# Official Journal C 272/2015

| | ISSN 1977-091X |
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| Official Journal
  of the European Union | C 272 |
| | |
| English edition | Information and Notices | Volume 5818 August 2015 |

ISSN 1977-091X

Official Journal

of the European Union

C 272

English edition

Information and Notices

Volume 5818 August 2015

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| Notice No | Contents | page |
| --- | --- | --- |
| | I   Resolutions, recommendations and opinions |
| | RECOMMENDATIONS |
| | Council |
| 2015/C 272/01 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Romania and delivering a Council opinion on the 2015 Convergence Programme of Romania | 1 |
| 2015/C 272/02 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Slovenia and delivering a Council opinion on the 2015 Stability Programme of Slovenia | 6 |
| 2015/C 272/03 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Slovakia and delivering a Council opinion on the 2015 Stability Programme of Slovakia | 10 |
| 2015/C 272/04 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Finland and delivering a Council opinion on the 2015 Stability Programme of Finland | 14 |
| 2015/C 272/05 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Sweden and delivering a Council opinion on the 2015 Convergence Programme of Sweden | 18 |
| 2015/C 272/06 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2015 Convergence Programme of the United Kingdom | 21 |
| 2015/C 272/07 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Belgium and delivering a Council opinion on the 2015 Stability Programme of Belgium | 24 |
| 2015/C 272/08 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Bulgaria and delivering a Council opinion on the 2015 Convergence Programme of Bulgaria | 28 |
| 2015/C 272/09 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of the Czech Republic and delivering a Council opinion on the 2015 Convergence Programme of the Czech Republic | 32 |
| 2015/C 272/10 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Denmark and delivering a Council opinion on the 2015 Convergence Programme of Denmark | 36 |
| 2015/C 272/11 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Estonia and delivering a Council opinion on the 2015 Stability Programme of Estonia | 39 |
| 2015/C 272/12 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Ireland and delivering a Council opinion the 2015 Stability Programme of Ireland | 42 |
| 2015/C 272/13 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Spain and delivering a Council opinion on the 2015 Stability Programme of Spain | 46 |
| 2015/C 272/14 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of France and delivering a Council opinion on the 2015 Stability Programme of France | 51 |
| 2015/C 272/15 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Croatia and delivering a Council opinion on the 2015 Convergence Programme of Croatia | 56 |
| 2015/C 272/16 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Italy and delivering a Council opinion on the 2015 Stability Programme of Italy | 61 |
| 2015/C 272/17 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Latvia and delivering a Council opinion on the 2015 Stability Programme of Latvia | 66 |
| 2015/C 272/18 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Lithuania and delivering a Council opinion on the 2015 Stability Programme of Lithuania | 70 |
| 2015/C 272/19 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Luxembourg and delivering a Council opinion on the 2015 Stability Programme of Luxembourg | 73 |
| 2015/C 272/20 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Hungary and delivering a Council opinion on the 2015 Convergence Programme of Hungary | 76 |
| 2015/C 272/21 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Malta and delivering a Council opinion on the 2015 Stability Programme of Malta | 80 |
| 2015/C 272/22 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of the Netherlands and delivering a Council opinion on the 2015 Stability Programme of the Netherlands | 83 |
| 2015/C 272/23 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Austria and delivering a Council opinion on the 2015 Stability Programme of Austria | 87 |
| 2015/C 272/24 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Poland and delivering a Council opinion on the 2015 Convergence Programme of Poland | 91 |
| 2015/C 272/25 | Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Portugal and delivering a Council opinion on the 2015 Stability Programme of Portugal | 94 |
| 2015/C 272/26 | Council Recommendation of 14 July 2015 on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro | 98 |

Notice No

Contents

page

I   Resolutions, recommendations and opinions

RECOMMENDATIONS

Council

2015/C 272/01

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Romania and delivering a Council opinion on the 2015 Convergence Programme of Romania

1

2015/C 272/02

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Slovenia and delivering a Council opinion on the 2015 Stability Programme of Slovenia

6

2015/C 272/03

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Slovakia and delivering a Council opinion on the 2015 Stability Programme of Slovakia

10

2015/C 272/04

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Finland and delivering a Council opinion on the 2015 Stability Programme of Finland

14

2015/C 272/05

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Sweden and delivering a Council opinion on the 2015 Convergence Programme of Sweden

18

2015/C 272/06

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2015 Convergence Programme of the United Kingdom

21

2015/C 272/07

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Belgium and delivering a Council opinion on the 2015 Stability Programme of Belgium

24

2015/C 272/08

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Bulgaria and delivering a Council opinion on the 2015 Convergence Programme of Bulgaria

28

2015/C 272/09

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of the Czech Republic and delivering a Council opinion on the 2015 Convergence Programme of the Czech Republic

32

2015/C 272/10

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Denmark and delivering a Council opinion on the 2015 Convergence Programme of Denmark

36

2015/C 272/11

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Estonia and delivering a Council opinion on the 2015 Stability Programme of Estonia

39

2015/C 272/12

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Ireland and delivering a Council opinion the 2015 Stability Programme of Ireland

42

2015/C 272/13

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Spain and delivering a Council opinion on the 2015 Stability Programme of Spain

46

2015/C 272/14

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of France and delivering a Council opinion on the 2015 Stability Programme of France

51

2015/C 272/15

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Croatia and delivering a Council opinion on the 2015 Convergence Programme of Croatia

56

2015/C 272/16

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Italy and delivering a Council opinion on the 2015 Stability Programme of Italy

61

2015/C 272/17

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Latvia and delivering a Council opinion on the 2015 Stability Programme of Latvia

66

2015/C 272/18

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Lithuania and delivering a Council opinion on the 2015 Stability Programme of Lithuania

70

2015/C 272/19

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Luxembourg and delivering a Council opinion on the 2015 Stability Programme of Luxembourg

73

2015/C 272/20

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Hungary and delivering a Council opinion on the 2015 Convergence Programme of Hungary

76

2015/C 272/21

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Malta and delivering a Council opinion on the 2015 Stability Programme of Malta

80

2015/C 272/22

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of the Netherlands and delivering a Council opinion on the 2015 Stability Programme of the Netherlands

83

2015/C 272/23

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Austria and delivering a Council opinion on the 2015 Stability Programme of Austria

87

2015/C 272/24

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Poland and delivering a Council opinion on the 2015 Convergence Programme of Poland

91

2015/C 272/25

Council Recommendation of 14 July 2015 on the 2015 National Reform Programme of Portugal and delivering a Council opinion on the 2015 Stability Programme of Portugal

94

2015/C 272/26

Council Recommendation of 14 July 2015 on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro

98

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| EN | |
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EN

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I Resolutions, recommendations and opinions

RECOMMENDATIONS

Council

| 18.8.2015 | EN | Official Journal of the European Union | C 272/1 |
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18.8.2015

EN

Official Journal of the European Union

C 272/1

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COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Romania and delivering a Council opinion on the 2015 Convergence Programme of Romania

(2015/C 272/01)

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 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 26 March 2010, the European Council agreed to the Commission's proposal to launch a new strategy for growth and jobs, Europe 2020, based on enhanced coordination of economic policies. The strategy focuses on the key areas where action is needed to boost Europe's potential for sustainable growth and competitiveness. |
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(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
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(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Romania's National Reform Programme for 2014 and delivered its opinion on Romania's updated Convergence Programme for 2014. |
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(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Romania's National Reform Programme for 2014 and delivered its opinion on Romania's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Romania was identified as one of the Member States for which an in-depth review would be carried out. |
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(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Romania was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
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(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Romania. This assessed Romania's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Romania is experiencing macroeconomic imbalances, which require policy action and monitoring. In the three consecutive EU-IMF programmes, external and internal imbalances have been significantly reduced. However, risks from Romania's relatively large negative net international investment position and a weak medium-term export capacity merit attention. External and internal vulnerabilities persist in the banking sector. |
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(6)

On 26 February 2015, the Commission published its 2015 country report for Romania. This assessed Romania's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Romania is experiencing macroeconomic imbalances, which require policy action and monitoring. In the three consecutive EU-IMF programmes, external and internal imbalances have been significantly reduced. However, risks from Romania's relatively large negative net international investment position and a weak medium-term export capacity merit attention. External and internal vulnerabilities persist in the banking sector.

| (7) | On 30 April 2015, Romania submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(7)

On 30 April 2015, Romania submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | On 22 October 2013, the Council adopted Decision 2013/531/EU (5), in which it committed itself to providing medium-term financial assistance of up to EUR 2 billion to Romania, over the period until September 2015. This assistance is conditional upon the implementation of a comprehensive economic policy. While, under present market conditions, Romania does not intend to request the disbursement of any instalment, the precautionary assistance is expected to help consolidate macroeconomic, budgetary and financial stability and, through the implementation of structural reforms, to increase the economy's resilience and potential for growth. Once Romania has exited the programme, it will be fully re-integrated into the European Semester framework. |
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(8)

On 22 October 2013, the Council adopted Decision 2013/531/EU (5), in which it committed itself to providing medium-term financial assistance of up to EUR 2 billion to Romania, over the period until September 2015. This assistance is conditional upon the implementation of a comprehensive economic policy. While, under present market conditions, Romania does not intend to request the disbursement of any instalment, the precautionary assistance is expected to help consolidate macroeconomic, budgetary and financial stability and, through the implementation of structural reforms, to increase the economy's resilience and potential for growth. Once Romania has exited the programme, it will be fully re-integrated into the European Semester framework.

| (9) | Romania is currently in the preventive arm of the Stability and Growth Pact. In its Convergence Programme, Romania has requested a temporary deviation of 0,5 % of GDP from the required adjustment path towards the medium-term objective because of planned structural reforms. As the Programme did not provide sufficiently detailed information on the planned structural reforms, the Council is not in a position to assess their plausibility. Romania also requested the application of the pension reform clause. The eligibility of the reform is subject to confirmation by Eurostat. Based on the Commission's 2015 spring forecast, the projected structural deficit of 3,4 % of GDP in 2016 would not ensure an appropriate safety margin with respect to the 3 %-of-GDP Treaty reference value. Therefore, the Council is of the opinion that Romania does not fulfil the requirements to benefit from the requested temporary deviation in 2016. |
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(9)

Romania is currently in the preventive arm of the Stability and Growth Pact. In its Convergence Programme, Romania has requested a temporary deviation of 0,5 % of GDP from the required adjustment path towards the medium-term objective because of planned structural reforms. As the Programme did not provide sufficiently detailed information on the planned structural reforms, the Council is not in a position to assess their plausibility. Romania also requested the application of the pension reform clause. The eligibility of the reform is subject to confirmation by Eurostat. Based on the Commission's 2015 spring forecast, the projected structural deficit of 3,4 % of GDP in 2016 would not ensure an appropriate safety margin with respect to the 3 %-of-GDP Treaty reference value. Therefore, the Council is of the opinion that Romania does not fulfil the requirements to benefit from the requested temporary deviation in 2016.

| (10) | In its 2015 Convergence Programme, the Government plans to keep the headline deficit at 1,5 % of GDP in 2015 and to reduce it to 0,8 % of GDP in 2018. The Government plans to meet the medium-term objective — a structural deficit of 1,0 % of GDP — from 2016 onwards. According to the Convergence Programme, the government debt-to-GDP ratio is expected to peak at 40,1 % in 2015 and to gradually decline thereafter, reaching 37,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is favourable. Important deficit-increasing measures approved by the Government on 25 March and the Senate on 27 April (6) which have been taken into account in the Commission's 2015 spring forecast, are not included in the Convergence Programme, while this is required by the Conduct of Conduct. Measures needed to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, in 2015 the structural balance is forecast to deviate by 0,3 % of GDP from the medium-term objective. This slightly exceeds the 0,25 % of GDP deviation granted under the Balance-of-Payments programme on the condition that the co-financing of EU funded projects is in line with what was foreseen in the budget.The deviation is set to become significant in 2016 at 2,4 % of GDP, whereas an adjustment of 0,3 % of GDP is required. Therefore, further measures will be needed in 2015 and 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Romania will not comply with the provisions of the Stability and Growth Pact. |
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(10)

In its 2015 Convergence Programme, the Government plans to keep the headline deficit at 1,5 % of GDP in 2015 and to reduce it to 0,8 % of GDP in 2018. The Government plans to meet the medium-term objective — a structural deficit of 1,0 % of GDP — from 2016 onwards. According to the Convergence Programme, the government debt-to-GDP ratio is expected to peak at 40,1 % in 2015 and to gradually decline thereafter, reaching 37,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is favourable. Important deficit-increasing measures approved by the Government on 25 March and the Senate on 27 April (6) which have been taken into account in the Commission's 2015 spring forecast, are not included in the Convergence Programme, while this is required by the Conduct of Conduct. Measures needed to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, in 2015 the structural balance is forecast to deviate by 0,3 % of GDP from the medium-term objective. This slightly exceeds the 0,25 % of GDP deviation granted under the Balance-of-Payments programme on the condition that the co-financing of EU funded projects is in line with what was foreseen in the budget.The deviation is set to become significant in 2016 at 2,4 % of GDP, whereas an adjustment of 0,3 % of GDP is required. Therefore, further measures will be needed in 2015 and 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Romania will not comply with the provisions of the Stability and Growth Pact.

| (11) | Romania's fiscal framework is broadly sound but not effectively applied. The medium- and long-term demographic trends and low level of development of the labour market may jeopardise the long-term sustainability of the pension system. The pension reform launched in 2010 has already brought some improvements, but the law equalising the statutory retirement age for men and women as of 2035, proposed by the Government in December 2013, has not yet been adopted by the lower chamber of Parliament. |
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(11)

Romania's fiscal framework is broadly sound but not effectively applied. The medium- and long-term demographic trends and low level of development of the labour market may jeopardise the long-term sustainability of the pension system. The pension reform launched in 2010 has already brought some improvements, but the law equalising the statutory retirement age for men and women as of 2035, proposed by the Government in December 2013, has not yet been adopted by the lower chamber of Parliament.

| (12) | The recent cut in employers' social security contributions has reduced the labour tax wedge, but in an untargeted way. The tax wedge for lower income earners remains high (40 %) relative to other European countries. Tax fraud and tax avoidance remain a major challenge and eat into tax revenue. The first steps have been taken in what is set to be an ongoing reorganisation of the Romanian tax administration. A pilot compliance project targeting undeclared labour, under-declared wages and tax evasion was implemented in two regions in 2014, and is to be rolled out further in 2015. The level of environmental taxation was increased in 2014, bringing it close to the EU average. |
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(12)

The recent cut in employers' social security contributions has reduced the labour tax wedge, but in an untargeted way. The tax wedge for lower income earners remains high (40 %) relative to other European countries. Tax fraud and tax avoidance remain a major challenge and eat into tax revenue. The first steps have been taken in what is set to be an ongoing reorganisation of the Romanian tax administration. A pilot compliance project targeting undeclared labour, under-declared wages and tax evasion was implemented in two regions in 2014, and is to be rolled out further in 2015. The level of environmental taxation was increased in 2014, bringing it close to the EU average.

| (13) | While some improvements were seen in 2014, employment and activity rates continue to be especially low among women, young people, older workers and Roma. Active labour market policies have been revised, but the overall participation in and financing for active labour market measures remain low, particularly for vocational training, schemes leading to the recognition of prior learning, mobility incentives, and measures targeting the long-term unemployed. Romania has taken steps to address youth unemployment, in particular through the Youth Guarantee, but there have been delays in implementation. No progress has been made in setting transparent guidelines for setting the minimum wage. In order to allow for personalised services and more coherent delivery across target groups, the Public Employment Service would need increased capacity, in particular in terms of staffing, and an integrated delivery framework for measures co-financed through European Structural and Investment funds. |
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(13)

While some improvements were seen in 2014, employment and activity rates continue to be especially low among women, young people, older workers and Roma. Active labour market policies have been revised, but the overall participation in and financing for active labour market measures remain low, particularly for vocational training, schemes leading to the recognition of prior learning, mobility incentives, and measures targeting the long-term unemployed. Romania has taken steps to address youth unemployment, in particular through the Youth Guarantee, but there have been delays in implementation. No progress has been made in setting transparent guidelines for setting the minimum wage. In order to allow for personalised services and more coherent delivery across target groups, the Public Employment Service would need increased capacity, in particular in terms of staffing, and an integrated delivery framework for measures co-financed through European Structural and Investment funds.

| (14) | Romania faces several challenges in the area of education: the early school leaving rate remains well above the EU average; the availability and access of early childhood education and care services is limited, especially in rural areas and for the Roma community; participation in lifelong learning remains far below the EU average; the quality and labour market relevance of higher education is inadequate; and the tertiary attainment rate remains the second lowest in the Union. Romania has started addressing these challenges, with varying degrees of progress being made in the different areas, and, to date, little visible end-effect. Romania adopted two national strategies, the lifelong learning national strategy and the national strategy for reducing early school leaving, in June 2015. It is now important that it takes action for their swift implementation. A national programme for early childhood education and care was designed for the period 2014-2019, and will come into effect in the new school year, 2015-2016. A strategy on tertiary education has been drafted, the aim of which is to increase the relevance of higher education by aligning it more closely with labour market needs and to improve the accessibility of higher education for disadvantaged groups. Measures have been implemented to improve vocational education and training and apprenticeships schemes. |
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(14)

Romania faces several challenges in the area of education: the early school leaving rate remains well above the EU average; the availability and access of early childhood education and care services is limited, especially in rural areas and for the Roma community; participation in lifelong learning remains far below the EU average; the quality and labour market relevance of higher education is inadequate; and the tertiary attainment rate remains the second lowest in the Union. Romania has started addressing these challenges, with varying degrees of progress being made in the different areas, and, to date, little visible end-effect. Romania adopted two national strategies, the lifelong learning national strategy and the national strategy for reducing early school leaving, in June 2015. It is now important that it takes action for their swift implementation. A national programme for early childhood education and care was designed for the period 2014-2019, and will come into effect in the new school year, 2015-2016. A strategy on tertiary education has been drafted, the aim of which is to increase the relevance of higher education by aligning it more closely with labour market needs and to improve the accessibility of higher education for disadvantaged groups. Measures have been implemented to improve vocational education and training and apprenticeships schemes.

| (15) | The Romanian healthcare system is characterised by poor results of treatment, poor financial and geographical accessibility, low funding and inefficient use of resources. There is high reliance on in-patient services and the system suffers from the extensive inefficient hospital network, the weak and fragmented referral networks, and the low proportion of spending directed to primary healthcare. In addition, the widespread use of informal payments in the public healthcare system further reduces the accessibility, efficiency and quality of the system. Various measures and healthcare reforms that have been introduced have narrowed the funding gap and improved the standard and efficiency of services. The National Health Strategy 2014-2020, which sets the strategic base for health sector reforms, was approved in December 2014 and is now to be implemented. The Ministry of Health and the National Health Insurance House are considering various measures to improve the system for financing healthcare. |
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(15)

The Romanian healthcare system is characterised by poor results of treatment, poor financial and geographical accessibility, low funding and inefficient use of resources. There is high reliance on in-patient services and the system suffers from the extensive inefficient hospital network, the weak and fragmented referral networks, and the low proportion of spending directed to primary healthcare. In addition, the widespread use of informal payments in the public healthcare system further reduces the accessibility, efficiency and quality of the system. Various measures and healthcare reforms that have been introduced have narrowed the funding gap and improved the standard and efficiency of services. The National Health Strategy 2014-2020, which sets the strategic base for health sector reforms, was approved in December 2014 and is now to be implemented. The Ministry of Health and the National Health Insurance House are considering various measures to improve the system for financing healthcare.

| (16) | Reducing poverty and social exclusion remains a major challenge for Romania. Although decreasing, the rate of people at risk of poverty or social exclusion remains high at 40 % in 2013, far above the EU average. The effectiveness of social transfers (excluding pensions) in reducing poverty appears limited, and is particularly low in the case of children. Social transfers are not adequately linked to activation measures. The implementation of the 2011 social assistance reform is still behind schedule. The strategy for social inclusion and combating poverty and the associated action plans were approved on 27 May 2015. Limited progress was made in introducing the minimum insertion income, which would simplify social assistance by combining three existing social transfers, and would also strengthen the link with activiation measures. A social economy law designed to regulate the field of social economy and improve labour participation of vulnerable population was adopted by the Government in 2013, but is still under debate in the Parliament. Few effective measures were taken to integrate the Roma population. A revised strategy for the integration of Roma was, however, adopted with some delay in January 2015, but implementation is behind schedule. |
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(16)

Reducing poverty and social exclusion remains a major challenge for Romania. Although decreasing, the rate of people at risk of poverty or social exclusion remains high at 40 % in 2013, far above the EU average. The effectiveness of social transfers (excluding pensions) in reducing poverty appears limited, and is particularly low in the case of children. Social transfers are not adequately linked to activation measures. The implementation of the 2011 social assistance reform is still behind schedule. The strategy for social inclusion and combating poverty and the associated action plans were approved on 27 May 2015. Limited progress was made in introducing the minimum insertion income, which would simplify social assistance by combining three existing social transfers, and would also strengthen the link with activiation measures. A social economy law designed to regulate the field of social economy and improve labour participation of vulnerable population was adopted by the Government in 2013, but is still under debate in the Parliament. Few effective measures were taken to integrate the Roma population. A revised strategy for the integration of Roma was, however, adopted with some delay in January 2015, but implementation is behind schedule.

| (17) | Romania's administrative capacity is low, fragmented, and characterised by an unclear delegation of responsibilities, as a result of which it acts as a drag on the competitiveness of the economy. The root causes of the structural weaknesses have been identified, and a strategy to tackle the challenges in public administration and in policy prioritisation and coordination was adopted in October 2014, together with an action plan for its implementation over the period 2014-2020. Implementation has, however, been considerably delayed. Irregularities in public procurement procedures have resulted in significant delays in implementing EU fund programmes. They have a negative impact on the business environment and hold back much needed investment in infrastructure. |
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(17)

Romania's administrative capacity is low, fragmented, and characterised by an unclear delegation of responsibilities, as a result of which it acts as a drag on the competitiveness of the economy. The root causes of the structural weaknesses have been identified, and a strategy to tackle the challenges in public administration and in policy prioritisation and coordination was adopted in October 2014, together with an action plan for its implementation over the period 2014-2020. Implementation has, however, been considerably delayed. Irregularities in public procurement procedures have resulted in significant delays in implementing EU fund programmes. They have a negative impact on the business environment and hold back much needed investment in infrastructure.

| (18) | Some progress has been made in increasing the independence, quality and efficiency of the judicial system, fighting corruption at all levels, and ensuring the effective implementation of court decisions. Nonetheless, the implementation of court decisions remains weak in many cases and more limited progress was made in preventing and fighting low-level corruption. These important policy areas will be covered by the Cooperation and Verification Mechanism. |
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(18)

Some progress has been made in increasing the independence, quality and efficiency of the judicial system, fighting corruption at all levels, and ensuring the effective implementation of court decisions. Nonetheless, the implementation of court decisions remains weak in many cases and more limited progress was made in preventing and fighting low-level corruption. These important policy areas will be covered by the Cooperation and Verification Mechanism.

| (19) | State-owned companies suffer from sub-standard productivity, contribute to the illiquidity in the economy, place a burden on the general government budget — as contingent liabilities —, and account for 50 % of the tax arrears of all companies combined. Corporate governance is a critical factor determining the performance of state-owned companies. Their current governance set-up does not prevent political interference in the day-to-day management of the companies, or guarantee a separation between the authorities' ownership and policy-making functions. Specific rules for state-owned companies were not systematically introduced until the emergency government ordinance 109/2011 was passed. Various areas remain uncovered and in practice the rules are not always respected. No progress has been made regarding reform of the corporate governance of state-owned companies in the energy and transport sectors. |
| --- | --- |

(19)

State-owned companies suffer from sub-standard productivity, contribute to the illiquidity in the economy, place a burden on the general government budget — as contingent liabilities —, and account for 50 % of the tax arrears of all companies combined. Corporate governance is a critical factor determining the performance of state-owned companies. Their current governance set-up does not prevent political interference in the day-to-day management of the companies, or guarantee a separation between the authorities' ownership and policy-making functions. Specific rules for state-owned companies were not systematically introduced until the emergency government ordinance 109/2011 was passed. Various areas remain uncovered and in practice the rules are not always respected. No progress has been made regarding reform of the corporate governance of state-owned companies in the energy and transport sectors.

| (20) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Romania's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(20)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Romania's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

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

(21)

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

| (22) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (4) below. |
| --- | --- |

(22)

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

HEREBY RECOMMENDS that Romania take action in 2015 and 2016 to:

| 1. | Take all the necessary measures to complete the financial assistance programme. |
| --- | --- |

1.

Take all the necessary measures to complete the financial assistance programme.

| 2. | Limit the deviation from the medium-term budgetary objective in 2015 to a maximum of 0,25 % of GDP as specified under the 2013-15 balance-of-payments programme and return to the medium-term budgetary objective in 2016. Implement the comprehensive tax compliance strategy, strengthen verification control systems in order to tackle undeclared work, and push ahead with the equalisation of the pensionable age for men and women. |
| --- | --- |

2.

Limit the deviation from the medium-term budgetary objective in 2015 to a maximum of 0,25 % of GDP as specified under the 2013-15 balance-of-payments programme and return to the medium-term budgetary objective in 2016. Implement the comprehensive tax compliance strategy, strengthen verification control systems in order to tackle undeclared work, and push ahead with the equalisation of the pensionable age for men and women.

| 3. | Strengthen the provision of labour market measures, in particular for unregistered young people and the long-term unemployed. Ensure that the national employment agency is adequately staffed. Establish, in consultation with the social partners and in accordance with national practices, clear guidelines for setting the minimum wage transparently. Introduce the minimum insertion income. Increase the provision and quality of early childhood education and care, in particular for Roma. Take action to implement the national strategy to reduce early school leaving. Pursue the national health strategy 2014-2020 to remedy issues of poor accessibility, low funding and inefficient resources. |
| --- | --- |

3.

Strengthen the provision of labour market measures, in particular for unregistered young people and the long-term unemployed. Ensure that the national employment agency is adequately staffed. Establish, in consultation with the social partners and in accordance with national practices, clear guidelines for setting the minimum wage transparently. Introduce the minimum insertion income. Increase the provision and quality of early childhood education and care, in particular for Roma. Take action to implement the national strategy to reduce early school leaving. Pursue the national health strategy 2014-2020 to remedy issues of poor accessibility, low funding and inefficient resources.

| 4. | Adopt the law on reforming corporate governance of state-owned enterprises. |
| --- | --- |

4.

Adopt the law on reforming corporate governance of state-owned enterprises.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Romania and delivering a Council opinion on the Convergence Programme of Romania, 2014 (OJ C 247, 29.7.2014, p. 109).

4

(5)  Council Decision 2013/531/EU of 22 October 2013 providing precautionary Union medium-term financial assistance to Romania (OJ L 286, 29.10.2013, p. 1).

5

(6)  Tax cuts embodied in the new draft fiscal code.

6

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

7

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/6 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/6

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Slovenia and delivering a Council opinion on the 2015 Stability Programme of Slovenia

(2015/C 272/02)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Slovenia's National Reform Programme for 2014 and delivered its opinion on Slovenia's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Slovenia's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Slovenia's National Reform Programme for 2014 and delivered its opinion on Slovenia's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Slovenia's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Slovenia was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Slovenia was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Slovenia. The country report assessed progress in addressing the country-specific recommendations adopted on 8 July 2014. For Slovenia, the country report also includes results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Slovenia is experiencing macroeconomic imbalances, which require decisive policy action and specific monitoring. In particular, the rebalancing is ongoing and decisive policy actions, improved export performance and growth conditions have reduced risks compared to last year, in particular those linked to external sustainability. However, weak corporate governance, a high level of state ownership, high corporate leverage, and an increasing public debt pose risks for financial stability and growth and warrant close attention. The imbalances are therefore no longer considered as excessive but continue to deserve close attention. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Slovenia. The country report assessed progress in addressing the country-specific recommendations adopted on 8 July 2014. For Slovenia, the country report also includes results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Slovenia is experiencing macroeconomic imbalances, which require decisive policy action and specific monitoring. In particular, the rebalancing is ongoing and decisive policy actions, improved export performance and growth conditions have reduced risks compared to last year, in particular those linked to external sustainability. However, weak corporate governance, a high level of state ownership, high corporate leverage, and an increasing public debt pose risks for financial stability and growth and warrant close attention. The imbalances are therefore no longer considered as excessive but continue to deserve close attention.

| (7) | On 30 April 2015, Slovenia submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, Slovenia submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Slovenia is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to correct the excessive deficit by 2015, in line with the deadline set by the Council, and to reach the medium-term objective — a balanced budgetary position in structural terms — by 2020, i.e. one year after the programme period. The Government plans to gradually reduce the headline deficit to 2,9 % of GDP in 2015 and to 0,9 % of GDP in 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015 at 81,6 % before starting to decline. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2015 is foreseen. At the same time, the fiscal effort is below what is recommended by the Council, based on the structural balance and the discretionary measures taken. Assuming a timely correction of the excessive deficit as planned, Slovenia will be subject to the preventive arm of the Pact as of 2016. Measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Therefore, in the light of the Commission's 2015 spring forecast, there appears to be a risk of a significant deviation from the required adjustment towards the medium-term objective in 2016 and further measures will be needed. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Slovenia will not comply with the provisions of the Stability and Growth Pact. With respect to the fiscal rules, in 2013 the Parliament approved a constitutional basis for establishing a general government budget balance/surplus rule in structural terms. However, the necessary implementing legislation has yet to be adopted. Revisions to the Public Finance Act are expected to provide the necessary legislative basis for the procedural issues underpinning the Fiscal Rules Act. |
| --- | --- |

(8)

Slovenia is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to correct the excessive deficit by 2015, in line with the deadline set by the Council, and to reach the medium-term objective — a balanced budgetary position in structural terms — by 2020, i.e. one year after the programme period. The Government plans to gradually reduce the headline deficit to 2,9 % of GDP in 2015 and to 0,9 % of GDP in 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015 at 81,6 % before starting to decline. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2015 is foreseen. At the same time, the fiscal effort is below what is recommended by the Council, based on the structural balance and the discretionary measures taken. Assuming a timely correction of the excessive deficit as planned, Slovenia will be subject to the preventive arm of the Pact as of 2016. Measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Therefore, in the light of the Commission's 2015 spring forecast, there appears to be a risk of a significant deviation from the required adjustment towards the medium-term objective in 2016 and further measures will be needed. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Slovenia will not comply with the provisions of the Stability and Growth Pact. With respect to the fiscal rules, in 2013 the Parliament approved a constitutional basis for establishing a general government budget balance/surplus rule in structural terms. However, the necessary implementing legislation has yet to be adopted. Revisions to the Public Finance Act are expected to provide the necessary legislative basis for the procedural issues underpinning the Fiscal Rules Act.

| (9) | Slovenia has taken action to alleviate pressures on the medium-term sustainability of the pension system but key parameters still need to be adjusted to ensure its sustainability beyond 2020. The 2013 pension reform has had a positive impact and the legal act establishing a demographic fund is expected to be adopted until the end of 2015. However, ensuring the long-term sustainability of pensions will require further reform. No progress has been made as regards the long-term care reform. At the end of 2013, the Government adopted a blueprint for long-term care reform but the adoption of the legislation implementing the reform has been postponed to the end of 2015 in order to allow prior decisions on health insurance reform including the question of sources to finance overall healthcare and long-term care. Age related expenditure on long-term care can be contained by targeting benefits to those most in need and by refocusing care provision from institutional to home care. |
| --- | --- |

(9)

