011, p. 3.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/31

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of France and delivering a Council opinion on the Stability Programme of France, 2012-2016

2012/C 219/09

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on France’s National Reform Programme for 2011 and delivered its opinion on France’s updated Stability Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified France as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)

On 4 May 2012, France submitted its updated Stability Programme covering the period 2012-2016 and, on 13 April 2012, its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether France is affected by macroeconomic imbalances. The Commission concluded that France is experiencing imbalances, although not excessive ones.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is optimistic. The Commission services 2012 spring forecast projected GDP growth to reach 0,5 % in 2012 and 1,3 % in 2013, against 0,7 % and 1,75 %, respectively, according to the Stability Programme. After the deficit came out better than expected at 5,2 % of GDP in 2011, the Stability Programme plans to bring it down to 3 % of GDP in 2013, which is the deadline set by the Council for correcting the excessive deficit, and to continue consolidation thereafter, with a balanced budget to be achieved by 2016. The medium-term budgetary objective (MTO) of a balanced budget in structural terms is expected to be reached within the Stability Programme period. The MTO adequately reflects the requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget balance (5), the planned average annual fiscal effort in 2010-2013 is in line with the Council recommendation of 2 December 2009. Annual progress in structural terms equivalent to a further 0,7 % of GDP towards achieving the MTO is projected to be made in 2014-16. According to the Stability Programme, the growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact. The adjustment path presented in the Stability Programme is subject to risks. The macroeconomic scenario could turn out to be less favourable as indicated by the Commission services 2012 spring forecast.

Measures are not sufficiently specified to reach the targets from 2013 onwards and to achieve the recommended average annual fiscal effort. Furthermore, France’s track record when it comes to meeting expenditure targets is mixed. Therefore, it cannot be ensured that the excessive deficit will be corrected by 2013 unless the planned measures are sufficiently specified and additional ones implemented as needed. Starting from 85,8 % of GDP in 2011, the debt ratio is expected to reach 89,2 % in 2013 and to drop to 83,2 % in 2016. According to the Stability Programme, the debt reduction benchmark will be met at the end of the transitional period (2016).

(11)

Although additional consolidation measures were adopted in the second half of 2011 and in February 2012, implementation of fiscal consolidation remains a major challenge. Avoiding expenditure slippages by means of a strengthened fiscal effort based on fully specified measures is vital to re-establishing a sustainable fiscal position. In addition, it would be appropriate for France to seize opportunities to accelerate the deficit reduction, in order to facilitate the correction of the excessive deficit as planned. Concerning the long-term sustainability of public finances and adequacy of future pensions, the 2010 pension reform is gradually being applied. However, it is not certain that the system will be balanced by 2018 as planned, if employment and growth turns out lower than projected, and the system is likely to fall into deficit after 2020. Moreover, the newly created steering committee, which was established with the task of issuing an annual opinion on the financial situation of the various pension schemes and the conditions required to ensure balanced accounts by 2018, did not issue such an opinion in 2011, making the assessment of the sustainability of the pension system difficult.

(12)

The functioning of the French labour market would be improved by further reducing labour market segmentation. The professional security contract (CSP), which was introduced by the July 2011 law and merged two already existing contracts, places the burden of counselling in the case of economic redundancies on the public employment services (Pôle emploi). This is a positive but limited step. Several measures have also been taken or are under discussion to provide flexible work arrangements for companies facing temporary difficulties. However, they do not address specifically the segmentation of the labour market. In addition, the review of employment protection legislation shows that the procedures for dismissals continues to entail uncertainties and potentially large costs for employers. Finally, it is important to ensure that any development in the minimum wage is supportive of employment, especially of low skilled and inexperienced workers.

(13)

Following the pensions reform, measures taken to encourage the employment of older workers, including the requirement for companies to implement active age management, are steps in the right direction. However, the related action plans generally lack ambition and do not include measures such as reducing working time or offering positions that would be specifically adapted to older workers. Moreover, some aspects of the unemployment benefit system for older workers (duration) may provide limited incentives to work. Finally, a more ambitious strategy is needed in the field of adult learning so as to raise the employability of the adult workforce.

(14)

To address youth unemployment, the French authorities have committed to increasing the number of apprenticeships from 600 000 to 800 000 by 2015. Several measures were introduced in 2011 and 2012 in order to increase the quota of apprentices in companies and to strengthen the penalties for companies which would fail to comply. Despite these measures, the total number of apprenticeships is still far from the objective. It seems necessary to reinforce the match between the needs of youth and of companies. Hence, policies tackling youth unemployment would benefit from greater consistency between the skills taught in the education system and the needs of the labour market.

(15)

The merging of the jobseekers’ placement services (ANPE) and the unemployment benefits agency (UNEDIC) into a single body (Pôle emploi) has so far not produced the expected results in terms of effectiveness and quality of services. The new multi-annual tripartite agreement signed in January 2012 (between government, social partners and Pôle emploi) on the functioning and services of Pôle emploi for 2012-2014 is a step in the right direction. However, a number of targets/objectives still remain to be fixed, making it difficult at this stage to assess the ambition of the reform. The credibility of the reform is also hindered by the budgetary and human resources constraints of the public employment services.

(16)

In February 2012, France adopted a 1,6 percentage points increase in VAT to 21,2 % and a 2 percentage points rise in social levies on capital income and gains to 15,5 % to compensate for lower employers’ social contributions. The new government has announced its intention to revise this measure and to adopt a fiscal reform in the course of 2012. This is an appropriate measure to introduce a more balanced taxation system that shifts the tax burden away from labour. As noted in the in-depth review on macroeconomic imbalances conducted by the Commission services, it could contribute to improving the cost competitiveness of French exports, with potentially positive impacts on firms’ profitability and, in the longer term, on investment and non-price competitiveness However, the focus of the reform is too narrow. In addition, while efforts have been made to reduce tax expenditures, the latter have also been accompanied by rate hikes which tend to increase the already high tax burden on labour. France has the second lowest share of environmental taxation in the EU in tax revenues, which indicates ample room for increasing such taxes. Lastly, while France assessed in 2011 the efficiency of various tax expenditures in achieving their employment or social objectives, some reduced VAT rates remain in particular to be reviewed.

(17)

While a number of reforms have been adopted to simplify the business environment and to remove restrictions on some regulated trades and professions, they fall short of addressing barriers to entry and restrictive conduct conditions in many others (e.g. veterinarians, taxis, health sector, legal professions including notaries). As a result, there is a need for a more horizontal and systematic review of remaining entry and conduct restrictions in regulated professions to assess their necessity and proportionality. As regards the retail sector, distributors should be allowed to set their prices and other commercial terms freely so that consumers can benefit from lower prices. Consumers would also benefit from other competition-enhancing measures in this highly concentrated sector, such as lifting or reviewing spatial planning restrictions and streamlining procedures for the setting-up of new distribution outlets.

(18)

The intensity of competition in a number of network industries (wholesale electricity, rail sector) should be reinforced as reforms conducted so far in these sectors have only yielded partial results. The degree of concentration in the electricity market remains one of the highest in the Union. While the Law on the New Organisation of Electricity Markets (NOME law) has had a positive impact on competition, further steps are necessary to improve the access of alternative operators to generation capacity in France, such as hydro-based electricity generation. In rail transport, the entry of new companies remains limited both in freight and in international passenger transport; in freight, technical barriers to non-discriminatory access also remain.

(19)

The French export market share has decreased by 19,4 % between 2005 and 2010, one of the strongest declines among Member States, and much above the threshold included in the Alert Mechanism Report adopted by the Commission on 14 February 2012. In their in-depth review for France, the Commission services concluded that the losses in export market shares come from a deterioration of both cost and non-price competitiveness, especially the latter. In particular, increasing unit labour costs have put the profitability of French companies under pressure and have constrained their ability to grow, to make the necessary investments to improve their performance and to innovate. The policies taken to foster innovation in the private sector should be monitored and complemented by measures to restore the profitability of French companies.

(20)

France has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness and enhancing sustainability of public finances. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(21)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of France’s economic policy. It has assessed the stability programme and national reform programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in France but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (5) below.

(22)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

(23)

HEREBY RECOMMENDS that France take action within the period 2012-2013 to:

Reinforce and implement the budgetary strategy, supported by sufficiently specified measures, notably on the expenditure side, for the year 2012 and beyond to ensure a correction of the excessive deficit by 2013 and the achievement of the structural adjustment effort specified in the Council recommendations under the excessive deficit procedure. Thereafter, ensure an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark, and ensure sufficient progress towards compliance with the debt reduction benchmark. Continue to review the sustainability and adequacy of the pension system and take additional measures if needed.

Introduce further reforms to combat labour market segmentation by reviewing selected aspects of employment protection legislation, in consultation with the social partners in accordance with national practices, in particular related to dismissals; continue to ensure that any development in the minimum wage is supportive of job creation and competitiveness; take actions to increase adult participation in lifelong learning.

Adopt labour market measures to ensure that older workers stay in employment longer; improve youth employability especially for those most at risk of unemployment, by providing for example more and better apprenticeship schemes which effectively address their needs; step up active labour market policies and ensure that public employment services are more effective in delivering individualised support.

Take further steps to introduce a more simple and balanced taxation system, shifting the tax burden from labour to other forms of taxation that weigh less on growth and external competitiveness, in particular environmental and consumption taxes; continue efforts to reduce and streamline tax expenditures (in particular those providing incentives to indebtedness); review the effectiveness of the current reduced VAT rates in support of growth and job creation.

Pursue efforts to remove unjustified restrictions on regulated trades and professions, in particular in services and the retail sector; take further steps to liberalise network industries, in particular in the electricity wholesale market, develop energy interconnection capacity and facilitate the entry of new operators into the rail freight and international passenger transport sectors.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 213, 20.7.2011, p. 8.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/35

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Germany and delivering a Council opinion on the Stability Programme of Germany, 2012-16

2012/C 219/10

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Germany’s National Reform Programme for 2011 and delivered its opinion on Germany’s updated Stability Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Germany as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(9)	On 18 April 2012, Germany submitted its Stability Programme for the period 2012-16 and, on 12 April 2012, its 2012 National Reform Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

(10)

According to the first 2012 notification of deficit and debt figures by Germany for the years 2008-11 for the application of the excessive deficit procedure, the general government deficit in 2011 was below the 3 % of GDP Treaty reference value. Moreover, the Commission services’ 2012 spring forecast projects the general government deficit to stay below the Treaty reference value and to further decline over the forecast period. As a result, and in line with the provisions of the Stability and Growth Pact, on 30 May, the Commission adopted a recommendation for a Council decision abrogating the decision on the existence of an excessive deficit under Article 126(12) of the Treaty (5).

(11)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in that Programme is plausible. The Stability Programme’s projections for 2012-13 are broadly in line with the Commission services’ 2012 spring forecast as regards the pace and pattern of economic growth as well as labour market developments. The Stability Programme’s projections for economic growth in the outer years are broadly in line with the Commission’s estimate of Germany’s medium-term potential growth rate. The objective of the budgetary strategy outlined in the Stability Programme is to meet the medium-term budgetary objective (MTO) already in 2012 and to reach virtually balanced nominal budgets as from 2014, starting from a nominal deficit of 1,0 % of GDP in 2011, thus below the 3 % of GDP Treaty reference value, significantly ahead of the 2013 deadline. The Stability Programme specifies the previous MTO of a structural deficit of ½ % of GDP, (interpreted as a narrow range around 0,5 % of GDP), which adequately reflects the requirements of the Stability and Growth Pact, to imply a deficit not exceeding 0,5 % of GDP. Risks to the deficit and debt targets may arise in particular if additional measures to stabilise the financial sector turn out to be required. Based on the (recalculated) structural budget balance (6), Germany plans to respect its MTO throughout the Stability Programme period, which should also be the case taking into account the risk assessment. According to the information provided in the Stability Programme and also taking into account the risk assessment, the growth rate of government expenditure, taking into account discretionary revenue measures, would exceed the expenditure benchmark of the Stability and Growth Pact in 2012, while respecting it in 2013.

Gross debt is planned to increase by 0,8 percentage points to 82,0 % of GDP in 2012, before falling to 80 % of GDP in 2013 and remaining on a downward path thereafter. Following the correction of the excessive deficit, Germany is in a transitional period and, according to its plans, is making sufficient progress towards compliance with the debt reduction benchmark of the Stability and Growth Pact.

(12)

The Federal Government has taken measures to improve the efficiency of public spending on healthcare and has proposed a reform of long-term care. Additional efforts to improve efficiency in health care are necessary to contain expected further expenditure increases. The proposed reform of long-term care is also insufficient to cope with expected future cost increases. There is scope for improving the efficiency of the tax system. The Federal Government is well on track to meet its commitment to increase growth-enhancing spending on education and research. However, it also remains important that the Länder and municipalities, which bear the bulk of expenditure on education and research, ensure adequate and efficient spending in those areas. The introduction of the new constitutional debt brake has further strengthened the German fiscal framework. However, there has been no significant progress in the implementation of the budgetary rule at Länder level.

(13)

Substantial public support for the financial sector, in conjunction with the sector’s own adjustment efforts and the beneficial effects of the rebound of the German economy, has stabilised the sector as a whole. Despite the overall relatively stable financial sector and the absence of a credit crunch, there remain weaknesses, in particular, the structural problems of some Landesbanken, in particular the lack of a viable business model, weak governance structures and vulnerabilities due to a high degree of dependence on wholesale funding.

(14)

The good performance of the German labour market, with increasing employment and moderate unemployment, has not benefited all participants to the same extent and wages have not always increased in line with productivity. Fiscal disincentives arising from the high tax wedge, in particular due to the high social security contributions, continue to hinder in particular the integration of low-wage earners into the labour market. Extensive use of mini-jobs leads to low acquisition of pension rights. Therefore, there is a need to improve the transition from mini-jobs to more stable forms of contracts. The recent reform of labour market instruments should support employment opportunities for all. Raising the effectiveness of the education system and the educational achievement of disadvantaged groups is a major challenge for Germany. In the medium to long term, ensuring the availability of qualified labour will be crucial to mitigate the negative effects of demographic changes on potential growth. The low full-time participation of women in the labour force is a concern. Fiscal disincentives for second earners and the lack of full-time childcare facilities and all-day schools hinder female labour market participation.

(15)

Germany is pursuing a major reform of the energy system. The overall economic costs of transforming the energy system should be minimised by accelerating the national and cross-border network expansion, continuously increasing the cost-effectiveness of climate and renewables policies, taking decisive steps to further foster energy efficiency, and raising competition in the energy markets. Given Germany’s central geographical position, the German railway system has a significant impact on the overall European railway system. Competition in the passenger and freight rail markets remains very low, mainly due to the lack of effective separation between the infrastructure manager and the railway holding. Despite progress made in recent years, inter alia, through the implementation of the Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (7) (‘Services Directive’), there is scope to further stimulate competition and productivity growth in some services sectors.

(16)

Germany has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations below.

(17)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Germany’s economic policy. It has assessed the Stability Programme and the National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Germany but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (4) below.

(18)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (8) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Germany take action within the period 2012-13 to:

Continue with sound fiscal policies to achieve the MTO by 2012. To this end, implement the budgetary strategy as envisaged, ensuring compliance with the expenditure benchmark as well as sufficient progress towards compliance with the debt reduction benchmark. Continue the growth-friendly consolidation course through additional efforts to enhance the efficiency of public spending on healthcare and long-term care, and by using untapped potential to improve the efficiency of the tax system; use available scope for increased and more efficient growth-enhancing spending on education and research at all levels of government. Complete the implementation of the debt brake in a consistent manner across all Länder, ensuring timely and relevant monitoring procedures and correction mechanisms.

2.	Address the remaining structural weaknesses in the financial sector, inter alia, by further restructuring of those Landesbanken which are in need of an adequately funded viable business model while avoiding excessive deleveraging.

Reduce the high tax wedge in a budgetary neutral way, in particular for low-wage earners, and maintain appropriate activation and integration measures, in particular for the long-term unemployed. Create the conditions for wages to grow in line with productivity. Take measures to raise the educational achievement of disadvantaged groups, in particular through ensuring equal opportunities in the education and training system. Phase out the fiscal disincentives for second earners, and increase the availability of fulltime childcare facilities and all-day schools.

Continue efforts to keep the overall economic costs of transforming the energy system to a minimum, including by accelerating the expansion of the national and cross-border electricity and gas networks. Ensure that the institutional set-up guarantees effective competition in railway markets. Take measures to further stimulate competition in the services sectors, including professional services and certain crafts, in particular in the construction sector.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 212, 19.7.2011, p. 9.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(7) OJ L 376, 27.12.2006, p. 36.

(5) The resulting Council Decision 2012/369/EU was adopted on 22 June 2012 (OJ L 179, 11.7.2012, p. 17).

(8) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/38

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Greece

2012/C 219/11

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Greece’s National Reform Programme for 2011.

(4)	On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy.

(5)

(6)

(7)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(8)

On 12 April 2012, Greece submitted its 2012 National Reform Programme and incomplete information regarding their budgetary plans due to the ongoing process of updating the Medium-Term Fiscal Strategy (MTFS) which is expected to be finalised soon. The Greek authorities are invited to submit the full set of standard tables required under the preventive arm of the Stability and Growth Pact once the MTFS update is completed.

(9)

On 21 February 2012, the Eurogroup agreed on a second economic adjustment programme for Greece. The implementation of the economic policies outlined in the Memorandum of Understanding on Specific Economic Policy Conditionality will contribute to reducing the Greek public debt to 117 % of GDP by 2020. The Eurogroup also agreed that the official sector financing of the programme would amount to EUR 130 billion until 2014, additional to the amounts committed in the first financing programme.

(10)

The release of the tranches is based on compliance with quantitative performance criteria and a positive evaluation of progress made with respect to the policy criteria laid down in Council Decision 2011/734/EU of 12 July 2011 addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit (4) (as amended on 8 November 2011 (5) and 13 March 2012 (6)) and the Memorandum of Understanding on Specific Economic Policy Conditionality, which was signed on 14 March 2012.

(11)

On 19 March 2012, the first instalment (EUR 5,9 billion) of the first tranche (EUR 14,5 billion) of the new financing programme was paid by the European Financial Stability Facility (EFSF) to Greece. Greece also received EUR 1,6 billion from the International Monetary Fund (IMF). By May 2012, Greece had received EUR 147,5 billion from official financing under the first and second programmes.

