# Official Journal C 282/2020

| | ISSN 1977-091X |
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| Official Journal
  of the European Union | C 282 |
| | |
| English edition | Information and Notices | Volume 6326 August 2020 |

ISSN 1977-091X

Official Journal

of the European Union

C 282

English edition

Information and Notices

Volume 6326 August 2020

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| Contents | page |
| --- | --- |
| | I   Resolutions, recommendations and opinions |
| | RECOMMENDATIONS |
| | Council |
| 2020/C 282/01 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Belgium and delivering a Council opinion on the 2020 Stability Programme of Belgium | 1 |
| 2020/C 282/02 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Bulgaria and delivering a Council opinion on the 2020 Convergence Programme of Bulgaria | 8 |
| 2020/C 282/03 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Czechia and delivering a Council opinion on the 2020 Convergence Programme of Czechia | 15 |
| 2020/C 282/04 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Denmark and delivering a Council opinion on the 2020 Convergence Programme of Denmark | 22 |
| 2020/C 282/05 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Germany and delivering a Council opinion on the 2020 Stability Programme of Germany | 27 |
| 2020/C 282/06 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Estonia and delivering a Council opinion on the 2020 Stability Programme of Estonia | 33 |
| 2020/C 282/07 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Ireland and delivering a Council opinion on the 2020 Stability Programme of Ireland | 39 |
| 2020/C 282/08 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Greece and delivering a Council opinion on the 2020 Stability Programme of Greece | 46 |
| 2020/C 282/09 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Spain and delivering a Council opinion on the 2020 Stability Programme of Spain | 54 |
| 2020/C 282/10 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of France and delivering a Council opinion on the 2020 Stability Programme of France | 62 |
| 2020/C 282/11 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Croatia and delivering a Council opinion on the 2020 Convergence Programme of Croatia | 68 |
| 2020/C 282/12 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Italy and delivering a Council opinion on the 2020 Stability Programme of Italy | 74 |
| 2020/C 282/13 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Cyprus and delivering a Council opinion on the 2020 Stability Programme of Cyprus | 82 |
| 2020/C 282/14 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Latvia and delivering a Council opinion on the 2020 Stability Programme of Latvia | 89 |
| 2020/C 282/15 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Lithuania and delivering a Council opinion on the 2020 Stability Programme of Lithuania | 95 |
| 2020/C 282/16 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Luxembourg and delivering a Council opinion on the 2020 Stability Programme of Luxembourg | 101 |
| 2020/C 282/17 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Hungary and delivering a Council opinion on the 2020 Convergence Programme of Hungary | 107 |
| 2020/C 282/18 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Malta and delivering a Council opinion on the 2020 Stability Programme of Malta | 116 |
| 2020/C 282/19 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of the Netherlands and delivering a Council opinion on the 2020 Stability Programme of the Netherlands | 122 |
| 2020/C 282/20 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Austria and delivering a Council opinion on the 2020 Stability Programme of Austria | 129 |
| 2020/C 282/21 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Poland and delivering a Council opinion on the 2020 Convergence Programme of Poland | 135 |
| 2020/C 282/22 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Portugal and delivering a Council opinion on the 2020 Stability Programme of Portugal | 142 |
| 2020/C 282/23 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Romania and delivering a Council opinion on the 2020 Convergence Programme of Romania | 149 |
| 2020/C 282/24 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Slovenia and delivering a Council opinion on the 2020 Stability Programme of Slovenia | 157 |
| 2020/C 282/25 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Slovakia and delivering a Council opinion on the 2020 Stability Programme of Slovakia | 164 |
| 2020/C 282/26 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Finland and delivering a Council opinion on the 2020 Stability Programme of Finland | 171 |
| 2020/C 282/27 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Sweden and delivering a Council opinion on the 2020 Convergence Programme of Sweden | 177 |
| 2020/C 282/28 | Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2020 Convergence Programme of the United Kingdom | 183 |

Contents

page

I   Resolutions, recommendations and opinions

RECOMMENDATIONS

Council

2020/C 282/01

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Belgium and delivering a Council opinion on the 2020 Stability Programme of Belgium

1

2020/C 282/02

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Bulgaria and delivering a Council opinion on the 2020 Convergence Programme of Bulgaria

8

2020/C 282/03

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Czechia and delivering a Council opinion on the 2020 Convergence Programme of Czechia

15

2020/C 282/04

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Denmark and delivering a Council opinion on the 2020 Convergence Programme of Denmark

22

2020/C 282/05

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Germany and delivering a Council opinion on the 2020 Stability Programme of Germany

27

2020/C 282/06

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Estonia and delivering a Council opinion on the 2020 Stability Programme of Estonia

33

2020/C 282/07

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Ireland and delivering a Council opinion on the 2020 Stability Programme of Ireland

39

2020/C 282/08

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Greece and delivering a Council opinion on the 2020 Stability Programme of Greece

46

2020/C 282/09

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Spain and delivering a Council opinion on the 2020 Stability Programme of Spain

54

2020/C 282/10

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of France and delivering a Council opinion on the 2020 Stability Programme of France

62

2020/C 282/11

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Croatia and delivering a Council opinion on the 2020 Convergence Programme of Croatia

68

2020/C 282/12

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Italy and delivering a Council opinion on the 2020 Stability Programme of Italy

74

2020/C 282/13

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Cyprus and delivering a Council opinion on the 2020 Stability Programme of Cyprus

82

2020/C 282/14

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Latvia and delivering a Council opinion on the 2020 Stability Programme of Latvia

89

2020/C 282/15

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Lithuania and delivering a Council opinion on the 2020 Stability Programme of Lithuania

95

2020/C 282/16

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Luxembourg and delivering a Council opinion on the 2020 Stability Programme of Luxembourg

101

2020/C 282/17

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Hungary and delivering a Council opinion on the 2020 Convergence Programme of Hungary

107

2020/C 282/18

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Malta and delivering a Council opinion on the 2020 Stability Programme of Malta

116

2020/C 282/19

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of the Netherlands and delivering a Council opinion on the 2020 Stability Programme of the Netherlands

122

2020/C 282/20

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Austria and delivering a Council opinion on the 2020 Stability Programme of Austria

129

2020/C 282/21

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Poland and delivering a Council opinion on the 2020 Convergence Programme of Poland

135

2020/C 282/22

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Portugal and delivering a Council opinion on the 2020 Stability Programme of Portugal

142

2020/C 282/23

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Romania and delivering a Council opinion on the 2020 Convergence Programme of Romania

149

2020/C 282/24

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Slovenia and delivering a Council opinion on the 2020 Stability Programme of Slovenia

157

2020/C 282/25

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Slovakia and delivering a Council opinion on the 2020 Stability Programme of Slovakia

164

2020/C 282/26

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Finland and delivering a Council opinion on the 2020 Stability Programme of Finland

171

2020/C 282/27

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Sweden and delivering a Council opinion on the 2020 Convergence Programme of Sweden

177

2020/C 282/28

Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2020 Convergence Programme of the United Kingdom

183

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EN

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I Resolutions, recommendations and opinions

RECOMMENDATIONS

Council

| 26.8.2020 | EN | Official Journal of the European Union | C 282/1 |
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26.8.2020

EN

Official Journal of the European Union

C 282/1

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Belgium and delivering a Council opinion on the 2020 Stability Programme of Belgium

(2020/C 282/01)

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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Belgium as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Belgium as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Belgium was published on 26 February 2020. It assessed Belgium’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Belgium’s progress towards its national Europe 2020 targets. |
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(2)

The 2020 country report for Belgium was published on 26 February 2020. It assessed Belgium’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Belgium’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Belgium is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Belgium is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns. This entails a substantial risk of widening inter- and intra-regional disparities within Belgium. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns. This entails a substantial risk of widening inter- and intra-regional disparities within Belgium. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 30 April 2020, Belgium submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 30 April 2020, Belgium submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
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(11)

Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | On 13 July 2018, the Council recommended Belgium to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 1,8 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). As Belgium was assessed to qualify for the requested temporary deviation of 0,5 % of GDP under the structural reform clause, the required structural adjustment for 2019 was reduced to 0,1 % of GDP, corresponding to a nominal growth rate of net primary expenditure that does not exceed 2,8 % in 2019. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing Belgium’s compliance with the debt criterion in 2019. |
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(12)

On 13 July 2018, the Council recommended Belgium to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 1,8 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). As Belgium was assessed to qualify for the requested temporary deviation of 0,5 % of GDP under the structural reform clause, the required structural adjustment for 2019 was reduced to 0,1 % of GDP, corresponding to a nominal growth rate of net primary expenditure that does not exceed 2,8 % in 2019. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing Belgium’s compliance with the debt criterion in 2019.

| (13) | In its 2020 Stability Programme, the federal government plans the headline balance to deteriorate from a deficit of 1,9 % of GDP in 2019 to a deficit of 7,5 % of GDP in 2020. After decreasing to 98,6 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to around 115 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(13)

In its 2020 Stability Programme, the federal government plans the headline balance to deteriorate from a deficit of 1,9 % of GDP in 2019 to a deficit of 7,5 % of GDP in 2020. After decreasing to 98,6 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to around 115 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (14) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Belgium has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 2,3 % of GDP. The measures include a federal temporary unemployment benefit scheme, replacement income for self-employed, federal provision for crisis-related expenditure, various regional allowances for companies or individuals and sectoral subsidies. The quantification of the deficit-increasing measures broadly coincides with the Commission’s estimates, once the different treatment of the cost of automatic stabilisers is taken into account. In addition, Belgium has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures concern both federal and regional loan guarantees for companies and the self-employed, which the 2020 Stability Programme estimates at 11,8 % of GDP. Tax deferrals, in particular for personal and corporate income taxes and social contributions, have also been implemented but the 2020 Stability Programme does not quantify them. Overall, the measures taken by Belgium are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(14)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Belgium has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 2,3 % of GDP. The measures include a federal temporary unemployment benefit scheme, replacement income for self-employed, federal provision for crisis-related expenditure, various regional allowances for companies or individuals and sectoral subsidies. The quantification of the deficit-increasing measures broadly coincides with the Commission’s estimates, once the different treatment of the cost of automatic stabilisers is taken into account. In addition, Belgium has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures concern both federal and regional loan guarantees for companies and the self-employed, which the 2020 Stability Programme estimates at 11,8 % of GDP. Tax deferrals, in particular for personal and corporate income taxes and social contributions, have also been implemented but the 2020 Stability Programme does not quantify them. Overall, the measures taken by Belgium are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (15) | Based on the Commission 2020 spring forecast under unchanged policies, Belgium’s general government balance is forecast at -8,9 % of GDP in 2020 and -4,2 % of GDP in 2021. The general government debt ratio is projected to reach 113,8 % of GDP in 2020. |
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(15)

Based on the Commission 2020 spring forecast under unchanged policies, Belgium’s general government balance is forecast at -8,9 % of GDP in 2020 and -4,2 % of GDP in 2021. The general government debt ratio is projected to reach 113,8 % of GDP in 2020.

| (16) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Belgium’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit and debt criteria as defined in the Treaty and in Regulation (EC) No 1467/97 have not been fulfilled. |
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(16)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Belgium’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit and debt criteria as defined in the Treaty and in Regulation (EC) No 1467/97 have not been fulfilled.

| (17) | In response to the COVID-19 pandemic, the Belgian authorities have adopted a comprehensive package of measures to mitigate the social and economic impact of the sharp economic downturn. A EUR 50 billion guarantee scheme is in place for new short-term credit granted to viable businesses. The regions and communities have also introduced guarantees for bridge and regular business loans, liquidity support to businesses in the form of direct loans and measures to financially support businesses most affected by the COVID-19 crisis. The reimbursement of existing mortgages and business loans can be extended. A temporary moratorium on bankruptcy proceedings for hard-hit businesses is available. Different incentives to encourage more workers to stay at work or take up work again to ensure business continuity have been introduced. Social security contributions and tax payments, such as value added tax, corporate and personal income taxes, may be deferred or are exempted in some cases. The federal government has made the temporary unemployment scheme due to force majeure available for companies affected by the COVID-19 crisis, with increased benefits. A monthly replacement income is available for the self-employed whose activity has been interrupted for at least seven consecutive days. The degressivity of unemployment benefits is temporarily frozen. The federal government is also preparing an additional set of measures to counter insolvency of businesses, such as a corporate and personal income tax exemption for the 2020 fiscal year. |
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(17)

In response to the COVID-19 pandemic, the Belgian authorities have adopted a comprehensive package of measures to mitigate the social and economic impact of the sharp economic downturn. A EUR 50 billion guarantee scheme is in place for new short-term credit granted to viable businesses. The regions and communities have also introduced guarantees for bridge and regular business loans, liquidity support to businesses in the form of direct loans and measures to financially support businesses most affected by the COVID-19 crisis. The reimbursement of existing mortgages and business loans can be extended. A temporary moratorium on bankruptcy proceedings for hard-hit businesses is available. Different incentives to encourage more workers to stay at work or take up work again to ensure business continuity have been introduced. Social security contributions and tax payments, such as value added tax, corporate and personal income taxes, may be deferred or are exempted in some cases. The federal government has made the temporary unemployment scheme due to force majeure available for companies affected by the COVID-19 crisis, with increased benefits. A monthly replacement income is available for the self-employed whose activity has been interrupted for at least seven consecutive days. The degressivity of unemployment benefits is temporarily frozen. The federal government is also preparing an additional set of measures to counter insolvency of businesses, such as a corporate and personal income tax exemption for the 2020 fiscal year.

| (18) | The Belgian health system performs well in providing acute care in hospitals. Nonetheless, the COVID-19 pandemic has highlighted a number of shortcomings in the health system’s resilience when faced with a severe public health crisis. This suggests that Belgium faces a structural shortage of health workers that needs to be addressed. In the immediate future, ensuring sufficient critical medical products, including protective equipment in particular for health workers and workers in other exposed occupations, will remain key. A public healthcare strategy, which is fully coordinated with prevention and long-term care policies, will remain essential in the short and medium term to ensure that public health crisis such as the COVID-19 pandemic are effectively managed. The smooth implementation of the Inter-Ministerial Conference Agreement on public healthcare to make hospital staff and infrastructure (a federal competence) temporarily available to long-term care facilities (a community competence) during the COVID-19 crisis is an important building block in this context. |
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(18)

The Belgian health system performs well in providing acute care in hospitals. Nonetheless, the COVID-19 pandemic has highlighted a number of shortcomings in the health system’s resilience when faced with a severe public health crisis. This suggests that Belgium faces a structural shortage of health workers that needs to be addressed. In the immediate future, ensuring sufficient critical medical products, including protective equipment in particular for health workers and workers in other exposed occupations, will remain key. A public healthcare strategy, which is fully coordinated with prevention and long-term care policies, will remain essential in the short and medium term to ensure that public health crisis such as the COVID-19 pandemic are effectively managed. The smooth implementation of the Inter-Ministerial Conference Agreement on public healthcare to make hospital staff and infrastructure (a federal competence) temporarily available to long-term care facilities (a community competence) during the COVID-19 crisis is an important building block in this context.

| (19) | After reaching record high levels of employment in 2019 and in the beginning of 2020, the COVID-19 crisis has abruptly halted employment growth in Belgium. Belgium’s existing public income support schemes, such as the system of temporary unemployment for employees and the bridging right for self-employed, provide partial compensation for income losses due to reduced working time. These short-time working schemes play a major role in reducing the impact of lowered production output on employment levels. Nevertheless, unemployment is expected to rise to 7 % in 2020 and to reduce somewhat to 6,6 % in 2021. In order to prevent that the increase in unemployment becomes structural, further efforts will be needed to strengthen the effectiveness of the existing active labour market policies, which remain low as a high share of unemployed participating in active labour market measures coexists with a low transition from unemployment to employment. Particular attention should be paid to ensuring a comprehensive approach for those furthest from the labour market that are likely to be the most affected by the negative socioeconomic consequences of the COVID-19 crisis. Vulnerable groups include in particular the low-skilled, people with a migrant background and people with disabilities. In addition, the labour tax wedge remains on average high at all wage levels, except for the very low wage earners (50 % of the average wage). This is an important driver of the relatively high cost of labour, which may negatively affect labour demand, in particular for low productivity jobs. |
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(19)

After reaching record high levels of employment in 2019 and in the beginning of 2020, the COVID-19 crisis has abruptly halted employment growth in Belgium. Belgium’s existing public income support schemes, such as the system of temporary unemployment for employees and the bridging right for self-employed, provide partial compensation for income losses due to reduced working time. These short-time working schemes play a major role in reducing the impact of lowered production output on employment levels. Nevertheless, unemployment is expected to rise to 7 % in 2020 and to reduce somewhat to 6,6 % in 2021. In order to prevent that the increase in unemployment becomes structural, further efforts will be needed to strengthen the effectiveness of the existing active labour market policies, which remain low as a high share of unemployed participating in active labour market measures coexists with a low transition from unemployment to employment. Particular attention should be paid to ensuring a comprehensive approach for those furthest from the labour market that are likely to be the most affected by the negative socioeconomic consequences of the COVID-19 crisis. Vulnerable groups include in particular the low-skilled, people with a migrant background and people with disabilities. In addition, the labour tax wedge remains on average high at all wage levels, except for the very low wage earners (50 % of the average wage). This is an important driver of the relatively high cost of labour, which may negatively affect labour demand, in particular for low productivity jobs.

| (20) | Labour mobility should be fostered towards the sectors where there are major shortages, including health, information and communication technologies (ICT) and technical and professional occupations. This will be accompanied with important needs in terms of re- and upskilling and will require to increase the level of adult participation in education and training, including by using periods of reduced working hours. There are concerns that the existing training incentives schemes do not reach those that would benefit the most, such as the low-skilled, older workers and people with a migrant background. Poor language skills are a major barrier, in particular on the bilingual Brussels labour market. The communities are taking action to increase the uptake of science, technology, engineering and mathematics studies, but there is scope for more comprehensive strategies to meet future labour market demand. The overall level of digital skills is good, but remains stagnant. Among young people, and in particular among those with low education, the level of digital skills is lower than the Union average and has been worsening over the past years. Availability of adequate equipment and internet connection for all students accompanied by the necessary teacher training and mentoring schemes, is essential to ensure access to distance learning. This is also needed to ensure existing inequalities in the education system are not exacerbated due to the COVID-19 crisis. |
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(20)

Labour mobility should be fostered towards the sectors where there are major shortages, including health, information and communication technologies (ICT) and technical and professional occupations. This will be accompanied with important needs in terms of re- and upskilling and will require to increase the level of adult participation in education and training, including by using periods of reduced working hours. There are concerns that the existing training incentives schemes do not reach those that would benefit the most, such as the low-skilled, older workers and people with a migrant background. Poor language skills are a major barrier, in particular on the bilingual Brussels labour market. The communities are taking action to increase the uptake of science, technology, engineering and mathematics studies, but there is scope for more comprehensive strategies to meet future labour market demand. The overall level of digital skills is good, but remains stagnant. Among young people, and in particular among those with low education, the level of digital skills is lower than the Union average and has been worsening over the past years. Availability of adequate equipment and internet connection for all students accompanied by the necessary teacher training and mentoring schemes, is essential to ensure access to distance learning. This is also needed to ensure existing inequalities in the education system are not exacerbated due to the COVID-19 crisis.

| (21) | Belgium has adopted many schemes to support the liquidity of firms, including a State guarantee scheme to loans and several regional schemes notified under the temporary framework for State aid measures to support the economy in the current COVID-19 pandemic. An efficient and effective implementation of such schemes, including by intermediaries, is key to ensure that firms, and especially small and medium-sized enterprises (SMEs) and self-employed, benefit from them in order to protect them and to allow for a faster recovery. In the process of designing and implementing these measures, the resilience of the banking sector, including the intermediaries, needs to be taken into account. |
| --- | --- |

(21)

Belgium has adopted many schemes to support the liquidity of firms, including a State guarantee scheme to loans and several regional schemes notified under the temporary framework for State aid measures to support the economy in the current COVID-19 pandemic. An efficient and effective implementation of such schemes, including by intermediaries, is key to ensure that firms, and especially small and medium-sized enterprises (SMEs) and self-employed, benefit from them in order to protect them and to allow for a faster recovery. In the process of designing and implementing these measures, the resilience of the banking sector, including the intermediaries, needs to be taken into account.

| (22) | Despite government efforts, the administrative burden on firms weights some EUR 7 billion per year (1,6 % of GDP), most of which comes from complying with tax and labour law. The tax system is complex because of various tax expenditure. The payroll management for a company is complex, in particular for companies that need to manage the various regional systems. Businesses experience increasing delays in payment by public authorities contributing to businesses’ failures and a deteriorating business climate. There are long delays for building permits, electricity and water connections. The process of transferring a property is among the slowest and the most expensive in the Union. There are major regional discrepancies in entry requirements for craft/construction services. The cumulated effect of high regulation, high wage costs and labour market rigidities is weighing on the performance of the retail sector. Rules on shop opening hours, sales promotions, discounts and distribution channels for non-prescription medicines weight on the operational environment for retailers. The roll-out of 5G could be held back amongst others by strict environmental and health standards for radiation protection (in particular in Brussels) varying in each region, by expensive antennae taxes in Brussels and the long delivery time of permits to deploy antennae. In the area of insolvency, there is no special simplified out-of-court settlement procedure for SMEs and only debtors can start insolvency procedures. Despite gradual improvements, insufficient digitalisation and a lack of resources remain a challenge for the justice system. Lengthy proceedings in administrative justice cause significant delays for public procurement and building permit cases. Key enforcers in market surveillance, competition and rail transport are understaffed to perform their tasks. |
| --- | --- |

(22)

Despite government efforts, the administrative burden on firms weights some EUR 7 billion per year (1,6 % of GDP), most of which comes from complying with tax and labour law. The tax system is complex because of various tax expenditure. The payroll management for a company is complex, in particular for companies that need to manage the various regional systems. Businesses experience increasing delays in payment by public authorities contributing to businesses’ failures and a deteriorating business climate. There are long delays for building permits, electricity and water connections. The process of transferring a property is among the slowest and the most expensive in the Union. There are major regional discrepancies in entry requirements for craft/construction services. The cumulated effect of high regulation, high wage costs and labour market rigidities is weighing on the performance of the retail sector. Rules on shop opening hours, sales promotions, discounts and distribution channels for non-prescription medicines weight on the operational environment for retailers. The roll-out of 5G could be held back amongst others by strict environmental and health standards for radiation protection (in particular in Brussels) varying in each region, by expensive antennae taxes in Brussels and the long delivery time of permits to deploy antennae. In the area of insolvency, there is no special simplified out-of-court settlement procedure for SMEs and only debtors can start insolvency procedures. Despite gradual improvements, insufficient digitalisation and a lack of resources remain a challenge for the justice system. Lengthy proceedings in administrative justice cause significant delays for public procurement and building permit cases. Key enforcers in market surveillance, competition and rail transport are understaffed to perform their tasks.

| (23) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms, which would also help industrial transition. As expressed in its 2021-2030 National Energy and Climate Plan (NECP), Belgium has significant investment needs in sustainable transport, in particular to tackle congestion and electric mobility. Before the COVID-19 crisis, Belgian regions had announced major multi-annual transport infrastructure plans. Major investment is taking place in suburban rail around Brussels, signalling, port and cross-border rail connections. Significant investments are also underway in Brussels metro, tram and bus infrastructure. The NECP also identified important investment needs in renewable and flexible power generation, interconnections, smart grids, storage and in energy efficiency to meet European energy and climate targets, to realise Belgium’s legal commitment to fully phasing out nuclear energy by 2025 and to renovate 80 % of the building stock which was built before the introduction of energy norms. In contrast to the relatively high private research and development (R & D) intensity, the public R & D intensity remains slightly below that of most Member States with a similar level of economic development. Belgium risks lagging behind in 5G deployment as it is not planning to assign the 5G pioneer bands within the deadlines provided in Union legislation. In March 2020, the Belgian authorities opened a public consultation for temporary national licenses for the 200 MHz of available spectrum in the band 3.6-3.8 GHz as a temporary solution. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Belgium to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Belgium to make the best use of that Fund. |
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(23)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms, which would also help industrial transition. As expressed in its 2021-2030 National Energy and Climate Plan (NECP), Belgium has significant investment needs in sustainable transport, in particular to tackle congestion and electric mobility. Before the COVID-19 crisis, Belgian regions had announced major multi-annual transport infrastructure plans. Major investment is taking place in suburban rail around Brussels, signalling, port and cross-border rail connections. Significant investments are also underway in Brussels metro, tram and bus infrastructure. The NECP also identified important investment needs in renewable and flexible power generation, interconnections, smart grids, storage and in energy efficiency to meet European energy and climate targets, to realise Belgium’s legal commitment to fully phasing out nuclear energy by 2025 and to renovate 80 % of the building stock which was built before the introduction of energy norms. In contrast to the relatively high private research and development (R & D) intensity, the public R & D intensity remains slightly below that of most Member States with a similar level of economic development. Belgium risks lagging behind in 5G deployment as it is not planning to assign the 5G pioneer bands within the deadlines provided in Union legislation. In March 2020, the Belgian authorities opened a public consultation for temporary national licenses for the 200 MHz of available spectrum in the band 3.6-3.8 GHz as a temporary solution. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Belgium to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Belgium to make the best use of that Fund.

| (24) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(24)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (25) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Belgium will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(25)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Belgium will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (26) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Belgium should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(26)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Belgium should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (27) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Belgium’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Belgium in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Belgium, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(27)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Belgium’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Belgium in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Belgium, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (28) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below, |
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(28)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Belgium take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Reinforce the overall resilience of the health system and ensure the supply of critical medical products. |
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1.

| 2. | Mitigate the employment and social impact of the COVID-19 crisis, notably by promoting effective active labour market measures and fostering skills development. |
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2.

| 3. | Ensure effective implementation of the measures to provide liquidity to assist SMEs and the self-employed and improve the business environment. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on infrastructure for sustainable transport, clean and efficient production and use of energy, the circular economy, digital infrastructure, such as 5G and Gigabit Networks, and research and innovation. |
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3.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 1.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

7

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

8

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/8 |
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26.8.2020

EN

Official Journal of the European Union

C 282/8

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Bulgaria and delivering a Council opinion on the 2020 Convergence Programme of Bulgaria

(2020/C 282/02)

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 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 9(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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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.

| (2) | The 2020 country report for Bulgaria was published on 26 February 2020. It assessed Bulgaria’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Bulgaria’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Bulgaria is no longer experiencing macroeconomic imbalances. In previous years, vulnerabilities in the financial sector were coupled with high indebtedness and non-performing loans (NPLs) in the corporate sector. Bulgaria has been found to no longer have imbalances because consistent policy action and a favourable macroeconomic environment have reduced risk and vulnerabilities further. |
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(2)

The 2020 country report for Bulgaria was published on 26 February 2020. It assessed Bulgaria’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Bulgaria’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Bulgaria is no longer experiencing macroeconomic imbalances. In previous years, vulnerabilities in the financial sector were coupled with high indebtedness and non-performing loans (NPLs) in the corporate sector. Bulgaria has been found to no longer have imbalances because consistent policy action and a favourable macroeconomic environment have reduced risk and vulnerabilities further.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds (‘ESI Funds’) so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Bulgaria is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds (‘ESI Funds’) so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Bulgaria is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Bulgarian regions because of different specialisation patterns, in particular in regions markedly relying on face-to-face business to consumers. This entails a substantial risk of widening regional disparities within Bulgaria, aggravating the already observed trend of widening disparities between the capital and the rest of the country and between urban and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Bulgarian regions because of different specialisation patterns, in particular in regions markedly relying on face-to-face business to consumers. This entails a substantial risk of widening regional disparities within Bulgaria, aggravating the already observed trend of widening disparities between the capital and the rest of the country and between urban and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 30 April 2020, Bulgaria submitted its 2020 National Reform Programme and its 2020 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 30 April 2020, Bulgaria submitted its 2020 National Reform Programme and its 2020 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Bulgaria is currently in the preventive arm of the Stability and Growth Pact. |
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(11)

Bulgaria is currently in the preventive arm of the Stability and Growth Pact.

| (12) | In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 2,1 % of gross domestic product (GDP) in 2019 to a deficit of 3,1 % of GDP in 2020. After decreasing to 20,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 28,5 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(12)

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 2,1 % of gross domestic product (GDP) in 2019 to a deficit of 3,1 % of GDP in 2020. After decreasing to 20,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 28,5 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Bulgaria has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 1,3 % of GDP. The measures include higher spending on healthcare and security services and an employment support scheme for distressed sectors. In addition, Bulgaria has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 0,6 % of GDP. Those measures include guarantees by the State-owned Bulgarian Development Bank and tax deferrals for corporate income taxes. Overall, the measures taken by Bulgaria are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Bulgaria has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 1,3 % of GDP. The measures include higher spending on healthcare and security services and an employment support scheme for distressed sectors. In addition, Bulgaria has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 0,6 % of GDP. Those measures include guarantees by the State-owned Bulgarian Development Bank and tax deferrals for corporate income taxes. Overall, the measures taken by Bulgaria are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Bulgaria’s general government deficit is forecast at 2,8 % of GDP in 2020 and 1,8 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Bulgaria’s general government deficit is forecast at 2,8 % of GDP in 2020 and 1,8 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Bulgaria’s planned breach of the 3 %-of-GDP deficit threshold in 2020. That report concluded, following an assessment of all the relevant factors, that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Bulgaria’s planned breach of the 3 %-of-GDP deficit threshold in 2020. That report concluded, following an assessment of all the relevant factors, that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has been fulfilled.

| (16) | On 13 March 2020, Bulgaria declared a state of emergency from 13 March 2020 to 13 April 2020; this was subsequently extended to 13 May 2020 and then replaced by an extraordinary epidemic situation to 14 June 2020. On 6 April 2020, the Bulgarian parliament adopted a proposal for amendment of the 2020 State budget, presented by the government. The new budget foresees a deficit under the State budget of BGN 3,5 billion (2,9 % of GDP), due to the increased spending for crisis-related measures and the expected reduction in revenues of BGN 2,4 billion. A fivefold increase of the ceiling of new debt the government can issue is foreseen, from BGN 2,2 billion to BGN 10 billion. Overall, Bulgaria mobilised a financial package of over BGN 870 million under several operational programmes financed by the ESI Funds for the period 2014-2020 to support the health system and address the socioeconomic consequences of the pandemic. |
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(16)

On 13 March 2020, Bulgaria declared a state of emergency from 13 March 2020 to 13 April 2020; this was subsequently extended to 13 May 2020 and then replaced by an extraordinary epidemic situation to 14 June 2020. On 6 April 2020, the Bulgarian parliament adopted a proposal for amendment of the 2020 State budget, presented by the government. The new budget foresees a deficit under the State budget of BGN 3,5 billion (2,9 % of GDP), due to the increased spending for crisis-related measures and the expected reduction in revenues of BGN 2,4 billion. A fivefold increase of the ceiling of new debt the government can issue is foreseen, from BGN 2,2 billion to BGN 10 billion. Overall, Bulgaria mobilised a financial package of over BGN 870 million under several operational programmes financed by the ESI Funds for the period 2014-2020 to support the health system and address the socioeconomic consequences of the pandemic.

| (17) | In response to the COVID-19 crisis, Bulgaria introduced an employment support measure by which the State commits to pay 60 % of the workers’ income and of the associated social security contribution for a period of up to three months, provided that the employer pays the remaining difference and commits to keep the workers in employment. The employer is also obliged to maintain employment for a further period, at least equal to the one covered by the subsidy. Eligible companies include those in the sectors directly affected by restrictions imposed due to the state of emergency. Companies from other sectors, which manage to prove a 20 % decline in revenue over a specific time period in March 2020 compared to March 2019, are also eligible as stipulated in the Decree No 55 of 30 March 2020. |
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(17)

In response to the COVID-19 crisis, Bulgaria introduced an employment support measure by which the State commits to pay 60 % of the workers’ income and of the associated social security contribution for a period of up to three months, provided that the employer pays the remaining difference and commits to keep the workers in employment. The employer is also obliged to maintain employment for a further period, at least equal to the one covered by the subsidy. Eligible companies include those in the sectors directly affected by restrictions imposed due to the state of emergency. Companies from other sectors, which manage to prove a 20 % decline in revenue over a specific time period in March 2020 compared to March 2019, are also eligible as stipulated in the Decree No 55 of 30 March 2020.

| (18) | The capital of the Bulgarian Development Bank was increased with BGN 700 million to support the liquidity in the economy. BGN 500 million was allocated for portfolio guarantees to banks to provide more flexible business loan conditions to businesses, while BGN 200 million was allocated for guarantees for interest-free loans of up to BGN 4 500 for people placed on unpaid leave by their companies or self-employed. The Bulgarian Development Bank will also implement a EUR 100 million guarantee scheme for loans to small and medium-sized enterprises (‘SMEs’) financed by Operation Programme ‘Innovation and Competitiveness’ under the European Regional Development Fund. The Fund Manager of Financial Instruments in Bulgaria reexamined its portfolio and is tailoring its enterprise support instruments to the current economic reality. The Bulgarian National Bank introduced a package of measures of BGN 9,3 billion, which aim at maintaining the resilience of the banking system and enhancing its flexibility, to reduce the negative effects of the constraints on citizens and businesses. |
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(18)

The capital of the Bulgarian Development Bank was increased with BGN 700 million to support the liquidity in the economy. BGN 500 million was allocated for portfolio guarantees to banks to provide more flexible business loan conditions to businesses, while BGN 200 million was allocated for guarantees for interest-free loans of up to BGN 4 500 for people placed on unpaid leave by their companies or self-employed. The Bulgarian Development Bank will also implement a EUR 100 million guarantee scheme for loans to small and medium-sized enterprises (‘SMEs’) financed by Operation Programme ‘Innovation and Competitiveness’ under the European Regional Development Fund. The Fund Manager of Financial Instruments in Bulgaria reexamined its portfolio and is tailoring its enterprise support instruments to the current economic reality. The Bulgarian National Bank introduced a package of measures of BGN 9,3 billion, which aim at maintaining the resilience of the banking system and enhancing its flexibility, to reduce the negative effects of the constraints on citizens and businesses.

| (19) | Bulgaria’s economy was hit hard by the COVID-19 crisis, which affected both services and manufacturing sectors. The negative impact was aggravated by declining demand and supply, and disruptions in the global value chains. The measures taken by the government to face the emergency can help mitigate the consequences of the crisis, but their prompt and effective implementation will be key for preserving employment and improving the liquidity of companies, especially SMEs, and of independent workers. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. In line with the guidelines set out in the Commission communication of 13 March 2020, Bulgaria lifted export bans on personal protective equipment and set-up ‘green lanes’ for fast checks at border crossings. |
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(19)

Bulgaria’s economy was hit hard by the COVID-19 crisis, which affected both services and manufacturing sectors. The negative impact was aggravated by declining demand and supply, and disruptions in the global value chains. The measures taken by the government to face the emergency can help mitigate the consequences of the crisis, but their prompt and effective implementation will be key for preserving employment and improving the liquidity of companies, especially SMEs, and of independent workers. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. In line with the guidelines set out in the Commission communication of 13 March 2020, Bulgaria lifted export bans on personal protective equipment and set-up ‘green lanes’ for fast checks at border crossings.

| (20) | The COVID-19 crisis put an additional burden on the Bulgarian health system, already characterised by limited accessibility stemming from low public financing, limited health insurance coverage, a low albeit increasing number of nurses, and an uneven regional distribution of health workers. There is therefore scope for strengthening the overall resilience, accessibility and capacity of the Bulgarian health system. Providing more care (general and specialist) in ambulatory settings, including by means of teleconsultations, would reduce the burden on hospitals, while testing and treatment should be available for all, irrespective of health insurance status. Proper access to health workers and their services should be ensured throughout the whole territory, matching population needs. Integration of primary, long-term and community care is crucial for the elderly and the most vulnerable groups. |
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(20)

The COVID-19 crisis put an additional burden on the Bulgarian health system, already characterised by limited accessibility stemming from low public financing, limited health insurance coverage, a low albeit increasing number of nurses, and an uneven regional distribution of health workers. There is therefore scope for strengthening the overall resilience, accessibility and capacity of the Bulgarian health system. Providing more care (general and specialist) in ambulatory settings, including by means of teleconsultations, would reduce the burden on hospitals, while testing and treatment should be available for all, irrespective of health insurance status. Proper access to health workers and their services should be ensured throughout the whole territory, matching population needs. Integration of primary, long-term and community care is crucial for the elderly and the most vulnerable groups.

| (21) | According to the Commission 2020 spring forecast, unemployment is expected to rise to 7,0 % in 2020 and decrease to 5,8 % in 2021. Since the beginning of the state of emergency, unemployment has rapidly increased in the trade, accommodation and food services, and manufacturing sectors, in large cities and among people with up to secondary education. The government has taken measures to protect employment, in particular short-time work schemes, which should be swiftly implemented and further enhanced. In cooperation with social partners, the current context warrants extensive support to employers and workers, including the self-employed, to prevent further job losses. The capacity and the measures implemented by the Employment Agency will need to be reinforced, to respond to the adverse labour market effects. Further efforts in activation, upskilling and reskilling will be instrumental to bring people back to work, while preparing the labour force for the challenges and opportunities resulting from digitalisation. The COVID-19 crisis might also have a significant impact on workers in informal employment, with limited access to health services and social protection. Targeted policy measures could prevent unprotected workers and the most vulnerable groups falling deeper into poverty and improve their livelihoods during the recovery. |
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(21)

According to the Commission 2020 spring forecast, unemployment is expected to rise to 7,0 % in 2020 and decrease to 5,8 % in 2021. Since the beginning of the state of emergency, unemployment has rapidly increased in the trade, accommodation and food services, and manufacturing sectors, in large cities and among people with up to secondary education. The government has taken measures to protect employment, in particular short-time work schemes, which should be swiftly implemented and further enhanced. In cooperation with social partners, the current context warrants extensive support to employers and workers, including the self-employed, to prevent further job losses. The capacity and the measures implemented by the Employment Agency will need to be reinforced, to respond to the adverse labour market effects. Further efforts in activation, upskilling and reskilling will be instrumental to bring people back to work, while preparing the labour force for the challenges and opportunities resulting from digitalisation. The COVID-19 crisis might also have a significant impact on workers in informal employment, with limited access to health services and social protection. Targeted policy measures could prevent unprotected workers and the most vulnerable groups falling deeper into poverty and improve their livelihoods during the recovery.

| (22) | The COVID-19 crisis disproportionally affects vulnerable groups and exacerbates existing social challenges. The share of people at risk of poverty or social exclusion was already high before the crisis, especially among children, the elderly, people with disabilities and Roma, while social transfers managed to reduce poverty only to a limited extent. Income inequality was one of the highest in the Union and the tax and benefit systems showed one of the weakest impacts on reducing it. The crisis requires measures to fix the gaps already identified in previous years, and in particular in the minimum income scheme, which is one of the least adequate in the Union for lifting recipients out of poverty. Issues such as ensuring social protection for all, including non-standard workers, self-employed and low-income households, ensuring income support, food and adequate social services, as well as providing emergency housing and support for homeless persons, remain relevant. The reform of social services would help stabilising the system, while a stronger cooperation between health and social services would allow reaching out further to those unable to take care of themselves and people with disabilities. Many Roma households, already in deep poverty prior to the crisis, are in need of mediation services and essential services and support. |
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(22)

The COVID-19 crisis disproportionally affects vulnerable groups and exacerbates existing social challenges. The share of people at risk of poverty or social exclusion was already high before the crisis, especially among children, the elderly, people with disabilities and Roma, while social transfers managed to reduce poverty only to a limited extent. Income inequality was one of the highest in the Union and the tax and benefit systems showed one of the weakest impacts on reducing it. The crisis requires measures to fix the gaps already identified in previous years, and in particular in the minimum income scheme, which is one of the least adequate in the Union for lifting recipients out of poverty. Issues such as ensuring social protection for all, including non-standard workers, self-employed and low-income households, ensuring income support, food and adequate social services, as well as providing emergency housing and support for homeless persons, remain relevant. The reform of social services would help stabilising the system, while a stronger cooperation between health and social services would allow reaching out further to those unable to take care of themselves and people with disabilities. Many Roma households, already in deep poverty prior to the crisis, are in need of mediation services and essential services and support.

| (23) | Enhanced provision of education and training services and a better skilled workforce would also strongly underpin the recovery and promote inclusive and sustainable growth in the medium term. There is still scope for improving the quality, labour market relevance and inclusiveness of education and training in Bulgaria. Bulgaria is among the Member States in which socioeconomic background has the strongest influence on learning outcomes. Roma inclusion in education remains a challenge, with early school leaving being particularly high among Roma and in rural areas. The overall level of digital skills is low among the population (aged 16-74), including also for the young people (aged 16-19). Improving digital skills, for example through more digitally aligned degrees and curricula, could help to adapt to labour market changes produced by digitalisation and to the need for digital remote work. At the same time, there are still 11 % of students who do not have computers and/or internet access and 2 000 teachers without computers. The current remote learning situation risks therefore to worsen the already high inequalities in education and training, despite some recent support measures. Further efforts to improve the digital knowledge of all students and their access to adequate technical infrastructure would have a positive long-lasting impact on their access to education, in particular for vulnerable groups, including Roma, thus helping to reduce their high drop-out rates. |
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(23)

Enhanced provision of education and training services and a better skilled workforce would also strongly underpin the recovery and promote inclusive and sustainable growth in the medium term. There is still scope for improving the quality, labour market relevance and inclusiveness of education and training in Bulgaria. Bulgaria is among the Member States in which socioeconomic background has the strongest influence on learning outcomes. Roma inclusion in education remains a challenge, with early school leaving being particularly high among Roma and in rural areas. The overall level of digital skills is low among the population (aged 16-74), including also for the young people (aged 16-19). Improving digital skills, for example through more digitally aligned degrees and curricula, could help to adapt to labour market changes produced by digitalisation and to the need for digital remote work. At the same time, there are still 11 % of students who do not have computers and/or internet access and 2 000 teachers without computers. The current remote learning situation risks therefore to worsen the already high inequalities in education and training, despite some recent support measures. Further efforts to improve the digital knowledge of all students and their access to adequate technical infrastructure would have a positive long-lasting impact on their access to education, in particular for vulnerable groups, including Roma, thus helping to reduce their high drop-out rates.

| (24) | The COVID-19 crisis highlighted the strategic importance of an efficient public administration and of a well-functioning digital government, including e-health and e-procurement. Reforms in this field have been supported by the Union, but their implementation is progressing too slowly and this negatively affected the effectiveness of the public sector during the lockdown period. Bulgaria is therefore lagging behind in the provision of e-services, and their uptake by citizens and businesses should be encouraged. Issues related to cybersecurity and security of critical infrastructure will also need to be fully addressed. Looking forward, an effective public administration will be key for ensuring the timely and effective implementation of the recovery measures. Cooperation and coordination at all levels of government, including on public contracts and concessions, as well as on market surveillance, remain particularly important. A stronger regulatory predictability and stability, effective control over policy implementation, and a reduction of the administrative burden, would improve the business environment and promote investment, positively affecting the speed of the recovery. |
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(24)

The COVID-19 crisis highlighted the strategic importance of an efficient public administration and of a well-functioning digital government, including e-health and e-procurement. Reforms in this field have been supported by the Union, but their implementation is progressing too slowly and this negatively affected the effectiveness of the public sector during the lockdown period. Bulgaria is therefore lagging behind in the provision of e-services, and their uptake by citizens and businesses should be encouraged. Issues related to cybersecurity and security of critical infrastructure will also need to be fully addressed. Looking forward, an effective public administration will be key for ensuring the timely and effective implementation of the recovery measures. Cooperation and coordination at all levels of government, including on public contracts and concessions, as well as on market surveillance, remain particularly important. A stronger regulatory predictability and stability, effective control over policy implementation, and a reduction of the administrative burden, would improve the business environment and promote investment, positively affecting the speed of the recovery.

| (25) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The COVID-19 crisis brought further up the importance of digitalisation and innovation, where Bulgaria, and in particular its SMEs, is performing well below the Union average. One significant instance of this issue is the spectrum planned to be allocated in the 5G pioneer bands, which falls short of what is required to enable timely and effective provision of 5G services. The known issues in the research and higher education system, such as fragmentation, low funding and limited knowledge and technology transfer, still need to be tackled. At the same time, Bulgaria is the most resource-, energy-, and greenhouse-gas-emission-intensive economy in the Union, with important investment needs in the fields of energy and decarbonisation to facilitate the transition to climate neutrality, as described in Bulgaria’s National Energy and Climate Plan. |
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(25)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The COVID-19 crisis brought further up the importance of digitalisation and innovation, where Bulgaria, and in particular its SMEs, is performing well below the Union average. One significant instance of this issue is the spectrum planned to be allocated in the 5G pioneer bands, which falls short of what is required to enable timely and effective provision of 5G services. The known issues in the research and higher education system, such as fragmentation, low funding and limited knowledge and technology transfer, still need to be tackled. At the same time, Bulgaria is the most resource-, energy-, and greenhouse-gas-emission-intensive economy in the Union, with important investment needs in the fields of energy and decarbonisation to facilitate the transition to climate neutrality, as described in Bulgaria’s National Energy and Climate Plan.

| (26) | Transformation efforts for tackling Bulgaria’s high energy intensity, significant reliance on fossil fuels, and inefficient use of energy and resources are at a very initial stage. The National Energy and Climate Plan stresses Bulgaria’s commitment to decarbonise its economy by 2050 in the context of the European Green Deal, but also states the intention to keep Bulgaria’s reliance on domestic lignite sources for 2050 and beyond. The coverage and quality of transport infrastructure in Bulgaria remains below the Union average and the Trans-European Transport Network is still incomplete. The multimodal platforms network, some rail and road sections, and the European rail traffic management systems and intelligent transport systems remain underdeveloped. Significant environmental issues need to be tackled, as they affect sustainable growth and have created additional health risks during the COVID-19 crisis. Bulgaria is among the Member States with the largest incidence of pollution-related deaths, and waste management and compliance with urban waste-water collection and treatment obligations continue to be a challenge. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Bulgaria to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Bulgaria to make the best use of that Fund. |
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(26)

Transformation efforts for tackling Bulgaria’s high energy intensity, significant reliance on fossil fuels, and inefficient use of energy and resources are at a very initial stage. The National Energy and Climate Plan stresses Bulgaria’s commitment to decarbonise its economy by 2050 in the context of the European Green Deal, but also states the intention to keep Bulgaria’s reliance on domestic lignite sources for 2050 and beyond. The coverage and quality of transport infrastructure in Bulgaria remains below the Union average and the Trans-European Transport Network is still incomplete. The multimodal platforms network, some rail and road sections, and the European rail traffic management systems and intelligent transport systems remain underdeveloped. Significant environmental issues need to be tackled, as they affect sustainable growth and have created additional health risks during the COVID-19 crisis. Bulgaria is among the Member States with the largest incidence of pollution-related deaths, and waste management and compliance with urban waste-water collection and treatment obligations continue to be a challenge. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Bulgaria to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Bulgaria to make the best use of that Fund.

| (27) | Having a properly functioning insolvency framework will be important for the recovery of the real economy in the aftermath of the COVID-19 crisis, which might bring a significant increase of bankruptcies. Such framework would also facilitate a more rapid resolution of NPLs, thus limiting their further accumulation. At the same time, the ineffectiveness of the insolvency framework results in slow and costly insolvency proceedings. In June 2019, the insolvency framework roadmap was adopted and identified relevant gaps. Bulgaria has started its implementation and is preparing follow-up steps, including legislative changes and capacity-building activities. |
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(27)

Having a properly functioning insolvency framework will be important for the recovery of the real economy in the aftermath of the COVID-19 crisis, which might bring a significant increase of bankruptcies. Such framework would also facilitate a more rapid resolution of NPLs, thus limiting their further accumulation. At the same time, the ineffectiveness of the insolvency framework results in slow and costly insolvency proceedings. In June 2019, the insolvency framework roadmap was adopted and identified relevant gaps. Bulgaria has started its implementation and is preparing follow-up steps, including legislative changes and capacity-building activities.

| (28) | Bulgaria adopted several laws in 2019 aiming at transposing Directives (EU) 2015/849 (7) and (EU) 2018/843 (8) of the European Parliament and of the Council (Fourth and Fifth Anti-Money Laundering Directives) whose implementation is pending. The recently completed National Risk Assessment shows weaknesses that need urgent mitigation to prevent money laundering and terrorist financing. The risks linked to citizenship by investment scheme programs and to virtual assets have not been properly assessed yet. Actions need to be designed and implemented to deliver an effective application of the anti-money-laundering framework by obliged entities. The effectiveness of implementation and enforcement of the anti-money-laundering framework have been limited and the use of financial intelligence has been insufficient. |
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(28)

Bulgaria adopted several laws in 2019 aiming at transposing Directives (EU) 2015/849 (7) and (EU) 2018/843 (8) of the European Parliament and of the Council (Fourth and Fifth Anti-Money Laundering Directives) whose implementation is pending. The recently completed National Risk Assessment shows weaknesses that need urgent mitigation to prevent money laundering and terrorist financing. The risks linked to citizenship by investment scheme programs and to virtual assets have not been properly assessed yet. Actions need to be designed and implemented to deliver an effective application of the anti-money-laundering framework by obliged entities. The effectiveness of implementation and enforcement of the anti-money-laundering framework have been limited and the use of financial intelligence has been insufficient.

| (29) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(29)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (30) | Bulgarian banks are overall profitable and well-capitalised. Despite some declines in recent years, the ratio of gross NPLs and advances remains at 7,2 % in the third quarter of 2019 among the highest in the Union, in particular by non-financial corporations and for domestically-owned banks, whereby further efforts to promote a functioning secondary NPL market remain important. NPL provisioning has been on a downward path since late 2018, accompanied sometimes by under-provisioning of the existing NPLs with long overdue. The comprehensive assessment conducted by the European Central Bank revealed the need to increase capital in two banks. The recapitalisation is being finalised. Increased provision of liquidity by banks to mitigate the impact of COVID-19 crisis and relaunch the economic growth should be coupled with banks’ application of credit risk assessment and prudent credit standards, sound valuation practices and accurate reporting of any deterioration in asset quality. |
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(30)

Bulgarian banks are overall profitable and well-capitalised. Despite some declines in recent years, the ratio of gross NPLs and advances remains at 7,2 % in the third quarter of 2019 among the highest in the Union, in particular by non-financial corporations and for domestically-owned banks, whereby further efforts to promote a functioning secondary NPL market remain important. NPL provisioning has been on a downward path since late 2018, accompanied sometimes by under-provisioning of the existing NPLs with long overdue. The comprehensive assessment conducted by the European Central Bank revealed the need to increase capital in two banks. The recapitalisation is being finalised. Increased provision of liquidity by banks to mitigate the impact of COVID-19 crisis and relaunch the economic growth should be coupled with banks’ application of credit risk assessment and prudent credit standards, sound valuation practices and accurate reporting of any deterioration in asset quality.

| (31) | The Commission has been monitoring Bulgaria’s progress in the fields of judicial reform and the fight against corruption in the context of the Cooperation and Verification Mechanism (CVM). As a result, these areas have so far not been covered in the country-specific recommendations for Bulgaria, but are relevant for developing a positive socioeconomic environment in the country. The latest CVM report of October 2019 noted that progress made by Bulgaria is sufficient to meet Bulgaria’s commitments made at the time of its accession to the Union. Bulgaria carried out an extensive reform of its anti-corruption legal framework, though a solid track record of final convictions in high-level corruption cases is needed to build public trust. Furthermore, a number of challenges persist, in particular ensuring effective criminal investigations, rebalancing the workload among courts, and streamlining local prosecution service offices. After the end of the CVM, the monitoring of reforms will be ensured at the national level by a post-monitoring council and at the Union level in the framework of the comprehensive rule of law mechanism as well as, where appropriate, the European Semester. |
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(31)

The Commission has been monitoring Bulgaria’s progress in the fields of judicial reform and the fight against corruption in the context of the Cooperation and Verification Mechanism (CVM). As a result, these areas have so far not been covered in the country-specific recommendations for Bulgaria, but are relevant for developing a positive socioeconomic environment in the country. The latest CVM report of October 2019 noted that progress made by Bulgaria is sufficient to meet Bulgaria’s commitments made at the time of its accession to the Union. Bulgaria carried out an extensive reform of its anti-corruption legal framework, though a solid track record of final convictions in high-level corruption cases is needed to build public trust. Furthermore, a number of challenges persist, in particular ensuring effective criminal investigations, rebalancing the workload among courts, and streamlining local prosecution service offices. After the end of the CVM, the monitoring of reforms will be ensured at the national level by a post-monitoring council and at the Union level in the framework of the comprehensive rule of law mechanism as well as, where appropriate, the European Semester.

| (32) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Bulgaria will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(32)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Bulgaria will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (33) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Bulgaria’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Bulgaria in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Bulgaria, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(33)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Bulgaria’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Bulgaria in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Bulgaria, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (34) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (9) is reflected in particular in recommendation (1) below, |
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(34)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (9) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Bulgaria take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Mobilise adequate financial resources to strengthen the resilience, accessibility and capacity of the health system, and ensure a balanced regional distribution of health workers, matching population needs. |
| --- | --- |

1.

| 2. | Ensure adequate social protection and essential services for all and strengthen active labour market policies. Improve access to distance working and promote digital skills and equal access to education. Address the shortcomings in the adequacy of the minimum income scheme. |
| --- | --- |

2.

| 3. | Streamline and accelerate the procedures to provide effective support to SMEs and self-employed, also ensuring their continued access to finance and flexible payment arrangements. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy and resources, environmental infrastructure and sustainable transport, contributing to a progressive decarbonisation of the economy, including in the coal regions. |
| --- | --- |

3.

| 4. | Minimise administrative burden to companies by improving the effectiveness of public administration and reinforcing digital government. Ensure an effective functioning of the insolvency framework. Step up the efforts to ensure adequate risk assessment, mitigation, effective supervision and enforcement of the anti-money-laundering framework. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 8.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141 5.6.2015, p. 73).

7

(8)  Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (OJ L 156, 19.6.2018, p. 43).

8

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

9

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/15 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/15

---

COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Czechia and delivering a Council opinion on the 2020 Convergence Programme of Czechia

(2020/C 282/03)

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 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 9(2) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Czechia as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Czechia as one of the Member States for which an in-depth review would be carried out.

| (2) | The 2020 country report for Czechia was published on 26 February 2020. It assessed Czechia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Czechia’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Czechia was published on 26 February 2020. It assessed Czechia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Czechia’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the CO VID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the CO VID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Czechia is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Czechia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. Therefore, the current situation entails a substantial risk of widening regional and territorial disparities within Czechia, or creating new territorial disparities at sub-regional level, aggravating the already observed trend of widening disparities between the Karlovarský and Ústecký regions and the rest of the country. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. Therefore, the current situation entails a substantial risk of widening regional and territorial disparities within Czechia, or creating new territorial disparities at sub-regional level, aggravating the already observed trend of widening disparities between the Karlovarský and Ústecký regions and the rest of the country. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Czechia submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Convergence Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

Czechia submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Convergence Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Czechia is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(11)

Czechia is currently in the preventive arm of the Stability and Growth Pact.

| (12) | In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,3 % of gross domestic product (GDP) in 2019 to a deficit of 5,1 % of GDP in 2020. The deficit is projected to decline to 4,1 % of GDP in 2021. After decreasing to 30,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 37 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic. |
| --- | --- |

(12)

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,3 % of gross domestic product (GDP) in 2019 to a deficit of 5,1 % of GDP in 2020. The deficit is projected to decline to 4,1 % of GDP in 2021. After decreasing to 30,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 37 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Czechia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 4 % of GDP. The measures include compensatory tax bonuses and remission of social and health insurance obligations for six months for the self-employed (1 % of GDP), a short-term working scheme (1 % of GDP), remission of personal and corporate income tax advance payments due in June 2020 (0,8 % of GDP) and health-related measures (0,7 % of GDP). In addition, Czechia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. They include mostly guarantee schemes to provide loans to small and medium-sized enterprises and large enterprises. However, the 2020 Convergence Programme does not quantify the contingent liabilities linked to those announced measures. Most of the measures underpinning the 2020 Convergence Programme were also included in the Commission 2020 spring forecast. A few measures which could not be quantified or were extended beyond the cut-off date could not be included. Overall, the measures taken by Czechia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Czechia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 4 % of GDP. The measures include compensatory tax bonuses and remission of social and health insurance obligations for six months for the self-employed (1 % of GDP), a short-term working scheme (1 % of GDP), remission of personal and corporate income tax advance payments due in June 2020 (0,8 % of GDP) and health-related measures (0,7 % of GDP). In addition, Czechia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. They include mostly guarantee schemes to provide loans to small and medium-sized enterprises and large enterprises. However, the 2020 Convergence Programme does not quantify the contingent liabilities linked to those announced measures. Most of the measures underpinning the 2020 Convergence Programme were also included in the Commission 2020 spring forecast. A few measures which could not be quantified or were extended beyond the cut-off date could not be included. Overall, the measures taken by Czechia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Czechia’s general government balance is forecast at -6,7 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
| --- | --- |

(14)

Based on the Commission 2020 spring forecast under unchanged policies, Czechia’s general government balance is forecast at -6,7 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Czechia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Czechia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | Czechia declared a state of emergency between 12 March 2020 and 17 May 2020 to curb the impact of the COVID-19 pandemic, closing schools, restricting events and the operation of shops, and significantly limiting gathering of people. Between 15 March 2020 and 17 May 2020 land borders were also partially closed. This limited the number of outgoing Czech workers and the number of incoming foreign workers, creating local labour bottlenecks, in particular in manufacturing and seasonal works, and impacted essential supply chains. To help households and firms through the crisis, the government announced a stimulus package involving direct support measures and public guarantees. While this may provide temporary relief, the economy is still expected to be badly hit in 2020, as external demand drops and lockdown measures disrupt economic activity. Real GDP is expected to recover gradually in 2021, but it is unlikely to rebound to 2019 values over the 2020-2021 forecast period. The impact on sectors such as transport, hospitality and tourism is expected to be significant. Unemployment will rise but this will be cushioned by a previously tight labour market, the stimulus package, and the low share of temporary contracts. To ensure liquidity support, the authorities launched a number of schemes of State guarantees for enterprises of all sizes. There is also a deferral of consumer loan and mortgage repayments for three or six months for households and firms affected by the crisis. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. The Czech National Bank has also adopted various measures to cushion the impact of the crisis on the financial sector. |
| --- | --- |

(16)

Czechia declared a state of emergency between 12 March 2020 and 17 May 2020 to curb the impact of the COVID-19 pandemic, closing schools, restricting events and the operation of shops, and significantly limiting gathering of people. Between 15 March 2020 and 17 May 2020 land borders were also partially closed. This limited the number of outgoing Czech workers and the number of incoming foreign workers, creating local labour bottlenecks, in particular in manufacturing and seasonal works, and impacted essential supply chains. To help households and firms through the crisis, the government announced a stimulus package involving direct support measures and public guarantees. While this may provide temporary relief, the economy is still expected to be badly hit in 2020, as external demand drops and lockdown measures disrupt economic activity. Real GDP is expected to recover gradually in 2021, but it is unlikely to rebound to 2019 values over the 2020-2021 forecast period. The impact on sectors such as transport, hospitality and tourism is expected to be significant. Unemployment will rise but this will be cushioned by a previously tight labour market, the stimulus package, and the low share of temporary contracts. To ensure liquidity support, the authorities launched a number of schemes of State guarantees for enterprises of all sizes. There is also a deferral of consumer loan and mortgage repayments for three or six months for households and firms affected by the crisis. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. The Czech National Bank has also adopted various measures to cushion the impact of the crisis on the financial sector.

| (17) | Early COVID-19 health-related mitigation efforts have helped to slow the spread of the virus in Czechia. Measures have been taken to increase the supply of medical equipment and ensure the necessary infrastructure and thus prepare the health system to cope with the increased demand. The health status of the Czech population had improved significantly in recent years, getting closer to the EU average. However, there are substantial regional differences in life expectancy, partly determined by socioeconomic and behavioural factors. While the overall level of self-reported unmet needs for medical care is among the lowest in the Union, regional disparities persist as regards the distribution of healthcare resources and personnel, who have faced increased strains. A substantial proportion of the health workforce is expected to retire in the coming years. To mitigate the impact of the COVID-19 pandemic, going forward will require improving the resilience and the crisis preparedness of the health system, while supporting equal access to increased provision of primary care and integrated care to reduce avoidable hospitalisations. This may also improve prevention and mitigate other health conditions. E-health solutions are still limited despite the existence of a 2016-2020 national e-health strategy. |
| --- | --- |

(17)

Early COVID-19 health-related mitigation efforts have helped to slow the spread of the virus in Czechia. Measures have been taken to increase the supply of medical equipment and ensure the necessary infrastructure and thus prepare the health system to cope with the increased demand. The health status of the Czech population had improved significantly in recent years, getting closer to the EU average. However, there are substantial regional differences in life expectancy, partly determined by socioeconomic and behavioural factors. While the overall level of self-reported unmet needs for medical care is among the lowest in the Union, regional disparities persist as regards the distribution of healthcare resources and personnel, who have faced increased strains. A substantial proportion of the health workforce is expected to retire in the coming years. To mitigate the impact of the COVID-19 pandemic, going forward will require improving the resilience and the crisis preparedness of the health system, while supporting equal access to increased provision of primary care and integrated care to reduce avoidable hospitalisations. This may also improve prevention and mitigate other health conditions. E-health solutions are still limited despite the existence of a 2016-2020 national e-health strategy.

| (18) | Throughout 2019 and early 2020, Czechia’s labour market remained robust, with most indicators showing positive outcomes. The employment rate continued to rise and unemployment fell to its lowest rate ever. However, according to the Commission 2020 spring forecast, the latter is expected to rise to 5,0 % in 2020 and slightly decrease to 4,2 % in 2021. The government responded promptly to the COVID-19 pandemic by introducing many measures to protect incomes and employment, with a particular focus on enterprises and the self-employed. However, some vulnerable groups in the labour market (workers in short-term contracts and those hired through temporary work agencies) are not fully protected by the proposed mitigating measures. The closure of childcare and schools during the lockdown may have particularly affected women with significant caring responsibilities. Promoting investment in childcare and long-term care coupled with flexible working arrangements, such as teleworking, should smooth the transition from the crisis. More targeted active labour market policies and skills provision, in consultation with social partners, support both the retention of employees and job transitions. Outreach actions by the public employment services can also facilitate a successful re-entry in the labour market, in particular for vulnerable groups. Easier and faster access to social protection would help avoid poverty traps and housing evictions. Education outcomes continue to be strongly affected by socioeconomic inequalities and low investment. Ensuring equal access to inclusive quality education and training, including in the digital context, can help improve skills levels and expand digital learning. Fostering digital skills, including through support and continuous training for teachers and trainers, is particularly crucial. Public spending per student at all educational levels remains comparatively low. Shortages of qualified teachers indicate the need to raise the attractiveness of the profession, in particular for talented young people. |
| --- | --- |

(18)

Throughout 2019 and early 2020, Czechia’s labour market remained robust, with most indicators showing positive outcomes. The employment rate continued to rise and unemployment fell to its lowest rate ever. However, according to the Commission 2020 spring forecast, the latter is expected to rise to 5,0 % in 2020 and slightly decrease to 4,2 % in 2021. The government responded promptly to the COVID-19 pandemic by introducing many measures to protect incomes and employment, with a particular focus on enterprises and the self-employed. However, some vulnerable groups in the labour market (workers in short-term contracts and those hired through temporary work agencies) are not fully protected by the proposed mitigating measures. The closure of childcare and schools during the lockdown may have particularly affected women with significant caring responsibilities. Promoting investment in childcare and long-term care coupled with flexible working arrangements, such as teleworking, should smooth the transition from the crisis. More targeted active labour market policies and skills provision, in consultation with social partners, support both the retention of employees and job transitions. Outreach actions by the public employment services can also facilitate a successful re-entry in the labour market, in particular for vulnerable groups. Easier and faster access to social protection would help avoid poverty traps and housing evictions. Education outcomes continue to be strongly affected by socioeconomic inequalities and low investment. Ensuring equal access to inclusive quality education and training, including in the digital context, can help improve skills levels and expand digital learning. Fostering digital skills, including through support and continuous training for teachers and trainers, is particularly crucial. Public spending per student at all educational levels remains comparatively low. Shortages of qualified teachers indicate the need to raise the attractiveness of the profession, in particular for talented young people.

| (19) | Czechia is among the countries that could be particularly affected by technological change and that need significant investment in this area. Digital transformation will require support, including in industry and service sectors, through targeted investment in smart solutions and skills. The target for full fixed broadband coverage has been reached but mobile broadband remains relatively expensive. Delays to infrastructure development could particularly affect vulnerable groups and structurally weak regions at greater risk of being isolated. This might have also negative consequences in the epidemic monitoring and control. To address connectivity needs, investment is needed in very-high-capacity networks, fixed and mobile networks, and appropriate demand-side measures. The timely assignment of 5G spectrum under predictable conditions conducive to investment will be essential to achieve that. Take-up of ultra-fast broadband services is curbed by low demand resulting from multiple variables such as subscription price as well as population purchasing power, age and education. The authorities are committed to the development and integration of new digital technologies, but this is hampered by persistently low skills levels. The Czech authorities are committed to encouraging solutions based on artificial intelligence, but despite the government’s efforts in this area, Czechia still lags behind frontier Member States in terms of research and patent activities in this area. |
| --- | --- |

(19)

Czechia is among the countries that could be particularly affected by technological change and that need significant investment in this area. Digital transformation will require support, including in industry and service sectors, through targeted investment in smart solutions and skills. The target for full fixed broadband coverage has been reached but mobile broadband remains relatively expensive. Delays to infrastructure development could particularly affect vulnerable groups and structurally weak regions at greater risk of being isolated. This might have also negative consequences in the epidemic monitoring and control. To address connectivity needs, investment is needed in very-high-capacity networks, fixed and mobile networks, and appropriate demand-side measures. The timely assignment of 5G spectrum under predictable conditions conducive to investment will be essential to achieve that. Take-up of ultra-fast broadband services is curbed by low demand resulting from multiple variables such as subscription price as well as population purchasing power, age and education. The authorities are committed to the development and integration of new digital technologies, but this is hampered by persistently low skills levels. The Czech authorities are committed to encouraging solutions based on artificial intelligence, but despite the government’s efforts in this area, Czechia still lags behind frontier Member States in terms of research and patent activities in this area.

| (20) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Czechia’s National Energy and Climate Plan reports important investment needs to tackle successfully the climate and energy transition and move towards climate neutrality. This is particularly the case for the promotion of renewable energy resources, energy efficiency, infrastructure and parts of the transmission system. Climate change effects are already visible in the form of droughts and floods, causing significant economic losses. Air pollution is also a perennial problem. At the same time, pollution taxes are very low. Coal continues to dominate the power sector and it remains an important driver of economic activity in three Czech regions. The constrained development capacity of project promoters and the limited advisory support provided by the Czech authorities remain a significant bottleneck for developing a robust pipeline of projects implementing the twin climate and digital transitions in those regions. Overall, the transition away from coal is expected to have significant socioeconomic consequences and there appear to be little appetite to date for investment in zero- and low- greenhouse gas technologies. The production of renewable energy is below the EU average. The sector lacks financial incentives and an appropriate legal and institutional framework to support its further development. There also seems to be a low awareness about the wider benefits of energy efficiency. The shift to electromobility has been rather slow and road transport is becoming one of the main consumers of energy. Transport taxes are low and not based on the CO2 emissions. The electric vehicle charging infrastructure is still embryonic. Performance in waste management remains moderate in view of more ambitious targets. A comprehensive strategy to develop the circularity potential of the economy is missing. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Czechia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Czechia to make the best use of that Fund. |
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(20)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Czechia’s National Energy and Climate Plan reports important investment needs to tackle successfully the climate and energy transition and move towards climate neutrality. This is particularly the case for the promotion of renewable energy resources, energy efficiency, infrastructure and parts of the transmission system. Climate change effects are already visible in the form of droughts and floods, causing significant economic losses. Air pollution is also a perennial problem. At the same time, pollution taxes are very low. Coal continues to dominate the power sector and it remains an important driver of economic activity in three Czech regions. The constrained development capacity of project promoters and the limited advisory support provided by the Czech authorities remain a significant bottleneck for developing a robust pipeline of projects implementing the twin climate and digital transitions in those regions. Overall, the transition away from coal is expected to have significant socioeconomic consequences and there appear to be little appetite to date for investment in zero- and low- greenhouse gas technologies. The production of renewable energy is below the EU average. The sector lacks financial incentives and an appropriate legal and institutional framework to support its further development. There also seems to be a low awareness about the wider benefits of energy efficiency. The shift to electromobility has been rather slow and road transport is becoming one of the main consumers of energy. Transport taxes are low and not based on the CO2 emissions. The electric vehicle charging infrastructure is still embryonic. Performance in waste management remains moderate in view of more ambitious targets. A comprehensive strategy to develop the circularity potential of the economy is missing. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Czechia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Czechia to make the best use of that Fund.

| (21) | Access to conventional finance is above the EU average, but risk financing is less developed. Funding for high-risk domestic enterprises, especially at seed and later development stage remains scarce. While some successful innovative initiatives have been brought to market, venture and equity capital financing remain very low. Research and innovation in Czechia are hampered by a need for systemic reform. Although the steady growth of private investment in research and development (R & D) continues, large, mostly foreign-owned firms, invest noticeably more into intangible assets like R & D, than small and medium domestic firms. The medium- and high-tech industry suffers from skills shortages due to low numbers of science, technology, engineering and maths (STEM) graduates and inadequate graduate training. At the same time, the promotion of and support for entrepreneurship remains low, hampering productivity growth. A high degree of fragmentation in the research sector results in R & D funding being spread too thinly. Public-private cooperation is hindered by the current researchers’ career assessment practices. Closer cooperation between academia and business, in particular via spin-offs, could accelerate technology transfer and the diffusion of innovation. |
| --- | --- |

(21)

Access to conventional finance is above the EU average, but risk financing is less developed. Funding for high-risk domestic enterprises, especially at seed and later development stage remains scarce. While some successful innovative initiatives have been brought to market, venture and equity capital financing remain very low. Research and innovation in Czechia are hampered by a need for systemic reform. Although the steady growth of private investment in research and development (R & D) continues, large, mostly foreign-owned firms, invest noticeably more into intangible assets like R & D, than small and medium domestic firms. The medium- and high-tech industry suffers from skills shortages due to low numbers of science, technology, engineering and maths (STEM) graduates and inadequate graduate training. At the same time, the promotion of and support for entrepreneurship remains low, hampering productivity growth. A high degree of fragmentation in the research sector results in R & D funding being spread too thinly. Public-private cooperation is hindered by the current researchers’ career assessment practices. Closer cooperation between academia and business, in particular via spin-offs, could accelerate technology transfer and the diffusion of innovation.

| (22) | The COVID-19 lockdown measures have put a strain on supply chains and many businesses have been unable to operate, while also lacking liquidity reserves. The automotive and the services sectors have been affected most. Market surveillance activities are spread over too many authorities and cooperation and coordination are not optimal. Official schemes to provide firms with state guarantees have been quickly oversubscribed. There is scope for better coordination and faster processes to channel support to companies. Some stakeholders see the measures adopted by the Czech authorities to ease the impact of the COVID-19 crisis as bureaucratic and slow to roll out in the real economy. There is scope for a better analysis of data necessary for taking fast, informed and optimal decisions on targeted economic recovery strategies and measures. In general, fast-changing legislation and complex administrative procedures are seen by the business sector as obstacles to investment. Administrative burden is particularly problematic for start-ups in terms of licences and permits. The lengthy and heavy procedures to obtain a construction permit is an important barrier. The proposed new construction legislation is facing criticism. Czechia is among the least advanced Member States in terms of using digital public services. The number of e-government users remains far below the EU average. The country is implementing its e- government plan. As of 2020 the country has a new ‘digital constitution’ that gives right, as of 2025 at the latest, to receive nearly all public services electronically. Nonetheless, only a relatively small share of municipalities offer online solutions. The parliament is currently discussing a change of the Tax Code, which aims at increasing the digitalisation of the tax system as the rate of electronic filing remains rather low for certain taxes. |
| --- | --- |

(22)

The COVID-19 lockdown measures have put a strain on supply chains and many businesses have been unable to operate, while also lacking liquidity reserves. The automotive and the services sectors have been affected most. Market surveillance activities are spread over too many authorities and cooperation and coordination are not optimal. Official schemes to provide firms with state guarantees have been quickly oversubscribed. There is scope for better coordination and faster processes to channel support to companies. Some stakeholders see the measures adopted by the Czech authorities to ease the impact of the COVID-19 crisis as bureaucratic and slow to roll out in the real economy. There is scope for a better analysis of data necessary for taking fast, informed and optimal decisions on targeted economic recovery strategies and measures. In general, fast-changing legislation and complex administrative procedures are seen by the business sector as obstacles to investment. Administrative burden is particularly problematic for start-ups in terms of licences and permits. The lengthy and heavy procedures to obtain a construction permit is an important barrier. The proposed new construction legislation is facing criticism. Czechia is among the least advanced Member States in terms of using digital public services. The number of e-government users remains far below the EU average. The country is implementing its e- government plan. As of 2020 the country has a new ‘digital constitution’ that gives right, as of 2025 at the latest, to receive nearly all public services electronically. Nonetheless, only a relatively small share of municipalities offer online solutions. The parliament is currently discussing a change of the Tax Code, which aims at increasing the digitalisation of the tax system as the rate of electronic filing remains rather low for certain taxes.

| (23) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(23)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (24) | Czechia’s public sector performance and government effectiveness rank below the EU average. According to international indicators, it performs relatively well on access to government information in policymaking. It performs less well on the professionalism of the civil service, transparency of government and control of corruption. Better strategic planning and inter-ministerial coordination, and less fragmentation in local government would improve the efficiency of public administration. The procurement framework has improved but may warrant further fine-tuning. Despite slight improvements, corruption remains a concern for businesses and may further hinder economic activity. Adoption of several anti-corruption measures, including bills on lobbying and whistle-blower protection, is still pending. |
| --- | --- |

(24)