Slovenia has taken action to alleviate pressures on the medium-term sustainability of the pension system but key parameters still need to be adjusted to ensure its sustainability beyond 2020. The 2013 pension reform has had a positive impact and the legal act establishing a demographic fund is expected to be adopted until the end of 2015. However, ensuring the long-term sustainability of pensions will require further reform. No progress has been made as regards the long-term care reform. At the end of 2013, the Government adopted a blueprint for long-term care reform but the adoption of the legislation implementing the reform has been postponed to the end of 2015 in order to allow prior decisions on health insurance reform including the question of sources to finance overall healthcare and long-term care. Age related expenditure on long-term care can be contained by targeting benefits to those most in need and by refocusing care provision from institutional to home care.

| (10) | A Social Agreement was concluded in January 2015 providing that public sector wage growth will lag behind private sector wage growth. The composition and indexation of minimum wages are not covered by this Agreement. While still relatively high compared to the average wage, recent growth of the minimum wage has been limited. An evaluation of the 2013 labour market reform shows that labour market restrictions have decreased, but structural problems persist as regards the long-term unemployment and low employment rates of low-skilled and older workers. Slovenia has undertaken some action to address the skills mismatch and numerous other measures are planned until 2020. |
| --- | --- |

(10)

A Social Agreement was concluded in January 2015 providing that public sector wage growth will lag behind private sector wage growth. The composition and indexation of minimum wages are not covered by this Agreement. While still relatively high compared to the average wage, recent growth of the minimum wage has been limited. An evaluation of the 2013 labour market reform shows that labour market restrictions have decreased, but structural problems persist as regards the long-term unemployment and low employment rates of low-skilled and older workers. Slovenia has undertaken some action to address the skills mismatch and numerous other measures are planned until 2020.

| (11) | The banking sector has been further stabilised through the recapitalisation of Abanka and Banka Celje in 2014. A comprehensive action plan for banks has been finalised and submitted to the Prime Minister's office in January 2015. The Bank of Slovenia has ensured follow-up of the shortcomings identified by the 2013 Asset Quality Review and will resume on-site inspections in the first quarter of 2015 to verify whether the recommendations have been implemented by banks. The major banks have reorganised and reinforced their work-out and restructuring units. However, boosting the long-term profitability and reducing non-performing loans in the corporate sector are necessary for a healthier banking sector. Both the corporate restructuring master plan and a centralised corporate restructuring task force have been established. Further deleveraging of the corporate sector, including through the Bank Asset Management Company and by full application of the new insolvency legislation, would help restore the conditions for a rebound of private investment. Bank lending activity continues to decline, mainly affecting SMEs. The recent banking sector recapitalisation is expected to show full results only in 2016. Restrained bank lending and high interest rates are weighing on the financing capacity of SMEs. While the proportion of rejected loan applications has decreased over the past six years, the number of SMEs reporting a deterioration in the willingness of banks to provide loans has increased substantially and is one of the highest in the Union. |
| --- | --- |

(11)

The banking sector has been further stabilised through the recapitalisation of Abanka and Banka Celje in 2014. A comprehensive action plan for banks has been finalised and submitted to the Prime Minister's office in January 2015. The Bank of Slovenia has ensured follow-up of the shortcomings identified by the 2013 Asset Quality Review and will resume on-site inspections in the first quarter of 2015 to verify whether the recommendations have been implemented by banks. The major banks have reorganised and reinforced their work-out and restructuring units. However, boosting the long-term profitability and reducing non-performing loans in the corporate sector are necessary for a healthier banking sector. Both the corporate restructuring master plan and a centralised corporate restructuring task force have been established. Further deleveraging of the corporate sector, including through the Bank Asset Management Company and by full application of the new insolvency legislation, would help restore the conditions for a rebound of private investment. Bank lending activity continues to decline, mainly affecting SMEs. The recent banking sector recapitalisation is expected to show full results only in 2016. Restrained bank lending and high interest rates are weighing on the financing capacity of SMEs. While the proportion of rejected loan applications has decreased over the past six years, the number of SMEs reporting a deterioration in the willingness of banks to provide loans has increased substantially and is one of the highest in the Union.

| (12) | The privatisation programme is progressing, albeit with delays. The restructuring of the five major state-owned banks and the wind-down of two smaller domestic banks are on track. The Slovenian Sovereign Holding, responsible for the management and divestment of state assets, is now fully operational. A draft asset management strategy is still to be approved by the Parliament and this is expected to be followed by the release of the divestment schedule for a number of well- targeted state-owned assets. A new corporate governance code was adopted by the Slovenian Sovereign Holding in December 2014, and in January 2015 a compliance officer was appointed. |
| --- | --- |

(12)

The privatisation programme is progressing, albeit with delays. The restructuring of the five major state-owned banks and the wind-down of two smaller domestic banks are on track. The Slovenian Sovereign Holding, responsible for the management and divestment of state assets, is now fully operational. A draft asset management strategy is still to be approved by the Parliament and this is expected to be followed by the release of the divestment schedule for a number of well- targeted state-owned assets. A new corporate governance code was adopted by the Slovenian Sovereign Holding in December 2014, and in January 2015 a compliance officer was appointed.

| (13) | The efficiency of the courts further improved in 2014, although at a slower pace. While some progress in reducing the length of judicial proceedings at first instance in litigious civil and commercial cases has been made, including in cases under the insolvency legislation, the length of proceedings and the number of unresolved cases backlogs remain significant. |
| --- | --- |

(13)

The efficiency of the courts further improved in 2014, although at a slower pace. While some progress in reducing the length of judicial proceedings at first instance in litigious civil and commercial cases has been made, including in cases under the insolvency legislation, the length of proceedings and the number of unresolved cases backlogs remain significant.

| (14) | An unsupportive business environment in Slovenia is a key factor for low investment levels in Slovenian business and the high number of laws and numerous changes in the legislation make it difficult to run a business and comply with local regulation. The number of regulated professions has decreased from 323 to 242 but remains high. Around 25 % of measures included in the Single Document to cut administrative burden were implemented. Sufficient budgetary autonomy for the Competition Protection Agency and institutional independence are provided. |
| --- | --- |

(14)

An unsupportive business environment in Slovenia is a key factor for low investment levels in Slovenian business and the high number of laws and numerous changes in the legislation make it difficult to run a business and comply with local regulation. The number of regulated professions has decreased from 323 to 242 but remains high. Around 25 % of measures included in the Single Document to cut administrative burden were implemented. Sufficient budgetary autonomy for the Competition Protection Agency and institutional independence are provided.

| (15) | The new government reiterated its commitment to fight corruption and adopted a new two-year programme of 11 perennial measures in January 2015. Some progress has been made regarding transparency and accountability. A comprehensive public-sector reform is in preparation. No progress has been made regarding reports on performance evaluation and quality control procedures. |
| --- | --- |

(15)

The new government reiterated its commitment to fight corruption and adopted a new two-year programme of 11 perennial measures in January 2015. Some progress has been made regarding transparency and accountability. A comprehensive public-sector reform is in preparation. No progress has been made regarding reports on performance evaluation and quality control procedures.

| (16) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovenia's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Slovenia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovenia but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovenia's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Slovenia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovenia but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

| (17) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. The recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (4) below. |
| --- | --- |

(17)

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

| (18) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (6). As a country whose currency is the euro, Slovenia should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(18)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (6). As a country whose currency is the euro, Slovenia should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Slovenia take action within the period 2015-2016 to:

| 1. | Ensure a durable correction of the excessive deficit in 2015, and achieve a fiscal adjustment of 0.6 % of GDP towards the medium-term budgetary objective in 2016. Adopt the Fiscal Rule Act and revise the Public Finance Act. Advance long-term reform of the pension system. By end of 2015, adopt a healthcare and long-term care reform. |
| --- | --- |

1.

Ensure a durable correction of the excessive deficit in 2015, and achieve a fiscal adjustment of 0.6 % of GDP towards the medium-term budgetary objective in 2016. Adopt the Fiscal Rule Act and revise the Public Finance Act. Advance long-term reform of the pension system. By end of 2015, adopt a healthcare and long-term care reform.

| 2. | Review, in consultation with the social partners and in accordance with national practices, the mechanism for setting the minimum wage, and in particular the role of allowances, in light of the impact on in-work poverty, job creation and competitiveness. Increase the employability of low skilled and older workers. Take measures to address long-term unemployment and provide adequate incentives to extend working lives. |
| --- | --- |

2.

Review, in consultation with the social partners and in accordance with national practices, the mechanism for setting the minimum wage, and in particular the role of allowances, in light of the impact on in-work poverty, job creation and competitiveness. Increase the employability of low skilled and older workers. Take measures to address long-term unemployment and provide adequate incentives to extend working lives.

| 3. | Bring down the level of non-performing loans in banks by introducing specific targets. Improve credit risk monitoring capacity in banks. Continue corporate restructuring and maintain strong corporate governance in the Bank Asset Management Company. Take measures to improve access to finance for SMEs and micro companies. Adopt a strategy for the Slovenian Sovereign Holding with a clear classification of assets, implement an annual asset management plan and apply performance criteria. |
| --- | --- |

3.

Bring down the level of non-performing loans in banks by introducing specific targets. Improve credit risk monitoring capacity in banks. Continue corporate restructuring and maintain strong corporate governance in the Bank Asset Management Company. Take measures to improve access to finance for SMEs and micro companies. Adopt a strategy for the Slovenian Sovereign Holding with a clear classification of assets, implement an annual asset management plan and apply performance criteria.

| 4. | Ensure that the reforms adopted to improve the efficiency of civil justice help reduce the length of proceedings. |
| --- | --- |

4.

Ensure that the reforms adopted to improve the efficiency of civil justice help reduce the length of proceedings.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Slovenia and delivering a Council opinion on the Stability Programme of Slovenia, 2014 (OJ C 247, 29.7.2014, p. 115).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

(6)  OJ C 272, 18.8.2015, p. 98.

6

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/10 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/10

---

COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/03)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Slovakia's National Reform Programme for 2014 and delivered its opinion on Slovakia's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Slovakia's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Slovakia's National Reform Programme for 2014 and delivered its opinion on Slovakia's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Slovakia's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Slovakia was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Slovakia was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Slovakia. This assessed Slovakia's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Slovakia. This assessed Slovakia's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 29 April 2015, Slovakia submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 29 April 2015, Slovakia submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Slovakia is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to gradually improve the headline deficit to 2,5 % of GDP in 2015 and further to 0,5 % of GDP in 2018. According to the Stability Programme, the medium-term objective — a structural deficit of 0,5 % of GDP — would be reached as of 2017. The government debt-to-GDP ratio is expected to decline marginally in 2015 to 53,4 % and to continue declining to 50,3 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, the net expenditure growth is below the benchmark in both 2015 and 2016, therefore meeting the requirements of the Stability and Growth Pact. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Slovakia is expected to comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Slovakia is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to gradually improve the headline deficit to 2,5 % of GDP in 2015 and further to 0,5 % of GDP in 2018. According to the Stability Programme, the medium-term objective — a structural deficit of 0,5 % of GDP — would be reached as of 2017. The government debt-to-GDP ratio is expected to decline marginally in 2015 to 53,4 % and to continue declining to 50,3 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, the net expenditure growth is below the benchmark in both 2015 and 2016, therefore meeting the requirements of the Stability and Growth Pact. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Slovakia is expected to comply with the provisions of the Stability and Growth Pact.

| (9) | The labour market showed signs of recovery in 2014, but unemployment remains high. Disincentives in the social security system have been reduced and some progress has been made towards reducing youth unemployment, but long-term unemployment remains a major challenge and employment among Roma and the low-skilled is low. Although some initial steps have been taken to improve public employment services, they have limited capacity to provide personalised services, in particular to those furthest from the labour market. The employment rate for women remains well below the EU average, reflecting the insufficient provision of good quality and affordable childcare services and the relatively long duration of parental leave. |
| --- | --- |

(9)

The labour market showed signs of recovery in 2014, but unemployment remains high. Disincentives in the social security system have been reduced and some progress has been made towards reducing youth unemployment, but long-term unemployment remains a major challenge and employment among Roma and the low-skilled is low. Although some initial steps have been taken to improve public employment services, they have limited capacity to provide personalised services, in particular to those furthest from the labour market. The employment rate for women remains well below the EU average, reflecting the insufficient provision of good quality and affordable childcare services and the relatively long duration of parental leave.

| (10) | Slovakia made some progress in relation to work-based learning, with a new Act on vocational education and training to enter into force in 2015. Limited progress has, however, been made in improving teaching conditions, in encouraging the creation of more career-oriented bachelor programmes, and in increasing the proportion of Roma children attending early childhood education and care facilities. No measures have been taken to ensure a wider participation of Roma in vocational training and higher education. Only limited progress has been made in addressing the gaps in the Slovak research and innovation system, the main needs being namely to improve the quality and relevance of the science base and to promote cooperation between academia, research and business. |
| --- | --- |

(10)

Slovakia made some progress in relation to work-based learning, with a new Act on vocational education and training to enter into force in 2015. Limited progress has, however, been made in improving teaching conditions, in encouraging the creation of more career-oriented bachelor programmes, and in increasing the proportion of Roma children attending early childhood education and care facilities. No measures have been taken to ensure a wider participation of Roma in vocational training and higher education. Only limited progress has been made in addressing the gaps in the Slovak research and innovation system, the main needs being namely to improve the quality and relevance of the science base and to promote cooperation between academia, research and business.

| (11) | The poor quality of Slovakia's business environment reduces the attractiveness of the country for both foreign and domestic investment. The inadequate efficiency and quality of the public administration and of the justice system are particularly detrimental to the business environment. The civil service suffers from high staff turnover and inefficient management of human resources. Efforts to tackle corruption have, to date, been limited. More particularly, the need to strengthen the analytical and audit capacity of the tax administration has not been addressed. Public procurement suffers from engrained deficiencies, which affect the allocation of public resources. |
| --- | --- |

(11)

The poor quality of Slovakia's business environment reduces the attractiveness of the country for both foreign and domestic investment. The inadequate efficiency and quality of the public administration and of the justice system are particularly detrimental to the business environment. The civil service suffers from high staff turnover and inefficient management of human resources. Efforts to tackle corruption have, to date, been limited. More particularly, the need to strengthen the analytical and audit capacity of the tax administration has not been addressed. Public procurement suffers from engrained deficiencies, which affect the allocation of public resources.

| (12) | While the recent changes to the taxation system have contributed to an improvement in public finances, the costs associated with an ageing population will weigh on Slovakia's currently relatively sound debt position in the future. The long-term sustainability of public finances depends on the Government's ability to increase the cost-effectiveness of the healthcare sector. The overall level of efficiency of the Slovak health system is weak, and it performs poorly when compared with the rest of the EU. The Government adopted a new strategy for health for 2014-2020, in order to try to address the shortcomings of the national healthcare system. The strategy is being implemented, but most measures are not yet in force. There also continue to be inefficiencies in tax collection and administration. |
| --- | --- |

(12)

While the recent changes to the taxation system have contributed to an improvement in public finances, the costs associated with an ageing population will weigh on Slovakia's currently relatively sound debt position in the future. The long-term sustainability of public finances depends on the Government's ability to increase the cost-effectiveness of the healthcare sector. The overall level of efficiency of the Slovak health system is weak, and it performs poorly when compared with the rest of the EU. The Government adopted a new strategy for health for 2014-2020, in order to try to address the shortcomings of the national healthcare system. The strategy is being implemented, but most measures are not yet in force. There also continue to be inefficiencies in tax collection and administration.

| (13) | The weak performance of investment in recent years may dent Slovakia's long-term growth prospects. The decline in private investment between 2008 and 2013 was particularly strong, with non-financial corporations accounting for around 90 % of the fall in total investment due to the decrease in foreign direct investment (FDI) inflows. In 2013, investment in capital goods was still around 13 % lower in real terms than it had been in 2008. Yet although public investment contracted much less, the decline still has significant consequences, in view of the large-scale transport infrastructure projects which are essential in order to be able to benefit from the growth potential of Slovakia's central and eastern regions. Both the administrative and regulatory barriers related to investment planning, and the lack of transparency and long duration of the procedures for obtaining building and land-use permits hold back public investment. EU funds represent a very high proportion of total public investment in Slovakia, compared to the levels seen in other Member States in its region. Furthermore, the absorption of EU funds is hindered by weak governance of planning procedures, poor project design and selection, and failure to comply with the requirements relating to the environmental impact assessment. The use of tailor made specifications in public procurement limits competition, and results in high final prices. Improved oversight and greater expertise within the public entities involved in procurement could help to overcome these problems. The inadequate efficiency and quality of the public administration and of the justice system are particularly detrimental to the business environment, and issues such as the reform of the civil procedure and uneven distribution of workload in courts have not yet been addressed. |
| --- | --- |

(13)

The weak performance of investment in recent years may dent Slovakia's long-term growth prospects. The decline in private investment between 2008 and 2013 was particularly strong, with non-financial corporations accounting for around 90 % of the fall in total investment due to the decrease in foreign direct investment (FDI) inflows. In 2013, investment in capital goods was still around 13 % lower in real terms than it had been in 2008. Yet although public investment contracted much less, the decline still has significant consequences, in view of the large-scale transport infrastructure projects which are essential in order to be able to benefit from the growth potential of Slovakia's central and eastern regions. Both the administrative and regulatory barriers related to investment planning, and the lack of transparency and long duration of the procedures for obtaining building and land-use permits hold back public investment. EU funds represent a very high proportion of total public investment in Slovakia, compared to the levels seen in other Member States in its region. Furthermore, the absorption of EU funds is hindered by weak governance of planning procedures, poor project design and selection, and failure to comply with the requirements relating to the environmental impact assessment. The use of tailor made specifications in public procurement limits competition, and results in high final prices. Improved oversight and greater expertise within the public entities involved in procurement could help to overcome these problems. The inadequate efficiency and quality of the public administration and of the justice system are particularly detrimental to the business environment, and issues such as the reform of the civil procedure and uneven distribution of workload in courts have not yet been addressed.

| (14) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovakia's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Slovakia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(14)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovakia's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Slovakia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (4) below.

| (15) | In the light of this assessment, the Council has examined the Stability Programme, and is of the opinion (6) that Slovakia complies with the Stability and Growth Pact. |
| --- | --- |

(15)

In the light of this assessment, the Council has examined the Stability Programme, and is of the opinion (6) that Slovakia complies with the Stability and Growth Pact.

| (16) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Slovakia should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(16)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Slovakia should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Slovakia take action in 2015 and 2016 to:

| 1. | Improve the cost-effectiveness of the healthcare sector, including by improving the management of hospital care and strengthening primary healthcare. Take measures to increase tax collection. |
| --- | --- |

1.

Improve the cost-effectiveness of the healthcare sector, including by improving the management of hospital care and strengthening primary healthcare. Take measures to increase tax collection.

| 2. | Take additional measures to address long term unemployment by improving activation measures, second chance education and introducing high-quality training tailored to individuals' needs. Improve the incentives for women to remain in or return to employment by improving the provision of childcare facilities. |
| --- | --- |

2.

Take additional measures to address long term unemployment by improving activation measures, second chance education and introducing high-quality training tailored to individuals' needs. Improve the incentives for women to remain in or return to employment by improving the provision of childcare facilities.

| 3. | Improve teacher training and the attractiveness of teaching as a profession to stem the decline in educational outcomes. Increase the participation of Roma children in mainstream education and in high-quality early childhood education. |
| --- | --- |

3.

Improve teacher training and the attractiveness of teaching as a profession to stem the decline in educational outcomes. Increase the participation of Roma children in mainstream education and in high-quality early childhood education.

| 4. | To boost investment in infrastructure, improve and streamline the administrative procedures for obtaining land-use and construction permits. Increase competition in public tenders and improve supervisory mechanisms in public procurement. |
| --- | --- |

4.

To boost investment in infrastructure, improve and streamline the administrative procedures for obtaining land-use and construction permits. Increase competition in public tenders and improve supervisory mechanisms in public procurement.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Slovakia and delivering a Council opinion on the Stability Programme of Slovakia, 2014 (OJ C 247, 29.7.2014, p. 122).

3

(4)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

4

(5)  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).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/14 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/14

---

COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/04)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Finland's National Reform Programme for 2014 and delivered its opinion on Finland's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Finland's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Finland's National Reform Programme for 2014 and delivered its opinion on Finland's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Finland's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Finland was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Finland was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Finland. This assessed Finland's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Finland is experiencing macroeconomic imbalances which require policy action and monitoring. In particular, risks relating to weak export performance in a context of industrial restructuring deserve attention. While the decline in export market shares and electronic industry has largely come to an end, investment remains low and potential growth has declined. Private-sector debt has stabilised and does not appear to be a source of immediate concern, but its relatively high level calls for close monitoring. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Finland. This assessed Finland's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Finland is experiencing macroeconomic imbalances which require policy action and monitoring. In particular, risks relating to weak export performance in a context of industrial restructuring deserve attention. While the decline in export market shares and electronic industry has largely come to an end, investment remains low and potential growth has declined. Private-sector debt has stabilised and does not appear to be a source of immediate concern, but its relatively high level calls for close monitoring.

| (7) | On 2 April 2015, Finland submitted its 2015 National Reform Programme and its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 2 April 2015, Finland submitted its 2015 National Reform Programme and its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Finland is currently in the preventive arm of the Stability and Growth Pact. In the 2015 Stability Programme submitted by the outgoing government, which is based on a no-policy-change assumption and covers the period 2014-2019, the headline deficit, which was increased to 3,2 % of GDP in 2014 and thereby exceeded the reference value of 3 % of GDP, is projected to further deteriorate to 3,4 % of GDP in 2015, before gradually declining to 3,1 % in 2017 and further to 2,5 % of GDP in 2019. According to the 2015 Stability Programme, the Government debt-to-GDP ratio is expected to increase over the programme's forecast horizon and to reach 67,8 % by 2019. The medium-term objective — a structural deficit of 0,5 % of GDP — is not reached by the end of the programme period. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, Finland's general government deficit is forecast at 3,3 % of GDP in 2015 and 3,2 % of GDP in 2016, while the debt-to-GDP ratio is forecast to increase to 64,4 % of GDP by 2016. The Commission published on 13 May 2015 a report in accordance with Article 126(3) of the Treaty concluding that deficit and debt criteria were not considered to be complied with. However, on 27 May the incoming government published its Strategic Programme, including planned consolidation measures. According to an assessment by the Commission, if fully implemented, these measures are expected to reduce the headline deficit to well below 3 % of GDP in 2016. After a deterioration in 2014, there is another deviation from the required structural effort under the preventive arm in 2015. The expenditure benchmark is expected to be met by a wide margin in 2015. There may thus be a risk of a significant deviation from the required adjustment towards the MTO over 2014-2015, which will need to be reassessed ex post. In 2016, taking into account the measures announced by the incoming government there is a risk of some deviation. Therefore, further measures will be needed to reach the required structural adjustments. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, as well as an assessment of the incoming government's consolidation measures as presented on 27 May, the Council is of the opinion that there is a risk that Finland will not comply with the provisions of the Stability and Growth Pact. Although Finland has made some progress in implementing administrative reforms, the efficiency of the Finnish public sector could be improved further, particularly in areas that face cost pressures in the future from ageing.
  Social partners reached agreement on the content of the pension reform in autumn 2014, but this has yet to be adopted. Increasing the participation of older workers in the labour force is crucial in view of the fiscal sustainability gap and the planned increase of the statutory retirement age. Early exits from the labour market are mainly due to disability or on the basis of extended unemployment benefits for older workers. The Government's bill on the reform of social and healthcare services was presented to Parliament in December 2014, but no solution was found to balance the administrative model of large municipal coalitions with the autonomy of single municipalities guaranteed by the Constitution before the parliamentary elections in April 2015, and the bill lapsed. Finnish municipalities are relatively small but carry out quite extensive tasks as compared with those in other European countries. The reform of municipal structures is proceeding with some delay and the municipalities are conducting studies on the benefits of mergers. According to the 2015 National Reform Programme, a new legislative proposal may be submitted to Parliament by the end of 2016. |
| --- | --- |

(8)

Finland is currently in the preventive arm of the Stability and Growth Pact. In the 2015 Stability Programme submitted by the outgoing government, which is based on a no-policy-change assumption and covers the period 2014-2019, the headline deficit, which was increased to 3,2 % of GDP in 2014 and thereby exceeded the reference value of 3 % of GDP, is projected to further deteriorate to 3,4 % of GDP in 2015, before gradually declining to 3,1 % in 2017 and further to 2,5 % of GDP in 2019. According to the 2015 Stability Programme, the Government debt-to-GDP ratio is expected to increase over the programme's forecast horizon and to reach 67,8 % by 2019. The medium-term objective — a structural deficit of 0,5 % of GDP — is not reached by the end of the programme period. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, Finland's general government deficit is forecast at 3,3 % of GDP in 2015 and 3,2 % of GDP in 2016, while the debt-to-GDP ratio is forecast to increase to 64,4 % of GDP by 2016. The Commission published on 13 May 2015 a report in accordance with Article 126(3) of the Treaty concluding that deficit and debt criteria were not considered to be complied with. However, on 27 May the incoming government published its Strategic Programme, including planned consolidation measures. According to an assessment by the Commission, if fully implemented, these measures are expected to reduce the headline deficit to well below 3 % of GDP in 2016. After a deterioration in 2014, there is another deviation from the required structural effort under the preventive arm in 2015. The expenditure benchmark is expected to be met by a wide margin in 2015. There may thus be a risk of a significant deviation from the required adjustment towards the MTO over 2014-2015, which will need to be reassessed ex post. In 2016, taking into account the measures announced by the incoming government there is a risk of some deviation. Therefore, further measures will be needed to reach the required structural adjustments. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, as well as an assessment of the incoming government's consolidation measures as presented on 27 May, the Council is of the opinion that there is a risk that Finland will not comply with the provisions of the Stability and Growth Pact. Although Finland has made some progress in implementing administrative reforms, the efficiency of the Finnish public sector could be improved further, particularly in areas that face cost pressures in the future from ageing.

Social partners reached agreement on the content of the pension reform in autumn 2014, but this has yet to be adopted. Increasing the participation of older workers in the labour force is crucial in view of the fiscal sustainability gap and the planned increase of the statutory retirement age. Early exits from the labour market are mainly due to disability or on the basis of extended unemployment benefits for older workers. The Government's bill on the reform of social and healthcare services was presented to Parliament in December 2014, but no solution was found to balance the administrative model of large municipal coalitions with the autonomy of single municipalities guaranteed by the Constitution before the parliamentary elections in April 2015, and the bill lapsed. Finnish municipalities are relatively small but carry out quite extensive tasks as compared with those in other European countries. The reform of municipal structures is proceeding with some delay and the municipalities are conducting studies on the benefits of mergers. According to the 2015 National Reform Programme, a new legislative proposal may be submitted to Parliament by the end of 2016.

| (9) | In view of ageing population and the shrinking working-age population, it is important that the labour market has access to the full potential workforce. Finland has made some progress on this and taken several measures, including a better organisation of wage subsidies, with a particular focus on the elderly, and of the public employment service. The unemployment rate was 8,7 % in 2014 and is on the rise, particularly among young people and older workers. The moderate wage agreement of 2013 supports the restoration of cost and export competitiveness through lower growth in unit labour costs. |
| --- | --- |

(9)

In view of ageing population and the shrinking working-age population, it is important that the labour market has access to the full potential workforce. Finland has made some progress on this and taken several measures, including a better organisation of wage subsidies, with a particular focus on the elderly, and of the public employment service. The unemployment rate was 8,7 % in 2014 and is on the rise, particularly among young people and older workers. The moderate wage agreement of 2013 supports the restoration of cost and export competitiveness through lower growth in unit labour costs.

| (10) | Finland has made some progress in boosting its capacity to deliver innovative products. The Government is implementing a comprehensive reform of research institutes and funding. Policy programmes for clean technology, biotechnology and digitisation are promising but relatively small scale. Although investment in R & D is among the highest in the Union, Finland still faces challenges in converting this into successful export products and services. The Government has sought to make support systems for businesses simpler and more efficient, increase financing for start-ups and promote their internationalisation. Nevertheless, investment in Finland has remained low, export difficulties have continued and employment has fallen. Efforts are also needed to enhance competition in product and service markets, especially in the retail sector, which remains highly concentrated. |
| --- | --- |

(10)

Finland has made some progress in boosting its capacity to deliver innovative products. The Government is implementing a comprehensive reform of research institutes and funding. Policy programmes for clean technology, biotechnology and digitisation are promising but relatively small scale. Although investment in R & D is among the highest in the Union, Finland still faces challenges in converting this into successful export products and services. The Government has sought to make support systems for businesses simpler and more efficient, increase financing for start-ups and promote their internationalisation. Nevertheless, investment in Finland has remained low, export difficulties have continued and employment has fallen. Efforts are also needed to enhance competition in product and service markets, especially in the retail sector, which remains highly concentrated.

| (11) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Finland's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Finland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Finland but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(11)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Finland's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Finland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Finland but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

| (12) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below. |
| --- | --- |

(12)

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

| (13) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (2) and (3) below. |
| --- | --- |

(13)

In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (2) and (3) below.

| (14) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Finland should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(14)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Finland should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Finland take action in 2015 and 2016 to:

| 1. | Achieve a fiscal adjustment of at least 0,1 % of GDP towards the medium-term budgetary objective in 2015 and of 0,5 % of GDP in 2016. Continue efforts to reduce the fiscal sustainability gap and strengthen conditions for growth. |
| --- | --- |

1.

Achieve a fiscal adjustment of at least 0,1 % of GDP towards the medium-term budgetary objective in 2015 and of 0,5 % of GDP in 2016. Continue efforts to reduce the fiscal sustainability gap and strengthen conditions for growth.

| 2. | Adopt the agreed pension reform and gradually eliminate early exit pathways. Ensure effective design and implementation of the administrative reforms concerning municipal structure and social and healthcare services, with a view to increasing productivity and cost-effectiveness in the provision of public services, while ensuring their quality. |
| --- | --- |

2.

Adopt the agreed pension reform and gradually eliminate early exit pathways. Ensure effective design and implementation of the administrative reforms concerning municipal structure and social and healthcare services, with a view to increasing productivity and cost-effectiveness in the provision of public services, while ensuring their quality.

| 3. | Pursue efforts to improve the employability of young people, older workers and the long-term unemployed, focusing particularly on developing job-relevant skills. Promote wage developments in line with productivity fully respecting the role of the social partners and in accordance with national practices. |
| --- | --- |

3.

Pursue efforts to improve the employability of young people, older workers and the long-term unemployed, focusing particularly on developing job-relevant skills. Promote wage developments in line with productivity fully respecting the role of the social partners and in accordance with national practices.

| 4. | Take measures to open the retail sector to effective competition. |
| --- | --- |

4.

