# EUR-Lex - 52014PC0185 - EN

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# 52014PC0185

**Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2011/344/EU on granting Union financial assistance to Portugal /* COM/2014/0185 final - 2014/0103 (NLE) */**

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EXPLANATORY MEMORANDUM

Upon a request
by Portugal, the Council granted financial assistance to Portugal on 17 May 2011
(Council Implementing Decision 2011/344/EU) in support of a strong economic
reform programme aiming at restoring confidence, enabling the return of the
economy to sustainable growth, and safeguarding financial stability in
Portugal, the euro area and the EU.

In line with Article 3(10) of Decision
2011/344/EU, the Commission, together with the IMF and in liaison with the ECB,
has conducted the eleventh review to assess the progress on the implementation
of the agreed measures as well as their effectiveness and economic and social
impact.

Taking into account the recent economic,
fiscal and financial developments and policy actions, the Commission considers
that some changes to the economic policy conditions underpinning the assistance
are necessary to secure the programme's objectives, as explained in the
recitals of the proposed amendments to the Council Implementing Decision.

Article 1(2) of
Decision 2011/344/EU refers to the duration of the adjustment programme,
establishing that the financial assistance shall be made available during three
years. This implies that the availability period of the financial assistance
ends on 18 May 2014. In order to ensure a comprehensive and thorough assessment
of compliance with the programme conditionality, it is essential to take the
information covering the period until the end of the first quarter of 2014 into
account. Therefore, the twelfth review mission under the Portuguese Programme
cannot start before mid-April 2014. This means that the processes for the completion
of the review and the preparation of the necessary documents would be compressed
into very few weeks, with the the risk of insufficient time for the appropriate
scrutiny in assessing the compliance. There would also be a risk of not meeting
the end-programme deadline, in which case Portugal would lose the final
disbursement. To avoid  these risks, it would seem prudent that the availability
period of the programme should be extended by six weeks.

It should be
noted that such decision will enhance the predictability of the disbursement
under the programme. At the same time, it enhances the quality of the review
assessment. It is therefore considered that the changes consisting in the
extension of availability period of the financial assistance are beneficial to
securing the programme's objectives.

2014/0103 (NLE)

Proposal for a

COUNCIL IMPLEMENTING DECISION

amending Implementing Decision 2011/344/EU
on granting Union financial assistance to Portugal

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union,

Having regard to Council Regulation (EU) No
407/2010 of 11 May 2010 establishing a European financial stabilisation
mechanism[1],
and in particular Article 3(2) thereof.

Having regard to the proposal from the
European Commission,

Whereas:

(1)       The
Council granted financial assistance to Portugal, at the latter's request, on 17 May 2011 by means of Council Implementing Decision 2011/344/EU[2]. That financial
assistance was granted in support of a strong economic and financial reform
programme (the 'Programme') which aims to restore confidence, enable the return
of the economy to sustainable growth, and safeguard financial stability in Portugal, the euro area and the Union.

(2)       For technical reasons of
data availability, which are independent from the Portuguese authorities’
action, the Twelfth and Final Review under the Programme cannot
start before mid-April 2014. At the same time, the availability period of the financial
assistance currently ends on 18 May 2014. To allow for a full assessment of Programme
compliance under the Final Review in due diligence, which is a condition for
the release of the last instalment, a short extension by six weeks of the
availability period of the financial assistance is a necessary formality.

(3)       In
line with Article 3(10) of
Implementing Decision 2011/344/EU, the Commission, together with the International Monetary Fund (IMF) and in
liaison with the European Central
Bank (ECB), conducted, between 20 February and 28 February 2014, the Eleventh Review of the Portuguese authorities' progress on the implementation of the agreed measures under the Programme.

(4)       Real
gross domestic product (GDP) in 2013 performed better than projected at the
Tenth Programme Review and is now estimated to have declined by 1,4% (up 0,2
percentage points). This is the result of robust positive growth in the fourth
quarter of 2013 and statistical upward revisions for previous quarters. Short-run
indicators point to a further strengthening of the economic recovery in the
current year. On an annual basis, real GDP is estimated to move into positive
territory in 2014 and to remain there in 2015, with growth of 1,2% and 1,5%, respectively. The labour market outlook has improved as well, but
unemployment remains high, foreseen to decline to 15,7% in 2014 and continue
declining thereafter. Downside risks to the macroeconomic outlook remain, as
the projected recovery crucially hinges on positive trade and financial market
developments, which also depend on the broader European outlook.