Czechia’s public sector performance and government effectiveness rank below the EU average. According to international indicators, it performs relatively well on access to government information in policymaking. It performs less well on the professionalism of the civil service, transparency of government and control of corruption. Better strategic planning and inter-ministerial coordination, and less fragmentation in local government would improve the efficiency of public administration. The procurement framework has improved but may warrant further fine-tuning. Despite slight improvements, corruption remains a concern for businesses and may further hinder economic activity. Adoption of several anti-corruption measures, including bills on lobbying and whistle-blower protection, is still pending.

| (25) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Czechia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(25)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Czechia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (26) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Czechia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Czechia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Czechia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(26)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Czechia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Czechia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Czechia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (27) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
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(27)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Czechia take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Ensure the resilience of the health system, strengthen the availability of health workers, primary care and the integration of care, and deployment of e-health services. |
| --- | --- |

1.

| 2. | Support employment through active labour market policies, the provision of skills, including digital skills, and access to digital learning. |
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2.

| 3. | Support small and medium-sized enterprises by making greater use of financial instruments to ensure liquidity support, reducing the administrative burden and improving e-government. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on high-capacity digital infrastructure and technologies, clean and efficient production and use of energy, and sustainable transport infrastructure, including in the coal regions. Ensure access to finance for innovative firms and improve public-private cooperation in research and development. |
| --- | --- |

3.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 15.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/22 |
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26.8.2020

EN

Official Journal of the European Union

C 282/22

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Denmark and delivering a Council opinion on the 2020 Convergence Programme of Denmark

(2020/C 282/04)

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 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 9(2) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Denmark as one of the Member States for which an in-depth review would be carried out. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Denmark as one of the Member States for which an in-depth review would be carried out.

| (2) | The 2020 country report for Denmark was published on 26 February 2020. It assessed Denmark’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Denmark’s progress towards its national Europe 2020 targets. |
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(2)

The 2020 country report for Denmark was published on 26 February 2020. It assessed Denmark’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Denmark’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Denmark is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Denmark is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | Denmark submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Convergence Programme on 5 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(9)

Denmark submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Convergence Programme on 5 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (10) | Denmark is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(10)

Denmark is currently in the preventive arm of the Stability and Growth Pact.

| (11) | In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 3,7 % of gross domestic product (GDP) in 2019 to a deficit of 8,0 % of GDP in 2020. The deficit is projected to decline to 2,4 % of GDP in 2021. After decreasing to 33,2 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 40,7 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(11)

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 3,7 % of gross domestic product (GDP) in 2019 to a deficit of 8,0 % of GDP in 2020. The deficit is projected to decline to 2,4 % of GDP in 2021. After decreasing to 33,2 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 40,7 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (12) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Denmark has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 4,9 % of GDP. The measures include strengthening healthcare services, temporary compensation for fixed costs of businesses, temporary wage compensation scheme and emergency aid for distressed sectors. In addition, Denmark has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at approximately 15 % of GDP. Those measures include tax deferrals for personal and corporate income taxes and loan guarantees (3,7 % of GDP). Compared to the Commission 2020 spring forecast, the main difference is that the 2020 Convergence Programme includes expected future losses stemming from COVID-19-related State guarantees (0,5 % of GDP). Overall, the measures taken by Denmark are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(12)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Denmark has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 4,9 % of GDP. The measures include strengthening healthcare services, temporary compensation for fixed costs of businesses, temporary wage compensation scheme and emergency aid for distressed sectors. In addition, Denmark has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at approximately 15 % of GDP. Those measures include tax deferrals for personal and corporate income taxes and loan guarantees (3,7 % of GDP). Compared to the Commission 2020 spring forecast, the main difference is that the 2020 Convergence Programme includes expected future losses stemming from COVID-19-related State guarantees (0,5 % of GDP). Overall, the measures taken by Denmark are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (13) | Based on the Commission 2020 spring forecast under unchanged policies, Denmark’s general government balance is forecast at -7,2 % of GDP in 2020 and -2,3 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
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(13)

Based on the Commission 2020 spring forecast under unchanged policies, Denmark’s general government balance is forecast at -7,2 % of GDP in 2020 and -2,3 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (14) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Denmark’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(14)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Denmark’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (15) | The COVID-19 pandemic affected Denmark heavily in the first half of 2020, putting the health system under pressure and markedly reducing economic activity in certain sectors. Denmark implemented timely measures to stem the pandemic and to strengthen the health system, including far-ranging initiatives to mitigate its economic consequences. The resulting economic downturn was addressed by a series of strong economic and financial measures by the government and the Central Bank, including direct support to partly cover businesses’ fixed costs and wage expenditures, tax deferrals and liquidity provision for banks and firms, credit schemes and other monetary policy measures. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. These measures effectively reduced the economic shock of the COVID-19 pandemic, but did not prevent a significant loss of output, a large number of bankruptcies and insolvencies and marked increases in unemployment and persons at risk of poverty, including among those in vulnerable situations (e.g. persons with disabilities). According to the Commission 2020 spring forecast, unemployment is expected to moderately increase to around 6,5 % in 2020 before decreasing to below 6 % in 2021. |
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(15)

The COVID-19 pandemic affected Denmark heavily in the first half of 2020, putting the health system under pressure and markedly reducing economic activity in certain sectors. Denmark implemented timely measures to stem the pandemic and to strengthen the health system, including far-ranging initiatives to mitigate its economic consequences. The resulting economic downturn was addressed by a series of strong economic and financial measures by the government and the Central Bank, including direct support to partly cover businesses’ fixed costs and wage expenditures, tax deferrals and liquidity provision for banks and firms, credit schemes and other monetary policy measures. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. These measures effectively reduced the economic shock of the COVID-19 pandemic, but did not prevent a significant loss of output, a large number of bankruptcies and insolvencies and marked increases in unemployment and persons at risk of poverty, including among those in vulnerable situations (e.g. persons with disabilities). According to the Commission 2020 spring forecast, unemployment is expected to moderately increase to around 6,5 % in 2020 before decreasing to below 6 % in 2021.

| (16) | The ongoing COVID-19 crisis underlines the need for Denmark to continuously work to strengthen the resilience of its health system. One issue of particular concern is the shortage of health workers, and the lack of specialised doctors and nurses in e.g. intensive care (in particular nurse anaesthetists). Continuous efforts to address these labour shortages is key. In the short term, Denmark should work to ensure the availability of critical medical products, including personal protective equipment for health workers. Research is ongoing to find not only an antiviral treatment and a vaccine, but also better and faster testing. |
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(16)

The ongoing COVID-19 crisis underlines the need for Denmark to continuously work to strengthen the resilience of its health system. One issue of particular concern is the shortage of health workers, and the lack of specialised doctors and nurses in e.g. intensive care (in particular nurse anaesthetists). Continuous efforts to address these labour shortages is key. In the short term, Denmark should work to ensure the availability of critical medical products, including personal protective equipment for health workers. Research is ongoing to find not only an antiviral treatment and a vaccine, but also better and faster testing.

| (17) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Denmark is performing well in the field of digitisation, as evidenced by the European Commission’s Digital Scoreboard. However, to maintain this strong position in the long term and to ensure its competitiveness and benefit from the digital transformation, Denmark would need investment in digital infrastructure as well in education, training and upskilling. Denmark’s National Energy and Climate Plan reports important investment needs to tackle successfully the climate and energy transition. The largest investments are required for the installation of new renewable energy capacity, while significant investment needs are also identified in households (energy efficiency and conversion of heat supply), sustainable transport, industry as well as biogas and district heating. Denmark’s climate policy objectives aim to reduce greenhouse gas emissions by 70 % by 2030, compared with 1990, and achieve climate neutrality by 2050 at the latest. To reflect this, energy consumption would need to be put on a downward trend, requiring investments that follow a comprehensive approach and focus on sectors where energy savings are particularly promising. The economic recovery from the COVID-19 crisis could be fostered by front-loading planned green investments and advancing ambitious environmental, climate, energy and infrastructure investment projects, such as in housing, offshore wind, energy connectivity and railway electrification. Transport is Denmark’s largest source of greenhouse gas emission, making further policy action in this area particularly pertinent. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Denmark to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Denmark to make the best use of that Fund. |
| --- | --- |

(17)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Denmark is performing well in the field of digitisation, as evidenced by the European Commission’s Digital Scoreboard. However, to maintain this strong position in the long term and to ensure its competitiveness and benefit from the digital transformation, Denmark would need investment in digital infrastructure as well in education, training and upskilling. Denmark’s National Energy and Climate Plan reports important investment needs to tackle successfully the climate and energy transition. The largest investments are required for the installation of new renewable energy capacity, while significant investment needs are also identified in households (energy efficiency and conversion of heat supply), sustainable transport, industry as well as biogas and district heating. Denmark’s climate policy objectives aim to reduce greenhouse gas emissions by 70 % by 2030, compared with 1990, and achieve climate neutrality by 2050 at the latest. To reflect this, energy consumption would need to be put on a downward trend, requiring investments that follow a comprehensive approach and focus on sectors where energy savings are particularly promising. The economic recovery from the COVID-19 crisis could be fostered by front-loading planned green investments and advancing ambitious environmental, climate, energy and infrastructure investment projects, such as in housing, offshore wind, energy connectivity and railway electrification. Transport is Denmark’s largest source of greenhouse gas emission, making further policy action in this area particularly pertinent. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Denmark to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Denmark to make the best use of that Fund.

| (18) | Overall research and development (R & D) spending has not translated into higher productivity growth in Denmark. An integrated innovation strategy, which clearly spells out what Denmark wants to achieve within the global innovation landscape, is missing. Research and innovation activity remains concentrated in a small number of large firms and foundations and mostly in the pharmaceutical and biotechnology sectors. The eight largest companies account for almost 40 % of total private R & D expenditure (versus worldwide average of 19 %). Overall R & D spending remains high, but the absolute number of companies active in R & D has declined since 2009, largely because smaller firms are not engaging in R & D. Only 33 % of SMEs introduced product or process innovations. Therefore further policy efforts could be needed to broaden the innovation base with the objective to include more companies. Responding to changing skill needs after the COVID-19 pandemic, also in light of future technological changes, requires sustained investment in upskilling and reskilling schemes, including through adult learning. |
| --- | --- |

(18)

Overall research and development (R & D) spending has not translated into higher productivity growth in Denmark. An integrated innovation strategy, which clearly spells out what Denmark wants to achieve within the global innovation landscape, is missing. Research and innovation activity remains concentrated in a small number of large firms and foundations and mostly in the pharmaceutical and biotechnology sectors. The eight largest companies account for almost 40 % of total private R & D expenditure (versus worldwide average of 19 %). Overall R & D spending remains high, but the absolute number of companies active in R & D has declined since 2009, largely because smaller firms are not engaging in R & D. Only 33 % of SMEs introduced product or process innovations. Therefore further policy efforts could be needed to broaden the innovation base with the objective to include more companies. Responding to changing skill needs after the COVID-19 pandemic, also in light of future technological changes, requires sustained investment in upskilling and reskilling schemes, including through adult learning.

| (19) | Denmark has taken steps to strengthen its anti-money laundering (AML) framework. In 2019, new legislation was adopted and national authorities and regulators started to implement a range of measures to strengthen Denmark’s preventive AML framework. The Financial Supervisory Authority has been granted sanctioning powers and a higher budget to enhance its AML supervisory capacity. The Financial Intelligence Unit has also received additional staffing and funding. It is crucial that the enhanced AML framework is translated into effective supervision and enforcement. In particular, the AML supervisor will need to fully implement the risk-based approach. The enhanced capacity of the Financial Intelligence Unit will need to show that weaknesses, highlighted by the Danish Court of Auditors report, have been adequately addressed. |
| --- | --- |

(19)

Denmark has taken steps to strengthen its anti-money laundering (AML) framework. In 2019, new legislation was adopted and national authorities and regulators started to implement a range of measures to strengthen Denmark’s preventive AML framework. The Financial Supervisory Authority has been granted sanctioning powers and a higher budget to enhance its AML supervisory capacity. The Financial Intelligence Unit has also received additional staffing and funding. It is crucial that the enhanced AML framework is translated into effective supervision and enforcement. In particular, the AML supervisor will need to fully implement the risk-based approach. The enhanced capacity of the Financial Intelligence Unit will need to show that weaknesses, highlighted by the Danish Court of Auditors report, have been adequately addressed.

| (20) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(20)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (21) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Denmark will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(21)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Denmark will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (22) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Denmark’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Denmark in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Denmark, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(22)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Denmark’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Denmark in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Denmark, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (23) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
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(23)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Denmark take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Enhance the resilience of the health system, including by ensuring sufficient critical medical products and addressing the shortage of health workers. |
| --- | --- |

1.

| 2. | Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, sustainable transport as well as research and innovation. Support an integrated innovation strategy with a broader investment base. |
| --- | --- |

2.

| 3. | Improve the effectiveness of anti-money laundering supervision and effectively enforce the anti-money laundering framework. |
| --- | --- |

3.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 20.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/27 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/27

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Germany and delivering a Council opinion on the 2020 Stability Programme of Germany

(2020/C 282/05)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Germany as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Germany as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Germany was published on 26 February 2020. It assessed Germany’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Germany’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Germany is experiencing macroeconomic imbalances. In particular, the high current-account surplus reflects a subdued level of investment relative to savings and has cross-border relevance. |
| --- | --- |

(2)

The 2020 country report for Germany was published on 26 February 2020. It assessed Germany’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Germany’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Germany is experiencing macroeconomic imbalances. In particular, the high current-account surplus reflects a subdued level of investment relative to savings and has cross-border relevance.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Germany is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Germany is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Germany. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Germany. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Germany submitted its 2020 National Reform Programme on 20 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(10)

Germany submitted its 2020 National Reform Programme on 20 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Germany is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
| --- | --- |

(11)

Germany is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,4 % of gross domestic product (GDP) in 2019 to a deficit of 71⁄4 % of GDP in 2020. After decreasing to 59,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 751⁄4 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,4 % of gross domestic product (GDP) in 2019 to a deficit of 71⁄4 % of GDP in 2020. After decreasing to 59,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 751⁄4 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Germany has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, in 2020 those budgetary measures amount to 7,2 % of GDP. The measures include liquidity support for companies, targeted assistance for small companies and self-employed by grants and loans as well as easier access to short-time working schemes to prevent lay-offs. In addition, Germany has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 24,9 % of GDP. Those measures consist of loan guarantees mainly provided by the State-owned development bank KfW as well as by the new Economic Stabilisation Fund, created in response to the COVID-19 pandemic. Contrary to the 2020 Stability Programme, the Commission’s estimates do not consider tax deferrals and the budgetary compensations for decreasing tax revenues due to the economic downturn as discretionary measures with a budgetary impact. Overall, the measures taken by Germany are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Germany has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, in 2020 those budgetary measures amount to 7,2 % of GDP. The measures include liquidity support for companies, targeted assistance for small companies and self-employed by grants and loans as well as easier access to short-time working schemes to prevent lay-offs. In addition, Germany has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 24,9 % of GDP. Those measures consist of loan guarantees mainly provided by the State-owned development bank KfW as well as by the new Economic Stabilisation Fund, created in response to the COVID-19 pandemic. Contrary to the 2020 Stability Programme, the Commission’s estimates do not consider tax deferrals and the budgetary compensations for decreasing tax revenues due to the economic downturn as discretionary measures with a budgetary impact. Overall, the measures taken by Germany are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Germany’s general government balance is forecast at -7,0 % of GDP in 2020 and -1,5 % of GDP in 2021. The general government debt ratio is projected to reach 75,6 % of GDP in 2020 and 71,8 % in 2021. |
| --- | --- |

(14)

Based on the Commission 2020 spring forecast under unchanged policies, Germany’s general government balance is forecast at -7,0 % of GDP in 2020 and -1,5 % of GDP in 2021. The general government debt ratio is projected to reach 75,6 % of GDP in 2020 and 71,8 % in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Germany’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Germany’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | The first infection in Germany was registered on 27 January 2020 and the number of COVID-19 cases started to increase exponentially in March 2020. The German authorities then responded with confinement measures to contain the spread of the virus, such as closing all non-essential retail shops, restaurants, entertainment and cultural establishments, sports facilities, schools and universities. All public gatherings of more than two persons were forbidden and people were asked to keep all social contacts to a minimum. Manufacturing has not been subject to confinement measures per se. However major factories were closed over a number of weeks due to disrupted foreign trade and squeezed demand. The economic outlook deteriorated strongly, with the Commission 2020 spring forecast pointing to a GDP decline of 6,5 % in 2020. Even if the expansion of short-time work arrangements (Kurzarbeit) helps companies to keep their workers, an increase in unemployment looks impossible to escape. According to the Commission 2020 spring forecast, unemployment is expected to rise to 4 % in 2020 and recover to 3,5 % in 2021. |
| --- | --- |

(16)

The first infection in Germany was registered on 27 January 2020 and the number of COVID-19 cases started to increase exponentially in March 2020. The German authorities then responded with confinement measures to contain the spread of the virus, such as closing all non-essential retail shops, restaurants, entertainment and cultural establishments, sports facilities, schools and universities. All public gatherings of more than two persons were forbidden and people were asked to keep all social contacts to a minimum. Manufacturing has not been subject to confinement measures per se. However major factories were closed over a number of weeks due to disrupted foreign trade and squeezed demand. The economic outlook deteriorated strongly, with the Commission 2020 spring forecast pointing to a GDP decline of 6,5 % in 2020. Even if the expansion of short-time work arrangements (Kurzarbeit) helps companies to keep their workers, an increase in unemployment looks impossible to escape. According to the Commission 2020 spring forecast, unemployment is expected to rise to 4 % in 2020 and recover to 3,5 % in 2021.

| (17) | To cushion the economic fallout, the German government has reacted quickly and has adopted far-reaching measures. Up to EUR 50 billion are being offered in immediate assistance (direct grants) to small businesses, the self-employed and freelancers. Through the newly created Economic Stabilisation Fund and the public development bank KfW, the government has expanded the volume of and access to loans for firms of different sizes covering up to 80-90 % of the lending bank’s credit risk (in some special cases, up to 100 %). The Economic Stabilisation Fund can also support large companies by providing additional equity capital on a temporary basis. To boost the liquidity of companies, adjustments to tax deferrals, prepayments and penalties have been adopted. Insolvency rules have been modified to avoid technical insolvency procedures. The individual states (Länder) are complementing the federal measures with their own support programmes. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account. The COVID-19 crisis is likely to exert further pressure on the already low profitability of the German banking sector. Thus, further reducing costs appears warranted for German banks to ameliorate profitability and free up funds for information technology investment and organic capital creation. Further consolidation would also help in this regard. |
| --- | --- |

(17)

To cushion the economic fallout, the German government has reacted quickly and has adopted far-reaching measures. Up to EUR 50 billion are being offered in immediate assistance (direct grants) to small businesses, the self-employed and freelancers. Through the newly created Economic Stabilisation Fund and the public development bank KfW, the government has expanded the volume of and access to loans for firms of different sizes covering up to 80-90 % of the lending bank’s credit risk (in some special cases, up to 100 %). The Economic Stabilisation Fund can also support large companies by providing additional equity capital on a temporary basis. To boost the liquidity of companies, adjustments to tax deferrals, prepayments and penalties have been adopted. Insolvency rules have been modified to avoid technical insolvency procedures. The individual states (Länder) are complementing the federal measures with their own support programmes. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account. The COVID-19 crisis is likely to exert further pressure on the already low profitability of the German banking sector. Thus, further reducing costs appears warranted for German banks to ameliorate profitability and free up funds for information technology investment and organic capital creation. Further consolidation would also help in this regard.

| (18) | After starting strongly at the beginning of the year, the labour market has deteriorated as a result of the COVID-19 pandemic and related lockdown measures. To cushion both the employment and social impacts of the crisis, the government has provided substantial support through the short-time work arrangement scheme ‘Kurzarbeit’. It eased conditions for accessing it, retroactively extended the scheme to temporary agency workers and increased its level of compensation. This helps to preserve jobs and protect household incomes. Employers are receiving financial relief by not having to pay the social security contributions, for the lost working time. The facilitated access to minimum income support (based on Book II of the German Social Code ‘Sozialgesetzbuch/SGB’) provides relief against income losses. In addition, low-income families are being supported through easier access to child supplement. In addition, tenants facing a loss of income are temporarily protected against eviction. While Germany performed well on the Social Scoreboard supporting the European Pillar of Social Rights, gaps in coverage, if not closed, may lead to reduced income for vulnerable groups in the context of the current crisis. |
| --- | --- |

(18)

After starting strongly at the beginning of the year, the labour market has deteriorated as a result of the COVID-19 pandemic and related lockdown measures. To cushion both the employment and social impacts of the crisis, the government has provided substantial support through the short-time work arrangement scheme ‘Kurzarbeit’. It eased conditions for accessing it, retroactively extended the scheme to temporary agency workers and increased its level of compensation. This helps to preserve jobs and protect household incomes. Employers are receiving financial relief by not having to pay the social security contributions, for the lost working time. The facilitated access to minimum income support (based on Book II of the German Social Code ‘Sozialgesetzbuch/SGB’) provides relief against income losses. In addition, low-income families are being supported through easier access to child supplement. In addition, tenants facing a loss of income are temporarily protected against eviction. While Germany performed well on the Social Scoreboard supporting the European Pillar of Social Rights, gaps in coverage, if not closed, may lead to reduced income for vulnerable groups in the context of the current crisis.

| (19) | In tackling the health consequences, Germany benefitted from its universal health system that provides access to high-quality care and managed to rapidly increase its testing and intensive-care capacity. The ongoing COVID-19 crisis, however, underlines the continuous need to strengthen the resilience of the health system. The availability of nursing staff and the attractiveness of the nursing profession remain an issue. Despite a comparatively high number of practicing nurses per capita, hospitals have increasingly reported unfilled positions for nurses. Coordination between healthcare providers in primary and hospital care, and between health and social care, could also be improved and supported by digital tools. E-health infrastructure is being deployed at an accelerated pace, but the use of online health and care services, e-prescriptions and medical data exchange remains well below the Union average. A new law passed in March 2020 helps mitigate the economic consequences from COVID-19 primarily for hospitals and doctors in private practice. Nevertheless, the long-term financing of healthcare institutions will have to be secured in order to maintain care in all areas, as the postponement of dispensable surgeries and treatments hurt the financial revenues of institutions in the health sector, and available resources are being used to purchase priority tests and equipment. With a strong research base, Germany has the capacity to engage in specific research and innovation measures to respond to the COVID-19 crisis, including the development of vaccines and therapeutics and the development of a research network to bundle and strengthen the research activities of German university medicine and provide support to the Coalition for Epidemic Preparedness Innovations. |
| --- | --- |

(19)

In tackling the health consequences, Germany benefitted from its universal health system that provides access to high-quality care and managed to rapidly increase its testing and intensive-care capacity. The ongoing COVID-19 crisis, however, underlines the continuous need to strengthen the resilience of the health system. The availability of nursing staff and the attractiveness of the nursing profession remain an issue. Despite a comparatively high number of practicing nurses per capita, hospitals have increasingly reported unfilled positions for nurses. Coordination between healthcare providers in primary and hospital care, and between health and social care, could also be improved and supported by digital tools. E-health infrastructure is being deployed at an accelerated pace, but the use of online health and care services, e-prescriptions and medical data exchange remains well below the Union average. A new law passed in March 2020 helps mitigate the economic consequences from COVID-19 primarily for hospitals and doctors in private practice. Nevertheless, the long-term financing of healthcare institutions will have to be secured in order to maintain care in all areas, as the postponement of dispensable surgeries and treatments hurt the financial revenues of institutions in the health sector, and available resources are being used to purchase priority tests and equipment. With a strong research base, Germany has the capacity to engage in specific research and innovation measures to respond to the COVID-19 crisis, including the development of vaccines and therapeutics and the development of a research network to bundle and strengthen the research activities of German university medicine and provide support to the Coalition for Epidemic Preparedness Innovations.

| (20) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment. Public and private investment continued to increase robustly in 2019 but lagged behind investment needs. Public investment is below the replacement rate at municipal level, where the backlog of investments has decreased, but remains high at 4,0 % of GDP but is still held back by capacity and planning constraints. Investments in green technologies and energy that have already been planned can be frontloaded, for instance projects for building renovations and renewables. Despite recent initiatives, meeting short- and medium-term decarbonisation targets and 2050 climate neutrality targets remains a challenge. This is also true for environmental and energy efficiency targets, as price incentives, especially with low oil prices due to the current COVID-19 crisis, discourage climate and environmentally-friendly behaviour. Germany’s transformation to a climate neutral economy will require sizeable private and public investment over a sustained period in renewable energy, electricity infrastructure, energy efficiency, circular economy and sustainable transport, among others. Furthermore, Germany’s Federal Audit Office criticised the cost-effectiveness of measures related to the green energy transition. More efforts and sustained investments in energy networks are needed to reap the benefits of a fully integrated sustainable energy system, with consistent price signals. Clean mobility can be promoted through appropriate regulatory measures and with stronger and faster investment in sustainable transport infrastructure and clean mobility solutions. Additional investment in research and development (R & D) is essential to foster a recovery towards a more sustainable and competitive economy. Spending on education and research increased slightly from 9,2 % in 2017 to 9,31 % of GDP in 2018, falling short of the previous national target of 10 %. Private R & D investment is increasingly concentrated in large firms. The supply of housing remained well below the annual housing target of building 375 000 new flats between 2017 and 2021, in spite of policy measures. Policies encouraging investment into new housing would address this imbalance and improve housing affordability. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Germany to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Germany to make the best use of that Fund. |
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(20)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment. Public and private investment continued to increase robustly in 2019 but lagged behind investment needs. Public investment is below the replacement rate at municipal level, where the backlog of investments has decreased, but remains high at 4,0 % of GDP but is still held back by capacity and planning constraints. Investments in green technologies and energy that have already been planned can be frontloaded, for instance projects for building renovations and renewables. Despite recent initiatives, meeting short- and medium-term decarbonisation targets and 2050 climate neutrality targets remains a challenge. This is also true for environmental and energy efficiency targets, as price incentives, especially with low oil prices due to the current COVID-19 crisis, discourage climate and environmentally-friendly behaviour. Germany’s transformation to a climate neutral economy will require sizeable private and public investment over a sustained period in renewable energy, electricity infrastructure, energy efficiency, circular economy and sustainable transport, among others. Furthermore, Germany’s Federal Audit Office criticised the cost-effectiveness of measures related to the green energy transition. More efforts and sustained investments in energy networks are needed to reap the benefits of a fully integrated sustainable energy system, with consistent price signals. Clean mobility can be promoted through appropriate regulatory measures and with stronger and faster investment in sustainable transport infrastructure and clean mobility solutions. Additional investment in research and development (R & D) is essential to foster a recovery towards a more sustainable and competitive economy. Spending on education and research increased slightly from 9,2 % in 2017 to 9,31 % of GDP in 2018, falling short of the previous national target of 10 %. Private R & D investment is increasingly concentrated in large firms. The supply of housing remained well below the annual housing target of building 375 000 new flats between 2017 and 2021, in spite of policy measures. Policies encouraging investment into new housing would address this imbalance and improve housing affordability. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Germany to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Germany to make the best use of that Fund.

| (21) | A modern digital infrastructure and digital services are crucial when mobility is restricted. Investments in digital infrastructure and public services can support the economic recovery and help reduce Germany’s gap with other countries in the coverage of very-high capacity networks, which remains substantial. In Germany, that coverage was 32,7 % in 2019, compared to a Union average of 44 %, while the fibre-to-the-premises coverage was 10,5 %, well below the Union average of 33,5 %. The COVID-19 crisis underlined the importance of connected digital services. Connectivity gaps can be a main factor hampering investment in digitalisation, in particular for small and medium-sized enterprises (‘SMEs’), which remain slow adopters of digital technologies. Germany still underperforms in digital public services among Member States, despite an improvement in such services for businesses. However, the level of online interaction between the public authorities and the general public is very low. Implementation of the Online Access Act is proceeding slowly, and it will be a challenge to meet the goal of digitalising all 575 services by the end of 2022. That Act should be implemented by all public bodies involved – federal, state and local authorities – in order to generate more significant improvements in digital public administration. |
| --- | --- |

(21)

A modern digital infrastructure and digital services are crucial when mobility is restricted. Investments in digital infrastructure and public services can support the economic recovery and help reduce Germany’s gap with other countries in the coverage of very-high capacity networks, which remains substantial. In Germany, that coverage was 32,7 % in 2019, compared to a Union average of 44 %, while the fibre-to-the-premises coverage was 10,5 %, well below the Union average of 33,5 %. The COVID-19 crisis underlined the importance of connected digital services. Connectivity gaps can be a main factor hampering investment in digitalisation, in particular for small and medium-sized enterprises (‘SMEs’), which remain slow adopters of digital technologies. Germany still underperforms in digital public services among Member States, despite an improvement in such services for businesses. However, the level of online interaction between the public authorities and the general public is very low. Implementation of the Online Access Act is proceeding slowly, and it will be a challenge to meet the goal of digitalising all 575 services by the end of 2022. That Act should be implemented by all public bodies involved – federal, state and local authorities – in order to generate more significant improvements in digital public administration.

| (22) | It is important to keep regulatory and administrative burdens low for the implementation of the support measures and beyond. Keeping the administrative burden at a minimum for access to support measures should ensure that smaller businesses receive the same support from intermediaries as larger ones. Reducing other administrative burdens more broadly, i.e., beyond support measures, for example by applying flexibility for non-essential bureaucratic procedures, can provide additional relief to SMEs. |
| --- | --- |

(22)

It is important to keep regulatory and administrative burdens low for the implementation of the support measures and beyond. Keeping the administrative burden at a minimum for access to support measures should ensure that smaller businesses receive the same support from intermediaries as larger ones. Reducing other administrative burdens more broadly, i.e., beyond support measures, for example by applying flexibility for non-essential bureaucratic procedures, can provide additional relief to SMEs.

| (23) | Already before the emergence of the COVID-19 crisis, technological progress was transforming the labour market, requiring increased funding of education and training, including reskilling and upskilling and improving digital skills. The COVID-19 crisis made this need even more pressing, in particular in the case of workers employed in sectors that may be impacted for a longer time by social distancing or those at risk of becoming unemployed. The sudden shift to a more digitalised society and home-based education may pose a particular challenge for vulnerable pupils and students who do not have access to digital solutions and support at home. This includes students with disabilities. Special care is needed to ensure that all pupils and students acquire the key skills set out in the curriculum and that the months of disruption due to COVID-19 do not result in a lifetime of disadvantage. Already existing inequalities in basic skills, linked to socioeconomic and migrant backgrounds, risk to be exacerbated. The crisis has highlighted the importance of further developing the educational system to promote a smart and inclusive recovery and to stay on track to pursue the green and digital transition. |
| --- | --- |

(23)

Already before the emergence of the COVID-19 crisis, technological progress was transforming the labour market, requiring increased funding of education and training, including reskilling and upskilling and improving digital skills. The COVID-19 crisis made this need even more pressing, in particular in the case of workers employed in sectors that may be impacted for a longer time by social distancing or those at risk of becoming unemployed. The sudden shift to a more digitalised society and home-based education may pose a particular challenge for vulnerable pupils and students who do not have access to digital solutions and support at home. This includes students with disabilities. Special care is needed to ensure that all pupils and students acquire the key skills set out in the curriculum and that the months of disruption due to COVID-19 do not result in a lifetime of disadvantage. Already existing inequalities in basic skills, linked to socioeconomic and migrant backgrounds, risk to be exacerbated. The crisis has highlighted the importance of further developing the educational system to promote a smart and inclusive recovery and to stay on track to pursue the green and digital transition.

| (24) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(24)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (25) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Germany will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(25)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Germany will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (26) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Germany should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(26)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Germany should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (27) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Germany’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Germany in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Germany, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(27)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Germany’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Germany in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Germany, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (28) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below. |
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(28)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below.

| (29) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (2) below, |
| --- | --- |

(29)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (2) below,

HEREBY RECOMMENDS that Germany take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Mobilise adequate resources and strengthen the resilience of the health system, including by deploying e-health services. |
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1.

| 2. | Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on sustainable transport, clean, efficient and integrated energy systems, digital infrastructure and skills, housing, education and research and innovation. Improve digital public services across all levels and foster the digitalisation in SMEs. Reduce the regulatory and administrative burden for businesses. |
| --- | --- |

2.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 24.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/33 |
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26.8.2020

EN

Official Journal of the European Union

C 282/33

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Estonia and delivering a Council opinion on the 2020 Stability Programme of Estonia

(2020/C 282/06)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Estonia was published on 26 February 2020. It assessed Estonia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Estonia’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Estonia was published on 26 February 2020. It assessed Estonia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Estonia’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Estonia is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Estonia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Estonia. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Estonia. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Estonia submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Stability Programme on 28 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

Estonia submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Stability Programme on 28 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Estonia is currently in the preventive arm of the Stability and Growth Pact. As part of the country-specific recommendations adopted by the Council on 13 July 2018 (7), the Council recommended Estonia to ensure that the nominal growth rate of net primary government expenditure (8) does not exceed 4,1 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure are not warranted. |
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(11)

Estonia is currently in the preventive arm of the Stability and Growth Pact. As part of the country-specific recommendations adopted by the Council on 13 July 2018 (7), the Council recommended Estonia to ensure that the nominal growth rate of net primary government expenditure (8) does not exceed 4,1 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure are not warranted.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 0,3 % of GDP in 2019 to a deficit of 10,1 % of GDP in 2020. The deficit is projected to decline to 3,8 % of GDP in 2021. After decreasing to 8,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 21,9 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 0,3 % of GDP in 2019 to a deficit of 10,1 % of GDP in 2020. The deficit is projected to decline to 3,8 % of GDP in 2021. After decreasing to 8,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 21,9 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Estonia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,3 % of GDP. The measures include strengthening healthcare services, emergency aid for distressed companies, temporary wage subsidies and higher public investments. In addition, Estonia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include loan guarantees and loans to businesses amounting to 8,7 % of GDP. Overall, the measures taken by Estonia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fical measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Estonia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,3 % of GDP. The measures include strengthening healthcare services, emergency aid for distressed companies, temporary wage subsidies and higher public investments. In addition, Estonia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include loan guarantees and loans to businesses amounting to 8,7 % of GDP. Overall, the measures taken by Estonia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fical measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Estonia’s general government balance is forecast at -8,3 % of GDP in 2020 and -3,4 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021, reaching 22,6 % of GDP in 2021. The Commission 2020 spring forecast projects a lower government deficit for 2020 than the 2020 Stability Programme, reflecting differences in the macroeconomic projections. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Estonia’s general government balance is forecast at -8,3 % of GDP in 2020 and -3,4 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021, reaching 22,6 % of GDP in 2021. The Commission 2020 spring forecast projects a lower government deficit for 2020 than the 2020 Stability Programme, reflecting differences in the macroeconomic projections.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Estonia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Estonia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | Between 12 March 2020 and 17 May 2020, the Estonian government declared an emergency situation due to the COVID-19 pandemic. The government’s immediate response aimed at preventing the further spread of the virus and ensuring the Estonian economy could function as normally as possible. The restrictions to stop the spread of the pandemic had a serious impact on the economy. Since the emergency situation was declared, the number of registered unemployed people has increased by 35 %. The largest number of newly unemployed people has been registered in retail and customer service, construction, catering, accommodation, and event management. The unemployment rate is expected to rise to 9,2 % in 2020 and recover to 6,5 % in 2021. On 15 April 2020, the Estonian parliament approved the 2020 supplementary budget. New measures were introduced aimed at preserving jobs, avoiding massive layoffs and ensuring liquidity of businesses. The budget contains a wide range of measures including support to the healthcare sector, municipalities, some investment programmes, and non-targeted liquidity support for companies (such as guarantee schemes and tax deferrals). Some specific measures are designed for microenterprises and the tourism sector, including some targeted measures for the hardest hit regions. Additional tax measures have been introduced, such as temporarily lowering excise duties on diesel fuel, natural gas and electricity. The package of measures envisages a temporary suspension of the State contributions to the second pillar pension scheme. |
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(16)

Between 12 March 2020 and 17 May 2020, the Estonian government declared an emergency situation due to the COVID-19 pandemic. The government’s immediate response aimed at preventing the further spread of the virus and ensuring the Estonian economy could function as normally as possible. The restrictions to stop the spread of the pandemic had a serious impact on the economy. Since the emergency situation was declared, the number of registered unemployed people has increased by 35 %. The largest number of newly unemployed people has been registered in retail and customer service, construction, catering, accommodation, and event management. The unemployment rate is expected to rise to 9,2 % in 2020 and recover to 6,5 % in 2021. On 15 April 2020, the Estonian parliament approved the 2020 supplementary budget. New measures were introduced aimed at preserving jobs, avoiding massive layoffs and ensuring liquidity of businesses. The budget contains a wide range of measures including support to the healthcare sector, municipalities, some investment programmes, and non-targeted liquidity support for companies (such as guarantee schemes and tax deferrals). Some specific measures are designed for microenterprises and the tourism sector, including some targeted measures for the hardest hit regions. Additional tax measures have been introduced, such as temporarily lowering excise duties on diesel fuel, natural gas and electricity. The package of measures envisages a temporary suspension of the State contributions to the second pillar pension scheme.

| (17) | Estonia has taken notable measures to contain the spread and health impact of COVID-19. Nevertheless, the COVID-19 pandemic revealed some structural weakness in the health system related to the limited financial and human resources available. The resilience of the system has been undermined by the shortages of health workers and by the uneven access to primary care and the availability of critical medical products. Estonia is also facing a challenge of overcoming the backlog of postponed and inaccessible treatments caused by the emergency situation. Moreover, even before the COVID-19 pandemic, the self-reported unmet needs for medical care in Estonia were one of the highest in the Union due to long waiting times for both primary and specialist care. These factors and lifestyle-related risks help explain the poor health status of the population. Improving the accessibility and resilience of the health system are preconditions to ensuring an efficient response to pandemic spreads and addressing the challenges linked to the health status of the population. |
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(17)

Estonia has taken notable measures to contain the spread and health impact of COVID-19. Nevertheless, the COVID-19 pandemic revealed some structural weakness in the health system related to the limited financial and human resources available. The resilience of the system has been undermined by the shortages of health workers and by the uneven access to primary care and the availability of critical medical products. Estonia is also facing a challenge of overcoming the backlog of postponed and inaccessible treatments caused by the emergency situation. Moreover, even before the COVID-19 pandemic, the self-reported unmet needs for medical care in Estonia were one of the highest in the Union due to long waiting times for both primary and specialist care. These factors and lifestyle-related risks help explain the poor health status of the population. Improving the accessibility and resilience of the health system are preconditions to ensuring an efficient response to pandemic spreads and addressing the challenges linked to the health status of the population.

| (18) | Improving the adequacy of the social safety net has been a longstanding challenge in Estonia. Even before the most recent crisis, social benefits in Estonia were assessed as less effective than the EU average in reducing the incidence of poverty. Moreover, there are gaps in the coverage of the unemployment benefit system for those in non-standard forms of work and those with short work spells. The negative effect of the COVID-19 pandemic on employment and incomes, combined with the lack of adequate coverage, could increase poverty, in particular for jobless households. Estonia introduced a temporary short-time work scheme as a special subsidy for affected companies to maintain employment. This measure is limited to a period of two months, which may not be sufficient to mitigate the impact of the crisis as the difficulties may last longer and reach some economic sectors with a delay. The COVID-19 pandemic aggravated the difficulties in providing affordable and available social services, including long-term care services, especially for the elderly, people with disabilities and low-income earners. Maintaining the plan to develop an integrated provision of social and health services would help to address those challenges. It is important to ensure the meaningful and timely involvement of social partners in the design of the exit and recovery process while strengthening their capacity to do so. |
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(18)

Improving the adequacy of the social safety net has been a longstanding challenge in Estonia. Even before the most recent crisis, social benefits in Estonia were assessed as less effective than the EU average in reducing the incidence of poverty. Moreover, there are gaps in the coverage of the unemployment benefit system for those in non-standard forms of work and those with short work spells. The negative effect of the COVID-19 pandemic on employment and incomes, combined with the lack of adequate coverage, could increase poverty, in particular for jobless households. Estonia introduced a temporary short-time work scheme as a special subsidy for affected companies to maintain employment. This measure is limited to a period of two months, which may not be sufficient to mitigate the impact of the crisis as the difficulties may last longer and reach some economic sectors with a delay. The COVID-19 pandemic aggravated the difficulties in providing affordable and available social services, including long-term care services, especially for the elderly, people with disabilities and low-income earners. Maintaining the plan to develop an integrated provision of social and health services would help to address those challenges. It is important to ensure the meaningful and timely involvement of social partners in the design of the exit and recovery process while strengthening their capacity to do so.

| (19) | The COVID-19 crisis affected Estonian companies in many sectors, but small and medium-sized enterprises (SMEs) have been affected the most. The negative impact on the economic activities was driven not only by the restrictions, but also by the declining demand in export markets and disruptions to global value chains. The liquidity support measures taken by the government are designed to help mitigate the impact, but their swift and effective implementation will be key to supporting viable firms in all affected sectors while sustaining the resilience of the banking sector. Deferrals of taxes as well as credit holidays can also help improve the cash-flow of SMEs. Moreover, the recovery process will depend on how well the investments will be targeted. The current crisis brought up the importance of digital and innovative solutions in keeping the economy going. While e-government has functioned well, further digitalisation of SMEs would increase their resilience and help speed up the recovery, bringing productivity gains in the medium term. In recent years, the economy as a whole has been increasingly digitalised. However, the take-up of information and communication technologies in manufacturing has so far been slow. While Estonia’s overall innovation performance improved in 2019, the levels of research-based innovation capacity and activity in the business sector remain low. Research-based innovation and the introduction of innovative solutions in companies could improve the country’s competitive position and boost economic growth. To help companies recover from the COVID-19 crisis, it will be important to ensure good access to finance, including to equity financing for start-ups. |
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(19)

The COVID-19 crisis affected Estonian companies in many sectors, but small and medium-sized enterprises (SMEs) have been affected the most. The negative impact on the economic activities was driven not only by the restrictions, but also by the declining demand in export markets and disruptions to global value chains. The liquidity support measures taken by the government are designed to help mitigate the impact, but their swift and effective implementation will be key to supporting viable firms in all affected sectors while sustaining the resilience of the banking sector. Deferrals of taxes as well as credit holidays can also help improve the cash-flow of SMEs. Moreover, the recovery process will depend on how well the investments will be targeted. The current crisis brought up the importance of digital and innovative solutions in keeping the economy going. While e-government has functioned well, further digitalisation of SMEs would increase their resilience and help speed up the recovery, bringing productivity gains in the medium term. In recent years, the economy as a whole has been increasingly digitalised. However, the take-up of information and communication technologies in manufacturing has so far been slow. While Estonia’s overall innovation performance improved in 2019, the levels of research-based innovation capacity and activity in the business sector remain low. Research-based innovation and the introduction of innovative solutions in companies could improve the country’s competitive position and boost economic growth. To help companies recover from the COVID-19 crisis, it will be important to ensure good access to finance, including to equity financing for start-ups.

| (20) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. As notably reflected in its National Energy and Climate Plan, Estonia’s sustainable growth relies on progress towards decarbonisation through lowering carbon intensity in the energy, transport and building sectors, restructuring the oil shale industry and improving resource productivity, including implementing circular economy business models. Estonia’s resource productivity is one of the lowest in the Union, while energy consumption levels are above the EU average. Having an overarching circular economy strategy as a complement to the National Energy and Climate Plan could help the transition towards decarbonisation, reduce the negative environmental impact of the oil shale industry and boost the economy. As a peripheral country with a low population density, a well-functioning and interconnected transport system is key for Estonia’s economic activities and exports. Estonia’s transport infrastructure faces some shortcomings in terms of connectivity and sustainability. Rail and intermodal transport remain underdeveloped. Greenhouse gas emissions from road transport have increased in recent years, and renewable energy in transport remains below the national targets. The Rail Baltica project and the energy interconnection projects are among Estonia’s key investment priorities aimed at improving its safety and integration into the internal market. Promoting investment projects that take into account environmental and climate considerations is key to a sustainable economic recovery and reducing regional disparities. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Estonia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territory covered by Annex D to the 2020 country report. This would allow Estonia to make the best use of that Fund. |
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(20)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. As notably reflected in its National Energy and Climate Plan, Estonia’s sustainable growth relies on progress towards decarbonisation through lowering carbon intensity in the energy, transport and building sectors, restructuring the oil shale industry and improving resource productivity, including implementing circular economy business models. Estonia’s resource productivity is one of the lowest in the Union, while energy consumption levels are above the EU average. Having an overarching circular economy strategy as a complement to the National Energy and Climate Plan could help the transition towards decarbonisation, reduce the negative environmental impact of the oil shale industry and boost the economy. As a peripheral country with a low population density, a well-functioning and interconnected transport system is key for Estonia’s economic activities and exports. Estonia’s transport infrastructure faces some shortcomings in terms of connectivity and sustainability. Rail and intermodal transport remain underdeveloped. Greenhouse gas emissions from road transport have increased in recent years, and renewable energy in transport remains below the national targets. The Rail Baltica project and the energy interconnection projects are among Estonia’s key investment priorities aimed at improving its safety and integration into the internal market. Promoting investment projects that take into account environmental and climate considerations is key to a sustainable economic recovery and reducing regional disparities. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Estonia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territory covered by Annex D to the 2020 country report. This would allow Estonia to make the best use of that Fund.

| (21) | The Estonian banking sector is sound overall, but money-laundering risks remain. While measures have been taken to limit exposure to risks by reducing non-resident deposits, the national risk assessment does not cover other products that might present risks, such as custody services for non-resident customers. An update of the national risk assessment would ensure the adequate identification of risks and allow the necessary mitigating measures to be implemented. While supervisory actions have been taken against non-compliant banks and payment institutions, there is room to further enhance the effectiveness of supervision and enforcement. In particular, a set of legislative acts to strengthen the preventive framework and confiscation and to increase administrative sanctions has not yet been adopted. Investigations into money-laundering cases are progressing slowly. The capacity of the Estonian Financial Supervisory Authority has not yet been strengthened enough and the risk-based approach to supervision is not yet fully implemented, in particular when it comes to thematic on-site inspections. The exchange of information between the Financial Intelligence Unit and law enforcement is not sufficiently proactive. |
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(21)

The Estonian banking sector is sound overall, but money-laundering risks remain. While measures have been taken to limit exposure to risks by reducing non-resident deposits, the national risk assessment does not cover other products that might present risks, such as custody services for non-resident customers. An update of the national risk assessment would ensure the adequate identification of risks and allow the necessary mitigating measures to be implemented. While supervisory actions have been taken against non-compliant banks and payment institutions, there is room to further enhance the effectiveness of supervision and enforcement. In particular, a set of legislative acts to strengthen the preventive framework and confiscation and to increase administrative sanctions has not yet been adopted. Investigations into money-laundering cases are progressing slowly. The capacity of the Estonian Financial Supervisory Authority has not yet been strengthened enough and the risk-based approach to supervision is not yet fully implemented, in particular when it comes to thematic on-site inspections. The exchange of information between the Financial Intelligence Unit and law enforcement is not sufficiently proactive.

| (22) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(22)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (23) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Estonia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(23)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Estonia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (24) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Estonia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(24)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Estonia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (25) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Estonia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Estonia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Estonia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(25)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Estonia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Estonia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Estonia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (26) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) is reflected in particular in recommendation (1) below, |
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(26)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Estonia take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve the accessibility and resilience of the health system, including by addressing the shortages of health workers, strengthening primary care and ensuring the supply of critical medical products. |
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1.

| 2. | Strengthen the adequacy of the social safety net, including by broadening the coverage of unemployment benefits. |
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2.

| 3. | Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on digitalisation of companies, research and innovation, clean and efficient production and use of energy, resource efficiency, and sustainable transport, contributing to a progressive decarbonisation of the economy. Support the innovation capacity of small and medium-sized enterprises, and ensure sufficient access to finance. |
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3.

| 4. | Step up the efforts to ensure effective supervision and enforcement of the anti-money-laundering framework. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 30.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  OJ C 320, 10.9.2018, p. 24.

7

(8)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

8

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

9

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/39 |
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26.8.2020

EN

Official Journal of the European Union

C 282/39

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Ireland and delivering a Council opinion on the 2020 Stability Programme of Ireland

(2020/C 282/07)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Ireland as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Ireland as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Ireland was published on 26 February 2020. It assessed Ireland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Ireland’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Ireland is experiencing macroeconomic imbalances. Those imbalances relate, in particular, to significant stocks of public debt, private debt and net external liabilities. |
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(2)

The 2020 country report for Ireland was published on 26 February 2020. It assessed Ireland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Ireland’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Ireland is experiencing macroeconomic imbalances. Those imbalances relate, in particular, to significant stocks of public debt, private debt and net external liabilities.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Ireland is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Ireland is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. This entails a substantial risk of widening regional disparities within Ireland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. This entails a substantial risk of widening regional disparities within Ireland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Ireland submitted its 2020 National Reform Programme on 21 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

Ireland submitted its 2020 National Reform Programme on 21 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Ireland is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
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(11)

Ireland is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 7,4 % of GDP in 2020. The deficit is projected to decline to 4,1 % of GDP in 2021. After decreasing to 58,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 69,1 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 7,4 % of GDP in 2020. The deficit is projected to decline to 4,1 % of GDP in 2021. After decreasing to 58,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 69,1 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Ireland has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to around 2,0 % of GDP. The measures include employment and unemployment support for a twelve-week period (around 1,4 % of GDP) and additional expenditure to increase the capacity and accessibility of the healthcare system (around 0,6 % of GDP). In addition, Ireland has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at around 0,3 % of GDP. Those measures include credit guarantees and various loan schemes, the suspension of interest and penalties for certain late payments by employers, the suspension of debt enforcement activity and payment breaks of up to three months on business loans. On 2 May 2020, the government announced a new package of debt and equity support measures for businesses, amounting to around 2 % of GDP, which were not incorporated into the 2020 Stability Programme or in the Commission forecast. Overall, the measures taken by Ireland are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Ireland has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to around 2,0 % of GDP. The measures include employment and unemployment support for a twelve-week period (around 1,4 % of GDP) and additional expenditure to increase the capacity and accessibility of the healthcare system (around 0,6 % of GDP). In addition, Ireland has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at around 0,3 % of GDP. Those measures include credit guarantees and various loan schemes, the suspension of interest and penalties for certain late payments by employers, the suspension of debt enforcement activity and payment breaks of up to three months on business loans. On 2 May 2020, the government announced a new package of debt and equity support measures for businesses, amounting to around 2 % of GDP, which were not incorporated into the 2020 Stability Programme or in the Commission forecast. Overall, the measures taken by Ireland are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Ireland’s general government balance is forecast at -5,6 % of GDP in 2020 and -2,9 % of GDP in 2021. The general government debt ratio is projected to reach 66,4 % of GDP in 2020 and 66,7 % of GDP in 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Ireland’s general government balance is forecast at -5,6 % of GDP in 2020 and -2,9 % of GDP in 2021. The general government debt ratio is projected to reach 66,4 % of GDP in 2020 and 66,7 % of GDP in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Ireland’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Ireland’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | The COVID-19 pandemic affected Ireland heavily in the first half of 2020, putting the health system under extreme pressure. Ireland introduced urgent measures to strengthen the health system, as well as containment measures, to abate the pandemic, which have severely curtailed economic activity in certain sectors. In addition, the government introduced a broad range of economic measures to mitigate the consequences of the COVID-19 crisis as far as possible. These included wage subsidy schemes to protect jobs, welfare payments, temporary bans on rent increases and evictions, as well as liquidity and credit support measures for firms. Although these measures aim to abate the economic shock of the pandemic, the risk of significant output loss, bankruptcies and insolvencies, and an increase in unemployment and people at risk of poverty, remain high. |
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(16)

The COVID-19 pandemic affected Ireland heavily in the first half of 2020, putting the health system under extreme pressure. Ireland introduced urgent measures to strengthen the health system, as well as containment measures, to abate the pandemic, which have severely curtailed economic activity in certain sectors. In addition, the government introduced a broad range of economic measures to mitigate the consequences of the COVID-19 crisis as far as possible. These included wage subsidy schemes to protect jobs, welfare payments, temporary bans on rent increases and evictions, as well as liquidity and credit support measures for firms. Although these measures aim to abate the economic shock of the pandemic, the risk of significant output loss, bankruptcies and insolvencies, and an increase in unemployment and people at risk of poverty, remain high.

| (17) | Before the COVID-19 pandemic, hospitals were already working at near full capacity, with the occupancy rate for acute-care beds being among the highest in OECD countries. This was mainly due to the lack of universal access to primary care and a significant reliance on hospital care. Challenges regarding recruitment and retention had led to shortages in nursing workforce in certain regions and hospitals. Long-term home care was under-provided and has lacked statutory entitlement, with policies incentivising the use of institutional care. COVID-19 has placed an unprecedented pressure on the healthcare system. Timely emergency measures have been put in place to increase hospital capacity and provide temporary universal healthcare services. However in the medium term, Ireland still needs to address the structural limited efficiency, flexibility, resilience and accessibility of its healthcare system. The ambitious Sláintecare reform plans to deliver on a universally accessible and sustainable health system. However, plans for its implementation need to be improved, in terms of milestones, explaining progress in access to public primary care over the implementation period, until universal coverage is achieved. Defining clear milestones and deadlines and a solid monitoring framework may contribute to the timely implementation of universal coverage. The implementation of long-term care reforms, including new ways of working in the community through support for home care and reorganisation of nursing resources, could require a stocktaking of existing facilities, projections for future growth in demand, and a commensurate gap analysis, followed by a plan for delivery. |
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(17)

Before the COVID-19 pandemic, hospitals were already working at near full capacity, with the occupancy rate for acute-care beds being among the highest in OECD countries. This was mainly due to the lack of universal access to primary care and a significant reliance on hospital care. Challenges regarding recruitment and retention had led to shortages in nursing workforce in certain regions and hospitals. Long-term home care was under-provided and has lacked statutory entitlement, with policies incentivising the use of institutional care. COVID-19 has placed an unprecedented pressure on the healthcare system. Timely emergency measures have been put in place to increase hospital capacity and provide temporary universal healthcare services. However in the medium term, Ireland still needs to address the structural limited efficiency, flexibility, resilience and accessibility of its healthcare system. The ambitious Sláintecare reform plans to deliver on a universally accessible and sustainable health system. However, plans for its implementation need to be improved, in terms of milestones, explaining progress in access to public primary care over the implementation period, until universal coverage is achieved. Defining clear milestones and deadlines and a solid monitoring framework may contribute to the timely implementation of universal coverage. The implementation of long-term care reforms, including new ways of working in the community through support for home care and reorganisation of nursing resources, could require a stocktaking of existing facilities, projections for future growth in demand, and a commensurate gap analysis, followed by a plan for delivery.

| (18) | According to the Commission 2020 spring forecast, unemployment is expected to rise to 7,4 % in 2020 and slightly decrease to 7 % in 2021. The government has made significant use of income and employment support policy to respond to the pandemic, in particular short-time work schemes, which should continue to be swiftly implemented. The schemes need to be reviewed and should be extended if needed to help retain people in employment or maintain incomes. The relatively high number of people living in households with low work intensity calls for further efforts to foster individualised activation strategies. The challenges facing Ireland with regard to poverty and employment quality and support, including for people with disabilities, remain and are likely to be exacerbated by the pandemic. In cooperation with social partners, the current context calls to continue upskilling and reskilling efforts in order to meet the changing needs of the labour market and prepare the workforce for the climate, energy and circular economy transition. Skill shortages have been identified in the housing sector, but others are expected to arise as the transition progresses. In the context of the COVID-19 pandemic, it is essential to ensure that the digitalisation of education and work does not increase educational and social inequalities. |
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(18)

According to the Commission 2020 spring forecast, unemployment is expected to rise to 7,4 % in 2020 and slightly decrease to 7 % in 2021. The government has made significant use of income and employment support policy to respond to the pandemic, in particular short-time work schemes, which should continue to be swiftly implemented. The schemes need to be reviewed and should be extended if needed to help retain people in employment or maintain incomes. The relatively high number of people living in households with low work intensity calls for further efforts to foster individualised activation strategies. The challenges facing Ireland with regard to poverty and employment quality and support, including for people with disabilities, remain and are likely to be exacerbated by the pandemic. In cooperation with social partners, the current context calls to continue upskilling and reskilling efforts in order to meet the changing needs of the labour market and prepare the workforce for the climate, energy and circular economy transition. Skill shortages have been identified in the housing sector, but others are expected to arise as the transition progresses. In the context of the COVID-19 pandemic, it is essential to ensure that the digitalisation of education and work does not increase educational and social inequalities.

| (19) | The government has implemented various measures to support housing supply, which have contributed to increasing annual housing completions by almost 57 % in the two years up to September 2019. Combined with effective macroprudential tools, this seems to have helped curb house-price inflation. However, housing completions still fall short of demand. Housing affordability is a problem for many households and inflation in the rental sector is persistently high. Improved infrastructure, combined with spatial planning, could be a critical enabler for improving housing supply. In addition, solving administrative deficiencies in the vacant site levy might ultimately help improve housing affordability in the medium term. Shortages in social housing supply remain a significant challenge with regard to fostering inclusion, including for the most vulnerable. Recent policy measures have accelerated social housing delivery, but there were still approximately 68 700 households on social housing waiting lists in Ireland in June 2019. Further efforts are needed to cover the needs of remaining households on the current waiting list and of potential new applicants. Of the around 10 000 homeless people registered in Ireland, 3 500 are children. This raises concerns about the potential risks of deepening inequalities, entrenched poverty and social exclusion. Single parents with children are among the groups most affected by homelessness. Substantial regional and urban differences persist, with 69 % of all homeless adults concentrated in the greater Dublin area. |
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(19)

The government has implemented various measures to support housing supply, which have contributed to increasing annual housing completions by almost 57 % in the two years up to September 2019. Combined with effective macroprudential tools, this seems to have helped curb house-price inflation. However, housing completions still fall short of demand. Housing affordability is a problem for many households and inflation in the rental sector is persistently high. Improved infrastructure, combined with spatial planning, could be a critical enabler for improving housing supply. In addition, solving administrative deficiencies in the vacant site levy might ultimately help improve housing affordability in the medium term. Shortages in social housing supply remain a significant challenge with regard to fostering inclusion, including for the most vulnerable. Recent policy measures have accelerated social housing delivery, but there were still approximately 68 700 households on social housing waiting lists in Ireland in June 2019. Further efforts are needed to cover the needs of remaining households on the current waiting list and of potential new applicants. Of the around 10 000 homeless people registered in Ireland, 3 500 are children. This raises concerns about the potential risks of deepening inequalities, entrenched poverty and social exclusion. Single parents with children are among the groups most affected by homelessness. Substantial regional and urban differences persist, with 69 % of all homeless adults concentrated in the greater Dublin area.

| (20) | The domestic banking system is an important source of liquidity for Irish firms. Timely access to loans can prove challenging for small and medium-sized enterprises (SMEs) and those without collateral or an existing relationship with a lender. The Irish authorities and banks have introduced a number of measures to alleviate the financial difficulties faced by businesses and households. It is important that these measures provide the necessary liquidity and foster sustainable restructuring solutions for borrowers whose financial difficulties are strictly linked to the outbreak, and who are therefore expected to return to viability following a transition period. Only such a balanced approach can help businesses and households overcome the temporary challenges without undermining the profitability (already weak) and the nascent progress that Ireland has made in recent years in improving the financial stability of its banking sector. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. |
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(20)

The domestic banking system is an important source of liquidity for Irish firms. Timely access to loans can prove challenging for small and medium-sized enterprises (SMEs) and those without collateral or an existing relationship with a lender. The Irish authorities and banks have introduced a number of measures to alleviate the financial difficulties faced by businesses and households. It is important that these measures provide the necessary liquidity and foster sustainable restructuring solutions for borrowers whose financial difficulties are strictly linked to the outbreak, and who are therefore expected to return to viability following a transition period. Only such a balanced approach can help businesses and households overcome the temporary challenges without undermining the profitability (already weak) and the nascent progress that Ireland has made in recent years in improving the financial stability of its banking sector. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account.

| (21) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The restart of the economy requires that Ireland make progress with regard to its ambitious environmental, climate, energy and infrastructure investments. Ireland has lagged behind so far in tackling decarbonisation. Greenhouse gas emissions in transport and buildings are high and have remained on a rising trend. Ireland will fall short of the 2020 energy efficiency and renewable energy targets. Ireland is dependant on energy imports and is among the Member States with the highest prices for electricity, which could negatively impact both the environment and business competitiveness. Ireland’s transformation into a climate-neutral economy will require sizeable private and public investment, over a sustained period, in, inter alia, renewable energy, electricity infrastructure, energy efficiency and sustainable transport. The Climate Action Plan constitutes a credible initiative to reverse the emissions trajectory. An effective and sustained implementation of its policies and measures will be required to translate ambition into concrete results. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Ireland to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territory covered by Annex D to the 2020 country report. This would allow Ireland to make the best use of that Fund. |
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(21)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The restart of the economy requires that Ireland make progress with regard to its ambitious environmental, climate, energy and infrastructure investments. Ireland has lagged behind so far in tackling decarbonisation. Greenhouse gas emissions in transport and buildings are high and have remained on a rising trend. Ireland will fall short of the 2020 energy efficiency and renewable energy targets. Ireland is dependant on energy imports and is among the Member States with the highest prices for electricity, which could negatively impact both the environment and business competitiveness. Ireland’s transformation into a climate-neutral economy will require sizeable private and public investment, over a sustained period, in, inter alia, renewable energy, electricity infrastructure, energy efficiency and sustainable transport. The Climate Action Plan constitutes a credible initiative to reverse the emissions trajectory. An effective and sustained implementation of its policies and measures will be required to translate ambition into concrete results. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Ireland to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territory covered by Annex D to the 2020 country report. This would allow Ireland to make the best use of that Fund.

| (22) | Ireland’s efforts to reduce the productivity gap between its foreign and domestic sectors remain sluggish. Direct support through the Disruptive Technologies Innovation Fund for cooperation between firms and public research centres, for example through collaborative projects between industry – including SMEs – and research bodies, is welcome. Although Ireland provides a relatively high amount of public support to companies, this support is mainly implemented through a tax credit scheme for research and development. While recent changes in the 2020 budget make the tax credit more attractive for SMEs, it tends to benefit larger multinational firms. The Future Jobs Ireland framework identifies key measures that could help address the weaknesses of the domestic economy, especially initiatives to strengthen the productivity of domestic firms, in particular SMEs. It is important that these measures be effectively implemented. The crisis also highlighted the digitalisation needs of SMEs, related in particular to remote work solutions, the training of workers and cyber security. Digital infrastructure is essential for boosting the productivity of SMEs and promoting entrepreneurship. Ultrafast broadband is only available to 5 % of rural premises, well below the Union average of 29 %, and Ireland is also one of the most expensive Member States for fixed broadband. With the contract having been signed for a major public investment under the National Broadband Plan to address infrastructure gaps, it is therefore important to closely monitor and ensure the timely implementation of the rollout of the publicly supported ultra-fast broadband network, especially in rural areas. |
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(22)

Ireland’s efforts to reduce the productivity gap between its foreign and domestic sectors remain sluggish. Direct support through the Disruptive Technologies Innovation Fund for cooperation between firms and public research centres, for example through collaborative projects between industry – including SMEs – and research bodies, is welcome. Although Ireland provides a relatively high amount of public support to companies, this support is mainly implemented through a tax credit scheme for research and development. While recent changes in the 2020 budget make the tax credit more attractive for SMEs, it tends to benefit larger multinational firms. The Future Jobs Ireland framework identifies key measures that could help address the weaknesses of the domestic economy, especially initiatives to strengthen the productivity of domestic firms, in particular SMEs. It is important that these measures be effectively implemented. The crisis also highlighted the digitalisation needs of SMEs, related in particular to remote work solutions, the training of workers and cyber security. Digital infrastructure is essential for boosting the productivity of SMEs and promoting entrepreneurship. Ultrafast broadband is only available to 5 % of rural premises, well below the Union average of 29 %, and Ireland is also one of the most expensive Member States for fixed broadband. With the contract having been signed for a major public investment under the National Broadband Plan to address infrastructure gaps, it is therefore important to closely monitor and ensure the timely implementation of the rollout of the publicly supported ultra-fast broadband network, especially in rural areas.

| (23) | Tackling aggressive tax planning is key to improving the efficiency and fairness of tax systems, as acknowledged in the 2020 Recommendation on the economic policy of the euro area. Spillover effects of taxpayers’ aggressive tax-planning strategies between Member States call for coordinated action of national policies to complement Union legislation. Ireland has taken steps to address aggressive tax-planning practices by implementing international and European agreed initiatives and taking some additional measures at national level. However, the high level of royalty and dividend payments as a percentage of GDP suggests that Ireland’s tax rules are used by companies that engage in aggressive tax planning, and the effectiveness of the national measures will have to be assessed. Broadening the tax base would make revenue more resilient to economic fluctuations and idiosyncratic shocks and strengthen the functioning of automatic stabilisers. The high concentration of corporate taxes, with the top ten firms accounting for 45 % of corporate taxes, their volatility and potentially transitory nature, along with their rising share in total tax proceeds (record of 18,7 % in 2018) underline the risks of relying excessively on these receipts for the financing of permanent current expenditure. |
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(23)

Tackling aggressive tax planning is key to improving the efficiency and fairness of tax systems, as acknowledged in the 2020 Recommendation on the economic policy of the euro area. Spillover effects of taxpayers’ aggressive tax-planning strategies between Member States call for coordinated action of national policies to complement Union legislation. Ireland has taken steps to address aggressive tax-planning practices by implementing international and European agreed initiatives and taking some additional measures at national level. However, the high level of royalty and dividend payments as a percentage of GDP suggests that Ireland’s tax rules are used by companies that engage in aggressive tax planning, and the effectiveness of the national measures will have to be assessed. Broadening the tax base would make revenue more resilient to economic fluctuations and idiosyncratic shocks and strengthen the functioning of automatic stabilisers. The high concentration of corporate taxes, with the top ten firms accounting for 45 % of corporate taxes, their volatility and potentially transitory nature, along with their rising share in total tax proceeds (record of 18,7 % in 2018) underline the risks of relying excessively on these receipts for the financing of permanent current expenditure.

| (24) | Despite efforts to strengthen its anti-money-laundering (AML) framework, Ireland still faces risks due to its internationally oriented economy, involving significant inflow of foreign direct investments, and the presence of complex legal structures with foreign sponsors. The national risk assessment has been reviewed to better reflect the actual risk exposure of professionals involved in the provisions of services to companies and trusts. Inadequate understanding of risk exposure by these professionals results in a low reporting of suspicious transactions. The intensity of supervision is inadequate to remedy these issues and does not rest on a risk-based approach, which hampers the effectiveness of the AML framework. A national register of beneficial owners has been set up for companies, to limit secrecy and identify beneficial owners. The quality of the information provided and the effectiveness of the register needs to be monitored over time. |
| --- | --- |

(24)

Despite efforts to strengthen its anti-money-laundering (AML) framework, Ireland still faces risks due to its internationally oriented economy, involving significant inflow of foreign direct investments, and the presence of complex legal structures with foreign sponsors. The national risk assessment has been reviewed to better reflect the actual risk exposure of professionals involved in the provisions of services to companies and trusts. Inadequate understanding of risk exposure by these professionals results in a low reporting of suspicious transactions. The intensity of supervision is inadequate to remedy these issues and does not rest on a risk-based approach, which hampers the effectiveness of the AML framework. A national register of beneficial owners has been set up for companies, to limit secrecy and identify beneficial owners. The quality of the information provided and the effectiveness of the register needs to be monitored over time.

| (25) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(25)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (26) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Ireland will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(26)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Ireland will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (27) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Ireland should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup. |
| --- | --- |

(27)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Ireland should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup.

| (28) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Ireland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Ireland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Ireland, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(28)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Ireland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Ireland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Ireland, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (29) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below. |
| --- | --- |

(29)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below.

| (30) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2) and (4), |
| --- | --- |

(30)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2) and (4),

HEREBY RECOMMENDS that Ireland take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve accessibility of the health system and strengthen its resilience, including by responding to the health workforce’s needs and ensuring universal coverage for primary care. |
| --- | --- |

1.

| 2. | Support employment through developing skills. Address the risk of digital divide, including in the education sector. Increase the provision of social and affordable housing. |
| --- | --- |

2.

| 3. | Continue to provide support to companies, in particular SMEs, especially through measures ensuring their liquidity. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, sustainable public transport, water supply and treatment, research and innovation and digital infrastructure. |
| --- | --- |

3.

| 4. | Broaden the tax base. Step up action to address features of the tax system that facilitate aggressive tax planning, including on outbound payments. Ensure effective supervision and enforcement of the anti-money-laundering framework as regards professionals providing trust and company services. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 35.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/46 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/46

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Greece and delivering a Council opinion on the 2020 Stability Programme of Greece

(2020/C 282/08)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Greece as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Greece as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Greece was published on 26 February 2020. It assessed Greece’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’) and Greece’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Greece is experiencing excessive macroeconomic imbalances. In particular, the imbalances identified relate to the high public debt, the high non-performing loans on banks’ balance sheets and the external sector, in a context of still low potential growth and high unemployment. |
| --- | --- |

(2)

The 2020 country report for Greece was published on 26 February 2020. It assessed Greece’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’) and Greece’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Greece is experiencing excessive macroeconomic imbalances. In particular, the imbalances identified relate to the high public debt, the high non-performing loans on banks’ balance sheets and the external sector, in a context of still low potential growth and high unemployment.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Greece is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Greece is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Greek regions because of different specialisation patterns, in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Greece, aggravating the already observed trend of widening disparities between the capital city and in particular the insular and mountainous regions that further intensified during the financial crisis years. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Greek regions because of different specialisation patterns, in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Greece, aggravating the already observed trend of widening disparities between the capital city and in particular the insular and mountainous regions that further intensified during the financial crisis years. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 30 April 2020, Greece submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(10)

On 30 April 2020, Greece submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Greece is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
| --- | --- |

(11)

Greece is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,5 % of gross domestic product (GDP) in 2019 to a deficit of 4,7 % of GDP in 2020. The deficit is projected to decline to 0,2 % of GDP in 2021. After decreasing to 176,6 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 188,8 % in 2020, falling again to 176,8 % in 2021, according to the 2020 Stability Programme. There are risks underlying the budgetary projections, namely the pending litigation and public service obligations. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,5 % of gross domestic product (GDP) in 2019 to a deficit of 4,7 % of GDP in 2020. The deficit is projected to decline to 0,2 % of GDP in 2021. After decreasing to 176,6 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 188,8 % in 2020, falling again to 176,8 % in 2021, according to the 2020 Stability Programme. There are risks underlying the budgetary projections, namely the pending litigation and public service obligations. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Greece has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,4 % of GDP. Those measures include a temporary economic support to wage earners, self-employed, individual businesses and certain liberal professions affected by the pandemic, payment of repayable advances to companies with decreased turnover, payment of social security contributions for employees whose labour contracts have been suspended, deferral of taxes and social security contributions including tax instalment schemes for at least three months for all companies, self-employed and wage earners affected by the COVID-19 pandemic, an interest subsidy on loans to small and medium-sized enterprises (‘SMEs’) and higher healthcare expenditure. In addition, Greece has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include provision of a cash collateral to support bank lending, distributed through the Hellenic Development Bank. However, the Commission 2020 spring forecast considers all tax deferrals also as liquidity measures without a negative budgetary impact in 2020. Overall, the measures taken by Greece are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Greece has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,4 % of GDP. Those measures include a temporary economic support to wage earners, self-employed, individual businesses and certain liberal professions affected by the pandemic, payment of repayable advances to companies with decreased turnover, payment of social security contributions for employees whose labour contracts have been suspended, deferral of taxes and social security contributions including tax instalment schemes for at least three months for all companies, self-employed and wage earners affected by the COVID-19 pandemic, an interest subsidy on loans to small and medium-sized enterprises (‘SMEs’) and higher healthcare expenditure. In addition, Greece has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include provision of a cash collateral to support bank lending, distributed through the Hellenic Development Bank. However, the Commission 2020 spring forecast considers all tax deferrals also as liquidity measures without a negative budgetary impact in 2020. Overall, the measures taken by Greece are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Greece’s general government deficit is forecast at 6,4 % of GDP in 2020 and 2,1 % of GDP in 2021. The general government debt ratio is projected to reach 196,4 % of GDP in 2020 and 182,6 % in 2021. |
| --- | --- |

(14)

Based on the Commission 2020 spring forecast under unchanged policies, Greece’s general government deficit is forecast at 6,4 % of GDP in 2020 and 2,1 % of GDP in 2021. The general government debt ratio is projected to reach 196,4 % of GDP in 2020 and 182,6 % in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Greece’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 is complied with, while the deficit criterion has not been fulfilled. |
| --- | --- |

(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Greece’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 is complied with, while the deficit criterion has not been fulfilled.

| (16) | Regarding the COVID-19 pandemic, Greece’s timely response and enforcement of restrictions seems to be an efficient course of action, judging from the rather low number of confirmed infections so far. However, the economic impact of the COVID-19 crisis is expected to be severe, as compared with other Member States Greece relies heavily on its tourism and transport sectors. In the tourism sector, Greece could lose a large portion of receipts compared to 2019. Tourism is the most important service export of the Greek economy and accounted for 45 % of service exports. Furthermore, the shipping sector, which accounts for 40 % of service exports, is also expected to be affected by a drop in demand as global trade slows down due to the pandemic. Because of confinement measures, lower disposable incomes, and increased unemployment, domestic demand is expected to contract significantly. |
| --- | --- |

(16)

Regarding the COVID-19 pandemic, Greece’s timely response and enforcement of restrictions seems to be an efficient course of action, judging from the rather low number of confirmed infections so far. However, the economic impact of the COVID-19 crisis is expected to be severe, as compared with other Member States Greece relies heavily on its tourism and transport sectors. In the tourism sector, Greece could lose a large portion of receipts compared to 2019. Tourism is the most important service export of the Greek economy and accounted for 45 % of service exports. Furthermore, the shipping sector, which accounts for 40 % of service exports, is also expected to be affected by a drop in demand as global trade slows down due to the pandemic. Because of confinement measures, lower disposable incomes, and increased unemployment, domestic demand is expected to contract significantly.