Take measures to open the retail sector to effective competition.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Finland and delivering a Council opinion on the Stability Programme of Finland, 2014 (OJ C 247, 29.7.2014, p. 127).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/18 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/18

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Sweden and delivering a Council opinion on the 2015 Convergence Programme of Sweden

(2015/C 272/05)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Sweden's National Reform Programme for 2014 and delivered its opinion on Sweden's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Sweden's National Reform Programme for 2014 and delivered its opinion on Sweden's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission 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. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which it identified Sweden as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Sweden. This assessed Sweden's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Sweden is experiencing macroeconomic imbalances, which require policy action and monitoring. In particular, household debt remains at very high levels and continues to expand as a result of increasing house prices, persistently low interest rates and strong tax incentives and housing supply constraints. Macroeconomic developments linked to private debt continue to merit attention. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Sweden. This assessed Sweden's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Sweden is experiencing macroeconomic imbalances, which require policy action and monitoring. In particular, household debt remains at very high levels and continues to expand as a result of increasing house prices, persistently low interest rates and strong tax incentives and housing supply constraints. Macroeconomic developments linked to private debt continue to merit attention.

| (7) | On 23 April 2015, Sweden submitted its 2015 National Reform Programme and on 24 April 2015 its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 23 April 2015, Sweden submitted its 2015 National Reform Programme and on 24 April 2015 its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Sweden is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans that the headline deficit gradually will improve to 1,4 % of GDP in 2015 and reach balance in 2018, and that the medium-term objective — a structural deficit of 1 % of GDP — will continue to be met throughout the programme period. The government debt-to-GDP ratio is expected to peak in 2015 at 44,2 % and to gradually decline to 40,0 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards will need to be specified. Based on the Commission's 2015 spring forecast, the structural balance is forecast to be at the medium-term objective of – 1 % in 2015 and improve to – 0,9 % of GDP in 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Sweden is expected to comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Sweden is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans that the headline deficit gradually will improve to 1,4 % of GDP in 2015 and reach balance in 2018, and that the medium-term objective — a structural deficit of 1 % of GDP — will continue to be met throughout the programme period. The government debt-to-GDP ratio is expected to peak in 2015 at 44,2 % and to gradually decline to 40,0 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards will need to be specified. Based on the Commission's 2015 spring forecast, the structural balance is forecast to be at the medium-term objective of – 1 % in 2015 and improve to – 0,9 % of GDP in 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Sweden is expected to comply with the provisions of the Stability and Growth Pact.

| (9) | Unlike in many other Member States, house prices in Sweden have not suffered any major correction and have been growing strongly again since mid-2013. The in-depth review conducted by the Commission suggests that Swedish house prices appear to be above their fundamental values. This is partly due to favourable fundamentals such as higher disposable income, low interest rates and strong demographics. However, the country report has identified both demand-side and supply-side drivers of house prices. On the demand side, credit incentives have been particularly favourable. In addition, Sweden's taxation system, which provides one of the strongest tax incentives for home ownership in the Union, tends to push up house prices. In turn, this has also fuelled the rise in household debt in Sweden, which is high and growing faster than in the rest of the Union. Even if households' total assets are high and disposable incomes have grown over recent years, the household sector is more vulnerable than before and the high level of household indebtedness constitutes a risk for macroeconomic stability. The effects of the debt bias in personal income taxation should be tackled by gradually limiting the tax deductibility of interest payments on mortgages or by increasing recurrent property taxes. In addition, efforts are needed to increase the low pace of amortisation of mortgages with a view to reducing the growth in household indebtedness. |
| --- | --- |

(9)

Unlike in many other Member States, house prices in Sweden have not suffered any major correction and have been growing strongly again since mid-2013. The in-depth review conducted by the Commission suggests that Swedish house prices appear to be above their fundamental values. This is partly due to favourable fundamentals such as higher disposable income, low interest rates and strong demographics. However, the country report has identified both demand-side and supply-side drivers of house prices. On the demand side, credit incentives have been particularly favourable. In addition, Sweden's taxation system, which provides one of the strongest tax incentives for home ownership in the Union, tends to push up house prices. In turn, this has also fuelled the rise in household debt in Sweden, which is high and growing faster than in the rest of the Union. Even if households' total assets are high and disposable incomes have grown over recent years, the household sector is more vulnerable than before and the high level of household indebtedness constitutes a risk for macroeconomic stability. The effects of the debt bias in personal income taxation should be tackled by gradually limiting the tax deductibility of interest payments on mortgages or by increasing recurrent property taxes. In addition, efforts are needed to increase the low pace of amortisation of mortgages with a view to reducing the growth in household indebtedness.

| (10) | On the supply side, structural inefficiencies are leading to a housing shortage and contributing to house price growth. These constraints are limiting labour mobility and creating social challenges for vulnerable groups. Supply is being held back by ineffective use of the existing housing stock as well as by structural under-investment in new construction. In particular, the incentives for municipalities to actively promote investment in construction and address the housing needs of vulnerable groups should be strengthened. Competition in the construction sector needs to be encouraged and, in order to attain this, fully transparent public procurement procedures should be ensured. Planning and appeals processes are lengthy and complex and should be streamlined. Rigidities in the rental market, which does not seem to fulfil its role in alleviating house price pressure or to support mobility needs, are blamed mainly on the high level of rent control. They should be tackled through a gradual reform of the rent-setting system. This should allow a wider divergence in rent levels — which could lead to more effective use of the existing housing stock — and greater freedom in contracts between individual tenants and landlords. |
| --- | --- |

(10)

On the supply side, structural inefficiencies are leading to a housing shortage and contributing to house price growth. These constraints are limiting labour mobility and creating social challenges for vulnerable groups. Supply is being held back by ineffective use of the existing housing stock as well as by structural under-investment in new construction. In particular, the incentives for municipalities to actively promote investment in construction and address the housing needs of vulnerable groups should be strengthened. Competition in the construction sector needs to be encouraged and, in order to attain this, fully transparent public procurement procedures should be ensured. Planning and appeals processes are lengthy and complex and should be streamlined. Rigidities in the rental market, which does not seem to fulfil its role in alleviating house price pressure or to support mobility needs, are blamed mainly on the high level of rent control. They should be tackled through a gradual reform of the rent-setting system. This should allow a wider divergence in rent levels — which could lead to more effective use of the existing housing stock — and greater freedom in contracts between individual tenants and landlords.

| (11) | The Government is taking steps to improve school outcomes, after a marked deterioration in the last decade which contributes to relatively high youth unemployment. The Government is also taking measures to facilitate the transition from education to the labour market and to improve the labour market integration of low-educated young people and people with a migrant background. Progress in this area will need to be monitored. |
| --- | --- |

(11)

The Government is taking steps to improve school outcomes, after a marked deterioration in the last decade which contributes to relatively high youth unemployment. The Government is also taking measures to facilitate the transition from education to the labour market and to improve the labour market integration of low-educated young people and people with a migrant background. Progress in this area will need to be monitored.

| (12) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Sweden's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Sweden in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendation (1) below. |
| --- | --- |

(12)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Sweden's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Sweden in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendation (1) below.

| (13) | In the light of this assessment, the Council has examined the Convergence Programme, and is of the opinion (5) that Sweden complies with the Stability and Growth Pact. |
| --- | --- |

(13)

In the light of this assessment, the Council has examined the Convergence Programme, and is of the opinion (5) that Sweden complies with the Stability and Growth Pact.

| (14) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1) below. |
| --- | --- |

(14)

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

RECOMMENDS that Sweden take action in 2015 and 2016 to:

| 1. | Address the rise in household debt by adjusting fiscal incentives, in particular by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes, and by increasing the pace of mortgage amortisation. To alleviate the structural under-supply of housing, foster competition in the construction sector, streamline the planning and appeals procedures for construction and revise the rent-setting system to allow more market-oriented rent levels. |
| --- | --- |

1.

Address the rise in household debt by adjusting fiscal incentives, in particular by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes, and by increasing the pace of mortgage amortisation. To alleviate the structural under-supply of housing, foster competition in the construction sector, streamline the planning and appeals procedures for construction and revise the rent-setting system to allow more market-oriented rent levels.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Sweden and delivering a Council opinion on the Convergence Programme of Sweden, 2014 (OJ C 247, 29.7.2014, p. 132).

4

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

5

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/21 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/21

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2015 Convergence Programme of the United Kingdom

(2015/C 272/06)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on the United Kingdom's National Reform Programme for 2014 and delivered its opinion on the United Kingdom's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on the United Kingdom's National Reform Programme for 2014 and delivered its opinion on the United Kingdom's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which the United Kingdom was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which the United Kingdom was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for the United Kingdom. This assessed the United Kingdom's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that the United Kingdom is experiencing macroeconomic imbalances which require policy action and monitoring. In particular, risks related to the high level of household indebtedness, also linked to structural characteristics of the housing market, continue to require attention. The resilience of the economy and the financial sector has increased. However, a shortage of housing will persist and is likely to underpin high house prices in the medium term and continue to leave the sector less resilient in the face of risks. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for the United Kingdom. This assessed the United Kingdom's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that the United Kingdom is experiencing macroeconomic imbalances which require policy action and monitoring. In particular, risks related to the high level of household indebtedness, also linked to structural characteristics of the housing market, continue to require attention. The resilience of the economy and the financial sector has increased. However, a shortage of housing will persist and is likely to underpin high house prices in the medium term and continue to leave the sector less resilient in the face of risks.

| (7) | On 26 March 2015, the United Kingdom submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 26 March 2015, the United Kingdom submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | The United Kingdom is currently in the corrective arm of the Stability and Growth Pact. In its 2014-15 Convergence Programme, the Government plans an improvement in the headline deficit from 4,3 % of GDP in 2015-16 to 2,2 % of GDP in 2016-17 so that a surplus of 0,1 % of GDP is reached in 2019-20. The Convergence Programme does not include a medium-term objective. The government debt-to-GDP ratio is expected to peak in 2015-16 at 88,8 % and to gradually decline to 81,4 % in 2019-20. Based on the Commission's 2015 spring forecast, the United Kingdom is not expected to have corrected its excessive deficit by the 2014-15 deadline set by the Council. Furthermore, the fiscal effort was below what was recommended by the Council. For this reason, on 19 June, the Council decided in accordance with Article 126(8) TFEU that the United Kingdom had not taken effective action in response to the Council recommendation under the excessive deficit recommendation of 2 December 2009 and issued a new recommendation asking the United Kingdom to correct the excessive deficit by 2016-17. The Convergence Programme is compatible with the new 2016-17 deadline under the excessive deficit procedure. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, the United Kingdom is forecast to correct its excessive deficit by the 2016-17 deadline and to deliver the recommended fiscal effort. Measures to support the planned deficit rates from 2015-16 onwards are already specified but greater detail is required on ear-marked departmental expenditure limits. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that the United Kingdom is expected to comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

The United Kingdom is currently in the corrective arm of the Stability and Growth Pact. In its 2014-15 Convergence Programme, the Government plans an improvement in the headline deficit from 4,3 % of GDP in 2015-16 to 2,2 % of GDP in 2016-17 so that a surplus of 0,1 % of GDP is reached in 2019-20. The Convergence Programme does not include a medium-term objective. The government debt-to-GDP ratio is expected to peak in 2015-16 at 88,8 % and to gradually decline to 81,4 % in 2019-20. Based on the Commission's 2015 spring forecast, the United Kingdom is not expected to have corrected its excessive deficit by the 2014-15 deadline set by the Council. Furthermore, the fiscal effort was below what was recommended by the Council. For this reason, on 19 June, the Council decided in accordance with Article 126(8) TFEU that the United Kingdom had not taken effective action in response to the Council recommendation under the excessive deficit recommendation of 2 December 2009 and issued a new recommendation asking the United Kingdom to correct the excessive deficit by 2016-17. The Convergence Programme is compatible with the new 2016-17 deadline under the excessive deficit procedure. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, the United Kingdom is forecast to correct its excessive deficit by the 2016-17 deadline and to deliver the recommended fiscal effort. Measures to support the planned deficit rates from 2015-16 onwards are already specified but greater detail is required on ear-marked departmental expenditure limits. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that the United Kingdom is expected to comply with the provisions of the Stability and Growth Pact.

| (9) | A high, and possibly excessive, level of household indebtedness has been identified as potentially constituting a macroeconomic imbalance that poses risks to the United Kingdom's economy. While household sector indebtedness continues to fall modestly, it remains high and leaves the United Kingdom vulnerable to risks that could affect economic growth and financial stability. In mid-2014, the Financial Policy Committee of the Bank of England announced two measures to mitigate risks associated with high household indebtedness. They recommended that mortgage lenders apply an ‘interest rate stress test’ to assess borrowers' ability to meet their mortgage obligations if interest rates rise. They also recommended that mortgage lenders limit the proportion of mortgages at loan-to-income ratios of 4,5 and above to 15 % of new mortgages. The impact of these measures should be monitored carefully.
  A number of reforms of the national planning policy framework have been undertaken but these are unlikely to have a short-term impact. The response of the local authorities to the reform in raising housing supply needs to be closely monitored. |
| --- | --- |

(9)

A high, and possibly excessive, level of household indebtedness has been identified as potentially constituting a macroeconomic imbalance that poses risks to the United Kingdom's economy. While household sector indebtedness continues to fall modestly, it remains high and leaves the United Kingdom vulnerable to risks that could affect economic growth and financial stability. In mid-2014, the Financial Policy Committee of the Bank of England announced two measures to mitigate risks associated with high household indebtedness. They recommended that mortgage lenders apply an ‘interest rate stress test’ to assess borrowers' ability to meet their mortgage obligations if interest rates rise. They also recommended that mortgage lenders limit the proportion of mortgages at loan-to-income ratios of 4,5 and above to 15 % of new mortgages. The impact of these measures should be monitored carefully.

A number of reforms of the national planning policy framework have been undertaken but these are unlikely to have a short-term impact. The response of the local authorities to the reform in raising housing supply needs to be closely monitored.

| (10) | The United Kingdom's labour market has performed well in recent years and is set to remain strong. The employment rate reached 76,5 % in 2014 while the unemployment rate continued to fall, to 6 %, and is projected to decline further in 2015. Despite the positive trends in relation to labour market outcomes, social challenges persist. The rate of people living in households with very low work intensity increased slightly, from 13 % in 2012 to 13,2 % in 2013, compared with the EU average of 10,7 %. The difference in the share of part-time work between women (42,6 % in 2013) and men (13,2 % in 2013) is one of the highest in the Union. The percentage of women who are inactive or work part-time due to personal and family responsibilities (12,5 %) was almost twice as high as the EU average (6,3 %) in 2013. Youth employment and employer engagement in the area of apprenticeships are further challenges. Another area to focus on, linked to youth employment, is education and skills. A large proportion of young people have comparatively low levels of basic skills. The implementation of measures to address welfare reform and childcare has been limited. The proportion of children living in jobless households in the United Kingdom is still one of the highest in the Union. In addition, even if supply in the childcare system has increased recently, the availability of affordable, high-quality, full-time childcare remains a key issue. |
| --- | --- |

(10)

The United Kingdom's labour market has performed well in recent years and is set to remain strong. The employment rate reached 76,5 % in 2014 while the unemployment rate continued to fall, to 6 %, and is projected to decline further in 2015. Despite the positive trends in relation to labour market outcomes, social challenges persist. The rate of people living in households with very low work intensity increased slightly, from 13 % in 2012 to 13,2 % in 2013, compared with the EU average of 10,7 %. The difference in the share of part-time work between women (42,6 % in 2013) and men (13,2 % in 2013) is one of the highest in the Union. The percentage of women who are inactive or work part-time due to personal and family responsibilities (12,5 %) was almost twice as high as the EU average (6,3 %) in 2013. Youth employment and employer engagement in the area of apprenticeships are further challenges. Another area to focus on, linked to youth employment, is education and skills. A large proportion of young people have comparatively low levels of basic skills. The implementation of measures to address welfare reform and childcare has been limited. The proportion of children living in jobless households in the United Kingdom is still one of the highest in the Union. In addition, even if supply in the childcare system has increased recently, the availability of affordable, high-quality, full-time childcare remains a key issue.

| (11) | Boosting public and private investment would help improve productivity and competitiveness which are key challenges for the United Kingdom. The need to ensure high-quality infrastructure investment is reflected in the December 2014 national infrastructure plan which has been updated and widened in scope. The private sector is expected to finance a major share of the plan but questions remain over how much it will commit. This poses risks to the plan's success, even if there has been substantial progress in providing timely information on its implementation. The United Kingdom should ensure that business tax systems are pro-investment, in particular through the forthcoming review of business rates. |
| --- | --- |

(11)

Boosting public and private investment would help improve productivity and competitiveness which are key challenges for the United Kingdom. The need to ensure high-quality infrastructure investment is reflected in the December 2014 national infrastructure plan which has been updated and widened in scope. The private sector is expected to finance a major share of the plan but questions remain over how much it will commit. This poses risks to the plan's success, even if there has been substantial progress in providing timely information on its implementation. The United Kingdom should ensure that business tax systems are pro-investment, in particular through the forthcoming review of business rates.

| (12) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of the United Kingdom's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to the United Kingdom in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the United Kingdom but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (3) below. |
| --- | --- |

(12)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of the United Kingdom's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to the United Kingdom in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the United Kingdom but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (3) below.

| (13) | In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (5) is reflected in particular in recommendation (1) below. |
| --- | --- |

(13)

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

| (14) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (2) to (3) below, |
| --- | --- |

(14)

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

HEREBY RECOMMENDS that the United Kingdom take action in 2015 and 2016 to:

| 1. | Ensure effective action under the excessive deficit procedure and endeavour to correct the excessive deficit in a durable manner by 2016-17, in particular by prioritising capital expenditure. |
| --- | --- |

1.

Ensure effective action under the excessive deficit procedure and endeavour to correct the excessive deficit in a durable manner by 2016-17, in particular by prioritising capital expenditure.

| 2. | Take further steps to boost supply in the housing sector, including by implementing the reforms of the national planning policy framework. |
| --- | --- |

2.

Take further steps to boost supply in the housing sector, including by implementing the reforms of the national planning policy framework.

| 3. | Address skills mismatches by increasing employers' engagement in the delivery of apprenticeships. Take action to further reduce the number of young people with low basic skills. Further improve the availability of affordable, high-quality, full-time childcare. |
| --- | --- |

3.

Address skills mismatches by increasing employers' engagement in the delivery of apprenticeships. Take action to further reduce the number of young people with low basic skills. Further improve the availability of affordable, high-quality, full-time childcare.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of the United Kingdom and delivering a Council opinion on the Stability Programme of the United Kingdom, 2014 (OJ C 247, 29.7.2014, p. 136).

4

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

5

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/24 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/24

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Belgium and delivering a Council opinion on the 2015 Stability Programme of Belgium

(2015/C 272/07)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Belgium's National Reform Programme for 2014 and delivered its opinion on Belgium's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Belgium's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Belgium's National Reform Programme for 2014 and delivered its opinion on Belgium's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Belgium's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Belgium was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Belgium was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Belgium. This assessed Belgium's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Belgium is experiencing macroeconomic imbalances which require policy action and monitoring. In particular, developments with regard to the external competitiveness of goods continue to present risks and deserve attention, as renewed deterioration would threaten macroeconomic stability. Further action to ensure the convergence of cost parameters would slow down the decline of employment in the tradable sectors, while tangible progress to narrow the historical cost gap could be reinforced by a tax shift towards non-labour tax bases. Public debt remains high, but several factors temper the associated macroeconomic risks. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Belgium. This assessed Belgium's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Belgium is experiencing macroeconomic imbalances which require policy action and monitoring. In particular, developments with regard to the external competitiveness of goods continue to present risks and deserve attention, as renewed deterioration would threaten macroeconomic stability. Further action to ensure the convergence of cost parameters would slow down the decline of employment in the tradable sectors, while tangible progress to narrow the historical cost gap could be reinforced by a tax shift towards non-labour tax bases. Public debt remains high, but several factors temper the associated macroeconomic risks.

| (7) | On 30 April 2015, Belgium submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, Belgium submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule for the period 2014-2016. On 27 February 2015, the Commission issued a Report under Article 126(3) of the TFEU, as Belgium was not expected to make sufficient progress towards compliance with the debt rule in 2014-2015 and the deficit reference value of 3 % of GDP was breached in 2014. The analysis concluded that the debt criterion should be considered as complied with at that time and that the excess of the deficit over the reference value was close to that value, temporary, and exceptional (due to methodological statistical changes). This analysis is still broadly valid. In its 2015 Stability Programme, the Government plans a gradual improvement of the structural balance in order to reach a balanced budgetary position in structural terms by 2018. However, the recalculated structural balance (6) points to a structural deficit of 0,3 % of GDP in 2018. The Government does not plan to reach the medium-term objective — a surplus of 0,75 % of GDP in structural terms — within the programme period. The government debt-to-GDP ratio is expected to peak at 106,9 % in 2015 and to gradually decline to 102 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, the measures needed to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, net expenditure growth in 2015 is expected to be in line with the expenditure benchmark. However, there is a risk of some deviation in 2014-2015 mainly resulting from the slippage in 2014. If policy is unchanged, there is also a risk of a significant deviation from the required adjustment path towards the medium-term objective in 2015-2016. Therefore further measures will be needed in both years. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Belgium will not comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule for the period 2014-2016. On 27 February 2015, the Commission issued a Report under Article 126(3) of the TFEU, as Belgium was not expected to make sufficient progress towards compliance with the debt rule in 2014-2015 and the deficit reference value of 3 % of GDP was breached in 2014. The analysis concluded that the debt criterion should be considered as complied with at that time and that the excess of the deficit over the reference value was close to that value, temporary, and exceptional (due to methodological statistical changes). This analysis is still broadly valid. In its 2015 Stability Programme, the Government plans a gradual improvement of the structural balance in order to reach a balanced budgetary position in structural terms by 2018. However, the recalculated structural balance (6) points to a structural deficit of 0,3 % of GDP in 2018. The Government does not plan to reach the medium-term objective — a surplus of 0,75 % of GDP in structural terms — within the programme period. The government debt-to-GDP ratio is expected to peak at 106,9 % in 2015 and to gradually decline to 102 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, the measures needed to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, net expenditure growth in 2015 is expected to be in line with the expenditure benchmark. However, there is a risk of some deviation in 2014-2015 mainly resulting from the slippage in 2014. If policy is unchanged, there is also a risk of a significant deviation from the required adjustment path towards the medium-term objective in 2015-2016. Therefore further measures will be needed in both years. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Belgium will not comply with the provisions of the Stability and Growth Pact.

| (9) | The Federal Government has agreed a major pension reform aimed at reducing the gap between the effective and statutory retirement ages, and raising the latter. The early retirement age is to be raised further after 2016, to 63 years by 2018, with a minimum career-length requirement of 42 years from 2019 onwards. Over the longer term, the Federal Government has agreed to increase the statutory retirement age from 65 to 66 in 2025 and 67 in 2030. The gradual introduction of a credit-based pension system is planned, with adjustment mechanisms that respond to demographic or economic developments such as higher life expectancy or changes in the economic dependency ratio. A successful consolidation strategy offsetting the budgetary impact of an ageing population and safeguarding the long-term sustainability of public finances depends on the swift implementation of this pension reform. Considering that there are still few incentives to support the employability of older workers, these pension reforms would need to be accompanied by employment-support measures and labour market reforms conducive to active ageing. |
| --- | --- |

(9)

The Federal Government has agreed a major pension reform aimed at reducing the gap between the effective and statutory retirement ages, and raising the latter. The early retirement age is to be raised further after 2016, to 63 years by 2018, with a minimum career-length requirement of 42 years from 2019 onwards. Over the longer term, the Federal Government has agreed to increase the statutory retirement age from 65 to 66 in 2025 and 67 in 2030. The gradual introduction of a credit-based pension system is planned, with adjustment mechanisms that respond to demographic or economic developments such as higher life expectancy or changes in the economic dependency ratio. A successful consolidation strategy offsetting the budgetary impact of an ageing population and safeguarding the long-term sustainability of public finances depends on the swift implementation of this pension reform. Considering that there are still few incentives to support the employability of older workers, these pension reforms would need to be accompanied by employment-support measures and labour market reforms conducive to active ageing.

| (10) | The Belgian tax system is characterised by a high overall tax burden, relatively high rates, and narrow bases. The tax burden is heavily skewed towards labour. This results in high labour costs, which discourage job creation, and large tax wedges, which contribute to unemployment traps. In addition, partly to alleviate the high tax rates, tax bases are generally eroded by numerous specific exemptions, deductions, reduced rates, and tax expenditures, which create efficiency losses and introduce distortions and possible loopholes. Certain features of the tax system are environmentally harmful. Given these weaknesses, Belgium has been repeatedly advised to simplify and redesign its tax system in order to rebalance the tax burden, close tax loopholes, and reduce the sometimes harmful differentiation created by taxation niches. So far, limited progress has been made towards a comprehensive tax reform entailing, in particular, a shift from labour towards less growth-distorting tax bases. Tax bases with scope for broadening include environmental and consumption taxes and certain types of financial income. Combining a shift away from labour with tax-base broadening (reviewing existing tax provisions, subsidies, exemptions, and deductions) could improve the overall balance and fairness of the tax system, support employment, competitiveness and social and environmental objectives, and counter tax evasion and aggressive tax planning. |
| --- | --- |

(10)

The Belgian tax system is characterised by a high overall tax burden, relatively high rates, and narrow bases. The tax burden is heavily skewed towards labour. This results in high labour costs, which discourage job creation, and large tax wedges, which contribute to unemployment traps. In addition, partly to alleviate the high tax rates, tax bases are generally eroded by numerous specific exemptions, deductions, reduced rates, and tax expenditures, which create efficiency losses and introduce distortions and possible loopholes. Certain features of the tax system are environmentally harmful. Given these weaknesses, Belgium has been repeatedly advised to simplify and redesign its tax system in order to rebalance the tax burden, close tax loopholes, and reduce the sometimes harmful differentiation created by taxation niches. So far, limited progress has been made towards a comprehensive tax reform entailing, in particular, a shift from labour towards less growth-distorting tax bases. Tax bases with scope for broadening include environmental and consumption taxes and certain types of financial income. Combining a shift away from labour with tax-base broadening (reviewing existing tax provisions, subsidies, exemptions, and deductions) could improve the overall balance and fairness of the tax system, support employment, competitiveness and social and environmental objectives, and counter tax evasion and aggressive tax planning.

| (11) | Structural problems characterising the Belgian labour market continue to result in a chronic underutilisation of labour and low aggregate employment and activity rates. Shortcomings relate mainly to the weak link between wages and productivity and to financial disincentives to work. Belgium also faces shortages of highly skilled workers and skills mismatches. The various governments, in their agreements and their reform programmes make reference to the need for stronger links between education, training and employment actors so as to improve linguistic, vocational and educational training and develop alternative training for students and the unemployed. Progress is slow, however. The impact of these structural factors on certain groups in the labour market, such as the young and elderly unemployed and those from migrant backgrounds, is particularly pronounced. |
| --- | --- |

(11)

Structural problems characterising the Belgian labour market continue to result in a chronic underutilisation of labour and low aggregate employment and activity rates. Shortcomings relate mainly to the weak link between wages and productivity and to financial disincentives to work. Belgium also faces shortages of highly skilled workers and skills mismatches. The various governments, in their agreements and their reform programmes make reference to the need for stronger links between education, training and employment actors so as to improve linguistic, vocational and educational training and develop alternative training for students and the unemployed. Progress is slow, however. The impact of these structural factors on certain groups in the labour market, such as the young and elderly unemployed and those from migrant backgrounds, is particularly pronounced.

| (12) | Belgium's weakened external competitiveness continues to give rise to macroeconomic risks for its economy. The economy is marked by a problem of high labour costs, which have on average outpaced those in neighbouring countries. There is a need to align wage growth more closely with productivity and to make wage-setting more flexible so as to increase the economy's potential for adjustment. Some targeted measures have been taken to reduce labour costs for specific groups and to narrow the gap between gross and net wages at the bottom of the pay scale. However, closing the gap entirely will require additional action which hinges on reforms of the wage-setting system. The build-up of a cost disadvantage comes with job losses and will eventually provoke a correction if left unaddressed. Other key cost factors for companies are energy costs and the cost of intermediate business services, which are highly regulated and shielded from competition. There is also considerable scope for improving the non-cost dimension of external competitiveness. To safeguard and enhance current welfare levels, more emphasis will have to be put on productivity gains. This requires a sustained push towards products and associated services higher up the value chain, on the basis of stronger performance in innovation and R & D valorisation. Administrative barriers should be reduced and measures should be taken to promote entrepreneurship and unleash business dynamism. The very low start-up rate suggests a business climate that is unfavourable to new activities and expansion. Increasing competition in retail and professional services also represents a challenge. Eliminating public infrastructure bottlenecks and improving the quality and adequacy of the capital stock through additional investments, in particular in the area of road and rail infrastructure, would also strengthen Belgium's overall productivity. |
| --- | --- |

(12)

Belgium's weakened external competitiveness continues to give rise to macroeconomic risks for its economy. The economy is marked by a problem of high labour costs, which have on average outpaced those in neighbouring countries. There is a need to align wage growth more closely with productivity and to make wage-setting more flexible so as to increase the economy's potential for adjustment. Some targeted measures have been taken to reduce labour costs for specific groups and to narrow the gap between gross and net wages at the bottom of the pay scale. However, closing the gap entirely will require additional action which hinges on reforms of the wage-setting system. The build-up of a cost disadvantage comes with job losses and will eventually provoke a correction if left unaddressed. Other key cost factors for companies are energy costs and the cost of intermediate business services, which are highly regulated and shielded from competition. There is also considerable scope for improving the non-cost dimension of external competitiveness. To safeguard and enhance current welfare levels, more emphasis will have to be put on productivity gains. This requires a sustained push towards products and associated services higher up the value chain, on the basis of stronger performance in innovation and R & D valorisation. Administrative barriers should be reduced and measures should be taken to promote entrepreneurship and unleash business dynamism. The very low start-up rate suggests a business climate that is unfavourable to new activities and expansion. Increasing competition in retail and professional services also represents a challenge. Eliminating public infrastructure bottlenecks and improving the quality and adequacy of the capital stock through additional investments, in particular in the area of road and rail infrastructure, would also strengthen Belgium's overall productivity.

| (13) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Belgium's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Belgium in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Belgium but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(13)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Belgium's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Belgium in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Belgium but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

| (14) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (7) is reflected in particular in recommendation (1) below. |
| --- | --- |

(14)

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

| (15) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (4) below. |
| --- | --- |

(15)

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

| (16) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (8). As a country whose currency is the euro, Belgium should also ensure the full and timely implementation of these recommendations, |
| --- | --- |

(16)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (8). As a country whose currency is the euro, Belgium should also ensure the full and timely implementation of these recommendations,

HEREBY RECOMMENDS that Belgium take action in 2015 and 2016 to:

| 1. | Achieve a fiscal adjustment of at least 0,6 % of GDP towards the medium-term budgetary objective in 2015 and in 2016. Use windfall gains to put the general government debt ratio on an appropriate downward path. Complement the pension reform by linking the statutory retirement age to life expectancy. Agree on an enforceable distribution of fiscal targets among all government levels. |
| --- | --- |

1.

Achieve a fiscal adjustment of at least 0,6 % of GDP towards the medium-term budgetary objective in 2015 and in 2016. Use windfall gains to put the general government debt ratio on an appropriate downward path. Complement the pension reform by linking the statutory retirement age to life expectancy. Agree on an enforceable distribution of fiscal targets among all government levels.

| 2. | Adopt and implement a comprehensive tax reform broadening the tax base, shifting the tax burden away from labour and removing inefficient tax expenditures. |
| --- | --- |

2.

Adopt and implement a comprehensive tax reform broadening the tax base, shifting the tax burden away from labour and removing inefficient tax expenditures.

| 3. | Improve the functioning of the labour market by reducing financial disincentives to work, increasing labour market access for specific target groups and addressing skills shortages and mismatches. |
| --- | --- |

3.

Improve the functioning of the labour market by reducing financial disincentives to work, increasing labour market access for specific target groups and addressing skills shortages and mismatches.

| 4. | Restore competitiveness by ensuring, in consultation with the social partners and in accordance with national practices, that wages evolve in line with productivity. |
| --- | --- |

4.

Restore competitiveness by ensuring, in consultation with the social partners and in accordance with national practices, that wages evolve in line with productivity.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Belgium and delivering a Council opinion on the Stability Programme of Belgium, 2014 (OJ C 247, 29.7.2014, p. 1).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

(6)  The structural balance as recalculated by the Commission based on the information in the Stability Programme, following the commonly agreed methodology.

6

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

7

(8)  OJ C 272, 18.8.2015, p. 98.