(12)

In 2010 and 2011, Greece made partial progress towards the ambitious objectives of the adjustment programme. Several factors hampered implementation: political instability, social unrest and issues of administrative capacity and, more fundamentally, a recession that was much deeper than had been previously projected. Important fiscal targets were missed, which led to the adoption of additional consolidation measures throughout 2010 and 2011. However, Greece achieved a substantial reduction in the general government deficit: from 15,8 % of GDP in 2009 to 9,1 % in 2011.

(13)

On 18 April 2012, the Commission adopted a communication on ‘Growth for Greece’ highlighting the positive impact that full and effective implementation of the economic adjustment programme can have by laying the foundations for growth, investment and social renewal. This Communication recalls that Greece can draw strength and concrete support from its membership of the Union and of the euro area. It underlines that the reforms set out in the second economic adjustment programme are designed to restore the growth and job creation potential of the Greek economy and to create a more equitable society. It outlines the extensive financial support being made available to Greece and emphasises the readiness of Greece’s partners, and in particular the Commission, to identify ways to maximise the impact of early deliverables through swift actions and EU support.

(14)

The economic crisis and subsequent fiscal consolidation measures have had an impact on the ability of Greece to achieve the Europe 2020 goals, especially the socially oriented ones. Nevertheless, the structural reforms, particularly those in the labour market, the liberalisation of several sectors and a number of measures to improve the business environment, will help promote competition, spur productivity, increase employment and reduce production costs, thus contributing to an increase in employment and limiting poverty and social exclusion in the medium term. Despite the economic crisis, Greece has continued to work towards achieving the environmental goals of Europe 2020.

(15)

A strategic re-programming of the Structural Funds is underway, with a focus on support to youth employment and competitiveness (in particular small and medium-sized enterprises (SMEs)). The new measures strengthen actions in the areas of employment passport, training and professional qualifications and access to finance for SMEs.

(16)	Greece has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability,

HEREBY RECOMMENDS that Greece:

Implement the measures laid down in Decision 2011/734/EU, as amended on 8 November 2011 and 13 March 2012, and the Memorandum of Understanding on Specific Economic Policy Conditionality, which was signed on 14 March 2012.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 213, 20.7.2011, p. 12.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(4) OJ L 296, 15.11.2011, p. 38.

(5) OJ L 320, 3.12.2011, p. 28.

(6) OJ L 113, 25.4.2012, p. 8.

24.7.2012

Official Journal of the European Union

C 219/40

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Hungary and delivering a Council opinion on the Convergence Programme of Hungary, 2012-2015

2012/C 219/12

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Hungary’s National Reform Programme for 2011 and delivered its opinion on Hungary’s updated Convergence Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Hungary as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 29 February 2012, the European Parliament and Hungary exchanged views under Article 2-ab(3) of Regulation (EC) No 1466/97.

(9)	On 2 March 2012, the European Council also invited Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(10)

On 23 April 2012, Hungary submitted its Convergence Programme covering the period 2012-2015 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Hungary is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Hungary is experiencing external and internal imbalances, although not excessive ones.

(11)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is somewhat optimistic. The Hungarian authorities’ growth projections for 2012 and 2013 are higher by around half a percentage point compared to the Commission services 2012 spring forecast on account of the more optimistic official assumptions regarding domestic demand, particularly in 2013. The objective of the budgetary strategy outlined in the Convergence Programme is to ensure the sustainable correction of the excessive deficit by the 2012 deadline set by the Council in line with the Council Recommendation under the excessive deficit procedure of 13 March 2012. The official deficit targets and the planned fiscal efforts comply with that Recommendation. The Convergence Programme confirms the previous medium-term budgetary objective (MTO) of 1,5 % of GDP, which it plans to achieve by 2013. The MTO adequately reflects the requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget balance (5), progress towards the MTO does not appear to be adequate in 2013 against the assessment of the Commission services 2012 spring forecast, which takes into account the implementation risks related to selected saving measures and a less optimistic macroeconomic scenario.

The growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact in 2013, but not in 2014 and in 2015. According to government plans, the public debt is continuously reduced throughout the programme period to below 73 % of GDP in 2015, but will remain above the 60 %-of-GDP reference value. Regarding the debt reduction benchmark, Hungary will be in a transitional period in 2013-2014 and the Convergence Programme would ensure sufficient progress towards compliance with the benchmark. According to the Convergence Programme, the debt reduction benchmark would be met at the end of the transitional period, in 2015, and thereby should help to reduce the accumulated external and internal indebtedness.

(12)

New regulations have been adopted for the implementation of the constitutional fiscal governance framework, but some of its features remain weak. The medium-term budgetary planning is only indicative, the resources of the Fiscal Council are not commensurate with its newly-granted strong veto power, and the availability of budgetary information remains insufficient. Strengthening the medium-term budgetary planning dimension and widening the analytical remit of the Fiscal Council would help to ensure that the new constitutional fiscal governance framework can play its role.

(13)

Policy responses to address the impact of tax reform on low wage earners (minimum wage increase, wage subsidy scheme) have not contributed to enhancing employment, whereas measures to encourage women’s participation in the labour market are a small step in the right direction. Making labour taxation more employment-friendly and further strengthening measures to encourage the participation of women in the labour market, particularly by expanding childcare and pre-school facilities, would help to improve the employment rate.

(14)

The public employment service has been reorganised resulting in an overall downsizing, pointing in the opposite direction of what was recommended in 2011. In the field of active labour market policies some measures aiming to provide tailor-made services for disadvantaged groups, for instance, under European Social Fund (ESF) programmes, appear credible and relevant. However, other measures aimed at disadvantaged groups (e.g. public works) are unlikely to be effective in improving the placement of participants in the open job market. Serious steps to strengthen the capacity of the public employment service should be taken without delay, while keeping the right balance of funding between public works and other active labour market policies, to help to improve the functioning of the labour market and raise the participation rate. Raising the growth potential through structural reform in the labour market would also be important for a sustained reduction of the vulnerabilities stemming from the large stock of external and internal debt. Furthermore, the National Social (Roma) Inclusion Strategy has not been mainstreamed in other policies.

(15)

Measures to improve the business environment largely go in the right direction, but there is significant room for further progress. Efforts to improve access to non-bank funding are also going in the right direction, but a comprehensive assessment of small and medium-sized enterprises (SMEs) policies is still missing. Hungary ranks very low on many indicators measuring the transparency and quality of public administration, where progress would also help in improving the stability of the institutional and policy environment. This, in turn, could improve conditions for foreign direct investment and would support the reduction of the significant imbalance in the net international investment position: in particular, the ratio of reinvested profits fell dramatically in 2009 and 2010 partly on account of the crisis but also as a result of a number of controversial and unpredictable changes in the policy and fiscal environment and in the legal and institutional system. The recent trend in public funding for research and innovation (since mid-2010) is not in line with the 2012 Annual Growth Survey priority of differentiated growth-friendly fiscal consolidation.

(16)

The Government has carried out a higher education reform that introduced changes in the structure and funding of higher education. In addition, elements of the new legislation on school education risk increasing the number of early school leavers and segregation in the Hungarian school system. The equally important issue of lifelong learning is not sufficiently addressed. Improving education at all levels will be important to raise the competitiveness of the Hungarian labour force.

(17)

The lack of progress in restructuring public transport has been an important reason for budget slippages in recent years. The vast majority of the rolling stock of public transport companies have reached the limits of their utility. Increasing the cross-border capacity of the electricity network could facilitate a potential increase in trade with neighbouring countries. The national energy regulator is not empowered to organise its structures autonomously and lacks exclusive competence to set network tariffs including the rate of return that network operators are allowed to earn. Regulated prices should only apply to vulnerable customers.

(18)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Hungary’s economic policy. It has assessed the convergence programme and national reform programme, and has presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary, but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

(19)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

(20)

HEREBY RECOMMENDS that Hungary take action within the period 2012-2013 to:

Correct the excessive deficit by 2012 in a durable manner, by implementing the 2012 budget and the subsequently approved consolidation measures, while reducing the reliance on one-off measures. Thereafter, specify all structural measures necessary to ensure a durable correction of the excessive deficit and to make sufficient progress towards the MTO, including meeting the expenditure benchmark, and ensure sufficient progress towards compliance with the debt reduction benchmark. Also to help mitigate the accumulated macroeconomic imbalances, put the public debt ratio on a firm downward path.

2.	Revise the cardinal law on economic stability by putting the new numerical rules into a binding medium-term budgetary framework. Continue to broaden the analytical remit of the Fiscal Council, with a view to increasing the transparency of public finances.

Make the taxation of labour more employment-friendly by alleviating the impact of the 2011 and 2012 tax changes on low earners in a sustainable, budget-neutral manner, for example by shifting part of the tax burden to energy taxes and recurrent taxes on property. Strengthen measures to encourage women’s participation in the labour market, particularly by expanding childcare and pre-school facilities.

Strengthen the capacity of the Public Employment Service to increase the quality and effectiveness of training, job search assistance and individualised services, with particular regard for disadvantaged groups. Strengthen the activation element in the public work scheme through effective training and job search assistance. Implement the National Social (Roma) Inclusion Strategy, and mainstream it with other policies.

Implement measures envisaged to reduce the administrative burden. Ensure that public procurement and the legislative process support market competition and ensure a stable regulatory and business-friendly environment for financial and non-financial enterprises, including foreign direct investors. Reduce tax compliance costs and establish a stable, lawful and non-distortive framework for corporate taxation. Remove unjustifiable restrictions on the establishment of large-scale retail premises. Provide specific well-targeted incentive schemes to support innovative SMEs in the new innovation strategy.

6.	Prepare and implement a national strategy on early school-leaving by ensuring adequate financing. Ensure that the implementation of the higher education reform improves access to education for disadvantaged groups.

7.	Reform the public transport system to make it more cost efficient. Increase the cross-border capacities of the electricity network, ensure the independence of the energy regulator and gradually abolish regulated energy prices.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 209, 15.7.2011, p. 10.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/44

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Ireland and delivering a Council opinion on the Stability Programme of Ireland, 2012-2015

2012/C 219/13

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Ireland’s National Reform Programme for 2011 and delivered its opinion on Ireland’s updated Stability Programme for 2011-2015.

(4)	On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy.

(5)

(6)

(7)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(8)	On 27 April 2012, Ireland submitted its Stability Programme covering the period 2012-2015 and its 2012 National Reform Programme.

(9)

On 7 December 2010, the Council adopted Implementing Decision 2011/77/EU (4) granting financial assistance to Ireland until end 2013 in accordance with Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism (5). The accompanying Memorandum of Understanding signed on 16 December 2010 and its successive supplements lay down the economic policy conditions on the basis of which the financial assistance is disbursed.

(10)

Overall, Ireland has implemented the conditions of the financial assistance programme specified in the Memorandum of Understanding. In particular, the fiscal deficit target for 2011 (10,6 %) was achieved by a significant margin and the budget for 2012 targets a fiscal deficit of 8,6 % of GDP, in line with the financial assistance programme ceiling. Medium-term fiscal consolidation plans are consistent with the financial assistance programme’s deficit ceilings and a deficit below 3 % of GDP by 2015. The recapitalisation of domestic banks envisaged by the 2011 Prudential Capital Assessment Review of the Central Bank of Ireland has been substantively completed and domestic banks’ deleveraging exceeded the financial assistance programme’s targets for 2011 as a whole. Structural reforms to enhance competitiveness and allow stronger job creation are significantly advanced.

(11)

Ireland’s economy returned to modest growth of 0,7 % in 2011, broadly as expected under the financial assistance programme. Growth was export-led, benefiting from competitiveness improvements and solid external demand. Net exports contributed 4,7 percentage points to GDP growth, while domestic demand continued to contract due to fiscal consolidation, falling employment and household balance sheet repair. In 2012, growth is set to moderate to about 0,5 %, due to the adverse external environment and the continuing adjustment of domestic demand. Household and corporate balance sheet repair will continue to weigh on consumption and investment in the medium term. Export-driven growth is expected to pick up, increasing to 1,9 % in 2013 and to 2,8 % by 2015 on the back of Ireland’s strong demographics and flexible labour market as well as considerable spare capacity in the economy.

(12)

Based on the assessment of the Stability Programme pursuant to Article 5(1) of Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections of the Programme is plausible. Economic growth projections in the Stability Programme are similar to the Commission services 2012 spring forecast. The objective of the budgetary strategy of the Stability Programme is to reduce the general government deficit below the 3 % of GDP threshold by end 2015, which is in line with the deadline set by the Council for correcting the excessive deficit. The Stability Programme currently projects a deficit of 8,3 % of GDP (below the programme target of 8,6 % of GDP) in 2012, 7,5 % of GDP in 2013, 4,8 % of GDP in 2014 and 2,8 % of GDP by the end of the programme period in 2015. This path is underpinned by consolidation measures of 2,7 % of GDP implemented in the budget for 2012, and broad consolidation measures of 3,9 % of GDP in 2013-2014 and a further partly specified consolidation effort of 1,1 % of GDP in 2015. The Stability Programme restates the medium-term budgetary objective (MTO) of a structural general government deficit of 0,5 % of GDP, which is not reached within the programme period. The MTO adequately reflects the requirement of the Stability and Growth Pact. General government debt is above 60 % of GDP and is projected to increase from 108 % of GDP in 2011 to 120 % in 2013 before starting to decline. For the duration of the excessive deficit procedure until 2015 and in the three years thereafter, Ireland will be in a transitional period and the budgetary plans would ensure sufficient progress towards compliance with the debt reduction benchmark of the Stability and Growth Pact.

(13)	Ireland has made a number of commitments under the Euro Plus Pact. These commitments relate to fostering competitiveness, fostering employment, enhancing sustainability of public finances and reinforcing financial stability,

HEREBY RECOMMENDS that Ireland take action within the period 2012-2013 to:

Implement the measures laid down in Implementing Decision 2011/77/EU and further specified in the Memorandum of Understanding of 16 December 2010 and its subsequent supplements.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 215, 21.7.2011, p. 1.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(4) OJ L 30, 4.2.2011, p. 34.

(5) OJ L 118, 12.5.2010, p. 1.

24.7.2012

Official Journal of the European Union

C 219/46

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Italy and delivering a Council opinion on the Stability Programme of Italy, 2012-2015

2012/C 219/14

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Italy’s National Reform Programme for 2011 and delivered its opinion on Italy’s updated Stability Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Italy as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(9)

On 30 April 2012, Italy submitted its Stability Programme covering the period 2012-2015 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed in an in-depth review, under Article 5 of Regulation (EU) No 1176/2011, whether Italy is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Italy is experiencing imbalances, although not excessive ones. In particular, while the public debt is already under close scrutiny in the Stability and Growth Pact, macroeconomic developments in the area of export performance deserve attention so as to reduce the risk of adverse effects on the functioning of the economy.

(10)

Based on the assessment of the Stability Programme pursuant to Article 5(1) of Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underlying that Programme is plausible, under the assumption of no further worsening in financial market conditions. In line with the Commission services 2012 spring forecast, real GDP is expected to contract sharply in 2012 and recover gradually in 2013. In compliance with the excessive deficit procedure (EDP), the objective of the budgetary strategy outlined in the Stability Programme is to bring the general government deficit below the 3 % of GDP Treaty reference value by 2012, based on further expenditure restraint and additional revenues. Following the correction of the excessive deficit, the Stability Programme confirms the medium-term budgetary objective (MTO) of a balanced budgetary position in structural terms, which adequately reflects the requirements of the Stability and Growth Pact. Italy plans to achieve it in 2013, i.e. one year earlier than targeted in the previous Stability Programme, through the measures already adopted in 2010-2011. Based on the (recalculated) structural budget balance (5), the planned average annual fiscal effort over the period 2010-2012 is well above the 0,5 % of GDP recommended by the Council under EDP. The envisaged pace of adjustment in structural terms in 2013 allows Italy to achieve the MTO in that year and the planned rate of growth of government expenditure, taking into account discretionary revenue measures would comply with the expenditure benchmark of the Stability and Growth Pact.

The Stability Programme projects the government debt ratio to peak in 2012 and to start declining at an increasing pace thereafter, as the primary surplus increases. In 2013-2014 Italy will be in a transitional period and its budgetary plans would ensure sufficient progress towards compliance with the debt reduction benchmark, as also confirmed in the Commission services 2012 spring forecast. According to Italy’s plans, the debt reduction benchmark will be met at the end of the transitional period (2015). Reaching the above deficit and debt outcomes will require strict and full budgetary implementation of the corrective measures adopted in 2010-2011.

(11)

As regards the fiscal framework, the Italian Parliament approved a bill introducing a balanced budget rule in the Italian Constitution. Implementing legislation will be needed to specify key features of the rule, i.e. the detailed arrangements for application and the appropriate correction mechanisms and escape clauses as well as the necessary coordination between the different levels of government. The Government committed to pursue a durable improvement of the efficiency and quality of public expenditure through in-depth spending reviews at all levels of government. The reviews should also allow prioritising expenditure items in favour of growth. With the same aim, a reorientation of the use of Structural Funds is underway through measures taken in March 2011 and with the November 2011 Cohesion Action Plan, which also aims at speeding up the absorption of Structural Funds. However, important deficiencies in terms of administrative capacity, in particular in the convergence regions, continue to hamper the absorption of funds.

(12)

The structure of the tax system and the high level of tax evasion and undeclared work have adversely affected the economic performance of the country. Tax compliance and governance are also affected by wide-ranging tax expenditures and complex and burdensome administrative procedures. The partial shift in tax burden away from the factors of production onto consumption and property, in already enacted legislative reforms, is an important first step in making the tax structure more growth friendly, but a further shift is justified, while continuing to take into consideration distributional effect.

(13)

The social partners’ agreement of June 2011 to reform the wage-bargaining framework has been formalised in legislation. It should allow more extensive use of firm-level contracts, taking better account of the needs of specific production activities, and this should be monitored. However, to fully address the issue of more dynamic nominal unit labour costs than its trade partners, which is a factor for Italy’s competitiveness loss, the wage-bargaining system should be reformed further by allowing more flexible arrangements also at the national sectoral level. In April 2012, the Government proposed an ambitious labour market reform addressing long-standing challenges in the Italian labour market, including its segmentation. This reform needs to be adopted as a matter of urgency, ensuring that its objective and level of ambition remains commensurate to the challenge of the Italian labour market. The scale and effectiveness of the liberalisation of employment services system should be closely monitored.

