# EUR-Lex - 52014DC0410 - EN

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# 52014DC0410

**Recommendation for a COUNCIL RECOMMENDATION on Spain’s 2014 national reform programme and delivering a Council opinion on Spain’s 2014 stability programme /* COM/2014/0410 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Spain’s 2014 national reform programme
and delivering a Council opinion on Spain’s 2014 stability programme

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 Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular
Article 5(2) 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[3],

Having regard to the resolutions of the
European Parliament[4],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

Having regard to the opinion of the
Economic and Financial Committee,

Having regard to the opinion of the Social
Protection Committee,

Having regard to the opinion of the
Economic Policy Committee,

Whereas:

(1) 
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus 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, on the basis of
the Commission's proposals, 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, 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 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4) 
On 9 July 2013, the Council adopted a
recommendation on Spain’s national reform programme for 2013 and delivered its
opinion on Spain’s updated stability programme for 2012-2016. On 15 November
2013, in line with Regulation (EU) No 473/2013[5], the Commission presented its opinion on Spain's draft budgetary plan
for 2014[6].

(5) 
On 13 November 2013, the Commission adopted the
Annual Growth Survey[7],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[8],
in which it identified Spain as one of the Member States for which an in-depth
review would be carried out.

(6) 
On 20 December 2013, 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.

(7) 
On 5 March 2014, the Commission published the
results of its in-depth review for Spain[9],
under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads
it to conclude that Spain is experiencing macroeconomic imbalances which
require specific monitoring and decisive policy action. In particular, in
several areas, the adjustment of the imbalances identified last year as
excessive has clearly advanced and the return to positive growth has reduced
risks. However, the magnitude and inter-related nature of the imbalances, in
particular high domestic and external debt levels and high unemployment, mean
that vulnerabilities are still present.

(8) 
On 30 April 2014, Spain submitted its 2014 national
reform programme and its 2014 stability programme. In order to take account of
their interlinkages, the two programmes have been assessed at the same time.

(9) 
The objective of the budgetary strategy outlined
in the 2014 Stability Programme is to correct the excessive deficit by 2016 and
reach the medium-term objective in 2017. The programme confirms the medium-term
objective of a balanced budgetary position in structural terms, which is more
stringent than what the Stability and Growth Pact requires. The programme plans
to bring the deficit below 3% of GDP in 2016, in line with the target set in
the Council recommendation of 21 June 2013, but the annual improvement of the
(recalculated) structural balance planned in the programme falls below the
recommended effort as of 2014. For 2017, the plan envisages sufficient progress
towards the medium-term objective, although this may not be enough to reach it
in the same year as declared in the programme. The programme projects the
government debt ratio to peak in 2015 at 101.7% of GDP and to start declining
thereafter. Overall, the budgetary strategy outlined in the programme is only
partly in line with the requirements of the Stability and Growth Pact. The
macroeconomic scenario underpinning the budgetary projections in the programme,
which has not been produced or endorsed by an independent body, is broadly
plausible for 2014 and subject to downside risks in 2015 when compared with the
Commission 2014 spring forecast. For 2016-2017, the GDP growth rates in the
programme seem somewhat optimistic when seen against current estimates of the
potential growth rate of the economy and the remaining post-crisis economic
adjustment needs. Therefore, the deficit and debt adjustment paths are also subject
to downside risks. Moreover, concrete measures to support the headline deficit
targets from 2015 onwards are not yet sufficiently specified, especially
regarding the changes to tax legislation within the framework of the planned
tax reform. Other risks relate to contingent liabilities and the yields of planned
savings at local and regional level. Based on the Commission forecast, the
fiscal effort over 2013-2014 falls short by 1.1 pp. in terms of (corrected)
change in the structural balance (although this figure is inflated by recent
changes in the methodology for the estimation of potential output) and by 0.4
pp. compared to the amount of measures estimated as necessary at the time of
the recommendation under the Excessive Deficit Procedure. Based on its
assessment of the programme and the Commission forecast, pursuant to Council
Regulation (EC) No 1466/97, the Council is of the opinion that the measures
underpinning the budgetary strategy need to be specified further and that
additional efforts are needed to fully comply with the Council recommendation
under the Excessive Deficit Procedure.