8

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/28 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/28

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Bulgaria and delivering a Council opinion on the 2015 Convergence Programme of Bulgaria

(2015/C 272/08)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
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(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Bulgaria's National Reform Programme for 2014 and delivered its opinion on Bulgaria's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Bulgaria's National Reform Programme for 2014 and delivered its opinion on Bulgaria's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Bulgaria was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Bulgaria was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Bulgaria. This assessed Bulgaria's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Bulgaria is experiencing macroeconomic imbalances. In particular, the financial sector turbulence in 2014 has raised concerns about banking practices in the domestically owned part, which may have significant implications for the financial sector and overall macroeconomic stability. In addition, the still negative (albeit improving) external position, corporate overleveraging and weak labour market adjustment continue to pose macroeconomic risks and deserve close attention. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Bulgaria. This assessed Bulgaria's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Bulgaria is experiencing macroeconomic imbalances. In particular, the financial sector turbulence in 2014 has raised concerns about banking practices in the domestically owned part, which may have significant implications for the financial sector and overall macroeconomic stability. In addition, the still negative (albeit improving) external position, corporate overleveraging and weak labour market adjustment continue to pose macroeconomic risks and deserve close attention.

| (7) | On 30 April 2015, Bulgaria submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(7)

On 30 April 2015, Bulgaria submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Bulgaria is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans to keep the headline deficit at 2,8 % of GDP in 2015. Thereafter, the Government sets out its intention to gradually reduce the deficit so as to reach a level of 1,3 % of GDP in 2018. According to the Convergence Programme, the Government plans to meet the medium-term objective — a structural deficit of 1 % of GDP — in 2018. The government debt-to-GDP ratio is expected to increase over the programme period, reaching almost 31 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, net expenditure growth is forecast to respect the benchmark in 2015. However, taking into account the deterioration of the structural balance (1,7 % of GDP in 2014), there is a risk of some deviation from the requirement over the period 2014-2015. In 2016, there is a risk of a significant deviation, as net expenditure growth exceeds the benchmark by 0,9 % of GDP. Hence, further measures will be needed for both years. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Bulgaria will not comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Bulgaria is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans to keep the headline deficit at 2,8 % of GDP in 2015. Thereafter, the Government sets out its intention to gradually reduce the deficit so as to reach a level of 1,3 % of GDP in 2018. According to the Convergence Programme, the Government plans to meet the medium-term objective — a structural deficit of 1 % of GDP — in 2018. The government debt-to-GDP ratio is expected to increase over the programme period, reaching almost 31 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, net expenditure growth is forecast to respect the benchmark in 2015. However, taking into account the deterioration of the structural balance (1,7 % of GDP in 2014), there is a risk of some deviation from the requirement over the period 2014-2015. In 2016, there is a risk of a significant deviation, as net expenditure growth exceeds the benchmark by 0,9 % of GDP. Hence, further measures will be needed for both years. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Bulgaria will not comply with the provisions of the Stability and Growth Pact.

| (9) | Tax compliance continues to be a major challenge in Bulgaria. There is a need for a comprehensive tax compliance strategy based on a thorough analysis of risks, systematic impact assessment of measures already taken and close coordination between the various tax collection agencies. |
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(9)

Tax compliance continues to be a major challenge in Bulgaria. There is a need for a comprehensive tax compliance strategy based on a thorough analysis of risks, systematic impact assessment of measures already taken and close coordination between the various tax collection agencies.

| (10) | The Bulgarian healthcare system faces several major challenges, including poor health outcomes, low funding and serious inefficiencies in the use of resources. Life expectancy is considerably below the EU average and life expectancy at birth is among the lowest in the Union. The system continues to be based on an oversized hospital sector. Although funding of primary and outpatient care has slightly gained significance in nominal terms in recent years, it is still quite limited. The healthcare fund is contractually obliged to reimburse hospitals for treatments at predefined prices, which is incentivising hospitals to provide inadequately targeted medical care. A National Health Strategy was adopted in 2014 but it lacks a clear implementation plan. |
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(10)

The Bulgarian healthcare system faces several major challenges, including poor health outcomes, low funding and serious inefficiencies in the use of resources. Life expectancy is considerably below the EU average and life expectancy at birth is among the lowest in the Union. The system continues to be based on an oversized hospital sector. Although funding of primary and outpatient care has slightly gained significance in nominal terms in recent years, it is still quite limited. The healthcare fund is contractually obliged to reimburse hospitals for treatments at predefined prices, which is incentivising hospitals to provide inadequately targeted medical care. A National Health Strategy was adopted in 2014 but it lacks a clear implementation plan.

| (11) | Banking sector turmoil in the summer of 2014 revealed institutional and supervisory weaknesses. The supervisory body's failure to detect significant problems in the fourth largest bank in Bulgaria, Corporate Commercial Bank (KTB), points to shortcomings in financial sector supervisory practices and oversight of concentration risk. This has undermined the credibility of banking supervision, in turn also raising doubts as to the health of other parts of the financial sector. The liquidity crisis in June 2014 prompted an in-depth audit in KTB that led to KTB's banking licence being revoked. The guaranteed deposits, amounting to 4,4 % of GDP, were paid out only after a significant delay. |
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(11)

Banking sector turmoil in the summer of 2014 revealed institutional and supervisory weaknesses. The supervisory body's failure to detect significant problems in the fourth largest bank in Bulgaria, Corporate Commercial Bank (KTB), points to shortcomings in financial sector supervisory practices and oversight of concentration risk. This has undermined the credibility of banking supervision, in turn also raising doubts as to the health of other parts of the financial sector. The liquidity crisis in June 2014 prompted an in-depth audit in KTB that led to KTB's banking licence being revoked. The guaranteed deposits, amounting to 4,4 % of GDP, were paid out only after a significant delay.

| (12) | Active labour market policies are insufficiently developed in terms both of coverage and of targeting. Fragmentation of agencies represents a major challenge in delivering benefits and services to the unemployed and the inactive. Coordination between employment offices and the social assistance directorate is not geared to an efficient and integrated delivery of measures to help the most vulnerable. Bulgaria has a high proportion of young people neither in employment nor in education or training who are not in touch with the employment services and are thus outside the scope of standard labour market activation measures. Most of Bulgaria's unemployment is long-term, indicating that it is more structural than cyclical. Although the Bulgarian minimum wage is the lowest in the Union in nominal terms, it has increased substantially since 2011 and the Government plans further significant increases in the coming years. Such sharp discretionary shifts in the Government's wage-setting policy could be distortive for the labour market. Moreover, there are no clear guidelines for minimum-wage setting, so the system creates uncertainty as to whether the right balance will be struck between supporting employment and competitiveness on the one hand and safeguarding labour income on the other. Poverty and social exclusion remain a concern, as Bulgaria has one of the highest rates of material deprivation in the Union. The Roma population faces particularly high levels of poverty and social exclusion. The majority of young Roma are neither in employment nor in education or training. Pre-school and kindergarten enrolment of Roma children is low and almost a quarter of those aged 7-15 are not in the education system. |
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(12)

Active labour market policies are insufficiently developed in terms both of coverage and of targeting. Fragmentation of agencies represents a major challenge in delivering benefits and services to the unemployed and the inactive. Coordination between employment offices and the social assistance directorate is not geared to an efficient and integrated delivery of measures to help the most vulnerable. Bulgaria has a high proportion of young people neither in employment nor in education or training who are not in touch with the employment services and are thus outside the scope of standard labour market activation measures. Most of Bulgaria's unemployment is long-term, indicating that it is more structural than cyclical. Although the Bulgarian minimum wage is the lowest in the Union in nominal terms, it has increased substantially since 2011 and the Government plans further significant increases in the coming years. Such sharp discretionary shifts in the Government's wage-setting policy could be distortive for the labour market. Moreover, there are no clear guidelines for minimum-wage setting, so the system creates uncertainty as to whether the right balance will be struck between supporting employment and competitiveness on the one hand and safeguarding labour income on the other. Poverty and social exclusion remain a concern, as Bulgaria has one of the highest rates of material deprivation in the Union. The Roma population faces particularly high levels of poverty and social exclusion. The majority of young Roma are neither in employment nor in education or training. Pre-school and kindergarten enrolment of Roma children is low and almost a quarter of those aged 7-15 are not in the education system.

| (13) | The low quality of the education and training systems and their limited relevance to the labour market hamper the supply of a suitably skilled labour force to the economy. The rate of adult participation in lifelong learning is one of the lowest in the Union. After years of delay, Bulgaria has still not adopted the reform of the School Education Act and implementation of the strategy on early school leaving is still at an early stage. The National Strategy on Vocational Education and Training (2014-2020) and a new strategy on higher education were adopted in 2015. Implementation of these strategies should help to improve the education system, make it more relevant to the economy and promote innovation and job creation. |
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(13)

The low quality of the education and training systems and their limited relevance to the labour market hamper the supply of a suitably skilled labour force to the economy. The rate of adult participation in lifelong learning is one of the lowest in the Union. After years of delay, Bulgaria has still not adopted the reform of the School Education Act and implementation of the strategy on early school leaving is still at an early stage. The National Strategy on Vocational Education and Training (2014-2020) and a new strategy on higher education were adopted in 2015. Implementation of these strategies should help to improve the education system, make it more relevant to the economy and promote innovation and job creation.

| (14) | In spring 2015, the Government presented a proposal for reform of the pension system. The adequacy and sustainability of the pension system depend on reforms that incentivise and support longer working lives with fewer interruptions. In 2013, 1,2 million pensioners were found to be receiving pensions below the national poverty line. The key drivers behind low pension entitlements are early retirement and short contribution periods. The rapid ageing of Bulgarian society is likely to aggravate the situation in the future. It is therefore appropriate for Bulgaria to further contain growth in age-related expenditure to contribute to the long-term sustainability of public finances, including through implementation of robust pension reforms. |
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(14)

In spring 2015, the Government presented a proposal for reform of the pension system. The adequacy and sustainability of the pension system depend on reforms that incentivise and support longer working lives with fewer interruptions. In 2013, 1,2 million pensioners were found to be receiving pensions below the national poverty line. The key drivers behind low pension entitlements are early retirement and short contribution periods. The rapid ageing of Bulgarian society is likely to aggravate the situation in the future. It is therefore appropriate for Bulgaria to further contain growth in age-related expenditure to contribute to the long-term sustainability of public finances, including through implementation of robust pension reforms.

| (15) | A key building block for an investor-friendly business environment is an independent, high-quality and efficient judicial system and effective mechanisms to fight corruption. Key challenges in this area include a lack of overall coordination, institutional shortcomings and a weak track-record on securing final convictions in court. These important policy areas will be covered by the Cooperation and Verification Mechanism. |
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(15)

A key building block for an investor-friendly business environment is an independent, high-quality and efficient judicial system and effective mechanisms to fight corruption. Key challenges in this area include a lack of overall coordination, institutional shortcomings and a weak track-record on securing final convictions in court. These important policy areas will be covered by the Cooperation and Verification Mechanism.

| (16) | The insolvency framework in Bulgaria has been ineffective, increasing uncertainty among market participants and reducing the country's overall attractiveness to investors. Insolvencies take longer than in comparable countries and the claim recovery rate is low. The need for an efficient framework for handling insolvencies should also be seen in the light of the high indebtedness of non-financial corporations in Bulgaria and the role of such a framework in facilitating the deleveraging process. |
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(16)

The insolvency framework in Bulgaria has been ineffective, increasing uncertainty among market participants and reducing the country's overall attractiveness to investors. Insolvencies take longer than in comparable countries and the claim recovery rate is low. The need for an efficient framework for handling insolvencies should also be seen in the light of the high indebtedness of non-financial corporations in Bulgaria and the role of such a framework in facilitating the deleveraging process.

| (17) | Strategies for the reform of the public administration and the introduction of e-government were adopted in 2014. Their implementation will need a strong policy steer and coordination. Despite past efforts, the quality of public services remains low. The insufficient development of e-government limits efforts to increase transparency and reduce the administrative burden. A particular problem concerns public procurement procedures, which are hampered by a frequently changing legal framework and insufficient administrative capacity. The ex ante verification of tender procedures is often performed in a formalistic way. At the same time, procurement procedures are subject to overlapping ex post controls, sometimes resulting in divergent findings. The lack of transparency in the bidding process is also due to failure to complete the installation of the full range of e-procurement platforms. Irregularities in public procurement procedures have resulted in significant delays in implementing EU fund programmes in the past, have a negative impact on the business environment and hold back the much needed improvements in infrastructure. A multiannual strategy adopted in July 2014 to address the key weaknesses in the public procurement system sets out a clear timetable for concrete steps to be taken in 2015 and 2016. This needs to be implemented. |
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(17)

Strategies for the reform of the public administration and the introduction of e-government were adopted in 2014. Their implementation will need a strong policy steer and coordination. Despite past efforts, the quality of public services remains low. The insufficient development of e-government limits efforts to increase transparency and reduce the administrative burden. A particular problem concerns public procurement procedures, which are hampered by a frequently changing legal framework and insufficient administrative capacity. The ex ante verification of tender procedures is often performed in a formalistic way. At the same time, procurement procedures are subject to overlapping ex post controls, sometimes resulting in divergent findings. The lack of transparency in the bidding process is also due to failure to complete the installation of the full range of e-procurement platforms. Irregularities in public procurement procedures have resulted in significant delays in implementing EU fund programmes in the past, have a negative impact on the business environment and hold back the much needed improvements in infrastructure. A multiannual strategy adopted in July 2014 to address the key weaknesses in the public procurement system sets out a clear timetable for concrete steps to be taken in 2015 and 2016. This needs to be implemented.

| (18) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Bulgaria's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Bulgaria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Bulgaria but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 5 below. |
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(18)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Bulgaria's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Bulgaria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Bulgaria but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 5 below.

| (19) | In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (5) is reflected in particular in recommendation 1 below. |
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(19)

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

| (20) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 3 and 5 below, |
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(20)

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

HEREBY RECOMMENDS that Bulgaria take action in 2015 and 2016 to:

| 1. | Avoid a structural deterioration in public finances in 2015 and achieve an adjustment of 0,5 % of GDP in 2016. Take decisive measures to improve tax collection and address the shadow economy, based on a comprehensive risk analysis and evaluation of past measures. Improve the cost-effectiveness of the healthcare system, in particular, by reviewing the pricing of healthcare and strengthening outpatient care and primary care. |
| --- | --- |

1.

Avoid a structural deterioration in public finances in 2015 and achieve an adjustment of 0,5 % of GDP in 2016. Take decisive measures to improve tax collection and address the shadow economy, based on a comprehensive risk analysis and evaluation of past measures. Improve the cost-effectiveness of the healthcare system, in particular, by reviewing the pricing of healthcare and strengthening outpatient care and primary care.

| 2. | By December 2015, complete a system-wide independent asset-quality review and a bottom-up stress test of the banking sector, in close cooperation with European bodies. Perform a portfolio screening for the pension funds and insurance sectors. Review and fortify banking and non-banking financial sector supervision, including by strengthening the bank-resolution and deposit-guarantee frameworks. Improve corporate governance in financial intermediaries, including by tackling concentration risk and related-party exposures. |
| --- | --- |

2.

By December 2015, complete a system-wide independent asset-quality review and a bottom-up stress test of the banking sector, in close cooperation with European bodies. Perform a portfolio screening for the pension funds and insurance sectors. Review and fortify banking and non-banking financial sector supervision, including by strengthening the bank-resolution and deposit-guarantee frameworks. Improve corporate governance in financial intermediaries, including by tackling concentration risk and related-party exposures.

| 3. | Develop an integrated approach for groups at the margin of the labour market, in particular older workers and young people not in employment, education or training. In consultation with the social partners and in accordance with national practices, establish a transparent mechanism for setting the minimum wage and minimum social security contributions in the light of their impact on in-work poverty, job creation and competitiveness. |
| --- | --- |

3.

Develop an integrated approach for groups at the margin of the labour market, in particular older workers and young people not in employment, education or training. In consultation with the social partners and in accordance with national practices, establish a transparent mechanism for setting the minimum wage and minimum social security contributions in the light of their impact on in-work poverty, job creation and competitiveness.

| 4. | Adopt the reform of the School Education Act, and increase the participation in education of disadvantaged children, in particular Roma, by improving access to good-quality early schooling. |
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4.

Adopt the reform of the School Education Act, and increase the participation in education of disadvantaged children, in particular Roma, by improving access to good-quality early schooling.

| 5. | With a view to improving the investment climate, prepare a comprehensive reform of the insolvency framework drawing on international best practice and expertise, in particular to improve mechanisms for pre-insolvency and out-of-court restructuring. |
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5.

With a view to improving the investment climate, prepare a comprehensive reform of the insolvency framework drawing on international best practice and expertise, in particular to improve mechanisms for pre-insolvency and out-of-court restructuring.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

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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)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Bulgaria and delivering a Council opinion on the Convergence Programme of Bulgaria, 2014 (OJ C 247, 29.7.2014, p. 7).

4

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

5

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/32 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/32

---

COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/09)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on the Czech Republic's National Reform Programme for 2014 and delivered its opinion on the Czech Republic's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on the Czech Republic's National Reform Programme for 2014 and delivered its opinion on the Czech Republic's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which the Czech Republic was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which the Czech Republic was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for the Czech Republic. This assessed the Czech Republic's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for the Czech Republic. This assessed the Czech Republic's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 30 April 2015, the Czech Republic submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, the Czech Republic submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | The Czech Republic is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans to gradually improve the headline deficit to 1,9 % of GDP in 2015 and further to 0,6 % of GDP in 2018. The Government sets out its intention to meet the medium-term objective — a structural deficit of 1 % of GDP — in 2018, but according to the recalculated structural balance (5) it is expected to be met by 2016. According to the Convergence Programme, the government debt-to-GDP ratio is expected to reach almost 41 % in 2015 and to gradually decline to 40,2 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible and the measures to support the planned deficit targets from 2016 onwards are sufficiently specified. However, there is a risk that the impact of the planned revenue measures may be lower than estimated. Based on the Commission's 2015 spring forecast, the expenditure benchmark is expected to be complied with in 2015. In 2016, some deviation is expected as net expenditure growth exceeds the benchmark by 0,3 % of GDP. Therefore, further measures will be needed in 2016.
  Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that the Czech Republic is expected to broadly comply with the provisions of the Stability and Growth Pact. The main elements of the current fiscal framework are in place. However the scope of medium-term budgetary planning and of the numerical fiscal rule is limited, and enforcement has been weak. A draft reform package has been modified and delayed several times and its adoption is currently planned during 2015. The Czech Republic still faces challenges with respect to long-term fiscal sustainability, largely due to projected increases in pension and healthcare expenditure. There has been some improvement in the outlook for the pension system as a result of more favourable demographic projections. The statutory retirement age is legislated to gradually increase, but the change programmed for the medium term is too slow. Changes to the current system of pension indexation are currently being discussed but no measures have yet been adopted. Although some measures have been taken to improve the cost efficiency and governance of the healthcare sector, limited progress has been made in this area. Indicators used to measure the performance of the hospital sector show that medical treatment is not always delivered in a cost-efficient way, while the allocation of resources is hampered by ongoing difficulties in rolling out a reimbursement system for costs incurred by hospitals. There are also signs that general practitioners are not adequately fulfilling their role as gate-keepers. Public procurement in the healthcare sector suffers from a high incidence of irregularities, suggesting insufficient guidance and supervision. |
| --- | --- |

(8)

The Czech Republic is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans to gradually improve the headline deficit to 1,9 % of GDP in 2015 and further to 0,6 % of GDP in 2018. The Government sets out its intention to meet the medium-term objective — a structural deficit of 1 % of GDP — in 2018, but according to the recalculated structural balance (5) it is expected to be met by 2016. According to the Convergence Programme, the government debt-to-GDP ratio is expected to reach almost 41 % in 2015 and to gradually decline to 40,2 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible and the measures to support the planned deficit targets from 2016 onwards are sufficiently specified. However, there is a risk that the impact of the planned revenue measures may be lower than estimated. Based on the Commission's 2015 spring forecast, the expenditure benchmark is expected to be complied with in 2015. In 2016, some deviation is expected as net expenditure growth exceeds the benchmark by 0,3 % of GDP. Therefore, further measures will be needed in 2016.

Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that the Czech Republic is expected to broadly comply with the provisions of the Stability and Growth Pact. The main elements of the current fiscal framework are in place. However the scope of medium-term budgetary planning and of the numerical fiscal rule is limited, and enforcement has been weak. A draft reform package has been modified and delayed several times and its adoption is currently planned during 2015. The Czech Republic still faces challenges with respect to long-term fiscal sustainability, largely due to projected increases in pension and healthcare expenditure. There has been some improvement in the outlook for the pension system as a result of more favourable demographic projections. The statutory retirement age is legislated to gradually increase, but the change programmed for the medium term is too slow. Changes to the current system of pension indexation are currently being discussed but no measures have yet been adopted. Although some measures have been taken to improve the cost efficiency and governance of the healthcare sector, limited progress has been made in this area. Indicators used to measure the performance of the hospital sector show that medical treatment is not always delivered in a cost-efficient way, while the allocation of resources is hampered by ongoing difficulties in rolling out a reimbursement system for costs incurred by hospitals. There are also signs that general practitioners are not adequately fulfilling their role as gate-keepers. Public procurement in the healthcare sector suffers from a high incidence of irregularities, suggesting insufficient guidance and supervision.

| (9) | The main challenges in the area of taxation are to reduce tax evasion and to make tax collection less costly and less time-consuming, both for taxpayers and for the authorities. The Czech Republic has identified tax compliance and the fight against tax evasion as priorities, and is taking a number of steps in these areas. Several measures were introduced in 2015, relating to both direct and indirect taxes, and further measures are planned for 2016. The cost of compliance is still, however, too high. Standardising the tax bases for personal income tax, social security and health contributions would help to simplify the tax system, but this change has not been brought in, and there are currently no plans to tackle this issue. Work on simplifying tax returns and increasing the use of pre-filled forms is not being carried out in a systematic way. Rather than simplifying the VAT system, the Czech Republic introduced a third VAT rate in 2014. Limited progress has been made in reducing the discrepancies in the tax treatment of employees and the self-employed. Tax revenue in the Czech Republic still relies heavily on the taxation of labour, and low-income workers, particularly those without children, face a relatively high labour tax burden. Measures entering into force in 2015 somewhat reduce labour taxation for specific groups, but will have a limited impact overall. Property and environmental taxes (except fuel) remain low, indicating potential scope for shifting tax away from labour. |
| --- | --- |

(9)

The main challenges in the area of taxation are to reduce tax evasion and to make tax collection less costly and less time-consuming, both for taxpayers and for the authorities. The Czech Republic has identified tax compliance and the fight against tax evasion as priorities, and is taking a number of steps in these areas. Several measures were introduced in 2015, relating to both direct and indirect taxes, and further measures are planned for 2016. The cost of compliance is still, however, too high. Standardising the tax bases for personal income tax, social security and health contributions would help to simplify the tax system, but this change has not been brought in, and there are currently no plans to tackle this issue. Work on simplifying tax returns and increasing the use of pre-filled forms is not being carried out in a systematic way. Rather than simplifying the VAT system, the Czech Republic introduced a third VAT rate in 2014. Limited progress has been made in reducing the discrepancies in the tax treatment of employees and the self-employed. Tax revenue in the Czech Republic still relies heavily on the taxation of labour, and low-income workers, particularly those without children, face a relatively high labour tax burden. Measures entering into force in 2015 somewhat reduce labour taxation for specific groups, but will have a limited impact overall. Property and environmental taxes (except fuel) remain low, indicating potential scope for shifting tax away from labour.

| (10) | Limited progress was made in 2014 on accelerating the reform of regulated professions but the intermediary national action plan adopted in April 2015 contains a number of concrete measures and actions designed to improve the regulatory framework and to remove unjustified and disproportionate requirements. |
| --- | --- |

(10)

Limited progress was made in 2014 on accelerating the reform of regulated professions but the intermediary national action plan adopted in April 2015 contains a number of concrete measures and actions designed to improve the regulatory framework and to remove unjustified and disproportionate requirements.

| (11) | Efforts made in recent years to tackle the problem of corruption have met with serious delays. The most recent anti-corruption action plan covered a number of priority areas. It included Acts on financial control, public prosecution, the financing of political parties, the protection of whistle-blowers, a new policy on the management of state-owned companies and an amendment to the Act on free access to information. Nonetheless, it appears that little is being done to bring about the adoption of these Acts. The adoption and implementation of the Civil Service Act and of related measures have seen the Czech Republic start to address problems relating to the efficiency and stability of its public administration. Both the administrative and regulatory barriers related to investment planning, and the lack of transparency and long duration of the procedures for obtaining building and land-use permits hold back public investment. Public procurement has been the focus of a number of initiatives in recent years but concerns about transparency still remain. In particular, public contracts are still not published in a centralised register. The efficiency of public procurement procedures is hampered by the inadequate provision of guidance and training to tendering institutions. Supervision of the system remains weak. |
| --- | --- |

(11)

Efforts made in recent years to tackle the problem of corruption have met with serious delays. The most recent anti-corruption action plan covered a number of priority areas. It included Acts on financial control, public prosecution, the financing of political parties, the protection of whistle-blowers, a new policy on the management of state-owned companies and an amendment to the Act on free access to information. Nonetheless, it appears that little is being done to bring about the adoption of these Acts. The adoption and implementation of the Civil Service Act and of related measures have seen the Czech Republic start to address problems relating to the efficiency and stability of its public administration. Both the administrative and regulatory barriers related to investment planning, and the lack of transparency and long duration of the procedures for obtaining building and land-use permits hold back public investment. Public procurement has been the focus of a number of initiatives in recent years but concerns about transparency still remain. In particular, public contracts are still not published in a centralised register. The efficiency of public procurement procedures is hampered by the inadequate provision of guidance and training to tendering institutions. Supervision of the system remains weak.

| (12) | The overall level of employment is currently high, but certain disadvantaged groups remain underrepresented in the labour market. These include parents with young children, low-skilled workers, people with disabilities and Roma. Some steps have been taken towards strengthening the efficiency and effectiveness of public employment services. The level of employment among young people is increasing, and public employment services try to target their services towards young people in particular. The lack of affordable and quality childcare services and the limited use of flexible working-time arrangements make it difficult for women with children to participate in the labour market. Steps have been taken towards increasing the availability of childcare but policies supporting public childcare for the youngest children are still insufficient. |
| --- | --- |

(12)

The overall level of employment is currently high, but certain disadvantaged groups remain underrepresented in the labour market. These include parents with young children, low-skilled workers, people with disabilities and Roma. Some steps have been taken towards strengthening the efficiency and effectiveness of public employment services. The level of employment among young people is increasing, and public employment services try to target their services towards young people in particular. The lack of affordable and quality childcare services and the limited use of flexible working-time arrangements make it difficult for women with children to participate in the labour market. Steps have been taken towards increasing the availability of childcare but policies supporting public childcare for the youngest children are still insufficient.

| (13) | The Czech Republic's educational outcomes have improved in recent years but structural challenges still remain. Participation in tertiary education has increased rapidly, but concerns have emerged in relation to the decline in skills of younger tertiary education graduates. It is hoped that the overdue higher education reform planned to be adopted in 2015 will introduce institutional accreditation, stronger internal quality assurance and greater use of profiling of students, and improve financing systems. More teachers need to be recruited into the compulsory education sector, but low salaries and a negative perception of the profession make it difficult to attract talented candidates. A new career system designed to improve both the recruitment of teachers and their professional development should be finalised in the first half of 2015, to be introduced in September 2016. Its overall impact will, however, largely depend on available funding. A comprehensive approach to evaluating and supporting low-performing schools and pupils is, meanwhile, still lacking. The introduction of such an approach could help improve efficiency and equality in the education sector. Limited progress has been made in making education more inclusive, despite the Government's adoption of a comprehensive strategy for education. Young people from low socioeconomic backgrounds, including Roma, are shown to be less successful in education and on the labour market. |
| --- | --- |

(13)

The Czech Republic's educational outcomes have improved in recent years but structural challenges still remain. Participation in tertiary education has increased rapidly, but concerns have emerged in relation to the decline in skills of younger tertiary education graduates. It is hoped that the overdue higher education reform planned to be adopted in 2015 will introduce institutional accreditation, stronger internal quality assurance and greater use of profiling of students, and improve financing systems. More teachers need to be recruited into the compulsory education sector, but low salaries and a negative perception of the profession make it difficult to attract talented candidates. A new career system designed to improve both the recruitment of teachers and their professional development should be finalised in the first half of 2015, to be introduced in September 2016. Its overall impact will, however, largely depend on available funding. A comprehensive approach to evaluating and supporting low-performing schools and pupils is, meanwhile, still lacking. The introduction of such an approach could help improve efficiency and equality in the education sector. Limited progress has been made in making education more inclusive, despite the Government's adoption of a comprehensive strategy for education. Young people from low socioeconomic backgrounds, including Roma, are shown to be less successful in education and on the labour market.

| (14) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Czech Republic's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to the Czech Republic in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below. |
| --- | --- |

(14)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Czech Republic's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to the Czech Republic in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

| (15) | In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation 1 below, |
| --- | --- |

(15)

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

HEREBY RECOMMENDS that the Czech Republic take action in 2015 and 2016 to:

| 1. | Achieve a fiscal adjustment of 0,5 % of GDP in 2016. Further improve the cost-effectiveness and governance of the healthcare sector. |
| --- | --- |

1.

Achieve a fiscal adjustment of 0,5 % of GDP in 2016. Further improve the cost-effectiveness and governance of the healthcare sector.

| 2. | Fight tax evasion, simplify the tax system and implement the anti-corruption plan. Take measures to increase the transparency and efficiency of public procurement, in particular by establishing a central register of public contracts and strengthening guidance and supervision. |
| --- | --- |

2.

Fight tax evasion, simplify the tax system and implement the anti-corruption plan. Take measures to increase the transparency and efficiency of public procurement, in particular by establishing a central register of public contracts and strengthening guidance and supervision.

| 3. | Reduce the high level of taxation levied on low-income earners, by shifting taxation to other areas. Further improve the availability of affordable childcare. |
| --- | --- |

3.

Reduce the high level of taxation levied on low-income earners, by shifting taxation to other areas. Further improve the availability of affordable childcare.

| 4. | Adopt the higher education reform. Ensure adequate training for teachers, support poorly performing schools and take measures to increase participation among disadvantaged children, including Roma. |
| --- | --- |

4.

Adopt the higher education reform. Ensure adequate training for teachers, support poorly performing schools and take measures to increase participation among disadvantaged children, including Roma.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of the Czech Republic and delivering a Council opinion on the Convergence Programme of the Czech Republic, 2014 (OJ C 247, 29.7.2014, p. 12).

3

(4)  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).

4

(5)  The structural balance as recalculated by the Commission based on the information in the Convergence Programme, following the commonly agreed methodology.