(14)

Despite efforts made to improve the employability of women, mainly through targeted fiscal incentives, the employment rate of Italian women is significantly lower (46,5 % in 2011) than the EU 27 average (58,5 % in 2011). Further action on childcare and elderly care facilities is needed. The challenge is particularly big for older female workers in the private sector, as the retirement age for women will rise by five years between 2012 and 2018.

(15)

Youth unemployment in Italy reached 29,1 % on average in 2011 and rose further in the first months of 2012. In particular, the unemployment rate among tertiary graduates is high and there is a mismatch between the acquired skills and those that are needed in the labour market. The promotion of apprenticeship as a main port of entry into the labour market is welcome but still requires enforcement of the appropriate instruments such as a new system of occupational and training standards and skills certification schemes. The Commission set up an action team to reprogramme cohesion funds towards measures that support the employment of young people and the development of small and medium-sized enterprises (SMEs).

(16)

The early school leaving rate of 18,8 % at national level, with strong regional variations, has adverse effects on youth unemployment. More targeted and coordinated action to address the challenge of early school leaving should be taken by combining prevention, intervention and compensation measures. The underperformance of the tertiary education system should be addressed including through the full implementation of the 2010 university reform, and a stronger link between universities’ performance and the allocation of public funding.

(17)

Italy has adopted important measures to liberalise services, in particular professional services, and to improve competition in the network industries. However, multiple challenges remain in the energy and transport sectors, in particular railways and ports, where infrastructure and market bottlenecks remain significant.

(18)

Although some measures have already been adopted to encourage administrative simplification, the business environment in Italy remains complex. In particular, the judiciary system suffers from a number of inefficiencies in terms of resource utilisation, procedures and institutional organisation that are reflected in the low performance of the Italian civil justice system, in particular as regards the excessive duration of case-handling and the amount of backlogs.

(19)

Access to financing by SMEs is difficult and venture capital intensity is weak. An Allowance for new Corporate Equity (ACE) was introduced in December 2011 allowing companies to exclude the notional return on new injections of equity capital from taxable income. This is expected to facilitate an increase in firm size of SMEs and investment in innovation. While some measures have been taken to foster private research and development (R&D), in particular the refinancing of the tax credit for business investment in research, the intensity remains low and the implementation of projects of an innovative nature is weak.

(20)

Italy has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations below.

(21)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Italy’s economic policy. It has assessed the Stability Programme and the National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Italy but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (6) below.

(22)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

(23)	In the light of the results of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (4), (5) and (6) below,

HEREBY RECOMMENDS that Italy take action within the period 2012-2013 to:

Implement the budgetary strategy as planned, and ensure that the excessive deficit is corrected in 2012. Ensure the planned structural primary surpluses so as to put the debt-to-GDP ratio on a declining path by 2013. Ensure adequate progress towards the MTO, while meeting the expenditure benchmark and making sufficient progress towards compliance with the debt reduction benchmark.

Ensure that the specification in the implementing legislation of the key features of the balanced budget rule set out in the Constitution, including appropriate coordination across levels of government, is consistent with the EU framework. Pursue a durable improvement of the efficiency and quality of public expenditure through the planned spending review and the implementation of the 2011 Cohesion Action Plan leading to improving the absorption and management of EU funds, in particular in the South of Italy.

Take further action to address youth unemployment, including by improving the labour-market relevance of education and facilitating transition to work, also through incentives for business start-ups and for hiring employees. Enforce nation-wide recognition of skills and qualifications to promote labour mobility. Take measures to reduce tertiary education dropout rates and fight early school leaving.

Adopt the labour market reform as a priority to tackle the segmentation of the labour market and establish an integrated unemployment benefit scheme. Take further action to incentivise labour market participation of women, in particular through the provision of childcare and elderly care. Monitor and if needed reinforce the implementation of the new wage setting framework in order to contribute to the alignment of wage growth and productivity at sector and company level.

Pursue the fight against tax evasion. Pursue the shadow economy and undeclared work, for instance by stepping up checks and controls. Take measures to reduce the scope of tax exemptions, allowances and reduced VAT rates and simplify the tax code. Take further action to shift the tax burden away from capital and labour to property and consumption as well as environment.

Implement the adopted liberalisation and simplification measures in the services sector. Take further measures to improve market access in network industries, as well as infrastructure capacity and interconnections. Simplify further the regulatory framework for businesses and enhance administrative capacity. Improve access to financial instruments, in particular equity, to finance growing businesses and innovation. Implement the planned reorganisation of the civil justice system, and promote the use of alternative dispute settlement mechanisms.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 215, 21.7.2011, p. 4.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/50

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Latvia and delivering a Council opinion on the Convergence Programme of Latvia, 2012-15

2012/C 219/15

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Latvia’s National Reform Programme for 2011 and delivered its opinion on Latvia’s updated Convergence Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Latvia as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

In 2011 Latvia had met most of the conditions related to the Medium-term Financial Assistance Programme under Decision 2009/290/EC (5). The Commission completed the fifth and final review under Latvia’s balance-of-payments programme on 21 December 2011 with an overall positive assessment on the Government’s progress in budgetary, financial and structural reforms. The Medium-term Financial Assistance Programme expired in January 2012. Following the expiration of that Programme, Latvia is subject to post-programme surveillance. This surveillance forms an integral part of the existing procedures and surveillance mechanisms and it aims at close monitoring of risks that could jeopardise macroeconomic stability and hence affect the repayment capacity. The post-programme surveillance will continue until the repayment of a large fraction (about 70 %) of loans.

(7)

(8)

(9)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(10)	On 30 April 2012, Latvia submitted its Convergence Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(11)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections is cautious in 2012, taking into account the latest available information, and plausible in 2013. While macroeconomic projections for 2012 in the Convergence Programme scenario are very close to those in the Commission services’ 2012 spring forecast (with GDP growth projections respectively at 2,0 % and 2,2 %), recent economic data indicates that the outturn may be higher. The objective of the budgetary strategy outlined in the Convergence Programme is to correct an excessive deficit by 2012 and to approach the medium-term budgetary objective (MTO) by the end of the Convergence Programme period. The 2012-15 Convergence Programme has changed the MTO from – 1,0 % to – 0,5 % of GDP; the new MTO adequately reflects the requirements of the Stability and Growth Pact. The planned headline deficit in 2012 complies with the deadline for correction of the excessive deficit established in Council Recommendation of 7 July 2009. For 2013, the Convergence Programme targets a headline deficit of 1,4 % of GDP, although the planned expenditure reduction is not yet fully supported by measures. Based on the (recalculated) structural budget balance (6), Latvia will approach its MTO by the end of the Convergence Programme period in 2015. While the recalculated information suggests that progress towards the MTO is less than 0,5 % of GDP in structural terms in outer years of the Convergence Programme, planned expenditure restraint would ensure that the growth rate of government expenditure, taking into account discretionary revenue measures, would be in line with the expenditure benchmark of the Stability and Growth Pact.

At the same time, tax changes from the second half of 2012, as adopted by Parliament on 24 May 2012, which are not yet reflected in the Convergence Programme scenario but acknowledged in the letter accompanying the submission of the Convergence Programme, represent a risk to the attainment of targets in 2013 and beyond. The general government debt ratio is below 60 % of GDP, increasing from 42,6 % of GDP in 2011 to 46,7 % of GDP in 2014, as the authorities pre-fund large repayments related to the international financial assistance programme that are due in 2014-15, and falling to 38,9 % in 2015 as these repayments are made.

(12)

Latvia should pursue the strategy of shifting taxation from labour to taxation of consumption, property, and the use of natural and other resources, while improving the structural balance. The relatively high tax burden on low-wage earners and the high level of undeclared work indicate the need for appropriate labour-market policies, a review of the tax and benefit system and increased efforts to tackle the shadow economy. Environmental taxes remain relatively underdeveloped and are heavily dominated by motor-fuel taxation, while taxation on other energy sources, pollution and the use of natural resources is below the EU average. Further broadening the tax base to other sources of environmental taxation, in particular pollution, as well as more broad-based taxation of energy sources, would help in achieving environmental goals while providing room for a tax shift away from the taxation of labour.

(13)

In the process of the ongoing reform of fiscal governance, Latvia is invited to ensure adoption of the Fiscal Discipline Law by the Parliament and to develop a medium-term budgetary framework law to support the long-term sustainability of public finances. The adoption of the Fiscal Discipline Law will be in line with the commitments by the Government under the balance-of-payments programme; the draft law adopted by the Government also seeks to implement the evolving EU acquis in the area of fiscal governance into Latvian legislation. When adopted and implemented, the new law would considerably strengthen the fiscal framework in Latvia, which currently lacks an effective mechanism to limit expenditure growth in good economic times.

(14)	As to ensure the continuity of the pension reform, Latvia should restore contributions to the mandatory funded private pension scheme at 6 % of gross wages in 2013, from the current reduced level of 2 % of gross wages.

(15)

Latvia needs to strengthen and reform the social assistance system and tackle one of the highest unemployment rates in the Union. The challenge of youth unemployment became especially evident during the crisis, revealing also high skills mismatches. Special active labour market policies targeted at young people have been designed and implemented including vocational training, volunteer work and wage subsidies for young people. However, given the scale of the problem, these limited activities have a relatively small impact.

(16)

In 2011, 40 % of the Latvian population is facing the risk of poverty and social exclusion which has implications for the employability of the workforce and future growth prospects. Latvia adopted an Emergency Social Safety Net Strategy. Government policies to reduce poverty are concentrated on the reduction of income inequality, reduced tax burden for working families and increased access to the labour market. Nevertheless, Latvia spends relatively little on social protection and social transfers have only a low impact on poverty reduction, as a large share of social transfers is redistributed back to middle and high income earners. Spending on means tested benefits is low, while the role of social safety net is partly fulfilled by temporary low-paid public jobs. The design of social assistance benefits also contains poverty and unemployment traps and there are abuses of the system. Large inequality exists in access to social assistance across local governments and poor transparency complicates evidence-based decision making. The challenges of long-term unemployment and of youth unemployment became especially evident during the crisis. Most of the young unemployed do not possess professional qualifications. The number of young people not in employment, education or training (NEETs) is relatively high. Measures should be taken in line with the findings of the Latvian — Commission joint action team on youth unemployment.

(17)

Latvia should further improve energy efficiency and promote competition in major energy networks, while improving connectivity with EU energy networks. The tax system does not provide sufficient incentives for reducing energy costs and for shifting consumption and investment towards energy efficient products (transport vehicles, insulation of buildings, heating systems). Energy markets in Latvia remain dominated by monopolies. For historical reasons, the gas and electricity markets are largely separated from those of other Member States.

(18)

Inefficiencies in the civil justice system have a negative impact on business and the economic environment, as the risk and cost of doing business increases. There is a large backlog of proceedings in the first and second instance courts in civil and commercial cases, especially as regards contractual obligations and insolvencies. The professional performance of judges should be evaluated. Further improvements in the insolvency law regime are justified.

(19)

Despite the relatively high educational attainment, a significant share of the workforce does not possess professional qualifications and has limited access to higher education. Universities perform poorly in worldwide rankings and are characterised by low international competitiveness and weak governance. Low cooperation among universities, research institutions, and businesses affects the innovation performance which is very low. A systematic and effective research and innovation strategy is lacking. Latvia also has the lowest business research and development (R & D) expenditure in the Union.

(20)

Latvia has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations below.

(21)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Latvia’s economic policy. It has assessed the Convergence Programme and the National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Latvia but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

(22)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Latvia take action within the period 2012-13 to:

Ensure planned progress towards the timely correction of the excessive deficit. To this end, implement the budget for the year 2012 as envisaged and achieve the fiscal effort specified in the Council recommendation under the excessive deficit procedure. Thereafter, implement a budgetary strategy, supported by sufficiently specified structural measures, for the year 2013 and beyond, to make sufficient progress towards the MTO, and to respect the expenditure benchmark. Use better than expected cyclical revenue to reduce government debt.

Implement measures to shift taxation away from labour to consumption, property, and use of natural and other resources while improving the structural balance; ensure adoption of the Fiscal Discipline Law and develop a medium-term budgetary framework law to support the long-term sustainability of public finances; restore contributions to the mandatory funded private pension scheme at 6 % of gross wages from 2013.

Take measures to reduce long-term and youth unemployment by fighting early school leaving, promoting more efficient vocational education and training and its apprenticeship component, enhancing the quality, coverage and effectiveness of active labour market policy and its training component and through an effective wage subsidy scheme.

4.	Tackle high rates of poverty and social exclusion by reforming the social assistance system to make it more efficient, while better protecting the poor. Ensure better targeting and increase incentives to work.

Further encourage energy efficiency by implementing measures and providing incentives for reducing energy costs and shifting consumption towards energy-efficient products, including vehicles, buildings and heating systems. Promote competition in major energy networks and improve connectivity with EU energy networks.

6.	Take measures to improve management and efficiency of the judiciary, in particular to reduce the backlog and length of procedures. Take steps to improve the insolvency regime and the mediation laws.

Continue reforms in higher education, inter alia, by implementing a new financing model that rewards quality, strengthens links with market needs and research institutions, and avoids fragmentation of budget resources. Design and implement an effective research and innovation policy encouraging companies to innovate, including via tax incentives, upgrading infrastructure and rationalising research institutions.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 215, 21.7.2011, p. 8.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(5) OJ L 79, 25.3.2009, p. 39.

(7) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/54

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Lithuania and delivering a Council opinion on the Convergence Programme of Lithuania, 2012-15

2012/C 219/16

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Lithuania’s National Reform Programme for 2011 and delivered its opinion on Lithuania’s updated Convergence Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Lithuania as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

On 2 March 2012, the European Council endorsed the priorities for ensuring financial stability, fiscal consolidation and action to foster growth. It underscored the need to pursue differentiated, growth-friendly fiscal consolidation, to restore normal lending conditions to the economy, to promote growth and competitiveness, to tackle unemployment and the social consequences of the crisis, and to modernise public administration. It invited Member States to implement the Council’s country-specific recommendations for 2011 and to translate those priorities into concrete measures to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(9)	On 27 April 2012, Lithuania submitted its Convergence Programme covering the period 2012-15 and, on 30 April 2012, its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(10)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in that Programme is plausible. It is broadly in line with the Commission services’ 2012 spring forecast for 2012 and 2013. The objective of the budgetary strategy outlined in the Convergence Programme is to correct the excessive deficit by 2012 as recommended by the Council and progressing towards the medium-term budgetary objective (MTO) thereafter. The Convergence Programme confirms the previous MTO, namely a structural general government surplus of 0,5 % of GDP, which adequately reflects the requirements of the Stability and Growth Pact, and outlines a consolidation of at least 1 percentage point per year, planning a balanced budget by 2015. While the budgetary plans are in line with a timely correction of the excessive deficit, the average annual fiscal effort in 2010-12, based on the (recalculated) structural budget balance (5), is expected to be lower than the 2,25 % of GDP required by the Council in its recommendation of 16 February 2010. The planned annual progress towards the MTO in the years following the correction of the excessive deficit is slightly higher than 0,5 % of GDP in structural terms, that is, the benchmark of the Stability and Growth Pact.

The planned rate of growth of government expenditure, taking into account discretionary revenue measures, complies with the expenditure benchmark of the Stability and Growth Pact in 2013 and 2014, but not in 2015. General government debt is projected to remain below 60 % of GDP over the Convergence Programme period, increasing to nearly 41 % of GDP in 2013, according to the Commission services’ 2012 spring forecast, while the Convergence Programme targets the debt to decrease to around 35 % by 2015. The reform of budget planning and execution is progressing but the Government has still to approve the proposed laws. These laws would improve accountability within the fiscal framework, by establishing an independent body, and tighten rules on treasury reserves.

(11)	Based on a comprehensive tax compliance strategy, measures were implemented in 2011, which reinforced tax compliance and yielded additional revenue. However, continuing implementation will be required to advance significantly against tax evasion.

(12)

Demographic developments cast serious doubts on the sustainability of the pension system. Although Lithuania adopted a gradual increase in the pension age to 65 years by 2026, this alone will not ensure a sustainable and adequate retirement income in the future and needs to be complemented by additional measures. Those measures could include linking the statutory retirement age and future benefits to demographic factors; establishing clear rules for indexation; introducing a closer link between contributions and benefits; and eliminating incentives to take early retirement. Lithuania could in addition make better use of supplementary voluntary pension provision. Supplementary retirement savings via individual pre-funded private pension schemes and/or the establishment of occupational pension schemes could ease the burden of the social security system and at the same time improve the adequacy of future pension incomes. Disincentives to continuing to work longer have been removed.

(13)

The Law on Temporary Employment Agencies, designed to facilitate short-term employment, entered into force on 1 December 2011. However, its impact may not be significant, since temporary work agencies were already operating in Lithuania before then. A comprehensive review of labour law could identify unnecessary restrictions and administrative hurdles that prevent flexible contractual agreements, dismissal provisions and flexible working time arrangements. Additional measures to enhance participation in the labour market, especially for young people, unskilled persons and older workers, and to improve labour market flexibility are necessary.

(14)

The challenge of youth unemployment (above 30 %) and low-skilled unemployment became especially evident during the crisis. The Government is implementing a number of measures to promote youth employment, such as first job subsidies and reduced social security contributions. Nevertheless, activation rates remain too low and the financial allocations for active labour market policies could be used more effectively by targeting public works to the most vulnerable. To ensure a better transfer from education to the labour market, apprenticeships and internships could be made more attractive and a qualification demand forecasting system put in place. Measures should be in line with the findings of the Lithuania — Commission joint action team on youth unemployment.

(15)

Around one third of the Lithuanian population is facing the risk of poverty and long-term exclusion. This is the fourth highest figure in the Union. In 2011, Lithuania amended the Law on Cash Social Assistance to reform the social support system as of January 2012. It has launched a pilot model of social support distribution, changed the method for calculating the amount, introduced certain work incentives and increased coverage. The social assistance reform is a step towards reducing disincentives to work. It is necessary to set in place a monitoring system to assess its efficiency and its impact on poverty alleviation. The reform should also link with activation measures that enhance participation, in particular for long-term social beneficiaries.

(16)

The Government has been undertaking an ambitious reform of state-owned enterprises since 2010, aiming to restructure corporate governance, increase transparency and separate ownership and regulatory functions, and increase competition and efficiency. The reform is relevant, involving legislative as well as organisational changes. Major progress has been made in transparency and accountability as reports are now published on a quarterly and annual basis. Clear enterprise objectives have been established. However, the Government has postponed some parts of the reform, in particular the separation of commercial and non-commercial activities of state-owned enterprises, and intends to implement them in 2012.

