# EUR-Lex - 52014DC0406 - EN

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# 52014DC0406

**Recommendation for a COUNCIL RECOMMENDATION on Germany’s 2014 national reform programme and delivering a Council opinion on Germany’s 2014 stability programme /* COM/2014/0406 final */**
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Recommendation for a
COUNCIL RECOMMENDATION
on Germany’s 2014 national reform
programme
and delivering a Council opinion on Germany’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 Germany’s national reform programme for 2013 and delivered
its opinion on Germany’s updated stability programme for 2012-2017. On 15 November 2013, in line with Regulation (EU) No 473/2013[5],
the Commission presented its opinion on Germany'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 Germany 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 Germany[9],
under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads
it to conclude that Germany is experiencing macroeconomic imbalances, which
require monitoring and policy action. In particular, the current account has
persistently recorded a very high surplus, which reflects the positive effects
of strong competitiveness, with a large amount of savings being invested
abroad. It is also a sign that domestic growth has remained subdued and
economic resources may not have been allocated efficiently. Although the
current account surpluses do not raise risks similar to large deficits, the
size and persistence of the current account surplus in Germany deserve close
attention. The need for action to reduce the risk of adverse effects on the
functioning of the domestic economy and the euro area is particularly important
given the size of the German economy.
(8) 
On 14 April 2014, Germany submitted its 2014 national
reform programme and on 8 April 2014 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 ensure the continued achievement of the medium-term
objective. The Stability Programme confirms the medium-term objective of -0.5 %
of GDP, which reflects the requirements of the Stability and Growth Pact.
According to the Stability Programme, the (recalculated) structural balance
will remain positive in 2014 and thereafter and gross debt is planned to fall
to 76 % of GDP in 2014 and to remain on a sufficiently downward path
thereafter. Therefore, the budgetary strategy outlined in the programme is 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 formally endorsed by an independent body, is plausible, as it is broadly
in line with the Commission 2014 Spring Forecast. Based on the assessment of
the Stability Programme and the Commission Forecast, pursuant to Council
Regulation (EC) No 1466/97, the Council is of the opinion that public finances
in Germany remain overall sound as the medium-term objective is forecast to
continue to be maintained and the debt rule respected.
(10) 
Only limited progress has been made by Germany in
enhancing the cost-effectiveness of public spending on healthcare and long-term
care, although new initiatives have been announced. While their aim is to
improve the cost-effectiveness of health care, these plans might not be
sufficient to contain expected future cost increases. The recently adopted pension
reform aims to improve early retirement conditions ("Rente mit 63")
and pension levels for certain groups, the latter also including a pension
supplement for those having raised children born before 1992 ("Mütterrente").
The reform puts an additional strain on the sustainability of the public pension
system and is planned to be financed by a higher pension contribution rate,
with negative implications for disposable incomes of the active labour force. The
reform could also have a negative impact on take-up of complementary second and
third pillar pensions. Germany has made limited progress in increasing spending
on education and some progress concerning higher research spending. Further
efforts appear necessary at all levels of government to meet the target for
total public and private expenditure on education and research of 10 % of
GDP by 2015, and even more ambitious follow-up targets should be aimed for in
order to catch up with the most innovative economies. Infrastructure investment
has been increased in Germany in recent years and plans exist to reinforce it
further, but additional efforts appear necessary.
(11) 
Germany has made overall limited progress in improving
the efficiency and growth-friendliness of the tax system and to reduce the high
tax burden on labour. No major measures are foreseen to shift towards more
growth-friendly revenue sources. The application of the reduced value-added tax
(VAT) rate (currently 7 %) could be narrowed and the general VAT base
broadened. Rather low revenues from recurrent property taxes suggests that
there is scope for increases and the distribution of the tax burden could be
fairer if the tax base for the municipal real estate tax (Grundsteuer)
would be reassessed. Conditions for investment in Germany could be further
improved by reforming the local trade tax (Gewerbesteuer), cutting the administrative
burden linked to tax collection, and reducing the existing corporate tax bias
in favour of debt-financing.
(12) 
The fiscal framework has been complemented by a
national balanced-budget rule and the establishment of an independent advisory
board. Specific rules for implementing the constitutional balanced-budget rule ('debt
brake') appear still to be required in several Länder so as to ensure
the effective application of the debt brake in the annual budgetary cycle. The
planned review of fiscal relations between the federation, Länder and
municipalities should be used to strengthen fiscal responsibility and
accountability.
(13) 
Wages have risen in recent years after a
prolonged period of wage moderation, but in 2013 real wage growth was more
moderate than in 2012. Germany plans to introduce a general minimum wage of EUR
8.50/hour in 2015, which will take full effect as of 2017. The introduction of
the planned general minimum wage, which is aimed at ensuring an adequate
minimum income for workers, requires close monitoring of its impact, notably on
employment. Limited effort has been made to reduce the high tax wedge, notably
for low-wage earners. The adopted pension reform and current reform plans in
the area of long-term care, which involve a rise in social insurance
contribution rates, could again increase the tax wedge. Germany has made some
progress in raising the educational achievement of disadvantaged people, but
the link between educational achievement and socio-economic background remains
strong and persists over people's working life. Despite some progress towards
appropriate activation and integration measures, long-term unemployment remains
a concern, signalling a need for additional measures. Only limited progress has
been made in taking measures to facilitate the transition from mini-jobs into
forms of employment subject to full mandatory social security contributions. No
progress has been made to reduce fiscal disincentives
to work for second earners. Germany has made some
progress in expanding the availability of full-time early childhood education
and care places, while progress in the extension of all-day schools has been
limited. At the same time, childcare facilities and all-day schools are still
the subject of quality concerns and regional disparities.