5

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

6

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/36 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/36

---

COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/10)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Denmark's National Reform Programme for 2014 and delivered its opinion on Denmark's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Denmark's National Reform Programme for 2014 and delivered its opinion on Denmark's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Denmark was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Denmark was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Denmark. This assessed Denmark's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Denmark. This assessed Denmark's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 27 March 2015, Denmark submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 27 March 2015, Denmark submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Denmark is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans a widening of the headline deficit from 1,6 % of GDP in 2015 — when it was supported by considerable windfall gains — to 2,6 % of GDP in 2016. Thereafter, the Government also plans to reduce the deficit so as to reach a balanced budget in 2020. According to the Convergence Programme, the Government plans to meet the medium-term objective — a structural deficit of 0,5 % of GDP — from 2016 onwards. According to the Convergence Programme, the government debt-to-GDP ratio is expected to decline gradually from 39,8 % in 2015 to 36,7 % in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, the structural balance is expected to comply with the medium-term objective in 2015. However, based on this forecast there is a risk of some deviation from the medium-term objective in 2016, with an excess of 0,3 % of GDP of net expenditure growth over the benchmark. While this deviation is expected to be temporary as growth in net expenditure in 2016 is influenced by the phasing out of one-off measures related to the taxation of pension savings, further measures may be necessary for 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Denmark is expected to broadly comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Denmark is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans a widening of the headline deficit from 1,6 % of GDP in 2015 — when it was supported by considerable windfall gains — to 2,6 % of GDP in 2016. Thereafter, the Government also plans to reduce the deficit so as to reach a balanced budget in 2020. According to the Convergence Programme, the Government plans to meet the medium-term objective — a structural deficit of 0,5 % of GDP — from 2016 onwards. According to the Convergence Programme, the government debt-to-GDP ratio is expected to decline gradually from 39,8 % in 2015 to 36,7 % in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission's 2015 spring forecast, the structural balance is expected to comply with the medium-term objective in 2015. However, based on this forecast there is a risk of some deviation from the medium-term objective in 2016, with an excess of 0,3 % of GDP of net expenditure growth over the benchmark. While this deviation is expected to be temporary as growth in net expenditure in 2016 is influenced by the phasing out of one-off measures related to the taxation of pension savings, further measures may be necessary for 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Denmark is expected to broadly comply with the provisions of the Stability and Growth Pact.

| (9) | An adequately skilled long-term labour supply is a precondition for sustainable growth in Denmark. With the 2014 active labour market policy reform, Denmark has made progress on improving the employability of people at the margins of the labour market. The reform is at an early stage of implementation and its results need to be monitored. Additional measures for those most excluded from the labour market are still needed, in line with the Carsten-Koch II expert group recommendations. Low educational attainment, limited labour market experience, youth and migrant background appear to be key factors in this respect. In general, the labour market potential of people from migrant backgrounds remains underutilised. Despite the high expenditure on education in Denmark, educational outcomes are only average, in particular for pupils from migrant backgrounds. The reform of the primary and lower secondary school system and the vocational education and training system aims to address this challenge. Full implementation of these reforms is needed in order to improve educational outcomes. |
| --- | --- |

(9)

An adequately skilled long-term labour supply is a precondition for sustainable growth in Denmark. With the 2014 active labour market policy reform, Denmark has made progress on improving the employability of people at the margins of the labour market. The reform is at an early stage of implementation and its results need to be monitored. Additional measures for those most excluded from the labour market are still needed, in line with the Carsten-Koch II expert group recommendations. Low educational attainment, limited labour market experience, youth and migrant background appear to be key factors in this respect. In general, the labour market potential of people from migrant backgrounds remains underutilised. Despite the high expenditure on education in Denmark, educational outcomes are only average, in particular for pupils from migrant backgrounds. The reform of the primary and lower secondary school system and the vocational education and training system aims to address this challenge. Full implementation of these reforms is needed in order to improve educational outcomes.

| (10) | Improved competitiveness is essential to strengthen economic recovery in Denmark. Productivity growth, which is vital in this regard, has generally been weak over the past two decades and has been affected by barriers to entry and regulatory burden in services sectors oriented to the domestic market. The Productivity Commission has identified the construction and retail sectors as areas in which productivity could be improved. Retail establishment regulations are very strict and no action has been taken to ease them. The construction sector is characterised by demanding building regulations and a large number of certification schemes. The Government presented a strategy on construction in November 2014. This sets out good intentions, such as the simplification of rules, the streamlining of technical elements of building applications, the introduction of international standards, the harmonisation of national standards, and the reduction of time taken to issue building permits. However, the strategy has yet to be entirely translated into concrete measures. There are still overlapping authorisation and certification schemes, which in some cases also apply to the temporary provision of cross-border services. Furthermore, authorisations and certifications issued in other Member States are not always taken into account when service providers want to establish their business in Denmark. |
| --- | --- |

(10)

Improved competitiveness is essential to strengthen economic recovery in Denmark. Productivity growth, which is vital in this regard, has generally been weak over the past two decades and has been affected by barriers to entry and regulatory burden in services sectors oriented to the domestic market. The Productivity Commission has identified the construction and retail sectors as areas in which productivity could be improved. Retail establishment regulations are very strict and no action has been taken to ease them. The construction sector is characterised by demanding building regulations and a large number of certification schemes. The Government presented a strategy on construction in November 2014. This sets out good intentions, such as the simplification of rules, the streamlining of technical elements of building applications, the introduction of international standards, the harmonisation of national standards, and the reduction of time taken to issue building permits. However, the strategy has yet to be entirely translated into concrete measures. There are still overlapping authorisation and certification schemes, which in some cases also apply to the temporary provision of cross-border services. Furthermore, authorisations and certifications issued in other Member States are not always taken into account when service providers want to establish their business in Denmark.

| (11) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Denmark's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Denmark in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Denmark but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (2) below. |
| --- | --- |

(11)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Denmark's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Denmark in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Denmark but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (2) below.

| (12) | In the light of this assessment, the Council has examined the Convergence Programme and its opinion (5) is reflected in particular in recommendation (1) below, |
| --- | --- |

(12)

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

HEREBY RECOMMENDS that Denmark take action in 2015 and 2016 to:

| 1. | Avoid deviating from the medium-term budgetary objective in 2016. |
| --- | --- |

1.

Avoid deviating from the medium-term budgetary objective in 2016.

| 2. | Enhance productivity, in particular in the services sectors oriented towards the domestic market, including retail and construction. Ease the restrictions on retail establishments and take further measures to remove remaining barriers posed by authorisation and certification schemes in the construction sector. |
| --- | --- |

2.

Enhance productivity, in particular in the services sectors oriented towards the domestic market, including retail and construction. Ease the restrictions on retail establishments and take further measures to remove remaining barriers posed by authorisation and certification schemes in the construction sector.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Denmark and delivering a Council opinion on the Convergence Programme of Denmark, 2014 (OJ C 247, 29.7.2014, p. 17).

3

(4)  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).

4

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

5

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/39 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/39

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Estonia and delivering a Council opinion on the 2015 Stability Programme of Estonia

(2015/C 272/11)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Estonia's National Reform Programme for 2014 and delivered its opinion on Estonia's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Estonia's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Estonia's National Reform Programme for 2014 and delivered its opinion on Estonia's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Estonia's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Estonia was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Estonia was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Estonia. This assessed Estonia's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Estonia. This assessed Estonia's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | Estonia did not submit a National Reform Programme by the deadline. |
| --- | --- |

(7)

Estonia did not submit a National Reform Programme by the deadline.

| (8) | Estonia is currently in the preventive arm of the Stability and Growth Pact. The incoming Government did not submit a Stability Programme by the deadline. Based on the Commission's 2015 spring forecast, the headline surplus recorded in 2014 is projected to turn into a deficit of 0,2 % of GDP in 2015 and 0,1 % of GDP in 2016. The government debt ratio is forecast to gradually decline from 10,6 % of GDP in 2014 to below 10 % of GDP in 2016. Based on the Commission's 2015 spring forecast, there is a risk of some deviation from the medium-term objective in 2015 since the structural balance is projected to deviate from the medium-term objective by 0,4 % of GDP. The deviation is set to become significant in 2016 when an improvement by 0,4 % of GDP is required but the structural balance is projected to worsen by 0,3 % of GDP. Therefore, further measures will be needed in 2015 and 2016. Based on its assessment and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Estonia will not comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Estonia is currently in the preventive arm of the Stability and Growth Pact. The incoming Government did not submit a Stability Programme by the deadline. Based on the Commission's 2015 spring forecast, the headline surplus recorded in 2014 is projected to turn into a deficit of 0,2 % of GDP in 2015 and 0,1 % of GDP in 2016. The government debt ratio is forecast to gradually decline from 10,6 % of GDP in 2014 to below 10 % of GDP in 2016. Based on the Commission's 2015 spring forecast, there is a risk of some deviation from the medium-term objective in 2015 since the structural balance is projected to deviate from the medium-term objective by 0,4 % of GDP. The deviation is set to become significant in 2016 when an improvement by 0,4 % of GDP is required but the structural balance is projected to worsen by 0,3 % of GDP. Therefore, further measures will be needed in 2015 and 2016. Based on its assessment and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Estonia will not comply with the provisions of the Stability and Growth Pact.

| (9) | Estonia's employment rate reached 74,5 % of the working-age population in the third quarter of 2014 and the unemployment rate dropped to 7,6 %, the lowest level since 2009. The proportion of long-term unemployed is well below the EU average. However, the shrinking labour force, combined with low labour productivity, is becoming a medium-to-long-term challenge. Implementation of the ambitious Work Capacity Reform has started only recently. While a number of tax-related measures have been adopted to increase labour market participation, they do not specifically target low-income earners. The gender pay gap is one of the widest in the Union. A lack of childcare facilities makes it more difficult for young parents, in particular mothers, to return to the labour market. The proportion of students in work-based apprenticeships is also low. There is a shortage of graduates in technology and science subjects. The quality of local authority social services is uneven. |
| --- | --- |

(9)

Estonia's employment rate reached 74,5 % of the working-age population in the third quarter of 2014 and the unemployment rate dropped to 7,6 %, the lowest level since 2009. The proportion of long-term unemployed is well below the EU average. However, the shrinking labour force, combined with low labour productivity, is becoming a medium-to-long-term challenge. Implementation of the ambitious Work Capacity Reform has started only recently. While a number of tax-related measures have been adopted to increase labour market participation, they do not specifically target low-income earners. The gender pay gap is one of the widest in the Union. A lack of childcare facilities makes it more difficult for young parents, in particular mothers, to return to the labour market. The proportion of students in work-based apprenticeships is also low. There is a shortage of graduates in technology and science subjects. The quality of local authority social services is uneven.

| (10) | The Government adopted a lifelong learning strategy in early 2014 and programmes to implement it were presented in March 2015. A reform of curricula in the vocational education and training system is ongoing and participation in lifelong learning has increased. An Adult Education Act and a Professions Act were adopted by Parliament in early 2015. The attractiveness of vocational education and training and apprenticeships remains a challenge. Research and innovation systems and cooperation between business, higher education and research institutions have improved. However, public support for research and innovation, under the Research and Development and Innovation (RDI) Strategy and the Entrepreneurship Growth Strategy, seems to lack coordination and should focus on a limited number of smart specialisation areas. The higher education system, in particular as regards science and technology, still needs to be better aligned with the needs of business and research institutions. Investment in intellectual property is low and few companies work together with research institutions. |
| --- | --- |

(10)

The Government adopted a lifelong learning strategy in early 2014 and programmes to implement it were presented in March 2015. A reform of curricula in the vocational education and training system is ongoing and participation in lifelong learning has increased. An Adult Education Act and a Professions Act were adopted by Parliament in early 2015. The attractiveness of vocational education and training and apprenticeships remains a challenge. Research and innovation systems and cooperation between business, higher education and research institutions have improved. However, public support for research and innovation, under the Research and Development and Innovation (RDI) Strategy and the Entrepreneurship Growth Strategy, seems to lack coordination and should focus on a limited number of smart specialisation areas. The higher education system, in particular as regards science and technology, still needs to be better aligned with the needs of business and research institutions. Investment in intellectual property is low and few companies work together with research institutions.

| (11) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Estonia's economic policy and published it in the 2015 country report. It has also assessed the follow-up given to the recommendations addressed to Estonia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Estonia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (3) below. |
| --- | --- |

(11)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Estonia's economic policy and published it in the 2015 country report. It has also assessed the follow-up given to the recommendations addressed to Estonia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Estonia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (3) below.

| (12) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below. |
| --- | --- |

(12)

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

| (13) | In the context of the European Semester the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Estonia should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(13)

In the context of the European Semester the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Estonia should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Estonia take action in 2015 and 2016 to:

| 1. | Avoid deviating from the medium-term budgetary objective in 2015 and 2016. |
| --- | --- |

1.

Avoid deviating from the medium-term budgetary objective in 2015 and 2016.

| 2. | Improve labour market participation, including by implementing the Work Ability Reform. Improve incentives to work through measures targeting low-income earners. Take action to narrow the gender pay gap. Ensure high-quality social services and availability of childcare services at local level. |
| --- | --- |

2.

Improve labour market participation, including by implementing the Work Ability Reform. Improve incentives to work through measures targeting low-income earners. Take action to narrow the gender pay gap. Ensure high-quality social services and availability of childcare services at local level.

| 3. | Increase participation in vocational education and training, and its labour market relevance, in particular by improving the availability of apprenticeships. Focus public support for research and innovation on a coordinated implementation of the limited number of smart specialisation areas. |
| --- | --- |

3.

Increase participation in vocational education and training, and its labour market relevance, in particular by improving the availability of apprenticeships. Focus public support for research and innovation on a coordinated implementation of the limited number of smart specialisation areas.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Estonia and delivering a Council opinion on the Stability Programme of Estonia, 2014 (OJ C 247, 29.7.2014, p. 25).

3

(4)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

4

(5)  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).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/42 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/42

---

COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/12)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Ireland's National Reform Programme for 2014 and delivered its opinion on Ireland's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Ireland's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Ireland's National Reform Programme for 2014 and delivered its opinion on Ireland's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Ireland's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Ireland was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Ireland was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Ireland. This assessed Ireland's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Ireland is experiencing macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, Ireland completed the EU-IMF financial assistance programme in 2013 and is currently subject to post-programme surveillance and European Semester surveillance. Despite a marked improvement in the economic outlook, some risks continue to deserve close attention: the high levels of private- and public-sector indebtedness; remaining financial sector challenges, in particular with regard to banks' profitability; and labour market adjustment marked by high structural unemployment. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Ireland. This assessed Ireland's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Ireland is experiencing macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, Ireland completed the EU-IMF financial assistance programme in 2013 and is currently subject to post-programme surveillance and European Semester surveillance. Despite a marked improvement in the economic outlook, some risks continue to deserve close attention: the high levels of private- and public-sector indebtedness; remaining financial sector challenges, in particular with regard to banks' profitability; and labour market adjustment marked by high structural unemployment.

| (7) | On 29 April 2015, Ireland submitted its 2015 National Reform Programme and, on 30 April 2015, its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 29 April 2015, Ireland submitted its 2015 National Reform Programme and, on 30 April 2015, its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Ireland is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to correct the excessive deficit by 2015, in line with the deadline set by the Council. Thereafter, it plans to reach the medium-term objective — a balanced budget in structural terms — by 2019. The Government plans to reduce the headline deficit to 2,3 % of GDP in 2015 and to turn it into a surplus of 0,7 % of GDP in 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to be brought down from 109,7 % in 2014 to 105,0 % of GDP in 2015 and gradually to 89,4 % of GDP in 2019. The macroeconomic scenario underpinning these budgetary projections is favourable in 2015 and plausible in 2016. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2015 is foreseen. The fiscal effort for 2011-15 is estimated to be below the recommended effort, but the amount of discretionary measures taken under the Programme and thereafter is in line with what was required. Assuming a timely and durable correction of the excessive deficit as planned, Ireland will be subject to the preventive arm of the Pact as of 2016. Measures to support the planned deficit targets and progress towards the medium-term objective from 2016 onwards have not been specified in sufficient detail. Therefore, in the light of the Commission's 2015 spring forecast, there appears to be a risk of a significant deviation from the required adjustment towards the medium-term objective in 2016, and further structural measures will be needed in that year. Based on its assessment of the Stability Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Ireland will not comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Ireland is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to correct the excessive deficit by 2015, in line with the deadline set by the Council. Thereafter, it plans to reach the medium-term objective — a balanced budget in structural terms — by 2019. The Government plans to reduce the headline deficit to 2,3 % of GDP in 2015 and to turn it into a surplus of 0,7 % of GDP in 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to be brought down from 109,7 % in 2014 to 105,0 % of GDP in 2015 and gradually to 89,4 % of GDP in 2019. The macroeconomic scenario underpinning these budgetary projections is favourable in 2015 and plausible in 2016. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2015 is foreseen. The fiscal effort for 2011-15 is estimated to be below the recommended effort, but the amount of discretionary measures taken under the Programme and thereafter is in line with what was required. Assuming a timely and durable correction of the excessive deficit as planned, Ireland will be subject to the preventive arm of the Pact as of 2016. Measures to support the planned deficit targets and progress towards the medium-term objective from 2016 onwards have not been specified in sufficient detail. Therefore, in the light of the Commission's 2015 spring forecast, there appears to be a risk of a significant deviation from the required adjustment towards the medium-term objective in 2016, and further structural measures will be needed in that year. Based on its assessment of the Stability Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Ireland will not comply with the provisions of the Stability and Growth Pact.

| (9) | Tax reforms have contributed to the fiscal adjustment, but there is further scope to reduce distortions, improve the efficiency of the tax system and raise its growth and environmental friendliness. Property taxation has been turned into a recurrent tax, but the base is still relatively narrow as certain non-residential properties remain outside the tax net. Labour taxation lacks simplicity due to complex social contributions. The tax bases for consumption and environment taxes are limited by reduced rates and exemptions. Zero and reduced rates for value-added tax make it less efficient than the EU average and there seems to be no systematic evaluation of such tax expenditures. There is scope to improve the effectiveness of environmental tax instruments and remove environmentally harmful subsidies. Recent changes to tax residency rules are welcome, even if their effect may take time to assess. Major reforms to the fiscal framework have been undertaken in recent years. New rules and procedures, in particular the medium-term expenditure framework, are expected to provide a safeguard against pro-cyclical fiscal policy and are crucial for fiscal sustainability. However, under current rules, the Government has considerable discretion to change expenditure ceilings beyond pre-defined contingencies, which weakens medium-term budgetary plans. |
| --- | --- |

(9)

Tax reforms have contributed to the fiscal adjustment, but there is further scope to reduce distortions, improve the efficiency of the tax system and raise its growth and environmental friendliness. Property taxation has been turned into a recurrent tax, but the base is still relatively narrow as certain non-residential properties remain outside the tax net. Labour taxation lacks simplicity due to complex social contributions. The tax bases for consumption and environment taxes are limited by reduced rates and exemptions. Zero and reduced rates for value-added tax make it less efficient than the EU average and there seems to be no systematic evaluation of such tax expenditures. There is scope to improve the effectiveness of environmental tax instruments and remove environmentally harmful subsidies. Recent changes to tax residency rules are welcome, even if their effect may take time to assess. Major reforms to the fiscal framework have been undertaken in recent years. New rules and procedures, in particular the medium-term expenditure framework, are expected to provide a safeguard against pro-cyclical fiscal policy and are crucial for fiscal sustainability. However, under current rules, the Government has considerable discretion to change expenditure ceilings beyond pre-defined contingencies, which weakens medium-term budgetary plans.

| (10) | Public expenditure on healthcare is comparatively high even though population health status indicators are generally no better than in the rest of the EU. Efficiency gains have been achieved in recent years. However, the health system needs deeper structural reforms to contain expected cost increases and maintain favourable health outcomes in the face of an ageing population. Ireland aims to introduce a single-tier universal health insurance scheme in the medium term and is implementing reforms under the Future Health strategy. Intermediate steps are being pursued in the introduction of universal health insurance to address some of the pressing challenges and improve cost-effectiveness. Effectively rolling out e-health tools, activity-based funding and improved prescription practices have significant potential to increase cost-effectiveness. At the same time, the potential remains to reduce public spending on pharmaceuticals, in particular patented medicines, which is well above the EU average. |
| --- | --- |

(10)

Public expenditure on healthcare is comparatively high even though population health status indicators are generally no better than in the rest of the EU. Efficiency gains have been achieved in recent years. However, the health system needs deeper structural reforms to contain expected cost increases and maintain favourable health outcomes in the face of an ageing population. Ireland aims to introduce a single-tier universal health insurance scheme in the medium term and is implementing reforms under the Future Health strategy. Intermediate steps are being pursued in the introduction of universal health insurance to address some of the pressing challenges and improve cost-effectiveness. Effectively rolling out e-health tools, activity-based funding and improved prescription practices have significant potential to increase cost-effectiveness. At the same time, the potential remains to reduce public spending on pharmaceuticals, in particular patented medicines, which is well above the EU average.

| (11) | Ireland has one of the highest proportions of people living in ‘low work-intensity’ households in the Union. This generates serious social challenges and raises the risk of child poverty. As low work-intensity is particularly severe among single-parent households, the proportion of children living in households with low work-intensity is nearly three times the EU average. Some progress has been made in addressing pockets of inactivity traps by altering the operation of some welfare payments. Nevertheless, access to full-time childcare remains limited and expensive, which is a barrier to female and single-parent participation in the labour market. |
| --- | --- |

(11)

Ireland has one of the highest proportions of people living in ‘low work-intensity’ households in the Union. This generates serious social challenges and raises the risk of child poverty. As low work-intensity is particularly severe among single-parent households, the proportion of children living in households with low work-intensity is nearly three times the EU average. Some progress has been made in addressing pockets of inactivity traps by altering the operation of some welfare payments. Nevertheless, access to full-time childcare remains limited and expensive, which is a barrier to female and single-parent participation in the labour market.

| (12) | With the stronger macroeconomic environment, the overall situation of SMEs has improved but they face very contrasting financial positions; a relatively small proportion is still suffering from legacy issues and concentrating the sector's further deleveraging needs. Credit demand is also showing signs of recovery. SMEs continue to rely heavily on bank financing for investment and non-bank sources of finance are relatively underdeveloped. As the recovery gathers momentum and domestic demand recovers, supply constraints are likely to increase unless credit channels are repaired adequately and financing sources are diversified; this is crucial for investment and the growth outlook. Significant policy initiatives have been taken to support SMEs' access to finance and to offer new products with longer duration. These include the establishment of the Strategic Banking Corporation of Ireland (SBCI), the Ireland Strategic Investment Fund (ISIF) and other schemes. However, while still in the early stages, the uptake on some of these schemes has so far been low and the effectiveness and impact of the SBCI and ISIF can be judged only in the light of experience. |
| --- | --- |

(12)

With the stronger macroeconomic environment, the overall situation of SMEs has improved but they face very contrasting financial positions; a relatively small proportion is still suffering from legacy issues and concentrating the sector's further deleveraging needs. Credit demand is also showing signs of recovery. SMEs continue to rely heavily on bank financing for investment and non-bank sources of finance are relatively underdeveloped. As the recovery gathers momentum and domestic demand recovers, supply constraints are likely to increase unless credit channels are repaired adequately and financing sources are diversified; this is crucial for investment and the growth outlook. Significant policy initiatives have been taken to support SMEs' access to finance and to offer new products with longer duration. These include the establishment of the Strategic Banking Corporation of Ireland (SBCI), the Ireland Strategic Investment Fund (ISIF) and other schemes. However, while still in the early stages, the uptake on some of these schemes has so far been low and the effectiveness and impact of the SBCI and ISIF can be judged only in the light of experience.

| (13) | Ireland has made good progress in restructuring, downsizing and recapitalising its domestic banks. Banks' funding profiles have returned to normal and profitability continues to improve. However, legacy challenges remain critical. The high stock of non-performing loans is declining only slowly and continues to weigh on the capacity of banks to support the economic recovery. Such loans represented 23,2 % of total loans in the three main domestic banks in the fourth quarter of 2014, one of the highest rates in the Union. While banks continue to meet their mortgage arrears resolution targets, the longest-term arrears (over 720 days) continue to build up, increasing to 9,8 % of total loan balances in the fourth quarter of 2014. Progress is being made in implementing sustainable restructuring solutions; in April, the Central Bank of Ireland required banks to have solutions in place for the vast majority of borrowers by end-2015. However, banks have relied significantly on standard self-restraint techniques involving the rescheduling of principal or interest payments rather than lowering both. Banks also continue to rely heavily on legal proceedings as a way of convincing customers in arrears to engage. The planned introduction of a central credit register has progressed only slowly even though it is key to improving supervision, credit underwriting and risk management. |
| --- | --- |

(13)

Ireland has made good progress in restructuring, downsizing and recapitalising its domestic banks. Banks' funding profiles have returned to normal and profitability continues to improve. However, legacy challenges remain critical. The high stock of non-performing loans is declining only slowly and continues to weigh on the capacity of banks to support the economic recovery. Such loans represented 23,2 % of total loans in the three main domestic banks in the fourth quarter of 2014, one of the highest rates in the Union. While banks continue to meet their mortgage arrears resolution targets, the longest-term arrears (over 720 days) continue to build up, increasing to 9,8 % of total loan balances in the fourth quarter of 2014. Progress is being made in implementing sustainable restructuring solutions; in April, the Central Bank of Ireland required banks to have solutions in place for the vast majority of borrowers by end-2015. However, banks have relied significantly on standard self-restraint techniques involving the rescheduling of principal or interest payments rather than lowering both. Banks also continue to rely heavily on legal proceedings as a way of convincing customers in arrears to engage. The planned introduction of a central credit register has progressed only slowly even though it is key to improving supervision, credit underwriting and risk management.

| (14) | The situation in the labour market has improved since 2013, with renewed job creation in the private sector and a steady fall in unemployment. Nevertheless, the unemployment rate is still high and long-term unemployment remains a serious concern. The risk exists that some cyclical unemployment could become structural as skills mismatches have emerged with the rebalancing of the economy. Youth unemployment is still much higher than in the pre-crisis period. Activation reforms have made significant progress in recent years, but some concerns remain about the effectiveness of existing activation policies and training programmes, and of the ability of employment services to deliver on the scale required. The recently launched Job Path initiative is a positive development; its effectiveness will need to be tested. In the past, the further education and training system has been ineffective in providing the type of skills that the rebalanced economy needs, and reforms have started only recently. |
| --- | --- |

(14)

The situation in the labour market has improved since 2013, with renewed job creation in the private sector and a steady fall in unemployment. Nevertheless, the unemployment rate is still high and long-term unemployment remains a serious concern. The risk exists that some cyclical unemployment could become structural as skills mismatches have emerged with the rebalancing of the economy. Youth unemployment is still much higher than in the pre-crisis period. Activation reforms have made significant progress in recent years, but some concerns remain about the effectiveness of existing activation policies and training programmes, and of the ability of employment services to deliver on the scale required. The recently launched Job Path initiative is a positive development; its effectiveness will need to be tested. In the past, the further education and training system has been ineffective in providing the type of skills that the rebalanced economy needs, and reforms have started only recently.

| (15) | Costs for legal services remain high and still have to adjust in line with other professional services. Adjustment is important, as legal services are an input to all sectors of the economy and their cost has a bearing on Ireland's competitiveness. Reform of the regulatory framework for legal services with a view to increasing competition and reducing costs is a long-standing project to which the authorities are committed. However, the Legal Services Regulation Bill, published in 2011, has not been adopted. In addition, an actual reduction in costs can be achieved only if the competition-enhancing and cost-reducing provisions of the planned regulatory framework are preserved and incorporated into the regulations to be issued by the Legal Services Regulatory Authority that is about to be set up. Therefore, the Commission will continue to monitor progress in this area in the context of the European Semester. |
| --- | --- |

(15)

Costs for legal services remain high and still have to adjust in line with other professional services. Adjustment is important, as legal services are an input to all sectors of the economy and their cost has a bearing on Ireland's competitiveness. Reform of the regulatory framework for legal services with a view to increasing competition and reducing costs is a long-standing project to which the authorities are committed. However, the Legal Services Regulation Bill, published in 2011, has not been adopted. In addition, an actual reduction in costs can be achieved only if the competition-enhancing and cost-reducing provisions of the planned regulatory framework are preserved and incorporated into the regulations to be issued by the Legal Services Regulatory Authority that is about to be set up. Therefore, the Commission will continue to monitor progress in this area in the context of the European Semester.

| (16) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Ireland's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Ireland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Ireland but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Ireland's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Ireland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Ireland but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

| (17) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendations (1) and (2) below. |
| --- | --- |

(17)

In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendations (1) and (2) below.

| (18) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) and (4) below. |
| --- | --- |

(18)

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

| (19) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Ireland should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(19)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Ireland should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Ireland take action in 2015 and 2016 to:

| 1. | Ensure a durable correction of the excessive deficit in 2015. Achieve a fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2016. Use windfall gains from better-than-expected economic and financial conditions to accelerate the deficit reduction and debt reduction. Limit the existing discretionary powers to change expenditure ceilings beyond specific and predefined contingencies. Broaden the tax base and review tax expenditures, including on value-added taxes. |
| --- | --- |

1.

Ensure a durable correction of the excessive deficit in 2015. Achieve a fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2016. Use windfall gains from better-than-expected economic and financial conditions to accelerate the deficit reduction and debt reduction. Limit the existing discretionary powers to change expenditure ceilings beyond specific and predefined contingencies. Broaden the tax base and review tax expenditures, including on value-added taxes.

| 2. | Take measures to increase the cost-effectiveness of the healthcare system, including by reducing spending on patented medicines and gradually implementing adequate prescription practices. Roll out activity-based funding throughout the public hospital system. |
| --- | --- |

2.

Take measures to increase the cost-effectiveness of the healthcare system, including by reducing spending on patented medicines and gradually implementing adequate prescription practices. Roll out activity-based funding throughout the public hospital system.

| 3. | Take steps to increase the work-intensity of households and to address the poverty risk of children by tapering the withdrawal of benefits and supplementary payments upon return to employment and through better access to affordable full-time childcare. |
| --- | --- |

3.

Take steps to increase the work-intensity of households and to address the poverty risk of children by tapering the withdrawal of benefits and supplementary payments upon return to employment and through better access to affordable full-time childcare.

| 4. | Finalise durable restructuring solutions for a vast majority of mortgages in arrears by end-2015 and strengthen the monitoring arrangements by the Central Bank of Ireland. Ensure that restructuring solutions for loans to distressed SMEs and residual commercial real-estate loans are sustainable by further assessing banks' performance against own targets. Take the necessary steps to ensure that a central credit registry is operational by 2016. |
| --- | --- |

4.