(5)       The general government
deficit is estimated to have been reduced to around 4,5% of GDP in ESA-95 terms
in 2013 (excluding bank recapitalisations, about 4,9% including them), i.e.
about 1% of GDP below the target of 5,5% of GDP. The overperformance is
explained mainly by better-than-expected State tax revenues (including the
one-off tax and social security debt recovery scheme) and lower-than-expected
expenditure at the central government level (e.g. in acquisition of goods and
services and capital expenditure). By contrast, non-tax revenues were
underperforming. The overall
fiscal effort, measured by the improvement in the structural balance, is
estimated at 1% of GDP.

(6)       The
stock of domestic arrears has declined by about EUR 1,2 billion (0,7% of GDP),
on the back of the different debt settlement programmes (for health, local and
regional sectors). Nevertheless, new arrears are still accumulating albeit at a
reduced pace.

(7)       The
carry-over from the 2013 budget execution and the improved macroeconomic
outlook for 2014 are estimated to have a positive impact of 0,7% of GDP on the
baseline fiscal accounts in 2014. About 0,2% of GDP is estimated to result of
the positive carry-over effect; and a further estimated 0,5% of GDP is explained
by increases in revenues and social security contributions as well as lower
unemployment benefit expenditures due to the upward revision of growth and
employment, as well as a downward revision of the unemployment rate.

(8)       The
4% of GDP deficit target for 2014 is underpinned by consolidation measures
totalling 2,3% of GDP included in the 2014 budget and other supporting
legislation. These measures are primarily of a permanent nature and rely
predominantly on expenditure savings. Measures worth about 1,8% of GDP are drawn from the public expenditure
review (PER) and are complemented by smaller-scale revenue-increasing measures
worth about 0,4% of GDP as well as some one-off items of around 0,1% of GDP. The
PER measures act along three main axes: (1) reduction of the public-sector wage
bill by, among others measures, reducing over-employment in specific
sub-sectors and a revision of the wage scale; (2) pension reform, notably by
increasing the retirement age to 66 years and introducing changes to the
conditions for granting survivors' pensions; and (3) sector-specific reforms
mainly aimed at streamlining personnel costs, intermediate consumption and
investment across line ministries. The other permanent revenue-increasing
measures include increments in company cars taxation and excise duties on
alcohol and tobacco. Most legislation underpinning the permanent consolidation
measures has entered into force as from 1 January 2014.

(9)       Given
the improvement in the macroeconomic outlook and positive carry-over from 2013,
risks around the achievement of the 2014 fiscal targets have become more
balanced than previously as the envisaged measures cater for budgetary
pressures and implementation risks. Higher pressures could especially arise for
some revenue items (e.g. property income) as well as in intermediate
consumption and social transfers. Moreover, beyond delays on some permanent
measures, implementation risks are first and foremost of a legal nature: four
measures included in the Budget Law have been sent to the Constitutional Court
(including the wage scale revision and the changes to the survivors' pension
entitlements) and there is a possibility that other measure in the recent
Supplementary Budget will also be contested.

(10)     The
public debt-to-GDP ratio has reached 128,8% in 2013. Debt is forecast to gradually decline from this year on, with a
projected debt ratio of 126,7% of GDP in 2014. The decline in 2014 is expected
to be partly supported by the further use of cash deposits as well as the
ongoing reallocation of the Social Security portfolio from foreign assets to
government securities. Net debt is projected to stand at around 118,1% of GDP
by end-2014.

(11)     The
budgetary adjustment process is flanked by a range of fiscal-structural
measures to enhance control over government expenditure and improve revenue
collection:

– 
On public financial management: the Commitment
Control system is showing results by limiting the build-up of new arrears but
implementation needs to be monitored closely to ensure that commitments are
covered by the available funding and no new arrears are accumulated. The
accumulation of new arrears is notably due to structural imbalances in some
state-owned hospitals as well as in the railroad company Comboios de Portugal.
Strategic plans to underpin the financial sustainability of these SOEs and
arrest the accumulation of new arrears in 2014 are scheduled to be finalised by
end-March. The comprehensive reform of the Budget Framework Law (BFL) is
progressing. As a first step, the BFL should be amended end-March 2014 to
ensure the full transposition of the Fiscal Compact and the six-pack.