(10) 
On the fiscal structural side, there has been
progress in the reporting of budgetary execution and in the application of
corrective measures to non-compliant administrative bodies; however, there
remains scope for implementing additional enforcement mechanisms, set out in
Spain's Budgetary Stability Organic Law, for non-compliant regions. New
measures have been taken to enforce an average period for payments to
commercial suppliers of 30 days across all levels of government. An independent
fiscal institution was set up by law in November 2013 and its president
appointed in February 2014. However, the institution was not operational in
time to assess the 2014 stability programme. The 2014 national reform programme
also acknowledges the need to keep improving cost-effectiveness in healthcare
and pharmaceutical expenditure, e.g. by centralising purchasing of
pharmaceutical products, revising the basket of services, developing digital
clinical records, or strengthening management of health establishments. With
most of the fiscal consolidation ahead planned to come from expenditure
savings, a systematic review of expenditure at all government levels, would
help to identify areas where savings could be generated in a growth-friendly
way while catering for the needs of the most vulnerable.

(11) 
In 2013, Spain adopted new measures to address
the debt bias in corporate taxation. During 2013, Spain also made some progress
on improving tax compliance by intensifying the fight against tax fraud and
undeclared work, but important challenges remain. In 2013 and 2014, Spain also introduced
reductions in social security contributions for hiring young and new employees.
Following the delivery of a comprehensive report on tax reform by an Expert
Committee commissioned by the government, the authorities plan to present
concrete legislative proposals in the second quarter of 2014. According to the
2014 National Reform Programme, the proposals will aim at modernizing the tax
system, reduce the bias against employment, foster revenue collection, favour
economic development, ensure market unity and fiscal neutrality and enhance the
competitiveness of the Spanish economy while contributing to fiscal
consolidation. The design and implementation of this reform will be important
to future economic prospects and public finances.

(12) 
Financial stability has been bolstered by the
recapitalisation and restructuring of the banking sector and the thorough
implementation of the July 2012 ESM programme for the recapitalisation of financial
institutions, completed on 22 January 2014. Yet, the financial sector in Spain
is still faced with significant challenges that need to be carefully monitored
and managed. Moreover, improvements in the funding conditions of banks are
being passed only gradually to the financing of SMEs. Going forward, it is
important to ensure that credit continues to flow to viable sectors of the
economy as the deleveraging of the private sector continues. The authorities have
taken several measures to improve access of firms to bank and non-bank
financing and facilitate corporate debt restructuring, but further policy
actions mare needed.

(13) 
The labour market is showing some signs of
stabilisation and a mild recovery is expected in 2014 with growing employment
and decreasing unemployment levels. However, with an annual average of 26.1% in
2013, the unemployment rate remains very high. Of particular concern are the
high youth unemployment rate of 54.3%, and the significant peak of long-term
unemployment at 49.7% of total unemployment in 2013, the latter with
particularly high rates among older and the low-skilled workers. Available
evaluations of the 2012 labour market reform conclude that the reform, together
with the social partners' commitment to wage moderation in 2012-14, has helped to
provide firms with greater internal flexibility and limit job losses, prioritising
collective bargaining agreements at firm level and enhancing possibilities for
firms to opt out of a collective agreement. The reform has also reduced the compensation
costs for unfair dismissal and contributed to a lowering the number of
dismissals challenged in court, and introduced new contract to promote stable
hiring in SMEs. Further measures were introduced in 2013 and early 2014 to
facilitate stable part-time employment, and reducing temporarily social
security contributions on new indefinite contracts. However, segmentation
remains an important challenge for the Spanish labour market, the number of
contract types remains high and the gap between severance costs for fixed-term
and indefinite contracts remains among the highest in the EU even after the
reform. Progress has been made in the reform of active labour market policies,
including the approval of the annual Employment Plan (PAPE). However, action to
modernise and reinforce the public employment service seems to be lagging
behind, which threatens to hinder the successful implementation of the new
framework. The full operationalisation of the single job portal has suffered
delays. Progress has been made in fostering cooperation with private placement
agencies, but further efforts are needed.