(17)

Lithuania has made some progress in improving the energy efficiency of buildings. A Multi-Apartment Building Modernisation Programme was adopted by the Government in December 2011, but it is weakened by counteracting subsidies available in other policy areas that reduce incentives for inhabitants of residential buildings to improve energy efficiency. Further substantial and accelerated efforts are needed to improve energy efficiency of buildings.

(18)

There is scope for shifting taxation towards energy use as revenue from environmental taxes is the third lowest in the Union, while transport taxes are the lowest in the Union. The implicit tax rate on energy consumption was the seventh lowest in the Union in 2010 whereas energy taxes in GDP terms are only slightly below the EU average.

(19)	The country’s energy system infrastructure lacks competition and interconnections and this is a factor that hinders growth. Insufficient interconnections hinder the emergence of competition in energy markets. Concentration remains high (above 90 %) in both the gas and electricity markets.

(20)

Lithuania has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to fostering competitiveness and employment, improving public finance sustainability and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations below.

(21)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Lithuania’s economic policy. It has assessed the Convergence Programme and the National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (6) below.

(22)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Lithuania take action within the period 2012-13 to:

Ensure planned progress towards the timely correction of the excessive deficit. To this end, fully implement the budget for the year 2012 and achieve the structural adjustment effort specified in the Council recommendation under the excessive deficit procedure. Thereafter, specify the measures necessary to ensure implementation of the budgetary strategy for the year 2013 and beyond as envisaged, ensuring an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark, while minimising cuts in growth-enhancing expenditure. In that respect, review and consider increasing those taxes that are least detrimental to growth, such as housing and environmental taxation, including introducing car taxation, while reinforcing tax compliance. Strengthen the fiscal framework, in particular by introducing enforceable and binding expenditure ceilings in the medium-term budgetary framework.

2.	Adopt legislation on a comprehensive pension system reform. Align the statutory retirement age with life expectancy, establish clear rules for the indexation of pensions, and improve complementary savings schemes. Underpin pension reform with active ageing measures.

Tackle high unemployment, in particular among youth, low-skilled and long-term unemployed, by focusing resources on active labour market policies while improving their efficiency. Enhance the effectiveness of apprenticeship schemes. Amend the labour legislation with regard to flexible contract agreements, dismissal provisions and flexible working time arrangements.

4.	Increase work incentives and strengthen the links between the social assistance reform and activation measures, in particular for the most vulnerable, to reduce poverty and social exclusion.

Implement all aspects of the reform package of state-owned enterprises and in particular ensure a separation of ownership and regulatory functions and a separation of commercial and non-commercial activities. Install appropriate monitoring tools to assess the effectiveness of the reforms and ensure compliance of all state-owned enterprises with the requirements of the reform.

6.	Step up measures to improve the energy efficiency of buildings, including through removing disincentives and a rapid implementation of the holding fund. Promote competition in energy networks by improving interconnectivity with the Member States for both electricity and gas.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 210, 16.7.2011, p. 1.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/58

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Luxembourg and delivering a Council opinion on the Stability Programme of Luxembourg, 2012-15

2012/C 219/17

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Luxembourg’s National Reform Programme for 2011 and delivered its opinion on Luxembourg’s updated Stability Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Luxembourg as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)	On 27 April 2012, Luxembourg submitted its 2012 Stability Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Stability Programme is plausible. In particular, the Stability Programme scenario for 2012 and 2013 is very close to the Commission services’ 2012 spring forecast. Medium-term deficit projections are made under a slightly optimistic growth scenario, above potential growth, although still well below average historic rates. The objective of the budgetary strategy outlined in the Stability Programme is to bring the deficit from 1,5 % in 2012 to 0,9 % in 2014 with a package of consolidation measures of around 1,2 % of GDP and provide greater room for manoeuvre in case of negative shocks. The Stability Programme confirms the previous medium-term budgetary objective (MTO) of a structural surplus of 0,5 %. However, this MTO cannot be regarded as appropriate under the provisions of the Stability and Growth Pact because, based on current policies and projections, this MTO does not appear to take sufficiently into account the implicit liabilities related to ageing, despite the debt being below the Treaty reference value. Moreover, based on both the Commission services’ 2012 spring forecast as well as on the (recalculated) structural budget balance in the Stability Programme, Luxembourg would significantly depart from its own MTO starting from 2012. The growth rate of government expenditure, net of discretionary revenue measures, is expected to significantly exceed the expenditure benchmark as defined in the Stability and Growth Pact. At 20 % of GDP, gross government debt is below the Treaty reference value.

(11)

On 20 January 2012, the Government adopted a draft law to reform the pension system for both the private and the public sectors. The reform would build in some corrective mechanisms in case of an adverse evolution of the financial situation of the scheme and contains adaptations to the very generous calculations method of benefits. However, the new calculation method will be phased in over a very long time horizon of 40 years. Moreover the possibilities for early retirement remain broadly unchanged and no measures have been proposed to link the statutory retirement age to life expectancy. Overall, Luxembourg is taking steps into the right direction, but the proposed reform does not seem to constitute a sufficient guarantee of long-term sustainability of public finances.

(12)

In January 2012, the Parliament adopted a law to limit the application of the automatic indexation of wages between 2012 and 2014 in order to increase the competitiveness of the Luxembourg economy. However, besides a possible modification of the reference index, the Government has not announced any further plans for a permanent revision of the wage-setting system. While Luxembourg’s productivity is currently very high, the room for manoeuvre in terms of productivity gains is getting smaller. A permanent revision of the wage-setting system, in consultation with social partners and in accordance with national practices, is necessary to preserve the competitiveness of the Luxembourg economy in the longer term.

(13)

Luxembourg has taken some relevant and credible steps to tackle its relatively high youth unemployment. However, in order to ease young people’s integration into the labour market, a coherent strategy is needed to, inter alia, strengthen collaboration between municipalities and improve the effectiveness of employment services. Young jobseekers, and particularly those with lower education level, would also benefit from more investment in training and education.

(14)

Luxembourg is expected to face difficulties in reaching its 2020 target for greenhouse gas (GHG) emission reduction. According to the latest 2020-projections based on existing measures, Luxembourg is expected to increase its emissions in non-ETS (Emissions trading sectors) by 6 % between 2005 and 2020, compared to a reduction target of 20 %. The road sector represents the most significant source of emissions and possesses a large emission reduction potential. The price of transport fuels remains one of the lowest in the EU, encouraging ‘fuel tourism’ and inducing negative externalities in terms of pollution and congestion. Additional policies are necessary to reduce GHG emissions, or costly flexibility mechanisms will have to be used.

(15)

Luxembourg has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to improving competitiveness, enhancing employment and strengthening financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Luxembourg’s economic policy. It has assessed the Stability Programme and National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Luxembourg but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (5) below.

(17)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (5) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Luxembourg take action within the period 2012-13 to:

Preserve a sound fiscal position by correcting any departure from a MTO that ensures the long-term sustainability of public finances, in particular taking into account implicit liabilities related to ageing. To this end, reinforce and rigorously implement the budgetary strategy, supported by sufficiently specified measures, for the year 2013 and beyond, including meeting the expenditure benchmark.

Strengthen the proposed pension reform by taking additional measures to increase the participation rate of older workers, in particular by preventing early retirement, and by taking further steps to increase the effective retirement age, including through linking the statutory retirement age to life expectancy, in order to ensure the long-term sustainability of the pension system.

Take further steps to reform, in consultation with the social partners and in accordance with national practice, the wage bargaining and wage indexation system, with a view to preserve the competitiveness of the Luxembourg economy in the longer term, as a first step by maintaining the current one-year indexation interval beyond 2014 and by reducing the impact of energy and other volatile items on the reference index.

4.	Continue efforts to reduce youth unemployment by reinforcing stakeholders’ involvement, and by strengthening training and education measures, in particular for those with low education levels, with the aim of better matching young people’s skills and qualifications to labour demand.

5.	Ensure that the targets for reducing greenhouse gas emissions from non-ETS (Emissions Trading System) activities will be met, in particular by increasing taxation on energy products.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 210, 16.7.2011, p. 5.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(5) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/61

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Malta and delivering a Council opinion on the Stability Programme of Malta, 2012-15

2012/C 219/18

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Malta’s National Reform Programme for 2011 and delivered its opinion on Malta’s updated Stability Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Malta as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)	On 30 April 2012, Malta submitted its Stability Programme covering the period 2012-15 and, on 23 April 2012, its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections is optimistic, especially in the outer years of the programme period when compared with potential growth as estimated by the Commission. The objective of the budgetary strategy outlined in the Stability Programme is to gradually reduce the deficit, to 0,3 % of GDP in 2015, after the planned correction of the excessive deficit in 2011. The Stability Programme confirms the previous medium-term budgetary objective (MTO) of a balanced position in structural terms, which is to be achieved beyond the programme period. The MTO adequately reflects the requirements of the Stability and Growth Pact. There are risks that the deficit outcomes could be worse than targeted, stemming from: (i) lower revenue given the slightly optimistic macroeconomic scenario; (ii) possible overruns in current primary expenditure; and (iii) the ongoing restructuring of the national airline (Air Malta) and financial situation of the energy provider (Enemalta). Based on the (recalculated) structural budget balance (5), annual progress towards the MTO is planned to be in line with the 0,5 % of GDP benchmark in the Stability and Growth Pact.

Using the Commission’s identification of the one-offs included in the budgetary targets, average progress towards the MTO is slightly higher (¾ % of GDP) but spread very unevenly, with no progress in 2012 followed by an effort of 1¼ % in 2013. According to the information provided in the Stability Programme, the growth rate of government expenditure, taking into account discretionary revenue measures, would be in line with the expenditure benchmark of the Stability and Growth Pact throughout the programme period. The risks to the budgetary targets imply, however, that the average adjustment towards the MTO could be slower than appropriate. After peaking at 72 % of GDP in 2011, the general government gross debt ratio is planned in the Stability Programme to start decreasing and to reach 65,3 % of GDP in 2015 (still above the 60 % of GDP Treaty reference value).

According to the plans in the Stability Programme, Malta is making sufficient progress towards meeting the debt reduction benchmark of the Stability and Growth Pact at the end of the transition period (2015) but this assessment is subject to risks as the debt ratio could turn out higher than planned given the possibility of higher deficits and stock-flow adjustments. Malta’s medium-term budgetary framework remains non-binding, implying a relatively short fiscal planning horizon. The Stability Programme announces that the Government is considering reforms to the annual budgetary procedure, including timelines, and introducing a fiscal rule embedded in the Constitution, including monitoring and corrective mechanisms, in line with recent changes to the euro area governance framework.

(11)

As regards the long-term sustainability of public finances, Malta is projected to have a long-term increase in age-related expenditure exceeding considerably the EU average. A very low activity rate of older workers, including of older women; a relatively low exit age; and recourse to early retirement schemes add to the scope of the challenge. An independent Pensions Working Group submitted proposals for further pension reform in December 2010, including a link between the retirement rate and life expectancy, as well as the introduction of additional pillars to the pension system. This has been subject to consultation with stakeholders but the Government has yet to announce its position. Moreover, the National Reform Programme does not propose a comprehensive active-ageing strategy. While noting the measures introduced by Malta to combat undeclared work, its incidence also risks exerting undue pressure on the sustainability of public finances.

(12)

The restructuring of Malta’s economy has created a mismatch between demand and supply of skills, intensified by low tertiary education attainment and high early school leaving rates. Efforts to improve links between the education system and labour market needs have to be maintained to ensure lasting results. Malta is expected to present a strategy to tackle early school leaving by end of 2012. There is moreover no comprehensive system for collecting and analysing information on the phenomenon.

(13)

Malta still exhibits a low participation rate in its labour market for women and older workers. Malta is taking steps to bring women back into the labour force recognising the difficulties related to older women. However, the gender employment gap is particularly negative for women, primarily due to the lack of sufficient provision of affordable childcare and accessible after-school facilities, coupled with a low uptake of family-friendly measures such as flexitime and teleworking.

(14)

Malta remains one of the few Member States with a generalised wage indexation system. While the mechanism has features that potentially mitigate its impact, it entails a risk of wage-price spirals, particularly because imported prices are not excluded from the index, and may hamper competitiveness, especially in labour-intensive sectors. The authorities have undertaken a review process, but the results are not yet available, and debate on concrete reform proposals has yet to begin.

(15)

Energy supply in Malta remains almost entirely dependent on imported oil, while the contribution of renewable energy sources continues to be marginal. High electricity tariffs may hamper the competitiveness of its small and medium-sized enterprises. Addressing shortcomings in energy efficiency could bring the double benefit of improving competitiveness and achieving energy and climate targets. A number of initiatives in these areas have been undertaken such as encouraging the generation of photovoltaic power and developing wind farms, building an electricity interconnector with Sicily and promoting the use of fuel-efficient cars. However, it is still too early to see the eventual impact of these initiatives so their implementation needs to be closely monitored.

(16)

The banking system in Malta is very large in proportion to the size of the economy, with total assets standing at around 800 % of GDP. The sheer size of the sector implies that disruptions to financial stability could have a disproportionate impact on the domestic economy. The global economic downturn brought about an increase in problematic loans, which however has not been accompanied by an increase in provisioning. In particular the large exposure to the real estate market, which accounts for over half of all loans to domestic residents, is a source of vulnerability especially as a further downward correction in property prices cannot be excluded, while housing units may currently be in oversupply.

(17)

Malta has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to improving competitiveness, fostering employment and fostering the sustainability of public finances. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(18)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Malta’s economic policy. It has assessed the Stability Programme and the National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Malta but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (6) below.

(19)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Malta take action within the period 2012-13 to:

Reinforce the budgetary strategy in 2012 with additional permanent measures so as to ensure adequate progress towards the MTO and keep the deficit below 3 % of GDP without recourse to one-offs. Continue fiscal consolidation at an appropriate pace thereafter, so as to make sufficient progress towards the MTO, including meeting the expenditure benchmark, and towards compliance with the debt reduction benchmark, by specifying the concrete measures to back up the deficit targets from 2013, while standing ready to take additional measures in case of slippages. Implement, by end-2012 at the latest, a binding, rule-based multiannual fiscal framework. Increase tax compliance and fight tax evasion, and reduce incentives towards indebtedness in corporate taxation.

Take action, without further delay, to ensure the long-term sustainability of the pension system, comprising an increase in the effective retirement age, including through a significant acceleration of the progressive increase in the statutory retirement age compared to current legislation and through a clear link between the statutory retirement age and life expectancy, and measures to encourage private pension savings. Take measures to increase the participation of older workers in the labour force and discourage the use of early retirement schemes.

3.	Take steps to reduce the high rate of early school leaving. Pursue policy efforts in the education system to match the skills required by the labour market. Enhance the provision and affordability of more childcare and out-of-school centres, with the aim of reducing the gender employment gap.

4.	Take the necessary further steps to reform, in consultation with social partners and in accordance with national practices, the system of wage bargaining and wage indexation, so as to better reflect developments in labour productivity and reduce the impact of prices of imports on the index.

In order to reduce Malta’s dependence on imported oil, step up efforts to promote energy efficiency and increase the share of energy produced from renewable sources by carefully monitoring the existing incentivising mechanisms and by prioritising the further development of infrastructure, including by completing the electricity link with Sicily.

6.	To strengthen the banking sector, take measures to mitigate potential risks arising from the large exposure to the real estate market. Take measures to further strengthen the provisions for loan impairment losses.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 215, 21.7.2011, p. 10.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/65

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Poland and delivering a Council Opinion on the Convergence Programme of Poland, 2012-2015

2012/C 219/19

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Poland’s National Reform Programme for 2011 and delivered its opinion on Poland’s updated Convergence Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Poland as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)	On 25 April 2012, Poland submitted its Convergence Programme covering the period 2012-2015 and, on 27 April 2012, its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(10)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is plausible and is in line with the Commission services 2012 spring forecast. The objective of the budgetary strategy outlined in the Convergence Programme is to correct the excessive deficit by 2012 and reach the medium-term budgetary objective (MTO) by 2015. The Convergence Programme confirms the MTO of a deficit of 1 % of GDP, which adequately reflects the requirements of the Stability and Growth Pact. The planned correction of the deficit is in line with the deadline set by the Council and the planned fiscal effort complies with the Council recommendation under the excessive deficit procedure (EDP). Based on the (recalculated) structural balance (5), the planned annual progress towards the MTO is higher than 0,5 % of GDP (in structural terms). The growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the benchmark of the Stability and Growth Pact over entire programme period, but exceeds the expenditure benchmark by a small margin in 2013, according to the Commission services 2012 spring forecast. Sufficient progress towards the MTO may require additional efforts as it predominantly relies on sizeable cuts in public investment expenditure and is not sufficiently supported by detailed measures in the outer years of the Convergence Programme. General government debt is projected to remain below 60 % of GDP in Poland over the programme period. The national authorities forecast it to decrease gradually from 56,3 % of GDP in 2011 to 49,7 % of GDP in 2015, whereas the Commission, taking account of possible risks to the consolidation plans, expects the improvement to be slower.

(11)

The Government has not yet taken action to implement a permanent expenditure rule by 2013. Work on a permanent rule is still in preparation and no details have been disclosed so far. There has also been no progress on adjusting the classification of national accounts to the European system of accounts (ESA95 standards) and on improving coordination among different levels of government when it comes to the budgetary process.

(12)

Youth unemployment is above the EU average and is largely the result of a skills mismatch and low access to apprenticeships and work-based learning. Measures are planned to facilitate the entry of young people into the labour market. The partial abuse of self-employment and civil law contracts which are not governed by Labour Law appear to be a cause of labour market segmentation and in-work poverty, which is among the highest in the Union. Additionally, the scope and adequacy of in-work benefits support for low-wage earners should be reviewed.

(13)

Poland started implementing an ambitious higher education reform in the second half of 2011. This aims to strengthen university-business links and to address the skills and jobs mismatch. The reform aims to make courses more flexible and more responsive to changing labour market needs. It also promotes self-employment. Nevertheless, there is still a need to improve the relevance and quality of teaching provision, with a particular focus on tertiary private institutions.