Finalise durable restructuring solutions for a vast majority of mortgages in arrears by end-2015 and strengthen the monitoring arrangements by the Central Bank of Ireland. Ensure that restructuring solutions for loans to distressed SMEs and residual commercial real-estate loans are sustainable by further assessing banks' performance against own targets. Take the necessary steps to ensure that a central credit registry is operational by 2016.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

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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)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Ireland and delivering a Council opinion on the Stability Programme of Ireland, 2014 (OJ C 247, 29.7.2014, p. 29).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/46 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/46

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Spain and delivering a Council opinion on the 2015 Stability Programme of Spain

(2015/C 272/13)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Spain's National Reform Programme for 2014 and delivered its opinion on Spain's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Spain's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Spain's National Reform Programme for 2014 and delivered its opinion on Spain's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Spain's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Spain was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Spain was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Spain. This assessed Spain's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Spain is experiencing macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, despite some improvement in current account rebalancing and the significant deleveraging effort in recent years, risks related to the high levels of private- and public-sector indebtedness and the highly negative net international investment position continue to merit close attention in a context of very high unemployment. The need for action to reduce the risk of adverse effects on the Spanish economy and, given its size, of negative spillover effects affecting the economic and monetary union, is particularly important. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Spain. This assessed Spain's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Spain is experiencing macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, despite some improvement in current account rebalancing and the significant deleveraging effort in recent years, risks related to the high levels of private- and public-sector indebtedness and the highly negative net international investment position continue to merit close attention in a context of very high unemployment. The need for action to reduce the risk of adverse effects on the Spanish economy and, given its size, of negative spillover effects affecting the economic and monetary union, is particularly important.

| (7) | On 30 April 2015, Spain submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, Spain submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Spain is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to reach the EDP headline deficit targets of 4,2 % of GDP in 2015 and 2,8 % of GDP in 2016. The Government plans to reach the medium-term objective of a balanced budgetary position in structural terms in 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015 at 98,9 % and to gradually decline to 93,2 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible for 2015 and favourable thereafter. Based on the Commission's 2015 spring forecast, a deficit of 4,5 % and 3,5 % of GDP is foreseen for 2015 and 2016, respectively. Hence, there is a risk that the headline deficit targets for 2015 and 2016 may not be reached. Moreover, the projected fiscal effort by Spain over 2013-2016 is expected to be below the recommended level, and further structural measures will be needed in 2015 and 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Spain will not comply with the provisions of the Stability and Growth Pact. Spain made some progress on eliminating public-sector commercial arrears. In 2014, Spain also made some progress on identifying proposals to rationalise healthcare, education, and social spending at regional level, although these were not finally adopted. However, legislation to introduce a spending rule on pharmaceutical and healthcare regional spending was adopted on 28 May 2015. |
| --- | --- |

(8)

Spain is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to reach the EDP headline deficit targets of 4,2 % of GDP in 2015 and 2,8 % of GDP in 2016. The Government plans to reach the medium-term objective of a balanced budgetary position in structural terms in 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015 at 98,9 % and to gradually decline to 93,2 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible for 2015 and favourable thereafter. Based on the Commission's 2015 spring forecast, a deficit of 4,5 % and 3,5 % of GDP is foreseen for 2015 and 2016, respectively. Hence, there is a risk that the headline deficit targets for 2015 and 2016 may not be reached. Moreover, the projected fiscal effort by Spain over 2013-2016 is expected to be below the recommended level, and further structural measures will be needed in 2015 and 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Spain will not comply with the provisions of the Stability and Growth Pact. Spain made some progress on eliminating public-sector commercial arrears. In 2014, Spain also made some progress on identifying proposals to rationalise healthcare, education, and social spending at regional level, although these were not finally adopted. However, legislation to introduce a spending rule on pharmaceutical and healthcare regional spending was adopted on 28 May 2015.

| (9) | Implementation of the preventive, corrective and enforcement measures contained in the Organic Law on Budget Stability and Financial Sustainability is progressing slowly. Cost-effectiveness in the healthcare sector has improved, but it remains essential to keep the growth of pharmaceutical expenditure under control and, specifically, to monitor pharmaceutical expenditure in hospitals. The deficit in the electricity system has been effectively eliminated as of 2014 and the problem of insolvent toll motorways has been addressed, thus reducing costs for the State. Spain has not, however, put in place a system for conducting independent assessments of major future infrastructure projects. Lastly, while the availability of budget execution data has increased considerably, there is room for improvement at regional level by ensuring observance of the stability law's principle on transparency and multi-annuality, convergence of public accounting rules and a proper use of extra-budgetary accounts. |
| --- | --- |

(9)

Implementation of the preventive, corrective and enforcement measures contained in the Organic Law on Budget Stability and Financial Sustainability is progressing slowly. Cost-effectiveness in the healthcare sector has improved, but it remains essential to keep the growth of pharmaceutical expenditure under control and, specifically, to monitor pharmaceutical expenditure in hospitals. The deficit in the electricity system has been effectively eliminated as of 2014 and the problem of insolvent toll motorways has been addressed, thus reducing costs for the State. Spain has not, however, put in place a system for conducting independent assessments of major future infrastructure projects. Lastly, while the availability of budget execution data has increased considerably, there is room for improvement at regional level by ensuring observance of the stability law's principle on transparency and multi-annuality, convergence of public accounting rules and a proper use of extra-budgetary accounts.

| (10) | Some progress was made in the area of taxation, with a comprehensive tax reform being introduced to make the tax system simpler and more conducive to growth and job creation. A tax reform was adopted on 20 November 2014, to enter into force in January 2015, and covers personal and corporate income taxation. Some progress was also made with regard to the fight against tax evasion, but limited progress was seen in the area of environmental taxation. The restructuring of the Spanish banking sector, and in particular of banks having received State aid, is progressing well. At the same time, recent measures to promote access to non-bank financing have — at least to some extent — improved access to finance for firms, especially in view of the high level of dependence of Spanish firms on credit from banks. Full implementation of these reforms is crucial for facilitating the reallocation of resources and supporting the ongoing adjustment. Some progress was made in removing the remaining bottlenecks in the system for handling corporate insolvencies and a Royal Decree-Law on personal insolvency was adopted on 27 February 2015. However, further improvements to the administrative and judicial capacity for handling insolvency cases remain necessary. |
| --- | --- |

(10)

Some progress was made in the area of taxation, with a comprehensive tax reform being introduced to make the tax system simpler and more conducive to growth and job creation. A tax reform was adopted on 20 November 2014, to enter into force in January 2015, and covers personal and corporate income taxation. Some progress was also made with regard to the fight against tax evasion, but limited progress was seen in the area of environmental taxation. The restructuring of the Spanish banking sector, and in particular of banks having received State aid, is progressing well. At the same time, recent measures to promote access to non-bank financing have — at least to some extent — improved access to finance for firms, especially in view of the high level of dependence of Spanish firms on credit from banks. Full implementation of these reforms is crucial for facilitating the reallocation of resources and supporting the ongoing adjustment. Some progress was made in removing the remaining bottlenecks in the system for handling corporate insolvencies and a Royal Decree-Law on personal insolvency was adopted on 27 February 2015. However, further improvements to the administrative and judicial capacity for handling insolvency cases remain necessary.

| (11) | High long-term unemployment and labour market segmentation continue to hamper productivity growth and have a damaging effect on working conditions in Spain. In this regard, and given the very high unemployment rate, wages for some sectors and companies in the short term may need to grow below productivity in order to create jobs and achieve further gains in competitiveness. The social partners have reached a comprehensive inter-professional pre-agreement for 2015-2017. This pre-agreement states the importance of establishing, through sectoral and company negotiations, the principle that wages should move in line with inter-firm productivity differentials. Despite regulatory reforms, the proportion of the workforce in temporary employment remains high and particularly affects young people and the low-skilled. Moreover, the new types of contract introduced for SME employees and the incentives to encourage employers to take on staff on an open-ended basis appear not yet to be used to full potential. The Spanish authorities announced that an assessment of the subsidies offered to employers for recruiting new staff would be carried out by May 2016.
  The performance of the public employment service, and of the agencies to which services have been outsourced, is crucial for ensuring the effectiveness and adequate targeting of active labour market and activation policies, including effective re-training to allow people to move into sectors where more jobs are being created. Spain has made limited progress in accelerating the modernisation of public employment services and addressing regional disparities. |
| --- | --- |

(11)

High long-term unemployment and labour market segmentation continue to hamper productivity growth and have a damaging effect on working conditions in Spain. In this regard, and given the very high unemployment rate, wages for some sectors and companies in the short term may need to grow below productivity in order to create jobs and achieve further gains in competitiveness. The social partners have reached a comprehensive inter-professional pre-agreement for 2015-2017. This pre-agreement states the importance of establishing, through sectoral and company negotiations, the principle that wages should move in line with inter-firm productivity differentials. Despite regulatory reforms, the proportion of the workforce in temporary employment remains high and particularly affects young people and the low-skilled. Moreover, the new types of contract introduced for SME employees and the incentives to encourage employers to take on staff on an open-ended basis appear not yet to be used to full potential. The Spanish authorities announced that an assessment of the subsidies offered to employers for recruiting new staff would be carried out by May 2016.

The performance of the public employment service, and of the agencies to which services have been outsourced, is crucial for ensuring the effectiveness and adequate targeting of active labour market and activation policies, including effective re-training to allow people to move into sectors where more jobs are being created. Spain has made limited progress in accelerating the modernisation of public employment services and addressing regional disparities.

| (12) | Youth unemployment in Spain remains very high (at over 50 %) and the early school leaving rate is one of the highest in the Union. Spain is implementing the new educational schemes introduced by Law No 8/2013 on the quality of education, designed to increase the quality of primary and secondary education. Limited progress was made in increasing the labour-market relevance of vocational education and training, and the efforts to improve cooperation between higher education institutions and employers are behind schedule. There are plans to extend the dual vocational training scheme in 2015, but there continue to be considerable differences in its implementation across the regions. A dedicated committee has been set up to examine the relevance of education and training curricula to labour market needs. |
| --- | --- |

(12)

Youth unemployment in Spain remains very high (at over 50 %) and the early school leaving rate is one of the highest in the Union. Spain is implementing the new educational schemes introduced by Law No 8/2013 on the quality of education, designed to increase the quality of primary and secondary education. Limited progress was made in increasing the labour-market relevance of vocational education and training, and the efforts to improve cooperation between higher education institutions and employers are behind schedule. There are plans to extend the dual vocational training scheme in 2015, but there continue to be considerable differences in its implementation across the regions. A dedicated committee has been set up to examine the relevance of education and training curricula to labour market needs.

| (13) | Spain made limited progress on improving the effectiveness of its social protection system. It has established a new activation programme for the long-term unemployed, combining income support and assistance in looking for work. Limited coordination between the employment and social services, and the incompatibility of the different minimum income schemes have, however, reduced the effectiveness of the social assistance programmes. Facing high levels of poverty, especially among low-income households with children, Spain made limited progress in improving the targeting of family support schemes and care services. |
| --- | --- |

(13)

Spain made limited progress on improving the effectiveness of its social protection system. It has established a new activation programme for the long-term unemployed, combining income support and assistance in looking for work. Limited coordination between the employment and social services, and the incompatibility of the different minimum income schemes have, however, reduced the effectiveness of the social assistance programmes. Facing high levels of poverty, especially among low-income households with children, Spain made limited progress in improving the targeting of family support schemes and care services.

| (14) | Structural reforms need to include removing the obstacles preventing businesses from growing, helping SMEs in expanding their markets and promoting innovation, boosting export capacity, stimulating job creation, and helping companies to compete more efficiently — including in internal markets — and improve overall productivity. Spain has begun to examine the reasons behind the high proportion of small and micro enterprises in its economy. Studying the reasons why businesses have remained small will allow the Government to remove regulatory obstacles preventing firms from growing. Although some progress was made in implementing Law No 20/2013 on market unity, there are still delays at regional government level. The law on the regulation of environmental permits has not yet been implemented by all regions. No progress has been made with regard to the adoption of the reform of professional services and professional associations. Structural weaknesses in its research and innovation system continue to limit Spain's growth potential. It therefore remains essential to identify new sources of funding, ensure effective and efficient use of resources, set up the new research agency and promote measures to make the business environment more innovation-friendly. |
| --- | --- |

(14)

Structural reforms need to include removing the obstacles preventing businesses from growing, helping SMEs in expanding their markets and promoting innovation, boosting export capacity, stimulating job creation, and helping companies to compete more efficiently — including in internal markets — and improve overall productivity. Spain has begun to examine the reasons behind the high proportion of small and micro enterprises in its economy. Studying the reasons why businesses have remained small will allow the Government to remove regulatory obstacles preventing firms from growing. Although some progress was made in implementing Law No 20/2013 on market unity, there are still delays at regional government level. The law on the regulation of environmental permits has not yet been implemented by all regions. No progress has been made with regard to the adoption of the reform of professional services and professional associations. Structural weaknesses in its research and innovation system continue to limit Spain's growth potential. It therefore remains essential to identify new sources of funding, ensure effective and efficient use of resources, set up the new research agency and promote measures to make the business environment more innovation-friendly.

| (15) | Some progress was made in relation to the rail network, with measures being taken to ensure effective competition in freight and passenger rail services. On 4 July 2014, the Council of Ministers adopted Royal Decree-Law 8/2014, creating a fund to improve the land accessibility of seaports. |
| --- | --- |

(15)

Some progress was made in relation to the rail network, with measures being taken to ensure effective competition in freight and passenger rail services. On 4 July 2014, the Council of Ministers adopted Royal Decree-Law 8/2014, creating a fund to improve the land accessibility of seaports.

| (16) | Spain made progress in implementing the recommendations of the committee for the reform of public administration at all levels of government. Important steps were taken to improve the transparency of administrative decisions, but no progress was made in strengthening supervisory systems, in particular in public procurement at regional and local level. No measures have been taken to strengthen supervisory powers in public procurement and urban planning. Limited progress was made with regard to the adoption of judicial reforms aimed at improving the effectiveness of the justice system: draft laws on the judiciary and on civil procedure, which include some reforms, were submitted to Parliament on 27 February 2015; draft bills on legal aid and on voluntary jurisdiction are subject to parliamentary procedure. Some progress was made in implementing the reforms that have been adopted, including the Oficina Judicial, the reform introducing the digitisation of justice and improving the interoperability of regions' electronic case management systems. Efforts need to be continued in this area. |
| --- | --- |

(16)

Spain made progress in implementing the recommendations of the committee for the reform of public administration at all levels of government. Important steps were taken to improve the transparency of administrative decisions, but no progress was made in strengthening supervisory systems, in particular in public procurement at regional and local level. No measures have been taken to strengthen supervisory powers in public procurement and urban planning. Limited progress was made with regard to the adoption of judicial reforms aimed at improving the effectiveness of the justice system: draft laws on the judiciary and on civil procedure, which include some reforms, were submitted to Parliament on 27 February 2015; draft bills on legal aid and on voluntary jurisdiction are subject to parliamentary procedure. Some progress was made in implementing the reforms that have been adopted, including the Oficina Judicial, the reform introducing the digitisation of justice and improving the interoperability of regions' electronic case management systems. Efforts need to be continued in this area.

| (17) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Spain's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Spain in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(17)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Spain's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Spain in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

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

(18)

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

| (19) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. The recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (4) below. |
| --- | --- |

(19)

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

| (20) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Spain should also ensure the full and timely implementation of these recommendations, |
| --- | --- |

(20)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Spain should also ensure the full and timely implementation of these recommendations,

HEREBY RECOMMENDS that Spain take action in 2015 and 2016 to:

| 1. | Ensure a durable correction of the excessive deficit by 2016 by taking the necessary structural measures in 2015 and 2016 and using windfall gains to accelerate the deficit and debt reduction. Strengthen transparency and accountability of regional public finances. Improve the cost-effectiveness of the healthcare sector, and rationalise hospital pharmaceutical spending. |
| --- | --- |

1.

Ensure a durable correction of the excessive deficit by 2016 by taking the necessary structural measures in 2015 and 2016 and using windfall gains to accelerate the deficit and debt reduction. Strengthen transparency and accountability of regional public finances. Improve the cost-effectiveness of the healthcare sector, and rationalise hospital pharmaceutical spending.

| 2. | Complete the reform of the savings bank sector, including by means of legislative measures, and complete the restructuring and privatisation of state-owned savings banks. |
| --- | --- |

2.

Complete the reform of the savings bank sector, including by means of legislative measures, and complete the restructuring and privatisation of state-owned savings banks.

| 3. | Promote the alignment of wages and productivity, in consultation with the social partners and in accordance with national practices, taking into account differences in skills and local labour market conditions as well as divergences in economic performance across regions, sectors and companies. Take steps to increase the quality and effectiveness of job search assistance and counselling, including as part of tackling youth unemployment. Streamline minimum income and family support schemes and foster regional mobility. |
| --- | --- |

3.

Promote the alignment of wages and productivity, in consultation with the social partners and in accordance with national practices, taking into account differences in skills and local labour market conditions as well as divergences in economic performance across regions, sectors and companies. Take steps to increase the quality and effectiveness of job search assistance and counselling, including as part of tackling youth unemployment. Streamline minimum income and family support schemes and foster regional mobility.

| 4. | Remove the barriers preventing businesses from growing, including barriers arising from size-contingent regulations; adopt the planned reform on professional services; accelerate the implementation of the law on market unity. |
| --- | --- |

4.

Remove the barriers preventing businesses from growing, including barriers arising from size-contingent regulations; adopt the planned reform on professional services; accelerate the implementation of the law on market unity.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Spain and delivering a Council opinion on the Stability Programme of Spain, 2014 (OJ C 247, 29.7.2014, p. 35).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/51 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/51

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of France and delivering a Council opinion on the 2015 Stability Programme of France

(2015/C 272/14)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on France's National Reform Programme for 2014 and delivered its opinion on France's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on France's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on France's National Reform Programme for 2014 and delivered its opinion on France's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on France's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which France was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which France was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for France. This assessed France's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that France is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, in a context of low growth and low inflation, coupled with poor company profitability, and given the insufficient policy response so far, risks stemming from both cost and non-cost competitiveness and from high and rising indebtedness, in particular public debt, have increased significantly. The need for action to reduce the risk of adverse effects on the French economy and, given its size, on the economic and monetary union more widely, is particularly great. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for France. This assessed France's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that France is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, in a context of low growth and low inflation, coupled with poor company profitability, and given the insufficient policy response so far, risks stemming from both cost and non-cost competitiveness and from high and rising indebtedness, in particular public debt, have increased significantly. The need for action to reduce the risk of adverse effects on the French economy and, given its size, on the economic and monetary union more widely, is particularly great.

| (7) | On 30 April 2015, France submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, France submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | France is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the government plans to correct the excessive deficit by 2017, in line with the Council recommendation of 10 March 2015 and to reach the medium-term objective — a structural deficit of 0,4 % of GDP — by 2018 (6). While the government plans to respect the headline deficit targets set by the Council, the fiscal effort (7) planned over 2015-2017 is below the recommended level. In its 2015 Stability Programme the government expects the public debt-to-GDP ratio to peak at 97 % in 2016 before receding to 95,5 % of GDP in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. On 10 June 2015, France submitted a report on action taken providing further information on the measures planned over 2015-2017. Following its assessment of the report, the Commission issued a Communication on 1 July 2015 in which it considered that the excessive deficit procedure is to be held in abeyance. Based on the Commission's 2015 spring forecast updated to take into account the report on action taken submitted by France, the headline deficit for 2015 is projected at 3,8 % of GDP thereby respecting the target of 4 % of GDP set by the Council under the excessive deficit procedure. However, the fiscal effort expected for that year will be lower than the one recommended by the Council. Regarding 2016, taking into account the additional information included in France's report on action taken, the Commission's updated forecast foresees that the headline deficit will reach 3,4 % of GDP, in line with the recommended target. The fiscal effort recommended by the Council is however not expected to be delivered. The Council recommendation of 10 March 2015 called for an evaluation of the key measures planned for 2016 and 2017, which was not provided in the report on action taken.
  Finally, the ‘loi de programmation des finances publiques’ was not updated as recommended by the Council. Overall, the consolidation strategy pursued by France relies primarily on the improving cyclical conditions and a continuation of the low interest rate environment and is therefore subject to risks. Based on its assessment of the Stability Programme, taking into account the Commission's 2015 spring forecast and the Commission Communication of 1 July 2015, the Council is of the opinion that France is broadly compliant with the provisions of the Stability and Growth Pact. However, in order to ensure a durable correction of the excessive deficit by the established deadline, the budgetary strategy would need to be reinforced and backed by the implementation of comprehensive and ambitious structural reforms. |
| --- | --- |

(8)

France is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the government plans to correct the excessive deficit by 2017, in line with the Council recommendation of 10 March 2015 and to reach the medium-term objective — a structural deficit of 0,4 % of GDP — by 2018 (6). While the government plans to respect the headline deficit targets set by the Council, the fiscal effort (7) planned over 2015-2017 is below the recommended level. In its 2015 Stability Programme the government expects the public debt-to-GDP ratio to peak at 97 % in 2016 before receding to 95,5 % of GDP in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. On 10 June 2015, France submitted a report on action taken providing further information on the measures planned over 2015-2017. Following its assessment of the report, the Commission issued a Communication on 1 July 2015 in which it considered that the excessive deficit procedure is to be held in abeyance. Based on the Commission's 2015 spring forecast updated to take into account the report on action taken submitted by France, the headline deficit for 2015 is projected at 3,8 % of GDP thereby respecting the target of 4 % of GDP set by the Council under the excessive deficit procedure. However, the fiscal effort expected for that year will be lower than the one recommended by the Council. Regarding 2016, taking into account the additional information included in France's report on action taken, the Commission's updated forecast foresees that the headline deficit will reach 3,4 % of GDP, in line with the recommended target. The fiscal effort recommended by the Council is however not expected to be delivered. The Council recommendation of 10 March 2015 called for an evaluation of the key measures planned for 2016 and 2017, which was not provided in the report on action taken.

Finally, the ‘loi de programmation des finances publiques’ was not updated as recommended by the Council. Overall, the consolidation strategy pursued by France relies primarily on the improving cyclical conditions and a continuation of the low interest rate environment and is therefore subject to risks. Based on its assessment of the Stability Programme, taking into account the Commission's 2015 spring forecast and the Commission Communication of 1 July 2015, the Council is of the opinion that France is broadly compliant with the provisions of the Stability and Growth Pact. However, in order to ensure a durable correction of the excessive deficit by the established deadline, the budgetary strategy would need to be reinforced and backed by the implementation of comprehensive and ambitious structural reforms.

| (9) | It will be crucial to intensify spending reviews and identify large areas of expenditure cuts so that they can deliver the expected results. France should make sure that spending reduction targets take account of the close-to-zero rate of inflation. At the same time, the savings resulting from the lower than expected costs of the public debt due to lower interest rates should be channelled to reducing the deficit. In addition, sizeable short-term savings cannot be achieved without curbing significantly the increase in social security spending, which represented 26 % of GDP in 2014, accounting for nearly half of all public sector expenditure. Healthcare expenditure savings of EUR 11 billion are planned for 2015-2017, but further efforts are needed to limit expenditure increases in this area. In particular, there is scope to implement further cost-containment policies in the area of pharmaceutical prices and hospital spending. The pension system will continue to face deficits up to 2020 and previous pension reforms will not suffice to eliminate the system's deficit. In particular, schemes for state officials and employees of state-controlled companies continue to weigh on the overall pension deficit. Moreover, the macroeconomic situation has a large impact on the sustainability of the pension system, in particular the situation of complementary pension schemes. Decisive action is needed to restore the financial health of the complementary pension system. |
| --- | --- |

(9)

It will be crucial to intensify spending reviews and identify large areas of expenditure cuts so that they can deliver the expected results. France should make sure that spending reduction targets take account of the close-to-zero rate of inflation. At the same time, the savings resulting from the lower than expected costs of the public debt due to lower interest rates should be channelled to reducing the deficit. In addition, sizeable short-term savings cannot be achieved without curbing significantly the increase in social security spending, which represented 26 % of GDP in 2014, accounting for nearly half of all public sector expenditure. Healthcare expenditure savings of EUR 11 billion are planned for 2015-2017, but further efforts are needed to limit expenditure increases in this area. In particular, there is scope to implement further cost-containment policies in the area of pharmaceutical prices and hospital spending. The pension system will continue to face deficits up to 2020 and previous pension reforms will not suffice to eliminate the system's deficit. In particular, schemes for state officials and employees of state-controlled companies continue to weigh on the overall pension deficit. Moreover, the macroeconomic situation has a large impact on the sustainability of the pension system, in particular the situation of complementary pension schemes. Decisive action is needed to restore the financial health of the complementary pension system.

| (10) | France has undertaken a reform of local administration aimed at increasing the efficiency of the system. It should continue to implement the planned reduction in grants from central government and strengthen the control of local government expenditure, by capping the annual increase in local government tax revenue, taking into account existing ceilings on a number of local taxes. Action is also needed to contain the rise in the administrative costs of local authorities. |
| --- | --- |

(10)

France has undertaken a reform of local administration aimed at increasing the efficiency of the system. It should continue to implement the planned reduction in grants from central government and strengthen the control of local government expenditure, by capping the annual increase in local government tax revenue, taking into account existing ceilings on a number of local taxes. Action is also needed to contain the rise in the administrative costs of local authorities.

| (11) | Policy measures have been taken to reduce labour costs and improve firms' profit margins through the EUR 20 billion tax credit for competitiveness and employment and the EUR 10 billion additional cuts in employers' social security contributions planned under the responsibility and solidarity pact. These two measures account for 1,5 % of GDP and should contribute to reducing the gap between France and the euro area average in terms of labour tax wedge. Implementation of these measures should continue in 2016 but, given their high cost for the public budget, it is important to assess their effectiveness at company level. This evaluation should take particular account of the rigidities affecting the labour and product markets, especially those affecting wages. The cost of labour at the minimum wage remains high compared with other Member States. The minimum wage should evolve in a manner that is more conducive for competitiveness and job creation. In addition, in a context of low inflation, its automatic indexation may lead to wage increases beyond what is necessary to preserve purchasing power. |
| --- | --- |

(11)

Policy measures have been taken to reduce labour costs and improve firms' profit margins through the EUR 20 billion tax credit for competitiveness and employment and the EUR 10 billion additional cuts in employers' social security contributions planned under the responsibility and solidarity pact. These two measures account for 1,5 % of GDP and should contribute to reducing the gap between France and the euro area average in terms of labour tax wedge. Implementation of these measures should continue in 2016 but, given their high cost for the public budget, it is important to assess their effectiveness at company level. This evaluation should take particular account of the rigidities affecting the labour and product markets, especially those affecting wages. The cost of labour at the minimum wage remains high compared with other Member States. The minimum wage should evolve in a manner that is more conducive for competitiveness and job creation. In addition, in a context of low inflation, its automatic indexation may lead to wage increases beyond what is necessary to preserve purchasing power.

| (12) | France should take decisive action to remove the regulatory thresholds in labour law and accounting regulations that limit the growth of French firms, in particular SMEs. Overall, there is scope for increasing competition in the services sector, in particular in professional services, retail trade and network industries. A number of regulations and tariffs for regulated professions constrain economic activity. New measures for improving competition in legal professions have been adopted through the recent law on growth, economic activity and equal opportunities, and their implementation will be crucial to ensure that barriers are removed on the ground. France should also take action to remove barriers in other sectors, in particular the health sector. The numerus clausus principle for access to health professions is still hampering access to services and could be reviewed without jeopardising quality and safety. |
| --- | --- |

(12)

France should take decisive action to remove the regulatory thresholds in labour law and accounting regulations that limit the growth of French firms, in particular SMEs. Overall, there is scope for increasing competition in the services sector, in particular in professional services, retail trade and network industries. A number of regulations and tariffs for regulated professions constrain economic activity. New measures for improving competition in legal professions have been adopted through the recent law on growth, economic activity and equal opportunities, and their implementation will be crucial to ensure that barriers are removed on the ground. France should also take action to remove barriers in other sectors, in particular the health sector. The numerus clausus principle for access to health professions is still hampering access to services and could be reviewed without jeopardising quality and safety.

| (13) | In 2014, the tax-to-GDP ratio stood at 45,8 %, one of the highest in the Union. Corporate tax rates are high and weigh negatively on French companies' investment. The effective tax rate paid by a company on average stands at 38,3 %, among the highest in the Union. In addition to the ongoing phasing out of the solidarity surcharge on companies and the reduction in the statutory rate to 28 % in 2020, France should increase efforts in the short term to make corporate taxation conducive to growth and investment. Efforts are needed to simplify the tax system by removing inefficient taxes. Over 100 taxes have been identified as yielding little or no revenue and remove these could simplify procedures for companies and households. |
| --- | --- |

(13)

In 2014, the tax-to-GDP ratio stood at 45,8 %, one of the highest in the Union. Corporate tax rates are high and weigh negatively on French companies' investment. The effective tax rate paid by a company on average stands at 38,3 %, among the highest in the Union. In addition to the ongoing phasing out of the solidarity surcharge on companies and the reduction in the statutory rate to 28 % in 2020, France should increase efforts in the short term to make corporate taxation conducive to growth and investment. Efforts are needed to simplify the tax system by removing inefficient taxes. Over 100 taxes have been identified as yielding little or no revenue and remove these could simplify procedures for companies and households.

| (14) | The French unemployment rate remained high in 2014 and long-term unemployment deteriorated, reflecting poor economic growth. The overall unemployment rate stood at 10,2 %, as compared with 10,3 % in 2013 and 7,5 % in 2008, particularly hitting young people, older workers and the low-qualified. France suffers from labour market segmentation, with fixed-term contracts accounting for an increasing proportion of hires. Targeted efforts to reduce the level of segmentation, in particular through higher social contributions for very short-term contracts, have failed to curb this trend. Reviewing the legal framework governing labour contracts could help to reduce the segmentation. Recent reforms have created only limited scope for employers to depart from branch-level agreements through company-level agreements. This limits companies' ability to modulate the workforce according to their needs. Sectors and companies are given flexibility to determine case by case and after negotiations with social partners at which conditions working time should depart from 35 hours a week, but there are important cost implications. The law creating the accords de maintien de l'emploi has not brought the expected results. Very few companies have made use of the new arrangements for company-level agreements to increase the flexibility of working conditions. This scheme should be reviewed to give companies more scope to adapt wages and working time to their economic situation. |
| --- | --- |

(14)

The French unemployment rate remained high in 2014 and long-term unemployment deteriorated, reflecting poor economic growth. The overall unemployment rate stood at 10,2 %, as compared with 10,3 % in 2013 and 7,5 % in 2008, particularly hitting young people, older workers and the low-qualified. France suffers from labour market segmentation, with fixed-term contracts accounting for an increasing proportion of hires. Targeted efforts to reduce the level of segmentation, in particular through higher social contributions for very short-term contracts, have failed to curb this trend. Reviewing the legal framework governing labour contracts could help to reduce the segmentation. Recent reforms have created only limited scope for employers to depart from branch-level agreements through company-level agreements. This limits companies' ability to modulate the workforce according to their needs. Sectors and companies are given flexibility to determine case by case and after negotiations with social partners at which conditions working time should depart from 35 hours a week, but there are important cost implications. The law creating the accords de maintien de l'emploi has not brought the expected results. Very few companies have made use of the new arrangements for company-level agreements to increase the flexibility of working conditions. This scheme should be reviewed to give companies more scope to adapt wages and working time to their economic situation.

| (15) | The long-lasting deterioration in the labour market has affected the unemployment benefit system, calling into question the sustainability of the model. The new convention on the unemployment benefit system introduced on 1 July 2014 is insufficient to reduce the deficit. The various measures introduced are expected to yield EUR 0,3 billion in savings in 2014 and a further EUR 0,8 billion in 2015. Nevertheless, the deficit of the system is still projected to rise from EUR 3,9 billion in 2014 to EUR 4,4 billion in 2015 leading to a further increase in the system's debt to EUR 25,9 billion. Structural measures are needed to ensure the viability of the system. In particular, eligibility conditions, the degressive structure of benefits and the replacement rates for workers with the highest wages should be reviewed between the social partners in charge of managing the system. |
| --- | --- |

(15)

The long-lasting deterioration in the labour market has affected the unemployment benefit system, calling into question the sustainability of the model. The new convention on the unemployment benefit system introduced on 1 July 2014 is insufficient to reduce the deficit. The various measures introduced are expected to yield EUR 0,3 billion in savings in 2014 and a further EUR 0,8 billion in 2015. Nevertheless, the deficit of the system is still projected to rise from EUR 3,9 billion in 2014 to EUR 4,4 billion in 2015 leading to a further increase in the system's debt to EUR 25,9 billion. Structural measures are needed to ensure the viability of the system. In particular, eligibility conditions, the degressive structure of benefits and the replacement rates for workers with the highest wages should be reviewed between the social partners in charge of managing the system.

| (16) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of France's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to France in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in France but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (6) below. |
| --- | --- |

(16)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of France's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to France in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in France but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (6) below.

| (17) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (8) is reflected in particular in recommendation (1) below. |
| --- | --- |

(17)

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

| (18) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (6) below. |
| --- | --- |

(18)

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

| (19) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (9). As a country whose currency is the euro, France should also ensure the full and timely implementation of these recommendations, |
| --- | --- |

(19)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (9). As a country whose currency is the euro, France should also ensure the full and timely implementation of these recommendations,

HEREBY RECOMMENDS that France take action in 2015 and 2016 to:

| 1. | Ensure effective action under the excessive deficit procedure and a durable correction of the excessive deficit by 2017 by reinforcing the budgetary strategy, taking the necessary measures for all years and using all windfall gains for deficit and debt reduction. Specify the expenditure cuts planned for these years and provide an independent evaluation of the impact of key measures. |
| --- | --- |

1.