(14) 
The government proposal for a revision of the
Renewable Energy Act aims to slow down overall energy cost increases,
distribute the costs more evenly across consumers, control the expansion of
renewables and promote market integration. The implementation of the reform needs
to be carefully monitored with regard to its impact on the cost-effectiveness
of the support system. Further efforts are needed as regards network expansion
and coordination with neighbouring countries.
(15) 
Policy action to further stimulate competition
in the services sectors has been limited, even though isolated reforms in
specific professions and regions have been enacted, for instance as regards
authorisations and commercial communication in the construction sector. While
productivity growth may be structurally lower in the service sectors than in
industry, it is particularly low in some service sectors, notably professional services.
There are still barriers to entering the market and exercising professional
services. These include restrictions on the legal form and shareholding, and
professional qualifications requirements. The diversity of regulatory arrangements
for professional services across Länder suggests that there is scope for
identifying the least burdensome regulatory approaches and extending them
throughout the country. The value of contracts
published by the German authorities under EU procurement legislation remains one
of the lowest in the EU. The comprehensive transition to a transparent e-procurement
market could increase competition. In the retail sector, planning regulations
in certain Länder continue to restrict new entries in the market.
Progress in improving competition in the railway markets has been limited.
(16) 
Germany has made limited progress on measures
taken to consolidate the banking sector, in particular by improving the
governance framework. Commission state aid decisions have largely driven the
restructuring of Landesbanken in recent years and the sector remains
fragmented. Further efforts are needed to address structural and governance
obstacles that hamper a market-driven consolidation, which would also increase
the overall efficiency of the financial sector. Reviewing the legal framework
of the second banking pillar could further support consolidation in the public
banking sector.
(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 socio-economic policy in Germany 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 (4) below.
(18) 
In the light of this assessment, the Council has
examined Germany’s stability programme, and its opinion[10] is reflected in
particular in recommendation (1) below.
(19) 
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) to (4) below.
(20) 
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 Member States whose currency is the euro. Germany should
also ensure the full and timely implementation of these recommendations.
HEREBY RECOMMENDS that Germany take
action within the period 2014-2015 to:
1. 
Pursue growth-friendly fiscal policy and
preserve a sound fiscal position, ensuring that the medium-term budgetary
objective continues to be adhered to throughout the period covered by the Stability
Programme and that the general government debt ratio remains on a sustained
downward path. In particular, use the available scope for increased and more
efficient public investment in infrastructure, education and research. Improve
the efficiency of the tax system, in particular by broadening the tax base, notably
on consumption, by reassessing the municipal real estate tax base, by improving
the tax administration and by reviewing the local trade tax, also with a view
to foster private investment. Make additional efforts to increase the
cost-effectiveness of public spending on healthcare and long-term care. Ensure
the sustainability of the public pension system by (i) changing the financing
of new non-insurance/extraneous benefits ("Mütterrente") to
funding from tax revenues, also in order to avoid a further increase of social
security contributions, (ii) increasing incentives for later retirement, and
(iii) increasing the coverage in second and third pillar pension schemes. Complete
the implementation of the debt brake consistently across all Länder, ensuring
that monitoring procedures and correction mechanisms are timely and relevant.
Improve the design of fiscal relations between the federation, Länder and
municipalities also with a view to ensuring adequate public investment at all
levels of government.
2. 
Improve conditions that further support domestic
demand, inter alia by reducing high taxes and social security contributions,
especially for low-wage earners. When implementing the general minimum wage, monitor
its impact on employment. Improve the employability of workers by further
raising the educational achievement of disadvantaged people and by implementing
more ambitious activation and integration measures in the labour market,
especially for the long-term unemployed. Take measures to reduce fiscal
disincentives to work, in particular for second earners, and facilitate the
transition from mini-jobs to forms of employment subject to full mandatory
social security contributions. Address regional shortages in the availability
of fulltime childcare facilities and all-day schools while improving their
overall educational quality.
3. 
Keep the overall costs of transforming the
energy system to a minimum. In particular, monitor the impact of the Renewable
Energy Act reform on the cost-effectiveness of the support system for renewable
energies. Reinforce efforts to accelerate the expansion of the national and
cross-border electricity and gas networks. Step up close energy policy
coordination with neighbouring countries.
4. 
Take more ambitious measures to further
stimulate competition in the services sector, including certain professional
services, also by reviewing existing regulatory approaches and converging
towards best practices across Länder. Identify the reasons behind the low
value of public contracts open to procurement under EU legislation. Increase
efforts to remove existing planning regulations which restrict new entries in
the retail sector. Take action to remove the remaining barriers to competition
in the railway markets. Pursue consolidation efforts in the Landesbanken
sector, including by improving the governance framework.
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) 406 final.
[4]               P7_TA(2014)0128 and P7_TA(2014)0129.
[5]               OJ L 140, 27.5.2013, p.11.
[6]               C(2013) 8001 final
[7]               COM(2013) 800 final.
[8]               COM(2013) 790 final.
[9]               SWD(2014) 78 final.
[10]             Under Article 5(2) of Council Regulation (EC) No
1466/97.