(14)

The participation of women in the labour market needs to be raised by improving the childcare system. Poland currently has the lowest enrolment rate in pre-school education in Europe. This is due to the lack of places and a lack of adequate infrastructure. The Government’s declaration that it would generate additional funds to set up pre-school childcare institutions (3-5 years of age) is not reflected in the 2012 Budget Law. This has resulted in some municipalities closing down schools and kindergartens.

(15)

In order to address the low participation of older workers in the labour market, Poland has adopted a general pension reform. The statutory retirement age will be raised gradually from 2013 onwards to reach 67 years (currently 65) for men in 2020 and for women (currently 60) in 2040. Poland has continued its efforts to limit favourable retirement conditions for uniformed services. In 2011, Poland introduced some changes to the farmers’ social security fund (KRUS). However, the reform is temporary and not sufficient from the labour market perspective. Miners still benefit from a special pension scheme.

(16)

Recent reforms to improve the research environment aim to concentrate tailored funding on the institutions that perform best. The National Research Programme, adopted in August 2011, is an important step in this direction. However, it remains unclear how priorities in that Programme are linked and taken forward in innovation and industrial policy.

(17)

Existing restrictions on providing professional services are a major obstacle to further growth, in particular in construction, transport and health. The Government has announced a plan to scale down regulation in professional services by 50 %, regarding both educational requirements and licensing. Despite recent efforts the administrative burden on business remains high and public administration continues to lack efficiency. The main areas of concern include high compliance costs, complex and unstable tax legislation, weak contract enforcement, lengthy and burdensome licensing and permit procedures, and property registration and zoning legislation. Judicial proceedings and other legal actions are lengthy and there are a relatively high number of cases pending.

(18)

Growth and competition in the energy sector is held back by lagging implementation of EU legislation, in particular regarding the Second and Third Energy Packages and Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources (6) (Renewable Energy Directive), and pending infringement procedures. While the motorway and expressway network is being extensively developed with support from EU funds, the need for investment in the rail network is even more pressing, given the very poor state of the infrastructure. Poland is not fully using Cohesion Fund resources available for this purpose. There are still obstacles to efficient functioning of the railway market.

(19)

Poland has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(20)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Poland’s economic policy. It has assessed the Convergence Programme and National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy, but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (6) below.

(21)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Poland take action within the period 2012-2013 to:

Ensure planned progress towards the correction of the excessive deficit. To this end, fully implement the budget for the year 2012 and achieve the structural adjustment effort specified in the Council recommendations under the EDP. Thereafter, specify the measures necessary to ensure implementation of the budgetary strategy for the year 2013 and beyond as envisaged, ensuring an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark. Minimise cuts in growth-enhancing expenditure in the future and improve tax compliance.

Speed up the reform of the fiscal framework by enacting legislation with a view to introducing a permanent expenditure rule by 2013. This rule should be consistent with the ESA. Take measures to strengthen the mechanisms of coordination among the different levels of government in the medium-term and annual budgetary processes.

To reduce youth unemployment, increase the availability of apprenticeships and work-based learning, improve the quality of vocational training and adopt the proposed lifelong learning strategy. Better match education outcomes with the needs of the labour market and improve the quality of teaching. To combat labour market segmentation and in-work poverty, limit excessive use of civil law contracts and extend the probationary period to permanent contracts.

Reinforce efforts to increase the labour market participation of women and raise enrolment rates of children in both early childcare and pre-school education, by ensuring stable funding and investment in public infrastructure, the provision of qualified staff, and affordable access. Tackle entrenched practices of early retirement to increase exit ages from the labour market. Phase out the special pension scheme for miners with a view to integrating them into the general scheme. Take more ambitious, permanent steps to reform the KRUS to better reflect individual incomes.

Take additional measures to ensure an innovation-friendly business environment, by ensuring better links between research, innovation and industry, and by establishing common priority areas and instruments supporting the whole innovation cycle; improve access to finance for research and innovation activities through guarantees and bridge financing.

Step up efforts to improve incentives for investment in energy generation capacity and energy efficiency in the whole energy chain, speed up the development of the electricity grid, including cross-border interconnections, eliminate obstacles in electricity cross border exchange, and strengthen competition in the gas sector by phasing out regulated prices and by creating a gas trading platform. Strengthen the role and resources of the railway market regulator and ensure effective and swift implementation of railway investment projects. Reduce restrictions on professional services and simplify contract enforcement and requirements for construction permits.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 217, 23.7.2011, p. 5.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) OJ L 140, 5.6.2009, p. 16.

(7) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/69

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Portugal and delivering a Council opinion on the Stability Programme of Portugal, 2012-16

2012/C 219/20

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Portugal’s National Reform Programme for 2011.

(4)	On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy.

(5)

(6)

(7)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(8)	On 2 May 2012, Portugal submitted its Stability Programme covering the period 2012-16 and on 7 May 2012, its 2012 National Reform Programme.

(9)

On 17 May 2011, the Council adopted Implementing Decision 2011/344/EU (4) to make available to Portugal medium-term financial assistance for a period of three years, from 2011 to 2014, in accordance with Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism (5). The accompanying Memorandum of Understanding, also signed on 17 May 2011, and its successive supplements lay down the economic policy conditions on the basis of which the financial assistance is disbursed.

(10)

Portugal has made good progress on a number of fronts, but significant challenges remain. Achieving the fiscal targets remains essential if the Government is to regain full market access within the Economic Adjustment Programme period. To limit the risks to the 2012 fiscal targets, rapid and determined implementation of the structural-fiscal measures of the Economic Adjustment Programme is paramount. At the same time, the Government needs to proceed with the reforms that address Portugal’s competitiveness challenges. The 2012 budget does not pursue earlier plans of a ‘fiscal devaluation’. This makes it all the more important to adopt rapidly additional structural reforms in the labour and product markets with a view to reducing unit labour costs, increasing flexibility and lowering entry barriers. Perseverance and resolve on the part of the Government will be required to overcome strong vested interests that stand in the way of reforms.

(11)

Overall, the third review of the Economic Adjustment Programme has concluded that Portugal’s implementation of the conditionality set out in the Memorandum of Understanding of 17 May 2011 remains on track. In particular, the fiscal deficit target for 2011 (5,9 % of GDP) has been overachieved by resorting to a transfer of banks’ pension funds to the state amounting to 3½ % of GDP. Despite this one-off operation, the structural consolidation in 2011 was large and amounted to 3½ % of GDP. Banks are on track to meet the capital requirements under the Economic Adjustment Programme by the end of 2012 but capital positions have to improve further in 2012 in line with the requirements of that Programme and as a result of the European Banking Authority’s requirement to cater for sovereign exposures, the special on-site inspection programme and the planned transfer of banks’ private pension plans. In early June 2012, the Government announced that it would provide public funds to three major banks that would allow the capital requirements under the Economic Adjustment Programme to be met. The fourth review at staff level of the Economic Adjustment Programme, which was concluded in early June 2012, confirmed the results of the third review that the Programme remains on track.

(12)

The decline of GDP in 2011 was less marked than forecast, as exports and consumption performed better than foreseen. However, the fourth quarter of 2011 and the beginning of 2012 showed weak domestic demand, a sharp rise in unemployment and low business confidence. According to the Commission services’ 2012 spring forecast, the outlook for 2012 has deteriorated and GDP is now projected to fall by 3,3 %. Economic growth in 2013 will be more limited than originally expected. While the external adjustment has so far been remarkably fast, with Portuguese exports increasing their market share outside the Union and imports falling considerably, its persistence is still uncertain. Given the large external debt Portugal has accumulated, very substantial further adjustment of a structural nature is required.

(13)

The budget for 2012 targets a government deficit of 4,5 % of GDP, which is in line with the Economic Adjustment Programme requirements and with the Council recommendations to Portugal under the excessive deficit procedure. Medium-term fiscal consolidation plans presented in the Stability Programme are also consistent with the Economic Adjustment Programme’s deficit headline targets and a deficit-to-GDP ratio of 3 % of GDP is expected by 2013. The 2012 budget includes consolidation measures amounting to more than 5 % of GDP, which are made up of permanent structural measures. Two thirds of the measures are on the expenditure side and include a significant cut of public sector wages and pensions, a reduction in the number of government employees by 2 % (full-time equivalent) and a rationalisation of state-owned enterprises. On the revenue side, the budget envisages a reduction in tax exemptions, an increase in the number of goods and services taxed at the standard VAT rate, higher personal income and corporate taxes, an increase in excise taxes and enhanced efforts to fight tax evasion and fraud. The deficit is expected to decrease further to 1,8 % of GDP in 2014 and to 1 % of GDP in 2015. The main risks to the budgetary targets are mainly related to the state-owned enterprise sector and local and regional governments. In terms of the structural balance, the fiscal structural adjustment is expected to be over 7 percentage points of GDP in 2011-12. The medium-term budgetary objective of – 0,5 % of GDP adequately reflects the requirements of the Stability and Growth Pact. As regards public debt, it is expected to peak at 115,7 % of GDP in 2013 and gradually decline thereafter. The fourth review at staff level of the Economic Adjustment Programme confirmed that the fiscal deficit target for 2012 remains within reach, as budgetary execution in the first four months of 2012 was consistent with the expectations and as downside risks stemming from a steeper increase in unemployment and a less tax-friendly growth composition as compared with budget projections are being addressed by savings in other parts of the budget.

(14)

Noticeable progress has been made until now and the complete success of the Economic Adjustment Programme depends crucially on the implementation of a wide range of structural reforms that will remove the rigidities and bottlenecks that underlie the economy’s decade-long stagnation. The far-reaching and ambitious reform agenda is on track in the areas of the labour market, healthcare, housing, judiciary and the insolvency and regulatory framework including competition. Also, privatisations so far have been highly successful. In network industries, progress has been more mixed. In particular, in the energy sector a comprehensive strategy to eliminate the sector’s rising debt by tackling excessive rents has been presented and will have to be implemented over the coming months.

(15)

A strategic reprogramming of the Structural Funds is underway, with a focus on support to youth employment and competitiveness (in particular small and medium-sized enterprises). The new measures strengthen actions in the areas of the employment passport, training and professional qualifications and access to finance for small and medium-sized enterprises.

(16)	Portugal has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to improving competitiveness, the employment rate and the sustainability of public finances, while strengthening financial sustainability,

HEREBY RECOMMENDS that Portugal take action within the period 2012-13 to:

Implement the measures as laid down in Implementing Decision 2011/344/EU and further specified in the Memorandum of Understanding of 17 May 2011 and its subsequent supplements.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 216, 22.7.2011, p. 1.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(4) OJ L 159, 17.6.2011, p. 88.

(5) OJ L 118, 12.5.2010, p. 1.

24.7.2012

Official Journal of the European Union

C 219/72

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Romania and delivering a Council opinion on the Convergence Programme of Romania, 2012-15

2012/C 219/21

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Romania’s National Reform Programme for 2011 and delivered its opinion on Romania’s updated Convergence Programme for 2011-14.

(4)	On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy.

(5)

(6)

(7)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and in their National Reform Programmes.

(8)	On 23 April 2012, Romania submitted its 2012 National Reform Programme and, on 11 May 2012, its Convergence Programme covering the period 2012-15.

(9)

On 6 May 2009, the Council adopted Decision 2009/459/EC (4) to make available to Romania medium-term financial assistance for a period of three years under Article 143 of the Treaty. The accompanying Memorandum of Understanding signed on 23 June 2009 and its successive supplements lay down the economic policy conditions on the basis of which the financial assistance was disbursed. Decision 2009/459/EC was amended on 16 March 2010 by Decision 2010/183/EU (5). Following Romania’s successful implementation of the Medium-term Financial Assistance Programme, and given an important but partial adjustment of the current account because of remaining structural weaknesses in Romania’s product and labour markets which make the country sensitive to international price shocks, on 12 May 2011 the Council adopted Decision 2011/288/EU (6) to make precautionary medium-term financial assistance available to Romania for a period of three years under Article 143 of the Treaty. The accompanying Memorandum of Understanding was signed on 29 June 2011 and the first supplement to it on 27 December 2011.

(10)

The second formal review of the Medium-term Financial Assistance Programme that took place in late April-early May 2012 established that Romania’s implementation of that Programme remains on track. The cash fiscal deficit target for 2011 was met, while the European System of Accounts (ESA) target would have been met had there not been a sizeable one-off measure linked to court decisions obliging the Government to pay compensation to certain categories of employees. The 2012 budget remains on track to achieve a deficit below 3 % of GDP in ESA terms. The Romanian banking sector has remained resilient, in spite of the ongoing deterioration in asset quality, which has continued weighing on banking sector profitability. The conditionality set out in the Medium-term Financial Assistance Programme for the financial sector was met, albeit with some delays in certain cases. Progress in key structural reform areas, such as energy and transport and EU funds absorption, has been uneven.

(11)	After two years of decline, the real GDP of Romania grew in 2011 by 2½ %. For 2012 growth is expected to decelerate to 1,4 %. Domestic demand is forecast to be the major driver of growth. Public investment, supported by improving EU funds absorption, is expected to play a key role in 2012.

(12)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in that Programme is plausible. The objective of the budgetary strategy outlined in the Convergence Programme is to reach a budget deficit below 3 % of GDP in 2012, in line with the Council recommendations to Romania under the excessive deficit procedure. Thereafter, it aims at achieving a medium-term budgetary objective (MTO) defined as a deficit of 0,7 % of GDP in structural terms. The MTO adequately reflects the requirements of the Stability and Growth Pact. Following the planned correction of the excessive deficit in 2012, the deficit is expected to decrease further to 2,2 % of GDP in 2013, to 1,2 % of GDP in 2014 and to 0,9 % of GDP in 2015. Based on the (recalculated) structural budget balance (7), this implies an improvement in the deficit by 1,5 % in 2012, 0,5 % in 2013 and 0,7 % in 2014, in line with the 0,5 % of GDP benchmark of the Stability and Growth Pact. The growth rate of government expenditure is in line with the expenditure benchmark of the Stability and Growth Pact over the 2012-15 period. The Convergence Programme foresees the achievement of the MTO in 2014. The main risks to the budgetary targets are the arrears of state-owned enterprises, as well as potential reaccumulation of arrears at local government level and in the health sector, even if some measures have been taken in the health sector. As regards public debt, it was below 34 % of GDP by end 2011 thus remaining substantially below 60 % of GDP.

(13)	Romania has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering competitiveness and employment, to making public finances more sustainable and to reinforcing financial stability,

HEREBY RECOMMENDS that Romania take action within the period 2012-13 to:

Implement the measures laid down in Decision 2009/459/EC, as amended by Decision 2010/183/EU, together with the measures laid down in Decision 2011/288/EU and further specified in the Memorandum of Understanding of 23 June 2009 and its subsequent supplements, and in the Memorandum of Understanding of 29 June 2011 and its subsequent supplements.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 216, 22.7.2011, p. 6.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(4) OJ L 150, 13.6.2009, p. 8.

(5) OJ L 83, 30.3.2010, p. 19.

(6) OJ L 132, 19.5.2011, p. 15.

(7) Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission services on the basis of the information provided in the Programme, using the commonly agreed methodology.

24.7.2012

Official Journal of the European Union

C 219/74

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Slovakia and delivering a Council opinion on Stability Programme of Slovakia, 2012-2015

2012/C 219/22

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on Slovakia’s National Reform Programme for 2011 and delivered its opinion on Slovakia’s updated Stability Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Slovakia as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)	On 30 April 2012, Slovakia submitted its Stability Programme covering the period 2012-2015 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is plausible. It is broadly in line with the Commission services 2012 spring forecast, although the latter assumes somewhat higher real GDP growth in 2012. The stated objective of the budgetary strategy outlined in the Stability Programme is to ensure the long-term sustainability of public finances. The intermediary steps defined to reach this are a rigorous implementation of the 2012 budget and a reduction of the headline deficit below 3 % of GDP in 2013, the deadline for correction of the excessive deficit set by the Council. The achievement of the headline deficit target in 2013, however, may fall short of plans. The Stability Programme has changed the medium-term budgetary objective (MTO) from a close-to-balanced budget to a structural deficit of 0,5 % of GDP, which is not foreseen to be achieved within the programme period. The new MTO adequately reflects the requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget balance (5), the average annual fiscal effort in 2010-2013 amounts to 1,3 % of GDP, well above the required value recommended by the Council, whereby the residual fiscal effort is somewhat back loaded to 2013. The target for 2013 is subject to risks, as suggested revenue measures may fall short of the objective; simultaneous implementation of all small-scale measures can be difficult to implement; and in light of upwards revisions of the deficit targets that took place in the past.

In addition, further across-board expenditure cuts may prove unsustainable in the medium term. In 2014 and 2015, the average fiscal effort stands at 0,3 % of GDP annually, which is below the required adjustment of 0,5 % of GDP for countries which have not yet reached the MTO. Nevertheless, according to the Stability Programme the growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact in the outer years of the Stability Programme. Government debt would remain well below 60 % of GDP. While Slovakia passed legislation establishing the Fiscal Council, so far it has not been set up and the legislation on expenditure ceilings has not yet been adopted.

(11)

Given the diminishing scope for further expenditure-based consolidation and the need to support continuing convergence through expenditure in key areas such as education, innovation and transport infrastructure, there is scope for measures aimed at broadening the tax base, limiting tax avoidance and improving tax compliance, without affecting near-term growth prospects. Tackling one of the largest VAT gaps in the EU could bring significant additional revenue. There is also room for increasing receipts from taxes that are least harmful to growth, including real estate taxation, and environmental taxation. Effective taxation of labour income varies according to different types of employment. This encourages a shift towards more flexible job arrangements with negative short- and long-term impacts on public accounts.

(12)

Slovakia has only partially addressed the long-term sustainability of its public finances, as it has not implemented the envisaged changes to the pay-as-you-go pillar of its pension system. Measures were taken to enhance the viability of the fully funded pension pillar. However, an unstable legal environment with frequent significant changes in the past entailed non-negligible adjustment costs and introduced uncertainty in the fully funded pillar.

(13)

No significant measures have been taken to address Slovakia’s unemployment problem. There is still a need to improve the effectiveness of active labour market policies and the capacity of the public employment service. There is also a need for measures to increase the labour market participation of older workers and women, in particular through childcare provision. The tax wedge, including all compulsory payments, remains relatively high for low-income workers and a proportion of jobseekers have little incentive to move from social assistance to a low-paid job.