(14) 
The inadequate labour-market relevance of
education and training and the high proportion of unemployed without formal
qualifications (35.2%) contribute to the high youth unemployment rate, as well
as to long term unemployment. The rate of young people not in employment,
education or training remains higher than the EU average and has been
increasing sharply. The proportion of pupils and students leaving education and
training early, although decreasing, also remains very high (23.5%). Tertiary
attainment rates are sustained, but vocational education and training and
apprenticeship schemes are still under-used and the proficiency of upper
secondary vocational education and training graduates lags behind the EU
average. Spain is also working on measures to encourage youth employment. The
national 2013-2016 Youth Employment and Entrepreneurship Strategy, presented in
March 2013 is now being implemented, although some measures have yet to be put
in place. Building on the Strategy, Spain has undertaken steps to fight youth
unemployment, in line with the objectives of a youth guarantee. Some progress
has been registered in measures to fight early school leaving and to promote
dual vocational education and training, but full implementation and efficient
use of funding remain crucial. On dual vocational training, continued
coordination among all stakeholders, including decision makers and training
providers at all government levels and employers, is needed to streamline the
system, favour a better match of training to labour demands and guarantee the
compatibility of dual vocational education and training models across regions.

(15) 
Mainly as a result of the labour market situation,
but also due to the limited effectiveness of social protection in reducing
poverty, Spain is below the EU average as regards the main indicators measuring
poverty and social exclusion, with children and young adults being particularly
exposed. As a result of the crisis, Spain also witnessed one of the highest
falls in household disposable income and one of the highest levels of income
inequality in the EU. The key challenges are to simplify procedures for social
assistance claimants and improve governance and inter-institutional
coordination at national, regional and local level. The 2013-2016 National
Action Plan for Social Inclusion provides an appropriate policy framework for
adapting active labour market policies to those further away from the labour
market, tackling child poverty and improving the efficiency of family support
services. Moreover, social assistance and benefits have limited redistributive
effects across different groups at risk, suggesting poor targeting. In
addition, limited coordination between employment and social services
(including those at regional and local levels) and the administrative burden involved
in accessing minimum income schemes hinders the smooth transition between
social assistance and the reintegration into the labour market.

(16) 
Spain made progress on structural reforms
promoting growth and competitiveness broadly in line with the plans in the 2013
national reform programme. The law on the guarantee of market unity was adopted
in December 2013 and its complex implementation is ongoing. The law on
entrepreneurship adopted in autumn 2013, has also brought improvements to the
framework for corporate insolvency and more flexible company forms, and as
regards the rationalisation of support schemes for the
internationalisation of firms. The use of the express licensing has been
extended thus simplifying the opening of small-scale retail outlets, and other
measures taken to facilitate business licensing. However, secondary legislation
to allow private limited companies to be created through one-stop shops within
the shorter deadlines set out in the September 2013 entrepreneurship law are
still pending.  Moreover, there is a case for the continuous review of
regulatory barriers to company growth, including on taxation, given Spain's gap
vis-à-vis other euro area countries as regards company size. The long-awaited reform
of professional services has been cumulating delays and needs to be speeded up.
No measures have been taken to remove restrictions to the establishment of
large-scale retail premises. The Spanish R&I system needs to increase the quality
of its scientific outputs, foster public-private co-operation and facilitate the
conversion of research and innovation into commercial products. In 2013, the
Spanish government adopted a national strategy for science, technology and
innovation, which still needs to be backed by public funding. Moreover, the
creation of the new State Research Agency, which is tasked with the efficient
management of public R&D investment, is pending.