Ensure effective action under the excessive deficit procedure and a durable correction of the excessive deficit by 2017 by reinforcing the budgetary strategy, taking the necessary measures for all years and using all windfall gains for deficit and debt reduction. Specify the expenditure cuts planned for these years and provide an independent evaluation of the impact of key measures.

| 2. | Step up efforts to make the spending review effective, continue public policy evaluations and identify savings opportunities across all sub-sectors of general government, including on social security and local government. Take steps to limit the rise in local authorities' administrative expenditure. Take additional measures to bring the pension system into balance, in particular ensuring by March 2016 that the financial situation of complementary pension schemes is sustainable over the long term. |
| --- | --- |

2.

Step up efforts to make the spending review effective, continue public policy evaluations and identify savings opportunities across all sub-sectors of general government, including on social security and local government. Take steps to limit the rise in local authorities' administrative expenditure. Take additional measures to bring the pension system into balance, in particular ensuring by March 2016 that the financial situation of complementary pension schemes is sustainable over the long term.

| 3. | Ensure that the labour cost reductions stemming from the tax credit for competitiveness and employment and from the responsibility and solidarity pact are sustained, in particular by implementing them as planned in 2016. Evaluate the effectiveness of these schemes in the light of labour and product market rigidities. Reform in consultation with the social partners and in accordance with national practices, the wage-setting process to ensure that wages evolve in line with productivity. Ensure that minimum wage developments are consistent with the objectives of promoting employment and competitiveness. |
| --- | --- |

3.

Ensure that the labour cost reductions stemming from the tax credit for competitiveness and employment and from the responsibility and solidarity pact are sustained, in particular by implementing them as planned in 2016. Evaluate the effectiveness of these schemes in the light of labour and product market rigidities. Reform in consultation with the social partners and in accordance with national practices, the wage-setting process to ensure that wages evolve in line with productivity. Ensure that minimum wage developments are consistent with the objectives of promoting employment and competitiveness.

| 4. | By the end of 2015, reduce regulatory impediments to companies' growth, in particular by reviewing the size-related criteria in regulations to avoid threshold effects. Remove the restrictions on access to and the exercise of regulated professions, beyond the legal professions, in particular as regards the health professions as from 2015. |
| --- | --- |

4.

By the end of 2015, reduce regulatory impediments to companies' growth, in particular by reviewing the size-related criteria in regulations to avoid threshold effects. Remove the restrictions on access to and the exercise of regulated professions, beyond the legal professions, in particular as regards the health professions as from 2015.

| 5. | Simplify and improve the efficiency of the tax system, in particular by removing inefficient tax expenditure. To promote investment, take action to reduce the taxes on production and the corporate income statutory rate, while broadening the tax base on consumption. Take measures as from 2015 to abolish inefficient taxes that are yielding little or no revenue. |
| --- | --- |

5.

Simplify and improve the efficiency of the tax system, in particular by removing inefficient tax expenditure. To promote investment, take action to reduce the taxes on production and the corporate income statutory rate, while broadening the tax base on consumption. Take measures as from 2015 to abolish inefficient taxes that are yielding little or no revenue.

| 6. | Reform the labour law to provide more incentives for employers to hire on open-ended contracts. Facilitate take up of derogations at company and branch level from general legal provisions, in particular as regards working time arrangements. Reform the law creating the accords de maintien de l'emploi by the end of 2015 in order to increase their take-up by companies. Take action in consultation with the social partners and in accordance with national practices to reform the unemployment benefit system in order to bring the system back to budgetary sustainability and provide more incentives to return to work. |
| --- | --- |

6.

Reform the labour law to provide more incentives for employers to hire on open-ended contracts. Facilitate take up of derogations at company and branch level from general legal provisions, in particular as regards working time arrangements. Reform the law creating the accords de maintien de l'emploi by the end of 2015 in order to increase their take-up by companies. Take action in consultation with the social partners and in accordance with national practices to reform the unemployment benefit system in order to bring the system back to budgetary sustainability and provide more incentives to return to work.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of France and delivering a Council opinion on the Stability Programme of France, 2014 (OJ C 247, 29.7.2014, p. 42).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

(6)  Compared to the previous Stability Programme, the government has revised its medium-term objective from a structural deficit of 0,25 % of GDP to 0,4 %. The medium-term objective is set to be achieved one year later than foreseen in last year's Stability Programme.

6

(7)  The structural balance as recalculated by the Commission based on the information in the Stability Programme, following a commonly agreed methodology.

7

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

8

(9)  OJ C 272, 18.8.2015, p. 98.

9

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/56 |
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18.8.2015

EN

Official Journal of the European Union

C 272/56

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COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Croatia and delivering a Council opinion on the 2015 Convergence Programme of Croatia

(2015/C 272/15)

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 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 26 March 2010, the European Council agreed to the Commission's proposal to launch a new strategy for growth and jobs, Europe 2020, based on enhanced coordination of economic policies. The strategy focuses on the key areas where action is needed to boost Europe's potential for sustainable growth and competitiveness. |
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(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
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(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Croatia's National Reform Programme for 2014 and delivered its opinion on Croatia's updated Convergence Programme for 2014. |
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(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Croatia's National Reform Programme for 2014 and delivered its opinion on Croatia's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Croatia was identified as one of the Member States for which an in-depth review would be carried out. |
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(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Croatia was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
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(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Croatia. This assessed Croatia's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Croatia is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, in a context of subdued growth, delayed restructuring of firms and dismal employment performance, the risks associated with weak competitiveness, large external liabilities and rising public debt coupled with weak public sector governance have increased significantly. |
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(6)

On 26 February 2015, the Commission published its 2015 country report for Croatia. This assessed Croatia's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Croatia is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, in a context of subdued growth, delayed restructuring of firms and dismal employment performance, the risks associated with weak competitiveness, large external liabilities and rising public debt coupled with weak public sector governance have increased significantly.

| (7) | In March 2015, following the publication of the country report, the Croatian authorities engaged in a dialogue with the Commission services on reforms most needed to address the excessive macroeconomic imbalances. The authorities approached the dialogue constructively and announced a number of relevant measures, including reducing parafiscal charges in 2016 and 2017, rationalising the system of state agencies and regional units of the central state administration, incentivising voluntary mergers of local self-government units, reducing legislative uncertainty and strengthening the State Audit Office. Reform plans in several other areas such as reducing administrative burdens on enterprises and improving the governance of state-owned enterprises were spelled out in greater detail. However, the level of ambition remains below expectations in a number of areas, in particular as regards tightening early retirement rules and publishing and implementing the findings of the expenditure review, although some additional measures were presented to partly compensate for the shortfall. |
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(7)

In March 2015, following the publication of the country report, the Croatian authorities engaged in a dialogue with the Commission services on reforms most needed to address the excessive macroeconomic imbalances. The authorities approached the dialogue constructively and announced a number of relevant measures, including reducing parafiscal charges in 2016 and 2017, rationalising the system of state agencies and regional units of the central state administration, incentivising voluntary mergers of local self-government units, reducing legislative uncertainty and strengthening the State Audit Office. Reform plans in several other areas such as reducing administrative burdens on enterprises and improving the governance of state-owned enterprises were spelled out in greater detail. However, the level of ambition remains below expectations in a number of areas, in particular as regards tightening early retirement rules and publishing and implementing the findings of the expenditure review, although some additional measures were presented to partly compensate for the shortfall.

| (8) | Croatia is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans to correct the excessive deficit by 2017, which is not in line with the 2016 deadline recommended by the Council. The Government plans to gradually reduce the headline deficit to 5,0 % of GDP in 2015, 3,9 % in 2016 and further to 2,7 % of GDP in 2017. According to the Convergence Programme, the government debt-to-GDP ratio is expected to peak at 92,5 % in 2017 and to broadly stabilise at 92,4 % of GDP in 2018. The macroeconomic scenario underpinning these budgetary projections seems somewhat favourable, as growth is comparable while the underlying consolidation effort is higher in the Convergence Programme than in the Commission forecast. Measures to support the planned deficit targets from 2015 onwards are only partially specified. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2016 is not expected. Based on the amount of discretionary measures taken, the fiscal effort in 2014 was in line with the Council Recommendation. This is also the case in cumulative terms over 2014 and 2015, in spite of the projected shortfall in 2015. However, the (adjusted) change in the structural balance over 2014-2015 is below the recommended value. In 2016, the fiscal effort is below that set out in the Council Recommendation. Therefore, further structural measures will be needed. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Croatia will not comply with the provisions of the Stability and Growth Pact. |
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(8)

Croatia is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the Government plans to correct the excessive deficit by 2017, which is not in line with the 2016 deadline recommended by the Council. The Government plans to gradually reduce the headline deficit to 5,0 % of GDP in 2015, 3,9 % in 2016 and further to 2,7 % of GDP in 2017. According to the Convergence Programme, the government debt-to-GDP ratio is expected to peak at 92,5 % in 2017 and to broadly stabilise at 92,4 % of GDP in 2018. The macroeconomic scenario underpinning these budgetary projections seems somewhat favourable, as growth is comparable while the underlying consolidation effort is higher in the Convergence Programme than in the Commission forecast. Measures to support the planned deficit targets from 2015 onwards are only partially specified. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2016 is not expected. Based on the amount of discretionary measures taken, the fiscal effort in 2014 was in line with the Council Recommendation. This is also the case in cumulative terms over 2014 and 2015, in spite of the projected shortfall in 2015. However, the (adjusted) change in the structural balance over 2014-2015 is below the recommended value. In 2016, the fiscal effort is below that set out in the Council Recommendation. Therefore, further structural measures will be needed. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Croatia will not comply with the provisions of the Stability and Growth Pact.

| (9) | On 23 April 2015, Croatia submitted its 2015 National Reform Programme and, on 30 April 2015, its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(9)

On 23 April 2015, Croatia submitted its 2015 National Reform Programme and, on 30 April 2015, its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (10) | Croatia is currently reviewing its expenditure with a view to achieving efficiencies, in particular in wage, social security and subsidy outlays, and providing sufficient fiscal space to prioritise growth-enhancing expenditure and investment. Croatia's revenues from recurrent taxes on real estate as a proportion of GDP are among the lowest in the Union. Steps have been taken over the last year to improve tax compliance, including measures to address VAT fraud, and action is now needed. Croatia's fiscal framework has been bolstered by recent reforms, but significant challenges remain. Weaknesses in relation to effective expenditure control and the consistent application of budgetary constraints negatively impact fiscal policy-making and audit findings. The rapidly rising public debt calls for a much more active approach to public debt management. |
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(10)

Croatia is currently reviewing its expenditure with a view to achieving efficiencies, in particular in wage, social security and subsidy outlays, and providing sufficient fiscal space to prioritise growth-enhancing expenditure and investment. Croatia's revenues from recurrent taxes on real estate as a proportion of GDP are among the lowest in the Union. Steps have been taken over the last year to improve tax compliance, including measures to address VAT fraud, and action is now needed. Croatia's fiscal framework has been bolstered by recent reforms, but significant challenges remain. Weaknesses in relation to effective expenditure control and the consistent application of budgetary constraints negatively impact fiscal policy-making and audit findings. The rapidly rising public debt calls for a much more active approach to public debt management.

| (11) | The pension system suffers from a large number of early retirees, an excessively generous system of early pensions for certain professions, and numerous special pension schemes. Early exits are facilitated by comparatively low pension reductions, or none at all for certain workers. The gap between the minimum early and statutory retirement ages is also high compared with an EU average of less than three years. Moreover, the system is highly fragmented, which squeezes out spending on standard pensions. As a result, the benefit ratio in the pension system is lower than in most Member States, despite comparable expenditure. As regards the healthcare sector, recurrent arrears continue to pose fiscal risks. Measures have been initiated to rationalise hospital funding, but there are implementation risks. The 10 % budget increase covers funding needs only partially; further efficiency savings will have to be made to ensure the full elimination of arrears by 2017. |
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(11)

The pension system suffers from a large number of early retirees, an excessively generous system of early pensions for certain professions, and numerous special pension schemes. Early exits are facilitated by comparatively low pension reductions, or none at all for certain workers. The gap between the minimum early and statutory retirement ages is also high compared with an EU average of less than three years. Moreover, the system is highly fragmented, which squeezes out spending on standard pensions. As a result, the benefit ratio in the pension system is lower than in most Member States, despite comparable expenditure. As regards the healthcare sector, recurrent arrears continue to pose fiscal risks. Measures have been initiated to rationalise hospital funding, but there are implementation risks. The 10 % budget increase covers funding needs only partially; further efficiency savings will have to be made to ensure the full elimination of arrears by 2017.

| (12) | Limited wage adjustment in the post-crisis period exacerbated the negative impact on employment. The comprehensive analysis of wage-determination and wage-setting practices completed in 2014 revealed that the system was not flexible to adapt to changes in the macroeconomic environment. Particular weaknesses relate to large disparities between the private and public sectors, including state-owned enterprises, the extension of collective agreements to non-signatory parties and the difficulties related to the termination of obsolete agreements. The analysis needs to be followed up by concrete policy action. It is also important to monitor the effects of the 2013-2014 labour market reform. |
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(12)

Limited wage adjustment in the post-crisis period exacerbated the negative impact on employment. The comprehensive analysis of wage-determination and wage-setting practices completed in 2014 revealed that the system was not flexible to adapt to changes in the macroeconomic environment. Particular weaknesses relate to large disparities between the private and public sectors, including state-owned enterprises, the extension of collective agreements to non-signatory parties and the difficulties related to the termination of obsolete agreements. The analysis needs to be followed up by concrete policy action. It is also important to monitor the effects of the 2013-2014 labour market reform.

| (13) | The labour force is negatively affected by a rapidly ageing population coupled with low activity rates, in particular for young people and workers over the age of 50. Despite the increased scope and expenditure of active labour market policies, their outreach remains insufficient as regards the long-term unemployed, older workers and young people not in education, employment or training. The tertiary education rate is one of the lowest in the Union. Skills mismatches and weaknesses in the education and training system act as deterrents for higher education attainment. The size of the informal economy remains a persistent challenge and results in a high incidence of undeclared work. The measures that the commission to combat undeclared work identified at the end of 2014 now need to be implemented. There are currently over 80 different social benefits and programmes. The consolidation of benefits has started, but further reform efforts are needed in 2015 to improve the coverage and adequacy of benefits. |
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(13)

The labour force is negatively affected by a rapidly ageing population coupled with low activity rates, in particular for young people and workers over the age of 50. Despite the increased scope and expenditure of active labour market policies, their outreach remains insufficient as regards the long-term unemployed, older workers and young people not in education, employment or training. The tertiary education rate is one of the lowest in the Union. Skills mismatches and weaknesses in the education and training system act as deterrents for higher education attainment. The size of the informal economy remains a persistent challenge and results in a high incidence of undeclared work. The measures that the commission to combat undeclared work identified at the end of 2014 now need to be implemented. There are currently over 80 different social benefits and programmes. The consolidation of benefits has started, but further reform efforts are needed in 2015 to improve the coverage and adequacy of benefits.

| (14) | The distribution of competences between national and local level is complex and fragmented, which undermines the management of public finances and efficient public expenditure. The current attribution of policy functions and administrative weaknesses in the local authorities directly affect a number of areas, such as tax collection, the provision of social benefits, the management of European Structural and Investment Funds, public procurement and the provision of public services. As a short-term measure, the authorities plan to establish mechanisms that would encourage voluntary mergers or coordination of self-government units. In the central government, the reform and rationalisation of the system of state agencies has been brought forward on the basis of the analysis completed in 2014. |
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(14)

The distribution of competences between national and local level is complex and fragmented, which undermines the management of public finances and efficient public expenditure. The current attribution of policy functions and administrative weaknesses in the local authorities directly affect a number of areas, such as tax collection, the provision of social benefits, the management of European Structural and Investment Funds, public procurement and the provision of public services. As a short-term measure, the authorities plan to establish mechanisms that would encourage voluntary mergers or coordination of self-government units. In the central government, the reform and rationalisation of the system of state agencies has been brought forward on the basis of the analysis completed in 2014.

| (15) | Croatia's business environment suffers from major institutional shortcomings, including regulatory instability, weak legislative quality control, high compliance costs, discriminatory practices and excessive barriers for service providers, high administrative burdens, a plethora of parafiscal charges, low transparency and predictability in the working of administrative bodies, in particular at local level, unevenly developed electronic communication channels, and lengthy judicial proceedings, in particular in commercial courts, where an upgrade of case management is needed. The new anti-corruption strategy lacks focus and a sufficient level of detail; this should be addressed in an action plan to implement the strategy. |
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(15)

Croatia's business environment suffers from major institutional shortcomings, including regulatory instability, weak legislative quality control, high compliance costs, discriminatory practices and excessive barriers for service providers, high administrative burdens, a plethora of parafiscal charges, low transparency and predictability in the working of administrative bodies, in particular at local level, unevenly developed electronic communication channels, and lengthy judicial proceedings, in particular in commercial courts, where an upgrade of case management is needed. The new anti-corruption strategy lacks focus and a sufficient level of detail; this should be addressed in an action plan to implement the strategy.

| (16) | The supervision of public enterprises is incomplete as regards companies established at local level and subsidiaries of major public enterprises. The authorities plan to reduce the number of ‘strategic’ companies and to step up the privatisation agenda. Further progress on the quality of governance is needed, including as regards strengthening and harmonising surveillance across various state-owned enterprises. The nomination of board members lacks transparency and competency requirements are relatively weak, which hampers a sound management of public property. |
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(16)

The supervision of public enterprises is incomplete as regards companies established at local level and subsidiaries of major public enterprises. The authorities plan to reduce the number of ‘strategic’ companies and to step up the privatisation agenda. Further progress on the quality of governance is needed, including as regards strengthening and harmonising surveillance across various state-owned enterprises. The nomination of board members lacks transparency and competency requirements are relatively weak, which hampers a sound management of public property.

| (17) | Putting in place an efficient and transparent early-rescue and insolvency framework is a key prerequisite for alleviating the considerable deleveraging pressure faced by Croatian businesses and fostering a culture of early restructuring and ‘second chance’. An assessment of the pre-insolvency legislation shows that the ex ante efficiency of the current legislative framework is among the lowest in the Union. A reform of the insolvency framework has been initiated, with parliamentary adoption planned in the first half of 2015. The Croatian Bank for Reconstruction and Development could play a crucial role in Croatia's recovery. It is directly exposed to credit risk, which might affect public finances. It is important that it be placed under prudential supervision and strong corporate governance. There is also scope to improve the structure and transparency of its management accountability arrangements. Following the emergence of currency and currency-induced credit risk, a long-term solution is needed that is proportional and equitable and has a solid legal basis and a focus on helping the most distressed borrowers. |
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(17)

Putting in place an efficient and transparent early-rescue and insolvency framework is a key prerequisite for alleviating the considerable deleveraging pressure faced by Croatian businesses and fostering a culture of early restructuring and ‘second chance’. An assessment of the pre-insolvency legislation shows that the ex ante efficiency of the current legislative framework is among the lowest in the Union. A reform of the insolvency framework has been initiated, with parliamentary adoption planned in the first half of 2015. The Croatian Bank for Reconstruction and Development could play a crucial role in Croatia's recovery. It is directly exposed to credit risk, which might affect public finances. It is important that it be placed under prudential supervision and strong corporate governance. There is also scope to improve the structure and transparency of its management accountability arrangements. Following the emergence of currency and currency-induced credit risk, a long-term solution is needed that is proportional and equitable and has a solid legal basis and a focus on helping the most distressed borrowers.

| (18) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Croatia's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Croatia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Croatia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (6) below. |
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(18)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Croatia's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Croatia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Croatia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (6) below.

| (19) | In the light of this assessment, the Council has examined the Convergence programme, and its opinion (5) is reflected in particular in recommendation (1) below. |
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(19)

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

| (20) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (6) below, |
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(20)

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

HEREBY RECOMMENDS that Croatia take action in 2015 and 2016 to:

| 1. | Ensure a durable correction of the excessive deficit by 2016 by taking the necessary measures in 2015 and reinforcing the budgetary strategy for 2016. Publish and implement the findings of the expenditure review. Improve control over expenditure at central and local level, in particular by establishing a sanctioning mechanism for entities breaching budgetary limits. Adopt the Fiscal Responsibility Act and strengthen the capacity and role of the State Audit Office. Introduce a recurrent property tax and improve VAT compliance. Reinforce public debt management, in particular by publishing on an annual basis a debt management strategy and ensuring adequate resourcing. |
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1.

Ensure a durable correction of the excessive deficit by 2016 by taking the necessary measures in 2015 and reinforcing the budgetary strategy for 2016. Publish and implement the findings of the expenditure review. Improve control over expenditure at central and local level, in particular by establishing a sanctioning mechanism for entities breaching budgetary limits. Adopt the Fiscal Responsibility Act and strengthen the capacity and role of the State Audit Office. Introduce a recurrent property tax and improve VAT compliance. Reinforce public debt management, in particular by publishing on an annual basis a debt management strategy and ensuring adequate resourcing.

| 2. | Discourage early retirement by raising penalties for early exits. Improve the adequacy and efficiency of pension spending by tightening the definition of arduous and hazardous professions. Tackle the fiscal risks in healthcare. |
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2.

Discourage early retirement by raising penalties for early exits. Improve the adequacy and efficiency of pension spending by tightening the definition of arduous and hazardous professions. Tackle the fiscal risks in healthcare.

| 3. | Tackle the weaknesses in the wage-setting framework, in consultation with the social partners and in accordance with national practices, to foster the alignment of wages with productivity and macroeconomic conditions. Strengthen incentives for the unemployed and inactive to take up paid employment. Based on the 2014 review, carry out the reform of the social protection system and further consolidate social benefits by improving targeting and eliminating overlaps. |
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3.

Tackle the weaknesses in the wage-setting framework, in consultation with the social partners and in accordance with national practices, to foster the alignment of wages with productivity and macroeconomic conditions. Strengthen incentives for the unemployed and inactive to take up paid employment. Based on the 2014 review, carry out the reform of the social protection system and further consolidate social benefits by improving targeting and eliminating overlaps.

| 4. | Reduce the extent of fragmentation and overlap between levels of central and local government by putting forward a new model for functional distribution of competencies and by rationalising the system of state agencies. Increase transparency and accountability in the public corporate sector, in particular as regards managerial appointments and competency requirements. Advance the listing of minority packages of shares of public companies and privatisations. |
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4.

Reduce the extent of fragmentation and overlap between levels of central and local government by putting forward a new model for functional distribution of competencies and by rationalising the system of state agencies. Increase transparency and accountability in the public corporate sector, in particular as regards managerial appointments and competency requirements. Advance the listing of minority packages of shares of public companies and privatisations.

| 5. | Significantly reduce parafiscal charges and remove excessive barriers for service providers. Identify and implement steps to improve the efficiency and quality of the justice system, in particular commercial courts. |
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5.

Significantly reduce parafiscal charges and remove excessive barriers for service providers. Identify and implement steps to improve the efficiency and quality of the justice system, in particular commercial courts.

| 6. | Reinforce the pre-insolvency and insolvency frameworks for businesses in order to facilitate debt restructuring and put in place a personal insolvency procedure. Strengthen the capacity of the financial sector to support the recovery in view of challenges from high non-performing corporate loans and foreign currency mortgage loans, and weak governance practices in some institutions. |
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6.

Reinforce the pre-insolvency and insolvency frameworks for businesses in order to facilitate debt restructuring and put in place a personal insolvency procedure. Strengthen the capacity of the financial sector to support the recovery in view of challenges from high non-performing corporate loans and foreign currency mortgage loans, and weak governance practices in some institutions.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

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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)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Croatia and delivering a Council opinion on the Convergence Programme of Croatia, 2014 (OJ C 247, 29.7.2014, p. 50).

4

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

5

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/61 |
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18.8.2015

EN

Official Journal of the European Union

C 272/61

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COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/16)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Italy's National Reform Programme for 2014 and delivered its opinion on Italy's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Italy's draft budgetary plan for 2015. |
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(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Italy's National Reform Programme for 2014 and delivered its opinion on Italy's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Italy's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Italy was identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Italy was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Italy. This assessed Italy's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Italy is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, it is essential to tackle the root cause of persistently low labour productivity and weak competitiveness and to put the national debt on a downward trajectory. The need for action to reduce the risk of adverse effects on the Italian economy and, given its size, on the economic and monetary union more widely, is particularly great. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Italy. This assessed Italy's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Italy is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, it is essential to tackle the root cause of persistently low labour productivity and weak competitiveness and to put the national debt on a downward trajectory. The need for action to reduce the risk of adverse effects on the Italian economy and, given its size, on the economic and monetary union more widely, is particularly great.

| (7) | On 28 April 2015, Italy submitted its 2015 National Reform Programme and its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time. |
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(7)

On 28 April 2015, Italy submitted its 2015 National Reform Programme and its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Italy is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule over 2013-15. On 27 February 2015, the Commission issued a Report under Article 126(3) TFEU, as Italy was not expected to make sufficient progress towards compliance with the debt rule in 2014-15. The analysis concluded that the debt criterion should be considered as complied with at that time. |
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(8)

Italy is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule over 2013-15. On 27 February 2015, the Commission issued a Report under Article 126(3) TFEU, as Italy was not expected to make sufficient progress towards compliance with the debt rule in 2014-15. The analysis concluded that the debt criterion should be considered as complied with at that time.

| (9) | On 30 April 2015, after the cut-off date of the Spring Economic Forecast, the Italian Constitutional Court ruled as unconstitutional a temporary non-indexation of higher pensions in 2012-13. On 18 May 2015 the Government adopted a decree law to address the ruling and confirmed the fiscal targets of the Stability Programme. In view of this information the conclusions from the February's Report under Article 126(3) TFEU can be considered as still broadly valid at this stage. The exact budgetary impact of this ruling will depend on the Government's operationalisation thereof, which has still to be clarified. In view of the new information, the issuance of a Report under Article 126(3) TFEU may be deemed warranted at a later stage. In the absence of this new element and pending its further clarification, the conclusions from the February Report can be considered as still broadly valid at this stage. |
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(9)

On 30 April 2015, after the cut-off date of the Spring Economic Forecast, the Italian Constitutional Court ruled as unconstitutional a temporary non-indexation of higher pensions in 2012-13. On 18 May 2015 the Government adopted a decree law to address the ruling and confirmed the fiscal targets of the Stability Programme. In view of this information the conclusions from the February's Report under Article 126(3) TFEU can be considered as still broadly valid at this stage. The exact budgetary impact of this ruling will depend on the Government's operationalisation thereof, which has still to be clarified. In view of the new information, the issuance of a Report under Article 126(3) TFEU may be deemed warranted at a later stage. In the absence of this new element and pending its further clarification, the conclusions from the February Report can be considered as still broadly valid at this stage.

| (10) | In its 2015 Stability Programme, Italy has requested a temporary deviation of 0,4 percentage points of GDP from the required adjustment path towards the medium-term objective in 2016 to take account of major structural reforms with a positive impact on the long-term sustainability of public finances. The details underpinning these reforms have been set out in Italy's 2015 National Reform Programme. The areas of reform put forward in the programme as having an impact on public finance sustainability include: (i) public administration and simplification; (ii) product and service markets; (iii) the labour market; (iv) civil justice; (v) education; (vi) a tax shift; and (vii) spending review as financing measure. The impact of the reforms on real GDP is estimated by the authorities at 1,8 percentage points by 2020, which seems to be plausible. If fully and timely implemented and on time, these reforms will have a positive impact on the sustainability of public finances. Conditional on the Government's taking the necessary measures in 2015 to appropriately compensate for the permanent impact of the abovementioned ruling of the Constitutional Court so as to ensure that: (i) Italy remains under the preventive arm of the Stability and Growth Pact; (ii) an appropriate safety margin with respect to the Treaty reference value is preserved; and (iii) the medium-term objective is reached within the four-year horizon of the Stability Programme. Italy can currently be assessed as qualifying for the requested temporary deviation in 2016, provided that it adequately implements the agreed reforms, which will be monitored under the European Semester. |
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(10)

In its 2015 Stability Programme, Italy has requested a temporary deviation of 0,4 percentage points of GDP from the required adjustment path towards the medium-term objective in 2016 to take account of major structural reforms with a positive impact on the long-term sustainability of public finances. The details underpinning these reforms have been set out in Italy's 2015 National Reform Programme. The areas of reform put forward in the programme as having an impact on public finance sustainability include: (i) public administration and simplification; (ii) product and service markets; (iii) the labour market; (iv) civil justice; (v) education; (vi) a tax shift; and (vii) spending review as financing measure. The impact of the reforms on real GDP is estimated by the authorities at 1,8 percentage points by 2020, which seems to be plausible. If fully and timely implemented and on time, these reforms will have a positive impact on the sustainability of public finances. Conditional on the Government's taking the necessary measures in 2015 to appropriately compensate for the permanent impact of the abovementioned ruling of the Constitutional Court so as to ensure that: (i) Italy remains under the preventive arm of the Stability and Growth Pact; (ii) an appropriate safety margin with respect to the Treaty reference value is preserved; and (iii) the medium-term objective is reached within the four-year horizon of the Stability Programme. Italy can currently be assessed as qualifying for the requested temporary deviation in 2016, provided that it adequately implements the agreed reforms, which will be monitored under the European Semester.

| (11) | The 2015 Stability Programme plans gradual improvement of the headline deficit to 2,6 % of GDP in 2015 and further to 1,8 % of GDP in 2016. In its 2015 Stability Programme, the government plans to reach the medium-term objective — a balanced budgetary position in structural terms — by 2017. However, the recalculated structural balance (6) reaches the medium-term objective in 2018. The achievement of the medium-term objective by 2017 seems appropriate, taking into account the application for the structural reform clause as well as the commitments enshrined in the 2015 Stability Programme. |
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(11)

The 2015 Stability Programme plans gradual improvement of the headline deficit to 2,6 % of GDP in 2015 and further to 1,8 % of GDP in 2016. In its 2015 Stability Programme, the government plans to reach the medium-term objective — a balanced budgetary position in structural terms — by 2017. However, the recalculated structural balance (6) reaches the medium-term objective in 2018. The achievement of the medium-term objective by 2017 seems appropriate, taking into account the application for the structural reform clause as well as the commitments enshrined in the 2015 Stability Programme.

| (12) | The government debt-to-GDP ratio is projected to peak in 2015 at 132,5 % and to gradually decline to 120,0 % in 2019. The macroeconomic scenario underpinning the budgetary projections is plausible. The Government has yet to specify the additional expenditure cuts that will allow it to avoid implementing the legislated VAT increase in 2016. |
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(12)

The government debt-to-GDP ratio is projected to peak in 2015 at 132,5 % and to gradually decline to 120,0 % in 2019. The macroeconomic scenario underpinning the budgetary projections is plausible. The Government has yet to specify the additional expenditure cuts that will allow it to avoid implementing the legislated VAT increase in 2016.

| (13) | Italy should improve its structural balance by 0,25 % of GDP in 2015. Based on the Commission's 2015 spring forecast, the projected structural adjustment towards the medium-term objective of 0,3 % of GDP in 2015 is in line with Italy's obligations under the preventive arm of the Stability and Growth Pact. In 2016, Italy should improve its structural balance by at least 0,1 % of GDP, taking into account the allowed deviation based on the structural reform clause. However, under the no-policy-change assumption the Commission's forecast shows a deterioration of 0,2 % of GDP as a result of which there is a risk of some deviation. Therefore, further measures will be needed. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Italy will not comply with the provisions of the Stability and Growth Pact. |
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(13)