– 
While the renegotiations of PPPs have made
progress, they could not be concluded by the end of 2013 as planned.
Nevertheless, savings that failed to materialise in 2013 will accumulate this
year, adding to the significant savings expected for 2014 and beyond. State-owned enterprises (SOEs) reached operational
balance on average in both 2012 and 2013 and additional reforms are foreseen to
avoid a renewed deterioration of their results. Privatisation has made good
progress and the proceeds exceed the target under the Programme.

– 
Reforms towards a modern compliance risk
management model of the revenue administration continue. The new Risk
Assessment Unit is now operational and focuses in the first place on improving
compliance of certain groups of taxpayers such as the self-employed and high
wealth individuals. The fight against tax fraud and
evasion continues with initiatives such as the recently launched VAT lottery.

– 
Reforms in the public administration are being implemented with a view to
modernising and rationalising public sector employment and entities. A number
of key reforms in the public administration support the public expenditure
review and underpin the 2014 consolidation strategy. These include: measures to
address public employment and aimed at rebalancing the composition of the
public sector workforce towards high-skilled and better-trained civil servants
(e.g. through mutual agreement terminations and a requalification scheme); a
revision of the wage scale and development of a single supplements' wage scale
(expected to enter into force by end-June 2014); the compilation of the
existing rules of public sector employment along the structure of the private
labour code through a new general Public Administration Labour Law; and
convergence of the pension system of public sector employees (CGA) to the
general regime. Other recent reforms in the public administration include the
implementation of the strategy of shared services in the area of financial
resources in all structures to be covered by the initiative.

(12)     Policy implementation and reforms
in the health sector continue progressing and produce savings through increases
in efficiency. The existence of an important stock of arrears is strongly
(though not solely) related to the consistent underfunding of SOEs hospitals
vis-à-vis their service provision. The authorities remain committed to
implementing the ongoing hospital reform and to the
continued fine-tuning of the set of measures related to pharmaceuticals,
centralised procurement and primary care.

(13)     Further
progress has been made in implementing growth and competitiveness-enhancing
structural reforms. The authorities have adopted additional measures to reduce
unemployment and to boost labour market effectiveness. Further improvements to
the wage bargaining system and actions to reduce the highl level of
segmentation in the labour market are under discussion. A draft law revising
the definition of individual fair dismissals in the Labour Code has been sent
to the Parliament after previous amendments were overturned by the Constitutional Court. The system of job search assistance and activation have experienced
further progress.

(14)     Relevant
reforms in the education system have been implemented so far. The Portuguese
authorities are commited to continously evaluate and supervise them. Portugal has also approved a decree law creating a short-cycle training course and another
one is in the pipeline to revise and harmoinse the rules governing professional
schools of reference.

(15)     The
Government introduced a new levy on energy operators which must be closely
monitored to avoid that it is passed on to end user prices. Rent-reducing
measures to eliminate the energy tariff debt by 2020 and ensure the
sustainaibility of the system seem insufficient. The Government will present additional
measures.

(16)     Despite
some positive developments over the review period, progress in transport
reforms is evolving at a slower pace than expected. A clear long term vision of
the transport system needs to be delivered, even though some improvement has
been made with the prioritisation of infrastrucutre projects. Moreover, the
legal framework of the Transport Regulator (AMT) has been finalised and it is
expected to be approved in March 2014. Further policy reforms in the ports
sector are necessary, in order to boost Portugal's competitiveness. As regards
the railway and urban transport services, the authorities need to increase
efforts to strengthen their financial sustainability, competition and
efficiency.

(17)     Progress
on the adoption of legislative amendments to transpose the Services Directive 2006/123/EC of the European Parliament and of the Council[3]
has continued albeit at a modest pace. The Construction
laws, the law amending the legal regime of universities and the submission to
Parliament of the amended professional bodies' bylaws following the adoption of
the horizontal framework law on public professional associations have
experienced further delays. Progress was observed in making the Point of Single
Contact fully operational.