(14)

Only limited measures were adopted to improve the low quality of the education and training system. To tackle Slovakia’s high youth unemployment, the youth action plan should be adopted and implemented without delay, in line with the outcome of the Slovakia-Commission joint action team on youth unemployment, including the reform of vocational education and training as well as higher education. An updated strategy on lifelong learning was adopted. However, no particular incentives were introduced to ensure higher participation rates.

(15)

Marginalised communities, including the Roma, are largely excluded from the labour market and the mainstream education system, representing a significant underutilised labour potential in the Slovak economy. In order to tackle this problem, Slovakia should step up efforts to improve educational outcomes of marginalised groups and reinforce its reintegration policies for adults.

(16)

Slovakia has substantially enhanced the transparency of public procurement rules and of the judiciary, although judicial proceeding remains long and costly. However, the overall quality and capacity of public institutions remains weak. The public administration lacks a strategic approach, suffers from high turnover of staff and insufficient capacity building, which hampers policy development and the implementation and delivery of public services.

(17)

Slovakia has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(18)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovakia’s economic policy. It has assessed the Stability Programme and National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

(19)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Slovakia take action within the period 2012-2013 to:

Take additional measures in 2012 and specify the necessary measures in 2013, to correct the excessive deficit in a sustainable manner and ensure the structural adjustment effort specified in the Council recommendations under the excessive deficit procedure. Implement targeted spending cuts, while safeguarding growth-enhancing expenditure, and step up efforts to improve the efficiency of public spending. Thereafter, ensure an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark. Accelerate the setting up of the Fiscal Council and adopt rules on expenditure ceilings.

2.	Increase tax compliance, in particular by improving the efficiency of VAT collection; reduce distortions in taxation of labour across different employment types, also by limiting tax deductions; link real estate taxation to the market value of property; make greater use of environmental taxation.

Further adjust the pay-as-you-go pension pillar, mainly by changing the indexation mechanism, introducing a direct link between the statutory retirement age and life expectancy and introducing a sustainability factor in the pension calculation formula reflecting demographic change. Ensure the stability and viability also of the fully funded pillar.

Enhance the administrative capacity of public employment services with a view to improving the targeting, design and evaluation of active labour market policies to ensure more individualised employment services for the young, the long-term unemployed, older workers and women. Ensure the provision of childcare facilities. Reduce the tax wedge for low-paid workers and adapt the benefit system.

Adopt and implement the youth action plan, in particular as regards the quality and labour market relevance of education and vocational training, including through the introduction of an apprenticeship scheme. Improve the quality of higher education by strengthening quality assurance and result orientation.

6.	Take active measures to improve access to and quality of schooling and pre-school education of vulnerable groups, including Roma. Ensure labour market reintegration of adults through activation measures and targeted employment services, second-chance education and short-cycle vocational training.

7.	Strengthen the quality of the public service, including by improving management of human resources and strengthening analytical capacities. Further shorten the length of judicial proceedings and strengthen the role of the Public Procurement office as an independent body.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 272, 15.9.2011, p. 1.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/77

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Slovenia and delivering a Council opinion on the Stability Programme of Slovenia, 2012-15

2012/C 219/23

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Slovenia’s National Reform Programme for 2011 and delivered its opinion on Slovenia’s updated Stability Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Slovenia as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)

On 26 April 2012, Slovenia submitted its Stability Programme covering the period 2012-15 and, on 13 April 2012, its National Reform Programme for 2012. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Slovenia is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Slovenia is experiencing internal imbalances which impact notably on corporate sector balance sheets and banking stability. These internal imbalances and any potential external imbalances should be closely monitored and feature in economic policy considerations so as to reduce the risk of adverse effects on the functioning of the economy. The recapitalisation and sale of the biggest bank and the firm commitment to correcting the excessive deficit by the 2013 deadline are two important and relevant elements of the currently envisaged response. The risk of excessive imbalances can be minimised by prompt and thorough implementation in these areas.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Stability Programme is optimistic when compared with the Commission services’ 2012 spring forecast. The objective of the budgetary strategy outlined in the Stability Programme is to bring the general government deficit below 3 % of GDP in 2013, which is the deadline set by the Council, and to pursue further deficit reduction thereafter so as to broadly achieve Slovenia’s medium-term budgetary objective (MTO) by 2015. The MTO is defined as a balanced position in structural terms, unchanged from the previous Stability Programme, but cannot be regarded as appropriate under the provisions of the Stability and Growth Pact because, based on current policies and projections, it does not ensure sufficiently rapid progress towards long-term sustainability.

There are risks that the deficit outcomes could be worse than targeted, due to (i) a lack of specification of the measures foreseen, in particular for the period 2014-15; (ii) a track record of primary current expenditure overruns; (iii) lower revenue given the relatively optimistic macroeconomic scenario and uncertainty about the impact of the recently decided tax measures; and (iv) possible additional capital support operations and calling of guarantees. Based on the (recalculated) structural balance (5), the average annual fiscal effort over the period 2010-13 is planned to be almost 1 % of GDP, slightly above the one recommended by the Council. However, the Commission services’ 2012 spring forecast implies that an additional effort will have to be made in 2013 to respect the recommendation over the entire correction period. After the planned correction of the excessive deficit, the annual pace of progress towards the MTO according to the Stability Programme is in line with the 0,5 % benchmark set in the Stability and Growth Pact in 2015 but below it in 2014, while the rate of growth of government expenditure, taking into account discretionary revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact in both years, so overall the Stability Programme plans a broadly appropriate adjustment path towards the MTO. Taking account of the risks mentioned above, the progress towards the MTO could be slower than appropriate in both years.

From around 48 % of GDP in 2011, general government gross debt is projected in the Stability Programme to peak by 2013 at 53 % (thus remaining below the 60 % of GDP Treaty reference value) before falling slightly by the end of the programme period. The debt projections are subject to upward risks from the possibility of higher deficits mentioned above and higher stock-flow adjustments. Slovenia’s medium-term budgetary framework and expenditure rule remain insufficiently binding and insufficiently focussed on achieving the MTO and securing long-term sustainability.

(11)

The Government was until now not in a position to make any systemic changes to the pension system, given the 12-month moratorium on legislation after the June 2011 negative referendum on a previous pension reform. However, short-term cost containment measures were prolonged and strengthened in December 2011 and May 2012. While relevant and beneficial in the short run, these stop-gap measures are clearly insufficient to address the long-term challenge. The Government envisages a new pension reform to be implemented by the end of 2013, which would be based on a multi-pillar system and a rise in the effective retirement age. While no further details are provided, the degree of ambition of these plans seems modest. Given the size of the challenge, a comprehensive reform addressing the following issues is warranted: a low statutory retirement age, differences in the statutory retirement age for men and women, wide early retirement possibilities and generous indexation arrangements for pensions. So far, no specific measures have been implemented to increase the employment rate of older workers, although the guidelines for the implementation of the active labour market policy measures 2012-15 and the 2012 plan for the implementation of active employment policy measures address the older unemployed as a specific target group.

(12)

The situation in the Slovenian banking sector now appears even more challenging than at the time of the 2011 assessment. The full-year losses of the sector in 2011 were substantial and, looking ahead, the slowing economy will bring further loan losses as more companies struggle with debt service. The measures that have been introduced or announced so far are not sufficient given the size of the challenge. The urgent second recapitalisation of the biggest bank (NLB) is still subject to negotiations with private and international investors. The new Government has indicated its intention to reduce its shareholdings in major banks to a blocking minority. There is a need to articulate the relationship between this longer-term aspiration and the immediate and pressing need for fresh capital, where the state as majority owner unambiguously carries the burden of responsibility in the final analysis. A clear privatisation strategy underpinned by timely injections of capital to cover losses, a guarantee of good governance and professional, de-politicised management would make this policy and the eventual sale of these banks more credible.

(13)

No concrete proposals were presented in the past year to reduce asymmetries between the protection accorded to workers on permanent and temporary contracts respectively. Negotiations with social partners on the Labour Relationship Act started in 2011 but no agreement has been reached or amendments adopted. The NRP indicates some measures to increase flexicurity and address segmentation, but provides no timetable for their adoption. The recently adopted Act on Balancing Public Finances introduces significantly higher charges (concession fees) for ‘student work’ to reduce the attractiveness of this labour market status but no additional measures are currently envisaged.

(14)

The responsiveness of the education and training system to labour-market needs remains insufficient, although career-guidance services are currently being introduced in the whole cycle of education and efforts are being made to provide information on future careers. No concrete steps have been taken to set up a system to forecast labour-market demand. Some projects co-financed with the European Social Fund were launched to promote occupations in high demand in the labour market. These measures are relevant but altogether represent an inadequate response to the challenge. The external expert evaluation of the overall effectiveness of the public employment service in Slovenia is not available for assessment.

(15)

Despite legislative changes in April 2011 to transform the Competition Protection Office (CPO) into an independent agency as of 1 January 2012, the CPO is not yet independent, given that several procedural conditions have to be fulfilled first. Moreover, in 2011 the CPO’s resources were reduced. These developments affect its ability to expand its enforcement actions and to lend institutional weight to competition-boosting reform efforts. A study has just been completed on the deregulation of professions, but concrete policy action in this area remains vague. More generally, some aspects of the legal framework for the establishment of service providers may raise questions of compatibility with Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (6). The overall business environment is characterised by weaknesses that hold back domestic and foreign investors and hamper the swift cleaning of bank balance sheets, such as direct and indirect involvement of the state in the economy and debtor-friendly and sometimes problematic insolvency proceedings. Finally, due to its growing importance as a transit country for electricity flows, the national transmission grid is starting to become a bottleneck.

(16)

Following a strong discretionary increase in March 2010, the minimum wage as a percentage of the average wage was the highest in the EU in 2011, although the minimum wage is just below the poverty threshold. Indexation in the following two years has resulted in a further 4 % nominal increase. These developments reduce the competitiveness of labour-intensive industries and exacerbate structural unemployment.

(17)

Slovenia has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(18)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovenia’s economic policy. It has assessed the Stability Programme and National Reform Programme, and it presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovenia but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

(19)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (7) is reflected in particular in recommendation (1) below.

(20)	In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendations (3), (6) and (7) below.

HEREBY RECOMMENDS that Slovenia take action within the period 2012-13 to:

Implement the 2012 budget, and reinforce the budgetary strategy for 2013 with sufficiently specified structural measures, standing ready to take additional measures so as to ensure a correction of the excessive deficit in a sustainable manner by 2013 and the achievement of the structural adjustment effort specified in the Council recommendations under the excessive deficit procedure. Thereafter, ensure an adequate structural adjustment effort to make sufficient progress towards an appropriate MTO for the budgetary position, including meeting the expenditure benchmark. Strengthen the medium-term budgetary framework, including the expenditure rule, by making it more binding and transparent.

Take urgent steps to ensure the long-term sustainability of the pension system, while preserving the adequacy of pensions, by: (i) equalising the statutory retirement age for men and women; (ii) ensuring an increase in the effective retirement age, including through linking the statutory retirement age to life expectancy; (iii) reducing early retirement possibilities; and (iv) reviewing the indexation system for pensions. Increase the employment rate of older workers also by further developing active labour market policies and lifelong learning measures.

Take the required steps to build sufficient capital buffers in the banking sector and strongly promote the cleaning of balance sheets so that appropriate lending to productive activities can resume. Obtain fully-fledged third party verification of systemically important banks’ stress loan-loss estimates.

4.	Adjust employment protection legislation as regards permanent contracts in order to reduce labour market segmentation, in consultation with social partners and in accordance with national practices. Further tackle the parallel labour market caused by student work.

5.	Improve the matching of skills with labour market demand, particularly of low-skilled workers and tertiary graduates, and continue reforms of vocational education and training.

Take further steps to strengthen market opening and speed up the reorganisation of professional services. Improve the business environment through: (i) implementing the reform of the Competition Protection Office, (ii) establishing a framework for state-owned enterprises guaranteeing arms-length management and high standards of corporate governance, and (iii) improving bankruptcy procedures, in particular in terms of timeliness and efficiency.

7.	Following consultation with social partners and in accordance with national practice, ensure that wage growth, including minimum wage adaptation, supports competitiveness and job creation.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 217, 23.7.2011, p. 1.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) OJ L 376, 27.12.2006, p. 36.

(7) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/81

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Spain and delivering a Council opinion on the Stability Programme for Spain, 2012-2015

2012/C 219/24

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendations of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Spain’s National Reform Programme for 2011 and delivered its opinion on Spain’s updated Stability Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Spain as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to include further commitments focusing on a small number of essential, timely and measurable reforms to achieve the objectives of the Pact.

(9)

On 30 April 2012, Spain submitted its Stability Programme covering the period 2012-2015 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Spain is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Spain is experiencing imbalances which are not excessive but need to be urgently addressed.

(10)

Based on the assessment of the Stability Programme pursuant to Article 5(1) of Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underlying the Programme is broadly plausible for 2012 and optimistic thereafter. The Commission services 2012 spring forecast projected GDP growth to reach – 1,8 % in 2012 and – 0,3 % in 2013, against – 1,7 % and 0,2 %, respectively, in the Stability Programme. In compliance with the excessive deficit procedure (EDP), the objective of the budgetary strategy outlined in the Stability Programme is to bring the general government deficit below 3 % of the GDP reference value by 2013, based mainly on expenditure restraint, but also on some revenue-increasing measures. Based on the (recalculated) structural balance (5), the annual average improvement of the structural balance planned in the Stability Programme is 2,6 % of GDP for 2011-13, above the fiscal effort of over 1,5 % of GDP on average over the period 2010-13 recommended under the EDP. Following the correction of the excessive deficit, the Stability Programme confirms the medium-term budgetary objective (MTO) of a balanced budgetary position in structural terms, which would be almost reached by 2015 with a structural budget deficit of 0,2 % of GDP. The MTO adequately reflects the requirements of the Stability and Growth Pact. The envisaged pace of adjustment in structural terms in 2012-13 represents sufficient progress towards the MTO and the growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact.

The Stability Programme projects the government debt ratio to peak in 2013 and to start declining thereafter. In 2014 and 2015 Spain will be in a transitional period and plans presented in the Stability Programme would ensure sufficient progress towards compliance with the debt reduction benchmark of the Stability and Growth Pact. The deficit and debt adjustment paths are subject to important downside risks.

Macroeconomic developments could turn out to be less favourable than expected. Moreover, measures are not sufficiently specified from 2013 onwards. Budgetary compliance by regional governments, given their recent poor track record, a greater sensitivity of revenues to the ongoing structural adjustment, the uncertain revenue impact of the fiscal amnesty and potential further financial rescue operations, also pose risks to the budgetary strategy. Any impact of these financial rescue operations on the deficit would be of a one-off nature. Strict enforcement of the Budget Stability Law and the adoption of strong fiscal measures at regional level would mitigate the risks of a slippage at regional level. Given the decentralised nature of Spain’s public finances, a strong fiscal and institutional framework is essential. The Council welcomes the intention of the Commission to present, in the coming weeks, a thorough assessment of the implementation of the Council recommendation on correcting the excessive deficit, also taking into consideration the announced multi-annual budget plan for 2013-14.

(11)

In 2011, Spain adopted a pension reform that marks a significant step towards enhancing the long-term sustainability of public finances. However, the worsening of the economic prospects in Spain is limiting the impact of the reform on the projected age-related public expenditure. In addition, the reform still needs to be complemented by concrete measures to underpin the Global Employment Strategy for Older Workers for 2012-2014.

(12)

While the Spanish tax-to-GDP ratio is among the lowest in the EU, the efficiency of the tax system can be improved by increasing the share of more growth-friendly indirect taxes. In particular, there is scope for broadening the VAT tax base by reviewing the wide application of exemptions and reduced rates. The Spanish tax system also contains a bias in favour of indebtedness and the purchase of housing as opposed to rentals thanks to the deductibility of interest on mortgages.

(13)

Spain has made considerable progress regarding the restructuring of its financial sector. The restructuring needs to continue to ensure that any unviable bank is resolved and that viable banks can fulfil their function as providers of credit to the real economy, in a sustainable way and without unduly distorting competition. Given the weakening of macroeconomic prospects, further strengthening of the banks’ capital base may be required.

(14)

In February 2012, the Government adopted a comprehensive reform of the employment protection and collective bargaining system in order to tackle the high level of unemployment and the sharp segmentation in the labour market. The effects need to be monitored, in particular as regards wage developments and reduction of segmentation. To address the challenge fully, this reform needs to be complemented by a more substantial revision of the active labour market policies to improve employability and job matching.

(15)	To tackle Spain’s high youth unemployment, the youth action plan should be implemented without delay, including for apprenticeship and training contracts. Although Spain has taken measures to combat early school leaving, the rate remains high and conceals significant disparities across regions.

(16)	Poverty has increased with 1 million more people at risk in 2010 and child poverty is at an alarmingly high level of 26,2 %. The in-work poverty rate for temporary workers is more than twice as high as the one for permanent workers.

(17)

Professional services in Spain remain protected from competition. Reforming professional services could increase potential GDP given that they are a major input for the other sectors of the economy. Particular attention should be paid to removing unjustified and disproportionate barriers for some highly regulated professions (e.g. engineers, notaries, property registry agents, legal representatives). In addition, in Spain it takes the longest time in the Union to obtain a business licence. Lack of coordination between local, regional and national administrations has produced a proliferation of regulations, sometimes overlapping, and a segmentation of Spain’s internal market. The adjustment of large external imbalances requires facilitating export activities. Spain also faces multiple and complex challenges in the energy sector which are a serious impediment to the effective functioning of the product and service markets.

(18)

Spain has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments and the overall state of implementation is partial. The results of this assessment have been taken into account in the recommendations.

(19)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Spain’s economic policy. It has assessed the Stability Programme and the National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (8) below.

(20)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

(21)

In the light of the results of the Commission’s in-depth review and of this assessment, the Council has examined the National Reform Programme and Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendations (1), (3), (4), (5) and (8) below,

HEREBY RECOMMENDS that Spain take action within the period 2012-2013 to:

Deliver an annual average structural fiscal effort of above 1,5 % of GDP over the period 2010-13 as required by the Council recommendation under the EDP by implementing the measures adopted in the 2012 budget and adopting the announced multi-annual budget plan for 2013-14 by end July 2012. Adopt and implement measures at regional level in line with the approved rebalancing plans and strictly apply the new provisions of the Budgetary Stability Law regarding transparency and control of budget execution and continue improving the timeliness and accuracy of budgetary reporting at all levels of government. Establish an independent fiscal institution to provide analysis, advice and monitor fiscal policy. Implement reforms in the public sector to improve the efficiency and quality of public expenditure at all government levels.