(17) 
Significant steps have been taken to address the
electricity tariff deficit, especially by reducing the system's costs, although
the exact impact of the reform, in particular on renewables, is not yet fully
clear. The government is exploring ways to minimise negative spillover effects
on public finances from insolvent toll motorways. The authorities established a
database containing economic, environmental, traffic-related and other
indicators supporting analysis prior to investment in infrastructure, but have
not yet set up an independent observatory to help assess future major
infrastructure projects. Effective competition in railway passenger and freight
services is still prevented by technical and legal obstacles, hampering the
efficient use of the extensive infrastructure stock.

(18) 
The reform of public administration is advancing.
A reform of local public administration was passed in December 2013 and the
implementation of the expert's committee on public administration reform is
on-going and will continue throughout 2014-15. Judicial reform is at various
stages of completion and/or implementation and needs to be completed. Recent
efforts in the area of tackling corruption include the law on transparency,
public access to information and good governance, adopted in December 2013, as
well as two draft bills on supervision of party funding and accountability of
high ranking officials. The 2012-2014 National Plan against Irregular Work and
Social Security Fraud is being implemented. Spain has also extended its network
of international agreements to exchange information relevant for tax
assessments and launched a project with private firms to study potential
improvements in the management of the benefits system.

(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. It
has taken into account not only their relevance for sustainable fiscal and
socio-economic policy in Spain but also their compliance with EU rules and
guidance, given the need to reinforce the overall economic governance of the
European 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 Spain’s stability programme, and its opinion[10] is reflected in
particular in recommendation (1) below.

(21) 
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 recommendations (1), (2), (3), (4), (6), (7) and
(8) below.

(22) 
In the context of the European Semester the
Commission has also carried out an analysis of the economic policy of the euro
area as a whole. On the basis of this analysis, the Council has issued specific
recommendations for the Member States whose currency is the euro. Spain should
also ensure the full and timely implementation of these recommendations.

HEREBY RECOMMENDS that Spain take
action within the period 2014-2015 to:

1. 
Reinforce the budgetary strategy as of 2014, in
particular by fully specifying the underlying measures for the year 2015 and
beyond, to ensure the correction of the excessive deficit in a sustainable
manner by 2016 through achieving the structural adjustment effort specified in
the Council recommendation under the Excessive Deficit Procedure. A durable correction
of the fiscal imbalances requires a credible implementation of ambitious
structural reforms to increase the adjustment capacity and boost growth and
employment. After achieving the correction of the excessive deficit, pursue a
structural adjustment towards the medium-term objective of at least 0.5% each
year, and more in good economic conditions or if needed to ensure that the debt
rule is met in order to put the high general government debt ratio on a
sustained downward path. Ensure that the new independent fiscal authority
becomes fully operational as soon as possible and ensure a full implementation of
the preventive, corrective and enforcement measures in the Budgetary Stability
Organic Law at all levels of government, including on the elimination of public
sector commercial arrears. Carry out by February 2015 a systematic review of
expenditure at all levels of government to underpin the efficiency and quality
of public spending going forward. Continue to increase the cost-effectiveness
of the health-care sector, in particular by further rationalising
pharmaceutical spending, including in hospitals and strengthening coordination
across types of care, while maintaining accessibility for vulnerable groups. Adopt
by the end of 2014 a comprehensive tax reform to make the tax system simpler
and more conducive to growth and job creation, preservation of the environment
and stability of revenues. To that end: shift revenues towards less distortive
taxes, such as consumption, environmental (e.g. on motor fuels) and recurrent
property taxes; remove inefficient personal and corporate income tax
expenditures; consider lowering employers' social security contributions, in
particular for low-wage jobs; continue to tackle the debt bias in corporate
taxation; take measures to avoid that taxation hinders the smooth functioning
of Spain's internal market. Step up the fight against tax evasion.

2. 
Complete the reform of the saving banks sector,
as regards the adoption of secondary legislation and complete the restructuring
of state-owned savings banks in order to accelerate their full recovery and facilitate
their return to private ownership. Promote banks' efforts to sustain strong capital
ratios, monitor Sareb's activity in order to ensure timely asset disposal while
minimising the cost to the taxpayer. Complete the ongoing measures to widen SMEs
access to finance, in particular by finalising the ongoing measures to improve
non-bank financial intermediation. Remove remaining bottlenecks in the
corporate insolvency framework, in particular by enhancing the expertise of
insolvency administrators and the capacity of the judicial system to handle
insolvency cases and develop a permanent framework for personal insolvency.