(18)     Following
the full implementation of the new legal framework, the urban lease reform is
ongoing. Nonetheless, the impact of the reform needs to be continuously
assessed.

(19)     Following
the adoption of the framework law setting the main principles of the
functioning of the National Regulatory Authorities (NRAs), the bylaws of the
NRAs are being amended accordingly; some of them have already been approved.

(20)     Measures
to improve the licensing environment and reduce the administrative burdens have
advanced and an inventory of the burdensome regulations is ongoing. However,
the one-in/one-out rule for new regulations, the measures for environmental and
territorial planning, and the review of the geological exploration and mining
licensing regimes are delayed.

(21)     The
banks' capital ratios comfortably continued to meet the European Banking
Authority (EBA) regulatory capital buffers as well as the 10% Core Tier 1
Programme target. That capital buffer remains adequate across the board when
using the new Capital Requirements Directive (CRD) IV rules for evaluating the
banks' own funds. These new capital rules apply since January 2014 with a threshold set at 7% of Common
Equity Tier 1 ratio for all banks and an add-on of 1 percentage point for the
largest four banks. The system wide loan-to-deposit ratio decreased to 117,0% and is likely to decrease further until
the end-of 2014.

(22)     Efforts
to diversify the sources of funding for the corporate sector are being
continuously strengthened. The government appointed the
experts for the committee that sets up a Development Financial Institution
(DFI). The committee is in charge of conceiving the founding documents of the
DFI, notably the by-laws, establishing the strategic business plan and devising
the structure of the new entity. The DFI's aim is to streamline and centralise
the implementation of financial instruments supported by the European structural
and investment funds, which relate to the provision of finance for the
corporate sector.

(23)     The authorities agreed to
prepare, in consultation with the Banco de Portugal, a strategic plan aiming at
addressing the corporate debt overhang and supporting the capital reallocation
towards the productive sectors of the economy, while promoting financial
stability.

(24)     Measures to improve the
governance, efficiency and risk management practices within the National
Guarantee System (NGS) which manages the government-sponsored credit lines were
implemented. A new methodology to set the interest rate caps is currently being
applied to guaranteed loans.

(25)     In
the light of these developments, Implementing Decision 2011/344/EU should be amended,

HAS ADOPTED THIS DECISION:

Article 1

Implementing Decision 2011/344/EU is hereby
amended as follows:

1.           In Article 1, paragraph 2
is replaced by the following:

‘2. The financial assistance shall be made
available during three years and six weeks starting from the first day after
the entry into force of this Decision.’

2.           In Article 3, paragraphs 8
and 9 are replaced by the following:

‘8. Portugal shall adopt the following measures
during 2014, in line with specifications in the Memorandum of Understanding:

(a) 
the general government deficit shall not exceed
4% of GDP in 2014 and the accummulation of new arrears shall be halted. For the
calculation of the deficit target, the possible budgetary costs of bank support
measures in the context of the government's financial sector strategy shall not
be taken into account. To achieve this objective, Portugal shall deliver
consolidation measures worth 2,3% of GDP as defined in the 2014 Budget Law and supporting legislation
adopted with this aim;

(b) 
to control for potential expenditure slippages,
the government shall closely monitor the respect of the
ministerial expenditure ceilings through monthly reporting to the Council of
Ministers;

(c) 
Portugal shall swiftly
define and implement the envisaged changes in survivors' pensions eligibility
conditions as well as draft the framework law regulating the conditions for the
sale of online gambling licences by mid-March. In addition, Portugal shall make decisive steps to implement the agreed sale of some port concessions;

(d) 
the comprehensive reform of the corporate income
tax shall be implemented within the existing budgetary envelope to respect the
fiscal consolidation targets;

(e) 
the standstill rule for tax expenditures at
central, regional or local level shall be maintained. Efforts to fight tax
evasion and fraud for various types of taxes shall be further strengthened, inter
alia by the monitoring of the e-invoicing system. A study on the shadow
economy in the housing market shall be carried out in the first quarter of 2014
with a view to seeking ways to reduce rental tax evasion;

(f) 
should adverse legal or other budgetary
execution risks materialise, Portugal shall implement compensatory measures of
high quality in order to meet the deficit target;