Ensure that the retirement age is rising in line with life expectancy when regulating the sustainability factor foreseen in the recent pension reform and underpin the Global Employment Strategy for Older Workers with concrete measures to develop lifelong learning further, improve working conditions and foster the reincorporation of this group in the job market.

Introduce a taxation system consistent with the fiscal consolidation efforts and more supportive of growth, including a shift away from labour towards consumption and environmental taxation. In particular, address the low VAT revenue ratio by broadening the tax base for VAT. Ensure less tax-induced bias towards indebtedness and home-ownership (as opposed to renting).

Implement the reform of the financial sector, in particular complement the ongoing restructuring of the banking sector by addressing the situation of remaining weak institutions, put forward a comprehensive strategy to deal effectively with the legacy assets on the banks’ balance sheets, and define a clear stance on the funding and use of backstop facilities.

Implement the labour market reforms and take additional measures to increase the effectiveness of active labour market policies by improving their targeting, by increasing the use of training, advisory and job matching services, by strengthening their links with passive policies, and by strengthening coordination between the national and regional public employment services, including sharing information about job vacancies.

Review spending priorities and reallocate funds to support access to finance for small and medium-sized enterprises (SMEs), research, innovation and young people. Implement the Youth Action Plan, in particular as regards the quality and labour market relevance of vocational training and education, and reinforce efforts to reduce early school-leaving and increase participation in vocational education and training through prevention, intervention and compensation measures.

7.	Improve the employability of vulnerable groups, combined with effective child and family support services in order to improve the situation of people at risk of poverty and/or social exclusion, and consequently to achieve the well-being of children.

Take additional measures to open up professional services, including highly regulated professions, reduce delays in obtaining business licences and eliminate barriers to doing business resulting from overlapping and multiple regulations by different levels of government. Complete the electricity and gas interconnections with neighbouring countries and address the electricity tariff deficit in a comprehensive way, in particular by improving the cost efficiency of the electricity supply chain.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 212, 19.7.2011, p. 1.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/85

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of Sweden and delivering a Council Opinion on the Convergence Programme of Sweden, 2012-15

2012/C 219/25

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

On 26 March 2010, the European Council agreed to the European Commission’s proposal to launch a new strategy for jobs and growth, Europe 2020, based on enhanced coordination of economic policies, which focuses on the key areas where action is needed to boost Europe’s potential for sustainable growth and competitiveness.

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on Sweden’s National Reform Programme for 2011 and delivered its opinion on Sweden’s updated Convergence Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Sweden as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)

On 20 April 2012, Sweden submitted its Convergence Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Sweden is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Sweden is experiencing imbalances, although not excessive ones.

(9)

Based on the assessment of the Convergence Programme pursuant to Article 5(1) of Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is plausible for 2012 and optimistic in 2013-15, when GDP growth is expected to average around 3,5 %. The Commission services’ 2012 spring forecast foresees GDP growth of 2,1 % in 2013. The objective of the budgetary strategy outlined in the Convergence Programme is to ensure long-term sustainability by respecting the rules of the Swedish fiscal framework, including the target of having a surplus in general government net lending of 1 % of GDP over the cycle. The strategy also aims at fulfilling the requirements of the Stability and Growth Pact, notably respecting the 3 % of GDP reference value. The Convergence Programme has changed the medium-term budgetary objective (MTO) from a general government surplus of 1,0 % of GDP to a deficit of 1,0 % of GDP. The new MTO adequately reflects the requirements of the Stability and Growth Pact. Due to the change, the MTO is, based on the (recalculated) structural budget balance, likely to be met over the programme period, even taking into account the likelihood of further expansionary discretionary measures in 2013 or 2014. Certain downside risks to budgetary projections from 2013 onwards are linked to the optimistic macroeconomic assumptions. The planned growth rate of government expenditure, taking into account discretionary revenue measures, would comply with the expenditure benchmark of the Stability and Growth Pact. The debt ratio is below 60 % of GDP and, according to the Convergence Programme, is projected to continue to decrease over the programme period.

(10)

The Commission’s in-depth review under Article 5 of Regulation (EU) No 1176/2011 has confirmed that Sweden has a rather high level of household debt. While the situation in the housing and mortgage market stabilised in 2011, several structural distortions persist that threaten the stability of these markets in the long term. Relevant measures have been taken to strengthen the resilience of the financial sector. However, there are currently a number of policies in place that may contribute to the volatility of the Swedish housing market and mortgage debt accumulation, which have received less attention: generous tax deductibility of interest payments and low property taxes, little amortisation and stringent rent regulation. On the supply side, a local planning monopoly, lengthy zoning processes, and a lack of competition hinder the flexibility of housing supply.

(11)

Despite a general improvement on the labour market during 2011, the unemployment rates for young people and vulnerable groups remain high, in particular for people with a migrant background. Sweden is currently implementing several active labour market policy measures and education reforms to address this situation. Most of these measures seem relevant and credible, although it is too early to assess their impact. However, the relevance and effectiveness of the main measure targeted at youth employment — the VAT reduction for restaurants and catering services — is uncertain and needs to be assessed. In addition, the level of ambition could be increased if the challenges were tackled in a more comprehensive way, by also addressing relatively high wages at the lower end of the wage scale and differences in employment protection between regular and temporary workers.

(12)

Sweden has the second highest research and development (R & D) expenditure as a share of GDP in the EU and is considered an innovation leader according to the Innovation Union Scoreboard. However, as regards the commercialisation of innovative products, Sweden performs below the EU average and shows a negative trend. Moreover, Sweden appears to be lagging behind in creating fast-growing innovative enterprises. Furthermore, Sweden’s overall strong position in R & D is vulnerable due to its strong dependence on a few large multinational companies, which are increasingly relocating their R & D activities away from Sweden. These issues should be addressed in the new research and innovation bill due in autumn 2012.

(13)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Sweden’s economic policy. It has assessed the Convergence Programme and National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (4) below.

(14)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (5) is reflected in particular in recommendation (1) below.

(15)	In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendation (2) below,

HEREBY RECOMMENDS that Sweden take action within the period 2012-13 to:

1.	Preserve a sound fiscal position in 2012 and beyond by implementing the budgetary strategy as envisaged and ensuring continued achievement of the MTO.

2.	Take further preventive measures to strengthen the stability of the housing and mortgage market in the medium term, including by fostering prudent lending, reducing the debt bias in the financing of housing investments, and tackling constraints in housing supply and rent regulations.

Take further measures to improve the labour market participation of youth and vulnerable groups, e.g. by improving the effectiveness of active labour market measures, facilitating the transition from school to work, promoting policies to increase demand for vulnerable groups and improving the functioning of the labour market. Review the effectiveness of the current reduced VAT rate for restaurants and catering services in support of job creation.

4.	Take further measures in the upcoming research and innovation bill to continue improving the excellence in research and to focus on improving the commercialisation of innovative products and the development of new technologies.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 217, 23.7.2011, p. 9.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(5) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/88

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of the Netherlands and delivering a Council opinion on the Stability Programme of the Netherlands, 2012-15

2012/C 219/26

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

(3)	On 12 July 2011, the Council adopted a recommendation (3) on the Netherlands’ National Reform Programme for 2011 and delivered its opinion on the Netherlands’ updated Stability Programme for 2011-14.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify the Netherlands as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)	On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

(9)	On 27 April 2012, the Netherlands submitted its Stability Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

(10)

Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Stability Programme is optimistic. For 2013, the Stability Programme projects economic growth of 1¼ % without taking into account the negative impact of the additional consolidation measures on growth, whilst, on the basis of the same no-policy change scenario, the Commission has forecast a lower growth rate of 0,7 %. The stated objective of the Stability Programme is to meet the Council recommendations on correcting the excessive deficit and to strive to further improve the budgetary position towards the medium-term budgetary objective (MTO) by targeting a structural effort of at least 0,5 % per year. The Stability Programme targets a headline general government deficit of 3 % of GDP in 2013 and confirms the previous MTO of a structural deficit of 0,5 % of GDP, which adequately reflects the requirements of the Stability and Growth Pact. The average annual fiscal effort of 0,75 % of GDP over the period 2010-13, based on the (recalculated) structural budget balance (5), is in line with the structural effort of ¾ % of GDP recommended by the Council. As the Stability Programme does not provide budgetary targets beyond 2013, the sustainability of the budgetary correction in 2013 and progress towards the MTO in the outer years, including compliance with the expenditure benchmark of the Stability and Growth Pact, cannot be assessed.

The budgetary projections over the programme period are subject to implementation risks. These are not solely restricted to the newly announced consolidation measures, but also to the implementation of some of the measures agreed upon earlier by the outgoing Government. The additional measures proposed by the Government in April 2012 for 2013 and their budgetary impact have been further specified and quantified on 25 May after the cut-off date for assessment. Budgetary adjustment has so far relied mostly on expenditure cuts, which also affect growth-enhancing expenditure. According to the 2012 Stability Programme, the debt-to-GDP ratio is expected to further rise relatively markedly in 2012, to 70,2 % of GDP and to increase slightly further to 70,7 % of GDP in 2013, taking into account the impact of the additional consolidation measures. The debt ratio is thus projected to remain well above the 60 % Treaty reference value. For 2014 and 2015, the Stability Programme does not specify debt targets and, therefore, an assessment of compliance with the debt reduction benchmark of the Stability and Growth Pact beyond 2013 cannot be given.

(11)

The Government presented plans to gradually increase the statutory retirement age reaching at the latest 66 in 2019 and 67 in 2024. After that the statutory retirement age will be coupled to life expectancy. Labour market measures would support a corresponding increase in the effective retirement age. In line with the government agreement, the pension reform aims at securing an appropriate and sustainable intra- and inter-generational sharing of costs and risks in the second pillar. With regard to long-term care, the Government has provided a blueprint for reform. Further concrete measures will be necessary to contribute to reducing the financial burden of the ageing society in the Netherlands.

(12)	Fiscal disincentives for second-income earners have been reduced but not yet sufficiently so. Removing remaining disincentives would further contribute to raising labour supply and make human capital allocation more efficient. The labour market integration of vulnerable groups should be improved.

(13)

In the field of enterprise policy, the top sector agendas have been endorsed and sectoral ‘innovation contracts’ have been signed between the Government and industry representatives. Support to private research is being increased through the introduction of the research and development (RDA+) tax deduction scheme as part of the incentives to further promote innovation, private R & D and closer science-business links. However, the focus on ‘top sectors’ should not come at the cost of fundamental research nor exclude innovative firms that do not belong to one of the ‘top sectors’.

(14)

Over the last four decades, structural distortions have built up in the Dutch housing market. In the property market, fundamental supply restrictions and tax incentives for home ownership (notably mortgage interest deductibility favouring higher-income households) have led to an inefficient allocation of capital. In the rental market, with its very large social housing segment, social policies and caps on rent levels and on rent increases have led to a very inelastic supply of rental housing. Modifying the favourable tax treatment of home ownership would contribute to reducing the structural distortions on the Dutch housing market.

(15)

The Netherlands has made a number of commitments under the Euro Plus Pact. These commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, reinforcing financial stability, and enhancing sustainability of public finances. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Netherlands’ economic policy. It has assessed the Stability Programme and National Reform Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Netherlands but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (5) below.

(17)	In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that the Netherlands take action within the period 2012-13 to:

Ensure timely and durable correction of the excessive deficit. To this end, fully implement the budgetary strategy for 2012 as envisaged. Specify the measures necessary to ensure implementation of the 2013 budget with a view to ensuring the structural adjustment effort specified in the Council recommendations under the excessive deficit procedure. Thereafter, ensure an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark, and ensure sufficient progress towards compliance with the debt reduction benchmark whilst protecting expenditure in areas directly relevant for growth such as research and innovation, education and training. To this end, after the formation of a new Government, submit an update of the 2012 Stability Programme with substantiated targets and measures for the period beyond 2013.

Take measures to increase the statutory retirement age, including linking it to life expectancy, and underpin these with labour market measures to support raising the effective retirement age, whilst improving the long-term sustainability of public finances. Adjust the second pension pillar to mirror the increase in the statutory retirement age, while ensuring an appropriate intra- and inter-generational division of costs and risks. Implement the planned reform in long-term care and complement it with further measures to contain the increase in costs, in view of an ageing population.

3.	Enhance participation in the labour market, particularly of older people, women, and people with disabilities and migrants, including by further reducing tax disincentives for second-income earners, fostering labour market transitions, and addressing rigidities.

Promote innovation, private R & D investment and closer science-business links, as well as foster industrial renewal by providing suitable incentives in the context of the enterprise policy, while safeguarding accessibility beyond the strict definition of top sectors and preserving fundamental research.

Take steps to gradually reform the housing market, including by: (i) modifying the favourable tax treatment of home ownership, including by phasing out mortgage interest deductibility and/or through the system of imputed rents, (ii) providing for a more market-oriented pricing mechanism in the rental market, and (iii) for social housing, aligning rents with household income.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(3) OJ C 212, 19.7.2011, p. 13.

(2) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 5(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/91

COUNCIL RECOMMENDATION

of 10 July 2012

on the National Reform Programme 2012 of the United Kingdom and delivering a Council opinion on the Convergence Programme of the United Kingdom, 2012-2017

2012/C 219/27

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

Having regard to the opinion of the Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1)

(2)

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

(3)	On 12 July 2011, the Council adopted a recommendation (4) on the UK’s National Reform Programme for 2011 and delivered its opinion on the UK’s updated Convergence Programme for 2011-2014.

(4)

On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified the UK as one of the Member States for which an in-depth review would be carried out.

(5)	On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

(6)

(7)

(8)

On 30 April 2012, the UK submitted its Convergence Programme covering the period 2011-12 to 2016-17 and its National Reform Programme for 2012. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether the UK is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that the UK is experiencing an internal imbalance, although not an excessive one.

(9)

Pursuant to paragraph 4 of the Protocol (No 15) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, the obligation in Article 126(1) of the Treaty on the Functioning of the European Union to avoid excessive general government deficits does not apply to the UK unless it adopts the euro. Paragraph 5 of the Protocol provides that the UK is to endeavour to avoid an excessive government deficit. On 8 July 2008 the Council decided, in accordance with Article 104(6) of the Treaty establishing the European Community, that an excessive deficit exists in the UK.

(10)

Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is plausible. The objective of the budgetary strategy outlined in the Convergence Programme is to implement the necessary fiscal consolidation to achieve the Government’s fiscal targets on net debt and cyclically-adjusted current balance. The Convergence Programme does not include a medium-term budgetary objective as foreseen by the Stability and Growth Pact. According to programme projections, the deadline to correct the excessive deficit set by the Council in its recommendation of 2 December 2009 is expected to be missed by one year. The government deficit in 2014-15, the deadline set by the Council, is estimated at 4,4 % of GDP, implying, based on the (recalculated) structural balance (5), an average fiscal effort of 1,25 % of GDP between 2010-11 and 2014-15 which is below the 1¾ % effort set out in the Council recommendation under the excessive deficit procedure (EDP). Although the Government has not deviated from its fiscal consolidation strategy which initially, based on previous macroeconomic projections, appeared sufficient to comply with EDP targets, the fiscal performance and outlook have been affected by a deterioration of economic growth prospects. Revenue measures have been significantly front-loaded in the adjustment path of the fiscal consolidation. Almost 40 % of the total annual fiscal consolidation planned for the 2010-11 to 2014-15 period has been achieved by the end of 2011-12, including 30 % of the spending cuts and two thirds of the net tax increases. The potential revenue contribution from an increased efficiency of the tax system, stemming from a review of the VAT rate structure, remains relatively underexploited.

According to the Convergence Programme, the general government deficit is expected to be 8,3 % of GDP in 2011-12, 5,9 % of GDP in 2012-13, 6,0 % of GDP in 2013-14, 4,4 % of GDP in 2014-15, 2,9 % of GDP in 2015-16 and 1,2 % of GDP in 2016-17. These estimates are somewhat lower than those given in the Commission services 2012 spring forecast, namely, a deficit of 6,1 % of GDP in 2012-13 (which would be 7,9 % without an upcoming one-off pension fund transfer) and 6,5 % of GDP in 2013-14. The differences stem from a lower growth forecast and amendments made by Eurostat to UK data. Some adjustments were made to the Government’s fiscal plans in the 2011 Autumn Statement to prioritise growth-enhancing expenditure, but public sector investment is still set to fall sharply by 2014-15. Government debt, forecast at 94,7 % in 2013-14, is expected to peak in 2014-15.

(11)

The run-up to the crisis saw the housing market overheat, with house price-to-income ratios reaching historic highs in the context of a growing housing supply shortage, leading to the accumulation of high levels of mortgage debt. According to the Commission’s in-depth review, high household debt constitutes an internal imbalance in the UK economy. Due to a high share of variable interest rate mortgages, household finances are vulnerable to interest rates rises, with a potentially destabilising knock-on effect on the economy as a whole via the financial sector. A sustained and significant fall in household debt is only likely if house prices fall relative to disposable income; however, if nominal house prices were to fall rapidly it would risk pushing many households into negative equity. Residential construction remains at record lows, due both to a restrictive planning system and cyclical weakness, and wider housing market activity is also still muted. In November 2011, the Government published its housing strategy for England, which aims to facilitate an increase in residential construction, but significant uncertainty remains about the net impact of the new system on housing development. Also, the housing strategy did not mention the issue of property taxation: the UK system combines a regressive recurring tax (council tax) with a progressive transaction tax (the Stamp Duty Land Tax (SDLT)), which may play a role in cyclical developments in budget revenues and financial stability. Some adjustments were made to SDLT rates in the 2012 Budget, but only minor changes have been made in this field overall.

(12)

The UK has growing challenges with respect to unemployment and labour market participation. Unemployment in the UK currently stands at 8,4 %. Youth unemployment is much higher, at 22,2 %, and more than 38 % of the unemployed in the UK are under 25 years of age. Furthermore, 17,7 % of young people (16-24 year olds) are not in employment, education or training. Private sector employment has been growing modestly, but not enough to offset reductions in public sector employment and the growth of the workforce. The UK has an oversupply of low-skilled workers, for whom demand is falling, and a shortage of workers with high-quality vocational and technical skills that are particularly needed by goods producing and exporting sectors in which the UK’s performance is relatively weak. The main focus in vocational education and training (VET) policy is on basic skills and level 2 qualifications, while the economy increasingly demands more advanced VET qualifications. The UK also continues to have a relatively high number of adults with very poor basic literacy and numeracy skills, who are not well placed to benefit from vocational training. Early school-leaving has increased by 3,3 percentage points since 2005 and, at 14,9 %, is above the EU average; continued support for low-income families is crucial to prevent young people from dropping out of school.