| (17) | Faced with the COVID-19 outbreak, Greece activated its national pandemic plan and rapidly put in place a set of unprecedented measures, including a strict quarantine and social distancing especially for those suspected of having had any contact with people carrying the virus. The authorities adopted a broad range of measures to mitigate the economic and social impact worth up to 10,5 % of GDP in 2020. The measures entail 5 % GDP of fiscal measures with a net budgetary impact of 3,7 % of GDP and an additional 1,9 % GDP of temporary tax deferrals and cash collateral for commercial banks, which could provide up to 3,6 % of GDP of additional fresh loans. The public healthcare sector has received a one-off injection of EUR 273 million that will cover, for example, the hiring of 2 000 additional healthcare sector staff, the purchase of health-related equipment and supplies, and reinforced screening. |
| --- | --- |

(17)

Faced with the COVID-19 outbreak, Greece activated its national pandemic plan and rapidly put in place a set of unprecedented measures, including a strict quarantine and social distancing especially for those suspected of having had any contact with people carrying the virus. The authorities adopted a broad range of measures to mitigate the economic and social impact worth up to 10,5 % of GDP in 2020. The measures entail 5 % GDP of fiscal measures with a net budgetary impact of 3,7 % of GDP and an additional 1,9 % GDP of temporary tax deferrals and cash collateral for commercial banks, which could provide up to 3,6 % of GDP of additional fresh loans. The public healthcare sector has received a one-off injection of EUR 273 million that will cover, for example, the hiring of 2 000 additional healthcare sector staff, the purchase of health-related equipment and supplies, and reinforced screening.

| (18) | To continue dealing with the COVID-19 pandemic, the healthcare system’s capacity, accessibility and resilience needs to be improved. Direct payments for private health services, and informal payments – which are closely linked to inefficient hospital management – are still high. This leads to inequalities. Access is still an issue, and self-reported unmet healthcare needs are among the highest in the Union, with large differences by income groups and employment status. Co-payments have not been sufficiently means-tested to protect vulnerable groups. This is exacerbated by the oversupply and hence the overconsumption of often excessively expensive drugs. To tackle this, Greece is implementing an ambitious primary care reform to provide access to essential quality services in the short term, and a comprehensive gatekeeping-based system for the whole population in the longer term. Early indications suggest that this is proving to be key to protect citizens and limit the spread of the virus, ensuring the full capacity of the system can be employed to treat patients according to their needs. A sustainable solution for health spending is yet to be found, as fiscal sustainability is mostly ensured by a clawback system increasingly under pressure because of insufficient structural measures. Despite some encouraging actions taken recently, centralised procurement is still weak. In 2018, public spending on health was below the Union average, even including the value of the clawback, adding about 1 % of GDP. Increased efficiency along with additional financial resources are needed to improve effectiveness, accessibility and overall resilience of the health system. |
| --- | --- |

(18)

To continue dealing with the COVID-19 pandemic, the healthcare system’s capacity, accessibility and resilience needs to be improved. Direct payments for private health services, and informal payments – which are closely linked to inefficient hospital management – are still high. This leads to inequalities. Access is still an issue, and self-reported unmet healthcare needs are among the highest in the Union, with large differences by income groups and employment status. Co-payments have not been sufficiently means-tested to protect vulnerable groups. This is exacerbated by the oversupply and hence the overconsumption of often excessively expensive drugs. To tackle this, Greece is implementing an ambitious primary care reform to provide access to essential quality services in the short term, and a comprehensive gatekeeping-based system for the whole population in the longer term. Early indications suggest that this is proving to be key to protect citizens and limit the spread of the virus, ensuring the full capacity of the system can be employed to treat patients according to their needs. A sustainable solution for health spending is yet to be found, as fiscal sustainability is mostly ensured by a clawback system increasingly under pressure because of insufficient structural measures. Despite some encouraging actions taken recently, centralised procurement is still weak. In 2018, public spending on health was below the Union average, even including the value of the clawback, adding about 1 % of GDP. Increased efficiency along with additional financial resources are needed to improve effectiveness, accessibility and overall resilience of the health system.

| (19) | Measures are needed to mitigate the impact of the COVID-19 crisis on workers and businesses. According to the Commission 2020 spring forecast, unemployment is expected to rise to 19,9 % in 2020 and recover to 16,8 % in 2021. Greece has already introduced a temporary scheme alleviating the cost of labour for businesses whose operation has been suspended or severely affected, while protecting employment contracts and providing income support to the affected workers. However, implementation of a comprehensive short-time work scheme would provide a more sustainable and flexible solution and authorities have taken steps in that direction, by adopting the employment support scheme SYN-ERGASIA to be rolled out from 15 June to 15 October 2020. Such a scheme would allow businesses to apply a reduction of working hours in a modulated manner, corresponding to the degree in which their activities have been restricted, while preserving operation of the industries, and preventing temporary layoffs from becoming structural. Expanding flexible working arrangements, such as teleworking, which have been so far limited in Greece compared to other Member States, would also help preserve economic activity and jobs during confinement and social distancing. |
| --- | --- |

(19)

Measures are needed to mitigate the impact of the COVID-19 crisis on workers and businesses. According to the Commission 2020 spring forecast, unemployment is expected to rise to 19,9 % in 2020 and recover to 16,8 % in 2021. Greece has already introduced a temporary scheme alleviating the cost of labour for businesses whose operation has been suspended or severely affected, while protecting employment contracts and providing income support to the affected workers. However, implementation of a comprehensive short-time work scheme would provide a more sustainable and flexible solution and authorities have taken steps in that direction, by adopting the employment support scheme SYN-ERGASIA to be rolled out from 15 June to 15 October 2020. Such a scheme would allow businesses to apply a reduction of working hours in a modulated manner, corresponding to the degree in which their activities have been restricted, while preserving operation of the industries, and preventing temporary layoffs from becoming structural. Expanding flexible working arrangements, such as teleworking, which have been so far limited in Greece compared to other Member States, would also help preserve economic activity and jobs during confinement and social distancing.

| (20) | The COVID-19 crisis risks exacerbating once again the social situation of large parts of the population and increasing income inequality. Before the pandemic outbreak, the share of the Greek population at risk of poverty or social exclusion was still one of the highest in the Union, with children and working-age people at greater risk than older people. In-work poverty, access to affordable housing and energy poverty have also been significant concerns. To mitigate the impact of the crisis, the provision of adequate income replacement to all affected workers and the self-employed, including those facing gaps in access to social protection, will be crucial. It will also be important to support the most vulnerable people, including those inactive and undeclared workers, by strengthening social safety nets. With more people likely to fall back on the basic safety nets, it will be important to improve the adequacy of the minimum income support. Comprehensive access to social services is necessary for the most deprived and vulnerable groups, including people with disabilities, refugees and asylum seekers. In addition, long-term care services are not sufficiently developed. Greece should also further promote access to affordable housing, especially for households at risk of poverty, for example by introducing a scheme to assist vulnerable homeowners with a mortgage. |
| --- | --- |

(20)

The COVID-19 crisis risks exacerbating once again the social situation of large parts of the population and increasing income inequality. Before the pandemic outbreak, the share of the Greek population at risk of poverty or social exclusion was still one of the highest in the Union, with children and working-age people at greater risk than older people. In-work poverty, access to affordable housing and energy poverty have also been significant concerns. To mitigate the impact of the crisis, the provision of adequate income replacement to all affected workers and the self-employed, including those facing gaps in access to social protection, will be crucial. It will also be important to support the most vulnerable people, including those inactive and undeclared workers, by strengthening social safety nets. With more people likely to fall back on the basic safety nets, it will be important to improve the adequacy of the minimum income support. Comprehensive access to social services is necessary for the most deprived and vulnerable groups, including people with disabilities, refugees and asylum seekers. In addition, long-term care services are not sufficiently developed. Greece should also further promote access to affordable housing, especially for households at risk of poverty, for example by introducing a scheme to assist vulnerable homeowners with a mortgage.

| (21) | The COVID-19 crisis has halted the positive labour market developments observed in the past years, and unemployment is once again set to rise. To support a robust recovery of employment in the post-crisis period, Greece needs to complete reforms to increase the effectiveness of policies to get people into work, in particular training programmes. Increasing the public employment service’s capacity to provide continuous and individualised support to jobseekers will be key. Greece needs to pay particular attention to young people and women, who are more affected by a lack of employment opportunities. There is also scope for improving social dialogue, by supporting social partners’ active and meaningful involvement in policy-making, including in the design and implementation of measures to address the impacts of the COVID-19 crisis. The government should focus its efforts on improving basic skills for all, including digital skills. Addressing poor educational outcomes, upgrading vocational education and training, and scaling up adult learning will be essential. To reduce skills mismatches and speed up labour market recovery, it is vital to increase quality and labour market relevance of education and training. |
| --- | --- |

(21)

The COVID-19 crisis has halted the positive labour market developments observed in the past years, and unemployment is once again set to rise. To support a robust recovery of employment in the post-crisis period, Greece needs to complete reforms to increase the effectiveness of policies to get people into work, in particular training programmes. Increasing the public employment service’s capacity to provide continuous and individualised support to jobseekers will be key. Greece needs to pay particular attention to young people and women, who are more affected by a lack of employment opportunities. There is also scope for improving social dialogue, by supporting social partners’ active and meaningful involvement in policy-making, including in the design and implementation of measures to address the impacts of the COVID-19 crisis. The government should focus its efforts on improving basic skills for all, including digital skills. Addressing poor educational outcomes, upgrading vocational education and training, and scaling up adult learning will be essential. To reduce skills mismatches and speed up labour market recovery, it is vital to increase quality and labour market relevance of education and training.

| (22) | Providing sustainable liquidity support, including working capital, to affected businesses, particularly SMEs and microenterprises, in particular through loans and guarantees, has rightly been a government priority since the start of its response to the COVID-19 outbreak. Under the State aid temporary framework, Greece has introduced three schemes to increase capital liquidity of businesses, namely: (i) scheme covering repayable advance payments; (ii) a cash collateral scheme to cover bank loans; and (iii) an interest subsidy scheme for current loans. It is important that in this process, the banking sector fulfils – with the support of the authorities – its intermediary role to maintain the necessary flow of credit, on the basis of appropriate credit risk assessment and prudent credit standards, while accurately reporting any deterioration in asset quality. Supporting the banking sector’s capacity to offer sustainable debt restructuring solutions to viable borrowers affected by the crisis will be crucial to safeguard asset quality while bolstering economic recovery. |
| --- | --- |

(22)

Providing sustainable liquidity support, including working capital, to affected businesses, particularly SMEs and microenterprises, in particular through loans and guarantees, has rightly been a government priority since the start of its response to the COVID-19 outbreak. Under the State aid temporary framework, Greece has introduced three schemes to increase capital liquidity of businesses, namely: (i) scheme covering repayable advance payments; (ii) a cash collateral scheme to cover bank loans; and (iii) an interest subsidy scheme for current loans. It is important that in this process, the banking sector fulfils – with the support of the authorities – its intermediary role to maintain the necessary flow of credit, on the basis of appropriate credit risk assessment and prudent credit standards, while accurately reporting any deterioration in asset quality. Supporting the banking sector’s capacity to offer sustainable debt restructuring solutions to viable borrowers affected by the crisis will be crucial to safeguard asset quality while bolstering economic recovery.

| (23) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Increasing growth-enhancing investment in priority sectors will be instrumental in underpinning longer-term growth and reducing regional disparities. In 2019, public investment fell short of plans by more than 1 % of GDP, following a similar underperformance in previous years. The authorities started to address the persistent underexecution through establishing a ‘national development programme’ to strengthen the rules governing the development, management, financing, and implementation of supported projects, and an action plan to improve forecasting and monitoring of public investments. Given the important role that public investment will play in kickstarting the economic recovery after the COVID-19 crisis, it is crucial to address any remaining administrative obstacles and establish a pipeline of new projects. Setting up a dedicated project preparation facility could further improve and accelerate public investments. A more efficient implementation of public investment would further stimulate growth due to the multiplier effect. Greece could also benefit from more efficient and sustainable public procurement as an integral part of its efforts to improve and rationalize public spending, as well as guarantee a competitive business environment. This would require addressing identified deficiencies, such as the persistent phenomenon of unjustified excessively low tenders, through appropriate legislative and administrative measures. |
| --- | --- |

(23)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Increasing growth-enhancing investment in priority sectors will be instrumental in underpinning longer-term growth and reducing regional disparities. In 2019, public investment fell short of plans by more than 1 % of GDP, following a similar underperformance in previous years. The authorities started to address the persistent underexecution through establishing a ‘national development programme’ to strengthen the rules governing the development, management, financing, and implementation of supported projects, and an action plan to improve forecasting and monitoring of public investments. Given the important role that public investment will play in kickstarting the economic recovery after the COVID-19 crisis, it is crucial to address any remaining administrative obstacles and establish a pipeline of new projects. Setting up a dedicated project preparation facility could further improve and accelerate public investments. A more efficient implementation of public investment would further stimulate growth due to the multiplier effect. Greece could also benefit from more efficient and sustainable public procurement as an integral part of its efforts to improve and rationalize public spending, as well as guarantee a competitive business environment. This would require addressing identified deficiencies, such as the persistent phenomenon of unjustified excessively low tenders, through appropriate legislative and administrative measures.

| (24) | Rekindling Greece’s economy will also require tackling some long-term weaknesses and tapping into potential future opportunities. Sectors with significant investment needs include transport and logistics, where support is particularly needed for rail, road safety and upgrading intermodal hubs, as well as solid waste and urban waste-water management where environmentally sustainable investments are needed. Greece’s transformation to a climate neutral economy will also require sizeable private and public investment over a sustained period. Planned investments, for instance small-scale projects in the area of energy efficiency, building renovations and renewable energy projects, could be front-loaded and contribute to the post-COVID-19 economic recovery. Preparatory work for medium-term recovery measures can benefit from investments planned under Member States’ National Energy and Climate Plans, projects of common interest lists, and infrastructure development plans. Related investments could include cross-border connections for importing and exporting power between neighbouring Member States to ensure the sustainable supply of power to people and businesses in Greece, and measures to ensure the just transition of the regions most affected by Greece’s ambitious plan to move away from lignite-based power generation. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Greece to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Greece to make the best use of that Fund. |
| --- | --- |

(24)

Rekindling Greece’s economy will also require tackling some long-term weaknesses and tapping into potential future opportunities. Sectors with significant investment needs include transport and logistics, where support is particularly needed for rail, road safety and upgrading intermodal hubs, as well as solid waste and urban waste-water management where environmentally sustainable investments are needed. Greece’s transformation to a climate neutral economy will also require sizeable private and public investment over a sustained period. Planned investments, for instance small-scale projects in the area of energy efficiency, building renovations and renewable energy projects, could be front-loaded and contribute to the post-COVID-19 economic recovery. Preparatory work for medium-term recovery measures can benefit from investments planned under Member States’ National Energy and Climate Plans, projects of common interest lists, and infrastructure development plans. Related investments could include cross-border connections for importing and exporting power between neighbouring Member States to ensure the sustainable supply of power to people and businesses in Greece, and measures to ensure the just transition of the regions most affected by Greece’s ambitious plan to move away from lignite-based power generation. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Greece to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Greece to make the best use of that Fund.

| (25) | Despite some progress made in the previous years, Greece needs to accelerate its efforts to improve its digital performance, including through the deployment of digital tools and services in the public administration, the justice system and businesses. Maintaining the momentum and locking in the gains achieved by the launch of a number of digital services since the COVID-19 outbreak will be especially pertinent for the public administration and the recovery phase. A strategic approach to accelerating the use of digital technologies across all economic sectors, including in the public administration, and the interoperability of various information systems, particularly the market surveillance database would help bridge the productivity gap with Member States whose currency is the euro and ease up on administrative burden. Improving availability of very-high-capacity networks and uptake of very high-speed internet is also a priority. As concerns digital skills, Greece remains below the Union average, as in 2019 only 51 % of people aged 16-74 appeared to have at least basic digital skills, compared to a Union average of 58 %. Digital upskilling will allow everyone in Greece to enjoy equal access to e-services, help businesses make effective use of teleworking, and e-tools, and enable all learners be they at school, university or in adult learning to fully participate in distance learning. People from disadvantaged backgrounds, including refugees and asylum seekers, and those living in remote and rural areas should receive particular attention. |
| --- | --- |

(25)

Despite some progress made in the previous years, Greece needs to accelerate its efforts to improve its digital performance, including through the deployment of digital tools and services in the public administration, the justice system and businesses. Maintaining the momentum and locking in the gains achieved by the launch of a number of digital services since the COVID-19 outbreak will be especially pertinent for the public administration and the recovery phase. A strategic approach to accelerating the use of digital technologies across all economic sectors, including in the public administration, and the interoperability of various information systems, particularly the market surveillance database would help bridge the productivity gap with Member States whose currency is the euro and ease up on administrative burden. Improving availability of very-high-capacity networks and uptake of very high-speed internet is also a priority. As concerns digital skills, Greece remains below the Union average, as in 2019 only 51 % of people aged 16-74 appeared to have at least basic digital skills, compared to a Union average of 58 %. Digital upskilling will allow everyone in Greece to enjoy equal access to e-services, help businesses make effective use of teleworking, and e-tools, and enable all learners be they at school, university or in adult learning to fully participate in distance learning. People from disadvantaged backgrounds, including refugees and asylum seekers, and those living in remote and rural areas should receive particular attention.

| (26) | Following its successful completion of the financial assistance programme under the European Stability Mechanism in 2018, Greece is subject to enhanced surveillance in accordance with Regulation (EU) No 472/2013 of the European Parliament and of the Council (7). The activation of enhanced surveillance for Greece under Commission Implementing Decisions (EU) 2018/1192 (8) and (EU) 2019/338 (9) acknowledges the fact that over the medium term, Greece needs to continue adopting measures to address the potential sources of macroeconomic imbalances, while implementing structural reforms to support a robust and sustainable economic growth. Greece made a commitment in the Eurogroup of 22 June 2018 to continue all key reforms adopted under the programme until they are fully completed. Greece also committed to implementing specific measures related to fiscal and fiscal-structural policies, social welfare, financial stability, labour and product markets, privatisation, functioning of the justice system, public administration and anti-corruption. These structural reforms are increasingly important to Greece’s efforts to restart its economy. The successful implementation and completion of these reforms should significantly help support Greece’s growth in the medium and long term. Greece is subject to quarterly reporting on its progress in implementing its commitments under enhanced surveillance, where a favourable report can, on semi-annual basis, pave the way for the release of debt-relief measures worth 0,7 % of GDP per year. The release of the first two instalments of policy-contingent debt measures worth EUR 970 million and EUR 767 million was agreed by the Eurogroup in April 2019 and December 2019, respectively. The sixth enhanced surveillance report assessing Greece’s progress in implementing its commitments was published on 20 May 2020. |
| --- | --- |

(26)

Following its successful completion of the financial assistance programme under the European Stability Mechanism in 2018, Greece is subject to enhanced surveillance in accordance with Regulation (EU) No 472/2013 of the European Parliament and of the Council (7). The activation of enhanced surveillance for Greece under Commission Implementing Decisions (EU) 2018/1192 (8) and (EU) 2019/338 (9) acknowledges the fact that over the medium term, Greece needs to continue adopting measures to address the potential sources of macroeconomic imbalances, while implementing structural reforms to support a robust and sustainable economic growth. Greece made a commitment in the Eurogroup of 22 June 2018 to continue all key reforms adopted under the programme until they are fully completed. Greece also committed to implementing specific measures related to fiscal and fiscal-structural policies, social welfare, financial stability, labour and product markets, privatisation, functioning of the justice system, public administration and anti-corruption. These structural reforms are increasingly important to Greece’s efforts to restart its economy. The successful implementation and completion of these reforms should significantly help support Greece’s growth in the medium and long term. Greece is subject to quarterly reporting on its progress in implementing its commitments under enhanced surveillance, where a favourable report can, on semi-annual basis, pave the way for the release of debt-relief measures worth 0,7 % of GDP per year. The release of the first two instalments of policy-contingent debt measures worth EUR 970 million and EUR 767 million was agreed by the Eurogroup in April 2019 and December 2019, respectively. The sixth enhanced surveillance report assessing Greece’s progress in implementing its commitments was published on 20 May 2020.

| (27) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(27)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (28) | In particular, it is crucial in the current situation to maintain the focus on bank reorganisation to preserve financial stability and free up capacity in the banking sector to enable financing the economic recovery. The banking sector has become more resilient, resulting in the abolition of capital controls in September 2019, but legacy risks and challenges remain high. These include a still large stock of non-performing loans, a capital position in line with capital requirements but faced with an increasing capital demand in the medium term, as well as a low profitability dependent on lending growth. As a result, Greek banks are particularly exposed to the risk of increases in funding costs and renewed deterioration of asset quality due to the COVID-19 pandemic. Fostering the continuous functioning of the secondary market for non-performing loans, in parallel with new lending and viable long term loan restructurings in accordance with prudent credit standards, can play a key role in meeting the dual goal of mitigating the impact of the outbreak on asset quality while tackling the legacy of non-performing loans. The implementation of a reform of the legal framework that allows unconstrained collateral enforcement from defaulted borrowers, can be an essential step in that direction. |
| --- | --- |

(28)

In particular, it is crucial in the current situation to maintain the focus on bank reorganisation to preserve financial stability and free up capacity in the banking sector to enable financing the economic recovery. The banking sector has become more resilient, resulting in the abolition of capital controls in September 2019, but legacy risks and challenges remain high. These include a still large stock of non-performing loans, a capital position in line with capital requirements but faced with an increasing capital demand in the medium term, as well as a low profitability dependent on lending growth. As a result, Greek banks are particularly exposed to the risk of increases in funding costs and renewed deterioration of asset quality due to the COVID-19 pandemic. Fostering the continuous functioning of the secondary market for non-performing loans, in parallel with new lending and viable long term loan restructurings in accordance with prudent credit standards, can play a key role in meeting the dual goal of mitigating the impact of the outbreak on asset quality while tackling the legacy of non-performing loans. The implementation of a reform of the legal framework that allows unconstrained collateral enforcement from defaulted borrowers, can be an essential step in that direction.

| (29) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Greece will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(29)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Greece will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (30) | Close coordination between economies in the economic and monetary union is key in achievinga swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Greece should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(30)

Close coordination between economies in the economic and monetary union is key in achievinga swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Greece should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (31) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Greece’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Greece in 2019. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Greece, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(31)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Greece’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Greece in 2019. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Greece, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (32) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (10) is reflected in particular in recommendation (1) below. |
| --- | --- |

(32)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (10) is reflected in particular in recommendation (1) below.

| (33) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4) below, |
| --- | --- |

(33)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4) below,

HEREBY RECOMMENDS that Greece take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system and ensure adequate and equal access to healthcare. |
| --- | --- |

1.

| 2. | Mitigate the employment and social impacts of the COVID-19 crisis, including by implementing measures such as short-time work schemes and ensuring effective activation support. |
| --- | --- |

2.

| 3. | Swiftly deploy measures to provide liquidity and continued flow of credit and other financing to the economy, focusing in particular on SMEs most affected by the crisis. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on safe and sustainable transport and logistics, clean and efficient production and use of energy, environmental infrastructure and very-high-capacity digital infrastructure and skills. Improve the effectiveness and digitalisation of the public administration and promote digital transformation of businesses. |
| --- | --- |

3.

| 4. | Continue and complete reforms in line with the post-programme commitments given at the Eurogroup of 22 June 2018 to restart a sustainable economic recovery, following the gradual easing-up of constraints imposed because of the COVID-19 outbreak. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 42.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability (OJ L 140, 27.5.2013, p. 1).

7

(8)  Commission Implementing Decision (EU) 2018/1192 of 11 July 2018 on the activation of enhanced surveillance for Greece (OJ L 211, 22.8.2018, p. 1).

8

(9)  Commission Implementing Decision (EU) 2019/338 of 20 February 2019 on the prolongation of enhanced surveillance for Greece (OJ L 60, 28.2.2019, p. 17).

9

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

10

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/54 |
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26.8.2020

EN

Official Journal of the European Union

C 282/54

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Spain and delivering a Council opinion on the 2020 Stability Programme of Spain

(2020/C 282/09)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Spain was published on 26 February 2020. It assessed Spain’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Spain’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Spain is experiencing macroeconomic imbalances. High external and internal debt, both public and private, continued to constitute vulnerabilities, in a context of still high unemployment and had cross-border relevance. |
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(2)

The 2020 country report for Spain was published on 26 February 2020. It assessed Spain’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Spain’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Spain is experiencing macroeconomic imbalances. High external and internal debt, both public and private, continued to constitute vulnerabilities, in a context of still high unemployment and had cross-border relevance.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Spain is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Spain is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Spanish regions due to different specialisation patterns. This is the case, for example, for the regions that rely the most on tourism, such as those in the Mediterranean coast, Andalusia, or the Balearic Islands and the Canary Islands, where more than one fourth of jobs are linked to that sector. This entails a substantial risk of widening regional disparities within Spain. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Spanish regions due to different specialisation patterns. This is the case, for example, for the regions that rely the most on tourism, such as those in the Mediterranean coast, Andalusia, or the Balearic Islands and the Canary Islands, where more than one fourth of jobs are linked to that sector. This entails a substantial risk of widening regional disparities within Spain. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 1 May 2020, Spain submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 1 May 2020, Spain submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Spain is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. |
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(11)

Spain is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule.

| (12) | On 13 July 2018, the Council recommended Spain to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 0,6 % in 2019, corresponding to an annual structural adjustment of 0,65 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing Spain’s compliance with the debt criterion in 2019. |
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(12)

On 13 July 2018, the Council recommended Spain to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 0,6 % in 2019, corresponding to an annual structural adjustment of 0,65 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing Spain’s compliance with the debt criterion in 2019.

| (13) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 2,8 % of GDP in 2019 to a deficit of 10,3 % of GDP in 2020. After decreasing to 95,5 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 115,5 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(13)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 2,8 % of GDP in 2019 to a deficit of 10,3 % of GDP in 2020. After decreasing to 95,5 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 115,5 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (14) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Spain has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 3,2 % of GDP. The quantification of the deficit-increasing measures broadly coincides with the Commission’s estimates, once the different treatment of the cost of automatic stabilisers is taken into account. The measures include strengthening healthcare services, providing income support to workers put on short-time work schemes, targeted exemptions of social security contributions and a special cessation of activity benefit to self-employed whose activity has been suspended or have suffered a significant drop in revenues. In addition, Spain has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 9,2 % of GDP. Those measures in particular include loan guarantees (8,8 % of GDP). Overall, the measures taken by Spain are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(14)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Spain has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 3,2 % of GDP. The quantification of the deficit-increasing measures broadly coincides with the Commission’s estimates, once the different treatment of the cost of automatic stabilisers is taken into account. The measures include strengthening healthcare services, providing income support to workers put on short-time work schemes, targeted exemptions of social security contributions and a special cessation of activity benefit to self-employed whose activity has been suspended or have suffered a significant drop in revenues. In addition, Spain has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 9,2 % of GDP. Those measures in particular include loan guarantees (8,8 % of GDP). Overall, the measures taken by Spain are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (15) | Based on the Commission 2020 spring forecast under unchanged policies, Spain’s general government balance is forecast at -10,1 % of GDP in 2020 and -6,7 % in 2021. The general government debt ratio is projected to reach 115,6 % of GDP in 2020 and 113,7 % in 2021. |
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(15)

Based on the Commission 2020 spring forecast under unchanged policies, Spain’s general government balance is forecast at -10,1 % of GDP in 2020 and -6,7 % in 2021. The general government debt ratio is projected to reach 115,6 % of GDP in 2020 and 113,7 % in 2021.

| (16) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Spain’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit and debt criteria as defined in the Treaty and in Regulation (EC) No 1467/97 have not been fulfilled. |
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(16)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Spain’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit and debt criteria as defined in the Treaty and in Regulation (EC) No 1467/97 have not been fulfilled.

| (17) | Measures taken to stop the spread of the virus responsible for COVID-19 are having an important effect on the economy and could result in a 9,4 % loss of GDP this year. The impact on employment, while difficult to calculate at this stage, will also be sizeable. Close to 700 000 people have lost their jobs since the onset of the COVID-19 crisis, from February to May. The effect on employment is currently mitigated by the close to 3,5 million workers who have been enrolled in short-time work schemes (ERTEs), which have prevented so far immediate losses of employment. The consequences of the COVID-19 pandemic in Spain will be aggravated by the high share of employment in small and medium-sized enterprises (SMEs), the weight of sectors that are being particularly hit and are likely to experience a slower recovery, among which tourism and retail, and the high rate of temporary contracts among employees (26,3 % in 2019). All these factors could lead to large employment losses and amplify the shock. According to the Commission 2020 spring forecast, the unemployment rate (which was 13,6 % in February 2020), is expected to rise to 18,9 % in 2020 and decrease to 17 % in 2021. |
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(17)

Measures taken to stop the spread of the virus responsible for COVID-19 are having an important effect on the economy and could result in a 9,4 % loss of GDP this year. The impact on employment, while difficult to calculate at this stage, will also be sizeable. Close to 700 000 people have lost their jobs since the onset of the COVID-19 crisis, from February to May. The effect on employment is currently mitigated by the close to 3,5 million workers who have been enrolled in short-time work schemes (ERTEs), which have prevented so far immediate losses of employment. The consequences of the COVID-19 pandemic in Spain will be aggravated by the high share of employment in small and medium-sized enterprises (SMEs), the weight of sectors that are being particularly hit and are likely to experience a slower recovery, among which tourism and retail, and the high rate of temporary contracts among employees (26,3 % in 2019). All these factors could lead to large employment losses and amplify the shock. According to the Commission 2020 spring forecast, the unemployment rate (which was 13,6 % in February 2020), is expected to rise to 18,9 % in 2020 and decrease to 17 % in 2021.

| (18) | The Spanish authorities have sought to mitigate the impact of the COVID-19 pandemic and of the containment period through various packages of measures that in total amount to EUR 145 billion. In their efforts to tackle the COVID-19 disease, the authorities have increased their expenditure on health and social services. They have also facilitated the use of ERTEs with a view to keep people in employment and support household’s income. Employees affected by an ERTE receive a benefit amounting to 70 % of their social security contribution base, with a minimum and maximum limit (EUR 502 and EUR 1 402, respectively). The employment relationship remains intact during the duration of the ERTEs and the possibility of resorting to this legal instrument due to force majeure causes related to COVID-19 has been recently extended at least until 30 June 2020. Firms implementing ERTEs are exempted from having to pay a very large part of the social security contributions for workers covered by the scheme, provided they maintain their jobs for at least six months after the resumption of activities. These measures go hand in hand with specific aid for SMEs and self-employed workers, who constitute the backbone of the Spanish economy (deferral of tax payments, reductions of social security contributions and state guarantees), and are an attempt to help them avoid bankruptcy and quickly resume activity once the COVID-19 crisis is over. Measures have also been adopted to guarantee income support temporarily to self-employed, non-standard and vulnerable workers who would have no access to social protection under normal circumstances. |
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(18)

The Spanish authorities have sought to mitigate the impact of the COVID-19 pandemic and of the containment period through various packages of measures that in total amount to EUR 145 billion. In their efforts to tackle the COVID-19 disease, the authorities have increased their expenditure on health and social services. They have also facilitated the use of ERTEs with a view to keep people in employment and support household’s income. Employees affected by an ERTE receive a benefit amounting to 70 % of their social security contribution base, with a minimum and maximum limit (EUR 502 and EUR 1 402, respectively). The employment relationship remains intact during the duration of the ERTEs and the possibility of resorting to this legal instrument due to force majeure causes related to COVID-19 has been recently extended at least until 30 June 2020. Firms implementing ERTEs are exempted from having to pay a very large part of the social security contributions for workers covered by the scheme, provided they maintain their jobs for at least six months after the resumption of activities. These measures go hand in hand with specific aid for SMEs and self-employed workers, who constitute the backbone of the Spanish economy (deferral of tax payments, reductions of social security contributions and state guarantees), and are an attempt to help them avoid bankruptcy and quickly resume activity once the COVID-19 crisis is over. Measures have also been adopted to guarantee income support temporarily to self-employed, non-standard and vulnerable workers who would have no access to social protection under normal circumstances.

| (19) | The Spanish health system has been delivering good health outcomes despite the comparatively low level of investments. The COVID-19 pandemic has, however, put an unprecedented strain on the system and revealed its vulnerability to shocks. Immediate action is focusing on strengthening capacities in terms of health workers, critical medical products and infrastructure in order to save lives and restore health during the pandemic. Persons with disabilities and the elderly in residential care have been particularly exposed during the COVID-19 crisis. Their continued access to medical and social care, including emergency and intensive care services, needs to be ensured. Later on, efforts should concentrate on improving the resilience of the health system so that it can resume its optimal performance as quickly as possible and better cope with new shocks. The COVID-19 pandemic has revealed existing structural problems, some of which derive from certain shortfalls in investment in physical infrastructures and shortcomings in the recruitment and working conditions of health workers. There are regional disparities in terms of spending, physical resources and staff, and the coordination between different levels of government is not always effective. In the medium term, healthcare delivery could better respond to the challenges of ageing, growing chronical conditions and disability. Primary care and the development of e-health have a central role to play in this regard. In the medium term, it will be important to ensure that the likely decrease in resources due to the economic downturn does not affect people’s healthcare coverage and result in inequalities in access. |
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(19)

The Spanish health system has been delivering good health outcomes despite the comparatively low level of investments. The COVID-19 pandemic has, however, put an unprecedented strain on the system and revealed its vulnerability to shocks. Immediate action is focusing on strengthening capacities in terms of health workers, critical medical products and infrastructure in order to save lives and restore health during the pandemic. Persons with disabilities and the elderly in residential care have been particularly exposed during the COVID-19 crisis. Their continued access to medical and social care, including emergency and intensive care services, needs to be ensured. Later on, efforts should concentrate on improving the resilience of the health system so that it can resume its optimal performance as quickly as possible and better cope with new shocks. The COVID-19 pandemic has revealed existing structural problems, some of which derive from certain shortfalls in investment in physical infrastructures and shortcomings in the recruitment and working conditions of health workers. There are regional disparities in terms of spending, physical resources and staff, and the coordination between different levels of government is not always effective. In the medium term, healthcare delivery could better respond to the challenges of ageing, growing chronical conditions and disability. Primary care and the development of e-health have a central role to play in this regard. In the medium term, it will be important to ensure that the likely decrease in resources due to the economic downturn does not affect people’s healthcare coverage and result in inequalities in access.

| (20) | Despite years of strong job creation, the Spanish labour market still recorded high levels of unemployment and labour market segmentation before the COVID-19 pandemic. Preliminary data point to a very significant increase in the level of unemployment in Spain as a result of the COVID-19 crisis, which will weigh on the already limited capacity of employment services to support workers and employers and on social services. In the medium term, the way to recovery should be paved by measures to support employment taken in consultation with social partners, such as gradually phasing out short-time work schemes, reviewing the system of hiring incentives to better promote sustainable forms of employment, in particular for young workers, as well as through flexibility in working conditions. Raising the share of students in science and digital technologies, making vocational education and training more attractive and ensuring flexible upskilling and reskilling opportunities could help meet the growing demand for the technical skills needed for the green and digital transitions that will accompany the recovery. More generally, improving educational and career guidance and providing adequate support to students with disadvantages and regions lagging behind could contribute to better educational outcomes. The success of measures that may be adopted with a view to achieving these objectives will strongly depend on taking the necessary time to build a broad and long-lasting social and political consensus around the reforms. |
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(20)

Despite years of strong job creation, the Spanish labour market still recorded high levels of unemployment and labour market segmentation before the COVID-19 pandemic. Preliminary data point to a very significant increase in the level of unemployment in Spain as a result of the COVID-19 crisis, which will weigh on the already limited capacity of employment services to support workers and employers and on social services. In the medium term, the way to recovery should be paved by measures to support employment taken in consultation with social partners, such as gradually phasing out short-time work schemes, reviewing the system of hiring incentives to better promote sustainable forms of employment, in particular for young workers, as well as through flexibility in working conditions. Raising the share of students in science and digital technologies, making vocational education and training more attractive and ensuring flexible upskilling and reskilling opportunities could help meet the growing demand for the technical skills needed for the green and digital transitions that will accompany the recovery. More generally, improving educational and career guidance and providing adequate support to students with disadvantages and regions lagging behind could contribute to better educational outcomes. The success of measures that may be adopted with a view to achieving these objectives will strongly depend on taking the necessary time to build a broad and long-lasting social and political consensus around the reforms.

| (21) | The effects of the COVID-19 pandemic on the labour market have prompted a pressing need to support the income of households hit by the COVID-19 crisis. The facilitation of the use of short-time work schemes has been key in that endeavour. However, temporary workers with very short-time contracts, who constitute the bulk of the new unemployed and amongst which there are many young workers, are often not eligible for standard unemployment protection. Ensuring that all workers, including temporary workers and the self-employed, have access to adequate social protection and active labour market policies, beyond the emergency measures already taken by the government, is needed to support a sustainable recovery and social cohesion. |
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(21)

The effects of the COVID-19 pandemic on the labour market have prompted a pressing need to support the income of households hit by the COVID-19 crisis. The facilitation of the use of short-time work schemes has been key in that endeavour. However, temporary workers with very short-time contracts, who constitute the bulk of the new unemployed and amongst which there are many young workers, are often not eligible for standard unemployment protection. Ensuring that all workers, including temporary workers and the self-employed, have access to adequate social protection and active labour market policies, beyond the emergency measures already taken by the government, is needed to support a sustainable recovery and social cohesion.

| (22) | The COVID-19 crisis will likely increase the high levels of poverty or social exclusion in Spain, especially among families with children. In 2019, Spain was the Member State with the lowest average of family benefits per child. Families with low-to-medium income are not entitled to the country’s strict child benefits, and tax deductions are of limited advantage to them. Social protection expenditure remains highly oriented towards older people, and the level of expenditure on pensions is set to increase significantly in the medium to long term, should the announced departures from the 2013 pension reform be made permanent and no adequate compensatory measures taken. The difficult economic and social context resulting from the COVID-19 pandemic instead calls for intergenerational solidarity towards the younger generations. Unemployment assistance for the long-term unemployed and workers not qualifying for contributory schemes is currently scattered across multiple schemes, resulting in low coverage. Existing regional minimum income schemes only reach 20 % of their potential beneficiaries in the country, amid large regional disparities in terms of coverage, duration, access conditions and adequacy. In the current pressing context, a permanent national income guarantee scheme, with an estimated coverage of over two million beneficiaries, has recently been adopted and awaits the ratification by the parliament, and will be complemented by the existing regional minimum income schemes. Its impact on poverty-reduction and its sustainability in the short and medium term cannot be assessed at this stage. |
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(22)

The COVID-19 crisis will likely increase the high levels of poverty or social exclusion in Spain, especially among families with children. In 2019, Spain was the Member State with the lowest average of family benefits per child. Families with low-to-medium income are not entitled to the country’s strict child benefits, and tax deductions are of limited advantage to them. Social protection expenditure remains highly oriented towards older people, and the level of expenditure on pensions is set to increase significantly in the medium to long term, should the announced departures from the 2013 pension reform be made permanent and no adequate compensatory measures taken. The difficult economic and social context resulting from the COVID-19 pandemic instead calls for intergenerational solidarity towards the younger generations. Unemployment assistance for the long-term unemployed and workers not qualifying for contributory schemes is currently scattered across multiple schemes, resulting in low coverage. Existing regional minimum income schemes only reach 20 % of their potential beneficiaries in the country, amid large regional disparities in terms of coverage, duration, access conditions and adequacy. In the current pressing context, a permanent national income guarantee scheme, with an estimated coverage of over two million beneficiaries, has recently been adopted and awaits the ratification by the parliament, and will be complemented by the existing regional minimum income schemes. Its impact on poverty-reduction and its sustainability in the short and medium term cannot be assessed at this stage.

| (23) | Another aggravating factor with regard to the COVID-19 pandemic in Spain is that the high number of SMEs account for a large share of employment. In order to prevent avoidable bankruptcies, some measures to provide liquidity support to businesses through loans and guarantees have been adopted as a matter of urgency, with a focus on SMEs and on sectors that will be hit harder and longer by the COVID-19 crisis, such as tourism (which accounts for 12 % of GDP in Spain in 2019). These measures should be efficiently and swiftly implemented by financial intermediaries if they are to deploy their effects. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities will also help improve the cash flow of SMEs. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. With a view to ensuring the effectiveness of these measures, it is important that efforts to reduce administrative burden and to offer efficient digital public services are maintained. Support to firms in the sectors most damaged by the COVID-19 crisis, safeguarding the competitiveness of export companies, and promoting internationalisation as a means to stregthen firms resilience are crucial for the successful recovery. |
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(23)

Another aggravating factor with regard to the COVID-19 pandemic in Spain is that the high number of SMEs account for a large share of employment. In order to prevent avoidable bankruptcies, some measures to provide liquidity support to businesses through loans and guarantees have been adopted as a matter of urgency, with a focus on SMEs and on sectors that will be hit harder and longer by the COVID-19 crisis, such as tourism (which accounts for 12 % of GDP in Spain in 2019). These measures should be efficiently and swiftly implemented by financial intermediaries if they are to deploy their effects. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities will also help improve the cash flow of SMEs. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. With a view to ensuring the effectiveness of these measures, it is important that efforts to reduce administrative burden and to offer efficient digital public services are maintained. Support to firms in the sectors most damaged by the COVID-19 crisis, safeguarding the competitiveness of export companies, and promoting internationalisation as a means to stregthen firms resilience are crucial for the successful recovery.

| (24) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Spain’s recovery prospects will depend on its capacity to increase productivity and foster innovation, including through the digital and green transition. Spain’s innovation performance is below the Union average in all regions. Spain underperforms on the ability of firms to innovate, invest in tangible and intangible assets and make best use of its population’s skills, which could hamper their competitiveness in a knowledge-based economy. The COVID-19 crisis has highlighted the importance of digitalisation to maintain access to governmental services and education and training, as well as to preserve jobs and economic activity. Before the containment period, only half of the schools in Spain had adequate digital learning platforms in place, with significant regional disparities. The sudden shift to digital learning was also a particular challenge for vulnerable students who did not have access to digital solutions at home. Spain should ensure that all students benefit from access to digital learning, including those in rural areas and from vulnerable households. Supporting the digitalisation of businesses would also promote the competitiveness of Spanish firms in global value chains and increase their capacity to export, especially SMEs and microenterprises. The digital uptake, including of advanced digital technologies, and the reduction of the digital divide between urban and rural areas, would improve the Spanish economy’s capacity to innovate. In addition, reinforcing research and innovation governance at all levels, increasing the quality of research through systematic evaluations and incentivising research organisations to cooperate with the private sector could make research and innovation policies more effective and accelerate the diffusion of innovation in order to help the recovery. |
| --- | --- |

(24)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Spain’s recovery prospects will depend on its capacity to increase productivity and foster innovation, including through the digital and green transition. Spain’s innovation performance is below the Union average in all regions. Spain underperforms on the ability of firms to innovate, invest in tangible and intangible assets and make best use of its population’s skills, which could hamper their competitiveness in a knowledge-based economy. The COVID-19 crisis has highlighted the importance of digitalisation to maintain access to governmental services and education and training, as well as to preserve jobs and economic activity. Before the containment period, only half of the schools in Spain had adequate digital learning platforms in place, with significant regional disparities. The sudden shift to digital learning was also a particular challenge for vulnerable students who did not have access to digital solutions at home. Spain should ensure that all students benefit from access to digital learning, including those in rural areas and from vulnerable households. Supporting the digitalisation of businesses would also promote the competitiveness of Spanish firms in global value chains and increase their capacity to export, especially SMEs and microenterprises. The digital uptake, including of advanced digital technologies, and the reduction of the digital divide between urban and rural areas, would improve the Spanish economy’s capacity to innovate. In addition, reinforcing research and innovation governance at all levels, increasing the quality of research through systematic evaluations and incentivising research organisations to cooperate with the private sector could make research and innovation policies more effective and accelerate the diffusion of innovation in order to help the recovery.

| (25) | Spain’s transformation to a climate-neutral economy will require sizeable investment over a sustained period in renewable energy, sustainable energy infrastructure, energy efficiency and sustainable transport, among others. Investments should be front-loaded to help the green transition during the recovery, in line with Spain’s National Energy and Climate Plan. Promoting an integrated energy system should facilitate renewables penetration. Reducing energy consumption in private and public buildings through large-scale renovations, and developing smart grids and renewable electricity storage would help better manage demand for energy, while supporting job creation during the recovery. Further investments in energy infrastructures, including in electricity interconnections with the rest of the Union, would help to improve the integration of the internal Union energy market, while introducing more competition and facilitating the deployment of renewable energy. Additional efforts should also promote sustainable and efficient transport, including the reinforcement of public transport services and the rollout of alternative fuels infrastructure, in particular for electric vehicles. Investments will also be needed to make a greater use of rail for freight transport possible, including cross-border connections with France and Portugal and connections to ports and logistic hubs. In addition, certain areas of Spain are among those most exposed to climate change in Europe. Water resources are under pressure, and infrastructure for water and waste management is uneven across the country. Green investments can help to cope with the adverse effects of climate change, including forest preservation, such as heat waves, droughts, floods and forest fires, improve air quality, as well as water and waste management and develop the potential of the circular economy. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Spain to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Spain to make the best use of that Fund. |
| --- | --- |

(25)

Spain’s transformation to a climate-neutral economy will require sizeable investment over a sustained period in renewable energy, sustainable energy infrastructure, energy efficiency and sustainable transport, among others. Investments should be front-loaded to help the green transition during the recovery, in line with Spain’s National Energy and Climate Plan. Promoting an integrated energy system should facilitate renewables penetration. Reducing energy consumption in private and public buildings through large-scale renovations, and developing smart grids and renewable electricity storage would help better manage demand for energy, while supporting job creation during the recovery. Further investments in energy infrastructures, including in electricity interconnections with the rest of the Union, would help to improve the integration of the internal Union energy market, while introducing more competition and facilitating the deployment of renewable energy. Additional efforts should also promote sustainable and efficient transport, including the reinforcement of public transport services and the rollout of alternative fuels infrastructure, in particular for electric vehicles. Investments will also be needed to make a greater use of rail for freight transport possible, including cross-border connections with France and Portugal and connections to ports and logistic hubs. In addition, certain areas of Spain are among those most exposed to climate change in Europe. Water resources are under pressure, and infrastructure for water and waste management is uneven across the country. Green investments can help to cope with the adverse effects of climate change, including forest preservation, such as heat waves, droughts, floods and forest fires, improve air quality, as well as water and waste management and develop the potential of the circular economy. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Spain to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Spain to make the best use of that Fund.

| (26) | Regulatory fragmentation and barriers in Spain prevent firms from benefiting from economies of scale and negatively affect productivity. The Law on Market Unity, which is already being enforced by courts and competition authorities, should be more actively used to promote better regulation and competition during the recovery. In this context, stringent ownership and market restrictions that have sought to ensure the supply of strategic goods and services during the COVID-19 pandemic should be removed as soon as the emergency ceases. More generally, a stronger and sustained coordination between the different levels of government could make policies to facilitate the recovery more effective. It is also essential to ensure that the governance structure that has already been created by the laws implementing the 2014 Public Procurement Directives can work at full speed as soon as possible to warrant an efficient use of the public investment that may support the recovery. Work on the comprehensive national public procurement strategy should be stepped up in close cooperation with the representatives of all government levels (central, regional and local) through the Cooperation Committee. |
| --- | --- |

(26)

Regulatory fragmentation and barriers in Spain prevent firms from benefiting from economies of scale and negatively affect productivity. The Law on Market Unity, which is already being enforced by courts and competition authorities, should be more actively used to promote better regulation and competition during the recovery. In this context, stringent ownership and market restrictions that have sought to ensure the supply of strategic goods and services during the COVID-19 pandemic should be removed as soon as the emergency ceases. More generally, a stronger and sustained coordination between the different levels of government could make policies to facilitate the recovery more effective. It is also essential to ensure that the governance structure that has already been created by the laws implementing the 2014 Public Procurement Directives can work at full speed as soon as possible to warrant an efficient use of the public investment that may support the recovery. Work on the comprehensive national public procurement strategy should be stepped up in close cooperation with the representatives of all government levels (central, regional and local) through the Cooperation Committee.

| (27) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(27)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (28) | The timely resolution of insolvency proceedings will also play a key role in ensuring the liquidity of companies and an effective reallocation of resources, as well as in promoting entrepreneurship and the stability of the financial sector. It is essential to safeguard the justice system’s capacity to handle insolvency proceedings efficiently. This is particularly important, as the current suspension of the activity of the courts and the expected increase in litigation due to the recession caused by the COVID-19 pandemic may further exacerbate already existing challenges with increasingly lengthy proceedings and growing backlogs of cases. |
| --- | --- |

(28)

The timely resolution of insolvency proceedings will also play a key role in ensuring the liquidity of companies and an effective reallocation of resources, as well as in promoting entrepreneurship and the stability of the financial sector. It is essential to safeguard the justice system’s capacity to handle insolvency proceedings efficiently. This is particularly important, as the current suspension of the activity of the courts and the expected increase in litigation due to the recession caused by the COVID-19 pandemic may further exacerbate already existing challenges with increasingly lengthy proceedings and growing backlogs of cases.

| (29) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Spain will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(29)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Spain will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (30) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Spain should,–ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(30)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Spain should,–ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (31) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Spain’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Spain in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(31)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Spain’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Spain in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (32) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below. |
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(32)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below.

| (33) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2) and (4), |
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(33)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2) and (4),

HEREBY RECOMMENDS that Spain take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the health system’s resilience and capacity, as regards health workers, critical medical products and infrastructure. |
| --- | --- |

1.

| 2. | Support employment through arrangements to preserve jobs, effective hiring incentives and skills development. Reinforce unemployment protection, in particular for atypical workers. Improve coverage and adequacy of minimum income schemes and family support, as well as access to digital learning. |
| --- | --- |

2.

| 3. | Ensure the effective implementation of measures to provide liquidity to SMEs and the self-employed, including by avoiding late payments. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on fostering research and innovation, clean and efficient production and use of energy, energy infrastructure, water and waste management and sustainable transport. |
| --- | --- |

3.

| 4. | Improve coordination between different levels of government and strengthen the public procurement framework to support recovery in an efficient manner. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 48.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

7

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

8

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/62 |
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26.8.2020

EN

Official Journal of the European Union

C 282/62

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of France and delivering a Council opinion on the 2020 Stability Programme of France

(2020/C 282/10)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for France was published on 26 February 2020. It assessed France’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and France’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that France is experiencing macroeconomic imbalances. In particular, these imbalances related to high public debt and weak competitiveness dynamics, in a context of low productivity growth, having cross-border relevance. |
| --- | --- |

(2)

The 2020 country report for France was published on 26 February 2020. It assessed France’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and France’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that France is experiencing macroeconomic imbalances. In particular, these imbalances related to high public debt and weak competitiveness dynamics, in a context of low productivity growth, having cross-border relevance.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. France is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. France is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns, in particular in regions markedly relying on tourism – like the outermost regions – and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within France, aggravating the already observed trend of slowly widening disparities between the capital region, large cities and the rest of the country, between urban and rural areas and between the metropole and the outermost regions. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns, in particular in regions markedly relying on tourism – like the outermost regions – and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within France, aggravating the already observed trend of slowly widening disparities between the capital region, large cities and the rest of the country, between urban and rural areas and between the metropole and the outermost regions. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | France submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

France submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | France is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. On 13 July 2018, the Council recommended France to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 1,4 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing France’s compliance with the debt criterion in 2019. |
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(11)

France is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. On 13 July 2018, the Council recommended France to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 1,4 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing France’s compliance with the debt criterion in 2019.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 3,0 % of GDP in 2019 to a deficit of 9,0 % of GDP in 2020. After stabilising at 98,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 115,2 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 3,0 % of GDP in 2019 to a deficit of 9,0 % of GDP in 2020. After stabilising at 98,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 115,2 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, France has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amount to 1,9 % of GDP. Those measures include the funding of partial unemployment scheme for 1,1 % of GDP; 0,4 % of GDP additional expenditure to strengthen healthcare services, health insurance allowances and compensation of healthcare personnel; creation of a solidarity fund for 0,3 % of GDP to provide direct support to small and very small enterprises as well as self-employed. In addition, France has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 17 % of GDP. Those measures include tax and social charges deferrals for companies; accelerated refund of tax and VAT credit; creation of a dedicated reserve for direct support to strategic companies via equity investment (3,1 % of GDP) and loan guarantees (13,9 % of GDP). Overall, the measures taken by France are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, France has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amount to 1,9 % of GDP. Those measures include the funding of partial unemployment scheme for 1,1 % of GDP; 0,4 % of GDP additional expenditure to strengthen healthcare services, health insurance allowances and compensation of healthcare personnel; creation of a solidarity fund for 0,3 % of GDP to provide direct support to small and very small enterprises as well as self-employed. In addition, France has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 17 % of GDP. Those measures include tax and social charges deferrals for companies; accelerated refund of tax and VAT credit; creation of a dedicated reserve for direct support to strategic companies via equity investment (3,1 % of GDP) and loan guarantees (13,9 % of GDP). Overall, the measures taken by France are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, France’s general government balance is forecast at -9,9 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to reach 116,5 % of GDP in 2020 and 111,9 % in 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, France’s general government balance is forecast at -9,9 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to reach 116,5 % of GDP in 2020 and 111,9 % in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of France’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit and debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 have not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of France’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit and debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 have not been fulfilled.

| (16) | The French health system is effective in achieving good outcomes. However, the COVID-19 crisis has highlighted shortcomings in system preparedness to address pandemics. These include: a) difficulties in ensuring that health workers, critical supplies and personal protective equipment are readily available; and b) latent structural problems. With regard to the former, France mobilised its reserve of medical and paramedical staff and equipment, including medical students and retired doctors and nurses. Coordinating the response across all segments of the health system remains a challenge. With regard to the latter, these are the result of a lack of investment in physical infrastructures and human resources, of limited adaptation in the organisation of services and of the need for better coordination between private and public actors. Challenges are aggravated by persisting regional disparities. For instance, despite the share of practising doctors being around the Union average, about 18 % of France’s population lives in areas where access to a general practitioner is limited. Further decisive efforts to digitalise health services, a cornerstone of the government’s strategy for transforming the health system, are required. The COVID-19 crisis is showing that better use of e-health, in particular telemedicine, is important in times of pandemic. |
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(16)

The French health system is effective in achieving good outcomes. However, the COVID-19 crisis has highlighted shortcomings in system preparedness to address pandemics. These include: a) difficulties in ensuring that health workers, critical supplies and personal protective equipment are readily available; and b) latent structural problems. With regard to the former, France mobilised its reserve of medical and paramedical staff and equipment, including medical students and retired doctors and nurses. Coordinating the response across all segments of the health system remains a challenge. With regard to the latter, these are the result of a lack of investment in physical infrastructures and human resources, of limited adaptation in the organisation of services and of the need for better coordination between private and public actors. Challenges are aggravated by persisting regional disparities. For instance, despite the share of practising doctors being around the Union average, about 18 % of France’s population lives in areas where access to a general practitioner is limited. Further decisive efforts to digitalise health services, a cornerstone of the government’s strategy for transforming the health system, are required. The COVID-19 crisis is showing that better use of e-health, in particular telemedicine, is important in times of pandemic.

| (17) | The COVID-19 crisis is having a negative impact on French labour market and social conditions. Despite having taken mitigation measures, unemployment is set to rise to 10,1 % in 2020 according to the Commission 2020 spring forecast, to then decrease to 9,7 % in 2021. These measures include amending and extending the short-time work scheme, temporarily extending the rights of jobseekers as well as measures adopted to support firms and workers and ensuring the functioning of public services and the health system. Persistent labour market segmentation remains a source of concern. In 2019, around two thirds of new recruitments were on short-time contracts of less than one month. The transition rate from short-time to open-ended contacts is one of the lowest in the Union. The recent reform of the unemployment benefit system (Unédic) aimed to strengthen the financial sustainability of the system and to address segmentation. However, parts of the reform related to indemnisation rules have been put on hold due to the COVID-19 crisis. In light of the deteriorated context, it is important to ensure that unemployment benefits, as well as active support to employment, are available to all jobseekers, irrespective of previous employment status. To address skills mismatches and improve the resilience of the labour market, efforts should continue to promote the reallocation of the workforce across sectors. Before the COVID-19 pandemic, employers increasingly reported difficulties in finding suitable candidates to recruit, pointing to the need to promote upskilling and reskilling. For instance, while the Information Technology sector is particularly affected by skills shortages, its graduates only represent 3,5 % of the total number of tertiary graduates. |
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(17)

The COVID-19 crisis is having a negative impact on French labour market and social conditions. Despite having taken mitigation measures, unemployment is set to rise to 10,1 % in 2020 according to the Commission 2020 spring forecast, to then decrease to 9,7 % in 2021. These measures include amending and extending the short-time work scheme, temporarily extending the rights of jobseekers as well as measures adopted to support firms and workers and ensuring the functioning of public services and the health system. Persistent labour market segmentation remains a source of concern. In 2019, around two thirds of new recruitments were on short-time contracts of less than one month. The transition rate from short-time to open-ended contacts is one of the lowest in the Union. The recent reform of the unemployment benefit system (Unédic) aimed to strengthen the financial sustainability of the system and to address segmentation. However, parts of the reform related to indemnisation rules have been put on hold due to the COVID-19 crisis. In light of the deteriorated context, it is important to ensure that unemployment benefits, as well as active support to employment, are available to all jobseekers, irrespective of previous employment status. To address skills mismatches and improve the resilience of the labour market, efforts should continue to promote the reallocation of the workforce across sectors. Before the COVID-19 pandemic, employers increasingly reported difficulties in finding suitable candidates to recruit, pointing to the need to promote upskilling and reskilling. For instance, while the Information Technology sector is particularly affected by skills shortages, its graduates only represent 3,5 % of the total number of tertiary graduates.

| (18) | In the context of the COVID-19 crisis, it is particularly important to ensure the functioning of critical infrastructure and the free circulation of goods throughout the single market and to monitor and ensure the correct functioning of supply chains in cooperation with neighbouring countries. To this end, lifting export restrictions for certain medicinal products adopted during the COVID-19 crisis will contribute to address the needs of citizens across the Union coherently and in a spirit of solidarity, avoid the risk of shortages and disruptions of supply chains, and ultimately, pave the way to a successful Union coordinated COVID-19-exit strategy. |
| --- | --- |

(18)

In the context of the COVID-19 crisis, it is particularly important to ensure the functioning of critical infrastructure and the free circulation of goods throughout the single market and to monitor and ensure the correct functioning of supply chains in cooperation with neighbouring countries. To this end, lifting export restrictions for certain medicinal products adopted during the COVID-19 crisis will contribute to address the needs of citizens across the Union coherently and in a spirit of solidarity, avoid the risk of shortages and disruptions of supply chains, and ultimately, pave the way to a successful Union coordinated COVID-19-exit strategy.

| (19) | France has adopted many schemes to support the liquidity of firms, including under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (8). Effective and efficient implementation of such schemes is key to ensure that firms, and in particular small and medium-sized enterprises (SMEs), benefit from them. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. |
| --- | --- |

(19)

France has adopted many schemes to support the liquidity of firms, including under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (8). Effective and efficient implementation of such schemes is key to ensure that firms, and in particular small and medium-sized enterprises (SMEs), benefit from them. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account.

| (20) | France’s overall business environment has improved but France needs to continue its efforts to simplify its tax system and reduce the administrative burden for firms, particularly if it is to support an effective economic recovery in the medium term. For instance, according to the Commission’s assessment which was confirmed by the OECD’s 2018 Product Market Regulation indicators, despite progress made and the adoption of several measures in the services sector, regulatory restrictions remain higher in France compared to other Member States, particularly for business services, many of which are regulated professions, and in retail. As one of the most affected sectors, the services sector will play a major role in exiting and recovering from the COVID-19 crisis. Redesigning requirements for the access to and exercise of services activities would stimulate innovation, competition and professional mobility, having a positive overall economic impact. Regulatory flexibility could also boost a rebound of retail activity in the aftermath of the COVID-19 pandemic. |
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(20)

France’s overall business environment has improved but France needs to continue its efforts to simplify its tax system and reduce the administrative burden for firms, particularly if it is to support an effective economic recovery in the medium term. For instance, according to the Commission’s assessment which was confirmed by the OECD’s 2018 Product Market Regulation indicators, despite progress made and the adoption of several measures in the services sector, regulatory restrictions remain higher in France compared to other Member States, particularly for business services, many of which are regulated professions, and in retail. As one of the most affected sectors, the services sector will play a major role in exiting and recovering from the COVID-19 crisis. Redesigning requirements for the access to and exercise of services activities would stimulate innovation, competition and professional mobility, having a positive overall economic impact. Regulatory flexibility could also boost a rebound of retail activity in the aftermath of the COVID-19 pandemic.

| (21) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. This could be identified in European Green Deal priorities, in particular in low-carbon transport initiatives, renewable, energy and building renovations. Together with the digital transformation of the economy, this could help bring short-term stimulus to the recovery and the medium-term aftermath of the COVID-19 crisis and put France on a sustainable long-term climate neutral path while promoting technological leadership. Preparatory work for recovery measures could rely on France’s National Energy and Climate Plan, projects of common interest and infrastructure development plans. Further investments in energy infrastructures, including in electricity interconnections, would contribute to improve integration of the internal Union energy market, while introducing more competition and facilitating the deployment of renewable energy. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help France to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow France to make the best use of that Fund. |
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(21)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. This could be identified in European Green Deal priorities, in particular in low-carbon transport initiatives, renewable, energy and building renovations. Together with the digital transformation of the economy, this could help bring short-term stimulus to the recovery and the medium-term aftermath of the COVID-19 crisis and put France on a sustainable long-term climate neutral path while promoting technological leadership. Preparatory work for recovery measures could rely on France’s National Energy and Climate Plan, projects of common interest and infrastructure development plans. Further investments in energy infrastructures, including in electricity interconnections, would contribute to improve integration of the internal Union energy market, while introducing more competition and facilitating the deployment of renewable energy. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help France to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow France to make the best use of that Fund.

| (22) | During the lockdown, digitalisation has proven vital in maintaining access to governmental, educational and medical services, and in preserving economic activity, through teleworking and e-commerce. In the medium term, digitalisation provides greater opportunities for firms, in particular SMEs, to recover and grow by bringing them into contact with more potential customers, improving the efficiency of production processes, and providing incentives to innovate. Investments in digitalisation include providing adequate infrastructure, improving the wider populations’ digital skills, in particular the working population. The implementation of France’s plan for very high-speed broadband (Plan France Très Haut Débit) appears to be on track with regards to urban areas. However, very high speed network coverage disparities remain important in other areas. |
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(22)

During the lockdown, digitalisation has proven vital in maintaining access to governmental, educational and medical services, and in preserving economic activity, through teleworking and e-commerce. In the medium term, digitalisation provides greater opportunities for firms, in particular SMEs, to recover and grow by bringing them into contact with more potential customers, improving the efficiency of production processes, and providing incentives to innovate. Investments in digitalisation include providing adequate infrastructure, improving the wider populations’ digital skills, in particular the working population. The implementation of France’s plan for very high-speed broadband (Plan France Très Haut Débit) appears to be on track with regards to urban areas. However, very high speed network coverage disparities remain important in other areas.

| (23) | France has a strong research base and potential to engage in specific research and innovation-related measures to respond to the COVID-19 crisis, including the development of vaccines and medicines. The COVID-19 crisis and its aftermath require strengthened cooperation in research and innovation between the public and private sectors. In the medium term, investment in research and innovation could unlock productivity gains, as pointed out by the French National Productivity Board. It is also needed in growth-enhancing sectors to allow firms to seize the opportunities offered by the transformation of the European economy. |
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(23)

France has a strong research base and potential to engage in specific research and innovation-related measures to respond to the COVID-19 crisis, including the development of vaccines and medicines. The COVID-19 crisis and its aftermath require strengthened cooperation in research and innovation between the public and private sectors. In the medium term, investment in research and innovation could unlock productivity gains, as pointed out by the French National Productivity Board. It is also needed in growth-enhancing sectors to allow firms to seize the opportunities offered by the transformation of the European economy.

| (24) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(24)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (25) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, France will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(25)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, France will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (26) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, France should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(26)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, France should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (27) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of France’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to France in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in France, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(27)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of France’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to France in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in France, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (28) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) reflected in particular in recommendation (1) below. |
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(28)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) reflected in particular in recommendation (1) below.

| (29) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (3) and (4), |
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(29)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (3) and (4),

HEREBY RECOMMENDS that France take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system by ensuring adequate supplies of critical medical products and a balanced distribution of health workers, and by investing in e-health. |
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1.

| 2. | Mitigate the employment and social impact of the COVID-19 crisis, including by promoting skills and active support for all jobseekers. |
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2.

| 3. | Ensure the effective implementation of measures supporting the liquidity of firms, in particular for SMEs. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on sustainable transport, clean and efficient production and use of energy, energy and digital infrastructures as well as research and innovation. |
| --- | --- |

3.

| 4. | Continue to improve the regulatory environment, reduce administrative burdens for firms and simplify the tax system. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 55.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

7

(8)  OJ C 91I, 20.3.2020, p. 1.