(g) 
the Government shall specify the measures
necessary to achieve the fiscal deficit target of no
more than 2,5 % of GDP in 2015. The detailed plans
shall be reflected in the 2014 Fiscal Strategy Document to be published by
end-April 2014, which shall also specify detailed expenditure ceilings by line
ministries. In order to comply with the EU budgetary framework requirements,
this document shall also provide details of the medium-term budgetary plans;

(h) 
the 2015 consolidation strategy shall be
underpinned, among others, by the following measures: the Government shall
develop a single wage scale during 2014 with a view to implementing it in 2015
and aimed at the rationalisation and consistency of remuneration policy across
all careers of the public sector; the single supplements scale, expected to be
implemented in 2014, shall have its full fiscal impact in 2015; a comprehensive
pension reform shall be undertaken, aimed at improving the long-term sustainability
of the pension system. The recently appointed Pension Reform Committee shall
develop specific details of the reform. The reform shall include short-term
measures further linking pension entitlements to demographic and economic
criteria while also respecting progressivity principles, in line with the
recent Constitutional Court ruling on the convergence of the public workers'
pension regime (CGA) to the general system. The specific design of this reform shall
be presented by the time of the Twelfth Review with a draft law to be submitted
to Parliament in the first half of the year. Further steps ensuring the
long-term sustainability of the pension systems shall be specified. In
addition, the Government shall ensure that the recently increased retirement
age effectively apply to CGA pensioners in 2015; other measures to reach the 2,5
percent of GDP target shall be defined before mid-April;

(i) 
the medium-term fiscal strategy shall build on
further reforms which are, inter alia, outlined in the Proposal for the Reform
of the State. These reforms shall aim at improving the efficiency of the public
sector and the quality of its services. Building on the first round of
consultations with social partners, the progress of this agenda shall be
discussed at the Twelfth Review;

(j) 
Portugal shall publish a
tax expenditure report as part of the 2014 Budget covering central, regional
and local administrations;

(k) 
Portugal shall set up an
accounting function in the Ministry of Finance to improve the public sector
accounting and reporting framework by end-June 2014. As part of its tasks, it
shall ensure an adequate accounting for revenues, expenses, assets and
liabilities related to government bank accounts, debt, and public private
partnerships;

(l) 
the Commitment Control Law shall be fully
enforced in all public entities to arrest the creation of new arrears;

(m) 
Portugal shall take
additional measures to further strengthen its Public Financial Management
system. Portugal shall review the Budget Framework Law (BFL) to fully transpose
the relevant European Union legislation by end-March. In addition, Portugal shall carry out a more comprehensive revision of the BFL to reduce budgetary
fragmentation by limiting the number of budget entities and reviewing the
classification of own revenues; to streamline the budget appropriation
structure; to strengthen accountability; and to further anchor public finances
in a medium-term framework. The key aspects and the structure of the new law
shall be developed by end-April 2014. Portugal shall ensure that the measures
to implement the new budgetary framework at central government level shall also
be applied at regional and local level;

(n) 
Portugal shall fully
implement the new legal and institutional PPPs framework. Renegotiations of
PPPs shall proceed in various sectors in order to contain their budgetary
impact. Annual reporting on PPPs shall provide a comprehensive assessment of
the fiscal risks stemming from PPPs and concessions in time for the fiscal
risks assessment of the budget. Following the new SOEs framework law and in
line with the Ministry of Finance's enhanced shareholder role, a Technical Unit
for the monitoring of SOEs shall be further staffed. The government shall
continue its comprehensive restructuring programme of SOEs with a view to maintain
and strengthen a sustainable operational balance. The Portuguese government
shall continue with the privatisations already in the pipeline;

(o) 
Portugal shall continue
the reform agenda towards a modern and more efficient revenue administration in
line with international best practises. Portugal shall announce by March-2014
the list of 50% of local tax offices to be closed by May 2014. The number of
resources devoted to auditing in the tax administration shall increase by at
least 30% of the total staff by the twelfth review. A new Taxpayer Services
Department, unifying various services for taxpayers, shall be created within
the tax administration. The Risk Management Unit shall be fully operational in
the first quarter of 2014, focusing initially on targeted projects to improve
compliance of self-employed professionals and high net wealth individuals. The
tax compliance situation shall be continuously monitored. The anti-money
laundering legal and regulatory framework shall be strengthened to tackle more effectively
money laundering and its predicate crimes, including tax crimes;