(13)

The Government has a welfare reform agenda to help more people get into work, while supporting the most vulnerable. The Universal Credit, which aims to simplify the benefit system, has not yet been implemented. The Government must take measures to ensure that the positive impact of new policies on employment and incomes will not be offset by declining amounts available for benefits, which would risk increasing poverty, particularly for families with children. One independent estimate forecasts that, in 2020-21, absolute child poverty will reach its highest level since 2001-02 and that the Government will miss targets for reducing child poverty set down in the Child Poverty Act. The Government needs to take steps to ensure that there is sufficient access to childcare, in particular for low earners. Any cuts to support for childcare would risk exacerbating the problem.

(14)

Financing conditions remain tight, particularly for small and medium-sized enterprises (SMEs) and net lending to the corporate sector was negative in 2011. Survey evidence shows that a significant number of SMEs are credit constrained, while there are also potential challenges on the demand side. Additionally, access to non-bank lending remains largely restricted to bigger firms, and competition in the banking industry is limited. Notwithstanding the steps taken by the authorities to improve the situation, the Breedon taskforce on alternative debt markets has estimated a substantial ongoing financing gap over the next five years, especially for SMEs.

(15)

The UK has a challenge to improve its energy and transport infrastructure, which is linked to laying the foundations for long-term growth and competitiveness, and to addressing the causes of the UK’s lack of external competitiveness in manufacturing sectors. The UK needs substantial investment to upgrade its electricity generation capacity, given the need to replace a large part of the existing generating capacity, which will close over the next decade, and the need to meet the renewable energy obligation and tighter carbon emissions standards. The UK’s transport sector faces shortcomings in the capacity and quality of its networks, which could work against the Government’s aim of rebalancing the UK economy towards investment and exports. As part of the Government’s fiscal consolidation strategy, public sector net investment will fall sharply by 2014-15, which risks exacerbating existing pressures on transport infrastructure unless alternative funding sources can be secured.

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of the UK’s economic policy. It has assessed the Convergence Programme and National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the UK, but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (6) below.

(17)	In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

(18)

In the light of the results of the Commission’s in-depth review under Article 5 of Regulation (EU) No 1176/2011 and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendation under Article 6 of Regulation (EU) No 1176/2011 is reflected in particular in recommendations (2), (3) and (6) below,

HEREBY RECOMMENDS that the United Kingdom take action within the period 2012-2013 to:

Fully implement the budgetary strategy for the financial year 2012-13 and beyond, supported by sufficiently specified measures, to ensure a timely correction of the excessive deficit in a sustainable manner and the achievement of the structural adjustment effort specified in the Council recommendations under the EDP and to set the high public debt ratio on a sustained downward path. Subject to reinforcing the budgetary strategy for the financial year 2013-14 and beyond, prioritise growth-enhancing expenditure to avoid the risk that a further weakening of the medium-term outlook for growth will negatively impact on the long-term sustainability of public finances.

Address the destabilising impact of high and volatile house prices and high household debt by implementing a comprehensive housing reform programme to increase housing supply and alleviate problems of affordability and the need for state subsidisation of housing. Pursue further reforms to the housing market, including the mortgage and rental markets, financial regulation and property taxation to prevent excessive volatility and distortions in the housing market.

Continue to improve the employability of young people, in particular those not in education, employment or training, including by using the Youth Contract. Ensure that apprenticeship schemes are taken up by more young people, have a sufficient focus on advanced and higher-level skills, and involve more small and medium-sized businesses. Take measures to reduce the high proportion of young people aged 18-24 with very poor basic skills.

4.	Step up measures to facilitate the labour market integration of people from jobless households. Ensure that planned welfare reforms do not translate into increased child poverty. Fully implement measures aiming to facilitate access to childcare services.

Further improve the availability of bank and non-bank financing to the private sector, in particular to SMEs. Support competition within the banking sector, in particular through measures to reduce barriers to entry, increase transparency and facilitate switching between banks as recommended by the Independent Commission on Banking and explore ways to improve access to venture and risk capital and other forms of non-bank lending.

Pursue a long-term strategy for improving the capacity and quality of the UK’s network infrastructure, including measures to address pressures in transport and energy networks by promoting more efficient and robust planning and decision-making processes, and harnessing appropriate public or private financing arrangements.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(4) OJ C 217, 23.7.2011, p. 12.

(3) Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

(6) Under Article 9(2) of Regulation (EC) No 1466/97.

24.7.2012

Official Journal of the European Union

C 219/95

COUNCIL RECOMMENDATION

of 10 July 2012

on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro

2012/C 219/28

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 136 in conjunction with Article 121(2) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the conclusions of the European Council,

After consulting the Economic and Financial Committee,

Whereas:

(1)

Since its creation, the Eurogroup has played a pivotal role and has a special responsibility in the economic governance of the euro area. The economic crisis clearly exposed the close interrelations in the euro area, underscoring the need for a coherent aggregate policy stance which reflects the strong spillovers between countries whose currency is the euro, for effective arrangements for policy coordination to swiftly respond to changes in the economic environment.

(2)

The Council has issued country-specific recommendations to each of the Member States whose currency is the euro (‘euro area Member States’). These recommendations address economic challenges at the national level and, at the same time, are a central element in determining stability and growth in the euro area as a whole. The euro area Member States have also committed themselves to a set of far-reaching additional policy reforms under the Euro Plus Pact, aiming to foster competitiveness, promote employment, contribute to the sustainability of public finances and reinforce financial stability. On 2 March 2012, the euro area Member States and eight other Member States (‘non-euro area Member States’) signed a Treaty on Stability, Coordination and Governance in the Economic and Monetary Union in which they agreed to ensure that all major economic policy reforms that they plan to undertake will be discussed ex ante and, where appropriate, coordinated among themselves. Ex-ante coordination in the euro area context, both via the submission of draft budget plans and the discussion of major economic policy reform plans, will contribute to taking into account the spillover effects from national actions on the euro area as a whole.

(3)

The existence of well-designed budgetary frameworks strengthening domestic fiscal governance is a key element in the sound management of public finances, and contributes to the sustainability of public finances in the euro area as a whole. euro area Heads of State or Government committed themselves in July and October 2011 to introducing national fiscal frameworks as foreseen in Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States (1) already by the end of 2012 ahead of the timetable foreseen in the Directive, and to go beyond the requirements contained therein. Moreover, on 2 March 2012, the euro area Member States, together with eight non-euro area Member States, by signing the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, committed themselves to a further strengthening of their national fiscal governance, in particular by introducing binding rules for the budgetary position of the government to reach the medium-term budgetary objective (MTO).

(4)

The pursuit of fiscal consolidation is a central element in the strategy to overcome the crisis in the euro area. The EU fiscal framework allows for differentiation in the pace of consolidation between Member States according to their fiscal space and macroeconomic conditions. The focus of the Stability and Growth Pact and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union is on structural balances and hence it allows taking into account the effects of the cycle and of one-off measures on headline budget balances. The assessment of effective action in response to Council recommendations on the correction of the excessive deficit positions is carried out in structural terms. An appropriate composition of consolidation is crucial to enhance confidence in the permanent nature of consolidation in the euro area and to limit its negative short-term impact on growth. Growth-friendly expenditure, in particular investment expenditure, needs to be prioritised; in several euro area Member States productive investment projects could be identified where both the private and the social returns would exceed the currently low interest rates. Reforms of long-term entitlements, in particular health and pensions, are urgently needed, to underpin the long-term sustainability of public finances. Appropriate tax policy, such as shifting the tax burden away from labour, broadening the tax bases and more effective action to combat tax evasion could contribute to consolidation while increasing competitiveness and creating better conditions for growth.

(5)

Stability and the good functioning of the financial system are pre-conditions for averting a ‘lost-decade scenario’ of slow growth in the euro area and for enhancing investors’ confidence. As further deleveraging of bank balance sheets is necessary, it is important to ensure that it proceed in an orderly manner and is consistent with maintaining an adequate flow of credit to the real economy. In order to counter the emerging trend of financial fragmentation, further progress is necessary with integration in supervisory structures and practices as well as in cross-border crisis management.

(6)

An orderly unwinding of intra-euro area macroeconomic imbalances is crucial for sustainable growth and stability in the euro area. A process of reduction in the imbalances has started, but needs to be pursued steadfastly. The urgency of actions to correct the imbalances is greater in deficit countries, where reforms are necessary to improve competitiveness and facilitate resources reallocation towards tradable sectors. At the same time, surplus countries can contribute to rebalancing by removing unnecessary regulatory and other constraints on domestic demand, non-tradable activities and investment opportunities.

(7)

Recognising the interdependence between the economies of the euro area Member States and the benefits that stability in this monetary union can bring to its members and the wider Union is a prerequisite for the further development of economic union. Looking ahead the euro area Member States will need to deepen their integration to attain full economic and monetary union.

(8)

The European Parliament has been duly involved in the European Semester, in accordance with Council Regulation (EC) No 1466/97 (2), and, on 15 February 2012, adopted a resolution on employment and social aspects in the Annual Growth Survey 2012 and a resolution on the contribution to the Annual Growth Survey 2012,

HEREBY RECOMMENDS that euro area Member States take action, individually and collectively, without prejudice to the competences of the Council as regards the coordination of economic policies of the Member States, but in particular in the context of economic policy coordination in the framework of the Eurogroup, within the period 2012-2013 to:

Strengthen the working methods of the Eurogroup to allow it to take responsibility for the aggregate policy stance in the euro area, effectively responding to changes in the economic environment, and to lead the coordination of economic policy in the context of the strengthened surveillance framework which applies to the euro area Member States.

Intensify policy cooperation in the Eurogroup by sharing information and discussing budgetary plans and the plans of major reforms with potential spillover effects on the euro area. Ensure that such reforms are undertaken that are necessary for a stable and robust euro area, including the implementation of the recommendations which the Council has addressed to individual euro area Member States and which, in addition to addressing challenges at national level, have an impact on the euro area as a whole.

Strengthen fiscal discipline and fiscal institutions at both national and sub-national levels to enhance market confidence in the medium and long-term sustainability of public finances in the euro area. Following the agreement by the euro area Heads of State or Government in July and October 2011 and on 2 March 2012, advance the transposition of Directive 2011/85/EU to the end of 2012 and strengthen fiscal governance further, in particular by introducing in the national legislation of all euro area Member States the rules for balanced budget in structural terms and the automatic correction mechanisms.

Based on the European Council Conclusions of 1-2 March 2012, ensure a coherent aggregate fiscal stance in the euro area by pursuing fiscal consolidation as set out in Council recommendations and decisions, in line with the rules of the Stability and Growth Pact, which take into account the country-specific macro-financial situations. Member States affected by significant and potentially rising risk premia should limit deviations from the nominal balance targets even against worse-than-expected macroeconomic conditions; other Member States should let the automatic stabilisers play along the adjustment path assessed in structural terms and stand ready to review the pace of consolidation should macroeconomic conditions deteriorate further. Composition of government expenditure and revenues should reflect the growth impact of spending items and revenue sources. In particular, all the available budgetary margins should be used to foster public investment in the euro area, including by taking into account cross-country differences in the cost of funding.

5.	Take action to improve the functioning and stability of the financial system in the euro area. Accelerate the steps towards a more integrated financial architecture, comprising banking supervision and cross-border crisis resolution.

Implement structural reforms, which also promote flexible wage adjustments, and which — together with a differentiated fiscal stance — would promote an orderly unwinding of intra-euro area macroeconomic imbalances and thus growth and jobs. This would include action at national level which reflects the country-specific situation and takes account of the Council recommendations to individual euro area Member States.

Done at Brussels, 10 July 2012.

For the Council

The President

V. SHIARLY

(1) OJ L 306, 23.11.2011, p. 41.

(2) OJ L 209, 2.8.1997, p. 1.

24.7.2012

Official Journal of the European Union

C 219/98

Explanatory note

Accompanying document to Council Recommendations to Member States under the European semester 2012

2012/C 219/29

Article 2-ab(2) of Council Regulation (EC) No 1466/97 (1) on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, which makes part of the section on ‘Economic dialogue’, states that ‘The Council is expected to, as a rule, follow the recommendations and proposals of the Commission or explain its position publicly’.

In respect of this ‘comply or explain rule’ the Council hereby presents the following explanations to changes agreed to Commission Recommendations for Country-Specific Recommendations (CSRs) on Member States in the context of the 2012 European semester on which the Commission is in disagreement.

The Council has also agreed to a number of additions as well as factual or technical changes to recommendations with the full support of the Commission (2) (3).

BELGIUM

CSR 5

Agreed text:

Explanation:

The Council agreed that the main challenges with respect to labour market participation in Belgium are the low employment rate of migrant workers, as well as of older workers. Both need to be addressed. The multilateral surveillance reviews by the Employment Committee and its Employment Performance Monitor both confirm a focus on older workers as a key challenge in ensuring effective Active Labour Market Policies.

CSR 6

Agreed text:

Explanation:

The Council considered that nothing is gained by listing all network industries in the recommendation.

CSR 7

Agreed text:

Take further measures to enhance the progress towards reaching the targets for reducing greenhouse gas emissions from non-ETS activities, in particular by ensuring a significant contribution to this goal from transport.

Explanation:

The Council considered it appropriate to recognise that measures have already been taken to reduce greenhouse gases. Considering that effects are difficult to measure in the short term and progress appears slow it was agreed to stress the need for further measures to be taken to enhance progress.

BULGARIA

CSR 2

Agreed text:

Take further steps to reduce risks to the sustainability and to improve adequacy of the pension system by making the statutory retirement age the same for men and women with full career contributions. Introduce stricter criteria and controls for the allocation of invalidity pensions.

Explanation:

The Council considered it appropriate to recognise that considerable progress has already been achieved to restrict access to early retirement.

SPAIN

CSR 7

Agreed Text:

Improve the employability of vulnerable groups, combined with effective child and family support services in order to improve the situation of people at risk of poverty and/or social exclusion, and consequently to achieve the well-being of children.

Explanation:

The Council agreed to a change in this recommendation by placing a stronger focus on measures undertaken to foster employability of workers as the most suitable way to fight against poverty and social exclusion, and that consequently promoting access to training and employment of adults results in a more concrete way of improving the situation of children.

ITALY

CSR 4

Agreed text:

Adopt the labour market reform as a priority to tackle the segmentation of the labour market and establish an integrated unemployment benefit scheme. Take further action to incentivise labour market participation of women, in particular through the provision of childcare and elderly care. Monitor and if needed reinforce the implementation of the new wage-setting framework in order to contribute to the alignment of wage growth and productivity at sector and company level.

Explanation:

The Council agreed that focus at the current juncture should be on the implementation and monitoring of the newly introduced arrangements. If the results are not sufficient, further amendments to the wage-setting framework will however be needed. This message was reinforced by multilateral surveillance carried out by the EMCO and the EPC on the wages issue which noted that the focus for Italy should be to implement and monitor this reform.

LATVIA

CSR 5

Agreed text:

Explanation:

The Council agreed to delete the list of specific energy networks in which competition should be improved as the situation in the three sectors are rather different and cannot be treated equally.

The Latvian gas market still faces obstacles regarding its liberalisation accordingly providing for derogation from the 3rd Energy package. Competition therefore cannot be seriously discussed before appropriate analysis of the market has been carried out. The electricity market is comparatively well developed and functions in line with the 3rd Energy package requirements. Whereas competition in heat supply in Latvia faces a need for significant investments due to its specific situation (district heating) and therefore competition in the heat sector is intended to be introduced only where it is economically reasonable and possible.

POLAND

CSR 4

Agreed text:

Explanation:

The Council agreed to remove the reference to ‘fully’ integrating all employees of mining companies into the general scheme as it could be wrongly interpreted and would not take into account the specific situation of a number of miners whose work has a specific character or is provided under special circumstances, such as those who are working underground permanently and are directly involved in exploitation.

The intention of the government is to integrate miners into general pension system, i.e. capital based system. However, a very limited number of miners are subject to special rights as regards pension privileges before reaching the statutory retirement (defined by law), such as those whose work has specific character or is provided under special circumstances. In this case miners, who are working underground permanently and are directly involved in exploitation belong to the group of those professions that are defined as hazardous or arduous jobs have the right to some kind of bridge pensions before reaching the statutory retirement age. Intensive work is being carried out by the Central Institute for Labour Protection together with Social Insurance Institution (ZUS) to define precisely the underground activities that would entitle for the bridge pension. When these miners reach the statutory retirement age they will be treated in the same way as the rest.

FINLAND

CSR 3

Agreed text:

Explanation:

The Council noted that there are alternative ways to ensure that effective retirement age develops in line with life expectancy, either through increasing the statutory retirement or through adjusting the level of pension benefits. It was therefore agreed to adjust the recommendation to appropriately reflect that Finland has chosen the second route.

SWEDEN

CSR 3

Agreed text:

Take further measures to improve the labour market participation of youth and vulnerable groups e.g. by improving the effectiveness of active labour market measures, facilitating the transition from school to work, promoting policies to increase demand for vulnerable groups and improving the functioning of the labour market. Review the effectiveness of the current reduced VAT rate for restaurants and catering services in support of job creation.

Explanation:

The Council agreed to adjust the text so as to better reflect the actual challenges of the Swedish labour market; i.e. improve the effectiveness of ALMPs, transition from school to work and government policies to increase the demand for vulnerable groups on the labour market.

In addition, the Council recognised that Sweden has a decentralised wage bargaining framework and concurred that social partners are responsible for wage bargaining and that government interference in the process would not be in line with the national system for wage formation. The reference to ‘encouraging increased wage flexibility’ was therefore considered inappropriate.

UNITED KINGDOM

CSR 3

Agreed Text:

Explanation:

The work done in the Employment Performance Monitor dealing with early school leaving covers the 18-24 year age category. This is different from the CSR text proposed by the Commission, which uses the benchmark of ‘young people leaving school’. Also, EMCO’s multilateral review of the 2011 CSR was made on the basis of youth unemployment. This again is very different from ‘young people leaving school’.