8

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

9

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/68 |
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26.8.2020

EN

Official Journal of the European Union

C 282/68

---

COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Croatia and delivering a Council opinion on the 2020 Convergence Programme of Croatia

(2020/C 282/11)

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 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 9(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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Croatia as one of the Member States for which an in-depth review would be carried out. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Croatia as one of the Member States for which an in-depth review would be carried out.

| (2) | The 2020 country report for Croatia was published on 26 February 2020. It assessed Croatia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Croatia’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Croatia is experiencing macroeconomic imbalances linked to high levels of public, private and external debt in a context of low potential growth. |
| --- | --- |

(2)

The 2020 country report for Croatia was published on 26 February 2020. It assessed Croatia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Croatia’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Croatia is experiencing macroeconomic imbalances linked to high levels of public, private and external debt in a context of low potential growth.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds (‘ESI Funds’) so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Croatia is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds (‘ESI Funds’) so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Croatia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be sizeable and unevenly distributed across Croatian regions because of different specialisation patterns. The coastal regions and the islands which markedly rely on tourism will be particularly affected. The current situation therefore calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be sizeable and unevenly distributed across Croatian regions because of different specialisation patterns. The coastal regions and the islands which markedly rely on tourism will be particularly affected. The current situation therefore calls for targeted policy responses.

| (10) | On 30 April 2020, Croatia submitted its 2020 National Reform Programme and its 2020 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 30 April 2020, Croatia submitted its 2020 National Reform Programme and its 2020 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Croatia is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
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(11)

Croatia is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 6,8 % of GDP in 2020 and improve to a deficit of 2,4 % of GDP in 2021. After decreasing to 73,2 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 86,7 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(12)

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 6,8 % of GDP in 2020 and improve to a deficit of 2,4 % of GDP in 2021. After decreasing to 73,2 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 86,7 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Croatia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and businesses that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amount to 2,8 % of GDP. The two main measures are the subsidy paid out to businesses for retaining employees and tax exemptions granted to hardest-hit businesses. In addition, Croatia has adopted measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 1,3 % of GDP. Those measures include tax deferrals for personal and corporate income taxes and social contributions. Overall, the measures taken by Croatia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Croatia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and businesses that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amount to 2,8 % of GDP. The two main measures are the subsidy paid out to businesses for retaining employees and tax exemptions granted to hardest-hit businesses. In addition, Croatia has adopted measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 1,3 % of GDP. Those measures include tax deferrals for personal and corporate income taxes and social contributions. Overall, the measures taken by Croatia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Croatia’s general government balance is forecast at -7,1 % of GDP in 2020 and -2,2 % of GDP in 2021. The general government debt ratio is projected to reach 88,6 % of GDP in 2020 and moderate to 83,4 % in 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Croatia’s general government balance is forecast at -7,1 % of GDP in 2020 and -2,2 % of GDP in 2021. The general government debt ratio is projected to reach 88,6 % of GDP in 2020 and moderate to 83,4 % in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Croatia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Croatia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | In response to the COVID-19 pandemic, Croatia swiftly undertook far-reaching measures to protect its citizens and contain the spread of the virus. The pandemic (and associated containment measures) led to serious disruption to business activity, with resulting negative effects on the labour market. Real GDP is estimated to drop by 9,1 % in 2020 and recover by 7,5 % in 2021, while the unemployment rate is forecast to increase to 10,2 % in 2020 and improve to 7,4 % in 2021, according to the Commission 2020 spring forecast. The tourism sector, which represents a very significant share of the Croatian economy, will be heavily impacted. At the same time, Croatia also had to deal with the effects of a major earthquake in Zagreb on 22 March 2020. To mitigate the negative impact on the economy, Croatia undertook a set of ambitious measures including wage support measures, exemptions from and deferrals of taxes and social contributions, support for small and medium-sized enterprises (‘SMEs’), additional guarantees for export insurance and moratoria on loan instalments, and specific measures for tourism and other highly affected sectors. |
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(16)

In response to the COVID-19 pandemic, Croatia swiftly undertook far-reaching measures to protect its citizens and contain the spread of the virus. The pandemic (and associated containment measures) led to serious disruption to business activity, with resulting negative effects on the labour market. Real GDP is estimated to drop by 9,1 % in 2020 and recover by 7,5 % in 2021, while the unemployment rate is forecast to increase to 10,2 % in 2020 and improve to 7,4 % in 2021, according to the Commission 2020 spring forecast. The tourism sector, which represents a very significant share of the Croatian economy, will be heavily impacted. At the same time, Croatia also had to deal with the effects of a major earthquake in Zagreb on 22 March 2020. To mitigate the negative impact on the economy, Croatia undertook a set of ambitious measures including wage support measures, exemptions from and deferrals of taxes and social contributions, support for small and medium-sized enterprises (‘SMEs’), additional guarantees for export insurance and moratoria on loan instalments, and specific measures for tourism and other highly affected sectors.

| (17) | The COVID-19 outbreak is a test of the resilience of the Croatian health system. Although access to healthcare is generally good in Croatia, unmet medical needs due to distance are amongst the highest in the Union. A more balanced geographical distribution of health workers and facilities would allow easier access to health services. The division of responsibility for healthcare facilities in Croatia between the central government and county authorities leaves scope for improvement. The central government has to cover the debts of hospitals owned by counties but has limited means of influencing how they are managed. Closer cooperation between the central government and counties is crucial to ensuring the supply of critical medical products and for being able to take steps to limit the spread of COVID-19. The use of e-health tools enables direct contacts between health workers and patients to be reduced, also lowering the risk of infections. The use of e-prescriptions is widespread, but a very low proportion of referrals and health records is digital. |
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(17)

The COVID-19 outbreak is a test of the resilience of the Croatian health system. Although access to healthcare is generally good in Croatia, unmet medical needs due to distance are amongst the highest in the Union. A more balanced geographical distribution of health workers and facilities would allow easier access to health services. The division of responsibility for healthcare facilities in Croatia between the central government and county authorities leaves scope for improvement. The central government has to cover the debts of hospitals owned by counties but has limited means of influencing how they are managed. Closer cooperation between the central government and counties is crucial to ensuring the supply of critical medical products and for being able to take steps to limit the spread of COVID-19. The use of e-health tools enables direct contacts between health workers and patients to be reduced, also lowering the risk of infections. The use of e-prescriptions is widespread, but a very low proportion of referrals and health records is digital.

| (18) | Due to a slowdown in economic activity, employers have difficulty paying wages, which is expected to result in increased unemployment and poverty levels, with even more pronounced territorial disparities. Traditionally, participation in active labour market policy measures has been very low, but under the current circumstances such programmes are gaining more prominence. In order to provide support to employers and minimise the number of dismissals, such measures, but also other time-bound support schemes, in particular short-time work schemes, should be enhanced. In the short term, they preserve jobs, but in the medium term too, there is scope for improving the anticipation of labour market needs during the recovery phase. The Croatian public employment service should step up its efforts to support the workforce in developing appropriate skills (e.g. digital skills), develop outreach strategies towards the inactive population and help fight undeclared work by promoting formal employment. The unemployment benefit does not provide an adequate safety net for dismissed workers, as both the coverage and adequacy are low. The poverty reduction capacity of the minimum income benefit is also evaluated as weak, in a context of high rates of poverty and social exclusion, territorial disparities and risk factors related to age, gender and disability. |
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(18)

Due to a slowdown in economic activity, employers have difficulty paying wages, which is expected to result in increased unemployment and poverty levels, with even more pronounced territorial disparities. Traditionally, participation in active labour market policy measures has been very low, but under the current circumstances such programmes are gaining more prominence. In order to provide support to employers and minimise the number of dismissals, such measures, but also other time-bound support schemes, in particular short-time work schemes, should be enhanced. In the short term, they preserve jobs, but in the medium term too, there is scope for improving the anticipation of labour market needs during the recovery phase. The Croatian public employment service should step up its efforts to support the workforce in developing appropriate skills (e.g. digital skills), develop outreach strategies towards the inactive population and help fight undeclared work by promoting formal employment. The unemployment benefit does not provide an adequate safety net for dismissed workers, as both the coverage and adequacy are low. The poverty reduction capacity of the minimum income benefit is also evaluated as weak, in a context of high rates of poverty and social exclusion, territorial disparities and risk factors related to age, gender and disability.

| (19) | The reliability of internet connectivity poses concerns. Households in Croatia do not have widespread high-speed internet access at home. About 70 % of households have fixed broadband take-up, and only 6 % have at least 100Mbps fixed broadband take-up. Especially in rural areas, this might prevent telework and distance learning, particularly amongst vulnerable groups, such as students from disadvantaged families or those with disabilities. These groups risk being excluded from the sudden shift to a more digitalised society. Alternative working arrangements employing digital technology should be stepped up, in close cooperation with social partners, as the share of workers who telework (6 to 7 %) stands at half the Union average. |
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(19)

The reliability of internet connectivity poses concerns. Households in Croatia do not have widespread high-speed internet access at home. About 70 % of households have fixed broadband take-up, and only 6 % have at least 100Mbps fixed broadband take-up. Especially in rural areas, this might prevent telework and distance learning, particularly amongst vulnerable groups, such as students from disadvantaged families or those with disabilities. These groups risk being excluded from the sudden shift to a more digitalised society. Alternative working arrangements employing digital technology should be stepped up, in close cooperation with social partners, as the share of workers who telework (6 to 7 %) stands at half the Union average.

| (20) | Labour shortages have continually affected some sectors of the economy, mainly because of skills gaps. Promoting the acquisition of adequate skills, including digital skills, during initial education and training and later via reskilling and upskilling could raise productivity and close skills gaps. The quality and inclusiveness of the education and training system need to be improved at all levels, and the curricular reform needs to continue. The introduction of digital education has already proven its value in the COVID-19 crisis; further development of infrastructure and material for digital education and training and of the digital skills of teachers, pupils and adults are needed. |
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(20)

Labour shortages have continually affected some sectors of the economy, mainly because of skills gaps. Promoting the acquisition of adequate skills, including digital skills, during initial education and training and later via reskilling and upskilling could raise productivity and close skills gaps. The quality and inclusiveness of the education and training system need to be improved at all levels, and the curricular reform needs to continue. The introduction of digital education has already proven its value in the COVID-19 crisis; further development of infrastructure and material for digital education and training and of the digital skills of teachers, pupils and adults are needed.

| (21) | Croatia should support the continuous flow of credit and other financing, including non-bank financing, to viable borrowers that are negatively affected by the COVID-19 crisis. Croatia has adopted a number of stimulus and support schemes for SMEs. Efforts should continue to provide swift and continued liquidity support to businesses through loans and guarantees, in particular State guarantees, with a focus on SMEs, to overcome the crisis and smooth the path to recovery. Businesses in Croatia rely heavily on bank loans and cash flow to meet their funding needs. The banking system should be supported with guarantees in order to open up for new SME financing and improve access to finance. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Exempting from and allowing deferred payments of taxes and social contributions has also helped improve businesses’ liquidity. |
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(21)

Croatia should support the continuous flow of credit and other financing, including non-bank financing, to viable borrowers that are negatively affected by the COVID-19 crisis. Croatia has adopted a number of stimulus and support schemes for SMEs. Efforts should continue to provide swift and continued liquidity support to businesses through loans and guarantees, in particular State guarantees, with a focus on SMEs, to overcome the crisis and smooth the path to recovery. Businesses in Croatia rely heavily on bank loans and cash flow to meet their funding needs. The banking system should be supported with guarantees in order to open up for new SME financing and improve access to finance. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Exempting from and allowing deferred payments of taxes and social contributions has also helped improve businesses’ liquidity.

| (22) | There has been renewed effort to reduce the administrative burden and regulatory restrictions. However, the operation of businesses in general continues to be held back by the still high regulatory and administrative burden, for example as regards permits, reporting requirements, to a certain extent, and tax procedures. Identification of the administrative and financial burdens is progressing through consultations with stakeholders and via a dedicated website, and measures to reduce the most burdensome obligations are being introduced. Ensuring smooth access to and exercise of professions, through streamlining their regulatory frameworks and related administrative procedures, is also of crucial importance, especially for SMEs and microenterprises, including sole practitioners. A review of parafiscal charges has been carried out and a first action plan was adopted by the government in May 2020. |
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(22)

There has been renewed effort to reduce the administrative burden and regulatory restrictions. However, the operation of businesses in general continues to be held back by the still high regulatory and administrative burden, for example as regards permits, reporting requirements, to a certain extent, and tax procedures. Identification of the administrative and financial burdens is progressing through consultations with stakeholders and via a dedicated website, and measures to reduce the most burdensome obligations are being introduced. Ensuring smooth access to and exercise of professions, through streamlining their regulatory frameworks and related administrative procedures, is also of crucial importance, especially for SMEs and microenterprises, including sole practitioners. A review of parafiscal charges has been carried out and a first action plan was adopted by the government in May 2020.

| (23) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Croatia should promote investment in growth-enhancing sectors, contributing to the green and digital transitions. A modern and robust digital infrastructure is key for the digital transformation of the public administration and businesses. In the context of the digital transition, investments in very-high-capacity networks, including 5G, are a prerequisite. Investment should support Croatia’s decarbonisation and energy transition targets outlined in Croatia’s National Energy and Climate Plan. There is particular scope and opportunity for Croatia to invest in sustainable urban and railway transport, energy efficiency, renewable sources of energy and environmental infrastructure. In addition, as regards water and waste management, Croatia considerably lags behind the Union average and investment is necessary to sustain Croatia’s economic development. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Croatia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Croatia to make the best use of that Fund. |
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(23)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Croatia should promote investment in growth-enhancing sectors, contributing to the green and digital transitions. A modern and robust digital infrastructure is key for the digital transformation of the public administration and businesses. In the context of the digital transition, investments in very-high-capacity networks, including 5G, are a prerequisite. Investment should support Croatia’s decarbonisation and energy transition targets outlined in Croatia’s National Energy and Climate Plan. There is particular scope and opportunity for Croatia to invest in sustainable urban and railway transport, energy efficiency, renewable sources of energy and environmental infrastructure. In addition, as regards water and waste management, Croatia considerably lags behind the Union average and investment is necessary to sustain Croatia’s economic development. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Croatia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Croatia to make the best use of that Fund.

| (24) | The efficiency of the public administration in Croatia ranks below the Union average. Low capacity to design and implement policies and projects hampers effectiveness and speed, including as regards the implementation of ESI Funds, which for Croatia present a major opportunity to alleviate the consequences of the crisis and support the recovery of the economy. The implementation of the new strategic planning system, together with the announced National Development Strategy, is not progressing. Moreover, there is high territorial fragmentation of the public administration and an imbalance between responsibilities and resources at local level. This contributes to uneven quality of public services provided across the country and raises administrative costs. |
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(24)

The efficiency of the public administration in Croatia ranks below the Union average. Low capacity to design and implement policies and projects hampers effectiveness and speed, including as regards the implementation of ESI Funds, which for Croatia present a major opportunity to alleviate the consequences of the crisis and support the recovery of the economy. The implementation of the new strategic planning system, together with the announced National Development Strategy, is not progressing. Moreover, there is high territorial fragmentation of the public administration and an imbalance between responsibilities and resources at local level. This contributes to uneven quality of public services provided across the country and raises administrative costs.

| (25) | Substantial backlogs and lengthy proceedings in civil and commercial courts continue to affect the business environment and effective resolution of insolvencies, while challenges for the quality and efficiency of criminal justice hamper the fight against economic and financial offences. Progress was achieved in resolving the oldest pending court cases and in using electronic communication in courts, but room for improvement remains. |
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(25)

Substantial backlogs and lengthy proceedings in civil and commercial courts continue to affect the business environment and effective resolution of insolvencies, while challenges for the quality and efficiency of criminal justice hamper the fight against economic and financial offences. Progress was achieved in resolving the oldest pending court cases and in using electronic communication in courts, but room for improvement remains.

| (26) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(26)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (27) | Croatia’s financial sector is well capitalised and profitable, while asset quality in the banking sector has improved over the past few years. However, financial institutions are likely to face some stress given their exposures to sectors that are most vulnerable to the COVID-19 outbreak. Measures have been introduced to alleviate the negative impact of the containment measures on businesses. It is crucial that these measures are temporary, strictly linked to the outbreak and adequate in helping businesses facing financial difficulties return to viability. Such an approach will support businesses without undermining the progress that Croatia has made in improving the stability of its financial sector. |
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(27)

Croatia’s financial sector is well capitalised and profitable, while asset quality in the banking sector has improved over the past few years. However, financial institutions are likely to face some stress given their exposures to sectors that are most vulnerable to the COVID-19 outbreak. Measures have been introduced to alleviate the negative impact of the containment measures on businesses. It is crucial that these measures are temporary, strictly linked to the outbreak and adequate in helping businesses facing financial difficulties return to viability. Such an approach will support businesses without undermining the progress that Croatia has made in improving the stability of its financial sector.

| (28) | Continuing efforts to strengthen the framework to prevent and sanction corruption are key to ensuring recovery in the aftermath of the COVID-19 crisis and achieving an efficient, accountable and transparent allocation and distribution of funds and resources. Despite the partial implementation of several Action Plans, issues of corruption and conflicts of interest remain widespread for businesses. Further efforts to strengthen the framework to prevent and sanction corruption are needed to ensure the transparent and efficient use of public funds. More effective tools to prevent and sanction corruption are needed, particularly at the local level. The need to enhance oversight mechanisms for local officials and appointees to local public companies remains, as does the need to ensure the Conflicts of Interest Commission can fulfil its essential preventive role. Initiatives to increase transparency, such as the publication of assets of judges and prosecutors, are expected to start in 2020. |
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(28)

Continuing efforts to strengthen the framework to prevent and sanction corruption are key to ensuring recovery in the aftermath of the COVID-19 crisis and achieving an efficient, accountable and transparent allocation and distribution of funds and resources. Despite the partial implementation of several Action Plans, issues of corruption and conflicts of interest remain widespread for businesses. Further efforts to strengthen the framework to prevent and sanction corruption are needed to ensure the transparent and efficient use of public funds. More effective tools to prevent and sanction corruption are needed, particularly at the local level. The need to enhance oversight mechanisms for local officials and appointees to local public companies remains, as does the need to ensure the Conflicts of Interest Commission can fulfil its essential preventive role. Initiatives to increase transparency, such as the publication of assets of judges and prosecutors, are expected to start in 2020.

| (29) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Croatia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(29)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Croatia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (30) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Croatia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Croatia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Croatia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(30)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Croatia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Croatia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Croatia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (31) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below. |
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(31)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below.

| (32) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4) below, |
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(32)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4) below,

HEREBY RECOMMENDS that Croatia take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Enhance the resilience of the health system. Promote balanced geographical distribution of health workers and facilities, closer cooperation between all levels of administration and investments in e-health. |
| --- | --- |

1.

| 2. | Strengthen labour market measures and institutions and improve the adequacy of unemployment benefits and minimum income schemes. Increase access to digital infrastructure and services. Promote the acquisition of skills. |
| --- | --- |

2.

| 3. | Maintain measures to provide liquidity to SMEs and the self-employed. Further reduce parafiscal charges and restrictions in goods and services market regulation. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on environmental infrastructure, sustainable urban and rail transport, clean and efficient production and use of energy and high-speed broadband. |
| --- | --- |

3.

| 4. | Reinforce the capacity and efficiency of the public administration to design and implement public projects and policies at central and local levels. Improve the efficiency of the judicial system. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 64.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/74 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/74

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Italy and delivering a Council opinion on the 2020 Stability Programme of Italy

(2020/C 282/12)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Italy was published on 26 February 2020. It assessed Italy’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Italy’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Italy is experiencing excessive macroeconomic imbalances. In particular, high government debt and protracted weak productivity dynamics imply risks with cross-border relevance, in a context of high unemployment and a still high level of non-performing loans (NPLs). |
| --- | --- |

(2)

The 2020 country report for Italy was published on 26 February 2020. It assessed Italy’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Italy’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Italy is experiencing excessive macroeconomic imbalances. In particular, high government debt and protracted weak productivity dynamics imply risks with cross-border relevance, in a context of high unemployment and a still high level of non-performing loans (NPLs).

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Italy is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Italy is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Italian regions and territories due to longstanding economic and social disparities, diverging competitiveness potential and the degree of reliance on tourism. This entails a risk of widening regional and territorial disparities within Italy, aggravating diverging trends between less developed regions and more developed ones, between social peripheries and the rest of urban areas as well as between some urban areas and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Italian regions and territories due to longstanding economic and social disparities, diverging competitiveness potential and the degree of reliance on tourism. This entails a risk of widening regional and territorial disparities within Italy, aggravating diverging trends between less developed regions and more developed ones, between social peripheries and the rest of urban areas as well as between some urban areas and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 30 April 2020, Italy submitted its 2020 Stability Programme. |
| --- | --- |

(10)

On 30 April 2020, Italy submitted its 2020 Stability Programme.

| (11) | Italy is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
| --- | --- |

(11)

Italy is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,6 % of gross domestic product (GDP) in 2019 to a deficit of 10,4 % of GDP in 2020. The deficit is projected to decline to 5,7 % of GDP in 2021. After having stabilised at 134,8 % in 2019, the general government debt-to-GDP ratio is expected to increase to 155,7 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. There are risks underlying the budgetary projections, namely the considerable size of public guarantees and the volatility of sovereign yields. |
| --- | --- |

(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,6 % of gross domestic product (GDP) in 2019 to a deficit of 10,4 % of GDP in 2020. The deficit is projected to decline to 5,7 % of GDP in 2021. After having stabilised at 134,8 % in 2019, the general government debt-to-GDP ratio is expected to increase to 155,7 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. There are risks underlying the budgetary projections, namely the considerable size of public guarantees and the volatility of sovereign yields.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Italy has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amount to 4,5 % of GDP in 2020. The measures include strengthened healthcare and civil protection, extended wage supplementation schemes and financial support to self-employed persons and firms. In addition, Italy has introduced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, including tax deferrals and loan guarantees. Overall, the measures taken by Italy are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium-term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Italy has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amount to 4,5 % of GDP in 2020. The measures include strengthened healthcare and civil protection, extended wage supplementation schemes and financial support to self-employed persons and firms. In addition, Italy has introduced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, including tax deferrals and loan guarantees. Overall, the measures taken by Italy are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium-term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Italy’s general government balance is forecast at -11,1 % of GDP in 2020 and -5,6 % of GDP in 2021. The general government debt ratio is projected to reach 158,9 % of GDP in 2020 and 153,6 % in 2021. |
| --- | --- |

(14)

Based on the Commission 2020 spring forecast under unchanged policies, Italy’s general government balance is forecast at -11,1 % of GDP in 2020 and -5,6 % of GDP in 2021. The general government debt ratio is projected to reach 158,9 % of GDP in 2020 and 153,6 % in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Italy’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that there is no sufficient evidence to conclude that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has or has not been complied with, while the deficit criterion has not been fulfilled. |
| --- | --- |

(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Italy’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that there is no sufficient evidence to conclude that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has or has not been complied with, while the deficit criterion has not been fulfilled.

| (16) | The COVID-19 pandemic has put the national health system under unprecedented strain, evidencing structural weaknesses and the need to increase preparedness in response to crisis events. Despite below Union average spending on health, Italy’s health system is characterised by highly specialised as well as good quality universal services and it has generally succeeded in providing accessible care. Nevertheless, especially at the onset of the COVID-19 pandemic, the health system governance fragmentation, and coordination between central and regional authorities slowed down the implementation of some containment measures. The response of regional health systems to the crisis was based primarily on an extraordinary mobilisation, in particular of the health workforce and local social services. This compensated for the limits of the physical infrastructure, the limited number of health workers and the limited amount of investment directed towards improving structures and services in previous years. The government made great efforts to mitigate the spread of the virus responsible for COVID-19, relieve pressure on hospitals and generate additional care capacity. A longer-term containment strategy is now being developed to ensure a safe return to productive activity. In addition to improving governance processes and crisis preparedness plans, post-COVID-19 policies should aim at alleviating the public investment gap in health care. In the medium to long term, developing a strategic investment plan will be key to improve the resilience of the health system, and to guarantee the continued provision of accessible care. In the face of current health workforce projections, priority should be given to developing policies to resolve bottlenecks in the training, recruitment and retention of the health workforce. |
| --- | --- |

(16)

The COVID-19 pandemic has put the national health system under unprecedented strain, evidencing structural weaknesses and the need to increase preparedness in response to crisis events. Despite below Union average spending on health, Italy’s health system is characterised by highly specialised as well as good quality universal services and it has generally succeeded in providing accessible care. Nevertheless, especially at the onset of the COVID-19 pandemic, the health system governance fragmentation, and coordination between central and regional authorities slowed down the implementation of some containment measures. The response of regional health systems to the crisis was based primarily on an extraordinary mobilisation, in particular of the health workforce and local social services. This compensated for the limits of the physical infrastructure, the limited number of health workers and the limited amount of investment directed towards improving structures and services in previous years. The government made great efforts to mitigate the spread of the virus responsible for COVID-19, relieve pressure on hospitals and generate additional care capacity. A longer-term containment strategy is now being developed to ensure a safe return to productive activity. In addition to improving governance processes and crisis preparedness plans, post-COVID-19 policies should aim at alleviating the public investment gap in health care. In the medium to long term, developing a strategic investment plan will be key to improve the resilience of the health system, and to guarantee the continued provision of accessible care. In the face of current health workforce projections, priority should be given to developing policies to resolve bottlenecks in the training, recruitment and retention of the health workforce.

| (17) | The containment measures adopted in response to the COVID-19 crisis are having a strong negative impact on the labour market and social conditions. Prior to the crisis, the social situation was slowly improving, even if the risk of poverty or social exclusion, in-work poverty and income inequality remained high and with major regional differences. Given the impact of the COVID-19 pandemic and its aftermath, social safety nets should be strengthened to ensure adequate income replacement, irrespective of employment status, including for those facing gaps in access to social protection. Strengthening income replacement and support is particularly relevant for atypical workers and people in vulnerable situations. Provision of services aimed at social and labour market inclusion is also key. The new minimum income scheme, which provided over the past year benefits to more than one million households (EUR 513, on average), may mitigate the effects of the COVID-19 crisis. However, its reach out to vulnerable groups could be improved. On a temporary basis, the government introduced an additional “emergency income” to support households not eligible for the minimum income so far. People employed in the shadow economy, in particular in sectors such as agriculture, food industry and housing, also risk facing gaps in access to social protection and income support. To respond to this challenge, the government recently eased the rules for legalising the employment status of undeclared workers and for obtaining or extending residence permits for working migrants. Negative demographic trends and brain drain also risk hindering growth prospects. In addition to more difficult labour market conditions, lack of quality services is a driver of depopulation in southern regions and rural areas. Enhancing access to e-services is key, especially in a context of limited mobility. |
| --- | --- |

(17)

The containment measures adopted in response to the COVID-19 crisis are having a strong negative impact on the labour market and social conditions. Prior to the crisis, the social situation was slowly improving, even if the risk of poverty or social exclusion, in-work poverty and income inequality remained high and with major regional differences. Given the impact of the COVID-19 pandemic and its aftermath, social safety nets should be strengthened to ensure adequate income replacement, irrespective of employment status, including for those facing gaps in access to social protection. Strengthening income replacement and support is particularly relevant for atypical workers and people in vulnerable situations. Provision of services aimed at social and labour market inclusion is also key. The new minimum income scheme, which provided over the past year benefits to more than one million households (EUR 513, on average), may mitigate the effects of the COVID-19 crisis. However, its reach out to vulnerable groups could be improved. On a temporary basis, the government introduced an additional “emergency income” to support households not eligible for the minimum income so far. People employed in the shadow economy, in particular in sectors such as agriculture, food industry and housing, also risk facing gaps in access to social protection and income support. To respond to this challenge, the government recently eased the rules for legalising the employment status of undeclared workers and for obtaining or extending residence permits for working migrants. Negative demographic trends and brain drain also risk hindering growth prospects. In addition to more difficult labour market conditions, lack of quality services is a driver of depopulation in southern regions and rural areas. Enhancing access to e-services is key, especially in a context of limited mobility.

| (18) | Since the outbreak of the COVID-19 crisis, Italy is taking steps to mitigate the employment impact. Short-time work schemes (Cassa integrazione) have played a major role and are expected to do so in the future. Eligibility has been extended to include small enterprises and microenterprises as well as all economic sectors and employees. In addition, a separate (temporary) scheme has been created for the self-employed. Prior to the COVID-19 crisis, labour market conditions had continued to improve. In 2019, the employment rate reached 64 %, the highest rate ever recorded. However, this was still significantly below the Union average. The unemployment rate was persistently high, as were other indicators of labour market slack, and is expected to rise further to 11,8 % in 2020 and decrease to 10,7 % in 2021, according to the Commission 2020 spring forecast. The share of temporary contracts was also high, even if since mid-2018 job creation had been driven by permanent jobs. For the future, in order to promote a sustainable and inclusive recovery, the labour market integration of inactive young people and women is key. Some steps were taken to strengthen public employment services and better integrate them with social services, adult learning and vocational training. However, their placement capacity remains weak and varies widely across regions. The involvement of employers also remains marginal. As containment measures are progressively lifted, flexible working arrangements and teleworking can support firms and workers. In response to the COVID-19 crisis, the government adopted temporary measures aiming at conciliating private and working life, such as fostering smart working and special leaves and providing vouchers for baby-sitting. Despite recent efforts, measures to promote equal opportunities and work-life balance policies, as well as the supply of affordable early childhood education and care and long-term care services, remain weak and poorly integrated. |
| --- | --- |

(18)

Since the outbreak of the COVID-19 crisis, Italy is taking steps to mitigate the employment impact. Short-time work schemes (Cassa integrazione) have played a major role and are expected to do so in the future. Eligibility has been extended to include small enterprises and microenterprises as well as all economic sectors and employees. In addition, a separate (temporary) scheme has been created for the self-employed. Prior to the COVID-19 crisis, labour market conditions had continued to improve. In 2019, the employment rate reached 64 %, the highest rate ever recorded. However, this was still significantly below the Union average. The unemployment rate was persistently high, as were other indicators of labour market slack, and is expected to rise further to 11,8 % in 2020 and decrease to 10,7 % in 2021, according to the Commission 2020 spring forecast. The share of temporary contracts was also high, even if since mid-2018 job creation had been driven by permanent jobs. For the future, in order to promote a sustainable and inclusive recovery, the labour market integration of inactive young people and women is key. Some steps were taken to strengthen public employment services and better integrate them with social services, adult learning and vocational training. However, their placement capacity remains weak and varies widely across regions. The involvement of employers also remains marginal. As containment measures are progressively lifted, flexible working arrangements and teleworking can support firms and workers. In response to the COVID-19 crisis, the government adopted temporary measures aiming at conciliating private and working life, such as fostering smart working and special leaves and providing vouchers for baby-sitting. Despite recent efforts, measures to promote equal opportunities and work-life balance policies, as well as the supply of affordable early childhood education and care and long-term care services, remain weak and poorly integrated.

| (19) | The current emergency also shows the need to improve digital learning and skills, including for working age adults and distance learning. Investing in education and skills is key to promoting a smart and inclusive recovery and to staying on track to pursue the green and digital transition. In that regard, education and training outcomes continue to represent a major challenge for Italy. There are large regional gaps in basic skills attainment and the rate of early school leaving is well above the Union average (13,5 % versus 10,3 % in 2019), in particular for non-Union born pupils (33 %). In a context of limitations to mobility, regional and territorial disparities risk being exacerbated. In that light, investing in distance learning, as well as in the digital infrastructure and skills of educators and learners, is particularly important. Italy also has a lower share of graduates in science and engineering compared to the Union average, and tertiary attainment remains very low (27,6 % in 2019). Moreover, Italian enterprises invest less in training regarding information and communication technologies for their employees, compared to peer countries. The low participation rate of low-qualified adults in training is also a matter of concern, given the declining number of jobs requiring low qualifications. Upskilling and reskilling remain as crucial as ever to equip workers with labour market relevant skills and to promote a fair transition towards a more digital and sustainable economy. |
| --- | --- |

(19)

The current emergency also shows the need to improve digital learning and skills, including for working age adults and distance learning. Investing in education and skills is key to promoting a smart and inclusive recovery and to staying on track to pursue the green and digital transition. In that regard, education and training outcomes continue to represent a major challenge for Italy. There are large regional gaps in basic skills attainment and the rate of early school leaving is well above the Union average (13,5 % versus 10,3 % in 2019), in particular for non-Union born pupils (33 %). In a context of limitations to mobility, regional and territorial disparities risk being exacerbated. In that light, investing in distance learning, as well as in the digital infrastructure and skills of educators and learners, is particularly important. Italy also has a lower share of graduates in science and engineering compared to the Union average, and tertiary attainment remains very low (27,6 % in 2019). Moreover, Italian enterprises invest less in training regarding information and communication technologies for their employees, compared to peer countries. The low participation rate of low-qualified adults in training is also a matter of concern, given the declining number of jobs requiring low qualifications. Upskilling and reskilling remain as crucial as ever to equip workers with labour market relevant skills and to promote a fair transition towards a more digital and sustainable economy.

| (20) | The COVID-19 crisis has reinforced the need to support the access to finance for firms. Italy has adopted several schemes to support the flow of liquidity to firms, including under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (7). Effective implementation of such schemes, including through guarantees channelled by the banking system, is key to ensure that all firms, and in particular small and medium-sized enterprises (SMEs) and those in the most affected sectors and geographic areas as well as innovative firms, benefit from them. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Direct grants and incentives to market-based finance can also support the liquidity of SMEs and innovative firms. Innovative firms (often without collateral) have more difficulties to access credit, and the current crisis could worsen the situation. Deferral of tax and social contributions to the State has helped improve the cash flows of firms. However, delays in approved payments, whether by administrations-to-businesses or by business-to-business, should be prevented, as they are a drag on the liquidity of all firms, particularly of smaller ones. |
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(20)

The COVID-19 crisis has reinforced the need to support the access to finance for firms. Italy has adopted several schemes to support the flow of liquidity to firms, including under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (7). Effective implementation of such schemes, including through guarantees channelled by the banking system, is key to ensure that all firms, and in particular small and medium-sized enterprises (SMEs) and those in the most affected sectors and geographic areas as well as innovative firms, benefit from them. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Direct grants and incentives to market-based finance can also support the liquidity of SMEs and innovative firms. Innovative firms (often without collateral) have more difficulties to access credit, and the current crisis could worsen the situation. Deferral of tax and social contributions to the State has helped improve the cash flows of firms. However, delays in approved payments, whether by administrations-to-businesses or by business-to-business, should be prevented, as they are a drag on the liquidity of all firms, particularly of smaller ones.

| (21) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Investment in support of the green transition will be particularly important to support recovery and increase future resilience. Italy is highly vulnerable to extreme weather and hydrogeological disasters, including droughts and forest fires. Italy’s transformation to a climate-neutral economy will require sizeable private and public investment, over a sustained period of time, in particular on new renewable energy production, electricity infrastructure and energy efficiency. Green deal investments to tackle climate change are laid out in in Italy’s National Energy and Climate Plan. They are essential to address the threat represented by climate change, while playing a fundamental role in Italy’s recovery and to strengthen its resilience. Green deal investments are also key for reducing the impact on human health from air pollution in Italian cities, especially in the Po Basin. For instance, implementing sustainable mobility initiatives, such as renewal of local public buses, represents an example to address both congestion and air pollution. Infrastructure deficits for water and waste management, in particular in southern regions, lead to environmental and health impacts with considerable costs and lost revenues for the economy. More generally, resilience to climate change is relevant for all infrastructure, including health infrastructure. This requires adaptation strategies. Addressing environmental and climate change challenges, such as hydrological risks, sustainable urban mobility, energy efficiency, circular economy and industrial transformation, represent an opportunity to improve productivity while avoiding unsustainable practices. At the same time, investing into such projects can contribute to creating jobs and sustaining the post-crisis recovery. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Italy to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Italy to make the best use of that Fund. |
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(21)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Investment in support of the green transition will be particularly important to support recovery and increase future resilience. Italy is highly vulnerable to extreme weather and hydrogeological disasters, including droughts and forest fires. Italy’s transformation to a climate-neutral economy will require sizeable private and public investment, over a sustained period of time, in particular on new renewable energy production, electricity infrastructure and energy efficiency. Green deal investments to tackle climate change are laid out in in Italy’s National Energy and Climate Plan. They are essential to address the threat represented by climate change, while playing a fundamental role in Italy’s recovery and to strengthen its resilience. Green deal investments are also key for reducing the impact on human health from air pollution in Italian cities, especially in the Po Basin. For instance, implementing sustainable mobility initiatives, such as renewal of local public buses, represents an example to address both congestion and air pollution. Infrastructure deficits for water and waste management, in particular in southern regions, lead to environmental and health impacts with considerable costs and lost revenues for the economy. More generally, resilience to climate change is relevant for all infrastructure, including health infrastructure. This requires adaptation strategies. Addressing environmental and climate change challenges, such as hydrological risks, sustainable urban mobility, energy efficiency, circular economy and industrial transformation, represent an opportunity to improve productivity while avoiding unsustainable practices. At the same time, investing into such projects can contribute to creating jobs and sustaining the post-crisis recovery. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Italy to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Italy to make the best use of that Fund.

| (22) | The COVID-19 outbreak containment has underlined the importance of investing in the economy’s digitalisation and shown the relevance of digital infrastructures. Low levels of digital intensity and digital knowledge of firms in Italy, especially SMEs and micro-enterprises, have prevented them from offering e-commerce and teleworking arrangements and providing and using digital tools during the containment. Investing in digitalisation and skills through a continued and timely implementation of targeted national policies is essential to enhance e-business models and help firms adapt, as well as to boost productivity and competitiveness. Access to fast and reliable digital infrastructure has shown to be key to ensuring essential services are provided in government, education, health and medicine, and key to monitoring and controlling the epidemic. Italy is still lagging behind in fiber-to-the-premises coverage in rural areas. Specific measures should be adopted to address that gap, as well as to further encourage take-up. |
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(22)

The COVID-19 outbreak containment has underlined the importance of investing in the economy’s digitalisation and shown the relevance of digital infrastructures. Low levels of digital intensity and digital knowledge of firms in Italy, especially SMEs and micro-enterprises, have prevented them from offering e-commerce and teleworking arrangements and providing and using digital tools during the containment. Investing in digitalisation and skills through a continued and timely implementation of targeted national policies is essential to enhance e-business models and help firms adapt, as well as to boost productivity and competitiveness. Access to fast and reliable digital infrastructure has shown to be key to ensuring essential services are provided in government, education, health and medicine, and key to monitoring and controlling the epidemic. Italy is still lagging behind in fiber-to-the-premises coverage in rural areas. Specific measures should be adopted to address that gap, as well as to further encourage take-up.

| (23) | A well-performing research and innovation system is the result of continuous, coherent and evidence-based policy support, together with investments and adequate human capital. The current COVID-19 crisis has clearly shown that the rapid exchange of data between researchers, including access to results and evidence at no charge to the user and Open Science, need further strengthening. The latter, together with science/business cooperation are clearly instrumental to bring research results, including those needed on vaccines and therapies, on the market, building on the strength of Italy in the medical industrial and research sector. |
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(23)

A well-performing research and innovation system is the result of continuous, coherent and evidence-based policy support, together with investments and adequate human capital. The current COVID-19 crisis has clearly shown that the rapid exchange of data between researchers, including access to results and evidence at no charge to the user and Open Science, need further strengthening. The latter, together with science/business cooperation are clearly instrumental to bring research results, including those needed on vaccines and therapies, on the market, building on the strength of Italy in the medical industrial and research sector.

| (24) | An effective public administration is crucial to ensure that measures adopted to address the emergency and support the economic recovery are not slowed down in their implementation. The disbursement of social benefits, liquidity measures, and the front-loading of investments, etc. may not be effective if hampered by public sector bottlenecks. Weaknesses include lengthy procedures, including civil justice ones, the low level of digitalisation and weak administrative capacity. Procedures and checks need to be dealt with swiftly, in a context where public resources are being significantly increased to support economic activity. Digitalisation across public administrations was uneven prior to the COVID-19 crisis. Online interaction between authorities and the general public was low. The share of administrative procedures managed by regions and municipalities that can be started and completed entirely digitally remains low. The COVID-19 crisis has also exposed the lack of interoperability of public digital services. To facilitate the business responsiveness of the public administration, sectoral regulations need to be improved and simplified, while remaining barriers to competition need to be removed. Finally, an effective justice system is key for an attractive investment and business-friendly economy and will be crucial in the recovery process, also by enabling effective rescue and recovery frameworks. |
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(24)

An effective public administration is crucial to ensure that measures adopted to address the emergency and support the economic recovery are not slowed down in their implementation. The disbursement of social benefits, liquidity measures, and the front-loading of investments, etc. may not be effective if hampered by public sector bottlenecks. Weaknesses include lengthy procedures, including civil justice ones, the low level of digitalisation and weak administrative capacity. Procedures and checks need to be dealt with swiftly, in a context where public resources are being significantly increased to support economic activity. Digitalisation across public administrations was uneven prior to the COVID-19 crisis. Online interaction between authorities and the general public was low. The share of administrative procedures managed by regions and municipalities that can be started and completed entirely digitally remains low. The COVID-19 crisis has also exposed the lack of interoperability of public digital services. To facilitate the business responsiveness of the public administration, sectoral regulations need to be improved and simplified, while remaining barriers to competition need to be removed. Finally, an effective justice system is key for an attractive investment and business-friendly economy and will be crucial in the recovery process, also by enabling effective rescue and recovery frameworks.

| (25) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(25)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (26) | The measures adopted by the government to support households and corporates are also beneficial for preserving banking sector capitalisation and resilience in the current difficult operating environment. Despite the adopted mitigating measures, including the prudential flexibility granted by banking supervisors, the COVID-19 pandemic is also straining bank asset quality across the Union, and is expected to continue to do so in the coming weeks and months, including in Italy. As a result, NPL reduction efforts are being impacted, also due to the slowdown in the court and impaired asset workout activities. In that regard, fostering sustainable solutions for the viable borrowers affected by the COVID-19 crisis, including by avoiding legal automaticities, is an important pre-requisite for safeguarding asset quality. Meanwhile, ensuring accurate reporting of asset quality deterioration and prudent credit standards can also help support the functioning of the secondary market for NPLs and contain adverse effects on existing NPLs disposal initiatives. |
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(26)

The measures adopted by the government to support households and corporates are also beneficial for preserving banking sector capitalisation and resilience in the current difficult operating environment. Despite the adopted mitigating measures, including the prudential flexibility granted by banking supervisors, the COVID-19 pandemic is also straining bank asset quality across the Union, and is expected to continue to do so in the coming weeks and months, including in Italy. As a result, NPL reduction efforts are being impacted, also due to the slowdown in the court and impaired asset workout activities. In that regard, fostering sustainable solutions for the viable borrowers affected by the COVID-19 crisis, including by avoiding legal automaticities, is an important pre-requisite for safeguarding asset quality. Meanwhile, ensuring accurate reporting of asset quality deterioration and prudent credit standards can also help support the functioning of the secondary market for NPLs and contain adverse effects on existing NPLs disposal initiatives.

| (27) | Effective prevention and sanctioning of corruption can play an important role in ensuring Italy’s recovery after the COVID-19 crisis. Transparency in the public sector and reinforced checks against corruption, in particular, can avoid attempts by organised crime to infiltrate economic and financial life, distort public procurement procedures and, more broadly, divert public resources needed for investment. At the same time, public procurement procedures should remain efficient, balancing the need for scrupulous monitoring with the need for timeliness. Disposition time at criminal appeal courts still raises concerns but comprehensive reforms to streamline criminal procedures are being discussed in Parliament. Italy’s anti-corruption framework has recently been reinforced but needs to be completed, also by sanctioning elected public officials in case of conflicts of interest. |
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(27)

Effective prevention and sanctioning of corruption can play an important role in ensuring Italy’s recovery after the COVID-19 crisis. Transparency in the public sector and reinforced checks against corruption, in particular, can avoid attempts by organised crime to infiltrate economic and financial life, distort public procurement procedures and, more broadly, divert public resources needed for investment. At the same time, public procurement procedures should remain efficient, balancing the need for scrupulous monitoring with the need for timeliness. Disposition time at criminal appeal courts still raises concerns but comprehensive reforms to streamline criminal procedures are being discussed in Parliament. Italy’s anti-corruption framework has recently been reinforced but needs to be completed, also by sanctioning elected public officials in case of conflicts of interest.

| (28) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. By ensuring the full implementation of the 2020 country-specific recommendations, Italy will contribute to the progress towards the United Nations Sustainable Development Goals and to the common effort of ensuring competitive sustainability in the Union. |
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(28)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. By ensuring the full implementation of the 2020 country-specific recommendations, Italy will contribute to the progress towards the United Nations Sustainable Development Goals and to the common effort of ensuring competitive sustainability in the Union.

| (29) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Italy should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(29)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Italy should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (30) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Italy’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the follow-up given to the country-specific recommendations addressed to Italy in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Italy, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(30)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Italy’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the follow-up given to the country-specific recommendations addressed to Italy in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Italy, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (31) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below. |
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(31)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below.

| (32) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4), |
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(32)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4),

HEREBY RECOMMENDS that Italy take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience and capacity of the health system, in the areas of health workers, critical medical products and infrastructure. Enhance coordination between national and regional authorities. |
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1.

| 2. | Provide adequate income replacement and access to social protection, in particular for atypical workers. Mitigate the employment impact of the COVID-19 crisis, including through flexible working arrangements and active support to employment. Strengthen distance learning and skills, including digital ones. |
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2.

| 3. | Ensure effective implementation of measures to provide liquidity to the real economy, including to SMEs, innovative firms and the self-employed, and avoid late payments. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, research and innovation, sustainable public transport, waste and water management as well as reinforced digital infrastructure to ensure the provision of essential services. |
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3.

| 4. | Improve the efficiency of the judicial system and the effectiveness of public administration. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 69.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  OJ C 91I, 20.3.2020, p. 1.

7

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

8

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/82 |
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26.8.2020

EN

Official Journal of the European Union

C 282/82

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Cyprus and delivering a Council opinion on the 2020 Stability Programme of Cyprus

(2020/C 282/13)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Cyprus was published on 26 February 2020. It assessed Cyprus’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Cyprus’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Cyprus is experiencing excessive macroeconomic imbalances. In particular, the financial sector is burdened by a very high share of non-performing loans and high stocks of private, public and external debt weigh on the economy, in a context of moderate potential growth. |
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(2)

The 2020 country report for Cyprus was published on 26 February 2020. It assessed Cyprus’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Cyprus’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Cyprus is experiencing excessive macroeconomic imbalances. In particular, the financial sector is burdened by a very high share of non-performing loans and high stocks of private, public and external debt weigh on the economy, in a context of moderate potential growth.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Cyprus is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Cyprus is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across the country because of different specialisation patterns, in particular in areas markedly relying on tourism and more generally on face-to-face business with consumers. This entails a risk of widening territorial disparities within Cyprus. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across the country because of different specialisation patterns, in particular in areas markedly relying on tourism and more generally on face-to-face business with consumers. This entails a risk of widening territorial disparities within Cyprus. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 7 May 2020, Cyprus submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 7 May 2020, Cyprus submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Cyprus is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
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(11)

Cyprus is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,7 % of gross domestic product (GDP) in 2019 to a deficit of 4,3 % of GDP in 2020. The deficit is projected to decline to 0,4 % of GDP in 2021. After decreasing to 95,5 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 116,8 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. In addition, there are risks underlying the budgetary projections, namely explicit contingent liabilities and potential financing needs of public hospitals during the first years of the implementation of the National Health Insurance System. |
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(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,7 % of gross domestic product (GDP) in 2019 to a deficit of 4,3 % of GDP in 2020. The deficit is projected to decline to 0,4 % of GDP in 2021. After decreasing to 95,5 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 116,8 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. In addition, there are risks underlying the budgetary projections, namely explicit contingent liabilities and potential financing needs of public hospitals during the first years of the implementation of the National Health Insurance System.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Cyprus has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,4 % of GDP. The measures include strengthening health care services with an extra budget of up to 0,5 % of GDP, subsidised wages to keep employees on the payroll in case of suspended business operations (2,7 % of GDP) and income support for the small businesses and the self-employed (0,3 % of GDP). In addition, Cyprus has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, including for example the deferral of VAT payment for a period of two months. Overall, the measures taken by Cyprus are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Cyprus has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,4 % of GDP. The measures include strengthening health care services with an extra budget of up to 0,5 % of GDP, subsidised wages to keep employees on the payroll in case of suspended business operations (2,7 % of GDP) and income support for the small businesses and the self-employed (0,3 % of GDP). In addition, Cyprus has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, including for example the deferral of VAT payment for a period of two months. Overall, the measures taken by Cyprus are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Cyprus’s general government balance is forecast at -7 % of GDP in 2020 and -1,8 % of GDP in 2021. The general government debt ratio is projected to reach 115,7 % of GDP in 2020 and 105 % of GDP in 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Cyprus’s general government balance is forecast at -7 % of GDP in 2020 and -1,8 % of GDP in 2021. The general government debt ratio is projected to reach 115,7 % of GDP in 2020 and 105 % of GDP in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Cyprus’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has been complied with, while the deficit criterion has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Cyprus’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has been complied with, while the deficit criterion has not been fulfilled.

| (16) | Cyprus reacted to the COVID-19 outbreak with a range of measures to mitigate the economic impacts of the crisis. On 15 March 2020 the government put forward a financial support programme to safeguard public health and ensure the economic survival of businesses and employers. The programme earmarks EUR 100 million for financial support to the health sector to combat the pandemic, including for the recruitment of additional medical, nursing and support staff, and for equipment and infrastructure. It sets out a series of measures to support enterprises by enhancing liquidity, e.g. support schemes for businesses and the self-employed, and temporary suspension of VAT payments for companies. The package also includes dedicated support of EUR 11 million to help the tourism sector recover. |
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(16)

Cyprus reacted to the COVID-19 outbreak with a range of measures to mitigate the economic impacts of the crisis. On 15 March 2020 the government put forward a financial support programme to safeguard public health and ensure the economic survival of businesses and employers. The programme earmarks EUR 100 million for financial support to the health sector to combat the pandemic, including for the recruitment of additional medical, nursing and support staff, and for equipment and infrastructure. It sets out a series of measures to support enterprises by enhancing liquidity, e.g. support schemes for businesses and the self-employed, and temporary suspension of VAT payments for companies. The package also includes dedicated support of EUR 11 million to help the tourism sector recover.

| (17) | The COVID-19 crisis demonstrates the need to channel investments to improve and modernise public healthcare, restore capacity and implement the healthcare reform. The new healthcare system offers better access to primary care services, appropriate guidance and treatments based on clinical protocols. It also provides for universal entitlement to affordable health services in the context of the COVID-19 outbreak. Cyprus has an established emergency pandemic plan and allocated additional resources to prevent and manage the impact of infection and contagion. In the medium term, Cyprus needs to steer investments towards increasing the health system’s effectiveness, accessibility and overall resilience. Additional resources for the health system should prevent future shortages of medical staff, critical medical supplies and infrastructure. The smooth implementation of the healthcare reform, as planned, is central to ensuring access to healthcare and universal coverage. Digital health solutions and new applications would contribute to stepping up the deployment of e-health services and improving teleconsultations and alert mechanisms. Policies that improve hospital capacity, address health workers’ working conditions and ensure the deployment of personal protective equipment, testing, medicines and medical devices are vital. Integration with long-term care as well as primary and community care is crucial in light of demographic change and the need to support the most vulnerable, including people with disabilities. |
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(17)

The COVID-19 crisis demonstrates the need to channel investments to improve and modernise public healthcare, restore capacity and implement the healthcare reform. The new healthcare system offers better access to primary care services, appropriate guidance and treatments based on clinical protocols. It also provides for universal entitlement to affordable health services in the context of the COVID-19 outbreak. Cyprus has an established emergency pandemic plan and allocated additional resources to prevent and manage the impact of infection and contagion. In the medium term, Cyprus needs to steer investments towards increasing the health system’s effectiveness, accessibility and overall resilience. Additional resources for the health system should prevent future shortages of medical staff, critical medical supplies and infrastructure. The smooth implementation of the healthcare reform, as planned, is central to ensuring access to healthcare and universal coverage. Digital health solutions and new applications would contribute to stepping up the deployment of e-health services and improving teleconsultations and alert mechanisms. Policies that improve hospital capacity, address health workers’ working conditions and ensure the deployment of personal protective equipment, testing, medicines and medical devices are vital. Integration with long-term care as well as primary and community care is crucial in light of demographic change and the need to support the most vulnerable, including people with disabilities.

| (18) | After consistent positive labour market developments in recent years, Cyprus will now be facing challenges in terms of employment levels due to the health crisis. Further efforts are needed to minimise the socioeconomic impact of the crisis. Cyprus has already adopted emergency measures including short-time work schemes and the extension of unemployment benefits to the self-employed. It will be important to retain employment and ensure the implementation of announced measures, in close consultation with the social partners. Strengthening the capacity of the public employment services with permanent staff will be key, in particular by safeguarding the continuation of services of employment counsellors under temporary contracts expiring in the second half of 2020. This will avoid putting the services under further strain and provide efficient support to the newly unemployed and other vulnerable groups, such as young people not in education, employment or training, the long-term unemployed and persons with disabilities. Support for school-to-work transition and outreach to young people in particular require further attention, as recent graduates might face additional difficulties in finding a job. |
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(18)

After consistent positive labour market developments in recent years, Cyprus will now be facing challenges in terms of employment levels due to the health crisis. Further efforts are needed to minimise the socioeconomic impact of the crisis. Cyprus has already adopted emergency measures including short-time work schemes and the extension of unemployment benefits to the self-employed. It will be important to retain employment and ensure the implementation of announced measures, in close consultation with the social partners. Strengthening the capacity of the public employment services with permanent staff will be key, in particular by safeguarding the continuation of services of employment counsellors under temporary contracts expiring in the second half of 2020. This will avoid putting the services under further strain and provide efficient support to the newly unemployed and other vulnerable groups, such as young people not in education, employment or training, the long-term unemployed and persons with disabilities. Support for school-to-work transition and outreach to young people in particular require further attention, as recent graduates might face additional difficulties in finding a job.

| (19) | The outbreak of COVID-19 requires appropriate measures to mitigate social impacts and to support households’ income and sustain a prompt recovery of the economy. According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,6 % in 2020 and decrease to 7,5 % in 2021. External demand for services is set to dip significantly, as the tourism sector is expected to be particularly hard hit by the crisis. Adequate income replacement should be ensured for all affected workers and self-employed people, including those facing gaps in terms of access to social protection. Social protection schemes need to protect those in employment, self-employment and unemployment. There is scope for strengthening the overall social protection system in order to prevent increases in poverty and inequality levels, in particular by reaching out to the most vulnerable, including children, inactive people, undeclared workers, and people with a migrant background. |
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(19)

The outbreak of COVID-19 requires appropriate measures to mitigate social impacts and to support households’ income and sustain a prompt recovery of the economy. According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,6 % in 2020 and decrease to 7,5 % in 2021. External demand for services is set to dip significantly, as the tourism sector is expected to be particularly hard hit by the crisis. Adequate income replacement should be ensured for all affected workers and self-employed people, including those facing gaps in terms of access to social protection. Social protection schemes need to protect those in employment, self-employment and unemployment. There is scope for strengthening the overall social protection system in order to prevent increases in poverty and inequality levels, in particular by reaching out to the most vulnerable, including children, inactive people, undeclared workers, and people with a migrant background.

| (20) | The promotion of flexible working arrangements with the involvement of social partners, particularly in the form of teleworking, is of high importance. In the short term, these will support workers with unforeseen caring responsibilities for children and other dependants, while in the long term they will facilitate labour market re-entry of the high share of inactive women due to caring responsibilities. Since the elderly and people with chronic diseases have increased risks of severe illness due to the virus, investing in quality long-term care services is of high importance to ensure their continued provision and efficiency in the short and medium term. |
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(20)

The promotion of flexible working arrangements with the involvement of social partners, particularly in the form of teleworking, is of high importance. In the short term, these will support workers with unforeseen caring responsibilities for children and other dependants, while in the long term they will facilitate labour market re-entry of the high share of inactive women due to caring responsibilities. Since the elderly and people with chronic diseases have increased risks of severe illness due to the virus, investing in quality long-term care services is of high importance to ensure their continued provision and efficiency in the short and medium term.

| (21) | Improving the quality, efficiency and labour market relevance of education and training is crucial in this crisis context and to ensure a fast labour-market recovery. Equipping people with the right skills is even more important in times where increased numbers might lose their jobs and need to be ready for job transitions thereafter. The mobility restrictions highlighted the challenges related to the low digital skills levels in Cyprus. This negatively affects online activities, such as teleworking, distance learning and the use of e-health services. Equal access to IT infrastructure and internet, including for disadvantaged learners, along with well-trained teachers, are key for quality digital education and distance learning. To address low overall educational and training outcomes and improve skills more broadly, it is essential to continue with the education reform, while investing in solutions for digital learning, work-based learning and apprenticeship training, and in developing teachers’ and trainers’ competences to use IT tools effectively. There is scope to address underachievement in basic skills, as well as raise participation in adult learning. To accelerate application, retraining programmes could, to the extent possible, be designed for online use and then, once the pandemic is contained, integrate physical presence, as appropriate. |
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(21)

Improving the quality, efficiency and labour market relevance of education and training is crucial in this crisis context and to ensure a fast labour-market recovery. Equipping people with the right skills is even more important in times where increased numbers might lose their jobs and need to be ready for job transitions thereafter. The mobility restrictions highlighted the challenges related to the low digital skills levels in Cyprus. This negatively affects online activities, such as teleworking, distance learning and the use of e-health services. Equal access to IT infrastructure and internet, including for disadvantaged learners, along with well-trained teachers, are key for quality digital education and distance learning. To address low overall educational and training outcomes and improve skills more broadly, it is essential to continue with the education reform, while investing in solutions for digital learning, work-based learning and apprenticeship training, and in developing teachers’ and trainers’ competences to use IT tools effectively. There is scope to address underachievement in basic skills, as well as raise participation in adult learning. To accelerate application, retraining programmes could, to the extent possible, be designed for online use and then, once the pandemic is contained, integrate physical presence, as appropriate.

| (22) | For the duration of the crisis and its aftermath, significant funds are and will be needed to support businesses. Securing adequate access to finance and liquidity is essential, especially for small and medium-sized enterprises (SMEs), in order to keep companies in business and people at work. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. Cyprus has implemented a specific small-business support scheme that subsidises the salary payments of businesses with up to five employees. In addition, the suspension of the increased contributions to the national health system and the postponement of tax payments (e.g. VAT) will ease the immediate pressure. Swift administrative coordination, practical support and effective communication on the backing available to SMEs, in cooperation with the SME support structures and business organisations, are essential. The speeding-up of contractual payments by public authorities can also help improve the cash flow of SMEs. Newly founded start-ups and scale-ups may need specific support, e.g. in the form of equity stakes by public institutions and incentives for venture capital funds to increase their investments in these firms. It remains important to implement financial instruments prepared before the crisis (Cyprus Energy Fund of Funds). |
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(22)

For the duration of the crisis and its aftermath, significant funds are and will be needed to support businesses. Securing adequate access to finance and liquidity is essential, especially for small and medium-sized enterprises (SMEs), in order to keep companies in business and people at work. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. Cyprus has implemented a specific small-business support scheme that subsidises the salary payments of businesses with up to five employees. In addition, the suspension of the increased contributions to the national health system and the postponement of tax payments (e.g. VAT) will ease the immediate pressure. Swift administrative coordination, practical support and effective communication on the backing available to SMEs, in cooperation with the SME support structures and business organisations, are essential. The speeding-up of contractual payments by public authorities can also help improve the cash flow of SMEs. Newly founded start-ups and scale-ups may need specific support, e.g. in the form of equity stakes by public institutions and incentives for venture capital funds to increase their investments in these firms. It remains important to implement financial instruments prepared before the crisis (Cyprus Energy Fund of Funds).

| (23) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Protecting and using the country’s natural resources efficiently is of paramount importance to ensure a sustainable economic recovery and future growth. To maintain the country’s appeal to tourists, it is necessary to address challenges related to the green energy transition, effective waste and water management and the protection of nature and biodiversity. While significant investments have already started, more investments in these areas need to be front-loaded. Cyprus faces important challenges in reaching its 2030 target for greenhouse gas emissions not covered by the EU emissions trading system. These challenges need to be addressed by planning and adopting additional measures in a timely manner in accordance with the country’s National Energy and Climate Plan. Such measures will require investments, in particular in areas like renewable energy, energy efficiency and sustainable transport, which can also help to provide a robust green stimulus. Cyprus also needs to improve its waste management system and the circular economy. Waste generation remains significantly higher than the Union average, while recycling rates remain significantly lower than the Union average. The landfilling rate is also very high. Water and waste water management, especially in urban areas, is characterised by inefficiencies. Droughts and water scarcity are major concerns and an insufficient policy response might affect the country’s rural economy and tourism. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Cyprus to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Cyprus to make the best use of that Fund. |
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(23)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Protecting and using the country’s natural resources efficiently is of paramount importance to ensure a sustainable economic recovery and future growth. To maintain the country’s appeal to tourists, it is necessary to address challenges related to the green energy transition, effective waste and water management and the protection of nature and biodiversity. While significant investments have already started, more investments in these areas need to be front-loaded. Cyprus faces important challenges in reaching its 2030 target for greenhouse gas emissions not covered by the EU emissions trading system. These challenges need to be addressed by planning and adopting additional measures in a timely manner in accordance with the country’s National Energy and Climate Plan. Such measures will require investments, in particular in areas like renewable energy, energy efficiency and sustainable transport, which can also help to provide a robust green stimulus. Cyprus also needs to improve its waste management system and the circular economy. Waste generation remains significantly higher than the Union average, while recycling rates remain significantly lower than the Union average. The landfilling rate is also very high. Water and waste water management, especially in urban areas, is characterised by inefficiencies. Droughts and water scarcity are major concerns and an insufficient policy response might affect the country’s rural economy and tourism. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Cyprus to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Cyprus to make the best use of that Fund.

| (24) | The importance of a modern digital infrastructure, universal internet access and the availability of digital services was highlighted by the COVID-19 mobility restrictions. Investing in the digital economy is essential for bolstering productivity and boosting the economic recovery after the crisis. Cyprus ranks at the low end of the Commission’s Digital Economy and Society Index (DESI) 2020. Only 45 % of Cypriots between 16 and 74 years of age have at least basic digital skills and ICT specialists still represent a lower proportion of the workforce compared to the Union average (2,7 % vs 3,9 %), hampering the potential of the digital economy. There is a low level of online interaction between public authorities and citizens, with only 51 % of Cypriots interacting online. The level of e-commerce (i.e. SMEs selling online, e-commerce turnover and online cross-border sales) is improving (31,8 % in 2019 against 29,4 % in 2018) but it is still below the Union average of 40,1 %. |
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(24)

The importance of a modern digital infrastructure, universal internet access and the availability of digital services was highlighted by the COVID-19 mobility restrictions. Investing in the digital economy is essential for bolstering productivity and boosting the economic recovery after the crisis. Cyprus ranks at the low end of the Commission’s Digital Economy and Society Index (DESI) 2020. Only 45 % of Cypriots between 16 and 74 years of age have at least basic digital skills and ICT specialists still represent a lower proportion of the workforce compared to the Union average (2,7 % vs 3,9 %), hampering the potential of the digital economy. There is a low level of online interaction between public authorities and citizens, with only 51 % of Cypriots interacting online. The level of e-commerce (i.e. SMEs selling online, e-commerce turnover and online cross-border sales) is improving (31,8 % in 2019 against 29,4 % in 2018) but it is still below the Union average of 40,1 %.

| (25) | Cyprus can further improve its research and innovation system to support productivity growth and the required digital and environmental transition in a post-pandemic scenario. Firms’ low research and innovation absorption capacity hamper Cyprus’s competitiveness. Improved cooperation between academia and business and the commercialisation of research results remain key bottlenecks and require urgent action. However, recent measures such as the creation establishment of a new Deputy Ministry of Research, Innovation and Digital Policy, the appointment of a new Deputy Minister for Research, Innovation and Digital Policy as well as the new Cyprus Research and Innovation Strategy Framework 2019-2023 (‘Innovate Cyprus’), which sets a higher research and development target of 1,5 % of GDP by 2023 (up from the current 0,56 %) are promising steps. |
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(25)

Cyprus can further improve its research and innovation system to support productivity growth and the required digital and environmental transition in a post-pandemic scenario. Firms’ low research and innovation absorption capacity hamper Cyprus’s competitiveness. Improved cooperation between academia and business and the commercialisation of research results remain key bottlenecks and require urgent action. However, recent measures such as the creation establishment of a new Deputy Ministry of Research, Innovation and Digital Policy, the appointment of a new Deputy Minister for Research, Innovation and Digital Policy as well as the new Cyprus Research and Innovation Strategy Framework 2019-2023 (‘Innovate Cyprus’), which sets a higher research and development target of 1,5 % of GDP by 2023 (up from the current 0,56 %) are promising steps.

| (26) | Tackling aggressive tax planning is key to improving the efficiency and fairness of tax systems, as acknowledged in the 2020 Recommendation on the economic policy of the euro area. Spillover effects of taxpayers’ aggressive tax-planning strategies call for coordinated national action to complement Union legislation. The economic evidence suggests that Cyprus’s tax rules are used for aggressive tax-planning purposes. Cyprus has taken steps to address this by implementing international and European initiatives and taking some additional national measures. However, features of the system such as the absence of withholding taxes on outbound dividend, interest and royalty payments by Cyprus-based companies to third country residents, and the corporate tax residency rules, may continue to facilitate aggressive tax planning. The notional interest deduction scheme needs to be closely monitored. Finally, the scheme for the naturalisation of investors in Cyprus by exception and the residence-by-investment scheme have been listed by the OECD as having a potentially high risk for being misused. Cyprus has prepared and submitted for legal vetting draft laws introducing withholding taxes on dividend, interest and royalty payments to countries included in Annex I to the EU list of non-cooperative jurisdictions for tax purposes. Cyprus has also prepared and submitted for legal vetting the introduction of a corporate tax residency test based on incorporation, in addition to the existing management and control. The effectiveness of these measures in tackling aggressive tax planning will need to be assessed. |
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(26)

Tackling aggressive tax planning is key to improving the efficiency and fairness of tax systems, as acknowledged in the 2020 Recommendation on the economic policy of the euro area. Spillover effects of taxpayers’ aggressive tax-planning strategies call for coordinated national action to complement Union legislation. The economic evidence suggests that Cyprus’s tax rules are used for aggressive tax-planning purposes. Cyprus has taken steps to address this by implementing international and European initiatives and taking some additional national measures. However, features of the system such as the absence of withholding taxes on outbound dividend, interest and royalty payments by Cyprus-based companies to third country residents, and the corporate tax residency rules, may continue to facilitate aggressive tax planning. The notional interest deduction scheme needs to be closely monitored. Finally, the scheme for the naturalisation of investors in Cyprus by exception and the residence-by-investment scheme have been listed by the OECD as having a potentially high risk for being misused. Cyprus has prepared and submitted for legal vetting draft laws introducing withholding taxes on dividend, interest and royalty payments to countries included in Annex I to the EU list of non-cooperative jurisdictions for tax purposes. Cyprus has also prepared and submitted for legal vetting the introduction of a corporate tax residency test based on incorporation, in addition to the existing management and control. The effectiveness of these measures in tackling aggressive tax planning will need to be assessed.

| (27) | An effective justice system remains a key factor for an attractive investment- and business-friendly economy and will be crucial in the recovery process. Serious inefficiencies in the justice system continue to undermine contract enforcement and prevent the swift resolution of civil and commercial cases. A series of reforms have been announced to address the most critical problems in the justice system in Cyprus, in particular the outdated civil procedures rules and digitalisation of the courts, the clearance of the large backlog of cases and the lack of lifelong training for judges, but progress remains slow. |
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(27)

An effective justice system remains a key factor for an attractive investment- and business-friendly economy and will be crucial in the recovery process. Serious inefficiencies in the justice system continue to undermine contract enforcement and prevent the swift resolution of civil and commercial cases. A series of reforms have been announced to address the most critical problems in the justice system in Cyprus, in particular the outdated civil procedures rules and digitalisation of the courts, the clearance of the large backlog of cases and the lack of lifelong training for judges, but progress remains slow.

| (28) | Strengthening the resilience and efficiency of the public administration is key to ensuring the swift and effective implementation of the COVID-19 recovery measures in Cyprus. Improving the coordination between central and local government and tackling the fragmentation and inefficiencies at local level are necessary to remove the bottlenecks for coherent implementation, investments and service delivery in the country. Pushing forward the digitalisation of public administration is key to ensuring its own business continuity, as well as the continued and effective access to public services for citizens and the businesses. |
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(28)

Strengthening the resilience and efficiency of the public administration is key to ensuring the swift and effective implementation of the COVID-19 recovery measures in Cyprus. Improving the coordination between central and local government and tackling the fragmentation and inefficiencies at local level are necessary to remove the bottlenecks for coherent implementation, investments and service delivery in the country. Pushing forward the digitalisation of public administration is key to ensuring its own business continuity, as well as the continued and effective access to public services for citizens and the businesses.

| (29) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(29)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (30) | Safeguarding the overall soundness of the banking system and managing financial stability risks are essential for weathering the COVID-19 crisis and supporting the economy. While the stability of the banking sector improved significantly in recent years, the pandemic is posing strains on banks, through an increase in credit risk and pressures on profitability and capitalisation. Vulnerabilities and challenges stem from an over-indebted private sector and a high stock of non-performing loans (NPLs), which limit the scope of credit support. The Cypriot banking sector has the second highest NPL ratio in the euro area. Therefore, efforts to reduce NPLs remains a priority, in particular addressing legacy NPLs that are long overdue before the onset of the COVID-19 crisis. To achieve this aim, progress on the State-owned asset management company (KEDIPES), including on its organisational model and strategy, is essential. The ESTIA scheme appropriately seeks to support and protect vulnerable borrowers, but it is remains essential to balance this aim with improving payment culture. In this respect, strengthening the enforcement of claims and promoting the use of insolvency framework would help underpin a sustainable workout of bad loans. Moreover, reducing the backlog in the issuance of title deeds by implementing a structural solution to address the inadequacies of the property transaction system (i.e. the issuance and transfer of title deeds) remains an important task. |
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(30)

Safeguarding the overall soundness of the banking system and managing financial stability risks are essential for weathering the COVID-19 crisis and supporting the economy. While the stability of the banking sector improved significantly in recent years, the pandemic is posing strains on banks, through an increase in credit risk and pressures on profitability and capitalisation. Vulnerabilities and challenges stem from an over-indebted private sector and a high stock of non-performing loans (NPLs), which limit the scope of credit support. The Cypriot banking sector has the second highest NPL ratio in the euro area. Therefore, efforts to reduce NPLs remains a priority, in particular addressing legacy NPLs that are long overdue before the onset of the COVID-19 crisis. To achieve this aim, progress on the State-owned asset management company (KEDIPES), including on its organisational model and strategy, is essential. The ESTIA scheme appropriately seeks to support and protect vulnerable borrowers, but it is remains essential to balance this aim with improving payment culture. In this respect, strengthening the enforcement of claims and promoting the use of insolvency framework would help underpin a sustainable workout of bad loans. Moreover, reducing the backlog in the issuance of title deeds by implementing a structural solution to address the inadequacies of the property transaction system (i.e. the issuance and transfer of title deeds) remains an important task.

| (31) | Continuing efforts to strengthen the framework to prevent and penalise corruption is key to ensuring recovery in the aftermath of the COVID-19 crisis and achieving an efficient, accountable and transparent allocation and distribution of funds and resources. While an action plan against corruption is being implemented, key measures and legislation are still pending adoption, notably the draft Acts for the enhancement of transparency in public decision making, the establishment of the independent authority against corruption, reporting corruption and the protection of whistle-blowers. The provisions related to the Law Office’s separation of functions and recruitment procedures are still pending completion. |
| --- | --- |

(31)

Continuing efforts to strengthen the framework to prevent and penalise corruption is key to ensuring recovery in the aftermath of the COVID-19 crisis and achieving an efficient, accountable and transparent allocation and distribution of funds and resources. While an action plan against corruption is being implemented, key measures and legislation are still pending adoption, notably the draft Acts for the enhancement of transparency in public decision making, the establishment of the independent authority against corruption, reporting corruption and the protection of whistle-blowers. The provisions related to the Law Office’s separation of functions and recruitment procedures are still pending completion.

| (32) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Cyprus will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(32)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Cyprus will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (33) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Cyprus should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup. |
| --- | --- |

(33)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Cyprus should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup.

| (34) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Cyprus’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Cyprus in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Cyprus, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(34)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Cyprus’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Cyprus in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Cyprus, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (35) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below. |
| --- | --- |

(35)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below.

| (36) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (3) and (4), |
| --- | --- |

(36)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (3) and (4),

HEREBY RECOMMENDS that Cyprus take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience and capacity of the health system to ensure quality and affordable services, including by addressing health workers’ working conditions. |
| --- | --- |

1.

| 2. | Provide adequate income replacement and access to social protection for all. Strengthen public employment services, promote flexible working arrangements and improve the labour-market relevance of education and training. |
| --- | --- |

2.

| 3. | Secure adequate access to finance and liquidity, especially for SMEs. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, waste and water management, sustainable transport, digitalisation, research and innovation. |
| --- | --- |

3.

| 4. | Step up action to address features of the tax system that facilitate aggressive tax planning by individuals and multinationals. Improve the efficiency and digitalisation of the judicial system and the public sector. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

---

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 80.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/89 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/89

---

COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Latvia and delivering a Council opinion on the 2020 Stability Programme of Latvia

(2020/C 282/14)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Latvia was published on 26 February 2020. It assessed Latvia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Latvia’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Latvia was published on 26 February 2020. It assessed Latvia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Latvia’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Latvia is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Latvia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions due to different specialisation patterns. This entails a risk of widening disparities within Latvia. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions due to different specialisation patterns. This entails a risk of widening disparities within Latvia. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 30 April 2020, Latvia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(10)

On 30 April 2020, Latvia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Latvia is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(11)

Latvia is currently in the preventive arm of the Stability and Growth Pact.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 0,2 % of gross domestic product (GDP) in 2019 to 9,4 % of GDP in 2020. The deficit is projected to decline to 5,0 % of GDP in 2021 and to 2,7 % of GDP by 2023, under unchanged policies. After decreasing to 36,9 % of GDP in 2019, the general government debt-to-GDP ratio is expected to peak at around 53 % in 2022, based on the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 0,2 % of gross domestic product (GDP) in 2019 to 9,4 % of GDP in 2020. The deficit is projected to decline to 5,0 % of GDP in 2021 and to 2,7 % of GDP by 2023, under unchanged policies. After decreasing to 36,9 % of GDP in 2019, the general government debt-to-GDP ratio is expected to peak at around 53 % in 2022, based on the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Latvia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 3,0 % of GDP. The measures include tax deferral options for up to three years, expanded coverage of State-paid sick leave, support for specific sectors and additional health spending. In addition, Latvia has adopted liquidity support to businesses through guarantees and loans amounting to 3,2 % of GDP. Overall, the measures taken by Latvia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Latvia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 3,0 % of GDP. The measures include tax deferral options for up to three years, expanded coverage of State-paid sick leave, support for specific sectors and additional health spending. In addition, Latvia has adopted liquidity support to businesses through guarantees and loans amounting to 3,2 % of GDP. Overall, the measures taken by Latvia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Latvia’s general government balance is forecast at -7,3 % of GDP in 2020 and -4,5 % of GDP in 2021. This reflects a broadly similar effect of the stimulus measures as in the 2020 Stability Programme, but the drop in employment is projected to be lower and automatic stabilisers on the expenditure side are also assumed to be lower. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
| --- | --- |

(14)

Based on the Commission 2020 spring forecast under unchanged policies, Latvia’s general government balance is forecast at -7,3 % of GDP in 2020 and -4,5 % of GDP in 2021. This reflects a broadly similar effect of the stimulus measures as in the 2020 Stability Programme, but the drop in employment is projected to be lower and automatic stabilisers on the expenditure side are also assumed to be lower. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Latvia’s projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Latvia’s projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | Latvia declared a state of emergency on 13 March 2020 and extended it until 9 June 2020. The government limited the movement of persons across Latvia’s borders by air, rail and sea, closed schools and universities while ensuring distance learning, prohibited all public events, enforced social distancing measures, restricted sales on weekends and promoted digital public services. Considering the improved epidemiological situation, the authorities loosened national restrictions as of 12 May 2020 and agreed to reopen borders with Lithuania and Estonia as of 15 May 2020. According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,6 % in 2020 and slightly recover to 8,3 % in 2021. The economy is projected to decline by 7 % in 2020 with investments and export taking the largest hit amid declining foreign demand and growing uncertainty. Employment is expected to decrease by 2,5 %, taking into account the fact that the negative impact on employment will be considerably cushioned by the government-subsidised employee furlough scheme and salary subsidies in export-oriented sectors. In response to the COVID-19 crisis, Latvia has developed a comprehensive fiscal and economic policy response. The authorities have targeted the response in three directions: (1) support to workers; (2) support to businesses; and (3) support to the hardest-hit economic sectors. Labour policy measures, aimed at maintaining employment and strengthening the social safety net include, inter alia, salary subsidies of up to 75 % of a person’s gross wage, coverage of sick leave if a worker is diagnosed with COVID-19 or is in quarantine, and extension of unemployment benefits. Support to businesses, facing temporary difficulties has aimed to extend liquidity to viable firms and to quickly boost supply of vital goods and services. |
| --- | --- |

(16)

Latvia declared a state of emergency on 13 March 2020 and extended it until 9 June 2020. The government limited the movement of persons across Latvia’s borders by air, rail and sea, closed schools and universities while ensuring distance learning, prohibited all public events, enforced social distancing measures, restricted sales on weekends and promoted digital public services. Considering the improved epidemiological situation, the authorities loosened national restrictions as of 12 May 2020 and agreed to reopen borders with Lithuania and Estonia as of 15 May 2020. According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,6 % in 2020 and slightly recover to 8,3 % in 2021. The economy is projected to decline by 7 % in 2020 with investments and export taking the largest hit amid declining foreign demand and growing uncertainty. Employment is expected to decrease by 2,5 %, taking into account the fact that the negative impact on employment will be considerably cushioned by the government-subsidised employee furlough scheme and salary subsidies in export-oriented sectors. In response to the COVID-19 crisis, Latvia has developed a comprehensive fiscal and economic policy response. The authorities have targeted the response in three directions: (1) support to workers; (2) support to businesses; and (3) support to the hardest-hit economic sectors. Labour policy measures, aimed at maintaining employment and strengthening the social safety net include, inter alia, salary subsidies of up to 75 % of a person’s gross wage, coverage of sick leave if a worker is diagnosed with COVID-19 or is in quarantine, and extension of unemployment benefits. Support to businesses, facing temporary difficulties has aimed to extend liquidity to viable firms and to quickly boost supply of vital goods and services.

| (17) | The COVID-19 pandemic has required unprecedented measures to contain the spread and impact of the disease. It has amplified the structural weaknesses in Latvia’s health system, which are directly related to the limited financial and human resources available to it and to reforms that are only slowly progressing. Access to quality and affordable healthcare and the effectiveness of the health system are affected by low public financing. This leads to high self-reported unmet needs for healthcare, significant out-of-pocket payments, especially for vulnerable groups, as well as inequality of access. Unhealthy lifestyles are another important reason for the poor health outcomes. In addition, health workforce shortages constitute a complex challenge and hamper the delivery of health services. To boost efficiency and quality in healthcare, it is crucial to accelerate the ongoing reforms which remain in an early stage including effective prevention measures, stronger primary care, a rationalised hospital sector and targeted quality management. The extent of the impact of these reforms and the opportunities to improve health outcomes also depend significantly on the amount of public financing for health. In order to be able to manage similar crises in the future, it is important to ensure investments into effective and well-resourced public health measures to prevent, contain and mitigate the spread of infectious diseases and to manage their impact on the health system’s performance. Investments could aim at providing the necessary equipment, robust e-health services, facilities and human resources for healthcare and at ensuring the capacity to deliver all expected regular health services alongside care for COVID-19 patients. |
| --- | --- |

(17)

The COVID-19 pandemic has required unprecedented measures to contain the spread and impact of the disease. It has amplified the structural weaknesses in Latvia’s health system, which are directly related to the limited financial and human resources available to it and to reforms that are only slowly progressing. Access to quality and affordable healthcare and the effectiveness of the health system are affected by low public financing. This leads to high self-reported unmet needs for healthcare, significant out-of-pocket payments, especially for vulnerable groups, as well as inequality of access. Unhealthy lifestyles are another important reason for the poor health outcomes. In addition, health workforce shortages constitute a complex challenge and hamper the delivery of health services. To boost efficiency and quality in healthcare, it is crucial to accelerate the ongoing reforms which remain in an early stage including effective prevention measures, stronger primary care, a rationalised hospital sector and targeted quality management. The extent of the impact of these reforms and the opportunities to improve health outcomes also depend significantly on the amount of public financing for health. In order to be able to manage similar crises in the future, it is important to ensure investments into effective and well-resourced public health measures to prevent, contain and mitigate the spread of infectious diseases and to manage their impact on the health system’s performance. Investments could aim at providing the necessary equipment, robust e-health services, facilities and human resources for healthcare and at ensuring the capacity to deliver all expected regular health services alongside care for COVID-19 patients.

| (18) | Latvia has taken measures to extend income support for workers and to avoid dismissals during the state of emergency. However, the support is limited in coverage and adequacy, mainly because it is dependent on social contribution payments and restrictive eligibility criteria. The scheme also does not allow for partial idle time. A more gradual transition from income support to work income would allow for a greater labour market flexibility during the downtime period and the economic recovery. Continuous efforts are needed to improve the adequacy, duration and coverage of the social safety net for all. However, these efforts are constrained by the low tax revenue as a share of GDP. Despite some slight improvement, the adequacy of the guaranteed minimum income, of minimum pensions and of income support for persons with disabilities remains low. Latvia has introduced the unemployment assistance benefit for the most vulnerable, yet the unemployed are at a high risk of poverty, particularly when the duration of unemployment increases. Coverage gaps in access to social protection, including unemployment insurance, for self-employed and non-standard workers exist and could be tackled. While its share is decreasing, undeclared work and envelope wages remain widespread, weakening affected workers’ social protection and increasing occupational risks. Vulnerable groups are likely to face the most difficulties in finding a job again. The integration of employment, education, health and social services and the provision of social services remains low. The share of people facing severe housing deprivation and that of people facing overcrowding are among the highest in the Union, while social housing is scarce. |
| --- | --- |

(18)

Latvia has taken measures to extend income support for workers and to avoid dismissals during the state of emergency. However, the support is limited in coverage and adequacy, mainly because it is dependent on social contribution payments and restrictive eligibility criteria. The scheme also does not allow for partial idle time. A more gradual transition from income support to work income would allow for a greater labour market flexibility during the downtime period and the economic recovery. Continuous efforts are needed to improve the adequacy, duration and coverage of the social safety net for all. However, these efforts are constrained by the low tax revenue as a share of GDP. Despite some slight improvement, the adequacy of the guaranteed minimum income, of minimum pensions and of income support for persons with disabilities remains low. Latvia has introduced the unemployment assistance benefit for the most vulnerable, yet the unemployed are at a high risk of poverty, particularly when the duration of unemployment increases. Coverage gaps in access to social protection, including unemployment insurance, for self-employed and non-standard workers exist and could be tackled. While its share is decreasing, undeclared work and envelope wages remain widespread, weakening affected workers’ social protection and increasing occupational risks. Vulnerable groups are likely to face the most difficulties in finding a job again. The integration of employment, education, health and social services and the provision of social services remains low. The share of people facing severe housing deprivation and that of people facing overcrowding are among the highest in the Union, while social housing is scarce.