(p) 
Portugal shall present a
report with the following objectives:

i.        identifying overlaps of services and
jurisdictions and other sources of inefficiencies between the central and the local
levels of government; and

ii.       reorganising the network of
decentralised services of ministries mainly through the 'Lojas do Cidadão'
(administration and utilities single points of contact) network and other
approaches, encompassing more efficient geographical areas and intensifying the
use of shared services and digital government;

(q) 
Portugal shall continue
to implement a strategy of shared services in public administration, notably on
human resources (GeRHuP) and ICT;

(r) 
Portugal shall continue
implementing reforms to the management of human resources in the public
administration. Based on a survey and a report on wage supplements, draft
legislation for a single supplement scale shall be presented by the twelfth
review with a view to its implementation by June 2014. The new general Public
Administration Labour Law, simplifying and compiling the existing rules of
public sector employment along the structure of the private labour code, shall
be effective by March-2014;

(s) 
Portugal shall ensure
efficiency and effectiveness in the health care system by continuing with the
rational use of services and the control of expenditures including public
spending on pharmaceuticals and hospital care, and eliminating arrears;

(t) 
Portugal shall continue
the ongoing reorganisation and rationalisation of the hospital
network through specialisation, concentration and redistributions
of hospital services, and ensure the implementation of the multi-year action
plan for hospital reorganisation;

(u) 
Portugal shall continue
to implement measures to tackle the high levels of segmentation in the labour
market;

(v) 
Portugal shall promote
wage developments which are consistent with the objectives of fostering job
creation and improving firms' competitiveness with a view to correcting
macroeconomic imbalances. Over the Programme period, any increase in minimum
wages shall take place only if justified by economic and labour market developments;

(w) 
Portugal shall continue
to ensure the effectiveness of its active labour market policies in line with
the results of the assessment report and the action plan to improve the
functioning of the public employment services;

(x) 
Portugal shall continue to implement the
measures set out in its action plans to improve the quality of secondary and
vocational education and training and increase the business involvement in the
vocational and education training system;

(y) 
Portugal shall implement
a plan to create an independent gas and electricity logistics operator company;

(z) 
Portugal shall implement
adequate measures to eliminate the energy tariff debt and to ensure the
sustainability of the national electricity system;

(aa)   Portugal shall adopt measures enhancing
the functioning of the transport system; the Strategic Plan for Transport for
2011-2015 shall be fully implemented, including long term actions which ensure
efficiency and sustainability;

(bb)   Portugal shall continue to implement
the transposition of the EU Railway Packages;

(cc)   Portugal shall continue improving the
governance system for ports, its economic regulation and operation;

(dd)  Portugal shall continue to eliminate
barriers to entry, soften existing authorisation requirements and reduce
administrative burden in the services sector;

(ee)   Portugal shall complete the adoption of
the Construction laws and the other outstanding sectorial amendments necessary
to fully implement Directive 2006/123/EC of the European Parliament and of the
Council[4]
and submit them to the Parliament where necessary;

(ff)    the Government shall submit to the
Portuguese Parliament the professional bodies' amended statutes;

(gg)   Portugal shall improve the business
environment by completing pending reforms on the reduction of administrative
burden, in particular making the Point of Single Contact fully operational to
ensure conformity with the Services directive and the Professional
Qualification Directive and by carrying out further simplification of existing
licensing procedures, regulations and other administrative burdens in the
economy which are a major obstacle for the development of economic activities;

(hh)   following the adoption of the
amendments to the Law 6/2006 on new urban leases and the decree law which
simplifies the administrative procedure for renovations, Portugal shall undertake a comprehensive review of the functioning of the housing market;

(ii)     the Government shall approve the
corresponding amendments to the bylaws of the National Regulatory Authorities
and shall ensure the effective functioning of the Competition Authority
financing model;

(jj)     Portugal shall assess the impact of
the optional VAT cash accounting regime;

(kk)   Portugal shall continue implementing
the comprehensive programme to tackle excessive licensing procedures,
regulations and other administrative burdens in the economy.