3. 
Pursue new measures to reduce labour market
segmentation to favour sustainable, quality jobs, including through reducing
the number of contract types and ensuring a balanced access to severance
rights. Continue regular monitoring of the labour market reforms. Promote real
wage developments consistent with the objective of creating jobs. Strengthen
the job-search requirement in unemployment benefits. Enhance the effectiveness and
targeting of active labour market policies, including hiring subsidies,
particularly for those facing more difficulties in accessing employment. Reinforce
the coordination between labour market and education and training policies. Accelerate
the modernisation of public employment services to ensure effective
personalised counselling, adequate training and job-matching, with special focus
on the long-term unemployed. Ensure the effective application of public-private
cooperation in placement services before the end of 2014, and monitor the
quality of services provided. Ensure the effective functioning of the Single
Job Portal and combine it with further measures to support labour mobility.

4. 
Implement the 2013-2016 Youth Entrepreneurship
and Employment Strategy and evaluate its effectiveness. Provide good quality
offers of employment opportunities, apprenticeships and traineeships for young
people and improve the outreach to non-registered unemployed young people, in
line with the objectives of a youth guarantee. Effectively implement the new
educational schemes to increase the quality of primary and secondary education.
Enhance guidance and support for groups at risk of early school leaving.
Increase the labour-market relevance of vocational education and training and of
higher education, in particular by enhancing the cooperation with employers and
supporting the training of trainers and tutors.

5. 
Implement the 2013-2016 National Action Plan on
Social Inclusion and assess its effectiveness covering the full range of its
objectives. Strengthen administrative capacity and coordination between
employment and social services in order to provide integrated pathways to
support those at risk, and streamline procedures to support transitions between
minimum income schemes and the labour market. Improve the targeting of family
support schemes and quality services favouring low-income households with children,
to ensure the progressivity and effectiveness of social transfers.

6. 
Ensure an ambitious and swift implementation of
Law No 20/1013 on Market Unity at all levels of administration. Adopt an
ambitious reform of professional services and of professional associations by the
end of 2014, defining the professions requiring registration in a professional
organisation, and the transparency and accountability of professional bodies,
opening up unjustifiably reserved activities and safeguarding market unity in
the access to and exercise of professional services in Spain. Further reduce
the time, cost and number of procedures required for setting up an operating
business. Address unjustified restrictions to the establishment of large-scale
retail premises, notably through a revision of existing regional planning
regulations. Identify sources of financing for the new national strategy for
science, technology and innovation and make operational the new State Research
Agency.

7. 
Following the reform of 2013, ensure the
effective elimination of deficit in the electricity system as of 2014,
including by taking further structural measures if needed. Address the problem
of insolvent toll motorways so as to minimise costs for the State. Set up an
independent observatory to contribute to the assessment of future major
infrastructure projects by the end of 2014. Take measures to ensure effective
competition in freight and passenger rail services.

8. 
Implement at all government levels the
recommendations of the committee for the reform of the public administration. Strengthen
control mechanisms and increase the transparency of administrative decisions,
in particular at regional and local level. Complete and monitor closely the
ongoing measures to fight against the shadow economy and undeclared work. Adopt
pending reforms on the structure of the judiciary and on the judicial map and
ensure implementation of adopted reforms.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ L 306, 23.11.2011, p. 25.

[3]               COM(2014) 410 final.

[4]               P7_TA(2014)0128 and P7_TA(2014)0129.

[5]               OJ L 140, 27.5.2013, p.11.

[6]               C(2013) 8003 final

[7]               COM(2013) 800 final.

[8]               COM(2013) 790 final.

[9]               SWD(2014) 80 final.

[10]             Under Article 5(2) of Council Regulation (EC) No
1466/97.