| (19) | Providing support to small and medium-sized enterprises to help them quickly develop flexible work and teleworking capacities may significantly help mitigate the impact of the crisis. Low registration with public employment services and the low level of involvement of the unemployed in active labour market measures are of particular concern. The delivery and composition of active labour market measures have to be reinforced and adapted to reduce the duration of the unemployment spells and facilitate transitions back to work. Equipping people with the right skills is even more important to improve the resilience of the labour force in times of an economic downturn. Effective and easily accessible adult learning, reskilling and upskilling measures, together with the provision of social services and mobility support, could provide more people with the skills necessary for the labour market. Digital skills also need to be improved as only 43 % of Latvians have basic or above basic digital skills. The COVID-19 pandemic has also highlighted the need to enhance quality digital education and training and to ensure equal access to all learners. Strengthening the capacity of social partners is also important to ensure their meaningful and timely involvement in the COVID-19 crisis response and recovery. |
| --- | --- |

(19)

Providing support to small and medium-sized enterprises to help them quickly develop flexible work and teleworking capacities may significantly help mitigate the impact of the crisis. Low registration with public employment services and the low level of involvement of the unemployed in active labour market measures are of particular concern. The delivery and composition of active labour market measures have to be reinforced and adapted to reduce the duration of the unemployment spells and facilitate transitions back to work. Equipping people with the right skills is even more important to improve the resilience of the labour force in times of an economic downturn. Effective and easily accessible adult learning, reskilling and upskilling measures, together with the provision of social services and mobility support, could provide more people with the skills necessary for the labour market. Digital skills also need to be improved as only 43 % of Latvians have basic or above basic digital skills. The COVID-19 pandemic has also highlighted the need to enhance quality digital education and training and to ensure equal access to all learners. Strengthening the capacity of social partners is also important to ensure their meaningful and timely involvement in the COVID-19 crisis response and recovery.

| (20) | A sizable liquidity support scheme was quickly set up and deployed through the national development institution, Altum. It has helped restructure loan repayment schedules for businesses and provided liquidity support through new loans. At the same time, most restructurings of bank loans take place without involvement of State guarantees. However, the eligibility conditions for State guarantees are relatively strict. As a result, there is a risk that smaller companies with weaker financial position or overdue tax payments will not receive support. Restaurants and hotels, which are among the hardest hit industries in this crisis, experience difficulties accessing liquidity because of their weak collateral and financial position. At the same time, it is important to sustain the resilience of the banking sector. |
| --- | --- |

(20)

A sizable liquidity support scheme was quickly set up and deployed through the national development institution, Altum. It has helped restructure loan repayment schedules for businesses and provided liquidity support through new loans. At the same time, most restructurings of bank loans take place without involvement of State guarantees. However, the eligibility conditions for State guarantees are relatively strict. As a result, there is a risk that smaller companies with weaker financial position or overdue tax payments will not receive support. Restaurants and hotels, which are among the hardest hit industries in this crisis, experience difficulties accessing liquidity because of their weak collateral and financial position. At the same time, it is important to sustain the resilience of the banking sector.

| (21) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Policies to support the country’s digital transformation and green transition should take into account the significant regional disparities. Most urban areas in Latvia have excellent digital infrastructure, but fixed broadband coverage in rural areas, especially last-mile connections, is low. Continued and strengthened efforts to deploy very high-speed broadband will help further improve the digital infrastructure. In order to tackle the challenges posed by the transition to a climate neutral economy, investments are needed to diversify the economy and make it more modern and competitive, including by strengthening investment in research and innovation and human capital and to alleviate the socioeconomic costs of the transition. Latvia’s environmental sustainability rests on making progress towards improved energy efficiency, implementing its National Energy and Climate Plan, including in particular in transport and buildings, and mainstreaming environmental sustainability considerations in other economic sectors, in particular in agriculture and forestry. Improving intermodal transport infrastructure within and around Riga would both facilitate labour mobility and help curb growing energy consumption from passenger cars. Furthermore, the Rail Baltica project and the energy interconnection projects are Latvia’s key investment priorities aimed at improving its safety and integration into the internal market. Making further investments in renewable energy, in particular wind power, and promoting the transition to a circular economy with significantly higher recycling rates can also improve both environmental and economic outcomes and help achieve climate change mitigation targets. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for 2021-2027 could help Latvia address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Latvia to make the best use of that Fund. |
| --- | --- |

(21)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Policies to support the country’s digital transformation and green transition should take into account the significant regional disparities. Most urban areas in Latvia have excellent digital infrastructure, but fixed broadband coverage in rural areas, especially last-mile connections, is low. Continued and strengthened efforts to deploy very high-speed broadband will help further improve the digital infrastructure. In order to tackle the challenges posed by the transition to a climate neutral economy, investments are needed to diversify the economy and make it more modern and competitive, including by strengthening investment in research and innovation and human capital and to alleviate the socioeconomic costs of the transition. Latvia’s environmental sustainability rests on making progress towards improved energy efficiency, implementing its National Energy and Climate Plan, including in particular in transport and buildings, and mainstreaming environmental sustainability considerations in other economic sectors, in particular in agriculture and forestry. Improving intermodal transport infrastructure within and around Riga would both facilitate labour mobility and help curb growing energy consumption from passenger cars. Furthermore, the Rail Baltica project and the energy interconnection projects are Latvia’s key investment priorities aimed at improving its safety and integration into the internal market. Making further investments in renewable energy, in particular wind power, and promoting the transition to a circular economy with significantly higher recycling rates can also improve both environmental and economic outcomes and help achieve climate change mitigation targets. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for 2021-2027 could help Latvia address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Latvia to make the best use of that Fund.

| (22) | Latvia has significantly reduced the flow of risky money through its banks and overhauled its anti-money-laundering system. In particular, Latvia banned the servicing of non-resident shell companies and amended a number of laws. The capacity and capability of key supervisory, financial intelligence and law enforcement institutions has been strengthened. While supervision of financial institutions has been tightened considerably, it could be better targeted and become more efficient with improved risk assessment. Moreover, while the capacity and cooperation between law enforcement bodies has been improved, their capacity to investigate and prosecute money laundering cases could be further strengthened. |
| --- | --- |

(22)

Latvia has significantly reduced the flow of risky money through its banks and overhauled its anti-money-laundering system. In particular, Latvia banned the servicing of non-resident shell companies and amended a number of laws. The capacity and capability of key supervisory, financial intelligence and law enforcement institutions has been strengthened. While supervision of financial institutions has been tightened considerably, it could be better targeted and become more efficient with improved risk assessment. Moreover, while the capacity and cooperation between law enforcement bodies has been improved, their capacity to investigate and prosecute money laundering cases could be further strengthened.

| (23) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(23)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (24) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Latvia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(24)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Latvia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (25) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Latvia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
| --- | --- |

(25)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Latvia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (26) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Latvia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Latvia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Latvia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(26)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Latvia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Latvia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Latvia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (27) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
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(27)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Latvia take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience and accessibility of the health system including by providing additional human and financial resources. |
| --- | --- |

1.

| 2. | Provide adequate income support to the groups most affected by the crisis and strengthen the social safety net. Mitigate the employment impact of the crisis, including through flexible working arrangements, active labour market measures and skills. |
| --- | --- |

2.

| 3. | Ensure access to liquidity support by firms and in particular small and medium-sized enterprises. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on research and innovation, clean and efficient production and use of energy, sustainable transport and digital infrastructures. |
| --- | --- |

3.

| 4. | Continue progress on the anti-money-laundering framework. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 86.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/95 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/95

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Lithuania and delivering a Council opinion on the 2020 Stability Programme of Lithuania

(2020/C 282/15)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Lithuania was published on 26 February 2020. It assessed Lithuania’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Lithuania’s progress towards its national Europe 2020 targets. |
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(2)

The 2020 country report for Lithuania was published on 26 February 2020. It assessed Lithuania’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Lithuania’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Lithuania is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Lithuania is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Lithuanian sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Lithuania. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Lithuanian sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Lithuania. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Lithuania submitted its 2020 National Reform Programme on 15 May 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

Lithuania submitted its 2020 National Reform Programme on 15 May 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Lithuania is currently in the preventive arm of the Stability and Growth Pact. |
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(11)

Lithuania is currently in the preventive arm of the Stability and Growth Pact.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,3 % of gross domestic product (GDP) in 2019 to a deficit of 11,4 % of GDP in 2020. The deficit is projected to decline to 3,9 % of GDP in 2021. After increasing to 36,3 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 50,6 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,3 % of gross domestic product (GDP) in 2019 to a deficit of 11,4 % of GDP in 2020. The deficit is projected to decline to 3,9 % of GDP in 2021. After increasing to 36,3 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 50,6 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Lithuania has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 6,8 % of GDP. The measures include tax deferrals, additional funding to buy medical supplies, subsidies to sustain jobs and benefits to the self-employed and employees affected by the COVID-19 pandemic. As the Commission analysis of the design and implementation of some measures point to a relatively low potential take-up, the Commission assumed a smaller impact of the government measures on the public finances. In addition, Lithuania has announced discretionary measures that, while not having a direct budgetary impact, will contribute to the crisis response, including providing liquidity support to businesses, which the 2020 Stability Programme estimates at 3,8 % of GDP. Those measures include loan guarantees (2,9 % of GDP). Overall, the measures taken by Lithuania are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Lithuania has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 6,8 % of GDP. The measures include tax deferrals, additional funding to buy medical supplies, subsidies to sustain jobs and benefits to the self-employed and employees affected by the COVID-19 pandemic. As the Commission analysis of the design and implementation of some measures point to a relatively low potential take-up, the Commission assumed a smaller impact of the government measures on the public finances. In addition, Lithuania has announced discretionary measures that, while not having a direct budgetary impact, will contribute to the crisis response, including providing liquidity support to businesses, which the 2020 Stability Programme estimates at 3,8 % of GDP. Those measures include loan guarantees (2,9 % of GDP). Overall, the measures taken by Lithuania are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Lithuania’s general government balance is forecast at -6,9 % of GDP in 2020 and -2,7 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Lithuania’s general government balance is forecast at -6,9 % of GDP in 2020 and -2,7 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Lithuania’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Lithuania’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | According to the Commission 2020 spring forecast, Lithuania’s GDP is set to contract by 8 % which is projected to be followed by a rapid recovery of 7,5 % in 2021. In order to respond to the COVID-19 outbreak and to cushion the economic fallout, Lithuania put forward the ‘Plan for Economic Stimulus and Mitigation of Consequences of COVID-19 Transmission’ on 16 March. The plan’s size amounts to EUR 2,5 billion or 6,3 % of the country’s GDP, and includes up to EUR 500 million or 1,3 % of GDP to ensure necessary resources for the health system. A further EUR 500 million was allocated to protect jobs and income. The capacity of the State guarantee funds was increased by EUR 500 million, and additional State guarantees amounting up to EUR 500 million were approved to stimulate the economy. In April, the Commission approved several Lithuanian aid schemes to support the Lithuanian economy in the context of the COVID-19 outbreak. These schemes are designed to help businesses cover immediate working capital needs and continue their activities during and after the pandemic. Additionally, the Bank of Lithuania relaxed some capital requirements for commercial banks to increase lending to the real economy. |
| --- | --- |

(16)

According to the Commission 2020 spring forecast, Lithuania’s GDP is set to contract by 8 % which is projected to be followed by a rapid recovery of 7,5 % in 2021. In order to respond to the COVID-19 outbreak and to cushion the economic fallout, Lithuania put forward the ‘Plan for Economic Stimulus and Mitigation of Consequences of COVID-19 Transmission’ on 16 March. The plan’s size amounts to EUR 2,5 billion or 6,3 % of the country’s GDP, and includes up to EUR 500 million or 1,3 % of GDP to ensure necessary resources for the health system. A further EUR 500 million was allocated to protect jobs and income. The capacity of the State guarantee funds was increased by EUR 500 million, and additional State guarantees amounting up to EUR 500 million were approved to stimulate the economy. In April, the Commission approved several Lithuanian aid schemes to support the Lithuanian economy in the context of the COVID-19 outbreak. These schemes are designed to help businesses cover immediate working capital needs and continue their activities during and after the pandemic. Additionally, the Bank of Lithuania relaxed some capital requirements for commercial banks to increase lending to the real economy.

| (17) | Health outcomes in Lithuania persistently lag behind those in other Member States, due in part to suboptimal efficiency of the health system, which suffers from low funding. The current pandemic has subjected the system to additional pressure and highlighted further structural challenges which include slow progress in improving quality of services, underinvestment in primary healthcare and no progress in adapting the hospital network to render it more efficient and responsive to needs. The COVID-19 crisis is also exposing health inequalities related to workforce shortages and geographical mismatches between services and needs. Lithuania needs to mobilise the resources needed to tackle the current crisis and to improve the resilience of its health systems in future. While immediate action is focusing on strengthening capacities in terms of health workers, critical medical supplies and equipment in order to save lives during the pandemic, longer term investments should be scaled up to improve the resilience of the health system so that it can sustain operations, resume its optimal performance and prepare itself for new shocks. This will require allocating sufficient resources to improve the accessibility, efficiency, and quality of the health system, so it can better respond to the challenges of growing chronical conditions, aging and persisting heath inequalities. Primary care and the development of e-health have a central role to play in this regard. Lithuania should also ensure that recent improvements to the affordability of healthcare are not undermined. Finally, future resilience will also require enhancing the system’s ability to reduce unhealthy lifestyles (one of the other important factors behind poor health outcomes in Lithuania) and greater efforts to prepare the long-term care sector to deal with the ageing population. |
| --- | --- |

(17)

Health outcomes in Lithuania persistently lag behind those in other Member States, due in part to suboptimal efficiency of the health system, which suffers from low funding. The current pandemic has subjected the system to additional pressure and highlighted further structural challenges which include slow progress in improving quality of services, underinvestment in primary healthcare and no progress in adapting the hospital network to render it more efficient and responsive to needs. The COVID-19 crisis is also exposing health inequalities related to workforce shortages and geographical mismatches between services and needs. Lithuania needs to mobilise the resources needed to tackle the current crisis and to improve the resilience of its health systems in future. While immediate action is focusing on strengthening capacities in terms of health workers, critical medical supplies and equipment in order to save lives during the pandemic, longer term investments should be scaled up to improve the resilience of the health system so that it can sustain operations, resume its optimal performance and prepare itself for new shocks. This will require allocating sufficient resources to improve the accessibility, efficiency, and quality of the health system, so it can better respond to the challenges of growing chronical conditions, aging and persisting heath inequalities. Primary care and the development of e-health have a central role to play in this regard. Lithuania should also ensure that recent improvements to the affordability of healthcare are not undermined. Finally, future resilience will also require enhancing the system’s ability to reduce unhealthy lifestyles (one of the other important factors behind poor health outcomes in Lithuania) and greater efforts to prepare the long-term care sector to deal with the ageing population.

| (18) | Before the COVID-19 pandemic, labour market participation was high and unemployment was low, but this crisis has posed new challenges.With the help of Union funding, Lithuania has implemented a short-time work scheme to mitigate the effects of the pandemic on employment and introduced a number of other measures to mitigate the negative effects on businesses and the self-employed. Before the crisis, the coverage of Active Labour Market Policy (ALMP) measures was decreasing, and participation in adult learning remained low. However, higher coverage and sufficient funding for ALMP measures and other measures to reskill and upskill the workforce will be needed to help the unemployed to return to the labour market as early as possible and provide effective support in a sustainable manner beyond the recovery phase. Strengthening social partners’ capacity is important to ensure their meaningful and timely involvement in the design of the exit and recovery process. |
| --- | --- |

(18)

Before the COVID-19 pandemic, labour market participation was high and unemployment was low, but this crisis has posed new challenges.With the help of Union funding, Lithuania has implemented a short-time work scheme to mitigate the effects of the pandemic on employment and introduced a number of other measures to mitigate the negative effects on businesses and the self-employed. Before the crisis, the coverage of Active Labour Market Policy (ALMP) measures was decreasing, and participation in adult learning remained low. However, higher coverage and sufficient funding for ALMP measures and other measures to reskill and upskill the workforce will be needed to help the unemployed to return to the labour market as early as possible and provide effective support in a sustainable manner beyond the recovery phase. Strengthening social partners’ capacity is important to ensure their meaningful and timely involvement in the design of the exit and recovery process.

| (19) | While steps were taken before the crisis to address the risk of poverty and social exclusion, for example by increasing universal child benefits and pensions, poverty and income inequality are still among the highest in the Union. Lithuania has comparatively low public expenditure on social protection, and the impact of social transfers on poverty reduction is low, and assessed as critical on the Social Scoreboard of indicators supporting the European Pillar of Social Rights. The low progressivity and ability to redistribute of the tax and benefit system limits the country’s ability to finance public goods and services, and to reduce poverty and income inequality. The negative effect of the COVID-19 pandemic on employment and household income is likely to aggravate those problems in the medium term. Temporary measures such as revising the eligibility rules, the amounts and duration of some benefits, may be needed to ensure that the situation of those most affected by the pandemic does not deteriorate. The social safety net should be extended to support all groups, including the self-employed, atypical workers and the most vulnerable people. The provision of the main social services and social housing needs to be strengthened to support those in need. |
| --- | --- |

(19)

While steps were taken before the crisis to address the risk of poverty and social exclusion, for example by increasing universal child benefits and pensions, poverty and income inequality are still among the highest in the Union. Lithuania has comparatively low public expenditure on social protection, and the impact of social transfers on poverty reduction is low, and assessed as critical on the Social Scoreboard of indicators supporting the European Pillar of Social Rights. The low progressivity and ability to redistribute of the tax and benefit system limits the country’s ability to finance public goods and services, and to reduce poverty and income inequality. The negative effect of the COVID-19 pandemic on employment and household income is likely to aggravate those problems in the medium term. Temporary measures such as revising the eligibility rules, the amounts and duration of some benefits, may be needed to ensure that the situation of those most affected by the pandemic does not deteriorate. The social safety net should be extended to support all groups, including the self-employed, atypical workers and the most vulnerable people. The provision of the main social services and social housing needs to be strengthened to support those in need.

| (20) | Liquidity support to businesses through public sector loans and guarantees, with a focus on small and medium-sized enterprises (‘SMEs’), has been of utmost importance, but the distribution of liquidity support to firms must be effectively and swiftly implemented by intermediaries and loan conditions must take account of the crisis situation. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can also help improve the cash flow of SMEs. Newly-founded start-ups and scale-ups may need specific support, e.g. in the form of equity stakes by public institutions and incentives for venture capital funds to increase their investments in those firms. Efforts should be maintained to reduce unnecessary regulatory and administrative burdens and to offer efficient digital public services for citizens and businesses. |
| --- | --- |

(20)

Liquidity support to businesses through public sector loans and guarantees, with a focus on small and medium-sized enterprises (‘SMEs’), has been of utmost importance, but the distribution of liquidity support to firms must be effectively and swiftly implemented by intermediaries and loan conditions must take account of the crisis situation. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can also help improve the cash flow of SMEs. Newly-founded start-ups and scale-ups may need specific support, e.g. in the form of equity stakes by public institutions and incentives for venture capital funds to increase their investments in those firms. Efforts should be maintained to reduce unnecessary regulatory and administrative burdens and to offer efficient digital public services for citizens and businesses.

| (21) | Lithuania should ensure that its measures to promote economic recovery are forward-looking and facilitate the digital and green transitions, where there are a number of challenges to be tackled. For the former, digital skills are below the Union average, with SMEs reporting considerable difficulties in recruiting for ICT vacancies. While fibre deployment is above the Union average, both for urban and rural areas, fixed broadband coverage and related take-up is very low and wide gaps remain between the cities and rural areas. |
| --- | --- |

(21)

Lithuania should ensure that its measures to promote economic recovery are forward-looking and facilitate the digital and green transitions, where there are a number of challenges to be tackled. For the former, digital skills are below the Union average, with SMEs reporting considerable difficulties in recruiting for ICT vacancies. While fibre deployment is above the Union average, both for urban and rural areas, fixed broadband coverage and related take-up is very low and wide gaps remain between the cities and rural areas.

| (22) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. As regards the green transition, total greenhouse gas emissions in Lithuania remain largely unchanged since 2010. Lithuania’s resource productivity is one of the lowest in the Union and circular (secondary) material use is well below the Union average. In line with Lithuania’s National Energy and Climate Plan, improving the energy performance of buildings thanks to energy efficiency and renewable energy solutions, modernising heating systems and improving the sustainability of the transport sector, would significantly contribute to decarbonising the economy. Targeted public and private investments aimed at tackling those issues, and others with a significant environmental and health impact, can promote growth and resilience, and help ensure a sustainable recovery from the crisis. Investments which have already been planned allow for the swift identification of projects which could be front-loaded and contribute to economic recovery, for example in building renovation and renewable energy. Preparatory work for medium-term recovery measures can draw on Member States’ National Energy and Climate Plans, list of Projects of Common Interest, and infrastructure development plans. Furthermore, the Rail Baltica project and the energy interconnection projects are Lithuania’s key investment priorities aimed at improving its safety and integration into the Union’s internal market. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Lithuania to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Lithuania to make the best use of that Fund. |
| --- | --- |

(22)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. As regards the green transition, total greenhouse gas emissions in Lithuania remain largely unchanged since 2010. Lithuania’s resource productivity is one of the lowest in the Union and circular (secondary) material use is well below the Union average. In line with Lithuania’s National Energy and Climate Plan, improving the energy performance of buildings thanks to energy efficiency and renewable energy solutions, modernising heating systems and improving the sustainability of the transport sector, would significantly contribute to decarbonising the economy. Targeted public and private investments aimed at tackling those issues, and others with a significant environmental and health impact, can promote growth and resilience, and help ensure a sustainable recovery from the crisis. Investments which have already been planned allow for the swift identification of projects which could be front-loaded and contribute to economic recovery, for example in building renovation and renewable energy. Preparatory work for medium-term recovery measures can draw on Member States’ National Energy and Climate Plans, list of Projects of Common Interest, and infrastructure development plans. Furthermore, the Rail Baltica project and the energy interconnection projects are Lithuania’s key investment priorities aimed at improving its safety and integration into the Union’s internal market. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Lithuania to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Lithuania to make the best use of that Fund.

| (23) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(23)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (24) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Lithuania will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(24)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Lithuania will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (25) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Lithuania should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(25)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Lithuania should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (26) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Lithuania’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Lithuania in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(26)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Lithuania’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Lithuania in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (27) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below. |
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(27)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below.

HEREBY RECOMMENDS that Lithuania takes action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system, including by mobilising adequate funding and addressing shortages in the health workforce and of critical medical products. Improve the accessibility and quality of health services. |
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1.

| 2. | Mitigate the impact of the COVID-19 crisis on employment. Increase the funding and coverage of ALMP measures and promote skills. Ensure the coverage and adequacy of the social safety net and improve the effectiveness of the tax and benefit system to protect against poverty. |
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2.

| 3. | Support liquidity for businesses, especially for SMEs and export-oriented sectors. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on the coverage and take-up of very-high-capacity broadband, on clean and efficient production and use of energy, and sustainable transport. Promote technological innovation in SMEs. |
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3.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 91.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/101 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/101

---

COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Luxembourg and delivering a Council opinion on the 2020 Stability Programme of Luxembourg

(2020/C 282/16)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Luxembourg was published on 26 February 2020. It assessed Luxembourg’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Luxembourg’s progress towards its national Europe 2020 targets. |
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(2)

The 2020 country report for Luxembourg was published on 26 February 2020. It assessed Luxembourg’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Luxembourg’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green and digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green and digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Luxembourg is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Luxembourg is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | Luxembourg submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Stability Programme on 29 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(9)

Luxembourg submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Stability Programme on 29 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (10) | Luxembourg is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(10)

Luxembourg is currently in the preventive arm of the Stability and Growth Pact.

| (11) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 2,2 % of gross domestic product (GDP) in 2019 to a deficit of 8,5 % of GDP in 2020. The deficit is projected to decline to 3,0 % of GDP in 2021. After having increased to 22,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 28,7 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related because of COVID-19 pandemic. |
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(11)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 2,2 % of gross domestic product (GDP) in 2019 to a deficit of 8,5 % of GDP in 2020. The deficit is projected to decline to 3,0 % of GDP in 2021. After having increased to 22,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 28,7 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related because of COVID-19 pandemic.

| (12) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Luxembourg has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,5 % of GDP. The measures include strengthening healthcare services, support for distressed firms, refundable and non-refundable aids, including for self-employed workers and short-time work arrangements, including for cross-border workers. In addition, Luxembourg has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include tax deferrals, loans to small and medium-sized enterprises (SMEs) in temporary financial difficulties and guarantees. In contrast with the 2020 Stability Programme, the Commission estimates a smaller impact of the package as it does not consider tax deferrals and the granting of refundable loans as discretionary measures with a budgetary impact. The authorities consider nevertheless that a part of the tax deferrals on direct taxes would finally have a budgetary impact, which is included in the above-mentioned amount of 5,5 % of GDP. Moreover, a share of the cost related to the short-time working schemes has been considered as part of the functioning of the automatic stabilisers. Overall, the measures taken by Luxembourg are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(12)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Luxembourg has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,5 % of GDP. The measures include strengthening healthcare services, support for distressed firms, refundable and non-refundable aids, including for self-employed workers and short-time work arrangements, including for cross-border workers. In addition, Luxembourg has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include tax deferrals, loans to small and medium-sized enterprises (SMEs) in temporary financial difficulties and guarantees. In contrast with the 2020 Stability Programme, the Commission estimates a smaller impact of the package as it does not consider tax deferrals and the granting of refundable loans as discretionary measures with a budgetary impact. The authorities consider nevertheless that a part of the tax deferrals on direct taxes would finally have a budgetary impact, which is included in the above-mentioned amount of 5,5 % of GDP. Moreover, a share of the cost related to the short-time working schemes has been considered as part of the functioning of the automatic stabilisers. Overall, the measures taken by Luxembourg are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (13) | Based on the Commission 2020 spring forecast under unchanged policies, Luxembourg’s general government balance is forecast at a deficit of 4,8 % of GDP in 2020 and at a surplus of 0,1 % in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. Compared to the Commission 2020 spring forecast, the 2020 Stability programme is based on more prudent assumptions for both revenues and expenditures. |
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(13)

Based on the Commission 2020 spring forecast under unchanged policies, Luxembourg’s general government balance is forecast at a deficit of 4,8 % of GDP in 2020 and at a surplus of 0,1 % in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. Compared to the Commission 2020 spring forecast, the 2020 Stability programme is based on more prudent assumptions for both revenues and expenditures.

| (14) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Luxembourg’s projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(14)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Luxembourg’s projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (15) | Luxembourg has one of the best performing health systems in the Union. However, with 49 % of doctors and 62 % of health workforce being non-national professionals, the system is well above the critical vulnerability threshold (as from the World Health Organisation indicator). In this context, Luxembourg’s health system could be impacted by potential unilateral decisions by neighbouring countries at times of crisis. Luxembourg had to adopt short-time measures in record time to improve the resilience of its healthcare system in the wake of the COVID-19 crisis, for instance mobilising medical infrastructure and setting up a temporary extension of a hospital, as well as providing accommodation in Luxembourg for cross-border health workers and their families. |
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(15)

Luxembourg has one of the best performing health systems in the Union. However, with 49 % of doctors and 62 % of health workforce being non-national professionals, the system is well above the critical vulnerability threshold (as from the World Health Organisation indicator). In this context, Luxembourg’s health system could be impacted by potential unilateral decisions by neighbouring countries at times of crisis. Luxembourg had to adopt short-time measures in record time to improve the resilience of its healthcare system in the wake of the COVID-19 crisis, for instance mobilising medical infrastructure and setting up a temporary extension of a hospital, as well as providing accommodation in Luxembourg for cross-border health workers and their families.

| (16) | The health system is expected to face rising challenges in the future, in addition to the growing number of vacancies of health workers in recent years. Specifically, an increasing demand for healthcare is expected from a growing and ageing population, and retirements of between 59 % and 69 % of the medical staff are projected in the coming 15 years. Skill mix innovations and the development of professional roles, task sharing and substitution will play an important role in keeping the health sector an attractive place to work. More generally, there is room to improve the governance of the health system, including cooperation with neighbouring countries, and the government has just engaged in a significant reform. Although digital infrastructure is already advanced in Luxembourg, efforts are still ongoing to implement e-health solutions, such as digital solutions for reimbursing providers. Luxembourg has focused strongly on digital technologies, such as supercomputing, artificial intelligence, blockchain and big data, and has the potential to leverage on these capabilities and cooperate at Union level to make a major contribution to the research to neutralise the virus responsible for COVID-19 and reduce infections. Luxembourg has also set up a new support scheme for research and development investment projects on products fighting COVID-19, which are needed to efficiently address the current COVID-19 pandemic by developing effective treatment and vaccines. |
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(16)

The health system is expected to face rising challenges in the future, in addition to the growing number of vacancies of health workers in recent years. Specifically, an increasing demand for healthcare is expected from a growing and ageing population, and retirements of between 59 % and 69 % of the medical staff are projected in the coming 15 years. Skill mix innovations and the development of professional roles, task sharing and substitution will play an important role in keeping the health sector an attractive place to work. More generally, there is room to improve the governance of the health system, including cooperation with neighbouring countries, and the government has just engaged in a significant reform. Although digital infrastructure is already advanced in Luxembourg, efforts are still ongoing to implement e-health solutions, such as digital solutions for reimbursing providers. Luxembourg has focused strongly on digital technologies, such as supercomputing, artificial intelligence, blockchain and big data, and has the potential to leverage on these capabilities and cooperate at Union level to make a major contribution to the research to neutralise the virus responsible for COVID-19 and reduce infections. Luxembourg has also set up a new support scheme for research and development investment projects on products fighting COVID-19, which are needed to efficiently address the current COVID-19 pandemic by developing effective treatment and vaccines.

| (17) | According to the Commission 2020 spring forecast, unemployment is expected to rise to 6,4 % in 2020 and decrease to 6,1 % in 2021. Luxembourg has taken a number of measures to maintain employment, in particular on ‘chômage partiel’. However, special consideration should be given to more vulnerable groups, such as older and low-skilled workers, in a context where the new minimum income scheme (REVIS, revenu d’inclusion sociale) has already led to an increase of registered unemployed people with the public employment service, due to compulsory registration of its beneficiaries since January 2019. Those more vulnerable people would suffer most from an increased competition on the labour market as a result of the COVID-19 crisis. Other vulnerable people suffering from the crisis might be temporary workers, as well as low-skilled workers in general. Concerning older workers, their low employment rate remains a structural issue in Luxembourg, which also has an impact on the long-term sustainability of the pension system, as developed in country-specific recommendations addressed to Luxembourg in previous years. In the current context, older workers face additional risks of being dismissed due to the COVID-19 crisis; increasing their adaptability for other jobs and sectors, including through upskilling and reskilling, is necessary more than ever. Luxembourg performs close to the Union average on social inclusion, but indicators on inequality and in-work poverty have been weakening in recent years, and opportunities for students remain strongly influenced by their socioeconomic background. In this context, more vulnerable groups in particular should be supported to face the social impacts of the COVID-19 crisis. |
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(17)

According to the Commission 2020 spring forecast, unemployment is expected to rise to 6,4 % in 2020 and decrease to 6,1 % in 2021. Luxembourg has taken a number of measures to maintain employment, in particular on ‘chômage partiel’. However, special consideration should be given to more vulnerable groups, such as older and low-skilled workers, in a context where the new minimum income scheme (REVIS, revenu d’inclusion sociale) has already led to an increase of registered unemployed people with the public employment service, due to compulsory registration of its beneficiaries since January 2019. Those more vulnerable people would suffer most from an increased competition on the labour market as a result of the COVID-19 crisis. Other vulnerable people suffering from the crisis might be temporary workers, as well as low-skilled workers in general. Concerning older workers, their low employment rate remains a structural issue in Luxembourg, which also has an impact on the long-term sustainability of the pension system, as developed in country-specific recommendations addressed to Luxembourg in previous years. In the current context, older workers face additional risks of being dismissed due to the COVID-19 crisis; increasing their adaptability for other jobs and sectors, including through upskilling and reskilling, is necessary more than ever. Luxembourg performs close to the Union average on social inclusion, but indicators on inequality and in-work poverty have been weakening in recent years, and opportunities for students remain strongly influenced by their socioeconomic background. In this context, more vulnerable groups in particular should be supported to face the social impacts of the COVID-19 crisis.

| (18) | To support businesses through the COVID-19 crisis, in particular SMEs, including the self-employed and microenterprises, Luxembourg has included a number of measures in its Stabilisation Plan presented on 25 March 2020. Retail is one of the most affected sectors, due to the collapse in demand and to the current measures that prevented many businesses from functioning altogether, or limited their operations. Regulatory flexibility would boost a rebound of retail in the aftermath of the COVID-19 crisis. In addition, it would be beneficial to support SMEs in adopting digital technologies that ensure business continuity, such as e-commerce. Appropriate measures should be maintained throughout the recovery period, while applying a gradual and flexible phasing out, and identifying the most affected sectors, in order to develop specific support plans that would enable them to catch up in the recovery phase. In the process of implementing these measures, the resilience of the banking sector needs to be taken into account. Following the most acute phase of the COVID-19 crisis, to support the transition and creation of new SMEs in growth-enhancing sectors, a reform of Luxembourg’s insolvency framework may help businesses get a second chance, if they face bankruptcy through no fault of their own. |
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(18)

To support businesses through the COVID-19 crisis, in particular SMEs, including the self-employed and microenterprises, Luxembourg has included a number of measures in its Stabilisation Plan presented on 25 March 2020. Retail is one of the most affected sectors, due to the collapse in demand and to the current measures that prevented many businesses from functioning altogether, or limited their operations. Regulatory flexibility would boost a rebound of retail in the aftermath of the COVID-19 crisis. In addition, it would be beneficial to support SMEs in adopting digital technologies that ensure business continuity, such as e-commerce. Appropriate measures should be maintained throughout the recovery period, while applying a gradual and flexible phasing out, and identifying the most affected sectors, in order to develop specific support plans that would enable them to catch up in the recovery phase. In the process of implementing these measures, the resilience of the banking sector needs to be taken into account. Following the most acute phase of the COVID-19 crisis, to support the transition and creation of new SMEs in growth-enhancing sectors, a reform of Luxembourg’s insolvency framework may help businesses get a second chance, if they face bankruptcy through no fault of their own.

| (19) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms, in particular in digital and green sectors. Luxembourg has already launched initiatives to boost digitalisation and innovation, but technological integration in the business sector and private investment, as well as the digitalisation of public services, remain low, compared with the high-potential environment and the country’s ambition to transition to a data-driven economy. Investments in digitalisation, advanced digital skills, and innovation will be essential to support SMEs, boost productivity and competitiveness. The recovery should also be further supported by advancing ambitious green investments in the short term. Key sectors can be, in particular, sustainable transport, including rail, sustainable construction, in particular in relation to the energy efficiency of buildings, both existing and new, and renewable energy. These would help to provide a robust green stimulus, and support Luxembourg in bridging the gap to its 2030 targets on greenhouse gas emissions reduction, energy efficiency and renewable energy, as well as in preparing the ground for climate neutrality. Further identification of investment needs and financial sources for investments remains necessary, also in light of the impact of the COVID-19 pandemic on the economy and public finances. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Luxembourg to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Luxembourg to make the best use of that Fund. |
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(19)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms, in particular in digital and green sectors. Luxembourg has already launched initiatives to boost digitalisation and innovation, but technological integration in the business sector and private investment, as well as the digitalisation of public services, remain low, compared with the high-potential environment and the country’s ambition to transition to a data-driven economy. Investments in digitalisation, advanced digital skills, and innovation will be essential to support SMEs, boost productivity and competitiveness. The recovery should also be further supported by advancing ambitious green investments in the short term. Key sectors can be, in particular, sustainable transport, including rail, sustainable construction, in particular in relation to the energy efficiency of buildings, both existing and new, and renewable energy. These would help to provide a robust green stimulus, and support Luxembourg in bridging the gap to its 2030 targets on greenhouse gas emissions reduction, energy efficiency and renewable energy, as well as in preparing the ground for climate neutrality. Further identification of investment needs and financial sources for investments remains necessary, also in light of the impact of the COVID-19 pandemic on the economy and public finances. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Luxembourg to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Luxembourg to make the best use of that Fund.

| (20) | Luxembourg faces significant money laundering risks in view of the high inflows of foreign direct investments and the presence of complex legal structures with foreign sponsors. These risks are reflected in the national risk assessment, particularly in relation to professionals engaged in the provision of services to companies and trusts or investment services. Weaknesses in the application of the anti-money laundering framework by these professionals result in inadequate risk analyses and a low level of reporting of suspicious activities. The intensity of supervision of these professionals is inadequate to remedy these shortcomings. A national register of beneficial owners has been set up for companies to limit secrecy and identify beneficial owners. The quality of the information provided and the effectiveness of the register need to be monitored over time. |
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(20)

Luxembourg faces significant money laundering risks in view of the high inflows of foreign direct investments and the presence of complex legal structures with foreign sponsors. These risks are reflected in the national risk assessment, particularly in relation to professionals engaged in the provision of services to companies and trusts or investment services. Weaknesses in the application of the anti-money laundering framework by these professionals result in inadequate risk analyses and a low level of reporting of suspicious activities. The intensity of supervision of these professionals is inadequate to remedy these shortcomings. A national register of beneficial owners has been set up for companies to limit secrecy and identify beneficial owners. The quality of the information provided and the effectiveness of the register need to be monitored over time.

| (21) | Tackling aggressive tax planning remains key to improving the efficiency and fairness of tax systems, as acknowledged in the 2020 Recommendation on the economic policy of the euro area. Spillover effects of taxpayers’ aggressive tax planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. Luxembourg has taken steps to address aggressive tax planning practices by implementing previously agreed international and European initiatives, but the high level of dividend, interest and royalty payments as a percentage of GDP suggests that the country’s tax rules are used by companies that engage in aggressive tax planning. The majority of foreign direct investment is held by special purpose entities. The absence of withholding taxes on outbound (i.e. from Union residents to third country residents) interest and royalty payments, and the exemption from withholding taxes on dividend payments under certain circumstances, may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. Luxembourg has tabled a draft law introducing the non-deductibility of interest and royalty payments to jurisdictions included in the Union list of non-cooperative jurisdictions for tax purposes, in line with its commitment to introduce defensive measures vis-à-vis those jurisdictions. |
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(21)

Tackling aggressive tax planning remains key to improving the efficiency and fairness of tax systems, as acknowledged in the 2020 Recommendation on the economic policy of the euro area. Spillover effects of taxpayers’ aggressive tax planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. Luxembourg has taken steps to address aggressive tax planning practices by implementing previously agreed international and European initiatives, but the high level of dividend, interest and royalty payments as a percentage of GDP suggests that the country’s tax rules are used by companies that engage in aggressive tax planning. The majority of foreign direct investment is held by special purpose entities. The absence of withholding taxes on outbound (i.e. from Union residents to third country residents) interest and royalty payments, and the exemption from withholding taxes on dividend payments under certain circumstances, may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. Luxembourg has tabled a draft law introducing the non-deductibility of interest and royalty payments to jurisdictions included in the Union list of non-cooperative jurisdictions for tax purposes, in line with its commitment to introduce defensive measures vis-à-vis those jurisdictions.

| (22) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(22)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (23) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Luxembourg will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(23)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Luxembourg will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (24) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Luxembourg should,ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(24)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Luxembourg should,ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (25) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Luxembourg’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Luxembourg in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Luxembourg, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(25)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Luxembourg’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Luxembourg in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Luxembourg, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (26) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
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(26)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Luxembourg take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve the resilience of the health system by ensuring appropriate availability of health workers. Accelerate reforms to improve the governance of the health system and e-health. |
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1.

| 2. | Mitigate the employment impact of the COVID-19 crisis, with special consideration for people in a difficult labour market position. |
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2.

| 3. | Ensure effective implementation of measures supporting the liquidity of businesses, in particular SMEs and the self-employed. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on sustainable transport and buildings, clean and efficient production and use of energy, contributing to a progressive decarbonisation of the economy. Foster innovation and digitalisation, in particular in the business sector. |
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3.

| 4. | Ensure effective supervision and enforcement of the anti-money laundering framework as regards professionals providing trust and company services, and investment services. Step up action to address features of the tax system that facilitate aggressive tax planning, in particular by means of outbound payments. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 97.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/107 |
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26.8.2020

EN

Official Journal of the European Union

C 282/107

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Hungary and delivering a Council opinion on the 2020 Convergence Programme of Hungary

(2020/C 282/17)

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 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 9(2) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Hungary as one of the Member States for which an in-depth review would be carried out. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Hungary as one of the Member States for which an in-depth review would be carried out.

| (2) | The 2020 country report for Hungary was published on 26 February 2020. It assessed Hungary’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Hungary’s progress towards its national Europe 2020 targets. |
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(2)

The 2020 country report for Hungary was published on 26 February 2020. It assessed Hungary’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Hungary’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Hungary is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Hungary is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across territories because of different specialisation patterns, in particular in regions lacking endowment in key assets or markedly relying on sectors depending on face-to-face business with consumers. This entails a substantial risk of widening territorial inequalities within Hungary, aggravating the already observed trend of widening disparities between urban and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across territories because of different specialisation patterns, in particular in regions lacking endowment in key assets or markedly relying on sectors depending on face-to-face business with consumers. This entails a substantial risk of widening territorial inequalities within Hungary, aggravating the already observed trend of widening disparities between urban and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Hungary submitted its 2020 National Reform Programme on 5 May 2020 and its 2020 Convergence Programme on 4 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

Hungary submitted its 2020 National Reform Programme on 5 May 2020 and its 2020 Convergence Programme on 4 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
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(11)

Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | On 14 June 2019, the Council recommended Hungary to ensure that the nominal growth rate of net primary government expenditure (7) would not exceed 3,3 % in 2019, corresponding to an annual structural adjustment of 1,0 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Hungary are not warranted. |
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(12)

On 14 June 2019, the Council recommended Hungary to ensure that the nominal growth rate of net primary government expenditure (7) would not exceed 3,3 % in 2019, corresponding to an annual structural adjustment of 1,0 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Hungary are not warranted.

| (13) | In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 2,0 % of GDP in 2019 to a deficit of 3,8 % of GDP in 2020. The deficit is projected to decline to 2,7 % of GDP in 2021 and to gradually reach 1,0 % of GDP by 2024. After decreasing to 66,3 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 72,6 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. There are risks underlying the budgetary projections, namely risks linked to higher-than-projected expenditures (in line with past trends on high end-of-year spending), as well as potentially lower-than-projected revenue as the projection seems to rely on some revenue buoyancy. |
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(13)

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 2,0 % of GDP in 2019 to a deficit of 3,8 % of GDP in 2020. The deficit is projected to decline to 2,7 % of GDP in 2021 and to gradually reach 1,0 % of GDP by 2024. After decreasing to 66,3 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 72,6 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. There are risks underlying the budgetary projections, namely risks linked to higher-than-projected expenditures (in line with past trends on high end-of-year spending), as well as potentially lower-than-projected revenue as the projection seems to rely on some revenue buoyancy.

| (14) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Hungary has adopted timely budgetary measures to increase the intensive-care capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 2,8 % of GDP in 2020, and are entirely financed through reallocation of expenditures within the budget, reserves and new taxes. They include measures aimed at supporting the labour market, tax reliefs for businesses and costs related to the medical emergency. Additional measures to support the recovery (1,4 % of GDP) and to support the labour market (0,4 % of GDP) have been announced but have not yet been specified. In addition, Hungary has adopted measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 1,5 % of GDP. The authorities are working on additional measures for 0,3 % of GDP. Those measures include credit guarantee programmes and government-guaranteed loans. The overall budgetary impact of the fiscal measures reported in the 2020 Convergence Programmes differs from that included in the Commission 2020 spring forecast since only those that were sufficiently specified were assessed and taken into account by the Commission. Overall, the measures adopted by Hungary are in line with the guidelines set out in the Commission communication of 13 March 2020. The full specification and adoption of all announced emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(14)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Hungary has adopted timely budgetary measures to increase the intensive-care capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 2,8 % of GDP in 2020, and are entirely financed through reallocation of expenditures within the budget, reserves and new taxes. They include measures aimed at supporting the labour market, tax reliefs for businesses and costs related to the medical emergency. Additional measures to support the recovery (1,4 % of GDP) and to support the labour market (0,4 % of GDP) have been announced but have not yet been specified. In addition, Hungary has adopted measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 1,5 % of GDP. The authorities are working on additional measures for 0,3 % of GDP. Those measures include credit guarantee programmes and government-guaranteed loans. The overall budgetary impact of the fiscal measures reported in the 2020 Convergence Programmes differs from that included in the Commission 2020 spring forecast since only those that were sufficiently specified were assessed and taken into account by the Commission. Overall, the measures adopted by Hungary are in line with the guidelines set out in the Commission communication of 13 March 2020. The full specification and adoption of all announced emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (15) | Based on the Commission 2020 spring forecast under unchanged policies, Hungary’s general government balance is forecast at -5,2 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to reach 75,0 % of GDP in 2020. |
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(15)

Based on the Commission 2020 spring forecast under unchanged policies, Hungary’s general government balance is forecast at -5,2 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to reach 75,0 % of GDP in 2020.

| (16) | On 14 June 2019, the Council found in accordance with Article 121(4) of the Treaty that a significant observed deviation from the adjustment path towards the medium-term budgetary objective occurred in Hungary in 2018. In view of the established significant deviation, on 14 June 2019 the Council issued a Recommendation (8), recommending that Hungary take the measures necessary to ensure that the nominal growth rate of net primary government expenditure would not exceed 3,3 % in 2019 and 4,7 % in 2020, corresponding to an annual structural adjustment of 1,0 % and 0,75 % of GDP. On 5 December 2019, the Council adopted Decision (EU) 2019/2172 (9), establishing that Hungary had not taken effective action in response to its Recommendation of 14 June 2019, and on 5 December 2019 issued a revised Recommendation (10). In the Recommendation of 5 December 2019, the Council asked Hungary to take the measures necessary to ensure that the nominal growth rate of net primary government expenditure would not exceed 4,7 % in 2020, corresponding to an annual structural adjustment of 0,75 % of GDP in 2020. Based on the Commission’s overall assessment and in light of the activation of the general escape clause for 2020, which allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, Hungary is considered to have taken effective action in response to the Recommendation of 5 December 2019. |
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(16)

On 14 June 2019, the Council found in accordance with Article 121(4) of the Treaty that a significant observed deviation from the adjustment path towards the medium-term budgetary objective occurred in Hungary in 2018. In view of the established significant deviation, on 14 June 2019 the Council issued a Recommendation (8), recommending that Hungary take the measures necessary to ensure that the nominal growth rate of net primary government expenditure would not exceed 3,3 % in 2019 and 4,7 % in 2020, corresponding to an annual structural adjustment of 1,0 % and 0,75 % of GDP. On 5 December 2019, the Council adopted Decision (EU) 2019/2172 (9), establishing that Hungary had not taken effective action in response to its Recommendation of 14 June 2019, and on 5 December 2019 issued a revised Recommendation (10). In the Recommendation of 5 December 2019, the Council asked Hungary to take the measures necessary to ensure that the nominal growth rate of net primary government expenditure would not exceed 4,7 % in 2020, corresponding to an annual structural adjustment of 0,75 % of GDP in 2020. Based on the Commission’s overall assessment and in light of the activation of the general escape clause for 2020, which allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, Hungary is considered to have taken effective action in response to the Recommendation of 5 December 2019.

| (17) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Hungary’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(17)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Hungary’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (18) | The government declared a state of danger on 11 March 2020. On 12 March, borders were closed for travellers, except for returning citizens and European Economic Area residents as well as regular cross-border commuters. Goods transit remained permitted. On 16 March 2020, early child education facilities, schools and universities were closed and teaching started to be given online. As of 17 March 2020, non-essential shops were obliged to close at 3pm and restaurants could remain open only for takeaway service. A partial curfew was introduced on 28 March 2020, meaning people could only leave their area of residence for duly justified reasons, and keeping a distance from other people. Before the COVID-19 outbreak, the Hungarian economy was on track for a gradual slowdown after several years of outstanding growth. Real GDP rose by 4,9 % in 2019. After the outbreak of the virus, containment measures were implemented relatively quickly, and official case numbers have so far remained limited. However, the global recession is expected to hit exports particularly strongly because of the dominant role of highly cyclical industries, such as the automotive industry. It is also expected to hit tourism and transport services, which are affected by travel restrictions. Overall, a sharp recession is projected starting in March, then a gradual economic recovery is projected from the second half of the year as containment measures are assumed to be gradually lifted. Unemployment could rise rapidly because of the flexibility of the labour market. Economic performance in 2020 will be contingent on the length of the confinement period as well as on the economic policy response. The Commission 2020 spring forecast projects a 7 % decrease in real GDP in 2020, followed by a recovery of 6 % in 2021. |
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(18)

The government declared a state of danger on 11 March 2020. On 12 March, borders were closed for travellers, except for returning citizens and European Economic Area residents as well as regular cross-border commuters. Goods transit remained permitted. On 16 March 2020, early child education facilities, schools and universities were closed and teaching started to be given online. As of 17 March 2020, non-essential shops were obliged to close at 3pm and restaurants could remain open only for takeaway service. A partial curfew was introduced on 28 March 2020, meaning people could only leave their area of residence for duly justified reasons, and keeping a distance from other people. Before the COVID-19 outbreak, the Hungarian economy was on track for a gradual slowdown after several years of outstanding growth. Real GDP rose by 4,9 % in 2019. After the outbreak of the virus, containment measures were implemented relatively quickly, and official case numbers have so far remained limited. However, the global recession is expected to hit exports particularly strongly because of the dominant role of highly cyclical industries, such as the automotive industry. It is also expected to hit tourism and transport services, which are affected by travel restrictions. Overall, a sharp recession is projected starting in March, then a gradual economic recovery is projected from the second half of the year as containment measures are assumed to be gradually lifted. Unemployment could rise rapidly because of the flexibility of the labour market. Economic performance in 2020 will be contingent on the length of the confinement period as well as on the economic policy response. The Commission 2020 spring forecast projects a 7 % decrease in real GDP in 2020, followed by a recovery of 6 % in 2021.

| (19) | The government has announced several waves of measures since mid-March to mitigate the economic, social and economic impact of the COVID-19 crisis. The central bank has adopted measures to provide liquidity to the financial sector. Other liquidity-enhancing measures for households and businesses include: (a) a payment moratorium until 31 December 2020 for loans and financial lease contracts for companies and households; and (b) a capping of the interest rate on consumer credits. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. Further measures, mostly targeting the sectors hardest hit by the crisis, such as tourism and services, include temporary tax reductions and exemptions, investment subsidies, infrastructure development, subsidised and guaranteed loans, and capital programmes. In order to preserve jobs, the government has launched two types of labour-market measures. The short-time working scheme covers up to 70 % of lost wages for 3 months under certain conditions, and a specific wage subsidy targets research and development (R & D) personnel. The government brought forward a previously planned cut in social security contributions by one quarter and announced a one-off wage supplement in the health care sector. Overall, while the fiscal measures aim at supporting businesses and preserving jobs, their scope and coverage remains limited in comparison with those taken by most other Member States. Moreover, they are planned to be financed through reallocations across budget chapters and newly raised taxes, and are thus expected to have a limited effect from a macroeconomic stabilisation perspective. |
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(19)

The government has announced several waves of measures since mid-March to mitigate the economic, social and economic impact of the COVID-19 crisis. The central bank has adopted measures to provide liquidity to the financial sector. Other liquidity-enhancing measures for households and businesses include: (a) a payment moratorium until 31 December 2020 for loans and financial lease contracts for companies and households; and (b) a capping of the interest rate on consumer credits. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. Further measures, mostly targeting the sectors hardest hit by the crisis, such as tourism and services, include temporary tax reductions and exemptions, investment subsidies, infrastructure development, subsidised and guaranteed loans, and capital programmes. In order to preserve jobs, the government has launched two types of labour-market measures. The short-time working scheme covers up to 70 % of lost wages for 3 months under certain conditions, and a specific wage subsidy targets research and development (R & D) personnel. The government brought forward a previously planned cut in social security contributions by one quarter and announced a one-off wage supplement in the health care sector. Overall, while the fiscal measures aim at supporting businesses and preserving jobs, their scope and coverage remains limited in comparison with those taken by most other Member States. Moreover, they are planned to be financed through reallocations across budget chapters and newly raised taxes, and are thus expected to have a limited effect from a macroeconomic stabilisation perspective.

| (20) | Various aspects of health outcomes remained worse than in most Member States, reflecting in particular the high prevalence of risk factors in the population and the limited effectiveness of healthcare provision. The public share of health spending in Hungary was considerably lower than the Union average. While unmet medical needs are low, the number of Hungarians relying on out-of-pocket expenditure is above the Union average, and such persons are increasingly pushed to turn to private health services. This aggravates risks of financial hardship for Hungarian households, with repercussions for social equity and health outcomes. Additional investment and comprehensive reforms are necessary to rationalise the use of resources within the health system, reduce inequities in access and increase the quality of care. Preventive and primary care services are underfinanced, and their potential to improve the quality, accessibility and cost-effectiveness of the health system remain underexploited. Although the authorities have started working towards alleviating Hungary’s considerable shortage of health workers, regional disparities in the distribution of health personnel continue to hinder access to care in some areas and some vulnerable groups, such as marginalised Roma, but also people with disabilities, face particular barriers. In the face of the demand shock for health systems generated by the COVID-19 pandemic, rapid action is required to start addressing these structural challenges and increase the resilience of the Hungarian health system. |
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(20)

Various aspects of health outcomes remained worse than in most Member States, reflecting in particular the high prevalence of risk factors in the population and the limited effectiveness of healthcare provision. The public share of health spending in Hungary was considerably lower than the Union average. While unmet medical needs are low, the number of Hungarians relying on out-of-pocket expenditure is above the Union average, and such persons are increasingly pushed to turn to private health services. This aggravates risks of financial hardship for Hungarian households, with repercussions for social equity and health outcomes. Additional investment and comprehensive reforms are necessary to rationalise the use of resources within the health system, reduce inequities in access and increase the quality of care. Preventive and primary care services are underfinanced, and their potential to improve the quality, accessibility and cost-effectiveness of the health system remain underexploited. Although the authorities have started working towards alleviating Hungary’s considerable shortage of health workers, regional disparities in the distribution of health personnel continue to hinder access to care in some areas and some vulnerable groups, such as marginalised Roma, but also people with disabilities, face particular barriers. In the face of the demand shock for health systems generated by the COVID-19 pandemic, rapid action is required to start addressing these structural challenges and increase the resilience of the Hungarian health system.

| (21) | The socioeconomic consequences of the outbreak may be significant and the impact of the government decree of 18 March 2020 permitting bilaterally agreed derogations from the Labour Code still needs to be assessed. According to the Commission forecast, unemployment is expected to rise to 7,0 % in 2020 and recover to 6,1 % in 2021. Sectors excessively hit by the crisis account for a large share of the Hungarian economy, employing low-to-medium-skilled workers on highly flexible work contracts. Until early 2020, the overall employment rate continued to improve amid a strong economic expansion, but this did not benefit all groups equally. The gaps in employment between skills groups and between men and women remained wide in comparison with the Union average, the latter due partly to the limited supply of quality childcare. Despite being scaled down, the public works scheme, which was not effective in leading participants to jobs in the primary labour market, remained sizeable. There is scope for strengthening other policies to effectively help unemployed or inactive people find work or access training to improve their targeting. The duration of unemployment benefits is the shortest in the Union, at a maximum of three months, which even in favourable economic conditions was well below the average time needed to find a job. In line with the principles of the European Pillar of Social Rights, social protection schemes and measures need to protect those at risk of losing their employment, as well as the self-employed and unemployed. Short-time work schemes, where employees receive income support from the State for the hours not worked, are a good way to protect employment. During the pandemic, short-time work schemes are most efficient if their administration is simple and quick, and eligibility is not restricted to certain sectors or business types. |
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(21)

The socioeconomic consequences of the outbreak may be significant and the impact of the government decree of 18 March 2020 permitting bilaterally agreed derogations from the Labour Code still needs to be assessed. According to the Commission forecast, unemployment is expected to rise to 7,0 % in 2020 and recover to 6,1 % in 2021. Sectors excessively hit by the crisis account for a large share of the Hungarian economy, employing low-to-medium-skilled workers on highly flexible work contracts. Until early 2020, the overall employment rate continued to improve amid a strong economic expansion, but this did not benefit all groups equally. The gaps in employment between skills groups and between men and women remained wide in comparison with the Union average, the latter due partly to the limited supply of quality childcare. Despite being scaled down, the public works scheme, which was not effective in leading participants to jobs in the primary labour market, remained sizeable. There is scope for strengthening other policies to effectively help unemployed or inactive people find work or access training to improve their targeting. The duration of unemployment benefits is the shortest in the Union, at a maximum of three months, which even in favourable economic conditions was well below the average time needed to find a job. In line with the principles of the European Pillar of Social Rights, social protection schemes and measures need to protect those at risk of losing their employment, as well as the self-employed and unemployed. Short-time work schemes, where employees receive income support from the State for the hours not worked, are a good way to protect employment. During the pandemic, short-time work schemes are most efficient if their administration is simple and quick, and eligibility is not restricted to certain sectors or business types.

| (22) | While Hungary’s overall poverty situation improved before the crisis, the trend can reverse quickly during the downturn. Income inequalities increased over the past decade, due in part to changes in the tax and benefit system. Even before the COVID-19 outbreak, both severe material deprivation and material and social deprivation were high, particularly among households with several children and among the Roma population. The shortage of municipal flats for social rental and a lack of financial support for renters hinders mobility. The minimum income benefit has remained nominally unchanged since 2012 and is one of the lowest in the Union. The pandemic is expected to hit hardest the vulnerable groups who lack access to care and essential services and who live in overcrowded households. Measures fostering the activation and integration in the labour market of such groups will be needed when economies recover. Even before the crisis, education outcomes were below the Union average and strongly influenced by the pupils’ socioeconomic background. Early school leaving rates were high, particularly among Roma pupils. The low participation of vulnerable groups in quality education is a missed opportunity to build human capital and social cohesion. Teachers’ salary is one of the lowest in the Union. The low number of students participating in higher education is not in line with the strong demand for highly skilled workers. The unexpected shift to distance learning is likely to further increase inequalities. Evidence from the yearly national competence tests suggests that it is difficult to reach many pupils through digital education because of the lack of digital tools. Learners from disadvantaged backgrounds also experience negative effects of distance learning because of overcrowded households and the low education of parents. Recent and ongoing investments in digitalisation of education have been important and need to continue. |
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(22)

While Hungary’s overall poverty situation improved before the crisis, the trend can reverse quickly during the downturn. Income inequalities increased over the past decade, due in part to changes in the tax and benefit system. Even before the COVID-19 outbreak, both severe material deprivation and material and social deprivation were high, particularly among households with several children and among the Roma population. The shortage of municipal flats for social rental and a lack of financial support for renters hinders mobility. The minimum income benefit has remained nominally unchanged since 2012 and is one of the lowest in the Union. The pandemic is expected to hit hardest the vulnerable groups who lack access to care and essential services and who live in overcrowded households. Measures fostering the activation and integration in the labour market of such groups will be needed when economies recover. Even before the crisis, education outcomes were below the Union average and strongly influenced by the pupils’ socioeconomic background. Early school leaving rates were high, particularly among Roma pupils. The low participation of vulnerable groups in quality education is a missed opportunity to build human capital and social cohesion. Teachers’ salary is one of the lowest in the Union. The low number of students participating in higher education is not in line with the strong demand for highly skilled workers. The unexpected shift to distance learning is likely to further increase inequalities. Evidence from the yearly national competence tests suggests that it is difficult to reach many pupils through digital education because of the lack of digital tools. Learners from disadvantaged backgrounds also experience negative effects of distance learning because of overcrowded households and the low education of parents. Recent and ongoing investments in digitalisation of education have been important and need to continue.

| (23) | In the context of the COVID-19 crisis, it is particularly important to ensure the functioning of critical infrastructure and the free circulation of goods throughout the internal market and to monitor and ensure the correct functioning of supply chains in cooperation with neighbouring countries. Hungary is a small open economy with intensive cross-border transport of goods. In addition, many Hungarians work abroad and commute on a weekly basis. Hungary may also need seasonal frontier workers in agriculture. Currently imposed travel restrictions may delay the circulation of goods and workers but could be alleviated by providing green lanes at borders. |
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(23)

In the context of the COVID-19 crisis, it is particularly important to ensure the functioning of critical infrastructure and the free circulation of goods throughout the internal market and to monitor and ensure the correct functioning of supply chains in cooperation with neighbouring countries. Hungary is a small open economy with intensive cross-border transport of goods. In addition, many Hungarians work abroad and commute on a weekly basis. Hungary may also need seasonal frontier workers in agriculture. Currently imposed travel restrictions may delay the circulation of goods and workers but could be alleviated by providing green lanes at borders.

| (24) | Among services, retail is one of the most affected sectors because of the measures that prevented many businesses from functioning altogether or limited their operations significantly. Regulatory flexibility would help retail rebound in the aftermath of COVID-19. Hungary has the highest number of regulated professions in the Union. Professional services will play an important role in facilitating the exit from and recovery after the crisis. Ensuring smooth access to and exercise of professions, through streamlining their regulatory frameworks and related administrative procedures, is therefore of crucial importance, especially for small and medium-sized enterprises (SMEs) and microenterprises, including sole practitioners, who were particularly hit by the crisis. Liquidity support to businesses through loans and guarantees, with a focus on SMEs, is of utmost importance, and the distribution of liquidity support to firms needs to be effectively and swiftly implemented by intermediaries. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can also help improve the cash flow of SMEs. Newly founded start-ups and scale-ups may need specific support, for example incentives for venture capital fund to increase their investments in these firms. These support measures will also help to avoid fire sales of strategically important European firms. |
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(24)

Among services, retail is one of the most affected sectors because of the measures that prevented many businesses from functioning altogether or limited their operations significantly. Regulatory flexibility would help retail rebound in the aftermath of COVID-19. Hungary has the highest number of regulated professions in the Union. Professional services will play an important role in facilitating the exit from and recovery after the crisis. Ensuring smooth access to and exercise of professions, through streamlining their regulatory frameworks and related administrative procedures, is therefore of crucial importance, especially for small and medium-sized enterprises (SMEs) and microenterprises, including sole practitioners, who were particularly hit by the crisis. Liquidity support to businesses through loans and guarantees, with a focus on SMEs, is of utmost importance, and the distribution of liquidity support to firms needs to be effectively and swiftly implemented by intermediaries. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can also help improve the cash flow of SMEs. Newly founded start-ups and scale-ups may need specific support, for example incentives for venture capital fund to increase their investments in these firms. These support measures will also help to avoid fire sales of strategically important European firms.

| (25) | Research and innovation is a critical driver for long-term growth and competitiveness. Hungary ranks as a moderate innovator. The shortage of highly skilled workers is a key obstacle to innovation. Spending on research and development (R & D) is increasing slow and was mainly fueled by the business sector, which benefits from the largest public support in the Union. However, R & D spending in the public sector decreased over the last decade. Investment in innovative SMEs, as well as strengthening cooperation between business, research, academia and the public sector, increase the country’s research and innovation capacity called for by the COVID-19 crisis. Investments in public research and innovation, and a supportive research environment is necessary for recovery. |
| --- | --- |

(25)

Research and innovation is a critical driver for long-term growth and competitiveness. Hungary ranks as a moderate innovator. The shortage of highly skilled workers is a key obstacle to innovation. Spending on research and development (R & D) is increasing slow and was mainly fueled by the business sector, which benefits from the largest public support in the Union. However, R & D spending in the public sector decreased over the last decade. Investment in innovative SMEs, as well as strengthening cooperation between business, research, academia and the public sector, increase the country’s research and innovation capacity called for by the COVID-19 crisis. Investments in public research and innovation, and a supportive research environment is necessary for recovery.

| (26) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Hungary’s National Energy and Climate Plan identifies investment needed to tackle the climate and energy transition. Together with investment in digitalisation and the green transition, these will make the Hungarian economy more sustainable and resilient once the country recovers from the crisis. Currently, energy efficiency in the residential sector is low, which also contributes to air pollution. The persistent breaches of air quality standards have severe health and environmental repercussions. The main sources of air pollution include residential solid fuel combustion, agriculture and transport emissions. Just 1 % of gross inland energy consumption is covered from low-carbon renewable sources, and highly polluting biomass contributes to approximately 10 %. From a low base, solar installations have been showing a rapid increase. In accordance with its National Energy and Climate Plan and long-term climate neutrality, Hungary intends to rely more on renewable energy sources, mainly solar energy. In the current economic situation, energy policy can generate green growth and can contribute to the economic recovery. Road congestion has been a growing challenge until the outbreak of the COVID-19 pandemic, entailing negative economic impacts and increasing greenhouse gas emissions and air pollution. More widespread telework opportunities and more attractive public transport systems would also help mitigate the environmental impact of transport. The circular economy is still in an initial phase, recycling of municipal waste is underdeveloped and economic instruments do not provide sufficient incentives. Landfilling remains the predominant waste-management method. Water quality and supply remain concerns. Hungarians’ digital skills and the use of digital technologies by firms and public services remain below the Union average. Efforts should be maintained to offer efficient digital public services for citizens and businesses. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Hungary to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Hungary to make the best use of that Fund. |
| --- | --- |

(26)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Hungary’s National Energy and Climate Plan identifies investment needed to tackle the climate and energy transition. Together with investment in digitalisation and the green transition, these will make the Hungarian economy more sustainable and resilient once the country recovers from the crisis. Currently, energy efficiency in the residential sector is low, which also contributes to air pollution. The persistent breaches of air quality standards have severe health and environmental repercussions. The main sources of air pollution include residential solid fuel combustion, agriculture and transport emissions. Just 1 % of gross inland energy consumption is covered from low-carbon renewable sources, and highly polluting biomass contributes to approximately 10 %. From a low base, solar installations have been showing a rapid increase. In accordance with its National Energy and Climate Plan and long-term climate neutrality, Hungary intends to rely more on renewable energy sources, mainly solar energy. In the current economic situation, energy policy can generate green growth and can contribute to the economic recovery. Road congestion has been a growing challenge until the outbreak of the COVID-19 pandemic, entailing negative economic impacts and increasing greenhouse gas emissions and air pollution. More widespread telework opportunities and more attractive public transport systems would also help mitigate the environmental impact of transport. The circular economy is still in an initial phase, recycling of municipal waste is underdeveloped and economic instruments do not provide sufficient incentives. Landfilling remains the predominant waste-management method. Water quality and supply remain concerns. Hungarians’ digital skills and the use of digital technologies by firms and public services remain below the Union average. Efforts should be maintained to offer efficient digital public services for citizens and businesses. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Hungary to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Hungary to make the best use of that Fund.

| (27) | The duration of the state of danger declared on 11 March 2020 is not predefined and the government has discretionary power to maintain it or to terminate it. The concrete measures taken by the government last until the termination of the state of danger. On 30 March 2020, the Hungarian parliament passed a new law that allows the government to set aside by decree any law. The emergency powers granted appear more extensive than those adopted in other Member States, in light of the combined effect of broadly defined powers and the absence of a clear time limit. Certain emergency measures using those powers raise questions as regards their necessity and proportionality and interfere with business activities and the stability of the regulatory environment. Such measures include allowing derogation from labour laws, deploying military liaison officers in strategic companies and placing under State supervision a publicly traded company. On 26 May 2020, the government tabled in the Hungarian parliament a draft law that would call on the government to terminate the state of danger and would repeal the law of 30 March 2020 at the end of the state of danger. According to the fundamental law, the decision to terminate the state of danger remains the prerogative of the government. Strengthening judicial independence would also be crucial for effective oversight over the emergency measures concerned. |
| --- | --- |

(27)

The duration of the state of danger declared on 11 March 2020 is not predefined and the government has discretionary power to maintain it or to terminate it. The concrete measures taken by the government last until the termination of the state of danger. On 30 March 2020, the Hungarian parliament passed a new law that allows the government to set aside by decree any law. The emergency powers granted appear more extensive than those adopted in other Member States, in light of the combined effect of broadly defined powers and the absence of a clear time limit. Certain emergency measures using those powers raise questions as regards their necessity and proportionality and interfere with business activities and the stability of the regulatory environment. Such measures include allowing derogation from labour laws, deploying military liaison officers in strategic companies and placing under State supervision a publicly traded company. On 26 May 2020, the government tabled in the Hungarian parliament a draft law that would call on the government to terminate the state of danger and would repeal the law of 30 March 2020 at the end of the state of danger. According to the fundamental law, the decision to terminate the state of danger remains the prerogative of the government. Strengthening judicial independence would also be crucial for effective oversight over the emergency measures concerned.

| (28) | Social partners’ involvement in policy initiatives and implementation has been insufficient in recent years, which has weakened the quality and predictability of policy-making and increased the chances of policy mistakes. Consultations and impact assessments have been recurrently bypassed by applying special legislative procedures, such as individual member’s bills and urgent procedures. The involvement of stakeholders has been weakened further during the current system of ruling by government decree, especially in light of the goverrnment decree of 18 March 2020 that permits bilateral derogations from the Labour Code. |
| --- | --- |

(28)

Social partners’ involvement in policy initiatives and implementation has been insufficient in recent years, which has weakened the quality and predictability of policy-making and increased the chances of policy mistakes. Consultations and impact assessments have been recurrently bypassed by applying special legislative procedures, such as individual member’s bills and urgent procedures. The involvement of stakeholders has been weakened further during the current system of ruling by government decree, especially in light of the goverrnment decree of 18 March 2020 that permits bilateral derogations from the Labour Code.

| (29) | The lack of competition in public procurement remains an important concern, since wider opening to competition is a key solution to face the crisis, revive the small business sector and help the economy to restart. Despite the new legislative changes and digitalisation of public procurement, nearly half of all public tenders result in a single-bid procedure. The high number of single bids undermines the effectiveness of the public procurement system. The professionalisation of public procurement could help to improve compliance with Union rules and enable strategic procurement. Commission audits on public procurement related to projects co-funded by the Union and carried out in recent years identified systemic deficiencies and showed weaknesses in the public procurement control system. In 2019, the Commission imposed around EUR 1 billion of financial corrections on Hungary because of these deficiencies. |
| --- | --- |

(29)

The lack of competition in public procurement remains an important concern, since wider opening to competition is a key solution to face the crisis, revive the small business sector and help the economy to restart. Despite the new legislative changes and digitalisation of public procurement, nearly half of all public tenders result in a single-bid procedure. The high number of single bids undermines the effectiveness of the public procurement system. The professionalisation of public procurement could help to improve compliance with Union rules and enable strategic procurement. Commission audits on public procurement related to projects co-funded by the Union and carried out in recent years identified systemic deficiencies and showed weaknesses in the public procurement control system. In 2019, the Commission imposed around EUR 1 billion of financial corrections on Hungary because of these deficiencies.

| (30) | Tackling aggressive tax planning is key to improving the efficiency and fairness of tax systems. Spillover effects of taxpayers’ aggressive tax-planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. Hungary has taken measures against aggressive tax planning by implementing previously agreed international and European agreed initiatives, but the absence of withholding taxes in Hungary on outgoing income to offshore financial centres could provide an escape route for profits to leave the Union without paying their fair share of taxes. While the outgoing income flows such as royalties, interest and dividends towards offshore financial centres were relatively small in 2013-2017, Hungary records volatile and relatively high capital inflows and outflows through special purpose entities suggesting potential vulnerability to aggressive tax-planning practices. |
| --- | --- |

(30)

Tackling aggressive tax planning is key to improving the efficiency and fairness of tax systems. Spillover effects of taxpayers’ aggressive tax-planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. Hungary has taken measures against aggressive tax planning by implementing previously agreed international and European agreed initiatives, but the absence of withholding taxes in Hungary on outgoing income to offshore financial centres could provide an escape route for profits to leave the Union without paying their fair share of taxes. While the outgoing income flows such as royalties, interest and dividends towards offshore financial centres were relatively small in 2013-2017, Hungary records volatile and relatively high capital inflows and outflows through special purpose entities suggesting potential vulnerability to aggressive tax-planning practices.

| (31) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(31)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (32) | Corruption, access to public information and media freedom caused concerns even before the crisis. These areas are even more exposed to further deterioration in the state of danger as control mechanisms have become weaker. Investigation and prosecution appears less effective in Hungary than in other Member States. Determined systematic action to prosecute high-level corruption is lacking. Accountability for decisions to close investigations remains a matter of concern as there are no effective remedies against decisions of the prosecution service not to prosecute alleged criminal activity. Restrictions on access to information continue to hinder the fight against corruption. Dissuasive practices for accessing public information can deter citizens and non-governmental organisations from exercising their constitutional rights. |
| --- | --- |

(32)

Corruption, access to public information and media freedom caused concerns even before the crisis. These areas are even more exposed to further deterioration in the state of danger as control mechanisms have become weaker. Investigation and prosecution appears less effective in Hungary than in other Member States. Determined systematic action to prosecute high-level corruption is lacking. Accountability for decisions to close investigations remains a matter of concern as there are no effective remedies against decisions of the prosecution service not to prosecute alleged criminal activity. Restrictions on access to information continue to hinder the fight against corruption. Dissuasive practices for accessing public information can deter citizens and non-governmental organisations from exercising their constitutional rights.

| (33) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Hungary will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(33)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Hungary will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (34) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Hungary’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Hungary in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(34)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Hungary’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Hungary in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (35) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (11) is reflected in particular in recommendation (1) below, |
| --- | --- |

(35)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (11) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Hungary take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Address shortages of health workers and ensure an adequate supply of critical medical products and infrastructure to increase the resilience of the health system. Improve access to quality preventive and primary care services. |
| --- | --- |

1.

| 2. | Protect employment through enhanced short-time working arrangements and effective active labour-market policies and extend the duration of unemployment benefits. Improve the adequacy of social assistance and ensure access to essential services and quality education for all. |
| --- | --- |

2.

| 3. | Ensure liquidity support to SMEs. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular clean and efficient production and use of energy, sustainable transport, water and waste management, research and innovation, and digital infrastructure for schools. |
| --- | --- |

3.

| 4. | Ensure that any emergency measures be strictly proportionate, limited in time and in line with European and international standards and do not interfere with business activities and the stability of the regulatory environment. Ensure effective involvement of social partners and stakeholders in the policy-making process. Improve competition in public procurement. |
| --- | --- |

4.

| 5. | Strengthen the tax system against the risk of aggressive tax planning. |
| --- | --- |

5.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 101.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

7

(8)  Council Recommendation of 14 June 2019 with a view to correcting the significant observed deviation from the adjustment path towards the medium-term budgetary objective in Hungary (OJ C 210, 21.6.2019, p. 4).