‘9. With a view to restoring confidence in the
financial sector, Portugal shall aim to maintain an adequate level of capital
in its banking sector and ensure an orderly deleveraging process in compliance
with the deadlines set in the Memorandum of Understanding. In that regard, Portugal shall implement the strategy for the Portuguese banking sector agreed with the
Commission, the ECB and the IMF so that financial stability is preserved. In
particular, Portugal shall:

(a)     ensure that banks' capital buffers remain adequate and follow the new capital rules as laid down in the
Capital Requirements Directive IV package (CRD IV);

(b)     advise their banks to strengthen their
collateral buffers on a sustainable basis;

(c)     remain committed to providing further
support to the banking system, if needed, encouraging banks to seek private
solutions while resources from the Bank Solvency Support Facility (BSSF) are
available in line with the Union's-State aid rules to further support viable
banks, subject to strict conditionality;

(d)     ensure a
balanced and orderly deleveraging of the banking sector, which is critical in permanently eliminating funding
imbalances and reducing the reliance
on Eurosystem funding in the medium-term. Banks funding and capital plans shall
be reviewed quarterly;

(e)     continue to strengthen the supervisory
organisation of the Banco de Portugal (BdP), optimise its supervisory processes
and develop and implement new supervisory methodologies and tools. The BdP will
revise the standards on non-performing loans in order to achieve convergence
with the criteria included in the relevant EBA technical standard in line with
the timeframe set at the Union level;

(f)     continue to monitor on a quarterly
basis the banks' potential capital needs with a forward looking approach under
stress conditions including through the integration of the new top-down stress
testing framework into the quality assurance process, which allows for a review
of the key drivers of the results;

(g)     ensure implementation of the measures
agreed in the restructuring plans of financial institutions having received
public capital support;

(h)     ensure timely disposal of the
subsidiaries and the assets in all three state-owned SPVs including through the
two selected service providers;

(i)      analyse
banks' recovery plans and issue guidelines to the system on recovery plans in line with the relevant (draft) EBA
technical standards and the forthcoming Union Directive on the recovery and
resolution of credit institutions, and prepare resolution plans on the basis of the reports submitted by the banks;

(j)      prepare
quarterly reports on the implementation
of the new restructuring tools; continue
to monitor the implementation of the framework for
financial institutions to engage in out-of-court debt restructuring for
households and smoothen the application of the framework for restructuring of
corporate debt. Prepare, in consultation with the Banco de Portugal, a
strategic plan aiming at addressing the corporate debt overhang and supporting
the capital reallocation towards the productive sectors of the economy, while
promoting financial stability;

(k)     continue the
monitoring of the high indebtedness of the corporate and household sectors
through quarterly reports and of the implementation of the new debt
restructuring framework to ensure that it is working as effectively as
possible;

(l)      encourage, on the basis of the
proposals already made, the diversification of
financing alternatives to the corporate
sector, develop and implement solutions that provide financing alternatives to
traditional bank credit for the corporate sector through an array of measures
aiming to improve their access to the capital markets;

(m)    continue to evaluate the impact of the
improvements in the government-guaranteed credit instruments on actual interest
rates; stand ready to pursue policy alternatives, if deemed
necessary, in order to ensure that government guaranteed loans will be priced
in a competitive and transparent manner in favour of end-users; regularly
report on progress;

(n)     establish a
development financial institution (DFI) aiming at streamlining and centralising
the implementation of the financial instruments supported by the European
structural and investment funds for the 2014-2020 programming period. The
institution shall neither accept deposits or other repayable funds from the
public nor engage in direct lending, nor invest in Government debt or grant
loans to the Government. The DFI's draft business model and by-laws will be designed
to avoid any additional burden on or risks to public finances.’

Article 2

This Decision shall take effect on the day
of its notification.

Article 3

This Decision is addressed to the Portuguese Republic.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 118, 12.5.2010, p. 1.

[2]               Council Implementing Decision
2011/344/EU of 17 May 2011 on granting Union financial assistance to Portugal (OJ L 159,
17.6.2011, p. 88).

[3]               Directive 2006/123/EC of the European Parliament and
of the Council of 12 December 2006 on services in the internal market (OJ L
376, 27.12.2006, p. 36).

[4]               Directive 2006/123/EC of the European Parliament and
of the Council of 12 December 2006 on services in the internal market (OJ L
376, 27.12.2006, p. 36).