8

(9)  OJ L 329, 19.12.2019, p. 91.

9

(10)  Council Recommendation of 5 December 2019 with a view to correcting the significant observed deviation from the adjustment path towards the medium-term budgetary objective in Hungary (OJ C 420, 13.12.2019, p. 1).

10

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

11

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/116 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/116

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Malta and delivering a Council opinion on the 2020 Stability Programme of Malta

(2020/C 282/18)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Malta was published on 26 February 2020. It assessed Malta’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Malta’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Malta was published on 26 February 2020. It assessed Malta’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Malta’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Malta is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Malta is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | Malta submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Stability Programme on 2 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(9)

Malta submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Stability Programme on 2 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (10) | Malta is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(10)

Malta is currently in the preventive arm of the Stability and Growth Pact.

| (11) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,5 % of gross domestic product (GDP) in 2019 to a deficit of 7,5 % of GDP in 2020. The deficit is projected to decline to 3,6 % of GDP in 2021. After decreasing to 43,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 54,5 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(11)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,5 % of gross domestic product (GDP) in 2019 to a deficit of 7,5 % of GDP in 2020. The deficit is projected to decline to 3,6 % of GDP in 2021. After decreasing to 43,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 54,5 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (12) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Malta has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,1 % of GDP. The measures include wage supplements for distressed sectors, increasing healthcare capacity, and COVID-19 related social measures. In addition, Malta has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. The 2020 Stability Programme estimates that government guarantees will allow banks to leverage the portfolio of new company loans by up to 6,1 % of GDP. Those measures include loan guarantees. The 2020 Stability Programme also confirms earlier announcements of tax deferrals for personal and corporate income taxes, value added tax and social contributions. Overall, the measures taken by Malta are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(12)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Malta has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,1 % of GDP. The measures include wage supplements for distressed sectors, increasing healthcare capacity, and COVID-19 related social measures. In addition, Malta has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. The 2020 Stability Programme estimates that government guarantees will allow banks to leverage the portfolio of new company loans by up to 6,1 % of GDP. Those measures include loan guarantees. The 2020 Stability Programme also confirms earlier announcements of tax deferrals for personal and corporate income taxes, value added tax and social contributions. Overall, the measures taken by Malta are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (13) | Based on the Commission 2020 spring forecast under unchanged policies, Malta’s general government balance is forecast at -6,7 % of GDP in 2020 and -2,5 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
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(13)

Based on the Commission 2020 spring forecast under unchanged policies, Malta’s general government balance is forecast at -6,7 % of GDP in 2020 and -2,5 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (14) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Malta’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(14)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Malta’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (15) | In response to the COVID-19 pandemic, Malta took containment measures through an effective health communication campaign, putting in place physical isolation and quarantine measures, monitoring and a high level of testing and contact tracing. The Maltese authorities have also been working to increase the capacity of hospitals, including those dedicated to intensive therapy units. Direct acquisition of personal protective equipment (PPE) is being undertaken at national level. Malta has also joined the Union joint procurement process for PPE, laboratory reagents and tests and ventilators. With respect to medicines and active ingredients, Malta is actively monitoring the situation in order to identify and anticipate any possible shortages and take immediate remedial action, especially in the case of border closures by countries that usually supply the medicines or active ingredients. On 12 May 2020, the Commission approved an EUR 11,5 million scheme to support investments in the production of COVID-19-relevant products, including medicinal products such as vaccines, hospital and medical equipment, including ventilators, and protective clothing and equipment. There has also been effective redeployment and retraining of medical staff. Public health specialists who used to occupy various positions within regulatory bodies and ministries have been fully repurposed and redeployed to assist in the response to the pandemic. |
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(15)

In response to the COVID-19 pandemic, Malta took containment measures through an effective health communication campaign, putting in place physical isolation and quarantine measures, monitoring and a high level of testing and contact tracing. The Maltese authorities have also been working to increase the capacity of hospitals, including those dedicated to intensive therapy units. Direct acquisition of personal protective equipment (PPE) is being undertaken at national level. Malta has also joined the Union joint procurement process for PPE, laboratory reagents and tests and ventilators. With respect to medicines and active ingredients, Malta is actively monitoring the situation in order to identify and anticipate any possible shortages and take immediate remedial action, especially in the case of border closures by countries that usually supply the medicines or active ingredients. On 12 May 2020, the Commission approved an EUR 11,5 million scheme to support investments in the production of COVID-19-relevant products, including medicinal products such as vaccines, hospital and medical equipment, including ventilators, and protective clothing and equipment. There has also been effective redeployment and retraining of medical staff. Public health specialists who used to occupy various positions within regulatory bodies and ministries have been fully repurposed and redeployed to assist in the response to the pandemic.

| (16) | The Maltese government has supported businesses through financial support for teleworking and subsidies for workers on mandatory quarantine. The government has also provided guarantees and tax deferral for businesses, including self-employed persons. Full-time employees of enterprises operating in sectors such as retail, wholesale, tourism and hospitality that suffered drastically due to the COVID-19 pandemic or sectors that had to temporarily suspend operations on the order of the Superintendent of Public Health will be entitled to up to five days’ salary per week, based on a salary of EUR 800 per month.. Employees in less harshly affected sectors are entitled to one to two days’ salary per week, based on a salary of EUR 800 per month. The government has also announced support for people with disabilities, families with children where both parents are employed and neither is able to telework, workers who lost their job due to the current crisis and the jobless living in rented accommodation. Finally, the government will be financing up to 2,5 percentage points of the interest rates on bank loans taken out by businesses hit by the COVID-19 pandemic. |
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(16)

The Maltese government has supported businesses through financial support for teleworking and subsidies for workers on mandatory quarantine. The government has also provided guarantees and tax deferral for businesses, including self-employed persons. Full-time employees of enterprises operating in sectors such as retail, wholesale, tourism and hospitality that suffered drastically due to the COVID-19 pandemic or sectors that had to temporarily suspend operations on the order of the Superintendent of Public Health will be entitled to up to five days’ salary per week, based on a salary of EUR 800 per month.. Employees in less harshly affected sectors are entitled to one to two days’ salary per week, based on a salary of EUR 800 per month. The government has also announced support for people with disabilities, families with children where both parents are employed and neither is able to telework, workers who lost their job due to the current crisis and the jobless living in rented accommodation. Finally, the government will be financing up to 2,5 percentage points of the interest rates on bank loans taken out by businesses hit by the COVID-19 pandemic.

| (17) | The Maltese health system delivers good health outcomes. However, the COVID-19 pandemic has put the Maltese public health system under unprecedented levels of pressure. Efforts that focus on building the capacity of the healthcare system to respond effectively to pandemic crises such as COVID-19 would improve its resilience. The following areas require particular monitoring: (a) the increasing reliance on migrant nurses in acute and long-term care and on an ageing private general-practitioner workforce; (b) the difficulties in making new and innovative medicines available; (c) the high out-of-pocket expenditure on primary and outpatient care and on some medicines; and (d) waiting lists for outpatient care specialties, which are consistently long and have been increasing recently. Reorienting service delivery away from hospitals to primary care also remains a key priority. |
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(17)

The Maltese health system delivers good health outcomes. However, the COVID-19 pandemic has put the Maltese public health system under unprecedented levels of pressure. Efforts that focus on building the capacity of the healthcare system to respond effectively to pandemic crises such as COVID-19 would improve its resilience. The following areas require particular monitoring: (a) the increasing reliance on migrant nurses in acute and long-term care and on an ageing private general-practitioner workforce; (b) the difficulties in making new and innovative medicines available; (c) the high out-of-pocket expenditure on primary and outpatient care and on some medicines; and (d) waiting lists for outpatient care specialties, which are consistently long and have been increasing recently. Reorienting service delivery away from hospitals to primary care also remains a key priority.

| (18) | According to the Commission 2020 spring forecast, unemployment is expected to rise to 5,9 % in 2020 before decreasing to 4,4 % in 2021. In order to mitigate the serious impacts of the crisis on employment, Malta took emergency measures, in consultation with social partners, to prevent lay-offs by favouring short-time work instead. The adoption of short-time work arrangements on a more permanent basis would also protect jobs in the transition towards economic recovery. Ensuring adequate support and access to social protection for all workers, including the self-employed, and accounting for a possibly extended duration of unemployment are crucial. Malta’s social protection system also needs to ensure that adequate support is provided to foreign workers in finding alternative employment, in retaining work permits when possible and in accessing other social services. The share of low-skilled adults is comparatively high, aggravated by a high share of early school leavers. The current crisis may exacerbate skills shortages in some sectors and redefine skill needs in others. This makes the mapping of skills and the reskilling of workers even more important, in particular for digital and green skills. Malta has made recent progress on education and training, but significant challenges remain, including a high share of pupils with insufficient levels of basic skills. |
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(18)

According to the Commission 2020 spring forecast, unemployment is expected to rise to 5,9 % in 2020 before decreasing to 4,4 % in 2021. In order to mitigate the serious impacts of the crisis on employment, Malta took emergency measures, in consultation with social partners, to prevent lay-offs by favouring short-time work instead. The adoption of short-time work arrangements on a more permanent basis would also protect jobs in the transition towards economic recovery. Ensuring adequate support and access to social protection for all workers, including the self-employed, and accounting for a possibly extended duration of unemployment are crucial. Malta’s social protection system also needs to ensure that adequate support is provided to foreign workers in finding alternative employment, in retaining work permits when possible and in accessing other social services. The share of low-skilled adults is comparatively high, aggravated by a high share of early school leavers. The current crisis may exacerbate skills shortages in some sectors and redefine skill needs in others. This makes the mapping of skills and the reskilling of workers even more important, in particular for digital and green skills. Malta has made recent progress on education and training, but significant challenges remain, including a high share of pupils with insufficient levels of basic skills.

| (19) | The COVID-19 crisis has made swift deployment of liquidity support to businesses an urgent priority for Malta. Ensuring a continuous flow of credit, and access to finance, is of the essence, especially to small and medium-sized enterprises in the most impacted sectors. The banking system has an important role to play in the effective implementation of liquidity measures by providing loans and channeling public guarantees, thus overcoming the conservative approach to lending practices shown before the crisis. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. |
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(19)

The COVID-19 crisis has made swift deployment of liquidity support to businesses an urgent priority for Malta. Ensuring a continuous flow of credit, and access to finance, is of the essence, especially to small and medium-sized enterprises in the most impacted sectors. The banking system has an important role to play in the effective implementation of liquidity measures by providing loans and channeling public guarantees, thus overcoming the conservative approach to lending practices shown before the crisis. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account.

| (20) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Investments in support of the recovery represents an opportunity to set the Maltese economy on a more sustainable track. Malta’s transformation into a climate-neutral economy will require sizeable private and public investment over a sustained period of time. Investment to reduce greenhouse gas emissions, described in its National Energy and Climate Plan, and to address other negative environmental externalities, in particular in sectors like construction and transport, can help achieve the dual objectives of economic recovery and sustainability. Supporting the renovation of the existing building stock and targeted training schemes will help to improve the energy performance of buildings. Further investment on sustainable transport can ensure viable alternatives to the use of private cars. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Malta to address some of the challenges posed by the transition to a climate-neutral economy as presented in Annex D to the 2020 country report. This would allow Malta to make the best use of that Fund. |
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(20)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Investments in support of the recovery represents an opportunity to set the Maltese economy on a more sustainable track. Malta’s transformation into a climate-neutral economy will require sizeable private and public investment over a sustained period of time. Investment to reduce greenhouse gas emissions, described in its National Energy and Climate Plan, and to address other negative environmental externalities, in particular in sectors like construction and transport, can help achieve the dual objectives of economic recovery and sustainability. Supporting the renovation of the existing building stock and targeted training schemes will help to improve the energy performance of buildings. Further investment on sustainable transport can ensure viable alternatives to the use of private cars. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Malta to address some of the challenges posed by the transition to a climate-neutral economy as presented in Annex D to the 2020 country report. This would allow Malta to make the best use of that Fund.

| (21) | Placing higher importance on research and innovation and better embedding it in the business environment will support the sustainability of Malta’s knowledge-based economic model. Malta has developed e-government services for citizens and businesses, including a number of mobile apps. However, their uptake by the public remains low. In order to facilitate the economy’s digital transition, it is essential to encourage the use of digital public services by citizens and businesses. |
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(21)

Placing higher importance on research and innovation and better embedding it in the business environment will support the sustainability of Malta’s knowledge-based economic model. Malta has developed e-government services for citizens and businesses, including a number of mobile apps. However, their uptake by the public remains low. In order to facilitate the economy’s digital transition, it is essential to encourage the use of digital public services by citizens and businesses.

| (22) | Malta’s shift towards an internationally oriented service sector and its specialisation in remote gaming, virtual assets and its citizenship and residence schemes, while contributing to economic growth, makes it susceptible to money-laundering risks, which are yet to be mitigated. To prevent and combat these risks, steps have been taken to strengthen the role of the anti-money-laundering (AML) supervisor. Cooperation with other competent authorities has also been enhanced. However, the Malta Financial Services Authority’s practice of insourcing a private consultancy for supervisory tasks is of concern. Shortcomings in the investigation and prosecution of money-laundering remain a challenge. Enhancing the national supervision of internationally oriented financial businesses licensed in Malta would strengthen the overall governance framework. In the insurance sector, the cooperation between domestic and external supervisors is essential. There is also margin for improvement in the supervision of third-country bank branches as well as enhancements in the risk-oriented approach and valuation of adequacy of risk management for banking institutions. |
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(22)

Malta’s shift towards an internationally oriented service sector and its specialisation in remote gaming, virtual assets and its citizenship and residence schemes, while contributing to economic growth, makes it susceptible to money-laundering risks, which are yet to be mitigated. To prevent and combat these risks, steps have been taken to strengthen the role of the anti-money-laundering (AML) supervisor. Cooperation with other competent authorities has also been enhanced. However, the Malta Financial Services Authority’s practice of insourcing a private consultancy for supervisory tasks is of concern. Shortcomings in the investigation and prosecution of money-laundering remain a challenge. Enhancing the national supervision of internationally oriented financial businesses licensed in Malta would strengthen the overall governance framework. In the insurance sector, the cooperation between domestic and external supervisors is essential. There is also margin for improvement in the supervision of third-country bank branches as well as enhancements in the risk-oriented approach and valuation of adequacy of risk management for banking institutions.

| (23) | Tackling aggressive tax planning remains key to improving the efficiency and fairness of tax systems. Spillover effects of taxpayers’ aggressive tax-planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. Malta has taken steps to address aggressive tax-planning practices by implementing previously agreed international and European agreed initiatives, but the treatment of resident non-domiciled companies as well as the investor-citizenship and investor-residence schemes, which do not even require an individual to be resident for tax purposes in Malta, pose a risk of double non-taxation for both companies and individuals. |
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(23)

Tackling aggressive tax planning remains key to improving the efficiency and fairness of tax systems. Spillover effects of taxpayers’ aggressive tax-planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. Malta has taken steps to address aggressive tax-planning practices by implementing previously agreed international and European agreed initiatives, but the treatment of resident non-domiciled companies as well as the investor-citizenship and investor-residence schemes, which do not even require an individual to be resident for tax purposes in Malta, pose a risk of double non-taxation for both companies and individuals.

| (24) | Malta also faces challenges in strengthening its institutional capacity to fight corruption. Malta has announced reforms to strengthen the investigation and prosecution of corruption and it is consulting relevant stakeholders, notably the Venice Commission, on the reform of the judiciary. Concrete measures have to be adopted to complete all these reforms and make them operational. |
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(24)

Malta also faces challenges in strengthening its institutional capacity to fight corruption. Malta has announced reforms to strengthen the investigation and prosecution of corruption and it is consulting relevant stakeholders, notably the Venice Commission, on the reform of the judiciary. Concrete measures have to be adopted to complete all these reforms and make them operational.

| (25) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(25)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (26) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Malta will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(26)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Malta will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (27) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Malta should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup. |
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(27)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Malta should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup.

| (28) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Malta’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Malta in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Malta but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(28)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Malta’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Malta in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Malta but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (29) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
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(29)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Malta take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system with regard to the health workforce, critical medical products and primary care. |
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1.

| 2. | Consolidate short-time work arrangements and ensure the adequacy of unemployment protection for all workers. Strengthen the quality and inclusiveness of education and skills development. |
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2.

| 3. | Ensure effective implementation of liquidity support to affected businesses, including the self-employed. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, sustainable transport, waste management, research and innovation. |
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3.

| 4. | Complete reforms addressing current shortcomings in institutional capacity and governance to enhance judicial independence. Continue efforts to adequately assess and mitigate money-laundering risks and to ensure effective enforcement of the anti-money-laundering framework. Step up action to address features of the tax system that facilitate aggressive tax planning by individuals and multinationals. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 107.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/122 |
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26.8.2020

EN

Official Journal of the European Union

C 282/122

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of the Netherlands and delivering a Council opinion on the 2020 Stability Programme of the Netherlands

(2020/C 282/19)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified the Netherlands as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified the Netherlands as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for the Netherlands was published on 26 February 2020. It assessed the Netherlands’ progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and the Netherlands’ progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that the Netherlands is experiencing macroeconomic imbalances. In particular, the high stock of private debt and the large current account surplus are sources of imbalances and have cross-border relevance. |
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(2)

The 2020 country report for the Netherlands was published on 26 February 2020. It assessed the Netherlands’ progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and the Netherlands’ progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that the Netherlands is experiencing macroeconomic imbalances. In particular, the high stock of private debt and the large current account surplus are sources of imbalances and have cross-border relevance.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. the Netherlands is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. the Netherlands is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The Netherlands submitted its 2020 National Reform Programme on 28 April 2020 and its 2020 Stability Programme on 29 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(9)

The Netherlands submitted its 2020 National Reform Programme on 28 April 2020 and its 2020 Stability Programme on 29 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (10) | The Netherlands is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
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(10)

The Netherlands is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (11) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,7 % of gross domestic product (GDP) in 2019 to a surplus of 0,1 % of GDP in 2020. The surplus is projected to decline to 0,0 % of GDP in 2023. After decreasing to 48,6 % of GDP in 2019, the general government debt-to-GDP ratio is expected to decrease further to 46,3 % in 2020 according to the 2020 Stability Programme. However, the macroeconomic scenario underpinning those budgetary projections no longer appears realistic and the 2020 Stability Programme does not take into account a significant number of the measures announced by the Netherlands in response to the COVID-19 pandemic. The Spring Budget Memorandum (7) contains an update of the budgetary projections. Based on the Spring Budget Memorandum, the government headline balance is planned to deteriorate to a deficit of 11,8 % of GDP in 2020 and the general government debt-to-GDP ratio is expected to increase to 65,2 % in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(11)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,7 % of gross domestic product (GDP) in 2019 to a surplus of 0,1 % of GDP in 2020. The surplus is projected to decline to 0,0 % of GDP in 2023. After decreasing to 48,6 % of GDP in 2019, the general government debt-to-GDP ratio is expected to decrease further to 46,3 % in 2020 according to the 2020 Stability Programme. However, the macroeconomic scenario underpinning those budgetary projections no longer appears realistic and the 2020 Stability Programme does not take into account a significant number of the measures announced by the Netherlands in response to the COVID-19 pandemic. The Spring Budget Memorandum (7) contains an update of the budgetary projections. Based on the Spring Budget Memorandum, the government headline balance is planned to deteriorate to a deficit of 11,8 % of GDP in 2020 and the general government debt-to-GDP ratio is expected to increase to 65,2 % in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (12) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, the Netherlands has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme and the Spring Budget Memorandum, those budgetary measures amount to 2,7 % of GDP. The measures include strengthening healthcare services, emergency aid for distressed sectors, income support to self-employed and employees. In addition, the Netherlands has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include tax deferrals for corporate income taxes (4,6 % to 5,9 % of GDP) and loan guarantees (1,8 % of GDP). Overall, the measures taken by the Netherlands are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(12)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, the Netherlands has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme and the Spring Budget Memorandum, those budgetary measures amount to 2,7 % of GDP. The measures include strengthening healthcare services, emergency aid for distressed sectors, income support to self-employed and employees. In addition, the Netherlands has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include tax deferrals for corporate income taxes (4,6 % to 5,9 % of GDP) and loan guarantees (1,8 % of GDP). Overall, the measures taken by the Netherlands are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (13) | Based on the Commission 2020 spring forecast under unchanged policies, the Netherlands’ general government budget balance is forecast at -6,3 % of GDP in 2020 and -3,5 % of GDP in 2021. The difference of 5,5 percentage points between the Spring Budget Memorandum forecast and that of the Commission is driven by a different accounting of the tax deferrals (4,6 % to 5,9 % of GDP), which in the Commission 2020 spring forecast are not booked as revenue-decreasing in 2020. General government debt is projected to reach 62,1 % of GDP in 2020 and 57,6 % in 2021. |
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(13)

Based on the Commission 2020 spring forecast under unchanged policies, the Netherlands’ general government budget balance is forecast at -6,3 % of GDP in 2020 and -3,5 % of GDP in 2021. The difference of 5,5 percentage points between the Spring Budget Memorandum forecast and that of the Commission is driven by a different accounting of the tax deferrals (4,6 % to 5,9 % of GDP), which in the Commission 2020 spring forecast are not booked as revenue-decreasing in 2020. General government debt is projected to reach 62,1 % of GDP in 2020 and 57,6 % in 2021.

| (14) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of the Netherlands’ projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(14)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of the Netherlands’ projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (15) | After robust growth in recent years, the COVID-19 pandemic has put an abrupt end to six consecutive years of economic expansion in the Netherlands. This year, the Dutch economy is set to experience its sharpest contraction in the country’s post-war history. All demand components, except public consumption, are expected to decline sharply this year, with a projected trough in economic activity in the second quarter. In 2021, the economy will likely rebound at a rate well above trend growth, reflecting a gradual normalisation of economic activity and the recovery of domestic demand and global trade from a depressed level. However activity levels are expected to remain below those of 2019. According to the Commission 2020 spring forecast, unemployment is expected to increase to 5,9 % in 2020, mainly due to mandated business closures and the abrupt overall decline in economic activity, but then to decrease to 5,3 % in 2021. Employment protection measures, in particular the Temporary Emergency Bridging Measure for Sustained Employment and additional income support for the self-employed, should help dampen employment losses. Nevertheless, the deterioration of the labour market is expected to accelerate in the coming months as firms in heavily affected sectors inevitably shed labour, especially workers with flexible and temporary contracts. |
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(15)

After robust growth in recent years, the COVID-19 pandemic has put an abrupt end to six consecutive years of economic expansion in the Netherlands. This year, the Dutch economy is set to experience its sharpest contraction in the country’s post-war history. All demand components, except public consumption, are expected to decline sharply this year, with a projected trough in economic activity in the second quarter. In 2021, the economy will likely rebound at a rate well above trend growth, reflecting a gradual normalisation of economic activity and the recovery of domestic demand and global trade from a depressed level. However activity levels are expected to remain below those of 2019. According to the Commission 2020 spring forecast, unemployment is expected to increase to 5,9 % in 2020, mainly due to mandated business closures and the abrupt overall decline in economic activity, but then to decrease to 5,3 % in 2021. Employment protection measures, in particular the Temporary Emergency Bridging Measure for Sustained Employment and additional income support for the self-employed, should help dampen employment losses. Nevertheless, the deterioration of the labour market is expected to accelerate in the coming months as firms in heavily affected sectors inevitably shed labour, especially workers with flexible and temporary contracts.

| (16) | In response to the abrupt economic fallout and the evaporation of demand in specific sectors, the government has adopted a comprehensive package of emergency measures to help avoid structural damage to the economy. This strong policy response is aimed at the areas most affected by the COVID-19 crisis and focuses on employment protection and household purchasing power, direct financial compensation for severely hit industries, as well as tax deferral and loan guarantees to support the flow of credit to the private sector. It should thus prevent temporary liquidity problems from morphing into insolvency issues. Furthermore, automatic stabilisers should help dampen the depth of the downturn. The Central Bank has also reduced systemic capital buffers for the largest banks and is postponing a measure to introduce a risk weight floor for mortgages, thus freeing up bank capital and enabling banks to significantly expand lending to households and businesses. |
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(16)

In response to the abrupt economic fallout and the evaporation of demand in specific sectors, the government has adopted a comprehensive package of emergency measures to help avoid structural damage to the economy. This strong policy response is aimed at the areas most affected by the COVID-19 crisis and focuses on employment protection and household purchasing power, direct financial compensation for severely hit industries, as well as tax deferral and loan guarantees to support the flow of credit to the private sector. It should thus prevent temporary liquidity problems from morphing into insolvency issues. Furthermore, automatic stabilisers should help dampen the depth of the downturn. The Central Bank has also reduced systemic capital buffers for the largest banks and is postponing a measure to introduce a risk weight floor for mortgages, thus freeing up bank capital and enabling banks to significantly expand lending to households and businesses.

| (17) | The health system is performing comparatively well in terms of contributing to the overall health of the population and ensuring the accessibility of health services. As part of the immediate response to the COVID-19 crisis, the Netherlands put in place a control strategy involving general public health measures and adopted tailored health financing measures. Nevertheless, the onset of the COVID-19 pandemic has tested the resilience of the health system. In this regard pre-existing concerns have come to the fore. The capacity of the workforce would benefit from tackling existing shortages, in particular of nurses and in primary healthcare. The overall governance of the health systems and their capacity to ensure integrated service delivery across the care continuum could be improved by further strengthening data governance and scaling up the deployment of e-health tools. The COVID-19 pandemic has therefore highlighted the need to continue to improve the resilience and the crisis preparedness of the health system by addressing such structural challenges. |
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(17)

The health system is performing comparatively well in terms of contributing to the overall health of the population and ensuring the accessibility of health services. As part of the immediate response to the COVID-19 crisis, the Netherlands put in place a control strategy involving general public health measures and adopted tailored health financing measures. Nevertheless, the onset of the COVID-19 pandemic has tested the resilience of the health system. In this regard pre-existing concerns have come to the fore. The capacity of the workforce would benefit from tackling existing shortages, in particular of nurses and in primary healthcare. The overall governance of the health systems and their capacity to ensure integrated service delivery across the care continuum could be improved by further strengthening data governance and scaling up the deployment of e-health tools. The COVID-19 pandemic has therefore highlighted the need to continue to improve the resilience and the crisis preparedness of the health system by addressing such structural challenges.

| (18) | While in 2019 and in early 2020 the labour market continued to improve and performed well overall, the COVID-19 crisis has reduced economic growth and is expected to lead to a considerable increase in unemployment. A series of unprecedented economic measures were taken to protect people’s jobs and livelihoods and to minimise the impact on self-employed people, small and medium-sized enterprises (SMEs) and major companies. To preserve employment, employers expecting to lose at least 20 % of their revenue due to the COVID-19 crisis, can apply for an allowance (up to 90 % of the company’s wage bill, depending on the loss of turnover) that enables them to pay their employees’ wages for a period of three months, which has been extended further by four months. The self-employed will have recourse to an expedited procedure allowing them to apply for additional income support up to the amount of the social minimum, which will help them cover the costs of livelihood for a period of three months, which has also been extended by four months. |
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(18)

While in 2019 and in early 2020 the labour market continued to improve and performed well overall, the COVID-19 crisis has reduced economic growth and is expected to lead to a considerable increase in unemployment. A series of unprecedented economic measures were taken to protect people’s jobs and livelihoods and to minimise the impact on self-employed people, small and medium-sized enterprises (SMEs) and major companies. To preserve employment, employers expecting to lose at least 20 % of their revenue due to the COVID-19 crisis, can apply for an allowance (up to 90 % of the company’s wage bill, depending on the loss of turnover) that enables them to pay their employees’ wages for a period of three months, which has been extended further by four months. The self-employed will have recourse to an expedited procedure allowing them to apply for additional income support up to the amount of the social minimum, which will help them cover the costs of livelihood for a period of three months, which has also been extended by four months.

| (19) | Mitigating the employment and social impact of the COVID-19 crisis for those hardest hit should be part of the recovery strategy. Despite the package of measures taken to preserve employment, people in a less favourable labour market position and/or vulnerable social situation have been hit harder. Unemployment increased, in particular for people working on flexible contracts, such as the young, temporary agency workers and people with migrant background. The COVID-19 crisis also highlighted significant challenges in terms of access to adequate social protection for the self-employed that are more often underinsured (or not insured at all) against sickness, disability, unemployment and old age. |
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(19)

Mitigating the employment and social impact of the COVID-19 crisis for those hardest hit should be part of the recovery strategy. Despite the package of measures taken to preserve employment, people in a less favourable labour market position and/or vulnerable social situation have been hit harder. Unemployment increased, in particular for people working on flexible contracts, such as the young, temporary agency workers and people with migrant background. The COVID-19 crisis also highlighted significant challenges in terms of access to adequate social protection for the self-employed that are more often underinsured (or not insured at all) against sickness, disability, unemployment and old age.

| (20) | Liquidity support to businesses through loans and guarantees, with a focus on SMEs, has been of utmost importance. The distribution of liquidity support to firms must be effectively and swiftly implemented by intermediaries while sustaining their resilience. Allowing the deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can further help improve the cash-flow of SMEs. Newly-founded start-ups and scale-ups may need specific support, e.g. in the form of equity stakes by public institutions and incentives for venture capital funds to increase their investments in these firms. This may help avoid fire sales of strategically important European firms. As allowed and within the conditions set out in the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (8), equity or quasi-equity support should be ensured for all undertakings (9) and not only for those who meet the Commission’s definition of SMEs. Efforts should also be maintained to offer access and efficient digital public services for individuals and businesses. |
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(20)

Liquidity support to businesses through loans and guarantees, with a focus on SMEs, has been of utmost importance. The distribution of liquidity support to firms must be effectively and swiftly implemented by intermediaries while sustaining their resilience. Allowing the deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can further help improve the cash-flow of SMEs. Newly-founded start-ups and scale-ups may need specific support, e.g. in the form of equity stakes by public institutions and incentives for venture capital funds to increase their investments in these firms. This may help avoid fire sales of strategically important European firms. As allowed and within the conditions set out in the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (8), equity or quasi-equity support should be ensured for all undertakings (9) and not only for those who meet the Commission’s definition of SMEs. Efforts should also be maintained to offer access and efficient digital public services for individuals and businesses.

| (21) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Targeted policy action, including investment in sectors with the strongest prospects to raise potential growth for the wider economy, can help to tackle the challenges accelerated by the recent COVID-19 crisis. In particular, investments in R & D embedded in the mission-driven top sectors and innovation policy (10) as well as human capital can help support long-term productivity growth and maintain a strong innovation capacity. This is especially the case for start-ups, scale-ups and innovative SMEs, which are crucial to enhance competitiveness and job creation. Investment in initiatives from the Netherlands’ Climate Agreement and National Energy and Climate Plan to address climate change and promote the energy transition can make a key contribution to wider societal goals, including the need to ensure sustainable and resource-efficient economic growth. Finally, investment in new housing is needed to alleviate the current housing shortage. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help the Netherlands to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow the Netherlands to make the best use of that Fund. |
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(21)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Targeted policy action, including investment in sectors with the strongest prospects to raise potential growth for the wider economy, can help to tackle the challenges accelerated by the recent COVID-19 crisis. In particular, investments in R & D embedded in the mission-driven top sectors and innovation policy (10) as well as human capital can help support long-term productivity growth and maintain a strong innovation capacity. This is especially the case for start-ups, scale-ups and innovative SMEs, which are crucial to enhance competitiveness and job creation. Investment in initiatives from the Netherlands’ Climate Agreement and National Energy and Climate Plan to address climate change and promote the energy transition can make a key contribution to wider societal goals, including the need to ensure sustainable and resource-efficient economic growth. Finally, investment in new housing is needed to alleviate the current housing shortage. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help the Netherlands to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow the Netherlands to make the best use of that Fund.

| (22) | Technical and digital skills and qualified professionals are crucial for the Dutch economy’s capacity to innovate and for sustainable and inclusive productivity growth. Investment in basic and/or digital skills, education and training, including upskilling and reskilling opportunities for all, also remains crucial to improving access to the labour market in particular to strengthen the employability of those at the margins of the labour market (including people with a migrant background and people with disabilities), while fostering equal opportunities and active inclusion. |
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(22)

Technical and digital skills and qualified professionals are crucial for the Dutch economy’s capacity to innovate and for sustainable and inclusive productivity growth. Investment in basic and/or digital skills, education and training, including upskilling and reskilling opportunities for all, also remains crucial to improving access to the labour market in particular to strengthen the employability of those at the margins of the labour market (including people with a migrant background and people with disabilities), while fostering equal opportunities and active inclusion.

| (23) | Although the Netherlands has taken steps to address aggressive tax planning practices by implementing previously agreed international and European initiatives, the high level of dividend, royalty and interest payments made via the Netherlands suggests that the country’s tax rules are used by companies that engage in aggressive tax planning. A large proportion of the foreign direct investment stock is held by special purpose entities. The absence of withholding taxes on outbound (i.e. from Union residents to third country residents) royalties and interest payments may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. The newly adopted reform on conditional withholding taxes on royalty, and interest payments in case of abuse or payments to low-tax jurisdictions or jurisdictions listed on the Union list of non cooperative jurisdictions, which will be implemented as of 1 January 2021, is a positive step towards decreasing aggressive tax planning. The effectiveness of the reform should be monitored closely. |
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(23)

Although the Netherlands has taken steps to address aggressive tax planning practices by implementing previously agreed international and European initiatives, the high level of dividend, royalty and interest payments made via the Netherlands suggests that the country’s tax rules are used by companies that engage in aggressive tax planning. A large proportion of the foreign direct investment stock is held by special purpose entities. The absence of withholding taxes on outbound (i.e. from Union residents to third country residents) royalties and interest payments may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. The newly adopted reform on conditional withholding taxes on royalty, and interest payments in case of abuse or payments to low-tax jurisdictions or jurisdictions listed on the Union list of non cooperative jurisdictions, which will be implemented as of 1 January 2021, is a positive step towards decreasing aggressive tax planning. The effectiveness of the reform should be monitored closely.

| (24) | A number of Dutch financial institutions have recently been involved in money laundering affairs. These cases highlight the need, despite recent efforts, to further strengthen the supervision of financial institutions and to investigate and prosecute money laundering cases. Outside the financial sector, the openness of the Dutch economy to foreign direct investments and the country’s complex legal structures also pose significant money laundering risks. The misalignment between the low reporting of unusual transactions by trust and company service providers and tax advisers and their high risk exposure calls for commensurate supervision. Given the extensive presence of complex legal structures, the well-functioning of the beneficial ownership register is key to avoiding the misuse of such entities, but the register has not been set up yet. |
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(24)

A number of Dutch financial institutions have recently been involved in money laundering affairs. These cases highlight the need, despite recent efforts, to further strengthen the supervision of financial institutions and to investigate and prosecute money laundering cases. Outside the financial sector, the openness of the Dutch economy to foreign direct investments and the country’s complex legal structures also pose significant money laundering risks. The misalignment between the low reporting of unusual transactions by trust and company service providers and tax advisers and their high risk exposure calls for commensurate supervision. Given the extensive presence of complex legal structures, the well-functioning of the beneficial ownership register is key to avoiding the misuse of such entities, but the register has not been set up yet.

| (25) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(25)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (26) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, the Netherlands will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(26)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, the Netherlands will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (27) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, the Netherlands should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(27)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, the Netherlands should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (28) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of the Netherlands economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to the Netherlands in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Netherlands, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(28)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of the Netherlands economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to the Netherlands in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Netherlands, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (29) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (11) is reflected in particular in recommendation (1) below. |
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(29)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (11) is reflected in particular in recommendation (1) below.

| (30) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (3), |
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(30)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (3),

HEREBY RECOMMENDS that the Netherlands take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system, including by tackling the existing shortages of health workers and stepping up the deployment of relevant e-health tools. |
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1.

| 2. | Mitigate the employment and social impact of the COVID-19 crisis and promote adequate social protection for the self-employed. |
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2.

| 3. | Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on digital skills development, sustainable infrastructure and clean and efficient production and use of energy as well as mission-oriented research and innovation. |
| --- | --- |

3.

| 4. | Take steps to fully address features of the tax system that facilitate aggressive tax planning in particular on outbound payments, in particular by implementing the adopted measures and ensuring its effectiveness. Ensure effective supervision and enforcement of the anti-money-laundering framework. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 112.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Budget Memorandum 2020 (Voorjaarsnota 2020), handed in for review to the 2nd Chamber by W. Hoekstra, Minister of Finance, on 25 April 2020.

7

(8)  OJ C 91I, 20.3.2020, p. 1.

8

(9)  Including for start-ups and scale-ups with competitive business models but whose cash-flows are negatively affected by the COVID-19 pandemic.

9

(10)  This new policy approach aims to further boost investment in R & D in order to achieve the long-term targets on key societal challenges grouped into four ‘missions’: (i) energy transition and sustainability; (ii) agriculture, water and food; (iii) health and care; and (iv) security. The policy is viewed as a key priority for strengthening competitiveness and addressing societal challenges (Ministry for Economic Affairs (EZK) (2018), Kamerbrief: Naar Missiegedreven Innovatiebeleid met Impact, Rijksoverheid, The Hague.)

10

Kamerbrief: Naar Missiegedreven Innovatiebeleid met Impact

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

11

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/129 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/129

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Austria and delivering a Council opinion on the 2020 Stability Programme of Austria

(2020/C 282/20)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Austria as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Austria as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Austria was published on 26 February 2020. It assessed Austria’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Austria’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Austria was published on 26 February 2020. It assessed Austria’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Austria’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for strong crisis preparedness plans in the health sector in particular.Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for strong crisis preparedness plans in the health sector in particular.Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Austria is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Austria is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns in particular in regions markedly relying on tourism. This entails the risk of widening regional disparities within Austria. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns in particular in regions markedly relying on tourism. This entails the risk of widening regional disparities within Austria. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Austria submitted its 2020 National Reform Programme on 14 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(10)

Austria submitted its 2020 National Reform Programme on 14 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Austria is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
| --- | --- |

(11)

Austria is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its technical update to the 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,7 % of gross domestic product (GDP) in 2019 to a deficit of 8,0 % of GDP in 2020. The deficit is projected to decline to 1,9 % of GDP in 2021. After decreasing to 70,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 81,4 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(12)

In its technical update to the 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,7 % of gross domestic product (GDP) in 2019 to a deficit of 8,0 % of GDP in 2020. The deficit is projected to decline to 1,9 % of GDP in 2021. After decreasing to 70,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 81,4 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Austria has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,0 % of GDP. The measures include strengthening healthcare services, emergency aid for distressed companies and short-time work arrangements. In addition, Austria has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 5,0 % of GDP. Those measures include tax deferrals for personal and corporate income taxes (2,6 % of GDP) and loan guarantees (2,4 % of GDP). Overall, the measures taken by Austria are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Austria has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,0 % of GDP. The measures include strengthening healthcare services, emergency aid for distressed companies and short-time work arrangements. In addition, Austria has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 5,0 % of GDP. Those measures include tax deferrals for personal and corporate income taxes (2,6 % of GDP) and loan guarantees (2,4 % of GDP). Overall, the measures taken by Austria are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Austria’s general government balance is forecast at -6,1 % of GDP in 2020 and -1,9 % of GDP in 2021. The general government debt ratio is projected to reach 78,8 % of GDP in 2020 and 75,8 % of GDP in 2021. |
| --- | --- |

(14)

Based on the Commission 2020 spring forecast under unchanged policies, Austria’s general government balance is forecast at -6,1 % of GDP in 2020 and -1,9 % of GDP in 2021. The general government debt ratio is projected to reach 78,8 % of GDP in 2020 and 75,8 % of GDP in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Austria’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Austria’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | The Austrian government has taken unprecedented measures to control the spread of COVID-19. It has introduced strict quarantine and social distancing rules and made substantial funds available for the health system to purchase equipment and supplies, reinforce laboratory capacity, and strengthen staffing capability. Primary healthcare has come under exceptional pressure from an unprecedented increase in the need for teleconsultations, medical appointments and requests for home visits. The rapid COVID-19 outbreak has strongly affected Austria’s economy. National and international containment measures against the virus have hit both the demand and supply side, leading to a broad-based downturn. GDP is therefore projected to contract by 5,5 % in 2020, more than during the economic and financial crisis in 2008-2009. Given the relatively rapid fall in new infections, Austria was one of the first Member States to announce a relaxation of containment measures beginning in mid-April. To avoid long-lasting economic damage and to cushion the employment and social impacts of the crisis, the government has adopted a comprehensive package of measures to support the Austrian economy (approximately 10 % of GDP). The package includes a short-time work scheme (Kurzarbeit), where working hours can be reduced by up to 90 % on average over a given period and employers are reimbursed 80 % to 90 % of the employee’s last net income, dependent on last gross income. The comprehensive set of measures for businesses and self-employed aims to prevent temporarily liquidity problems and provides direct support especially to hard-hit enterprises and industries with a particular focus on small and medium-sized enterprises (SMEs). These include transfers, liquidity support through loans, guarantees, equity injections and tax deferrals. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. |
| --- | --- |

(16)

The Austrian government has taken unprecedented measures to control the spread of COVID-19. It has introduced strict quarantine and social distancing rules and made substantial funds available for the health system to purchase equipment and supplies, reinforce laboratory capacity, and strengthen staffing capability. Primary healthcare has come under exceptional pressure from an unprecedented increase in the need for teleconsultations, medical appointments and requests for home visits. The rapid COVID-19 outbreak has strongly affected Austria’s economy. National and international containment measures against the virus have hit both the demand and supply side, leading to a broad-based downturn. GDP is therefore projected to contract by 5,5 % in 2020, more than during the economic and financial crisis in 2008-2009. Given the relatively rapid fall in new infections, Austria was one of the first Member States to announce a relaxation of containment measures beginning in mid-April. To avoid long-lasting economic damage and to cushion the employment and social impacts of the crisis, the government has adopted a comprehensive package of measures to support the Austrian economy (approximately 10 % of GDP). The package includes a short-time work scheme (Kurzarbeit), where working hours can be reduced by up to 90 % on average over a given period and employers are reimbursed 80 % to 90 % of the employee’s last net income, dependent on last gross income. The comprehensive set of measures for businesses and self-employed aims to prevent temporarily liquidity problems and provides direct support especially to hard-hit enterprises and industries with a particular focus on small and medium-sized enterprises (SMEs). These include transfers, liquidity support through loans, guarantees, equity injections and tax deferrals. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account.

| (17) | The Austrian health system has so far dealt successfully with the COVID-19 pandemic. Expanding primary and ambulatory care services with a focus on health promotion and disease prevention would help to further improve population health. While maintaining high quality standards, cost efficiency could be increased by more effective public procurement and generic medicines. Also, Austria’s long-term care system faces structural and fiscal challenges, which have so far not been thoroughly addressed. The system delivers comparatively high-quality services, but faces staffing challenges, which become even more perceptible and evident in the current crisis. The long-term care sector relies strongly on care provided by workers from other Member States, pointing to the need to secure free flow of cross-border workers. In addition, adequate remuneration could help to make the job of nursing staff more attractive. |
| --- | --- |

(17)

The Austrian health system has so far dealt successfully with the COVID-19 pandemic. Expanding primary and ambulatory care services with a focus on health promotion and disease prevention would help to further improve population health. While maintaining high quality standards, cost efficiency could be increased by more effective public procurement and generic medicines. Also, Austria’s long-term care system faces structural and fiscal challenges, which have so far not been thoroughly addressed. The system delivers comparatively high-quality services, but faces staffing challenges, which become even more perceptible and evident in the current crisis. The long-term care sector relies strongly on care provided by workers from other Member States, pointing to the need to secure free flow of cross-border workers. In addition, adequate remuneration could help to make the job of nursing staff more attractive.

| (18) | Tax policy is playing an important role in supporting households and businesses during the COVID-19 containment and will be key in fostering economic recovery in the aftermath of the COVID-19 crisis. Austria’s tax mix is characterised by a high burden on labour, while the revenue potential of wealth-related and environmental taxes remains largely untapped and consumption taxes could be made more efficient. Tax reforms could help to shift the tax mix towards sources that are less detrimental to inclusive and sustainable growth, and provide a solid basis for recovery. In particular, insufficiently used taxes on alcohol and tobacco, pollution and resource consumption imply unused steering effects and revenue potential. The uneven, but generally low level of energy taxation undermines its efficiency and effectiveness as a policy tool to incentivise environmentally beneficial consumption. In particular, consistent taxation of CO2 emissions would make climate-friendly energy sources more competitive and provide fiscal space for reducing more distortive taxes. Higher, CO2-related energy taxes would help to internalise the social costs of pollution, lead consumers to rely more on renewable sources and encourage investors to invest in climate-friendly technologies. Finally, greater use of wealth-related taxes could make the tax system fairer, especially in view of Austria’s persistently high wealth inequality. In particular, recurrent property and inheritance taxes have proven to be relatively growth-friendly and progressive and should not be overlooked when it comes to generating tax revenues to restore public finances. |
| --- | --- |

(18)

Tax policy is playing an important role in supporting households and businesses during the COVID-19 containment and will be key in fostering economic recovery in the aftermath of the COVID-19 crisis. Austria’s tax mix is characterised by a high burden on labour, while the revenue potential of wealth-related and environmental taxes remains largely untapped and consumption taxes could be made more efficient. Tax reforms could help to shift the tax mix towards sources that are less detrimental to inclusive and sustainable growth, and provide a solid basis for recovery. In particular, insufficiently used taxes on alcohol and tobacco, pollution and resource consumption imply unused steering effects and revenue potential. The uneven, but generally low level of energy taxation undermines its efficiency and effectiveness as a policy tool to incentivise environmentally beneficial consumption. In particular, consistent taxation of CO2 emissions would make climate-friendly energy sources more competitive and provide fiscal space for reducing more distortive taxes. Higher, CO2-related energy taxes would help to internalise the social costs of pollution, lead consumers to rely more on renewable sources and encourage investors to invest in climate-friendly technologies. Finally, greater use of wealth-related taxes could make the tax system fairer, especially in view of Austria’s persistently high wealth inequality. In particular, recurrent property and inheritance taxes have proven to be relatively growth-friendly and progressive and should not be overlooked when it comes to generating tax revenues to restore public finances.

| (19) | While Austria performed well on the Social Scoreboard supporting the European Pillar of Social Rights, gaps in coverage may mean a lack of income protection for vulnerable groups during the COVID-19 crisis and may require additional measures. While youth unemployment rises, the unemployed, long-term unemployed, non-standard workers and foreign-born people are particularly at risk of poverty. Active labour market policies providing lifelong learning opportunities and upskilling will remain crucially important. Disadvantaged students, including learners with disabilities, are particularly affected by circumstances that require distance learning. While some 10 % of pupils under the age of 15 have no access to a virtual learning environment, the Austrian government, in response to the COVID-19 crisis, has taken mitigating measures by providing pupils at risk with computers. Already existing inequalities in educational attainment, linked to socioeconomic and migrant backgrounds, risk however to be exacerbated. A recovery strategy that improves access to inclusive, good-quality early childhood education and care which have been shown to redress social disadvantages, would produce socioeconomic benefits in the medium and long term and provide opportunities for women to fully access the labour market. The overall employment rate of women was high before the crisis but almost half of them worked part-time (linked to short opening hours of schools and childcare facilities) causing a significant unadjusted gender pay gap. |
| --- | --- |

(19)

While Austria performed well on the Social Scoreboard supporting the European Pillar of Social Rights, gaps in coverage may mean a lack of income protection for vulnerable groups during the COVID-19 crisis and may require additional measures. While youth unemployment rises, the unemployed, long-term unemployed, non-standard workers and foreign-born people are particularly at risk of poverty. Active labour market policies providing lifelong learning opportunities and upskilling will remain crucially important. Disadvantaged students, including learners with disabilities, are particularly affected by circumstances that require distance learning. While some 10 % of pupils under the age of 15 have no access to a virtual learning environment, the Austrian government, in response to the COVID-19 crisis, has taken mitigating measures by providing pupils at risk with computers. Already existing inequalities in educational attainment, linked to socioeconomic and migrant backgrounds, risk however to be exacerbated. A recovery strategy that improves access to inclusive, good-quality early childhood education and care which have been shown to redress social disadvantages, would produce socioeconomic benefits in the medium and long term and provide opportunities for women to fully access the labour market. The overall employment rate of women was high before the crisis but almost half of them worked part-time (linked to short opening hours of schools and childcare facilities) causing a significant unadjusted gender pay gap.

| (20) | The effectiveness of COVID-19 support measures in relieving hard-pressed firms, preserving business environments, and avoiding insolvencies depends on their swift and un-bureaucratic implementation by public authorities and intermediaries. Start-ups and scale-ups may need specific support, e.g. in the form of public institutions purchasing equity stakes and incentives for venture capital funds to invest more in such firms. This is to strengthen those firms that are vital for the recovery but also to avoid fire sales of strategically important European firms. In addition to funding support, hard-pressed firms, in particular smaller ones, need a supportive business environment. Administrative burden and regulatory density impose costs that firms can now afford less than ever. Efforts to reduce unnecessary burdens and provide efficient digital public services are an effective way of providing businesses with immediate, tangible relief without burdening the taxpayer. The insolvency framework should be geared to prevention but also to speedy unwinding and allowing for a second chance. Dispute resolution networks, such as SOLVIT, help companies in times of disruption to the internal market and need adequate resources. |
| --- | --- |

(20)

The effectiveness of COVID-19 support measures in relieving hard-pressed firms, preserving business environments, and avoiding insolvencies depends on their swift and un-bureaucratic implementation by public authorities and intermediaries. Start-ups and scale-ups may need specific support, e.g. in the form of public institutions purchasing equity stakes and incentives for venture capital funds to invest more in such firms. This is to strengthen those firms that are vital for the recovery but also to avoid fire sales of strategically important European firms. In addition to funding support, hard-pressed firms, in particular smaller ones, need a supportive business environment. Administrative burden and regulatory density impose costs that firms can now afford less than ever. Efforts to reduce unnecessary burdens and provide efficient digital public services are an effective way of providing businesses with immediate, tangible relief without burdening the taxpayer. The insolvency framework should be geared to prevention but also to speedy unwinding and allowing for a second chance. Dispute resolution networks, such as SOLVIT, help companies in times of disruption to the internal market and need adequate resources.

| (21) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. This investment will be most effective when focused on innovation, digitalisation and the green transition so as to increase productivity and ensure sustainable competitiveness. Austria’s research and development (R & D) intensity has been one of the highest in the Union but the country has lagged behind innovation leaders in terms of innovation outcomes. With many businesses’ research budgets now under pressure, it is even more important to translate Austria’s R & D efforts into excellent science and cutting-edge innovation, maintain public investment in basic and applied research, and ensure equity funding for innovative scale-ups. Digitalisation remains essential for opening up the economy and preparing for the ‘new normal’ after the COVID-19 lockdown. The weak diffusion of digital technologies and business models among smaller companies represents a bottleneck for productivity growth. While Austrians’ digital skills are in general above the EU average, not enough students graduate in computing to fill all available positions. Higher levels of e-commerce, working from home and e-government, for example, will require more investment in infrastructure (including 5G and rural broadband), equipment and skills. |
| --- | --- |

(21)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. This investment will be most effective when focused on innovation, digitalisation and the green transition so as to increase productivity and ensure sustainable competitiveness. Austria’s research and development (R & D) intensity has been one of the highest in the Union but the country has lagged behind innovation leaders in terms of innovation outcomes. With many businesses’ research budgets now under pressure, it is even more important to translate Austria’s R & D efforts into excellent science and cutting-edge innovation, maintain public investment in basic and applied research, and ensure equity funding for innovative scale-ups. Digitalisation remains essential for opening up the economy and preparing for the ‘new normal’ after the COVID-19 lockdown. The weak diffusion of digital technologies and business models among smaller companies represents a bottleneck for productivity growth. While Austrians’ digital skills are in general above the EU average, not enough students graduate in computing to fill all available positions. Higher levels of e-commerce, working from home and e-government, for example, will require more investment in infrastructure (including 5G and rural broadband), equipment and skills.

| (22) | Austria’s transformation to a climate neutral economy will require sizeable private and public investment over a sustained period. Austria’s national energy and climate plan identifies significant challenges in reaching its 2030 target for greenhouse gas emissions not covered by the Union emissions trading system. Improving resource productivity is a key driver for future growth while minimising impacts on the environment. Reducing transport-related emissions is essential for meeting air quality standards and climate goals. Front-loading and pursuing new investments to support the green transition will help to create new green jobs and kick-start the economy as it emerges from the COVID-19 crisis management mode. Investments in eco-innovation would trigger productivity growth while reducing Austria’s ecological footprint. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Austria to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Austria to make the best use of that Fund. |
| --- | --- |

(22)

Austria’s transformation to a climate neutral economy will require sizeable private and public investment over a sustained period. Austria’s national energy and climate plan identifies significant challenges in reaching its 2030 target for greenhouse gas emissions not covered by the Union emissions trading system. Improving resource productivity is a key driver for future growth while minimising impacts on the environment. Reducing transport-related emissions is essential for meeting air quality standards and climate goals. Front-loading and pursuing new investments to support the green transition will help to create new green jobs and kick-start the economy as it emerges from the COVID-19 crisis management mode. Investments in eco-innovation would trigger productivity growth while reducing Austria’s ecological footprint. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Austria to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Austria to make the best use of that Fund.

| (23) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(23)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (24) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Austria will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(24)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Austria will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (25) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Austria should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
| --- | --- |

(25)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Austria should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (26) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Austria’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Austria in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Austria, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(26)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Austria’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Austria in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Austria, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (27) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
| --- | --- |

(27)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Austria take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve the resilience of the health system by strengthening public health and primary care. |
| --- | --- |

1.

| 2. | Ensure equal opportunities in education and increased digital learning. |
| --- | --- |

2.

| 3. | Ensure an effective implementation of liquidity and support measures, in particular for small and medium-sized enterprises, and reduce administrative and regulatory burden. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on basic and applied research, as well as innovation, sustainable transport, clean and efficient production and use of energy. |
| --- | --- |

3.

| 4. | Make the tax mix more efficient and more supportive to inclusive and sustainable growth. |
| --- | --- |

4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 117.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/135 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/135

---

COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Poland and delivering a Council opinion on the 2020 Convergence Programme of Poland

(2020/C 282/21)

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 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 9(2) thereof,

Having regard to the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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.

| (2) | The 2020 country report for Poland was published on 26 February 2020. It assessed Poland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Poland’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Poland was published on 26 February 2020. It assessed Poland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Poland’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector, Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector, Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Poland is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Poland is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns. This entails a risk of widening territorial disparities within Poland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns. This entails a risk of widening territorial disparities within Poland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Poland submitted its 2020 National Reform Programme on 29 April 2020 and its 2020 Convergence Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(10)

Poland submitted its 2020 National Reform Programme on 29 April 2020 and its 2020 Convergence Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Poland is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(11)

Poland is currently in the preventive arm of the Stability and Growth Pact.

| (12) | On 13 July 2018, the Council recommended Poland to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 4,2 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 as well as over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Poland are not warranted. |
| --- | --- |

(12)

On 13 July 2018, the Council recommended Poland to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 4,2 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 as well as over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Poland are not warranted.

| (13) | In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 0,7 % of GDP in 2019 to a deficit of 8,4 % of GDP in 2020. After decreasing to 46,0 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 55,2 % in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(13)

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 0,7 % of GDP in 2019 to a deficit of 8,4 % of GDP in 2020. After decreasing to 46,0 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 55,2 % in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (14) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Poland has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amount to 3,2 % of GDP and include allowances for self-employed and employed on non-standard labour contracts, exempting companies from social contributions (they are to be paid by the State), and subsidies to wages for certain companies. In addition, Poland has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, such as loan guarantees for enterprises. The fiscal impact of the budgetary measures provided in the Convergence Programme differs mainly due the treatment of loans to companies. In line with the authorities’ announcements, the Commission 2020 spring forecast is based on the assumption that loans equivalent to around 23⁄4 percentage points of GDP will be converted into subsidies and thus recorded as expenditure in 2020. Overall, the measures taken by Poland are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(14)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Poland has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amount to 3,2 % of GDP and include allowances for self-employed and employed on non-standard labour contracts, exempting companies from social contributions (they are to be paid by the State), and subsidies to wages for certain companies. In addition, Poland has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, such as loan guarantees for enterprises. The fiscal impact of the budgetary measures provided in the Convergence Programme differs mainly due the treatment of loans to companies. In line with the authorities’ announcements, the Commission 2020 spring forecast is based on the assumption that loans equivalent to around 23⁄4 percentage points of GDP will be converted into subsidies and thus recorded as expenditure in 2020. Overall, the measures taken by Poland are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (15) | Based on the Commission 2020 spring forecast under unchanged policies, Poland’s general government balance is forecast at -9,5 % of GDP in 2020 and -3,8 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
| --- | --- |

(15)

Based on the Commission 2020 spring forecast under unchanged policies, Poland’s general government balance is forecast at -9,5 % of GDP in 2020 and -3,8 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (16) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Poland’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(16)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Poland’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (17) | The COVID-19 outbreak has pushed Poland into a new social and economic situation. For the first time in almost three decades, a recession is forecast for 2020. According to the data provided by the government, the pandemic’s impact on the health of the population was comparatively low, including due to an early adoption of unprecedented measures such as strict quarantine and social distancing. So far, the most negative consequences have been observed in the services sector (including transport, retail and wholesale trade and leisure), as well as in manufacturing, as a result of interruptions in supply chains. To offset the economic impact of imposed restrictions, the government has launched a set of measures worth around 9 % of Poland’s GDP (deficit increasing measures and liquidity measures combined), which includes Union financing. This is also supported by the liquidity provision measures of the National Bank of Poland. The government’s support focuses on stabilising the economy in the short term through supporting employees’ incomes, providing financing for businesses facing drops in revenue, strengthening resilience and responsiveness of the health sector, and strengthening the financial system. It also includes an investment programme to support economic recovery in the medium term. Public demand for the policy response, including through exemptions from social security contributions, benefits for employees in companies that are suspending their activity and access to loans for microenterprises, is high. The COVID-19 pandemic is expected to contribute to the GDP decline by 4,3 % in 2020, followed by a recovery of 4,1 % in 2021. |
| --- | --- |

(17)

The COVID-19 outbreak has pushed Poland into a new social and economic situation. For the first time in almost three decades, a recession is forecast for 2020. According to the data provided by the government, the pandemic’s impact on the health of the population was comparatively low, including due to an early adoption of unprecedented measures such as strict quarantine and social distancing. So far, the most negative consequences have been observed in the services sector (including transport, retail and wholesale trade and leisure), as well as in manufacturing, as a result of interruptions in supply chains. To offset the economic impact of imposed restrictions, the government has launched a set of measures worth around 9 % of Poland’s GDP (deficit increasing measures and liquidity measures combined), which includes Union financing. This is also supported by the liquidity provision measures of the National Bank of Poland. The government’s support focuses on stabilising the economy in the short term through supporting employees’ incomes, providing financing for businesses facing drops in revenue, strengthening resilience and responsiveness of the health sector, and strengthening the financial system. It also includes an investment programme to support economic recovery in the medium term. Public demand for the policy response, including through exemptions from social security contributions, benefits for employees in companies that are suspending their activity and access to loans for microenterprises, is high. The COVID-19 pandemic is expected to contribute to the GDP decline by 4,3 % in 2020, followed by a recovery of 4,1 % in 2021.

| (18) | The COVID-19 pandemic made it necessary to put in place unprecedented measures in the health system. Sizeable outlays such as purchasing health-related equipment and supplies, increasing hospital and laboratory capacity, as well as strengthening staffing capacity, were made. Allocation of additional resources is needed also to compensate for other health services and investment that were postponed or redirected. Prior to the COVID-19 outbreak, public expenditure in health system was 4,8 % of GDP, below the Union average of 7 % of GDP in 2018. This, together with suboptimal allocation of funds, hampers the operation of the health system and access to it. In 2018, the proportion of the Polish population reporting unmet needs for medical examinations amounted to 4,2 %, substantially higher than the 2 % at Union level. The number of practising doctors and nurses relative to the population is still among the lowest in the Union and the distribution of the healthcare workforce is uneven across the country. Public health, e-health and primary care, which are crucial to improve prevention and access, and to make the system resilient to future challenges, remain underdeveloped. The pandemic has impacted long-term care facilities where many of the residents are a high-risk group. |
| --- | --- |

(18)

The COVID-19 pandemic made it necessary to put in place unprecedented measures in the health system. Sizeable outlays such as purchasing health-related equipment and supplies, increasing hospital and laboratory capacity, as well as strengthening staffing capacity, were made. Allocation of additional resources is needed also to compensate for other health services and investment that were postponed or redirected. Prior to the COVID-19 outbreak, public expenditure in health system was 4,8 % of GDP, below the Union average of 7 % of GDP in 2018. This, together with suboptimal allocation of funds, hampers the operation of the health system and access to it. In 2018, the proportion of the Polish population reporting unmet needs for medical examinations amounted to 4,2 %, substantially higher than the 2 % at Union level. The number of practising doctors and nurses relative to the population is still among the lowest in the Union and the distribution of the healthcare workforce is uneven across the country. Public health, e-health and primary care, which are crucial to improve prevention and access, and to make the system resilient to future challenges, remain underdeveloped. The pandemic has impacted long-term care facilities where many of the residents are a high-risk group.

| (19) | The COVID-19 pandemic will impact significantly the labour market, reversing the unemployment fall of recent years. The unemployment rate is set to revert from 3,3 % in 2019 to around 7,5 % in 2020, and slightly recover to 5,3 % in 2021. This short-term impact risks becoming more structural over the medium term, especially for vulnerable groups. The temporary short-time work scheme could be an effective tool to preserve jobs, with sufficient incentives for its take-up by companies. At the same time, despite favourable developments prior to the COVID-19 crisis, the labour market participation of some groups, especially women, the low-skilled, older people and persons with disabilities and their carers, have remained low. Migration from non-Union countries has helped to mitigate the labour shortages, but continued inflow of migrant workers may be difficult to achieve due to border control restrictions. The enhancement of flexible working arrangements, including distance working and flexible time working schemes, in particular under permanent types of employment, may therefore help responding to the crisis and also help support groups with lower activity rates finding permanent employment. This would also improve labour market resilience during future downturns. |
| --- | --- |

(19)

The COVID-19 pandemic will impact significantly the labour market, reversing the unemployment fall of recent years. The unemployment rate is set to revert from 3,3 % in 2019 to around 7,5 % in 2020, and slightly recover to 5,3 % in 2021. This short-term impact risks becoming more structural over the medium term, especially for vulnerable groups. The temporary short-time work scheme could be an effective tool to preserve jobs, with sufficient incentives for its take-up by companies. At the same time, despite favourable developments prior to the COVID-19 crisis, the labour market participation of some groups, especially women, the low-skilled, older people and persons with disabilities and their carers, have remained low. Migration from non-Union countries has helped to mitigate the labour shortages, but continued inflow of migrant workers may be difficult to achieve due to border control restrictions. The enhancement of flexible working arrangements, including distance working and flexible time working schemes, in particular under permanent types of employment, may therefore help responding to the crisis and also help support groups with lower activity rates finding permanent employment. This would also improve labour market resilience during future downturns.

| (20) | To mitigate the social impacts of the COVID-19 pandemic, sustain social cohesion and support the economic recovery, substantial safety nets are required. In recent years, Poland launched an extensive programme of social transfers, including the universal child allowance and the additional one-off benefit to be paid every year to pensioners, worth nearly 2,5 % of GDP per year. These measures leave scope for better targeting of social protection. At the same time, coverage of social benefits is low for people with lowest-incomes. The biggest increase in extreme poverty reported in 2019 by the household budget survey was observed for people or families living on allowances (other than pensions and disability pensions), signalling the weaknesses in the social security system. Moreover, not all types of labour contracts provide an access to social protection, such as adequate unemployment benefits, maternity benefits, sickness and invalidity benefits. This makes some workers affected by the emergency measures more vulnerable and puts them at risk of falling into poverty. Additionally, the level of minimum income benefits is below the Union average. |
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(20)

To mitigate the social impacts of the COVID-19 pandemic, sustain social cohesion and support the economic recovery, substantial safety nets are required. In recent years, Poland launched an extensive programme of social transfers, including the universal child allowance and the additional one-off benefit to be paid every year to pensioners, worth nearly 2,5 % of GDP per year. These measures leave scope for better targeting of social protection. At the same time, coverage of social benefits is low for people with lowest-incomes. The biggest increase in extreme poverty reported in 2019 by the household budget survey was observed for people or families living on allowances (other than pensions and disability pensions), signalling the weaknesses in the social security system. Moreover, not all types of labour contracts provide an access to social protection, such as adequate unemployment benefits, maternity benefits, sickness and invalidity benefits. This makes some workers affected by the emergency measures more vulnerable and puts them at risk of falling into poverty. Additionally, the level of minimum income benefits is below the Union average.

| (21) | The sudden suspension of classes at all educational levels has posed challenges for the education system in providing distance learning. To prevent growing inequalities, it is crucial to ensure that all learners, in particular from disadvantaged backgrounds, can access distance learning. However, households of almost 330 000 pupils were not equipped with a computer with internet access in 2018. Significant proportion of teachers lack skills to provide digital learning. At the same time, many parents struggle in supporting digital learning and home-based schooling. Continuation of measures to equip schools and teachers with digital infrastructure and online teaching materials would address some of those issues and ensure quality. The COVID-19 crisis brings out the overall structural challenge with digital skills attainment, as nearly half of the adult population lacks basic digital skills, and overall adults’ participation in learning is significantly lower than the Union average. The recent reforms in vocational education have not incentivised enough employers to participate in it and work-based training remains underutilised. Emerging teacher shortages indicate the need to increase the attractiveness of the teaching profession. |
| --- | --- |

(21)

The sudden suspension of classes at all educational levels has posed challenges for the education system in providing distance learning. To prevent growing inequalities, it is crucial to ensure that all learners, in particular from disadvantaged backgrounds, can access distance learning. However, households of almost 330 000 pupils were not equipped with a computer with internet access in 2018. Significant proportion of teachers lack skills to provide digital learning. At the same time, many parents struggle in supporting digital learning and home-based schooling. Continuation of measures to equip schools and teachers with digital infrastructure and online teaching materials would address some of those issues and ensure quality. The COVID-19 crisis brings out the overall structural challenge with digital skills attainment, as nearly half of the adult population lacks basic digital skills, and overall adults’ participation in learning is significantly lower than the Union average. The recent reforms in vocational education have not incentivised enough employers to participate in it and work-based training remains underutilised. Emerging teacher shortages indicate the need to increase the attractiveness of the teaching profession.

| (22) | The COVID-19 outbreak has severely impacted working conditions of businesses, especially small and medium-sized enterprises (‘SMEs’) and microenterprises. Offering distance working arrangements represents a challenge, and only a tenth of Polish enterprises are digitalised enough to allow for quick adaptation to new conditions. One of the main obstacles to the digitalisation of the SMEs are the low levels of digital literacy among owners, managers and employees. The use of digital technologies in public administration is key to ensuring the provision of the governmental services as well as to steer the measures needed to monitor and manage the crisis. In addition, efficient digital public services lead to reduction of unnecessary regulatory and administrative burden, which can be crucial in the recovery phase. |
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(22)

The COVID-19 outbreak has severely impacted working conditions of businesses, especially small and medium-sized enterprises (‘SMEs’) and microenterprises. Offering distance working arrangements represents a challenge, and only a tenth of Polish enterprises are digitalised enough to allow for quick adaptation to new conditions. One of the main obstacles to the digitalisation of the SMEs are the low levels of digital literacy among owners, managers and employees. The use of digital technologies in public administration is key to ensuring the provision of the governmental services as well as to steer the measures needed to monitor and manage the crisis. In addition, efficient digital public services lead to reduction of unnecessary regulatory and administrative burden, which can be crucial in the recovery phase.

| (23) | To mitigate the impact of the COVID-19 crisis, the Polish government has offered substantial liquidity support through guarantees, loans and conditional grants to affected companies, with a focus on the SMEs and microenterprises. The government measures are supported by the National Bank of Poland, including by the treasury bonds purchase programme in the secondary market and considerable interest rate cuts. Effective and swift implementation of those measures and their effective transmission by intermediaries is essential to help the business sector to pursue their activity and facilitate recovery. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account and the stability of the financial system needs to be monitored. Possibility to defer payments of taxes and social contributions and speeding up of contractual payments by public authorities also helps to improve the cash flow of affected companies. |
| --- | --- |

(23)

To mitigate the impact of the COVID-19 crisis, the Polish government has offered substantial liquidity support through guarantees, loans and conditional grants to affected companies, with a focus on the SMEs and microenterprises. The government measures are supported by the National Bank of Poland, including by the treasury bonds purchase programme in the secondary market and considerable interest rate cuts. Effective and swift implementation of those measures and their effective transmission by intermediaries is essential to help the business sector to pursue their activity and facilitate recovery. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account and the stability of the financial system needs to be monitored. Possibility to defer payments of taxes and social contributions and speeding up of contractual payments by public authorities also helps to improve the cash flow of affected companies.

| (24) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Polish economy is carbon intensive and air quality stands among the lowest in the Union, posing major environmental and health concerns. Planning and adopting ambitious measures aimed at clean energy transition in a timely manner in accordance with the European Green Deal and the National Energy and Climate Plan is thus essential. While fibre deployment in Poland is above the Union average and significant progress has been made in ultrafast and mobile broadband take-up in previous years, Poland is still far from its committed connectivity targets. The recovery could be further supported by significant investment in sustainable transport infrastructure to improve connectivity between peripheral areas and centres of economic activity. Poland will increasingly rely on science and innovation to ensure long-term sustainable economic growth and competitiveness. General spending on research and development in relation to GDP remains below the Union average and, despite visible progress in many components of the policy mix of the country’s innovation ecosystem, the science-business cooperation remains a key obstacle on Poland’s way to strengthen innovation. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Poland to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Poland to make the best use of that Fund. |
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(24)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Polish economy is carbon intensive and air quality stands among the lowest in the Union, posing major environmental and health concerns. Planning and adopting ambitious measures aimed at clean energy transition in a timely manner in accordance with the European Green Deal and the National Energy and Climate Plan is thus essential. While fibre deployment in Poland is above the Union average and significant progress has been made in ultrafast and mobile broadband take-up in previous years, Poland is still far from its committed connectivity targets. The recovery could be further supported by significant investment in sustainable transport infrastructure to improve connectivity between peripheral areas and centres of economic activity. Poland will increasingly rely on science and innovation to ensure long-term sustainable economic growth and competitiveness. General spending on research and development in relation to GDP remains below the Union average and, despite visible progress in many components of the policy mix of the country’s innovation ecosystem, the science-business cooperation remains a key obstacle on Poland’s way to strengthen innovation. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Poland to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Poland to make the best use of that Fund.

| (25) | A stable and predictable business environment and friendly investment climate play an important role in a post-pandemic economic recovery. The independence, efficiency and quality of the justice system are essential components in this respect. Legal certainty, including access to independent courts, and trust in the quality and predictability of regulatory policies and institutions are also crucial factors for the operation of the internal market and for safeguarding Poland’s position in European supply chains in a post-pandemic situation. In addition to longstanding concerns over the rule of law in Poland raised by the Commission, a number of which were already addressed in rulings of the Court of Justice of the European Union, recent developments raise further concerns, in relation to the functioning of the Polish and the Union’s legal order. |
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(25)

A stable and predictable business environment and friendly investment climate play an important role in a post-pandemic economic recovery. The independence, efficiency and quality of the justice system are essential components in this respect. Legal certainty, including access to independent courts, and trust in the quality and predictability of regulatory policies and institutions are also crucial factors for the operation of the internal market and for safeguarding Poland’s position in European supply chains in a post-pandemic situation. In addition to longstanding concerns over the rule of law in Poland raised by the Commission, a number of which were already addressed in rulings of the Court of Justice of the European Union, recent developments raise further concerns, in relation to the functioning of the Polish and the Union’s legal order.

| (26) | Sound and stable regulatory environment is the basis for sustaining economic growth and private investment. The lack of proper public and social partners’ consultations has detrimental effect on the stability and robustness of the business environment, as well as on the quality of legislation. Public consultations were made obligatory for the draft laws proposed by the Council of Ministers, however, they are either not delivered or not obligatory for the proposals that are using alternative tracks, such as submission by the Members of Parliament. This inconsistency is further weighing on the quality of the resulting legislation. In addition, the quality of the social dialogue has deteriorated, in particular due to no or very short consultations in the policy-making process. Ensuring sufficient time for consultations, improving the uptake of stakeholders’ opinions on laws and policy documents and minimising the number of laws exempted from consultations would strengthen the involvement of social partners and help to improve the quality of law-making. The Social Dialogue Council constitutes an institutional framework for tripartite social dialogue. However, legal provisions adopted in April 2020 weaken the autonomy of the social partners in the Social Dialogue Council and risk further deteriorating the effectiveness of social dialogue in the country. |
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(26)

Sound and stable regulatory environment is the basis for sustaining economic growth and private investment. The lack of proper public and social partners’ consultations has detrimental effect on the stability and robustness of the business environment, as well as on the quality of legislation. Public consultations were made obligatory for the draft laws proposed by the Council of Ministers, however, they are either not delivered or not obligatory for the proposals that are using alternative tracks, such as submission by the Members of Parliament. This inconsistency is further weighing on the quality of the resulting legislation. In addition, the quality of the social dialogue has deteriorated, in particular due to no or very short consultations in the policy-making process. Ensuring sufficient time for consultations, improving the uptake of stakeholders’ opinions on laws and policy documents and minimising the number of laws exempted from consultations would strengthen the involvement of social partners and help to improve the quality of law-making. The Social Dialogue Council constitutes an institutional framework for tripartite social dialogue. However, legal provisions adopted in April 2020 weaken the autonomy of the social partners in the Social Dialogue Council and risk further deteriorating the effectiveness of social dialogue in the country.

| (27) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(27)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (28) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Poland will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(28)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Poland will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (29) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Poland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Poland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Poland, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(29)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Poland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Poland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Poland, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (30) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (8) is reflected in particular in recommendation (1) below, |
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(30)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (8) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Poland take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve resilience, accessibility and effectiveness of the health system, including by providing sufficient resources and accelerating the deployment of e-health services. |
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1.

| 2. | Mitigate the employment impact of the crisis, in particular by enhancing flexible and short-time working arrangements. Better target social benefits and ensure access to those in need. Improve digital skills. Further promote the digital transformation of companies and public administration. |
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2.

| 3. | Continue efforts to secure access to finance and liquidity for companies. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on digital infrastructure, clean and efficient production and use of energy, and sustainable transport, contributing to a progressive decarbonisation of the economy, including in the coal regions. |
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3.

| 4. | Enhance the investment climate, in particular by safeguarding judicial independence. Ensure effective public consultations and involvement of social partners in the policy-making process. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 123.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

7

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

8

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/142 |
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26.8.2020

EN

Official Journal of the European Union

C 282/142

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Portugal and delivering a Council opinion on the 2020 Stability Programme of Portugal

(2020/C 282/22)

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 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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Portugal as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Portugal as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Portugal was published on 26 February 2020. It assessed Portugal’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Portugal’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Portugal is experiencing macroeconomic imbalances. In particular, the large stocks of net external liabilities, private and public debt, and a high share of non-performing loans (NPLs) constitute vulnerabilities in a context of low productivity growth. |
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(2)

The 2020 country report for Portugal was published on 26 February 2020. It assessed Portugal’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Portugal’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Portugal is experiencing macroeconomic imbalances. In particular, the large stocks of net external liabilities, private and public debt, and a high share of non-performing loans (NPLs) constitute vulnerabilities in a context of low productivity growth.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Portugal is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Portugal is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Portuguese regions due to different specialisation patterns, in particular in regions markedly relying on tourism, such as the Algarve and the outermost regions of Madeira and the Azores. This entails a substantial risk of widening regional and territorial disparities within Portugal. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Portuguese regions due to different specialisation patterns, in particular in regions markedly relying on tourism, such as the Algarve and the outermost regions of Madeira and the Azores. This entails a substantial risk of widening regional and territorial disparities within Portugal. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 16 May 2020, Portugal submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 16 May 2020, Portugal submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Portugal is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. On 13 July 2018, the Council recommended Portugal to ensure that the nominal growth rate of net primary government expenditure (7) would not exceed 0,7 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019, and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Portugal are not warranted. |
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(11)

Portugal is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. On 13 July 2018, the Council recommended Portugal to ensure that the nominal growth rate of net primary government expenditure (7) would not exceed 0,7 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019, and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Portugal are not warranted.

| (12) | In its 2020 Stability Programme, the government did not include a macroeconomic scenario and plans for the general government balance and debt-to-GDP ratio for at least 2020. The 2020 Stability Programme estimates, however, that every 30 working days – i.e. around 1,5 full months – of confinement may, on average, trigger a negative impact on annual GDP of 6,5 percentage points. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. There are risks underlying the budgetary projections, linked to the surge in public contingent liabilities stemming from some public corporations and the COVID-19-related measures targeting the private sector. This is on top of previously contracted contingent liabilities. |
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(12)

In its 2020 Stability Programme, the government did not include a macroeconomic scenario and plans for the general government balance and debt-to-GDP ratio for at least 2020. The 2020 Stability Programme estimates, however, that every 30 working days – i.e. around 1,5 full months – of confinement may, on average, trigger a negative impact on annual GDP of 6,5 percentage points. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. There are risks underlying the budgetary projections, linked to the surge in public contingent liabilities stemming from some public corporations and the COVID-19-related measures targeting the private sector. This is on top of previously contracted contingent liabilities.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Portugal has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. The 2020 Stability Programme reports estimates for the budgetary impacts of those measures on either a monthly or an annual basis, without providing a projected annual aggregate figure for 2020. The measures include, among others, one-time special support for firms for the resumption of business activity (EUR 508,0 million or 0,3 % of GDP), a simplified scheme for the temporary interruption of work or reduction of normal working time (‘lay-off’, EUR 373,3 million or 0,2 % of GDP per month of application), and the purchase of personal protective equipment by the health system (0,1 % of GDP per month of application). (8) The Commission estimates that an overall direct budgetary cost of around 2,5 % of GDP may result from those measures in 2020. In addition, Portugal has announced measures that, while not having as a rule a direct budgetary impact, will contribute to providing liquidity support to businesses and households, which the 2020 Stability Programme estimates at close to EUR 25,1 billion or 12,5 % of GDP. Those measures include tax deferrals for value-added, personal and corporate income taxes, as well as social contributions (EUR 7,9 billion or 3,9 % of GDP) and State guaranteed credit lines and other similar initiatives (EUR 4,0 billion or 2,0 % of GDP). Overall, the measures taken by Portugal are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Portugal has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. The 2020 Stability Programme reports estimates for the budgetary impacts of those measures on either a monthly or an annual basis, without providing a projected annual aggregate figure for 2020. The measures include, among others, one-time special support for firms for the resumption of business activity (EUR 508,0 million or 0,3 % of GDP), a simplified scheme for the temporary interruption of work or reduction of normal working time (‘lay-off’, EUR 373,3 million or 0,2 % of GDP per month of application), and the purchase of personal protective equipment by the health system (0,1 % of GDP per month of application). (8) The Commission estimates that an overall direct budgetary cost of around 2,5 % of GDP may result from those measures in 2020. In addition, Portugal has announced measures that, while not having as a rule a direct budgetary impact, will contribute to providing liquidity support to businesses and households, which the 2020 Stability Programme estimates at close to EUR 25,1 billion or 12,5 % of GDP. Those measures include tax deferrals for value-added, personal and corporate income taxes, as well as social contributions (EUR 7,9 billion or 3,9 % of GDP) and State guaranteed credit lines and other similar initiatives (EUR 4,0 billion or 2,0 % of GDP). Overall, the measures taken by Portugal are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Portugal’s general government deficit is forecast at 6,5 % of GDP in 2020 and 1,8 % of GDP in 2021. The general government debt-to-GDP ratio is projected to peak at 131,6 % in 2020, before decreasing to 124,4 % in 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Portugal’s general government deficit is forecast at 6,5 % of GDP in 2020 and 1,8 % of GDP in 2021. The general government debt-to-GDP ratio is projected to peak at 131,6 % in 2020, before decreasing to 124,4 % in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty for Portugal because of the projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty for Portugal because of the projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | The COVID-19 pandemic hit Portugal in early March 2020, putting its health system under great pressure. The government swiftly implemented a broad range of strict containment measures, having enacted a constitutional state of emergency between 18 March 2020 and 2 May 2020 to limit as much as possible the spread of the disease and the loss of lives. Portugal took measures to strengthen the response capacity of the health system and to flatten the curve of infections, so as not to overwhelm hospitals. The national and global containment measures have severely curtailed economic activity in most sectors, hitting tourism and related activities particularly hard, and clouded the social and economic outlook in Portugal, particularly its microenterprises and small and medium-sized enterprises (SMEs). The economy is projected to contract by 6,8 % in 2020 and to rebound by 5,8 % in 2021. |
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(16)

The COVID-19 pandemic hit Portugal in early March 2020, putting its health system under great pressure. The government swiftly implemented a broad range of strict containment measures, having enacted a constitutional state of emergency between 18 March 2020 and 2 May 2020 to limit as much as possible the spread of the disease and the loss of lives. Portugal took measures to strengthen the response capacity of the health system and to flatten the curve of infections, so as not to overwhelm hospitals. The national and global containment measures have severely curtailed economic activity in most sectors, hitting tourism and related activities particularly hard, and clouded the social and economic outlook in Portugal, particularly its microenterprises and small and medium-sized enterprises (SMEs). The economy is projected to contract by 6,8 % in 2020 and to rebound by 5,8 % in 2021.

| (17) | To mitigate the immediate impact of the COVID-19 pandemic on people’s health, high expenditure for the health system is being incurred on a broad front. Investments are needed to improve the resilience of the health system, securing equipment, products and infrastructure necessary to bolster crisis-response capacities, including intensive care, testing, technological and applied medical research, and universal access, including outside urban areas and in the outermost regions of Madeira and the Azores. At the outset of the COVID-19 outbreak, a plan to introduce a new governance model for public hospitals was gradually under way, with substantial increases in annual budgets. Its steady implementation in the current juncture could help to strengthen the resilience of the health system. COVID-19 has demonstrated the fragility of long-term care facilities in Portugal, which have seen higher rates of infection. Despite improvements in the territorial coverage of long-term care in the last decade, overall access rates are low in all regions of the country. At the same time, already before the COVID-19 outbreak, healthcare expenditure was forecast to increase significantly as a percentage share of GDP over the long term. Continued efforts to improve efficiency and capacity of health and long-term care are necessary to deal with the current crisis as well as to address ageing-related challenges. |
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(17)

To mitigate the immediate impact of the COVID-19 pandemic on people’s health, high expenditure for the health system is being incurred on a broad front. Investments are needed to improve the resilience of the health system, securing equipment, products and infrastructure necessary to bolster crisis-response capacities, including intensive care, testing, technological and applied medical research, and universal access, including outside urban areas and in the outermost regions of Madeira and the Azores. At the outset of the COVID-19 outbreak, a plan to introduce a new governance model for public hospitals was gradually under way, with substantial increases in annual budgets. Its steady implementation in the current juncture could help to strengthen the resilience of the health system. COVID-19 has demonstrated the fragility of long-term care facilities in Portugal, which have seen higher rates of infection. Despite improvements in the territorial coverage of long-term care in the last decade, overall access rates are low in all regions of the country. At the same time, already before the COVID-19 outbreak, healthcare expenditure was forecast to increase significantly as a percentage share of GDP over the long term. Continued efforts to improve efficiency and capacity of health and long-term care are necessary to deal with the current crisis as well as to address ageing-related challenges.

| (18) | Following sustained positive labour-market developments since 2014, Portugal will now face extraordinary employment challenges as a result of the pandemic. According to the Commission forecast, unemployment is expected to rise to 9,7 % of the active population in 2020 before decreasing to 7,4 % in 2021, up from 6,5 % in 2019. To support employment and mitigate the risk of job losses, Portugal has simplified and adapted the use of its existing scheme for the temporary interruption of work or reduction of normal working time. Targeted use of Union’s and national programmes could preserve jobs and economic activity, especially in relation to SMEs. In the recovery phase, personalised and targeted active labour-market policies, in particular upskilling and reskilling, will play a decisive role in keeping the workforce job-ready. Cooperation among employers, education and training institutions, and public employment services will be crucial in generating a recruitment surge. |
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(18)

Following sustained positive labour-market developments since 2014, Portugal will now face extraordinary employment challenges as a result of the pandemic. According to the Commission forecast, unemployment is expected to rise to 9,7 % of the active population in 2020 before decreasing to 7,4 % in 2021, up from 6,5 % in 2019. To support employment and mitigate the risk of job losses, Portugal has simplified and adapted the use of its existing scheme for the temporary interruption of work or reduction of normal working time. Targeted use of Union’s and national programmes could preserve jobs and economic activity, especially in relation to SMEs. In the recovery phase, personalised and targeted active labour-market policies, in particular upskilling and reskilling, will play a decisive role in keeping the workforce job-ready. Cooperation among employers, education and training institutions, and public employment services will be crucial in generating a recruitment surge.

| (19) | The COVID-19 pandemic requires measures to mitigate social impacts and protect people in vulnerable situations, so that inequalities are not exacerbated. These include unemployment benefit schemes and income support for the most affected workers, including self-employed and nonstandard workers, access to services and measures fostering reintegration in the labour market. The implementation of a national social contingency plan in cooperation with social partners and civil society could contribute to an immediate and coordinated response to mitigate the social consequences of the crisis. Policy changes to reverse the decline in the effectiveness of social transfers in recent years, e.g. increases in the minimum income, the solidarity supplement for the elderly, pensions and family benefits have had a positive effect on income distribution. Nevertheless, social transfers (excluding pensions) reduced the proportion of population at risk of poverty by only 23,8 % in Portugal in 2018, significantly below the Union average of 34 %. In addition, the adequacy of the minimum income scheme is among the lowest in the Union, providing incomes of only 40 % of the national poverty threshold. |
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(19)

The COVID-19 pandemic requires measures to mitigate social impacts and protect people in vulnerable situations, so that inequalities are not exacerbated. These include unemployment benefit schemes and income support for the most affected workers, including self-employed and nonstandard workers, access to services and measures fostering reintegration in the labour market. The implementation of a national social contingency plan in cooperation with social partners and civil society could contribute to an immediate and coordinated response to mitigate the social consequences of the crisis. Policy changes to reverse the decline in the effectiveness of social transfers in recent years, e.g. increases in the minimum income, the solidarity supplement for the elderly, pensions and family benefits have had a positive effect on income distribution. Nevertheless, social transfers (excluding pensions) reduced the proportion of population at risk of poverty by only 23,8 % in Portugal in 2018, significantly below the Union average of 34 %. In addition, the adequacy of the minimum income scheme is among the lowest in the Union, providing incomes of only 40 % of the national poverty threshold.

| (20) | The COVID-19 pandemic places significant demands on the use of digital technologies to ensure continued access to education, training and business activity, against the background of the necessary adoption of social distancing measures. Portuguese schools and training centres have closed and traditional in-person learning has been disrupted and replaced by an offer for distance learning. Around 6 % of households still have no access to the internet, affecting an estimated 50 000 pupils, and internet access and telecommunications network coverage vary widely between urban and rural areas. Students from socioeconomically advantaged families are better placed to manage the challenges posed by distance learning. In addition, Portugal has a large digital skills deficit. In 2019, 48 % of the population lacked basic digital skills, including about 26 % with no digital skills at all and the proportion of those having never used the internet is twice the Union average. Current circumstances call for intensive implementation of e-training courses and efforts to help people suffering from digital exclusion to overcome the obstacles in accessing distance learning. The adoption of digital technologies by businesses to offer alternative working arrangements and digital services would allow business continuity to firms whose services can be provided online, thereby mitigating the impact of the restrictions in some sectors. This is particularly relevant in Portugal whose economy is mostly characterised by microenterprises concentrated in traditional sectors. One of the main factors hindering the digitalisation of SMEs is the digital knowledge gap, which is a result of low overall levels of digital literacy among managers and employees. |
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(20)

The COVID-19 pandemic places significant demands on the use of digital technologies to ensure continued access to education, training and business activity, against the background of the necessary adoption of social distancing measures. Portuguese schools and training centres have closed and traditional in-person learning has been disrupted and replaced by an offer for distance learning. Around 6 % of households still have no access to the internet, affecting an estimated 50 000 pupils, and internet access and telecommunications network coverage vary widely between urban and rural areas. Students from socioeconomically advantaged families are better placed to manage the challenges posed by distance learning. In addition, Portugal has a large digital skills deficit. In 2019, 48 % of the population lacked basic digital skills, including about 26 % with no digital skills at all and the proportion of those having never used the internet is twice the Union average. Current circumstances call for intensive implementation of e-training courses and efforts to help people suffering from digital exclusion to overcome the obstacles in accessing distance learning. The adoption of digital technologies by businesses to offer alternative working arrangements and digital services would allow business continuity to firms whose services can be provided online, thereby mitigating the impact of the restrictions in some sectors. This is particularly relevant in Portugal whose economy is mostly characterised by microenterprises concentrated in traditional sectors. One of the main factors hindering the digitalisation of SMEs is the digital knowledge gap, which is a result of low overall levels of digital literacy among managers and employees.

| (21) | To prevent avoidable bankruptcies and allow firms to survive the shock and remain competitive, Portugal adopted a set of measures aimed at supporting viable firms, and in particular SMEs, which have been affected by the imposition of the social distancing measures, implying restrictions to operations and a drop in domestic and global demand. These measures focus on provision of the liquidity support, including through guarantees funded by the State and public financial institutions, direct subsidies, tax deferrals, social contributions reductions and deferrals, as well as housing rents deferrals and a public moratorium on bank loans to households and firms. They focus in particular on the hardest-hit sectors, including tourism, hospitality and related economic activities, as well as manufacturing and exporting companies. It is important that such measures be implemented by the public institutions and private intermediaries in a timely and efficient manner. In this context, the Portuguese government streamlined the process for accessing credit lines, specifically the documentation to be presented by firms. In the process of designing and implementing these measures, the resilience of the banking sector, along with the funding conditions of the economy, needs to be taken into account. Additional policy action aims at supporting entrepreneurship and the self-employed. |
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(21)

To prevent avoidable bankruptcies and allow firms to survive the shock and remain competitive, Portugal adopted a set of measures aimed at supporting viable firms, and in particular SMEs, which have been affected by the imposition of the social distancing measures, implying restrictions to operations and a drop in domestic and global demand. These measures focus on provision of the liquidity support, including through guarantees funded by the State and public financial institutions, direct subsidies, tax deferrals, social contributions reductions and deferrals, as well as housing rents deferrals and a public moratorium on bank loans to households and firms. They focus in particular on the hardest-hit sectors, including tourism, hospitality and related economic activities, as well as manufacturing and exporting companies. It is important that such measures be implemented by the public institutions and private intermediaries in a timely and efficient manner. In this context, the Portuguese government streamlined the process for accessing credit lines, specifically the documentation to be presented by firms. In the process of designing and implementing these measures, the resilience of the banking sector, along with the funding conditions of the economy, needs to be taken into account. Additional policy action aims at supporting entrepreneurship and the self-employed.

| (22) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Growth-enhancing investments to support research and innovation, digitalisation, connectivity and green transition will contribute to the recovery of the Portuguese economy and redirect it towards long-term sustainable growth. Investments in transport infrastructure could address the peripheral situation of Portugal, in particular by closing railway connection gaps with Spain and by allowing the exploitation of the underused potential of Portuguese ports. Portugal’s National Energy and Climate Plan reports important investment needs to tackle the climate and energy transition. There is still a wide margin to improve energy efficiency in buildings and reduce energy consumption in business. Better energy connectivity within the Iberian Peninsula could enable more competition and facilitate the deployment of renewable energy. Investment can also help with regard to anticipating the adverse effects of climate change, such as floods and forest fires, as well as improving water and waste management and developing the potential of the circular economy. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Portugal to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Portugal to make the best use of that Fund. |
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(22)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Growth-enhancing investments to support research and innovation, digitalisation, connectivity and green transition will contribute to the recovery of the Portuguese economy and redirect it towards long-term sustainable growth. Investments in transport infrastructure could address the peripheral situation of Portugal, in particular by closing railway connection gaps with Spain and by allowing the exploitation of the underused potential of Portuguese ports. Portugal’s National Energy and Climate Plan reports important investment needs to tackle the climate and energy transition. There is still a wide margin to improve energy efficiency in buildings and reduce energy consumption in business. Better energy connectivity within the Iberian Peninsula could enable more competition and facilitate the deployment of renewable energy. Investment can also help with regard to anticipating the adverse effects of climate change, such as floods and forest fires, as well as improving water and waste management and developing the potential of the circular economy. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Portugal to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Portugal to make the best use of that Fund.

| (23) | The Portuguese justice system has become more efficient in recent years, thanks to a number of measures that continue to be implemented. However, the pandemic and resulting recession may lead to an increase in litigation that could exacerbate remaining bottlenecks, in particular the lengthy proceedings and high case backlogs in administrative and tax courts. Increased efficiency and resilience of the justice system could improve business environment, particularly benefiting domestic SMEs and investors. |
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(23)

The Portuguese justice system has become more efficient in recent years, thanks to a number of measures that continue to be implemented. However, the pandemic and resulting recession may lead to an increase in litigation that could exacerbate remaining bottlenecks, in particular the lengthy proceedings and high case backlogs in administrative and tax courts. Increased efficiency and resilience of the justice system could improve business environment, particularly benefiting domestic SMEs and investors.

| (24) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(24)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (25) | Past years witnessed several aggregate improvements in the Portuguese banking system. Profitability metrics improved on the back of efforts to increase the sector’s efficiency and the reduction of provisions and impairments. Given the improved profitability, the banking system proceeded on its path to strengthen capital ratios. However, own-funds levels are still below the Union average. The ratio of NPLs continued its multiyear downward trend but remains double the Union ratio. Income generation capacity remains a challenge amid low interest rates and in an economy with a still high level of indebtedness. The COVID-19 crisis, the low-interest-rate environment and also a certain exposure to oil-depending countries will create challenges for the banking sector and will be reflected in the credit quality of loans granted. |
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(25)

Past years witnessed several aggregate improvements in the Portuguese banking system. Profitability metrics improved on the back of efforts to increase the sector’s efficiency and the reduction of provisions and impairments. Given the improved profitability, the banking system proceeded on its path to strengthen capital ratios. However, own-funds levels are still below the Union average. The ratio of NPLs continued its multiyear downward trend but remains double the Union ratio. Income generation capacity remains a challenge amid low interest rates and in an economy with a still high level of indebtedness. The COVID-19 crisis, the low-interest-rate environment and also a certain exposure to oil-depending countries will create challenges for the banking sector and will be reflected in the credit quality of loans granted.

| (26) | Lengthy insolvency proceedings have been identified as one of the key factors preventing banks from dealing promptly with the existing stock of NPLs. They also have a substantial influence on the pricing of these assets on the secondary market, as the outcomes, measured as payments to creditors, are insufficient. The breakdown of NPLs continues to show a consistently high proportion of corporate loans (about two thirds), which are least amenable to a swift, standardised approach. In recent years, several amendments have been made to both insolvency and civil enforcement proceedings. Further adjustments, in particular targeting unjustified delay, would help for both creditors and borrowers, with the latter benefiting from a fresh start. |
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(26)

Lengthy insolvency proceedings have been identified as one of the key factors preventing banks from dealing promptly with the existing stock of NPLs. They also have a substantial influence on the pricing of these assets on the secondary market, as the outcomes, measured as payments to creditors, are insufficient. The breakdown of NPLs continues to show a consistently high proportion of corporate loans (about two thirds), which are least amenable to a swift, standardised approach. In recent years, several amendments have been made to both insolvency and civil enforcement proceedings. Further adjustments, in particular targeting unjustified delay, would help for both creditors and borrowers, with the latter benefiting from a fresh start.

| (27) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Portugal will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(27)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Portugal will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (28) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Portugal should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup. |
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(28)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Portugal should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup.

| (29) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Portugal’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Portugal in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Portugal, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(29)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Portugal’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Portugal in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Portugal, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (30) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) is reflected in particular in recommendation (1) below. |
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(30)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) is reflected in particular in recommendation (1) below.

| (31) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4), |
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(31)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4),

HEREBY RECOMMENDS that Portugal take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system and ensure equal access to quality health and long-term care. |
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1.

| 2. | Support employment and prioritise measures to preserve jobs. Guarantee sufficient and effective social protection and income support. Support the use of digital technologies to ensure equal access to quality education and training and to boost firms’ competitiveness. |
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2.

| 3. | Implement the temporary measures aimed at securing access to liquidity for firms, in particular SMEs. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, rail infrastructure and innovation. |
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3.

| 4. | Increase the efficiency of administrative and tax courts. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 129.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

7

(8)  The budgetary impacts are expressed as a percentage of GDP in 2020 according to the Commission 2020 spring forecast (EUR 200,4 billion).

8

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

9

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/149 |
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26.8.2020

EN

Official Journal of the European Union

C 282/149

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Romania and delivering a Council opinion on the 2020 Convergence Programme of Romania

(2020/C 282/23)

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 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 9(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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Romania as one of the Member States for which an in-depth review would be carried out. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Romania as one of the Member States for which an in-depth review would be carried out.

| (2) | The 2020 country report for Romania was published on 26 February 2020. It assessed Romania’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Romania’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Romania is experiencing macroeconomic imbalances. In particular, vulnerabilities are linked to cost-competitiveness and a widening current-account deficit in a context of an expansionary fiscal policy and an unpredictable business environment. |
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(2)

The 2020 country report for Romania was published on 26 February 2020. It assessed Romania’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Romania’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Romania is experiencing macroeconomic imbalances. In particular, vulnerabilities are linked to cost-competitiveness and a widening current-account deficit in a context of an expansionary fiscal policy and an unpredictable business environment.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Romania is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Romania is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Romanian regions because of significant investment and labour productivity gaps and different specialisation patterns. This entails a substantial risk of widening regional disparities within Romania, reversing the already observed trend of slightly reducing disparities between the capital city and the rest of the regions or between urban and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Romanian regions because of significant investment and labour productivity gaps and different specialisation patterns. This entails a substantial risk of widening regional disparities within Romania, reversing the already observed trend of slightly reducing disparities between the capital city and the rest of the regions or between urban and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | Romania submitted its 2020 National Reform Programme on 8 May 2020 and its 2020 Convergence Programme on 14 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

Romania submitted its 2020 National Reform Programme on 8 May 2020 and its 2020 Convergence Programme on 14 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Romania is currently in the corrective arm of the Stability and Growth Pact. |
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(11)

Romania is currently in the corrective arm of the Stability and Growth Pact.

| (12) | On 3 April 2020, the Council adopted Decision (EU) 2020/509 (7), finding that an excessive deficit existed in Romania due to non-compliance with the deficit criterion in 2019. The finding was based on the updated fiscal targets by the government, which reflected the budget execution data for the year to date. The 2019 general government deficit outturn of 4,3 % of gross domestic product (GDP) confirmed the breach. The breach was the result of a continuous build-up of fiscal imbalances due to an expansionary fiscal policy since 2016, in a period of strong economic growth. Systematic and repeated derogations from national fiscal rules during that period rendered those rules largely ineffective. Moreover, Romania had repeatedly failed to take effective action in response to the Council’s recommendations made to it in the context of the significant deviation procedure. On 3 April 2020, the Council also issued a Recommendation (8) with a view to bringing an end to the situation of an excessive government deficit in Romania by 2022 at the latest. |
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(12)

On 3 April 2020, the Council adopted Decision (EU) 2020/509 (7), finding that an excessive deficit existed in Romania due to non-compliance with the deficit criterion in 2019. The finding was based on the updated fiscal targets by the government, which reflected the budget execution data for the year to date. The 2019 general government deficit outturn of 4,3 % of gross domestic product (GDP) confirmed the breach. The breach was the result of a continuous build-up of fiscal imbalances due to an expansionary fiscal policy since 2016, in a period of strong economic growth. Systematic and repeated derogations from national fiscal rules during that period rendered those rules largely ineffective. Moreover, Romania had repeatedly failed to take effective action in response to the Council’s recommendations made to it in the context of the significant deviation procedure. On 3 April 2020, the Council also issued a Recommendation (8) with a view to bringing an end to the situation of an excessive government deficit in Romania by 2022 at the latest.

| (13) | The long-term sustainability of Romania’s public finances was already at risk prior to the COVID-19 outbreak, as a result of high budget deficits and the projected significant rise in ageing costs, in particular pensions. Old-age pensions were increased by 15 % in September 2019 and, based on a pension law adopted in summer 2019, are due to increase by 40 % in September 2020 and be recalculated upward in September 2021. Pension spending would thus increase substantially over the period 2020 to 2022. Fiscal sustainability risks are further heightened by the impact of the COVID-19 pandemic on economic activity and the fiscal effort required to cushion it. Prior fiscal policy decisions have left Romania with small fiscal buffers to deal with the outcome of the COVID-19 outbreak. |
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(13)

The long-term sustainability of Romania’s public finances was already at risk prior to the COVID-19 outbreak, as a result of high budget deficits and the projected significant rise in ageing costs, in particular pensions. Old-age pensions were increased by 15 % in September 2019 and, based on a pension law adopted in summer 2019, are due to increase by 40 % in September 2020 and be recalculated upward in September 2021. Pension spending would thus increase substantially over the period 2020 to 2022. Fiscal sustainability risks are further heightened by the impact of the COVID-19 pandemic on economic activity and the fiscal effort required to cushion it. Prior fiscal policy decisions have left Romania with small fiscal buffers to deal with the outcome of the COVID-19 outbreak.

| (14) | In its 2020 Convergence Programme, the government headline balance is planned to deteriorate from a deficit of 4,3 % of GDP in 2019 to a deficit of 6,7 % of GDP in 2020, while the general government debt-to-GDP ratio is expected to increase from 35,2 % in 2019 to 40,9 % in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. In addition, there are risks underlying the budgetary projections, namely some revenue items do not seem to be estimated in line with the underlying macroeconomic projections, while the moderation of some current expenditure items seem to be based on fiscal consolidation measures that are not specified in the Programme. |
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(14)

In its 2020 Convergence Programme, the government headline balance is planned to deteriorate from a deficit of 4,3 % of GDP in 2019 to a deficit of 6,7 % of GDP in 2020, while the general government debt-to-GDP ratio is expected to increase from 35,2 % in 2019 to 40,9 % in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. In addition, there are risks underlying the budgetary projections, namely some revenue items do not seem to be estimated in line with the underlying macroeconomic projections, while the moderation of some current expenditure items seem to be based on fiscal consolidation measures that are not specified in the Programme.

| (15) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Romania has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 1,2 % of GDP. The measures include a technical unemployment benefit to employees and similar benefits to other categories of worker, medical equipment and other expenditures to help fight COVID-19 and bonuses for employees in the health sector working with patients infected with COVID-19. In addition, the government has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include tax deferrals, speeding up of value-added tax (VAT) reimbursements, loan guarantees for small and medium-sized enterprises (SMEs), a temporary moratorium on the payment of bank loan instalments for households and SMEs, and a deferral of rent and utility bills for SMEs. Overall, the measures taken by the government of Romania are in line with the guidelines set out in the Commission ommunication of 13 March 2020. |
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(15)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Romania has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 1,2 % of GDP. The measures include a technical unemployment benefit to employees and similar benefits to other categories of worker, medical equipment and other expenditures to help fight COVID-19 and bonuses for employees in the health sector working with patients infected with COVID-19. In addition, the government has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include tax deferrals, speeding up of value-added tax (VAT) reimbursements, loan guarantees for small and medium-sized enterprises (SMEs), a temporary moratorium on the payment of bank loan instalments for households and SMEs, and a deferral of rent and utility bills for SMEs. Overall, the measures taken by the government of Romania are in line with the guidelines set out in the Commission ommunication of 13 March 2020.

| (16) | Based on the Commission 2020 spring forecast under unchanged policies, Romania’s general government balance is forecast to be -9,2 % of GDP in 2020 and -11,4 % of GDP in 2021. The general government debt-to-GDP ratio is projected by the Commission to reach 46,2 % in 2020. |
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(16)

Based on the Commission 2020 spring forecast under unchanged policies, Romania’s general government balance is forecast to be -9,2 % of GDP in 2020 and -11,4 % of GDP in 2021. The general government debt-to-GDP ratio is projected by the Commission to reach 46,2 % in 2020.

| (17) | Romania declared a state of emergency on 16 March 2020. As of 25 March 2020, all schools and shops, except for those selling primary necessity products, were ordered to close and border-crossing restrictions came into force. Movement in public areas was allowed only in limited cases, with stricter measures for people above 65. Romania also introduced a ban on international travel to certain countries and put several cities into strict quarantine. This situation has taken a toll on the production sector of the economy, as the lockdown measures have had a severely negative impact on economic activity. In the industrial sector, several manufacturers shut down production in the second half of March, with strong spillover effects in key sectors, such as the automotive industry. Similar developments are observed in the retail and hospitality sectors. The aggregated effect will push the economy into a recession in 2020. The state of emergency ended on 14 May 2020, and Romania announced that it would gradually implement de-confinement measures. Starting on 15 May 2020, measures were introduced concerning the easing of movement inside cities, the partial reopening of commercial retailing and the mandatory use of protection masks in closed public and commercial spaces, public transport and workplaces. Some manufacturers from the automotive industry gradually resumed activity at the end of April and in early May 2020. The government is preparing further measures aimed at relaunching the economy. |
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(17)

Romania declared a state of emergency on 16 March 2020. As of 25 March 2020, all schools and shops, except for those selling primary necessity products, were ordered to close and border-crossing restrictions came into force. Movement in public areas was allowed only in limited cases, with stricter measures for people above 65. Romania also introduced a ban on international travel to certain countries and put several cities into strict quarantine. This situation has taken a toll on the production sector of the economy, as the lockdown measures have had a severely negative impact on economic activity. In the industrial sector, several manufacturers shut down production in the second half of March, with strong spillover effects in key sectors, such as the automotive industry. Similar developments are observed in the retail and hospitality sectors. The aggregated effect will push the economy into a recession in 2020. The state of emergency ended on 14 May 2020, and Romania announced that it would gradually implement de-confinement measures. Starting on 15 May 2020, measures were introduced concerning the easing of movement inside cities, the partial reopening of commercial retailing and the mandatory use of protection masks in closed public and commercial spaces, public transport and workplaces. Some manufacturers from the automotive industry gradually resumed activity at the end of April and in early May 2020. The government is preparing further measures aimed at relaunching the economy.

| (18) | The pandemic has put the health system under unprecedented pressure. The crisis hit a system characterised by structural weaknesses, such as low spending and unequal access to healthcare. In this context, improving the resilience of the health system and its capacity to respond to shocks represents a key challenge. As part of the immediate response, Romania purchased critical medical products and included COVID-19 related medical costs in the minimum benefit package for the uninsured. Considerable health workforce shortages, including of family physicians, as well as outdated medical facilities, lack of medical products, insufficient training for health workers and limited continuity and integration between different levels of care weaken the resilience of the health system. Reported unmet medical needs were on the rise already before the COVID-19 crisis and access to healthcare is likely to have deteriorated. The pandemic further exposed regional disparities and the gap in healthcare coverage for low-income groups and the elderly. In the longer run, population ageing and migration are challenges that put increasing pressure on the sustainability of the health system. In light of COVID-19, it is equally important to address structural issues, including the development of preventive, outpatient and community-based care with well-targeted public policy measures. Long-term investment will be needed to reinforce the Romanian health system by securing health workers and equipment, enhancing technological and applied research and improving the coverage and accessibility of health services to all citizens, also in non-urban areas, including through the use of e-health services. |
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(18)

The pandemic has put the health system under unprecedented pressure. The crisis hit a system characterised by structural weaknesses, such as low spending and unequal access to healthcare. In this context, improving the resilience of the health system and its capacity to respond to shocks represents a key challenge. As part of the immediate response, Romania purchased critical medical products and included COVID-19 related medical costs in the minimum benefit package for the uninsured. Considerable health workforce shortages, including of family physicians, as well as outdated medical facilities, lack of medical products, insufficient training for health workers and limited continuity and integration between different levels of care weaken the resilience of the health system. Reported unmet medical needs were on the rise already before the COVID-19 crisis and access to healthcare is likely to have deteriorated. The pandemic further exposed regional disparities and the gap in healthcare coverage for low-income groups and the elderly. In the longer run, population ageing and migration are challenges that put increasing pressure on the sustainability of the health system. In light of COVID-19, it is equally important to address structural issues, including the development of preventive, outpatient and community-based care with well-targeted public policy measures. Long-term investment will be needed to reinforce the Romanian health system by securing health workers and equipment, enhancing technological and applied research and improving the coverage and accessibility of health services to all citizens, also in non-urban areas, including through the use of e-health services.

| (19) | Fast economic growth in recent years triggered an improvement in social conditions. Gross disposable household income increased by 5,7 % in 2019. The risk of poverty and social exclusion, at 31,2 % in 2019, was among the highest in the Union, though on a steadily declining path. However, the pandemic’s impact on the economy may lead to the deterioration of social conditions. Poverty and social exclusion, including child poverty, in-work poverty and income inequalities are expected to increase, with vulnerable groups such as non-standard workers, undeclared workers, the self-employed, Roma, people with disabilities, the elderly and the homeless among the most exposed. Coverage and adequacy of social protection measures and the effectiveness of the tax and benefit system in redistributing income remain limited. Children in rural areas and informal settlements have limited access to good-quality early childhood education and care, adequate nutrition, healthcare and housing. Social transfers have a very limited impact on reducing poverty and the social reference index used as a basis for most social benefits has not been updated since 2008. Adequacy of the minimum income support remains one of the lowest in the Union. Though adopted in 2016, the minimum inclusion income reform has been further postponed to 2021. Social and essential services remain largely insufficient, including in areas such as water and sanitation, energy and housing. Moreover, territorial distribution is uneven and characterised by significant rural-urban and regional disparities. This may limit the capacity to counteract the impact of the pandemic. The potential of the social economy to improve social conditions is still untapped. |
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(19)

Fast economic growth in recent years triggered an improvement in social conditions. Gross disposable household income increased by 5,7 % in 2019. The risk of poverty and social exclusion, at 31,2 % in 2019, was among the highest in the Union, though on a steadily declining path. However, the pandemic’s impact on the economy may lead to the deterioration of social conditions. Poverty and social exclusion, including child poverty, in-work poverty and income inequalities are expected to increase, with vulnerable groups such as non-standard workers, undeclared workers, the self-employed, Roma, people with disabilities, the elderly and the homeless among the most exposed. Coverage and adequacy of social protection measures and the effectiveness of the tax and benefit system in redistributing income remain limited. Children in rural areas and informal settlements have limited access to good-quality early childhood education and care, adequate nutrition, healthcare and housing. Social transfers have a very limited impact on reducing poverty and the social reference index used as a basis for most social benefits has not been updated since 2008. Adequacy of the minimum income support remains one of the lowest in the Union. Though adopted in 2016, the minimum inclusion income reform has been further postponed to 2021. Social and essential services remain largely insufficient, including in areas such as water and sanitation, energy and housing. Moreover, territorial distribution is uneven and characterised by significant rural-urban and regional disparities. This may limit the capacity to counteract the impact of the pandemic. The potential of the social economy to improve social conditions is still untapped.

| (20) | Over 2019, labour market developments remained positive, but disparities between regions, rural and urban areas and socioeconomic groups persist. High levels of inactivity are registered, in particular for women, young people, the low-skilled, people with disabilities and older people. In the context of the COVID-19 outbreak, existing challenges are likely to deepen, together with rapidly increasing unemployment and inactivity. According to the Commission 2020 spring forecast, unemployment is expected to rise to 6,5 % in 2020 and recover to 5,4 % in 2021. Undeclared work remains a challenge and its negative impact might be exacerbated in the current context, underlining the need to support the transition into declared work. Therefore, timely tailor-made services addressing the needs of vulnerable groups and workers affected by the crisis are essential. In addition to the recently initiated technical unemployment scheme, developing access to short-time work schemes, promoting income-support measures and allowing for flexible working arrangements and teleworking for the workers affected, with the involvement of social partners, are crucial to strengthening the resilience of the labour market in the short and long term. |
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(20)

Over 2019, labour market developments remained positive, but disparities between regions, rural and urban areas and socioeconomic groups persist. High levels of inactivity are registered, in particular for women, young people, the low-skilled, people with disabilities and older people. In the context of the COVID-19 outbreak, existing challenges are likely to deepen, together with rapidly increasing unemployment and inactivity. According to the Commission 2020 spring forecast, unemployment is expected to rise to 6,5 % in 2020 and recover to 5,4 % in 2021. Undeclared work remains a challenge and its negative impact might be exacerbated in the current context, underlining the need to support the transition into declared work. Therefore, timely tailor-made services addressing the needs of vulnerable groups and workers affected by the crisis are essential. In addition to the recently initiated technical unemployment scheme, developing access to short-time work schemes, promoting income-support measures and allowing for flexible working arrangements and teleworking for the workers affected, with the involvement of social partners, are crucial to strengthening the resilience of the labour market in the short and long term.

| (21) | Persisting skills mismatches and skills shortages, underpinned by demographic developments and the limited labour market relevance of education and training, limited Romania’s economic growth potential even before the pandemic. The share of adults participating in learning activities, at 1,3 % in 2019, is one of the lowest in the Union. Low participation in early childhood education and care widens inequality of opportunities between pupils. The equity, inclusiveness and quality of education remain important challenges and strategic reforms in this area are needed. Despite some progress in recent years, Romania has a high share of early leavers from education and training (15,3 % in 2019) and young people not in education, employment or training (14,7 %, a slight increase on 2018). There is still no integrated, nationwide mechanism targeting early school leaving. Educational outcomes, especially in rural and economically deprived areas, are not improving. Participation in higher education is low and remains insufficiently aligned to labour market needs. The number of graduates in science, technology, engineering and mathematics (STEM) remains low. Romania scores poorly on many components of the Digital Economy and Social Index, including digital public services, digital skills of the overall population and digitalisation of businesses. Basic digital skills and basic software skills are among the lowest in the Union. Due to uneven digital infrastructure and insufficient digital skills, the shift to distance learning caused by the COVID-19 outbreak poses challenges for education and training institutions, educators and students, in particular disadvantaged students and Roma. |
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(21)

Persisting skills mismatches and skills shortages, underpinned by demographic developments and the limited labour market relevance of education and training, limited Romania’s economic growth potential even before the pandemic. The share of adults participating in learning activities, at 1,3 % in 2019, is one of the lowest in the Union. Low participation in early childhood education and care widens inequality of opportunities between pupils. The equity, inclusiveness and quality of education remain important challenges and strategic reforms in this area are needed. Despite some progress in recent years, Romania has a high share of early leavers from education and training (15,3 % in 2019) and young people not in education, employment or training (14,7 %, a slight increase on 2018). There is still no integrated, nationwide mechanism targeting early school leaving. Educational outcomes, especially in rural and economically deprived areas, are not improving. Participation in higher education is low and remains insufficiently aligned to labour market needs. The number of graduates in science, technology, engineering and mathematics (STEM) remains low. Romania scores poorly on many components of the Digital Economy and Social Index, including digital public services, digital skills of the overall population and digitalisation of businesses. Basic digital skills and basic software skills are among the lowest in the Union. Due to uneven digital infrastructure and insufficient digital skills, the shift to distance learning caused by the COVID-19 outbreak poses challenges for education and training institutions, educators and students, in particular disadvantaged students and Roma.

| (22) | Due to the COVID-19 pandemic and the resulting lockdown measures, supply chains have been interrupted throughout the country, businesses have had to reduce activities or even close, and people have been unable to work. Businesses of all sizes – particularly SMEs – are strongly affected by the disruption of trade and the lockdown and are facing liquidity constraints and bankruptcy risks. The government adopted a set of measures combining tailored assistance to businesses and income protection for all workers affected. To recover from the crisis, additional resources will be needed to keep supporting businesses and households. The services sector will need particular attention as it is hardest hit and some subsectors are expected to contract for longer than manufacturing. Government response measures include the creation of a public guarantee scheme (IMM Invest) with an envelope of RON 15 billion to offer State guarantees to SMEs contracting interest-free loans to finance investment and provide working capital. These guarantees will also be beneficial for banks, which need to remain well capitalised and liquid in order to ensure the necessary flow of credit to households and companies. Furthermore, due to the so far rather limited role of banks in providing credit to businesses – in particular to innovative SMEs – loan guarantees alone might not be enough. |
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(22)

Due to the COVID-19 pandemic and the resulting lockdown measures, supply chains have been interrupted throughout the country, businesses have had to reduce activities or even close, and people have been unable to work. Businesses of all sizes – particularly SMEs – are strongly affected by the disruption of trade and the lockdown and are facing liquidity constraints and bankruptcy risks. The government adopted a set of measures combining tailored assistance to businesses and income protection for all workers affected. To recover from the crisis, additional resources will be needed to keep supporting businesses and households. The services sector will need particular attention as it is hardest hit and some subsectors are expected to contract for longer than manufacturing. Government response measures include the creation of a public guarantee scheme (IMM Invest) with an envelope of RON 15 billion to offer State guarantees to SMEs contracting interest-free loans to finance investment and provide working capital. These guarantees will also be beneficial for banks, which need to remain well capitalised and liquid in order to ensure the necessary flow of credit to households and companies. Furthermore, due to the so far rather limited role of banks in providing credit to businesses – in particular to innovative SMEs – loan guarantees alone might not be enough.

| (23) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The crisis showed even more clearly that Romania has a critical need to relaunch public infrastructure works in fields such as sustainable transport, clean energy, and environmental and digital service infrastructure. Urban transport suffers from poor sector organisation and the weak administrative capacity of local providers. The waste management system continues to be characterised by very low recycling of municipal waste and very high landfill rates. Implementing the National Energy and Climate Plan will require investment in clean production and use of energy, as well as the reconversion of mono-industrial and carbon intensive regions. Efforts need to be stepped up for the extension and modernisation of drinking water and wastewater infrastructure. Investments in the air-monitoring network is also indispensable due to serious structural shortcomings. There is also a need to modernise and ensure interoperability of all the digital public services that generate information-sharing, including in the social, education and health areas. Large regional disparities and the low productivity of some sectors are detrimental to long-term sustainable growth. Equally important are investments to promote the economy’s competitiveness by supporting research and development (R & D) activities, innovative SMEs and integration into the Union’s strategic value chains. R & D investment by firms remains subdued and limited to a small number of subsectors which are highly dependent on foreign direct investments. Declining public R & D funding has resulted in poor scientific and technological quality and weak academia-business links. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Romania to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Romania to make the best use of that Fund. |
| --- | --- |

(23)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The crisis showed even more clearly that Romania has a critical need to relaunch public infrastructure works in fields such as sustainable transport, clean energy, and environmental and digital service infrastructure. Urban transport suffers from poor sector organisation and the weak administrative capacity of local providers. The waste management system continues to be characterised by very low recycling of municipal waste and very high landfill rates. Implementing the National Energy and Climate Plan will require investment in clean production and use of energy, as well as the reconversion of mono-industrial and carbon intensive regions. Efforts need to be stepped up for the extension and modernisation of drinking water and wastewater infrastructure. Investments in the air-monitoring network is also indispensable due to serious structural shortcomings. There is also a need to modernise and ensure interoperability of all the digital public services that generate information-sharing, including in the social, education and health areas. Large regional disparities and the low productivity of some sectors are detrimental to long-term sustainable growth. Equally important are investments to promote the economy’s competitiveness by supporting research and development (R & D) activities, innovative SMEs and integration into the Union’s strategic value chains. R & D investment by firms remains subdued and limited to a small number of subsectors which are highly dependent on foreign direct investments. Declining public R & D funding has resulted in poor scientific and technological quality and weak academia-business links. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Romania to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Romania to make the best use of that Fund.

| (24) | Reform of the public administration is stalling. There is no effective framework in place for strategic and budgetary planning, which has a knock-on effect on the strategic vision for long-term development of the country, the prioritisation of actions and policy coordination at the central and local level. The sectoral strategic framework is fragmented and sometimes overlapping while actions to be taken within sectors are not prioritised. The strategic management role of the General Secretariat of the Government is still not consolidated. High fragmentation of competencies and resources continues to affect the delivery of public services, especially at local level and in poor communities. Red tape and insufficient capacity to deliver quality services, including digital, are negatively impacting on citizens and businesses, especially during thes crisis. Cumbersome administrative procedures for setting up businesses as well as regulatory requirements imposed on services providers, including regulated professions, further impede market development. Reinforced cooperation between Romanian market surveillance authorities and customs authorities can help reducing the volume of non-compliant products imported from outside the Union. Frequent reorganisations and overuse of temporary management hamper the independence of the administration. The implementation of corporate governance for State-owned enterprises remains a challenge. |
| --- | --- |

(24)

Reform of the public administration is stalling. There is no effective framework in place for strategic and budgetary planning, which has a knock-on effect on the strategic vision for long-term development of the country, the prioritisation of actions and policy coordination at the central and local level. The sectoral strategic framework is fragmented and sometimes overlapping while actions to be taken within sectors are not prioritised. The strategic management role of the General Secretariat of the Government is still not consolidated. High fragmentation of competencies and resources continues to affect the delivery of public services, especially at local level and in poor communities. Red tape and insufficient capacity to deliver quality services, including digital, are negatively impacting on citizens and businesses, especially during thes crisis. Cumbersome administrative procedures for setting up businesses as well as regulatory requirements imposed on services providers, including regulated professions, further impede market development. Reinforced cooperation between Romanian market surveillance authorities and customs authorities can help reducing the volume of non-compliant products imported from outside the Union. Frequent reorganisations and overuse of temporary management hamper the independence of the administration. The implementation of corporate governance for State-owned enterprises remains a challenge.

| (25) | Predictability of decision-making remains a major issue. Before the crisis, only around a third of the annual government plan was respected. The number of emergency ordinances passed remained very high, creating uncertainty and likely hampering investment. For instance, GEO 114/2018 had major socioeconomic effects on several sectors, including the financial sector. While the provisions with adverse impact on the banking sector were reversed, some of the measures potentially affecting the long-term viability of second-pillar pension funds still remain in place. The predictability and stability of public procurement legislation remain important challenges. The efficiency of public procurement continues to be an issue, as does the irreversibility of certain measures, notably the streamlining of ex ante control. There is little progress in improving the governance, quality and effective use of regulatory impact assessments. There is no institutional framework for quality control at government level and options for setting up a regulatory impact assessement board are still being assessed. The functioning of social dialogue remains limited, in particular at sector level, while a meaningful and continuous involvement of social partners is key for the success of any exit and recovery strategy in the light of the current crisis. The established institutional framework for consultation is not adequately used to feed into the decision-making process and does not engage social partners sufficiently in the design and implementation of reforms. Discussions on changes to the social dialogue law and the revision of economic sectors have stalled. The follow-up to the International Labour Organization’s recommendations issued in April 2018 is still uncertain. The lack of a permanent objective mechanism to determine the minimum wage may weigh on the business environment. |
| --- | --- |

(25)

Predictability of decision-making remains a major issue. Before the crisis, only around a third of the annual government plan was respected. The number of emergency ordinances passed remained very high, creating uncertainty and likely hampering investment. For instance, GEO 114/2018 had major socioeconomic effects on several sectors, including the financial sector. While the provisions with adverse impact on the banking sector were reversed, some of the measures potentially affecting the long-term viability of second-pillar pension funds still remain in place. The predictability and stability of public procurement legislation remain important challenges. The efficiency of public procurement continues to be an issue, as does the irreversibility of certain measures, notably the streamlining of ex ante control. There is little progress in improving the governance, quality and effective use of regulatory impact assessments. There is no institutional framework for quality control at government level and options for setting up a regulatory impact assessement board are still being assessed. The functioning of social dialogue remains limited, in particular at sector level, while a meaningful and continuous involvement of social partners is key for the success of any exit and recovery strategy in the light of the current crisis. The established institutional framework for consultation is not adequately used to feed into the decision-making process and does not engage social partners sufficiently in the design and implementation of reforms. Discussions on changes to the social dialogue law and the revision of economic sectors have stalled. The follow-up to the International Labour Organization’s recommendations issued in April 2018 is still uncertain. The lack of a permanent objective mechanism to determine the minimum wage may weigh on the business environment.

| (26) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(26)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (27) | Following several headwinds in recent years, pressures on the banking sector have subsided, as several measures which caused concern in the past, including the bank tax, were discontinued at the beginning of 2020. The banking sector has entered the current COVID-19 crisis well capitalised and liquid, while the non-performing loans ratio declined below 5 %. The measures adopted by the government to support households and corporates, in particular SMEs, are also important for maintaining banking-sector resilience and the capacity of banks to absorb shocks. Commercial banks have also taken steps to support clients, such as the postponement of principal and interest payments, the extension of credit repayment, ensuring ATM liquidity and reducing the fees for online services. On 20 March 2020, the National Bank of Romania lowered the monetary policy rate and has since started purchasing RON-denominated government securities in the secondary market to ensure the smooth financing of the real economy and the public sector. In spite of the adopted measures, including the prudential flexibility granted by supervisors, asset quality is likely to deteriorate in the coming months. In this respect, maintaining prudent lending standards and prioritising support to viable borrowers will contribute to safeguarding asset quality in the banking sector. Furthermore, ensuring a stable and predictable regulatory environment for banks is an important precondition for preserving their active role in the provision of credit to the economy and in supporting economic recovery. |
| --- | --- |

(27)

Following several headwinds in recent years, pressures on the banking sector have subsided, as several measures which caused concern in the past, including the bank tax, were discontinued at the beginning of 2020. The banking sector has entered the current COVID-19 crisis well capitalised and liquid, while the non-performing loans ratio declined below 5 %. The measures adopted by the government to support households and corporates, in particular SMEs, are also important for maintaining banking-sector resilience and the capacity of banks to absorb shocks. Commercial banks have also taken steps to support clients, such as the postponement of principal and interest payments, the extension of credit repayment, ensuring ATM liquidity and reducing the fees for online services. On 20 March 2020, the National Bank of Romania lowered the monetary policy rate and has since started purchasing RON-denominated government securities in the secondary market to ensure the smooth financing of the real economy and the public sector. In spite of the adopted measures, including the prudential flexibility granted by supervisors, asset quality is likely to deteriorate in the coming months. In this respect, maintaining prudent lending standards and prioritising support to viable borrowers will contribute to safeguarding asset quality in the banking sector. Furthermore, ensuring a stable and predictable regulatory environment for banks is an important precondition for preserving their active role in the provision of credit to the economy and in supporting economic recovery.

| (28) | Significant legal modifications and political pressure on the judiciary in 2017, 2018 and in the largest part of 2019 have affected the efficiency, quality and independence of the justice system and its capacity to investigate and penalise high-level corruption. While the government currently supports actions to prevent and penalise corruption, and has shown willingness to reverse some of the most controversial measures, Romania has not yet made the necessary legislative changes. These issues are the subject of monitoring under the cooperation and verification mechanism. Under this mechanism, the Commission continues to monitor judicial reform and the fight against corruption in Romania. These areas are therefore not covered in the 2020 country-specific recommendations for Romania, but are relevant for developing a positive socioeconomic environment in the country. |
| --- | --- |

(28)

Significant legal modifications and political pressure on the judiciary in 2017, 2018 and in the largest part of 2019 have affected the efficiency, quality and independence of the justice system and its capacity to investigate and penalise high-level corruption. While the government currently supports actions to prevent and penalise corruption, and has shown willingness to reverse some of the most controversial measures, Romania has not yet made the necessary legislative changes. These issues are the subject of monitoring under the cooperation and verification mechanism. Under this mechanism, the Commission continues to monitor judicial reform and the fight against corruption in Romania. These areas are therefore not covered in the 2020 country-specific recommendations for Romania, but are relevant for developing a positive socioeconomic environment in the country.

| (29) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Romania will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(29)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Romania will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (30) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Romania’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Romania in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(30)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Romania’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Romania in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (31) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (9) is reflected in particular in recommendation (1) below. |
| --- | --- |

(31)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (9) is reflected in particular in recommendation (1) below.

| (32) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (4), |
| --- | --- |

(32)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (4),

HEREBY RECOMMENDS that Romania take action in 2020 and 2021 to:

| 1. | Pursue fiscal policies in line with the Council Recommendation of 3 April 2020, while taking all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. Avoid the implementation of permanent measures that would endanger fiscal sustainability. Strengthen the resilience of the health system, in particular with regard to health workers and medical products, and improve access to health services. |
| --- | --- |

1.

| 2. | Provide adequate income replacement and extend social protection measures and access to essential services for all. Mitigate the employment impact of the COVID-19 crisis by developing flexible working arrangements and activation measures. Strengthen skills and digital learning and ensure equal access to education. |
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2.

| 3. | Ensure liquidity support to the economy for the benefit of businesses and households, particularly SMEs and the self-employed. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on sustainable transport, digital service infrastructure, clean and efficient production and use of energy and environmental infrastructure, including in the coal regions. |
| --- | --- |

3.

| 4. | Improve the quality and effectiveness of public administration and the predictability of decision-making, including through adequate involvement of social partners. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 135.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Council Decision (EU) 2020/509 of 3 April 2020 on the existence of an excessive deficit in Romania (OJ L 110, 8.4.2020, p. 58).

7

(8)  Council Recommendation of 3 April 2020 with a view to bringing an end to the situation of an excessive government deficit in Romania (OJ C 116, 8.4.2020, p. 1),

8

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

9

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/157 |
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26.8.2020

EN

Official Journal of the European Union

C 282/157

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Slovenia and delivering a Council opinion on the 2020 Stability Programme of Slovenia

(2020/C 282/24)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Slovenia as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Slovenia as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Slovenia was published on 26 February 2020. It assessed Slovenia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Slovenia’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Slovenia was published on 26 February 2020. It assessed Slovenia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Slovenia’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Slovenia is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Slovenia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Slovene regions because of different specialisation and concentration patterns of economic activities. This entails a substantial risk of aggravating the already observed trend of widening disparities between the capital city and the rest of the country. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Slovene regions because of different specialisation and concentration patterns of economic activities. This entails a substantial risk of aggravating the already observed trend of widening disparities between the capital city and the rest of the country. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 30 April 2020, Slovenia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 30 April 2020, Slovenia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Slovenia is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
| --- | --- |

(11)

Slovenia is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | As part of the country-specific recommendations adopted by the Council on 13 July 2018 (7), the Council recommended Slovenia to ensure that the nominal growth rate of net primary government expenditure (8) does not exceed 3,1 % in 2019, corresponding to an annual structural adjustment of 0,65 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure are not warranted. |
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(12)

As part of the country-specific recommendations adopted by the Council on 13 July 2018 (7), the Council recommended Slovenia to ensure that the nominal growth rate of net primary government expenditure (8) does not exceed 3,1 % in 2019, corresponding to an annual structural adjustment of 0,65 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure are not warranted.

| (13) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,5 % of GDP in 2019 to a deficit of 8,1 % of GDP in 2020. After decreasing to 66,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 82,4 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(13)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,5 % of GDP in 2019 to a deficit of 8,1 % of GDP in 2020. After decreasing to 66,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 82,4 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (14) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Slovenia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,4 % of GDP. The measures include short-term work schemes for temporarily laid-off employees and the self-employed (2,3 % of GDP), higher healthcare spending (0,5 % of GDP), compensations for workers remaining in the workplace (0,4 % of GDP), crisis bonus for public sector employees (0,4 % of GDP), tax deferrals (0,4 % of GDP) and financial aid for vulnerable groups (0,2 % of GDP). In addition, Slovenia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 5,1 % of GDP. Those measures include loan guarantees (4,8 % of GDP), tax deferrals (0,2 % of GDP) and exemption of social security contributions for the self-employed (0,1 % of GDP). However, the Commission 2020 spring forecast considers all tax deferrals as liquidity measures without a negative budgetary impact in 2020. Overall, the measures taken by Slovenia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(14)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Slovenia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,4 % of GDP. The measures include short-term work schemes for temporarily laid-off employees and the self-employed (2,3 % of GDP), higher healthcare spending (0,5 % of GDP), compensations for workers remaining in the workplace (0,4 % of GDP), crisis bonus for public sector employees (0,4 % of GDP), tax deferrals (0,4 % of GDP) and financial aid for vulnerable groups (0,2 % of GDP). In addition, Slovenia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 5,1 % of GDP. Those measures include loan guarantees (4,8 % of GDP), tax deferrals (0,2 % of GDP) and exemption of social security contributions for the self-employed (0,1 % of GDP). However, the Commission 2020 spring forecast considers all tax deferrals as liquidity measures without a negative budgetary impact in 2020. Overall, the measures taken by Slovenia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (15) | Based on the Commission 2020 spring forecast under unchanged policies, Slovenia’s general government balance is forecast at -7,2 % of GDP in 2020 and -2,1 % of GDP in 2021. The general government debt ratio is projected to reach 83,7 % of GDP in 2020 and 79,9 % of GDP in 2021. |
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(15)

Based on the Commission 2020 spring forecast under unchanged policies, Slovenia’s general government balance is forecast at -7,2 % of GDP in 2020 and -2,1 % of GDP in 2021. The general government debt ratio is projected to reach 83,7 % of GDP in 2020 and 79,9 % of GDP in 2021.

| (16) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Slovenia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(16)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Slovenia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (17) | Slovenia declared the COVID-19 epidemic on 12 March 2020 under its Communicable Disease Act and took public health measures to contain the spread of the virus. This included coordinating the respective roles of public health, primary and secondary care and other services, as well as introducing appropriate testing protocol. In parallel, Slovenia introduced strict confinement measures, while leaving food stores, pharmacies, banks, petrol stations and post offices open. The public health and confinement measures helped Slovenia in the first wave (March-May) to prevent the number of severely ill exceeding the capacity of the country’s health system. Because of the confinement measures, many companies shut down temporarily or reduced their activities. In an open and export-oriented economy like Slovenia, disruptions in the supply chain and a reduced global demand for products have had a particularly strong impact on growth. Given the uncertainty regarding the economic development, many investment decisions in the private sector are being postponed. As transport and tourism, two of Slovenia’s most important sectors, are expected to be the most affected, with a 70 % drop in turnover in 2020, a very sharp fall in GDP is projected for 2020. |
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(17)

Slovenia declared the COVID-19 epidemic on 12 March 2020 under its Communicable Disease Act and took public health measures to contain the spread of the virus. This included coordinating the respective roles of public health, primary and secondary care and other services, as well as introducing appropriate testing protocol. In parallel, Slovenia introduced strict confinement measures, while leaving food stores, pharmacies, banks, petrol stations and post offices open. The public health and confinement measures helped Slovenia in the first wave (March-May) to prevent the number of severely ill exceeding the capacity of the country’s health system. Because of the confinement measures, many companies shut down temporarily or reduced their activities. In an open and export-oriented economy like Slovenia, disruptions in the supply chain and a reduced global demand for products have had a particularly strong impact on growth. Given the uncertainty regarding the economic development, many investment decisions in the private sector are being postponed. As transport and tourism, two of Slovenia’s most important sectors, are expected to be the most affected, with a 70 % drop in turnover in 2020, a very sharp fall in GDP is projected for 2020.

| (18) | By the end of April 2020, the Slovene authorities had adopted two packages of measures to counterbalance the COVID-19 shock in compliance with the temporary framework for State aid measures adopted by the Commission in its communication of 19 March 2020. The first mitigation package, worth around EUR 3,1 billion equivalent to around 6,4 % of GDP focuses primarily on protecting jobs and socially vulnerable groups. The State covers pay compensation, sick pay and social security contributions for temporary lay-offs as well as the pension insurance contributions for employees who remain in the workplace. To alleviate businesses’ and households’ liquidity constraints, the servicing of loans can be postponed for up to 12 months. The second package, worth some EUR 2 billion, equivalent to around 4,2 % of GDP, mainly provides liquidity aid to companies. The package includes a State guarantee scheme via banks that enables loans to be granted to large companies guaranteed by the State for up to 70 % of the principal and loans to be granted to small and medium-sized enterprises (SMEs) guaranteed for up to 80 %. Deferring tax payments and exemption of social contributions, and speeding up contractual payments by public authorities, is intended to help businesses mitigate their problems with liquidity and access to finance. |
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(18)

By the end of April 2020, the Slovene authorities had adopted two packages of measures to counterbalance the COVID-19 shock in compliance with the temporary framework for State aid measures adopted by the Commission in its communication of 19 March 2020. The first mitigation package, worth around EUR 3,1 billion equivalent to around 6,4 % of GDP focuses primarily on protecting jobs and socially vulnerable groups. The State covers pay compensation, sick pay and social security contributions for temporary lay-offs as well as the pension insurance contributions for employees who remain in the workplace. To alleviate businesses’ and households’ liquidity constraints, the servicing of loans can be postponed for up to 12 months. The second package, worth some EUR 2 billion, equivalent to around 4,2 % of GDP, mainly provides liquidity aid to companies. The package includes a State guarantee scheme via banks that enables loans to be granted to large companies guaranteed by the State for up to 70 % of the principal and loans to be granted to small and medium-sized enterprises (SMEs) guaranteed for up to 80 %. Deferring tax payments and exemption of social contributions, and speeding up contractual payments by public authorities, is intended to help businesses mitigate their problems with liquidity and access to finance.

| (19) | With an increasing demand for health services at the beginning of the COVID-19 crisis, Slovenia faced challenges to ensure a sufficient healthcare capacity. The outbreak of the virus has revealed structural problems in health system. For instance, the relatively low density of doctors is an additional challenge in fighting the epidemic. It is therefore important to recruit more trained health workers, protect their working conditions and employ them where needs are greatest. Deployment of diagnostics, tests and e-health tools that enable follow-up and telemedicine is crucial. Targeted research and innovative solutions are also important to help the public health services collect and use anonymised data for making informed decisions. The crisis underlines the need to protect the financing capacity of the health and long-term care systems, which are both pending structural reforms. The timely adoption and implementation of a new Healthcare and Health Insurance Act, broadening the financial sources of the health system, and developing financial buffers, will mitigate the fluctuation of financial resources during the economic cycle. The lack of a long-term care act has limited Slovenia’s ability to fight the COVID-19 pandemic in the most affected care settings. As the elderly, people with disabilities and people with chronic diseases have an increased risk of severe illness due to the virus, further significant efforts are necessary to ensure quality long-term care services, well integrated with health services. |
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(19)

With an increasing demand for health services at the beginning of the COVID-19 crisis, Slovenia faced challenges to ensure a sufficient healthcare capacity. The outbreak of the virus has revealed structural problems in health system. For instance, the relatively low density of doctors is an additional challenge in fighting the epidemic. It is therefore important to recruit more trained health workers, protect their working conditions and employ them where needs are greatest. Deployment of diagnostics, tests and e-health tools that enable follow-up and telemedicine is crucial. Targeted research and innovative solutions are also important to help the public health services collect and use anonymised data for making informed decisions. The crisis underlines the need to protect the financing capacity of the health and long-term care systems, which are both pending structural reforms. The timely adoption and implementation of a new Healthcare and Health Insurance Act, broadening the financial sources of the health system, and developing financial buffers, will mitigate the fluctuation of financial resources during the economic cycle. The lack of a long-term care act has limited Slovenia’s ability to fight the COVID-19 pandemic in the most affected care settings. As the elderly, people with disabilities and people with chronic diseases have an increased risk of severe illness due to the virus, further significant efforts are necessary to ensure quality long-term care services, well integrated with health services.

| (20) | The health and economic crisis caused by COVID-19 pandemic has put unprecedented pressure on Slovenia’s labour market and social protection system. According to the Commission 2020 spring forecast, unemployment is expected to rise to 7 % in 2020 and recover to 5,1 % in 2021. To curb the rapid increase in unemployment in the most affected sectors, Slovenia has adopted a comprehensive policy response that combine preventive measures with measures intended to facilitate the fast re-entry of workers in the labour market. Key policy responses, made in consultation with the social partners, should focus on achieving a sustained and equitable recovery by strengthening existing active labour market policies and employment retention schemes, including short-time work schemes, and introducing other time-bound support for businesses, such as wage subsidies and exemptions from social security contributions. These measures would help reduce income losses for all workers, including those in non-standard employment, as well as the self-employed. Flexible working arrangements, including flexibility in working place (e.g. teleworking provisions), flexibility in working time (e.g. flexitime provisions) and flexibility in work organisations (e.g. company in-house services) may significantly sustain employment during lockdowns and when economic activity resumes. Nurturing the entrepreneurial spirit will be crucial for restarting the economy and making the necessary adjustments after the COVID-19 crisis. It is therefore particularly important to support the self-employed by reducing the administrative burden and financial disadvantages compared to employees. |
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(20)

The health and economic crisis caused by COVID-19 pandemic has put unprecedented pressure on Slovenia’s labour market and social protection system. According to the Commission 2020 spring forecast, unemployment is expected to rise to 7 % in 2020 and recover to 5,1 % in 2021. To curb the rapid increase in unemployment in the most affected sectors, Slovenia has adopted a comprehensive policy response that combine preventive measures with measures intended to facilitate the fast re-entry of workers in the labour market. Key policy responses, made in consultation with the social partners, should focus on achieving a sustained and equitable recovery by strengthening existing active labour market policies and employment retention schemes, including short-time work schemes, and introducing other time-bound support for businesses, such as wage subsidies and exemptions from social security contributions. These measures would help reduce income losses for all workers, including those in non-standard employment, as well as the self-employed. Flexible working arrangements, including flexibility in working place (e.g. teleworking provisions), flexibility in working time (e.g. flexitime provisions) and flexibility in work organisations (e.g. company in-house services) may significantly sustain employment during lockdowns and when economic activity resumes. Nurturing the entrepreneurial spirit will be crucial for restarting the economy and making the necessary adjustments after the COVID-19 crisis. It is therefore particularly important to support the self-employed by reducing the administrative burden and financial disadvantages compared to employees.

| (21) | To mitigate the social impact of this COVID-19 crisis, it is essential that Slovenia continues to provide an adequate package of social benefits. For this, it will be necessary to monitor the effects of the crisis on poverty regularly. Special attention should be paid to the elderly, and in particular elderly women, for whom the at-risk-of-poverty or social exclusion rates were already higher than the EU average before the crisis. The amendment to the pension legislation, adopted by the National Assembly in November 2019, is expected to improve the adequacy of pensions for new pensioners, while current pensioners, including those at or below the poverty line, will not benefit from it. Additional financial assistance offered to the organisations working on the front lines would ensure that the COVID-19 pandemic does not disproportionately affect people at risk of social exclusion and that they have their basic needs met, such as daily meals and healthcare. |
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(21)

To mitigate the social impact of this COVID-19 crisis, it is essential that Slovenia continues to provide an adequate package of social benefits. For this, it will be necessary to monitor the effects of the crisis on poverty regularly. Special attention should be paid to the elderly, and in particular elderly women, for whom the at-risk-of-poverty or social exclusion rates were already higher than the EU average before the crisis. The amendment to the pension legislation, adopted by the National Assembly in November 2019, is expected to improve the adequacy of pensions for new pensioners, while current pensioners, including those at or below the poverty line, will not benefit from it. Additional financial assistance offered to the organisations working on the front lines would ensure that the COVID-19 pandemic does not disproportionately affect people at risk of social exclusion and that they have their basic needs met, such as daily meals and healthcare.

| (22) | Liquidity measures were introduced for businesses in April 2020, but there are still viable businesses such as smaller innovative and high-growth firms wihtout sufficient financial history that would allow banks to justify giving credit to these firms. Improved access to alternative finance, including equity financial instruments (e.g. venture capital) might be necessary, particularly in countries like Slovenia where equity markets are underdeveloped. Slovenia’s existing equity capital tools could be a means to channel relief funds to those businesses that are successfully exiting from the crisis, such as innovative SMEs, start-ups and scale-ups, as planned by other Member States. Applying the safeguards provided for in Union rules will ensure that these injections will not adversely affect companies’ efficiency or economic competition. |
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(22)

Liquidity measures were introduced for businesses in April 2020, but there are still viable businesses such as smaller innovative and high-growth firms wihtout sufficient financial history that would allow banks to justify giving credit to these firms. Improved access to alternative finance, including equity financial instruments (e.g. venture capital) might be necessary, particularly in countries like Slovenia where equity markets are underdeveloped. Slovenia’s existing equity capital tools could be a means to channel relief funds to those businesses that are successfully exiting from the crisis, such as innovative SMEs, start-ups and scale-ups, as planned by other Member States. Applying the safeguards provided for in Union rules will ensure that these injections will not adversely affect companies’ efficiency or economic competition.

| (23) | The COVID-19 crisis has severely affected the capacity of otherwise viable businesses and households to pay their bills. If no action was taken, a large part of the private sector would face insolvency. Among its liquidity measures for businesses, the Slovenian government introduced a 12-month moratorium on the repayment of performing bank loans for the non-financial corporations and households. The efficiency and effectiveness of this and similar measures need to be carefully assessed and monitored. Any adverse effect of the measures should also be remedied quickly, so that financial stability is ensured at all times. |
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(23)

The COVID-19 crisis has severely affected the capacity of otherwise viable businesses and households to pay their bills. If no action was taken, a large part of the private sector would face insolvency. Among its liquidity measures for businesses, the Slovenian government introduced a 12-month moratorium on the repayment of performing bank loans for the non-financial corporations and households. The efficiency and effectiveness of this and similar measures need to be carefully assessed and monitored. Any adverse effect of the measures should also be remedied quickly, so that financial stability is ensured at all times.

| (24) | Struggling firms, especially smaller ones, require not only liquidity and financing, but also a supportive business environment. This includes the speedy and non-bureaucratic implementation of the COVID-19 relief measures but goes beyond this. The country’s high regulatory and administrative burden create costs that hard-pressed firms can simply not afford in these challenging times. Cutting red tape related for example to permits, reporting obligations and tax procedures is an effective way to provide immediate, noticeable relief to firms, without burdening the national budget and indirectly the taxpayer. Modernising the rules will allow professions to offer more cost-effective and innovative services that firms now need. Slovenia has created tools to reduce administrative burden, including the ‘Single Document’ and ‘SME test’. The use of those tool can now be maximised to provide immediate relief. The crisis will put additional stress on commercial disputes settlement and economic crime prosecution. The insolvency framework will also need a greater focus on avoiding crisis-related insolvencies, on a speedy winding down of non-viable businesses and a second chance for those involved. |
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(24)

Struggling firms, especially smaller ones, require not only liquidity and financing, but also a supportive business environment. This includes the speedy and non-bureaucratic implementation of the COVID-19 relief measures but goes beyond this. The country’s high regulatory and administrative burden create costs that hard-pressed firms can simply not afford in these challenging times. Cutting red tape related for example to permits, reporting obligations and tax procedures is an effective way to provide immediate, noticeable relief to firms, without burdening the national budget and indirectly the taxpayer. Modernising the rules will allow professions to offer more cost-effective and innovative services that firms now need. Slovenia has created tools to reduce administrative burden, including the ‘Single Document’ and ‘SME test’. The use of those tool can now be maximised to provide immediate relief. The crisis will put additional stress on commercial disputes settlement and economic crime prosecution. The insolvency framework will also need a greater focus on avoiding crisis-related insolvencies, on a speedy winding down of non-viable businesses and a second chance for those involved.

| (25) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Advancing the green transition with sustainable projects, such as the transition away from coalmines and coal-powered electricity production, could be one such investment. Investing in the green transition as described in Slovenia’s National Energy and Climate Plan can help bring short- term stimulus to the recovery and the medium-term aftermath of the COVID-19 pandemic. This can involve increasing the current low share of renewables, strengthening the energy infrastructure, reducing air pollution, which is above the EU average in Slovenia’s towns and cities, strengthening the circular economy, supporting social entrepreneurship, and accelerating the efforts to limit the potential impacts on the regions and sectors most affected by the transition. The current drop in emissions would be short-lived if insufficient attention is given to clean energy and climate investments in recovery packages, making Slovenia fall behind on its climate targets. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Slovenia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Slovenia to make the best use of that Fund. |
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(25)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Advancing the green transition with sustainable projects, such as the transition away from coalmines and coal-powered electricity production, could be one such investment. Investing in the green transition as described in Slovenia’s National Energy and Climate Plan can help bring short- term stimulus to the recovery and the medium-term aftermath of the COVID-19 pandemic. This can involve increasing the current low share of renewables, strengthening the energy infrastructure, reducing air pollution, which is above the EU average in Slovenia’s towns and cities, strengthening the circular economy, supporting social entrepreneurship, and accelerating the efforts to limit the potential impacts on the regions and sectors most affected by the transition. The current drop in emissions would be short-lived if insufficient attention is given to clean energy and climate investments in recovery packages, making Slovenia fall behind on its climate targets. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Slovenia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Slovenia to make the best use of that Fund.

| (26) | For an economic recovery that incorporates the principle of sustainability, investment will be needed to further develop sustainable transport, and to support public passenger transport and sustainable connections, particularly for rail. The COVID-19 crisis has led to additional challenges for freight and transit transport and although Slovenia took the necessary action and enabled the flow of goods – in particular critical goods, this will have a negative impact on the country’s economic growth. |
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(26)

For an economic recovery that incorporates the principle of sustainability, investment will be needed to further develop sustainable transport, and to support public passenger transport and sustainable connections, particularly for rail. The COVID-19 crisis has led to additional challenges for freight and transit transport and although Slovenia took the necessary action and enabled the flow of goods – in particular critical goods, this will have a negative impact on the country’s economic growth.

| (27) | As part of an exit and recovery strategy, it will be important to support investment in research and innovation (R&I), which is a critical driver of productivity and economic growth. Even before the crisis, Slovenia was rated only a ‘moderate innovator’, slowing its efforts to catch up with best performers. The business sector is responsible for 75 % of spending on research and development (R & D). The economic downturn is once again putting business R & D and innovation at risk. Relatively low rates of innovation, especially by SMEs, slow down the development and diffusion of innovative business processes and solutions, which are called for by the COVID-19 crisis. Investment is needed to help innovative SMEs – including start-ups – whose activities involve emerging technologies and breakthrough innovations, to scale up their production. Cooperation between academia and business is mostly limited to the medium-and high-tech sectors. The effectiveness of knowledge transfer offices set up by research organisations and higher education institutions varies considerably. Links between academia and business are essential for successfully translating knowledge into innovation, improving the country’s R&I performance, and driving economic growth. Public spending on R & D was modest, and partly reliant on Union Structural Funds. Recovering from this crisis will require the prioritisation of public investment into R&I, including technological and applied research. |
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(27)

As part of an exit and recovery strategy, it will be important to support investment in research and innovation (R&I), which is a critical driver of productivity and economic growth. Even before the crisis, Slovenia was rated only a ‘moderate innovator’, slowing its efforts to catch up with best performers. The business sector is responsible for 75 % of spending on research and development (R & D). The economic downturn is once again putting business R & D and innovation at risk. Relatively low rates of innovation, especially by SMEs, slow down the development and diffusion of innovative business processes and solutions, which are called for by the COVID-19 crisis. Investment is needed to help innovative SMEs – including start-ups – whose activities involve emerging technologies and breakthrough innovations, to scale up their production. Cooperation between academia and business is mostly limited to the medium-and high-tech sectors. The effectiveness of knowledge transfer offices set up by research organisations and higher education institutions varies considerably. Links between academia and business are essential for successfully translating knowledge into innovation, improving the country’s R&I performance, and driving economic growth. Public spending on R & D was modest, and partly reliant on Union Structural Funds. Recovering from this crisis will require the prioritisation of public investment into R&I, including technological and applied research.

| (28) | Digital transformation will be key to the COVID-19 post-crisis economic recovery. The country’s potential in this area was illustrated by the fast rollout of teleworking schemes and online commerce solutions by some Slovenian companies at the start of the crisis. Greater digitalisation in business models and production processes would extend these transformations to more sectors of economy. Slovenia can build on existing knowledge and excellent capacities in robotics, artificial intelligence and block chain technology to support the expansion of digitalisation to less advanced, traditional industries. Reusing the broad range of public sector data currently available could support innovation and the big data economy. Improving workers’ digital skills could increase their employability relatively quickly and support the economic recovery. Introducing user-friendly e-government services and digital public services would help further reduce the administrative burden for businesses. While a range of online public services are already available, their uptake by individuals and businesses will require efforts to increase people’s trust in and the security of online transactions (e.g. roll-out of a national electronic identifier, cyber security and privacy features). Fast and reliable broadband connections (fixed and mobile), including in rural areas, are indispensable for developing key online social and economic services. The roll-out of the 5G network depends on timely 5G spectrum assignment. |
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(28)

Digital transformation will be key to the COVID-19 post-crisis economic recovery. The country’s potential in this area was illustrated by the fast rollout of teleworking schemes and online commerce solutions by some Slovenian companies at the start of the crisis. Greater digitalisation in business models and production processes would extend these transformations to more sectors of economy. Slovenia can build on existing knowledge and excellent capacities in robotics, artificial intelligence and block chain technology to support the expansion of digitalisation to less advanced, traditional industries. Reusing the broad range of public sector data currently available could support innovation and the big data economy. Improving workers’ digital skills could increase their employability relatively quickly and support the economic recovery. Introducing user-friendly e-government services and digital public services would help further reduce the administrative burden for businesses. While a range of online public services are already available, their uptake by individuals and businesses will require efforts to increase people’s trust in and the security of online transactions (e.g. roll-out of a national electronic identifier, cyber security and privacy features). Fast and reliable broadband connections (fixed and mobile), including in rural areas, are indispensable for developing key online social and economic services. The roll-out of the 5G network depends on timely 5G spectrum assignment.

| (29) | Regular classes for all education levels have been replaced by distance learning during the COVID-19 confinement. Online learning requires adequate digital infrastructure, education materials, and teachers with the necessary skills and support to teach effectively. All learners, in particular vulnerable groups, including those with disabilities and those from rural areas, need to have adequate access to distance learning and decent digital skills to fully benefit from distance learning. Digital competences should feature more prominently in school curricula and programmes, notably to improve workers’ skills. This would allow a broader use of teleworking and digital services, a better match of digital skills with the requirements of the labour market, as well as the inclusion of vulnerable groups like the elderly or people living in rural areas. |
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(29)

Regular classes for all education levels have been replaced by distance learning during the COVID-19 confinement. Online learning requires adequate digital infrastructure, education materials, and teachers with the necessary skills and support to teach effectively. All learners, in particular vulnerable groups, including those with disabilities and those from rural areas, need to have adequate access to distance learning and decent digital skills to fully benefit from distance learning. Digital competences should feature more prominently in school curricula and programmes, notably to improve workers’ skills. This would allow a broader use of teleworking and digital services, a better match of digital skills with the requirements of the labour market, as well as the inclusion of vulnerable groups like the elderly or people living in rural areas.

| (30) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(30)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (31) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Slovenia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(31)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Slovenia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (32) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Slovenia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(32)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Slovenia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (33) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Slovenia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Slovenia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovenia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(33)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Slovenia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Slovenia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovenia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (34) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) is reflected in particular in recommendation (1) below, |
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(34)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Slovenia take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Ensure the resilience of the health and long-term care system, including by providing the adequate supply of critical medical products and addressing the shortage of health workers. |
| --- | --- |

1.

| 2. | Mitigate the social and employment impact of the COVID-19 crisis, including by providing adequate income replacement and social protection, enhancing short-time work schemes and through flexible working arrangements. Ensure that these measures provide adequate protection for non-standard workers. |
| --- | --- |

2.

| 3. | Continue to swiftly implement measures to provide liquidity and financing to businesses and households and reduce administrative burden. Front-load mature public investment projects and promote private investment to support the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, environmental infrastructure, sustainable transport, research and innovation, and the roll-out of the 5G network. Promote digital capacities of businesses, and strengthen digital skills, e-commerce and e-health. |
| --- | --- |

3.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 143.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  OJ C 320, 10.9.2018, p. 103.

7

(8)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

8

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

9

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/164 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/164

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Slovakia and delivering a Council opinion on the 2020 Stability Programme of Slovakia

(2020/C 282/25)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Slovakia was published on 26 February 2020. It assessed Slovakia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Slovakia’s progress towards its national Europe 2020 targets. |
| --- | --- |

(2)

The 2020 country report for Slovakia was published on 26 February 2020. It assessed Slovakia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Slovakia’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Slovakia is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Slovakia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns and infrastructure gaps. This entails a substantial risk of widening regional disparities within Slovakia, in particular between the capital city and Western Slovakia on the one hand, and Eastern and South-Eastern Slovakia on the other. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns and infrastructure gaps. This entails a substantial risk of widening regional disparities within Slovakia, in particular between the capital city and Western Slovakia on the one hand, and Eastern and South-Eastern Slovakia on the other. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 18 May 2020, Slovakia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 18 May 2020, Slovakia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Slovakia is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(11)

Slovakia is currently in the preventive arm of the Stability and Growth Pact.

| (12) | On 13 July 2018, the Council recommended Slovakia to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 4,1 % in 2019, corresponding to an annual structural adjustment of 0,5 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term structural objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Slovakia are not warranted. |
| --- | --- |

(12)

On 13 July 2018, the Council recommended Slovakia to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 4,1 % in 2019, corresponding to an annual structural adjustment of 0,5 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term structural objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Slovakia are not warranted.

| (13) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,3 % of GDP in 2019 to a deficit of 8,4 % of GDP in 2020. The deficit is projected to decline to 4,9 % of GDP in 2021, to 3,7 % of GDP in 2022 and to reach 2,9 % of GDP by 2023. After decreasing to 48 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 61,2 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
| --- | --- |

(13)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,3 % of GDP in 2019 to a deficit of 8,4 % of GDP in 2020. The deficit is projected to decline to 4,9 % of GDP in 2021, to 3,7 % of GDP in 2022 and to reach 2,9 % of GDP by 2023. After decreasing to 48 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 61,2 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (14) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Slovakia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 2,6 % of GDP. The measures include wage compensation for employees, subsidies for the self-employed, sickness and nursing schemes and purchases of medical goods linked to the COVID-19 pandemic. In addition, Slovakia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 3 % of GDP. Those measures include tax deferrals for income taxes and social contributions when revenue decreased by more than 40 % (1,4 % of GDP) and loan guarantees (1,6 % of GDP). Overall, the measures taken by Slovakia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions, when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(14)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Slovakia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 2,6 % of GDP. The measures include wage compensation for employees, subsidies for the self-employed, sickness and nursing schemes and purchases of medical goods linked to the COVID-19 pandemic. In addition, Slovakia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 3 % of GDP. Those measures include tax deferrals for income taxes and social contributions when revenue decreased by more than 40 % (1,4 % of GDP) and loan guarantees (1,6 % of GDP). Overall, the measures taken by Slovakia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions, when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (15) | Based on the Commission 2020 spring forecast under unchanged policies, Slovakia’s general government balance is forecast at -8,5 % of GDP in 2020 and -4,2 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
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(15)

Based on the Commission 2020 spring forecast under unchanged policies, Slovakia’s general government balance is forecast at -8,5 % of GDP in 2020 and -4,2 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (16) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Slovakia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(16)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Slovakia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (17) | Following the COVID-19 outbreak, Slovakia has taken quick and unprecedented measures to halt and prevent further spread of the virus. After a first case was registered on 6 March 2020, it declared a state of emergency as of 12 March 2020, and introduced strict social distancing, quarantine and sanitary rules, as well as travel restrictions. Shops and production in important economic sectors closed for several weeks, until the government started gradually loosening restrictions from late April 2020. As a consequence, Slovakia’s economy is expected to enter into a deep recession in 2020 as private consumption, investment and trade suffer. It is projected to contract sharply by 6,7 % in 2020 and the unemployment rate is expected to reach 8,8 % in 2020, up from 5,8 % in 2019. Slovakia has responded with several sets of measures to mitigate the adverse effects of the crisis, including by re-allocating EUR 1,2 billion of unused cohesion policy funds. The measures includes short-time work schemes with wage compensation, supporting the income of employees through sickness and nursing benefits, and providing subsidies to the self-employed to compensate for their loss of income. Further measures to support liquidity of companies and the self-employed include bank loans, tax deferrals and the postponement of social security contributions, as well as the provision of bank guarantees and favourable interest schemes. A loan scheme for small and medium-sized enterprises (‘SMEs’) with original allocation of EUR 38 million will be extended by EUR 330 million from unused Union funds and a national scheme amounting to EUR 500 million. Other measures include the interruption of tax audits and obligations for tax advance payments and the deferral of paying rent for companies and individuals. |
| --- | --- |

(17)

Following the COVID-19 outbreak, Slovakia has taken quick and unprecedented measures to halt and prevent further spread of the virus. After a first case was registered on 6 March 2020, it declared a state of emergency as of 12 March 2020, and introduced strict social distancing, quarantine and sanitary rules, as well as travel restrictions. Shops and production in important economic sectors closed for several weeks, until the government started gradually loosening restrictions from late April 2020. As a consequence, Slovakia’s economy is expected to enter into a deep recession in 2020 as private consumption, investment and trade suffer. It is projected to contract sharply by 6,7 % in 2020 and the unemployment rate is expected to reach 8,8 % in 2020, up from 5,8 % in 2019. Slovakia has responded with several sets of measures to mitigate the adverse effects of the crisis, including by re-allocating EUR 1,2 billion of unused cohesion policy funds. The measures includes short-time work schemes with wage compensation, supporting the income of employees through sickness and nursing benefits, and providing subsidies to the self-employed to compensate for their loss of income. Further measures to support liquidity of companies and the self-employed include bank loans, tax deferrals and the postponement of social security contributions, as well as the provision of bank guarantees and favourable interest schemes. A loan scheme for small and medium-sized enterprises (‘SMEs’) with original allocation of EUR 38 million will be extended by EUR 330 million from unused Union funds and a national scheme amounting to EUR 500 million. Other measures include the interruption of tax audits and obligations for tax advance payments and the deferral of paying rent for companies and individuals.

| (18) | The COVID-19 pandemic has increased the importance for Slovakia to continue addressing structural challenges in its health system. Additional investments are needed to increase its resilience, alleviate health workforce shortages, and to ensure appropriate supply of critical medical products and infrastructure. In parallel with efforts to secure adequate supply of health workers in the future, effective policies could reduce geographic disparities in the availability of doctors and ensure access to care for the entire population. Modernising the hospital network and addressing the structural underfunding of public hospitals are key in increasing the quality and cost-effectiveness of health services. Primary care provision needs to be strengthened to reduce pressure on hospitals and improve chronic disease management, together with increased coordination across different levels and types of care. A particular concern is the insufficient access to quality and affordable long-term care, due to general underfunding of community and home-based care services, fragmented governance, and the lack of systemic coordination of social and healthcare services. |
| --- | --- |

(18)

The COVID-19 pandemic has increased the importance for Slovakia to continue addressing structural challenges in its health system. Additional investments are needed to increase its resilience, alleviate health workforce shortages, and to ensure appropriate supply of critical medical products and infrastructure. In parallel with efforts to secure adequate supply of health workers in the future, effective policies could reduce geographic disparities in the availability of doctors and ensure access to care for the entire population. Modernising the hospital network and addressing the structural underfunding of public hospitals are key in increasing the quality and cost-effectiveness of health services. Primary care provision needs to be strengthened to reduce pressure on hospitals and improve chronic disease management, together with increased coordination across different levels and types of care. A particular concern is the insufficient access to quality and affordable long-term care, due to general underfunding of community and home-based care services, fragmented governance, and the lack of systemic coordination of social and healthcare services.

| (19) | The COVID-19 crisis has highlighted pre-existing social challenges in Slovakia. It has created an urgent need to provide adequate income replacement for workers, in close cooperation with social partners. In order to mitigate the employment impact of the crisis, short-time work schemes have been activated, with the contribution of Union funds. According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,8 % in 2020 and recover to 7,1 % in 2021. Despite some loosening in 2018, the unemployment benefit system in Slovakia is characterised by strict eligibility requirements, a relatively short duration of benefits (six months as a general rule, with small extensions during the crisis) and low replacement rates for beneficiaries. Some groups are particularly vulnerable to the crisis and may experience limited access to social protection and care services, including marginalised Roma communities, who often also lack access to essential services, the elderly and the low-skilled. |
| --- | --- |

(19)

The COVID-19 crisis has highlighted pre-existing social challenges in Slovakia. It has created an urgent need to provide adequate income replacement for workers, in close cooperation with social partners. In order to mitigate the employment impact of the crisis, short-time work schemes have been activated, with the contribution of Union funds. According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,8 % in 2020 and recover to 7,1 % in 2021. Despite some loosening in 2018, the unemployment benefit system in Slovakia is characterised by strict eligibility requirements, a relatively short duration of benefits (six months as a general rule, with small extensions during the crisis) and low replacement rates for beneficiaries. Some groups are particularly vulnerable to the crisis and may experience limited access to social protection and care services, including marginalised Roma communities, who often also lack access to essential services, the elderly and the low-skilled.

| (20) | The COVID-19 crisis has increased the need to develop the population’s digital skills, including those of teachers, as well as the need to expand broadband connectivity, as many pupils are still without connection to internet or lack other pre-conditions to learn at home, in particular in marginalised Roma communities. Challenges concerning equal access to quality and inclusive education remain, as basic skills levels and general performance of students are strongly affected by their socioeconomic background. There are pronounced performance differences between schools and regions, reflected also in the high rates of early leavers from education and training in some of them, in particular in Eastern Slovakia. The attractiveness of the teaching profession and the quality of initial teacher education remain low. In addition, the national enrolment rate of children in early childhood education and care, in particular of children below three, is the lowest in the Union, which has a further negative impact on educational outcomes, particularly for disadvantaged children. |
| --- | --- |

(20)

The COVID-19 crisis has increased the need to develop the population’s digital skills, including those of teachers, as well as the need to expand broadband connectivity, as many pupils are still without connection to internet or lack other pre-conditions to learn at home, in particular in marginalised Roma communities. Challenges concerning equal access to quality and inclusive education remain, as basic skills levels and general performance of students are strongly affected by their socioeconomic background. There are pronounced performance differences between schools and regions, reflected also in the high rates of early leavers from education and training in some of them, in particular in Eastern Slovakia. The attractiveness of the teaching profession and the quality of initial teacher education remain low. In addition, the national enrolment rate of children in early childhood education and care, in particular of children below three, is the lowest in the Union, which has a further negative impact on educational outcomes, particularly for disadvantaged children.

| (21) | The COVID-19 crisis has made swift deployment of liquidity support to businesses an urgent priority for Slovakia through well-targeted loans and guarantees, with a focus on SMEs, making use of the new flexibility given by the temporary framework on State aid to support the economy and reallocating cohesion policy funds. Adequate risk guarantees combined with low interest rates and long maturities can help ensure the swift provision of loans by intermediaries and uptake by firms. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions can further help alleviate short-term liquidity constraints for SMEs and the self-employed. Fighting against tax evasion and improving tax compliance remain priorities for Slovakia in the medium term, as a means to ensure the sustainability of public finances and promote a fair level playing field, facilitating the economic recovery. To ensure viable cash-flow balances for SMEs, it is important that public authorities at all levels and companies are instructed to speed up payment of invoices to their suppliers. |
| --- | --- |

(21)

The COVID-19 crisis has made swift deployment of liquidity support to businesses an urgent priority for Slovakia through well-targeted loans and guarantees, with a focus on SMEs, making use of the new flexibility given by the temporary framework on State aid to support the economy and reallocating cohesion policy funds. Adequate risk guarantees combined with low interest rates and long maturities can help ensure the swift provision of loans by intermediaries and uptake by firms. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions can further help alleviate short-term liquidity constraints for SMEs and the self-employed. Fighting against tax evasion and improving tax compliance remain priorities for Slovakia in the medium term, as a means to ensure the sustainability of public finances and promote a fair level playing field, facilitating the economic recovery. To ensure viable cash-flow balances for SMEs, it is important that public authorities at all levels and companies are instructed to speed up payment of invoices to their suppliers.

| (22) | Fostering a favourable business environment and improving the quality of public services are crucial for the recovery and for creating a more supportive investment climate. To ensure the effectiveness of the recovery measures, it is important to reduce unnecessary administrative burden and simplify procedures, including through effective use of ‘one-stop shops’ for businesses. The overall effectiveness of Slovakia’s public institutions and administration remains low. It can be improved by further digitalisation, better coordination and planning of the digital infrastructure and software development. Further reform efforts could improve the coordination of policy-making, drafting regulations, and ensure high performance of the civil service and human resource management. To strengthen the economy’s resilience, Slovakia would benefit from increasing the innovation capacity of businesses, particularly SMEs, by tackling the fragmented governance of the research and innovation ecosystem. Better cooperation between business, research, academia and the public sector can support the sharing of knowledge and skills and help companies innovate and develop new working and production abilities. |
| --- | --- |

(22)

Fostering a favourable business environment and improving the quality of public services are crucial for the recovery and for creating a more supportive investment climate. To ensure the effectiveness of the recovery measures, it is important to reduce unnecessary administrative burden and simplify procedures, including through effective use of ‘one-stop shops’ for businesses. The overall effectiveness of Slovakia’s public institutions and administration remains low. It can be improved by further digitalisation, better coordination and planning of the digital infrastructure and software development. Further reform efforts could improve the coordination of policy-making, drafting regulations, and ensure high performance of the civil service and human resource management. To strengthen the economy’s resilience, Slovakia would benefit from increasing the innovation capacity of businesses, particularly SMEs, by tackling the fragmented governance of the research and innovation ecosystem. Better cooperation between business, research, academia and the public sector can support the sharing of knowledge and skills and help companies innovate and develop new working and production abilities.

| (23) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Allowing less developed regions to catch up and become more knowledge-based, competitive, and productive will require more strategic investment in Slovakia, particularly to develop infrastructure, including digital and other key services, and to improve transport networks. The COVID-19 outbreak has highlighted pre-existing digital infrastructure gaps. Expanding broadband coverage and speed will allow for more equal and improved access to the internet. Slovakia’s education system and labour market could be improved with efforts to equip the population with better sets of skills for a changing economy and society, including through lifelong learning, stronger cooperation between business and education at all levels, and better linking of training and requalification programmes to the current and future labour market needs. |
| --- | --- |

(23)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Allowing less developed regions to catch up and become more knowledge-based, competitive, and productive will require more strategic investment in Slovakia, particularly to develop infrastructure, including digital and other key services, and to improve transport networks. The COVID-19 outbreak has highlighted pre-existing digital infrastructure gaps. Expanding broadband coverage and speed will allow for more equal and improved access to the internet. Slovakia’s education system and labour market could be improved with efforts to equip the population with better sets of skills for a changing economy and society, including through lifelong learning, stronger cooperation between business and education at all levels, and better linking of training and requalification programmes to the current and future labour market needs.

| (24) | Recovering economic growth will require policy efforts and targeted investments in the coming years to allow Slovakia to seize opportunities for creating a more sustainable and higher value added economy. These efforts should take regional disparities into account. Priority areas for additional efforts identified in Slovakia’s National Energy and Climate Plan include reducing the energy intensity of industry, supporting energy efficiency solutions, in particular for households, and investing into renewable energy. A more enabling regulatory environment could help increase the proportion of renewable energy sources in the energy supply. Slovakia would benefit from speeding up the implementation of the action plan for the transformation of Horná Nitra, reorienting funds towards solutions for the entire region, and seizing the opportunity to advance the coal phase-out. Reducing air pollution caused by solid fuel burning and rising transport emissions, improving the waste management system with innovative collection and treatment solutions, completing drinking water and sewage networks to address sanitary problems, supporting smart grids projects, and moving industry towards the climate neutral and circular economy can help put Slovakia on a path to sustainable economic growth. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Slovakia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Slovakia to make the best use of that Fund. |
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(24)

Recovering economic growth will require policy efforts and targeted investments in the coming years to allow Slovakia to seize opportunities for creating a more sustainable and higher value added economy. These efforts should take regional disparities into account. Priority areas for additional efforts identified in Slovakia’s National Energy and Climate Plan include reducing the energy intensity of industry, supporting energy efficiency solutions, in particular for households, and investing into renewable energy. A more enabling regulatory environment could help increase the proportion of renewable energy sources in the energy supply. Slovakia would benefit from speeding up the implementation of the action plan for the transformation of Horná Nitra, reorienting funds towards solutions for the entire region, and seizing the opportunity to advance the coal phase-out. Reducing air pollution caused by solid fuel burning and rising transport emissions, improving the waste management system with innovative collection and treatment solutions, completing drinking water and sewage networks to address sanitary problems, supporting smart grids projects, and moving industry towards the climate neutral and circular economy can help put Slovakia on a path to sustainable economic growth. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Slovakia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Slovakia to make the best use of that Fund.

| (25) | New trends in international organised crime, including misuse of legal entities for money laundering purposes, are putting pressure on Slovakia to upgrade its anti-money-laundering framework in order to prevent and combat economic crime. The understanding of risk exposure remains low, despite ambitious government plans to strengthen prevention, investigation and prosecution of money laundering. Limited human resources and training hamper effective supervision of professionals involved in company formation. Steps taken under the government action plan have not yet provided the tools to effectively identify and prosecute money laundering offences and to confiscate assets. |
| --- | --- |

(25)

New trends in international organised crime, including misuse of legal entities for money laundering purposes, are putting pressure on Slovakia to upgrade its anti-money-laundering framework in order to prevent and combat economic crime. The understanding of risk exposure remains low, despite ambitious government plans to strengthen prevention, investigation and prosecution of money laundering. Limited human resources and training hamper effective supervision of professionals involved in company formation. Steps taken under the government action plan have not yet provided the tools to effectively identify and prosecute money laundering offences and to confiscate assets.

| (26) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
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(26)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (27) | Slovakia should continue working on its commitment to address specific concerns with regard to the overall integrity of its justice system, as they are likely to undermine trust in its effective functioning. Progress in implementing reforms to fight corruption remains limited in Slovakia. A number of prevention-related reforms or their implementation are still pending, including rules on lobbying, gifts, incompatibilities and contacts with third parties in decision-making, and whistleblower protection. Although criminal statistics fluctuate, the number of high-level corruption-related cases under investigation remains low, while efforts to sanction legal persons show some impact. |
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(27)

Slovakia should continue working on its commitment to address specific concerns with regard to the overall integrity of its justice system, as they are likely to undermine trust in its effective functioning. Progress in implementing reforms to fight corruption remains limited in Slovakia. A number of prevention-related reforms or their implementation are still pending, including rules on lobbying, gifts, incompatibilities and contacts with third parties in decision-making, and whistleblower protection. Although criminal statistics fluctuate, the number of high-level corruption-related cases under investigation remains low, while efforts to sanction legal persons show some impact.

| (28) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Slovakia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
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(28)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Slovakia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (29) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Slovakia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(29)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Slovakia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (30) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Slovakia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Slovakia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(30)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Slovakia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Slovakia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (31) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below, |
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(31)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Slovakia take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system in the areas of health workforce, critical medical products and infrastructure. Improve primary care provision and coordination between types of care. |
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1.

| 2. | Provide adequate income replacement, and ensure access to social protection and essential services for all. Strengthen digital skills. Ensure equal access to quality education. |
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2.

| 3. | Effectively implement measures to ensure liquidity for SMEs and self-employed. Close digital infrastructure gaps. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy and resources, sustainable public transport, and waste management. |
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3.

| 4. | Ensure effective supervision and enforcement of the anti-money-laundering framework. Ensure a favourable business environment and quality public services through enhanced coordination and policy-making. Address concerns with regard to the integrity of the justice system. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 148.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

(7)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

7

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

8

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/171 |
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26.8.2020

EN

Official Journal of the European Union

C 282/171

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Finland and delivering a Council opinion on the 2020 Stability Programme of Finland

(2020/C 282/26)

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 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 the recommendation of the European Commission,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Finland as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Finland as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

| (2) | The 2020 country report for Finland was published on 26 February 2020. It assessed Finland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Finland’s progress towards its national Europe 2020 targets. |
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(2)

The 2020 country report for Finland was published on 26 February 2020. It assessed Finland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Finland’s progress towards its national Europe 2020 targets.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
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(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
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(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
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(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
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(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Finland is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
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(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Finland is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Finland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Finland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

| (10) | On 30 April 2020, Finland submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

On 30 April 2020, Finland submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Finland is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. |
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(11)

Finland is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

| (12) | In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,1 % of gross domestic product (GDP) in 2019 to a deficit of 7,2 % of GDP in 2020. The deficit is projected to decline to 4,0 % of GDP in 2021. After decreasing to 59,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 69,1 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(12)

In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,1 % of gross domestic product (GDP) in 2019 to a deficit of 7,2 % of GDP in 2020. The deficit is projected to decline to 4,0 % of GDP in 2021. After decreasing to 59,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 69,1 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Finland has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 1,7 % of GDP. The measures include both emergency spending for protection of health and public order and support measures for businesses and employees. In addition, Finland has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 5 % of GDP. Those measures include loan guarantees for companies, mainly targeting small and medium-sized enterprises (SMEs), as well as specific guarantee schemes for Finnair and shipping companies ensuring security of supply. In addition, other liquidity-enhancing measures, not reported in the 2020 Stability Programme, have been adopted in Finland, including tax deferrals for corporate income taxes. Those additional measures are estimated at 15 % of GDP. Overall, the measures taken by Finland are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Finland has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 1,7 % of GDP. The measures include both emergency spending for protection of health and public order and support measures for businesses and employees. In addition, Finland has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 5 % of GDP. Those measures include loan guarantees for companies, mainly targeting small and medium-sized enterprises (SMEs), as well as specific guarantee schemes for Finnair and shipping companies ensuring security of supply. In addition, other liquidity-enhancing measures, not reported in the 2020 Stability Programme, have been adopted in Finland, including tax deferrals for corporate income taxes. Those additional measures are estimated at 15 % of GDP. Overall, the measures taken by Finland are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Finland’s general government balance is forecast at -7,4 % of GDP in 2020 and -3,4 % of GDP in 2021. The general government debt ratio is projected to reach 69,4 % of GDP in 2020 and 69,6 % of GDP in 2021. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, Finland’s general government balance is forecast at -7,4 % of GDP in 2020 and -3,4 % of GDP in 2021. The general government debt ratio is projected to reach 69,4 % of GDP in 2020 and 69,6 % of GDP in 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Finland’s projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Finland’s projected breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | In response to the COVID-19 crisis, Finland has taken comprehensive action to support its health system and its economy. For example, the Finnish government adopted several supplementary budgets and decided to improve job security for employees, while conditions for receiving unemployment benefits have been relaxed. Access to unemployment benefits has been made easier for freelancers and entrepreneurs. Social security measures amount to EUR 1,6 billion. Direct business grants amounting to EUR 1 billion have been made available in addition to EUR 10 billion in State-guaranteed loans. The government has temporarily reduced the employer’s pension contribution by 2,6 percentage points and has allocated at least EUR 1 billion to a municipal support package. The Finnish Financial Supervisory Authority lowered Finnish credit institutions’ capital requirements by removing the systemic risk buffer and by adjusting credit institution-specific requirements. The government nominated a working group led by the Ministry of Finance and the Ministry of Social Affairs and Health to prepare Finland’s COVID-19 crisis exit strategy. The government adopted a staged exit plan in early May, based on the first report of the working group. The working group will further propose relevant measures to address the health, social and economic impact of the crisis. It has consulted social partners, municipalities, civil society and environmental organisations. |
| --- | --- |

(16)

In response to the COVID-19 crisis, Finland has taken comprehensive action to support its health system and its economy. For example, the Finnish government adopted several supplementary budgets and decided to improve job security for employees, while conditions for receiving unemployment benefits have been relaxed. Access to unemployment benefits has been made easier for freelancers and entrepreneurs. Social security measures amount to EUR 1,6 billion. Direct business grants amounting to EUR 1 billion have been made available in addition to EUR 10 billion in State-guaranteed loans. The government has temporarily reduced the employer’s pension contribution by 2,6 percentage points and has allocated at least EUR 1 billion to a municipal support package. The Finnish Financial Supervisory Authority lowered Finnish credit institutions’ capital requirements by removing the systemic risk buffer and by adjusting credit institution-specific requirements. The government nominated a working group led by the Ministry of Finance and the Ministry of Social Affairs and Health to prepare Finland’s COVID-19 crisis exit strategy. The government adopted a staged exit plan in early May, based on the first report of the working group. The working group will further propose relevant measures to address the health, social and economic impact of the crisis. It has consulted social partners, municipalities, civil society and environmental organisations.

| (17) | While Finland has shown a general readiness to deal with the COVID-19 crisis, its health system could benefit from being made more resilient. Hospital districts have had to reallocate medical staff to treat COVID-19 patients and deviate from the previously established legal time limits for non-urgent healthcare. The current system of health services delivered by various providers has led to an uneven density of health workers across the country. The fragmentation of service provision and the unequal access to social and primary healthcare services is expected to remain an issue after the crisis, particularly for unemployed and retired people, including persons with disabilities. With the rise in unemployment due to the COVID-19 crisis, both short- and medium-term policy actions should be focused on improving equal access to primary healthcare. In the medium term, it remains important to pursue the social and health reform plans considered by successive Finnish governments, especially as they prepare Finland for far-reaching demographic changes and would help the country maintain the quality of its health system in the future while improving its accessibility. The long-term sustainability of Finland’s public finances continues to be at risk due to the projected rise in ageing costs, in particular social care and healthcare. |
| --- | --- |

(17)

While Finland has shown a general readiness to deal with the COVID-19 crisis, its health system could benefit from being made more resilient. Hospital districts have had to reallocate medical staff to treat COVID-19 patients and deviate from the previously established legal time limits for non-urgent healthcare. The current system of health services delivered by various providers has led to an uneven density of health workers across the country. The fragmentation of service provision and the unequal access to social and primary healthcare services is expected to remain an issue after the crisis, particularly for unemployed and retired people, including persons with disabilities. With the rise in unemployment due to the COVID-19 crisis, both short- and medium-term policy actions should be focused on improving equal access to primary healthcare. In the medium term, it remains important to pursue the social and health reform plans considered by successive Finnish governments, especially as they prepare Finland for far-reaching demographic changes and would help the country maintain the quality of its health system in the future while improving its accessibility. The long-term sustainability of Finland’s public finances continues to be at risk due to the projected rise in ageing costs, in particular social care and healthcare.

| (18) | According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,3 % in 2020 and recover to 7,7 % in 2021. Effective short- and medium-term policy actions, designed in close cooperation with the social partners, are needed to curb increases in the unemployment rate and to re-integrate into the labour market those who have lost their jobs due to the COVID-19 crisis. These efforts should also support groups at risk of poverty and social exclusion, such as the low-skilled, persons with disabilities, people with partial work ability and people with a migrant background. Finland has short-time work schemes in place that have put many employees on furlough. Active labour market policies, including upskilling and reskilling measures could ensure quick and sustainable re-entry into the labour market. Subsidised salaries could be targeted and coupled with training and follow-up by public employment services. Reskilling and upskilling are key to maintaining the employability of the labour force in an increasingly digital and green economy. The continuous learning reform could help address the need for skills enhancement of adults, including those with low skills, in labour market-relevant sectors such as the Information and Communication Technology (ICT) sector. In order to provide the market with the skills it needs in times of demographic and technological changes, it will be important to maintain the labour market relevance of education, also by ensuring sufficient university places in line with employment foresight for each sector and region. To avoid aggravating the socioeconomic situation of the most vulnerable groups in the wake of the COVID-19 crisis, addressing the digital divide will be key, particularly in ensuring that disadvantaged learners have access to quality education. The complex benefit system creates barriers to taking up work. To encourage the take-up of short-time and part-time work, the income register containing real-time information on salaries and benefits should be efficiently deployed together with accelerating the handling times of social security benefits. In the medium term, it will be important for Finland to reform the social benefits system to boost employment and to prepare the country’s welfare system for the future. |
| --- | --- |

(18)

According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,3 % in 2020 and recover to 7,7 % in 2021. Effective short- and medium-term policy actions, designed in close cooperation with the social partners, are needed to curb increases in the unemployment rate and to re-integrate into the labour market those who have lost their jobs due to the COVID-19 crisis. These efforts should also support groups at risk of poverty and social exclusion, such as the low-skilled, persons with disabilities, people with partial work ability and people with a migrant background. Finland has short-time work schemes in place that have put many employees on furlough. Active labour market policies, including upskilling and reskilling measures could ensure quick and sustainable re-entry into the labour market. Subsidised salaries could be targeted and coupled with training and follow-up by public employment services. Reskilling and upskilling are key to maintaining the employability of the labour force in an increasingly digital and green economy. The continuous learning reform could help address the need for skills enhancement of adults, including those with low skills, in labour market-relevant sectors such as the Information and Communication Technology (ICT) sector. In order to provide the market with the skills it needs in times of demographic and technological changes, it will be important to maintain the labour market relevance of education, also by ensuring sufficient university places in line with employment foresight for each sector and region. To avoid aggravating the socioeconomic situation of the most vulnerable groups in the wake of the COVID-19 crisis, addressing the digital divide will be key, particularly in ensuring that disadvantaged learners have access to quality education. The complex benefit system creates barriers to taking up work. To encourage the take-up of short-time and part-time work, the income register containing real-time information on salaries and benefits should be efficiently deployed together with accelerating the handling times of social security benefits. In the medium term, it will be important for Finland to reform the social benefits system to boost employment and to prepare the country’s welfare system for the future.

| (19) | Helping businesses, especially SMEs, to stay afloat during the COVID-19 crisis is essential to stimulating the economy following the lifting of the lockdown measures currently in place. Temporary liquidity support through loans, grants and guarantees could help tide businesses over this period of high uncertainty and substantially lower revenues. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. |
| --- | --- |

(19)

Helping businesses, especially SMEs, to stay afloat during the COVID-19 crisis is essential to stimulating the economy following the lifting of the lockdown measures currently in place. Temporary liquidity support through loans, grants and guarantees could help tide businesses over this period of high uncertainty and substantially lower revenues. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account.

| (20) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Investment in Finland remains below the EU average for categories that most support productivity growth, in particular investment in equipment and in intellectual property. This can limit the country’s long-term growth potential and weigh on its competitiveness and recovery. More investment in research and development is a key factor enabling structural change to favour knowledge-intensive sectors of the economy and strengthen long-term growth potential. The planned move towards climate neutrality by 2035 also reflected in Finland’s National Energy and Climate Plan will require substantial investment, particularly in electricity networks and in sustainable transport. A new national transport plan for 2021–2032 is being developed under the lead of a parliamentary steering group. Amid health, environmental, regional and productivity concerns, continued efforts are needed to roll out high-speed broadband and to improve other digital infrastructure, with a view to rationalise logistics and maintain economic activity in remote areas. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Finland to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Finland to make the best use of that Fund. |
| --- | --- |

(20)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Investment in Finland remains below the EU average for categories that most support productivity growth, in particular investment in equipment and in intellectual property. This can limit the country’s long-term growth potential and weigh on its competitiveness and recovery. More investment in research and development is a key factor enabling structural change to favour knowledge-intensive sectors of the economy and strengthen long-term growth potential. The planned move towards climate neutrality by 2035 also reflected in Finland’s National Energy and Climate Plan will require substantial investment, particularly in electricity networks and in sustainable transport. A new national transport plan for 2021–2032 is being developed under the lead of a parliamentary steering group. Amid health, environmental, regional and productivity concerns, continued efforts are needed to roll out high-speed broadband and to improve other digital infrastructure, with a view to rationalise logistics and maintain economic activity in remote areas. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Finland to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Finland to make the best use of that Fund.

| (21) | Finland’s national risk assessment on anti-money laundering is currently outdated and will be updated in 2020. The Finnish Financial Supervisory Authority has recently improved its supervisory capacity. However, staffing is still inadequate, and the risk-based approach to supervision has not yet been correctly applied. While several cases of suspected violations have been investigated, the establishment of a dissuasive sanctioning policy remains another priority area. Reporting of suspicious transactions has sharply increased in recent months and resources within the Financial Intelligence Unit appear insufficient to analyse this information. The exchange of information between the Financial Intelligence Unit and the Financial Supervisory Authority remains insufficient. |
| --- | --- |

(21)

Finland’s national risk assessment on anti-money laundering is currently outdated and will be updated in 2020. The Finnish Financial Supervisory Authority has recently improved its supervisory capacity. However, staffing is still inadequate, and the risk-based approach to supervision has not yet been correctly applied. While several cases of suspected violations have been investigated, the establishment of a dissuasive sanctioning policy remains another priority area. Reporting of suspicious transactions has sharply increased in recent months and resources within the Financial Intelligence Unit appear insufficient to analyse this information. The exchange of information between the Financial Intelligence Unit and the Financial Supervisory Authority remains insufficient.

| (22) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(22)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (23) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Finland will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(23)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Finland will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (24) | Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic.As a Member State whose currency is the euro, Finland should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup. |
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(24)

Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic.As a Member State whose currency is the euro, Finland should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

| (25) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Finland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Finland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Finland, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
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(25)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Finland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Finland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Finland, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (26) | In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
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(26)

In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that Finland take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Address shortages of health workers to strengthen the resilience of the health system and improve access to social and health services. |
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1.

| 2. | Strengthen measures to support employment and bolster active labour market policies. |
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2.

| 3. | Take measures to provide liquidity to the real economy, in particular to small and medium-sized enterprises. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, sustainable and efficient infrastructure as well as research and innovation. |
| --- | --- |

3.

| 4. | Ensure effective supervision and enforcement of the anti-money-laundering framework. |
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4.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  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 (OJ L 306, 23.11.2011, p. 25).

2

(3)  OJ C 301, 5.9.2019, p. 154.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/177 |
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26.8.2020

EN

Official Journal of the European Union

C 282/177

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of Sweden and delivering a Council opinion on the 2020 Convergence Programme of Sweden

(2020/C 282/27)

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 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 9(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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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. |
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(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also 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.

| (2) | The 2020 country report for Sweden was published on 26 February 2020. It assessed Sweden’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Sweden’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Sweden is experiencing macroeconomic imbalances. In particular, overvalued house price levels coupled with a continued rise in household debt poses risks of a disorderly correction. This could have an adverse impact on the economy and potentially also on the banking sector. Any negative impact on the banking sector could also cause negative spill-overs in neighbouring countries given the systemic financial interlinkages. Some measures have been taken in recent years to address those imbalances. However, those measures have had limited impact so far. Key policy gaps remain, particularly in relation to tax incentives for debt-financed home ownership, the functioning of the housing supply and, in particular, the rental market. |
| --- | --- |

(2)

The 2020 country report for Sweden was published on 26 February 2020. It assessed Sweden’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Sweden’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Sweden is experiencing macroeconomic imbalances. In particular, overvalued house price levels coupled with a continued rise in household debt poses risks of a disorderly correction. This could have an adverse impact on the economy and potentially also on the banking sector. Any negative impact on the banking sector could also cause negative spill-overs in neighbouring countries given the systemic financial interlinkages. Some measures have been taken in recent years to address those imbalances. However, those measures have had limited impact so far. Key policy gaps remain, particularly in relation to tax incentives for debt-financed home ownership, the functioning of the housing supply and, in particular, the rental market.

| (3) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(3)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (4) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
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(4)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (5) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(5)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (6) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(6)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (7) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(7)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (8) | The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Sweden is encouraged to make full use of those possibilities to help the individuals and sectors most affected. |
| --- | --- |

(8)

The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Sweden is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns – in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Sweden, aggravating the already observed trend of slowly widening disparities between the capital region and the rest of the country or between urban and rural areas. Combined with the risk of a temporary unravelling of the convergenceprocess between Member States, the current situation calls for targeted policy responses. |
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(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions because of different specialisation patterns – in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Sweden, aggravating the already observed trend of slowly widening disparities between the capital region and the rest of the country or between urban and rural areas. Combined with the risk of a temporary unravelling of the convergenceprocess between Member States, the current situation calls for targeted policy responses.

| (10) | Sweden submitted its 2020 National Reform Programme on 27 April 2020 and its 2020 Convergence Programme on 28 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

Sweden submitted its 2020 National Reform Programme on 27 April 2020 and its 2020 Convergence Programme on 28 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | Sweden is currently in the preventive arm of the Stability and Growth Pact. |
| --- | --- |

(11)

Sweden is currently in the preventive arm of the Stability and Growth Pact.

| (12) | In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 3,8 % of GDP in 2020. The deficit is projected to decline to 1,4 % of GDP in 2021 and reach a surplus of 1,5 % of GDP by 2023. After decreasing to 35 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 40 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic. |
| --- | --- |

(12)

In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 3,8 % of GDP in 2020. The deficit is projected to decline to 1,4 % of GDP in 2021 and reach a surplus of 1,5 % of GDP by 2023. After decreasing to 35 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 40 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Sweden has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 2,4 % of GDP. The measures include strengthening healthcare services (0,1 % of GDP), emergency aid for distressed sectors (1,6 % of GDP) and labour market and social policy measures (0,2 % of GDP). In addition, Sweden has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. According to the 2020 Convergence Programme, those measures include in particular tax deferrals of up to 6,9 % of GDP, as well as different kinds of loan guarantees and expanded credit facilities amounting to roughly 4,7 % of GDP. Overall, the measures taken by Sweden are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
| --- | --- |

(13)

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Sweden has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 2,4 % of GDP. The measures include strengthening healthcare services (0,1 % of GDP), emergency aid for distressed sectors (1,6 % of GDP) and labour market and social policy measures (0,2 % of GDP). In addition, Sweden has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. According to the 2020 Convergence Programme, those measures include in particular tax deferrals of up to 6,9 % of GDP, as well as different kinds of loan guarantees and expanded credit facilities amounting to roughly 4,7 % of GDP. Overall, the measures taken by Sweden are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, Sweden’s general government balance is forecast at -5,6 % of GDP in 2020 and -2,2 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021. |
| --- | --- |

(14)

Based on the Commission 2020 spring forecast under unchanged policies, Sweden’s general government balance is forecast at -5,6 % of GDP in 2020 and -2,2 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Sweden’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled. |
| --- | --- |

(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Sweden’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

| (16) | Sweden’s economy has slowed down in an unprecedented way following the outbreak of the COVID-19 pandemic. According to the Commission 2020 spring forecast, unemployment is expected to rise to 9,7 % in 2020 and recover to 9,3 % in 2021. Private consumption is expected to decline strongly, in particular in the most exposed consumption categories like transport, restaurants and accommodation. Gross fixed capital formation is projected to see an even sharper drop than consumption, driven largely by uncertainty over the pace of the recovery. The Swedish authorities started taking measures early on and have successively scaled up policy measures as the COVID-19 pandemic spread. The measures covered healthcare and addressed the economic fall-out. Healthcare-related measures include economic support from the central government for extra costs of the COVID-19 pandemic to the regions and local authorities responsible for the healthcare system. On the economic front, the government has taken a broad range of steps to relieve the costs of the corporate sector (short-term layoffs, sick pay costs, waving employer’s social contributions, credit guarantees and rent reductions) as well as to ensure corporate liquidity (postponing tax payments, including value added tax (VAT) payments). Furthermore, Sweden’s central bank, Sveriges Riksbank, has decided to extend loans to companies via banks, to purchase government and municipal bonds, as well as covered mortgage bonds and bonds and commercial papers issued by Swedish non-financial corporations. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. The Riksbank has also concluded currency swap agreements, with other central banks, to ensure the availability of major currencies for the financial sector. Social and labour market policy has been expanded, for example by making temporarily changes to sickness benefits, increasing unemployment benefits, lowering requirements for accessing the unemployment scheme and through active labour market and education policies (e.g. green jobs, the extension of new start jobs, summer courses, more students in higher education). |
| --- | --- |

(16)

Sweden’s economy has slowed down in an unprecedented way following the outbreak of the COVID-19 pandemic. According to the Commission 2020 spring forecast, unemployment is expected to rise to 9,7 % in 2020 and recover to 9,3 % in 2021. Private consumption is expected to decline strongly, in particular in the most exposed consumption categories like transport, restaurants and accommodation. Gross fixed capital formation is projected to see an even sharper drop than consumption, driven largely by uncertainty over the pace of the recovery. The Swedish authorities started taking measures early on and have successively scaled up policy measures as the COVID-19 pandemic spread. The measures covered healthcare and addressed the economic fall-out. Healthcare-related measures include economic support from the central government for extra costs of the COVID-19 pandemic to the regions and local authorities responsible for the healthcare system. On the economic front, the government has taken a broad range of steps to relieve the costs of the corporate sector (short-term layoffs, sick pay costs, waving employer’s social contributions, credit guarantees and rent reductions) as well as to ensure corporate liquidity (postponing tax payments, including value added tax (VAT) payments). Furthermore, Sweden’s central bank, Sveriges Riksbank, has decided to extend loans to companies via banks, to purchase government and municipal bonds, as well as covered mortgage bonds and bonds and commercial papers issued by Swedish non-financial corporations. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. The Riksbank has also concluded currency swap agreements, with other central banks, to ensure the availability of major currencies for the financial sector. Social and labour market policy has been expanded, for example by making temporarily changes to sickness benefits, increasing unemployment benefits, lowering requirements for accessing the unemployment scheme and through active labour market and education policies (e.g. green jobs, the extension of new start jobs, summer courses, more students in higher education).

| (17) | Sweden’s short-term policy response to COVID-19 pandemic relies on securing appropriate resources and capacity buffers and adapting the roles and responsibilities of health workers. In the medium term, this should also lead to timely and geographically balanced healthcare, the appropriate deployment of health workers in various settings (for example in outpatient and inpatient care), and help avoid structural shortages of medical staff. Making use of Sweden’s strong research and innovation (R&I) sector for science-driven actions can contribute to progress on vaccines development, treatments and diagnostics and on translating research findings into public health policy. |
| --- | --- |

(17)

Sweden’s short-term policy response to COVID-19 pandemic relies on securing appropriate resources and capacity buffers and adapting the roles and responsibilities of health workers. In the medium term, this should also lead to timely and geographically balanced healthcare, the appropriate deployment of health workers in various settings (for example in outpatient and inpatient care), and help avoid structural shortages of medical staff. Making use of Sweden’s strong research and innovation (R&I) sector for science-driven actions can contribute to progress on vaccines development, treatments and diagnostics and on translating research findings into public health policy.

| (18) | Supporting the availability of skills, and digital skills in particular, can sustain higher productivity growth through R&I in high-tech sectors, and help achieve Sweden’s ambitious climate and energy objectives contained in its National Energy and Climate Plan. Investments are also needed to reduce educational outcomes gaps between learners with a migrant and native background. The high quality of labour was a major contributor to labour productivity growth but had all but stopped contributing before the COVID-19 crisis. Labour market integration of groups whose potential was not fully used before the crisis, such as non-EU migrants and people with disabilities, will also be necessary. Skills shortages has been particularly pronounced in education, healthcare, social work, information and communication technology, industry and construction. |
| --- | --- |

(18)

Supporting the availability of skills, and digital skills in particular, can sustain higher productivity growth through R&I in high-tech sectors, and help achieve Sweden’s ambitious climate and energy objectives contained in its National Energy and Climate Plan. Investments are also needed to reduce educational outcomes gaps between learners with a migrant and native background. The high quality of labour was a major contributor to labour productivity growth but had all but stopped contributing before the COVID-19 crisis. Labour market integration of groups whose potential was not fully used before the crisis, such as non-EU migrants and people with disabilities, will also be necessary. Skills shortages has been particularly pronounced in education, healthcare, social work, information and communication technology, industry and construction.

| (19) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. In the digital and microelectronics sectors, more than 50 % of employers report skills shortages affecting growth. Sustaining the high share of public spending in research is a necessary condition to improve the productivity performance. Capital deepening and higher investments in high-tech and innovative sectors are also needed to restore labour productivity growth. The diffusion of new digital technologies among small and medium-sized enterprises will help boost productivity. The crisis has shown how important the digital infrastructure is and that fast and stable connectivity needs to be available in all places where people live or work. The expansion of mobile broadband in the 700 MHz band will play an important role, as does the possibility of financial support for the development of fixed broadband. The upcoming 5G auction will provide additional impulse to the digitalisation of the Swedish economy. The objective of achieving a climate neutral society in 2045 will also require investments in R&I enabling the development and implementation of novel, competitive solutions for decarbonisation and coordinated social and policy actions. Transport is the prime target for reducing Sweden’s greenhouse gas emissions. A comprehensive and relatively fast transformation of the fleet to low-emission vehicles is on the political agenda. Planned investment in rail infrastructure is important to facilitate a modal split and to deliver on Sweden’s ambitious climate objective. The electrification of transport and industry will require significant investments in power production and distribution. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Sweden to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Sweden to make the best use of that Fund. |
| --- | --- |

(19)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. In the digital and microelectronics sectors, more than 50 % of employers report skills shortages affecting growth. Sustaining the high share of public spending in research is a necessary condition to improve the productivity performance. Capital deepening and higher investments in high-tech and innovative sectors are also needed to restore labour productivity growth. The diffusion of new digital technologies among small and medium-sized enterprises will help boost productivity. The crisis has shown how important the digital infrastructure is and that fast and stable connectivity needs to be available in all places where people live or work. The expansion of mobile broadband in the 700 MHz band will play an important role, as does the possibility of financial support for the development of fixed broadband. The upcoming 5G auction will provide additional impulse to the digitalisation of the Swedish economy. The objective of achieving a climate neutral society in 2045 will also require investments in R&I enabling the development and implementation of novel, competitive solutions for decarbonisation and coordinated social and policy actions. Transport is the prime target for reducing Sweden’s greenhouse gas emissions. A comprehensive and relatively fast transformation of the fleet to low-emission vehicles is on the political agenda. Planned investment in rail infrastructure is important to facilitate a modal split and to deliver on Sweden’s ambitious climate objective. The electrification of transport and industry will require significant investments in power production and distribution. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Sweden to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Sweden to make the best use of that Fund.

| (20) | Persistent allegations of suspected money laundering have affected the reputation of Swedish banks, and preventing money laundering remains a priority for Sweden. Effective supervision requires increased resources and appropriate procedures to apply the risk-based approach. Sweden has recognised that more resources are needed to exercise suitable supervision and investigations, and has strengthened the capacity of its Financial Supervisory Authority. However, the Authority’s capacity is still low compared to the size of the Swedish financial sector. Challenges remain and the risk-based approach still needs to be fully implemented. |
| --- | --- |

(20)

Persistent allegations of suspected money laundering have affected the reputation of Swedish banks, and preventing money laundering remains a priority for Sweden. Effective supervision requires increased resources and appropriate procedures to apply the risk-based approach. Sweden has recognised that more resources are needed to exercise suitable supervision and investigations, and has strengthened the capacity of its Financial Supervisory Authority. However, the Authority’s capacity is still low compared to the size of the Swedish financial sector. Challenges remain and the risk-based approach still needs to be fully implemented.

| (21) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis. |
| --- | --- |

(21)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

| (22) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Sweden will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union. |
| --- | --- |

(22)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Sweden will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

| (23) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Sweden’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Sweden in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions. |
| --- | --- |

(23)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Sweden’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Sweden in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

| (24) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below. |
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(24)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below.

| (25) | In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. As the 2020 country-specific recommendations have been refocused on the objective of tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, none of them directly addresses the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011, |
| --- | --- |

(25)

In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. As the 2020 country-specific recommendations have been refocused on the objective of tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, none of them directly addresses the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011,

HEREBY RECOMMENDS that Sweden take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Ensure the resilience of the health system, including through adequate supplies of critical medical products, infrastructure and workforce. |
| --- | --- |

1.

| 2. | Foster innovation and support education and skills development. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, high-tech and innovative sectors, 5G networks and sustainable transport. |
| --- | --- |

2.

| 3. | Improve the effectiveness of anti-money-laundering supervision and effectively enforce the anti-money-laundering framework. |
| --- | --- |

3.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ C 301, 5.9.2019, p. 159.

3

(4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

4

(5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

5

(6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

6

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

7

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| 26.8.2020 | EN | Official Journal of the European Union | C 282/183 |
| --- | --- | --- | --- |

26.8.2020

EN

Official Journal of the European Union

C 282/183

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COUNCIL RECOMMENDATION

of 20 July 2020

on the 2020 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2020 Convergence Programme of the United Kingdom

(2020/C 282/28)

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 9(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,

Having regard to the resolutions of the European Parliament,

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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify the United Kingdom as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(1)

On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify the United Kingdom as one of the Member States for which an in-depth review would be carried out.

| (2) | Following the withdrawal of the United Kingdom from the Union on 31 January 2020 and the entry into force of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (3) (‘the Withdrawal Agreement’), the United Kingdom entered a transition period, lasting until 31 December 2020. A single decision taken before 1 July 2020 by the Union and the United Kingdom in the Joint Committee provided for in the Withdrawal Agreement may extend this period for up to one or two years. During this period, Union law – including that related to the European Semester – continues to apply to and within the United Kingdom. |
| --- | --- |

(2)

Following the withdrawal of the United Kingdom from the Union on 31 January 2020 and the entry into force of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (3) (‘the Withdrawal Agreement’), the United Kingdom entered a transition period, lasting until 31 December 2020. A single decision taken before 1 July 2020 by the Union and the United Kingdom in the Joint Committee provided for in the Withdrawal Agreement may extend this period for up to one or two years. During this period, Union law – including that related to the European Semester – continues to apply to and within the United Kingdom.

| (3) | The 2020 country report for the United Kingdom was published on 26 February 2020. It assessed the United Kingdom’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (4) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and the United Kingdom’s progress towards its national Europe 2020 targets. |
| --- | --- |

(3)

The 2020 country report for the United Kingdom was published on 26 February 2020. It assessed the United Kingdom’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (4) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and the United Kingdom’s progress towards its national Europe 2020 targets.

| (4) | On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level. |
| --- | --- |

(4)

On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

| (5) | Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review. |
| --- | --- |

(5)

Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

| (6) | On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (5), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact. |
| --- | --- |

(6)

On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (5), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

| (7) | Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis. |
| --- | --- |

(7)

Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

| (8) | The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans. |
| --- | --- |

(8)

The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

| (9) | The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions in the United Kingdom because of different specialisation patterns. This poses a substantial risk of further widening the regional disparities within the United Kingdom. The current situation calls for targeted policy responses. |
| --- | --- |

(9)

The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions in the United Kingdom because of different specialisation patterns. This poses a substantial risk of further widening the regional disparities within the United Kingdom. The current situation calls for targeted policy responses.

| (10) | The United Kingdom submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Convergence Programme on 7 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(10)

The United Kingdom submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Convergence Programme on 7 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (11) | The United Kingdom is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. On 13 July 2018, the Council recommended the United Kingdom to ensure that the nominal growth rate of net primary government expenditure (6) would not exceed 1,6 % in 2019-2020, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a risk of significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019-2020 and over 2018-2019 and 2019-2020 taken together. Outturn data for 2019-2020 will be available in autumn 2020. |
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(11)

The United Kingdom is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. On 13 July 2018, the Council recommended the United Kingdom to ensure that the nominal growth rate of net primary government expenditure (6) would not exceed 1,6 % in 2019-2020, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a risk of significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019-2020 and over 2018-2019 and 2019-2020 taken together. Outturn data for 2019-2020 will be available in autumn 2020.

| (12) | In its 2019-2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 2,2 % of GDP in 2019-2020 to a deficit of 2,5 % of GDP in 2020-21. The deficit is projected to increase to 3,1 % of GDP in 2021-22 and to fall to 2,4 % of GDP by 2024-2025. After decreasing to an estimated 83,2 % of GDP in 2019-2020, the general government debt-to-GDP ratio is expected to decrease to 82,9 % in 2020-2021 according to the 2019-2020 Convergence Programme. However, the macroeconomic scenario underpinning those budgetary projections no longer appears realistic as it does not take into account the economic impact of the COVID-19 pandemic. The projections in the Programme also do not take into account the measures announced by the United Kingdom in response to the COVID-19 pandemic. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. |
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(12)

In its 2019-2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 2,2 % of GDP in 2019-2020 to a deficit of 2,5 % of GDP in 2020-21. The deficit is projected to increase to 3,1 % of GDP in 2021-22 and to fall to 2,4 % of GDP by 2024-2025. After decreasing to an estimated 83,2 % of GDP in 2019-2020, the general government debt-to-GDP ratio is expected to decrease to 82,9 % in 2020-2021 according to the 2019-2020 Convergence Programme. However, the macroeconomic scenario underpinning those budgetary projections no longer appears realistic as it does not take into account the economic impact of the COVID-19 pandemic. The projections in the Programme also do not take into account the measures announced by the United Kingdom in response to the COVID-19 pandemic. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

| (13) | In response to the COVID-19 pandemic, the United Kingdom has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. The projections in the Convergence Programme do not include these measures, but they are taken into account in the Commission 2020 spring forecast. The budgetary measures amount to about 5,5 % of GDP and include support for employees, the self-employed and businesses, as well as welfare measures. In addition, the United Kingdom has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. These measures include loan guarantees of about 16 % of GDP. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term. |
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(13)

In response to the COVID-19 pandemic, the United Kingdom has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. The projections in the Convergence Programme do not include these measures, but they are taken into account in the Commission 2020 spring forecast. The budgetary measures amount to about 5,5 % of GDP and include support for employees, the self-employed and businesses, as well as welfare measures. In addition, the United Kingdom has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. These measures include loan guarantees of about 16 % of GDP. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

| (14) | Based on the Commission 2020 spring forecast under unchanged policies, the United Kingdom’s general government balance is forecast at -10,7 % of GDP in 2020-2021 and -6,2 % of GDP in 2021-2022. The general government debt ratio is projected to reach 102,5 % of GDP in 2020-2021 and 100,2 % of GDP in 2022. The macroeconomic scenario underlying the Convergence Programme does not take into account the impact of the COVID-19 pandemic, and the debt and deficit projections in it therefore differ substantially from those of the Commission. |
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(14)

Based on the Commission 2020 spring forecast under unchanged policies, the United Kingdom’s general government balance is forecast at -10,7 % of GDP in 2020-2021 and -6,2 % of GDP in 2021-2022. The general government debt ratio is projected to reach 102,5 % of GDP in 2020-2021 and 100,2 % of GDP in 2022. The macroeconomic scenario underlying the Convergence Programme does not take into account the impact of the COVID-19 pandemic, and the debt and deficit projections in it therefore differ substantially from those of the Commission.

| (15) | On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of the United Kingdom’s projected breach of the 3 %-of-GDP deficit threshold in 2020-21.Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 has not been fulfilled. |
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(15)

On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of the United Kingdom’s projected breach of the 3 %-of-GDP deficit threshold in 2020-21.Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 has not been fulfilled.

| (16) | The ongoing COVID-19 crisis has created economic and social policy challenges that are unprecedented over the past decades. Unemployment is expected to rise by almost 3 percentage points to 6,7 % in 2020 and recover slightly to 6 % in 2021, from 3,8 % in 2019. The government of the United Kingdom has adopted emergency measures to alleviate the negative effects of the shock. The cost of the direct fiscal support will depend on demand, but it may amount to around GBP 110 billion (5,5 % of GDP), complemented by GBP 330 billion (16 % of GDP) of credit guarantees for bank loans. Short-time work schemes have been rolled out to protect employment and measures to support the self-employed have also been put in place. The coverage and eligibility to access advance payments of Universal Credit have been temporarily improved and the basic entitlement under Universal Credit temporarily increased for 12 months. Local authorities are also to receive additional one-off funding to support economically vulnerable people and households. The government also announced a three-month moratorium on mortgage payments for homeowners in difficulty due to the COVID-19 pandemic. |
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(16)

The ongoing COVID-19 crisis has created economic and social policy challenges that are unprecedented over the past decades. Unemployment is expected to rise by almost 3 percentage points to 6,7 % in 2020 and recover slightly to 6 % in 2021, from 3,8 % in 2019. The government of the United Kingdom has adopted emergency measures to alleviate the negative effects of the shock. The cost of the direct fiscal support will depend on demand, but it may amount to around GBP 110 billion (5,5 % of GDP), complemented by GBP 330 billion (16 % of GDP) of credit guarantees for bank loans. Short-time work schemes have been rolled out to protect employment and measures to support the self-employed have also been put in place. The coverage and eligibility to access advance payments of Universal Credit have been temporarily improved and the basic entitlement under Universal Credit temporarily increased for 12 months. Local authorities are also to receive additional one-off funding to support economically vulnerable people and households. The government also announced a three-month moratorium on mortgage payments for homeowners in difficulty due to the COVID-19 pandemic.

| (17) | To support the financial position of businesses, the Bank of England has reduced the bank rate twice, in total from 0,75 % to 0,1 %, reduced the United Kingdom countercyclical capital buffer rate to 0 % from a pre-existing path towards 2 % by December 2020, increased its bond-buying programme to GBP 645 billion, and enhanced its support for commercial bank lending to the real economy alongside government loan guarantees. The government offered sectors a year-long moratorium on paying business rates, a deferral of value-added tax (VAT) payments as well as cash grants for smaller firms. Liquidity support has also been made available in the form of guarantees and combined grants under the Coronavirus Business Interruption Loan Scheme to small and medium-sized enterprises (SMEs) below a given turnover threshold, using a wide range of business finance products, such as revolving credit facilities and other products, including term loans. In addition, a general scheme to provide liquidity to SMEs, but also to larger businesses that could include investment support, has been made available to all sectors of activity. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. |
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(17)

To support the financial position of businesses, the Bank of England has reduced the bank rate twice, in total from 0,75 % to 0,1 %, reduced the United Kingdom countercyclical capital buffer rate to 0 % from a pre-existing path towards 2 % by December 2020, increased its bond-buying programme to GBP 645 billion, and enhanced its support for commercial bank lending to the real economy alongside government loan guarantees. The government offered sectors a year-long moratorium on paying business rates, a deferral of value-added tax (VAT) payments as well as cash grants for smaller firms. Liquidity support has also been made available in the form of guarantees and combined grants under the Coronavirus Business Interruption Loan Scheme to small and medium-sized enterprises (SMEs) below a given turnover threshold, using a wide range of business finance products, such as revolving credit facilities and other products, including term loans. In addition, a general scheme to provide liquidity to SMEs, but also to larger businesses that could include investment support, has been made available to all sectors of activity. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account.

| (18) | The COVID-19 pandemic has revealed weaknesses in the preparedness and capacity of the health systems in the United Kingdom to respond to such outbreaks, notably in terms of facilities, staff and supplies. This has resulted in the emergency setting-up of temporary field hospitals for COVID-19 patients across the United Kingdom. The country’s manufacturing industry was urged to modify its production lines to urgently produce additional medical equipment, such as ventilators, in order to cover the expected level of demand. The COVID-19 crisis has further accentuated existing health workforce shortages. Managing similar crises in the future calls for investments into the health systems across the United Kingdom, including effective and well-resourced public health measures. These investments should aim at providing the necessary equipment and facilities and the required skilled labour, as well as, overall, the capacity to deliver all expected regular healthcare services alongside care for patients with COVID-19 or similar infectious diseases. |
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(18)

The COVID-19 pandemic has revealed weaknesses in the preparedness and capacity of the health systems in the United Kingdom to respond to such outbreaks, notably in terms of facilities, staff and supplies. This has resulted in the emergency setting-up of temporary field hospitals for COVID-19 patients across the United Kingdom. The country’s manufacturing industry was urged to modify its production lines to urgently produce additional medical equipment, such as ventilators, in order to cover the expected level of demand. The COVID-19 crisis has further accentuated existing health workforce shortages. Managing similar crises in the future calls for investments into the health systems across the United Kingdom, including effective and well-resourced public health measures. These investments should aim at providing the necessary equipment and facilities and the required skilled labour, as well as, overall, the capacity to deliver all expected regular healthcare services alongside care for patients with COVID-19 or similar infectious diseases.

| (19) | The current crisis is likely to have a bigger impact on the most vulnerable, exacerbating poverty. The risk of poverty or social exclusion was already increasing before the crisis, despite record low unemployment. In-work poverty and child poverty are also high. Welfare cuts and reforms risk undermining the strong poverty-reducing effect of the United Kingdom tax-benefit system. There is scope to strengthen support to the most vulnerable, including children in poverty, especially given that the crisis is expected to further increase income inequality. |
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(19)

The current crisis is likely to have a bigger impact on the most vulnerable, exacerbating poverty. The risk of poverty or social exclusion was already increasing before the crisis, despite record low unemployment. In-work poverty and child poverty are also high. Welfare cuts and reforms risk undermining the strong poverty-reducing effect of the United Kingdom tax-benefit system. There is scope to strengthen support to the most vulnerable, including children in poverty, especially given that the crisis is expected to further increase income inequality.

| (20) | Improving labour productivity performance remains a major challenge for the United Kingdom. Output per hour is significantly lower in the United Kingdom than in most other developed economies, and is barely higher than it was before the financial crisis. GDP growth has been driven by employment growth, with practically no increases in productivity in the recent past. Despite a tight labour market, United Kingdom labour productivity has been essentially flat since early 2018. Real wage growth has also remained slow. Many parts of the United Kingdom are relatively poor, with comparatively low levels of investment in skills and infrastructure. Limited career progression prospects for people in low-wage jobs negatively affect both productivity and poverty. This is set to continue and may even be exacerbated in the light of the COVID-19 crisis. The recent pandemic also poses significant challenges for the education and training systems in the United Kingdom, in particular with regard to distance learning and varying access to structured learning. Consequently, there is scope to increase productivity by addressing broad-based problems such as low investment in equipment, infrastructure and research and development, and skills gaps, especially in basic and technical skills. The United Kingdom aims to invest more in research and innovation and improve the use of existing technologies across the economy. |
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(20)

Improving labour productivity performance remains a major challenge for the United Kingdom. Output per hour is significantly lower in the United Kingdom than in most other developed economies, and is barely higher than it was before the financial crisis. GDP growth has been driven by employment growth, with practically no increases in productivity in the recent past. Despite a tight labour market, United Kingdom labour productivity has been essentially flat since early 2018. Real wage growth has also remained slow. Many parts of the United Kingdom are relatively poor, with comparatively low levels of investment in skills and infrastructure. Limited career progression prospects for people in low-wage jobs negatively affect both productivity and poverty. This is set to continue and may even be exacerbated in the light of the COVID-19 crisis. The recent pandemic also poses significant challenges for the education and training systems in the United Kingdom, in particular with regard to distance learning and varying access to structured learning. Consequently, there is scope to increase productivity by addressing broad-based problems such as low investment in equipment, infrastructure and research and development, and skills gaps, especially in basic and technical skills. The United Kingdom aims to invest more in research and innovation and improve the use of existing technologies across the economy.

| (21) | To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The United Kingdom has a persistent housing shortage. Capacity constraints are emerging, while residential construction remains below what is required to meet estimated demand. The amount and location of land available for new housing is limited by tight regulation of the land market, particularly around big towns and cities. The building sector remains key for housing as well as meeting future energy-efficiency and climate targets, although reducing the amount of energy used for home heating is complicated by the age of the housing stock and its slow replacement. After decades of public under-investment, the government has started to deal with the infrastructure deficit. There has been encouraging progress on investment in renewables, and significant emission reduction has been achieved in the power sector. However, the move towards climate neutrality still faces challenges across the whole of the economy. Use of the United Kingdom’s road, rail and aviation networks is reaching capacity and this contributes to congestion and air pollution. The United Kingdom has an ambition to be at the forefront of zero-emission vehicles, but most of the rail network is not yet electrified. Although the coverage of full-fibre networks in the United Kingdom is still modest, network competition in the full-fibre market is growing as the government is significantly increasing public support towards fibre network rollout. Such investment in digital infrastructure, however, needs to be accompanied by improved digital skills, as the United Kingdom suffers from a structural deficit of IT specialist skills. |
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(21)

To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The United Kingdom has a persistent housing shortage. Capacity constraints are emerging, while residential construction remains below what is required to meet estimated demand. The amount and location of land available for new housing is limited by tight regulation of the land market, particularly around big towns and cities. The building sector remains key for housing as well as meeting future energy-efficiency and climate targets, although reducing the amount of energy used for home heating is complicated by the age of the housing stock and its slow replacement. After decades of public under-investment, the government has started to deal with the infrastructure deficit. There has been encouraging progress on investment in renewables, and significant emission reduction has been achieved in the power sector. However, the move towards climate neutrality still faces challenges across the whole of the economy. Use of the United Kingdom’s road, rail and aviation networks is reaching capacity and this contributes to congestion and air pollution. The United Kingdom has an ambition to be at the forefront of zero-emission vehicles, but most of the rail network is not yet electrified. Although the coverage of full-fibre networks in the United Kingdom is still modest, network competition in the full-fibre market is growing as the government is significantly increasing public support towards fibre network rollout. Such investment in digital infrastructure, however, needs to be accompanied by improved digital skills, as the United Kingdom suffers from a structural deficit of IT specialist skills.

| (22) | While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored as part of the European Semester until the end of the transition period. |
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(22)

While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored as part of the European Semester until the end of the transition period.

| (23) | The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, the United Kingdom will contribute to the progress towards the SDGs. |
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(23)

The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, the United Kingdom will contribute to the progress towards the SDGs.

| (24) | In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of the United Kingdom’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to the United Kingdom in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the United Kingdom, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance. |
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(24)

In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of the United Kingdom’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to the United Kingdom in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the United Kingdom, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance.

| (25) | In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below, |
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(25)

In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below,

HEREBY RECOMMENDS that the United Kingdom take action in 2020 and 2021 to:

| 1. | Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system. |
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1.

| 2. | Ensure the adequacy and coverage of the social protection system to provide support for all and in particular those most affected by the crisis. |
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2.

| 3. | Foster innovation and support human capital development. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on housing, clean and efficient production and use of energy, sustainable transport infrastructures and high-speed broadband networks. |
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3.

Done at Brussels, 20 July 2020.

For the Council

The President

J. KLOECKNER

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

1

(2)  OJ L 306, 23.11.2011, p. 25.

2

(3)  OJ L 29, 31.1.2020, p. 7.

3

(4)  OJ C 301, 5.9.2019, p. 163.

4

(5)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

5

(6)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

6

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

7

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