Italy should improve its structural balance by 0,25 % of GDP in 2015. Based on the Commission's 2015 spring forecast, the projected structural adjustment towards the medium-term objective of 0,3 % of GDP in 2015 is in line with Italy's obligations under the preventive arm of the Stability and Growth Pact. In 2016, Italy should improve its structural balance by at least 0,1 % of GDP, taking into account the allowed deviation based on the structural reform clause. However, under the no-policy-change assumption the Commission's forecast shows a deterioration of 0,2 % of GDP as a result of which there is a risk of some deviation. Therefore, further measures will be needed. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Italy will not comply with the provisions of the Stability and Growth Pact.

| (14) | Despite its expected contribution to the debt-reduction effort, which is a key challenge for Italy, the implementation of the ambitious privatisation programme presented by the Italian authorities has incurred some delays in 2014; as a result, privatisation proceeds in 2014 amounted to 0,2 % of GDP, short of the target of 0,7 % per year. |
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(14)

Despite its expected contribution to the debt-reduction effort, which is a key challenge for Italy, the implementation of the ambitious privatisation programme presented by the Italian authorities has incurred some delays in 2014; as a result, privatisation proceeds in 2014 amounted to 0,2 % of GDP, short of the target of 0,7 % per year.

| (15) | Over the last year, Italy has taken significant steps to alleviate the tax burden on labour, which nevertheless remains high. The number and scope of tax expenditures, in particular reduced VAT rates, are still excessively high. On property taxation, only slow progress has been made on cadastral reform, under which it is particularly necessary to revise outdated cadastral values. In addition, the revision of environmental taxation and the removal of environmentally harmful subsidies have remained unaddressed. Italy has set up a Committee on environmental taxation. These various dimensions are covered by the enabling law for tax reform, whose implementation has, however, been delayed by a lack of legislative decrees. Despite some action in this area, the efficiency of the tax system in Italy is also undermined by persistently low and costly levels of tax compliance and high tax evasion (estimated by the Government at EUR 91 billion annually or 5,6 % of GDP). The Government has put forward measures to ensure the accuracy of tax returns that now need to be made fully operational. |
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(15)

Over the last year, Italy has taken significant steps to alleviate the tax burden on labour, which nevertheless remains high. The number and scope of tax expenditures, in particular reduced VAT rates, are still excessively high. On property taxation, only slow progress has been made on cadastral reform, under which it is particularly necessary to revise outdated cadastral values. In addition, the revision of environmental taxation and the removal of environmentally harmful subsidies have remained unaddressed. Italy has set up a Committee on environmental taxation. These various dimensions are covered by the enabling law for tax reform, whose implementation has, however, been delayed by a lack of legislative decrees. Despite some action in this area, the efficiency of the tax system in Italy is also undermined by persistently low and costly levels of tax compliance and high tax evasion (estimated by the Government at EUR 91 billion annually or 5,6 % of GDP). The Government has put forward measures to ensure the accuracy of tax returns that now need to be made fully operational.

| (16) | Only limited steps have been achieved toward a lasting improvement in the efficiency and quality of public spending in all layers of the government. The budget savings legislated for, including at the regional and local levels, fall short of what was envisaged in the 2014 National Reform Programme. That the spending review is not yet an integral part of the budgetary process weighs on the overall, long-term efficiency of the exercise. Serious weaknesses continue to affect the management of EU funds, in particular in southern regions. A national strategic plan for ports and logistics is being prepared but only partial steps have been taken to upgrade the management of ports and their connections with the hinterland. |
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(16)

Only limited steps have been achieved toward a lasting improvement in the efficiency and quality of public spending in all layers of the government. The budget savings legislated for, including at the regional and local levels, fall short of what was envisaged in the 2014 National Reform Programme. That the spending review is not yet an integral part of the budgetary process weighs on the overall, long-term efficiency of the exercise. Serious weaknesses continue to affect the management of EU funds, in particular in southern regions. A national strategic plan for ports and logistics is being prepared but only partial steps have been taken to upgrade the management of ports and their connections with the hinterland.

| (17) | Italy's public administration is still characterised by significant inefficiencies which weigh on the business environment and on the country's capacity to implement reform effectively. Efforts to improve the institutional framework and the overall quality of the public administration have been made and are continuing. An ambitious reform of the Constitution, aimed particularly at clarifying the division of responsibilities between the various layers of government, is expected by the end of 2015. A comprehensive reform of the public administration addressing among others staff turnover, mobility and compensation, is pending. Although a number of steps have been taken to foster transparency and empower the national anti-corruption authority, the revision of the statute of limitations — also considered by other international organisations as a pillar in the fight against corruption in Italy — has still not taken place. Important steps have been taken in recent years both to improve the supply of justice, by revising the geography of courts and creating specialised courts, and to reduce the demand for it, by promoting out-of-court dispute settlements. The length of proceedings remains a major problem and the reforms undertaken still need to bear fruit. |
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(17)

Italy's public administration is still characterised by significant inefficiencies which weigh on the business environment and on the country's capacity to implement reform effectively. Efforts to improve the institutional framework and the overall quality of the public administration have been made and are continuing. An ambitious reform of the Constitution, aimed particularly at clarifying the division of responsibilities between the various layers of government, is expected by the end of 2015. A comprehensive reform of the public administration addressing among others staff turnover, mobility and compensation, is pending. Although a number of steps have been taken to foster transparency and empower the national anti-corruption authority, the revision of the statute of limitations — also considered by other international organisations as a pillar in the fight against corruption in Italy — has still not taken place. Important steps have been taken in recent years both to improve the supply of justice, by revising the geography of courts and creating specialised courts, and to reduce the demand for it, by promoting out-of-court dispute settlements. The length of proceedings remains a major problem and the reforms undertaken still need to bear fruit.

| (18) | Since the end of 2008, the non-performing loan ratio of the Italian banking sector has sharply increased, mainly in relation to banks' corporate exposures. So far the work-out rate of impaired assets has been too low, and their disposal has remained limited. This is partly due to the underdevelopment of Italy's private distressed debt market. Recent legislation has addressed weaknesses in the corporate governance of the largest cooperative banks (banche popolari), while an agreement between the foundations and the Italian authorities was reached in April 2015, aiming, among other things, at reducing the influence of foundations in the governance of banks. A non-binding governance reform is currently being prepared by small cooperative banks (banche di credito cooperative), to be subsequently implemented by law. Further restructuring and consolidation of the Italian banking sector is warranted to improve the effectiveness of financial mediation and support the economic recovery. |
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(18)

Since the end of 2008, the non-performing loan ratio of the Italian banking sector has sharply increased, mainly in relation to banks' corporate exposures. So far the work-out rate of impaired assets has been too low, and their disposal has remained limited. This is partly due to the underdevelopment of Italy's private distressed debt market. Recent legislation has addressed weaknesses in the corporate governance of the largest cooperative banks (banche popolari), while an agreement between the foundations and the Italian authorities was reached in April 2015, aiming, among other things, at reducing the influence of foundations in the governance of banks. A non-binding governance reform is currently being prepared by small cooperative banks (banche di credito cooperative), to be subsequently implemented by law. Further restructuring and consolidation of the Italian banking sector is warranted to improve the effectiveness of financial mediation and support the economic recovery.

| (19) | A broad-ranging enabling law for reforming the labour market, the ‘Jobs Act’, was adopted in December 2014 and maintains the direction of previous reforms. It provides in particular for changes in employment protection legislation, the unemployment benefit system, the governance and functioning of active and passive labour market policies and the balance between family and working life. The effective implementation of this law will depend crucially on the necessary legislative implementing decrees being adopted. These address the use of wage supplementation schemes, the revision of contractual arrangements, work-life balance and the strengthening of active labour market policies. Second-level bargaining, which could help to better align wages with productivity and encourage the adoption of innovative solutions within firms, still concerns only a minority of companies. The January 2014 agreement laying down the procedures for measuring trade union representativeness in the manufacturing sector could help to promote second-level bargaining but is not yet operational. The labour market participation of women, although growing, remains among the lowest in the Union. In addition, youth unemployment reached almost 43 % in the third quarter of 2014, and the proportion of young people aged between 15 and 24 not in employment, education or training is the highest in the Union. Some of the causes are to be found in the education system, which is still characterised by below-EU average school outcomes, and relatively high early school leaving rates. Only 54,6 % of those aged 15-34 who graduated from the first and second stages of tertiary education within the previous three years were employed, compared to the EU average of 78,6 %. Italy has witnessed one of the highest increases in poverty and social exclusion rates in the Union, with a particular impact on children. Social assistance schemes remain fragmented and ineffective in tackling this challenge with resulting substantive cost inefficiencies. |
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(19)

A broad-ranging enabling law for reforming the labour market, the ‘Jobs Act’, was adopted in December 2014 and maintains the direction of previous reforms. It provides in particular for changes in employment protection legislation, the unemployment benefit system, the governance and functioning of active and passive labour market policies and the balance between family and working life. The effective implementation of this law will depend crucially on the necessary legislative implementing decrees being adopted. These address the use of wage supplementation schemes, the revision of contractual arrangements, work-life balance and the strengthening of active labour market policies. Second-level bargaining, which could help to better align wages with productivity and encourage the adoption of innovative solutions within firms, still concerns only a minority of companies. The January 2014 agreement laying down the procedures for measuring trade union representativeness in the manufacturing sector could help to promote second-level bargaining but is not yet operational. The labour market participation of women, although growing, remains among the lowest in the Union. In addition, youth unemployment reached almost 43 % in the third quarter of 2014, and the proportion of young people aged between 15 and 24 not in employment, education or training is the highest in the Union. Some of the causes are to be found in the education system, which is still characterised by below-EU average school outcomes, and relatively high early school leaving rates. Only 54,6 % of those aged 15-34 who graduated from the first and second stages of tertiary education within the previous three years were employed, compared to the EU average of 78,6 %. Italy has witnessed one of the highest increases in poverty and social exclusion rates in the Union, with a particular impact on children. Social assistance schemes remain fragmented and ineffective in tackling this challenge with resulting substantive cost inefficiencies.

| (20) | A range of restrictions on competition still hamper the proper functioning of product and services markets. A law addressing certain barriers in a number of sectors is pending in Parliament. Significant barriers remain in some sectors covered by the law (legal services and pharmacies) as well as in other sectors including local public services, airports and ports, banking, and healthcare. Significant weaknesses remain in public procurement despite wider use of centralised procurement. Local public services, which show clear signs of inefficiency, remain sheltered from competition, and this has adverse effects on public finances as well. Open tendering is used for a small proportion of contract awards, while the vast majority of contracts are done through in-house awards or similar procedures. |
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(20)

A range of restrictions on competition still hamper the proper functioning of product and services markets. A law addressing certain barriers in a number of sectors is pending in Parliament. Significant barriers remain in some sectors covered by the law (legal services and pharmacies) as well as in other sectors including local public services, airports and ports, banking, and healthcare. Significant weaknesses remain in public procurement despite wider use of centralised procurement. Local public services, which show clear signs of inefficiency, remain sheltered from competition, and this has adverse effects on public finances as well. Open tendering is used for a small proportion of contract awards, while the vast majority of contracts are done through in-house awards or similar procedures.

| (21) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Italy's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Italy in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Italy but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (6) below. |
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(21)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Italy's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Italy in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Italy but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (6) below.

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

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

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

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

| (24) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (8). As a country whose currency is the euro, Italy should also ensure the full and timely implementation of those recommendations, |
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(24)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (8). As a country whose currency is the euro, Italy should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Italy take action in 2015 and 2016 to:

| 1. | Achieve a fiscal adjustment of at least 0,25 % of GDP towards the medium-term budgetary objective in 2015 and of 0,1 % of GDP in 2016 by taking the necessary structural measures in both 2015 and 2016, taking into account the allowed deviation for the implementation of major structural reforms. Ensure that the spending review is an integral part of the budgetary process. Swiftly and thoroughly implement the privatisation programme and use windfall gains to make further progress towards putting the general government debt ratio on an appropriate downward path. Implement the enabling law for tax reform by September 2015, in particular the revision of tax expenditures and cadastral values and the measures to enhance tax compliance. |
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1.

Achieve a fiscal adjustment of at least 0,25 % of GDP towards the medium-term budgetary objective in 2015 and of 0,1 % of GDP in 2016 by taking the necessary structural measures in both 2015 and 2016, taking into account the allowed deviation for the implementation of major structural reforms. Ensure that the spending review is an integral part of the budgetary process. Swiftly and thoroughly implement the privatisation programme and use windfall gains to make further progress towards putting the general government debt ratio on an appropriate downward path. Implement the enabling law for tax reform by September 2015, in particular the revision of tax expenditures and cadastral values and the measures to enhance tax compliance.

| 2. | Adopt the planned national strategic plan for ports and logistics, particularly to help promote intermodal transport through better connections. Ensure that the Agency for Territorial Cohesion is made fully operational so that the management of EU funds markedly improves. |
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2.

Adopt the planned national strategic plan for ports and logistics, particularly to help promote intermodal transport through better connections. Ensure that the Agency for Territorial Cohesion is made fully operational so that the management of EU funds markedly improves.

| 3. | Adopt and implement the pending laws aimed at improving the institutional framework and modernising the public administration. Revise the statute of limitations by mid-2015. Ensure that the reforms adopted to improve the efficiency of civil justice help reduce the length of proceedings. |
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3.

Adopt and implement the pending laws aimed at improving the institutional framework and modernising the public administration. Revise the statute of limitations by mid-2015. Ensure that the reforms adopted to improve the efficiency of civil justice help reduce the length of proceedings.

| 4. | By end-2015, introduce binding measures to tackle remaining weaknesses in the corporate governance of banks, implement the agreed reform of foundations, and take measures to accelerate the broad-based reduction of non-performing loans. |
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4.

By end-2015, introduce binding measures to tackle remaining weaknesses in the corporate governance of banks, implement the agreed reform of foundations, and take measures to accelerate the broad-based reduction of non-performing loans.

| 5. | Adopt the legislative decrees on the design and use of wage supplementation schemes, the revision of contractual arrangements, work-life balance and the strengthening of active labour market policies. Promote, in consultation with the social partners and in accordance with national practices, an effective framework for second-level contractual bargaining. As part of efforts to tackle youth unemployment, adopt and implement the planned school reform and expand vocationally-oriented tertiary education. |
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5.

Adopt the legislative decrees on the design and use of wage supplementation schemes, the revision of contractual arrangements, work-life balance and the strengthening of active labour market policies. Promote, in consultation with the social partners and in accordance with national practices, an effective framework for second-level contractual bargaining. As part of efforts to tackle youth unemployment, adopt and implement the planned school reform and expand vocationally-oriented tertiary education.

| 6. | Implement the simplification agenda for 2015-17 to ease the administrative and regulatory burden. Adopt competition-enhancing measures in all the sectors covered by the competition law, and take decisive action to remove remaining barriers. Ensure that local public services contracts not complying with the requirements on in-house awards are rectified by no later than end-2015. |
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6.

Implement the simplification agenda for 2015-17 to ease the administrative and regulatory burden. Adopt competition-enhancing measures in all the sectors covered by the competition law, and take decisive action to remove remaining barriers. Ensure that local public services contracts not complying with the requirements on in-house awards are rectified by no later than end-2015.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

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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)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Italy and delivering a Council opinion on the Stability Programme of Italy, 2014 (OJ C 247, 29.7.2014, p. 57).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

(6)  The structural balance as recalculated by the Commission based on the information in the Stability Programme, following a commonly agreed methodology.

6

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

7

(8)  OJ C 272, 18.8.2015, p. 98.

8

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/66 |
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18.8.2015

EN

Official Journal of the European Union

C 272/66

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COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Latvia and delivering a Council opinion on the 2015 Stability Programme of Latvia

(2015/C 272/17)

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 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 26 March 2010, the European Council agreed to the Commission's proposal to launch a new strategy for growth and jobs, Europe 2020, based on enhanced coordination of economic policies. The strategy focuses on the key areas where action is needed to boost Europe's potential for sustainable growth and competitiveness. |
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(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
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(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Latvia's National Reform Programme for 2014 and delivered its opinion on Latvia's updated Stability Programme for 2014. |
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(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Latvia's National Reform Programme for 2014 and delivered its opinion on Latvia's updated Stability Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Latvia was not identified as one of the Member States for which an in-depth review would be carried out. |
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(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Latvia was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
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(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Latvia. This assessed Latvia's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Latvia. This assessed Latvia's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 15 April 2015, Latvia submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 15 April 2015, Latvia submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Latvia is currently in the preventive arm of the Stability and Growth Pact and benefits from the implementation of the systemic pension reform clause as confirmed by Eurostat. In its 2015 Stability Programme, Latvia has requested a temporary deviation from the required adjustment path towards the medium-term objective, because it continues to implement a major structural reform in the health sector. The budgetary costs of the health sector reform amount to 0,2 % of GDP in 2016. The reform is estimated to increase employment by 0,6 % and the GDP level by 2,2 % by 2023. The positive impact on growth and the long-term sustainability of public finances is assessed as plausible. However, based on the Commission's 2015 spring forecast, the projected structural deficit of 2,2 % of GDP in 2016 exceeds the appropriate safety margin with respect to the 3 %-of-GDP Treaty reference value which should be respected in order to be eligible for the structural reform clause. Therefore, and while recognising that the ongoing health sector reform is warranted, the Council is of the opinion that Latvia does not fulfil the requirements to benefit from the requested temporary deviation in 2016 |
| --- | --- |

(8)

Latvia is currently in the preventive arm of the Stability and Growth Pact and benefits from the implementation of the systemic pension reform clause as confirmed by Eurostat. In its 2015 Stability Programme, Latvia has requested a temporary deviation from the required adjustment path towards the medium-term objective, because it continues to implement a major structural reform in the health sector. The budgetary costs of the health sector reform amount to 0,2 % of GDP in 2016. The reform is estimated to increase employment by 0,6 % and the GDP level by 2,2 % by 2023. The positive impact on growth and the long-term sustainability of public finances is assessed as plausible. However, based on the Commission's 2015 spring forecast, the projected structural deficit of 2,2 % of GDP in 2016 exceeds the appropriate safety margin with respect to the 3 %-of-GDP Treaty reference value which should be respected in order to be eligible for the structural reform clause. Therefore, and while recognising that the ongoing health sector reform is warranted, the Council is of the opinion that Latvia does not fulfil the requirements to benefit from the requested temporary deviation in 2016

| (9) | In its 2015 Stability Programme, the Government plans a broadly stable headline deficit at 1,4 % of GDP in 2016 and 1,3 % in 2017, rising to 1,7 % in 2018. To achieve these targets, the Government intends to reach a structural deficit of 1,8 % of GDP in 2016, and of 1,4 % of GDP as from 2017. The adjustment path in the Stability Programme incorporates a deviation based on the structural reform clause for which Latvia does not appear to be eligible and classifies planned additional defence spending over 2016-2019 as one-off operations. According to the Stability Programme, the government debt-to-GDP ratio is expected to decline from 37 % of GDP in 2015 to 34 % of GDP by 2018, with some annual fluctuations in between due to the accumulation of liquid assets for debt management purposes. The macroeconomic scenario underpinning these budgetary projections is plausible. Measures for 2015 have largely been implemented as budgeted. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, Latvia complies with the requirement in 2015, taking into account the application of the systemic pension reform clause. For 2016, there is a risk of a significant deviation. The structural balance is required to improve by 0,3 % of GDP taking into account the allowance for the systemic pension reform. Based on the Commission forecast, it deteriorates by 0,3 % of GDP, which is also linked to the fact that the defence spending cannot be classified as one-off measures. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Latvia will not comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(9)

In its 2015 Stability Programme, the Government plans a broadly stable headline deficit at 1,4 % of GDP in 2016 and 1,3 % in 2017, rising to 1,7 % in 2018. To achieve these targets, the Government intends to reach a structural deficit of 1,8 % of GDP in 2016, and of 1,4 % of GDP as from 2017. The adjustment path in the Stability Programme incorporates a deviation based on the structural reform clause for which Latvia does not appear to be eligible and classifies planned additional defence spending over 2016-2019 as one-off operations. According to the Stability Programme, the government debt-to-GDP ratio is expected to decline from 37 % of GDP in 2015 to 34 % of GDP by 2018, with some annual fluctuations in between due to the accumulation of liquid assets for debt management purposes. The macroeconomic scenario underpinning these budgetary projections is plausible. Measures for 2015 have largely been implemented as budgeted. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, Latvia complies with the requirement in 2015, taking into account the application of the systemic pension reform clause. For 2016, there is a risk of a significant deviation. The structural balance is required to improve by 0,3 % of GDP taking into account the allowance for the systemic pension reform. Based on the Commission forecast, it deteriorates by 0,3 % of GDP, which is also linked to the fact that the defence spending cannot be classified as one-off measures. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Latvia will not comply with the provisions of the Stability and Growth Pact.

| (10) | A national independent accreditation agency is being set up and a new quality-targeting financing model is being developed for Latvia's higher education. Despite some progress in reforming the research and innovation system, in line with the Smart Specialisation Framework, inadequate public funding in a fragmented research and innovation system is leading to poor scientific outcomes. Latvia invested only around 0,6 % of GDP in R & D in 2013 — the third lowest level in the Union. Public R & D intensity reached only 0,4 3 % of GDP in 2013. Lack of innovation and private investment in higher-value-added and knowledge-intensive sectors hampers competitiveness. |
| --- | --- |

(10)

A national independent accreditation agency is being set up and a new quality-targeting financing model is being developed for Latvia's higher education. Despite some progress in reforming the research and innovation system, in line with the Smart Specialisation Framework, inadequate public funding in a fragmented research and innovation system is leading to poor scientific outcomes. Latvia invested only around 0,6 % of GDP in R & D in 2013 — the third lowest level in the Union. Public R & D intensity reached only 0,4 3 % of GDP in 2013. Lack of innovation and private investment in higher-value-added and knowledge-intensive sectors hampers competitiveness.

| (11) | Notwithstanding the progress made to tackle unemployment, further action is needed to prevent youth unemployment and its negative long-term consequences, given the shrinking labour force. Latvia has made some progress to reform vocational education and training and its apprenticeship component; however, its lack of attractiveness remains a challenge, due to the limited engagement of SMEs. |
| --- | --- |

(11)

Notwithstanding the progress made to tackle unemployment, further action is needed to prevent youth unemployment and its negative long-term consequences, given the shrinking labour force. Latvia has made some progress to reform vocational education and training and its apprenticeship component; however, its lack of attractiveness remains a challenge, due to the limited engagement of SMEs.

| (12) | Even if a significant amount of analytical and planning work has been carried out, the social assistance reforms have not advanced and are not backed by sufficient budgetary plans. Low coverage and adequacy of unemployment and social assistance benefits prevents effective action on reducing poverty, social exclusion and the high degree of inequality. Under these conditions, social expenditure has little impact on poverty reduction. In 2014, around 32,7 % of Latvia's population were at risk of poverty or social exclusion and income inequality remains among the highest in the Union. The financing and coverage of active labour market policies remains low in comparison with other Member States. The high tax wedge for low- income earners remains a disincentive for formal employment and reduces demand for low-skilled workers; whereas environmental and effective property taxation have significant, unexploited potential. Low public healthcare financing and high out-of-pocket payments, inadequate focus on performance incentives and efficiency and lack of care coordination result in reduced access for a large proportion of the population to the healthcare system. It is necessary to continue actions to improve accessibility, cost-effectiveness and quality of the healthcare system and to link hospital financing to performance-based mechanisms. |
| --- | --- |

(12)

Even if a significant amount of analytical and planning work has been carried out, the social assistance reforms have not advanced and are not backed by sufficient budgetary plans. Low coverage and adequacy of unemployment and social assistance benefits prevents effective action on reducing poverty, social exclusion and the high degree of inequality. Under these conditions, social expenditure has little impact on poverty reduction. In 2014, around 32,7 % of Latvia's population were at risk of poverty or social exclusion and income inequality remains among the highest in the Union. The financing and coverage of active labour market policies remains low in comparison with other Member States. The high tax wedge for low- income earners remains a disincentive for formal employment and reduces demand for low-skilled workers; whereas environmental and effective property taxation have significant, unexploited potential. Low public healthcare financing and high out-of-pocket payments, inadequate focus on performance incentives and efficiency and lack of care coordination result in reduced access for a large proportion of the population to the healthcare system. It is necessary to continue actions to improve accessibility, cost-effectiveness and quality of the healthcare system and to link hospital financing to performance-based mechanisms.

| (13) | Latvia has made significant progress in reforming the judicial system. However, the rate of resolving civil and commercial cases remains low creating an additional burden for business. The role of the Judicial Council and court chairpersons in implementing judicial reforms should be strengthened. The fight against tax evasion and appropriate tax collection is insufficient and the level of tax avoidance is still high. While an insolvency law has been adopted, challenges remain with respect to proper insolvency policy and an effective insolvency administrators' supervision system. The business climate and the quality of public services would benefit from stronger measures against conflict of interest and corruption, especially in vulnerable sectors such as public procurement, construction and healthcare. There has been no progress on the Competition Council's proposals for amendments to the Competition Law to give it greater institutional and financial independence to take effective action against public bodies.The Public Service Law has not been adopted by the Parliament. It will be important that the local government be included. |
| --- | --- |

(13)

Latvia has made significant progress in reforming the judicial system. However, the rate of resolving civil and commercial cases remains low creating an additional burden for business. The role of the Judicial Council and court chairpersons in implementing judicial reforms should be strengthened. The fight against tax evasion and appropriate tax collection is insufficient and the level of tax avoidance is still high. While an insolvency law has been adopted, challenges remain with respect to proper insolvency policy and an effective insolvency administrators' supervision system. The business climate and the quality of public services would benefit from stronger measures against conflict of interest and corruption, especially in vulnerable sectors such as public procurement, construction and healthcare. There has been no progress on the Competition Council's proposals for amendments to the Competition Law to give it greater institutional and financial independence to take effective action against public bodies.The Public Service Law has not been adopted by the Parliament. It will be important that the local government be included.

| (14) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Latvia's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Latvia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Latvia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(14)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Latvia's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Latvia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Latvia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

| (15) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (5) is reflected in particular in recommendation (1) below. |
| --- | --- |

(15)

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

| (16) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (6). As a country whose currency is the euro, Latvia should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(16)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (6). As a country whose currency is the euro, Latvia should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Latvia take action in 2015 and 2016 to:

| 1. | Ensure that the deviation from the medium-term budgetary objective in 2015 and 2016 is limited to the allowance linked to the systemic pension reform. |
| --- | --- |

1.

Ensure that the deviation from the medium-term budgetary objective in 2015 and 2016 is limited to the allowance linked to the systemic pension reform.

| 2. | Improve vocational education and training, speed up the curricula reform and increase the offer for work-based learning. Ensure that the new financing model of the higher education system rewards quality. Better target research financing and incentivise private investment in innovation on the basis of the Smart Specialisation Framework. |
| --- | --- |

2.

Improve vocational education and training, speed up the curricula reform and increase the offer for work-based learning. Ensure that the new financing model of the higher education system rewards quality. Better target research financing and incentivise private investment in innovation on the basis of the Smart Specialisation Framework.

| 3. | Take concrete steps to reform social assistance, ensuring adequacy of benefits, and take measures to increase employability. Reduce the high tax wedge for low-income earners by shifting the tax burden to other sources less detrimental to growth. Take action to improve the accessibility, cost-effectiveness and quality of the healthcare system and link hospital financing to performance mechanisms. |
| --- | --- |

3.

Take concrete steps to reform social assistance, ensuring adequacy of benefits, and take measures to increase employability. Reduce the high tax wedge for low-income earners by shifting the tax burden to other sources less detrimental to growth. Take action to improve the accessibility, cost-effectiveness and quality of the healthcare system and link hospital financing to performance mechanisms.

| 4. | Improve efficiency of the judicial system, by increasing accountability of all parties (including insolvency administrators), by providing adequate means to fight tax evasion and by strengthening the role of the Judicial Council. Improve the public service legislation to strengthen the conflict of interest regime and link remuneration to responsibilities. |
| --- | --- |

4.

Improve efficiency of the judicial system, by increasing accountability of all parties (including insolvency administrators), by providing adequate means to fight tax evasion and by strengthening the role of the Judicial Council. Improve the public service legislation to strengthen the conflict of interest regime and link remuneration to responsibilities.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Latvia and delivering a Council opinion on the Stability Programme of Latvia, 2014 (OJ C 247, 29.7.2014, p. 63).

3

(4)  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).

4

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

5

(6)  OJ C 272, 18.8.2015, p. 98.

6

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/70 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/70

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Lithuania and delivering a Council opinion on the 2015 Stability Programme of Lithuania

(2015/C 272/18)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Lithuania's National Reform Programme for 2014 and delivered its opinion on Lithuania's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Lithuania's National Reform Programme for 2014 and delivered its opinion on Lithuania's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Lithuania was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Lithuania was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Lithuania. This assessed Lithuania's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Lithuania. This assessed Lithuania's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 13 April 2015, Lithuania submitted its 2015 National Reform Programme and on 30 April 2015 its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 13 April 2015, Lithuania submitted its 2015 National Reform Programme and on 30 April 2015 its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Lithuania is currently under the preventive arm of the Stability and Growth Pact. In its 2015 Stability Programme, Lithuania has requested the application of the pension reform clause. Lithuania estimates the budgetary costs of the pension reform at 0,1 % of GDP in 2016. Subject to confirmation by Eurostat that the pension reform fulfils the necessary conditions, and taking into account that an appropriate safety margin with respect to the deficit reference value is preserved, the Council is of the opinion that Lithuania could benefit in 2016 from the requested temporary deviation from the required adjustment path towards the medium-term objective. In its Stability Programme, the Government plans to reach a headline deficit of 1,2 % of GDP in 2015 and to turn it into a surplus of 0,7 % of GDP by 2018. The Government intends to remain at the medium-term budgetary objective — a structural deficit of 1 % of GDP — throughout the programme period. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015 at 42,2 % and to decline to 32,9 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, there is a risk of some deviation from the required adjustment path towards the medium-term objective in 2015 because of the 0,3 % of GDP excess of net expenditure growth over the benchmark. For 2015-2016, both the structural balance and expenditure growth significantly deviate from the required adjustment path indicating a risk of a significant deviation in 2016. Therefore, further measures will be needed in both years. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Lithuania will not comply with the provisions of the Stability and Growth Pact. In addition, despite recent progress, the current fiscal framework should be further improved by strengthening its binding character and ensuring full consistency with the EU fiscal provisions. Lithuania's tax revenue is largely dependent on indirect and labour taxation, while the revenue from environmental and wealth taxation remains very low. Lithuania continues to face challenges in the area of tax compliance, in particular in relation to VAT. |
| --- | --- |

(8)

Lithuania is currently under the preventive arm of the Stability and Growth Pact. In its 2015 Stability Programme, Lithuania has requested the application of the pension reform clause. Lithuania estimates the budgetary costs of the pension reform at 0,1 % of GDP in 2016. Subject to confirmation by Eurostat that the pension reform fulfils the necessary conditions, and taking into account that an appropriate safety margin with respect to the deficit reference value is preserved, the Council is of the opinion that Lithuania could benefit in 2016 from the requested temporary deviation from the required adjustment path towards the medium-term objective. In its Stability Programme, the Government plans to reach a headline deficit of 1,2 % of GDP in 2015 and to turn it into a surplus of 0,7 % of GDP by 2018. The Government intends to remain at the medium-term budgetary objective — a structural deficit of 1 % of GDP — throughout the programme period. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015 at 42,2 % and to decline to 32,9 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, there is a risk of some deviation from the required adjustment path towards the medium-term objective in 2015 because of the 0,3 % of GDP excess of net expenditure growth over the benchmark. For 2015-2016, both the structural balance and expenditure growth significantly deviate from the required adjustment path indicating a risk of a significant deviation in 2016. Therefore, further measures will be needed in both years. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Lithuania will not comply with the provisions of the Stability and Growth Pact. In addition, despite recent progress, the current fiscal framework should be further improved by strengthening its binding character and ensuring full consistency with the EU fiscal provisions. Lithuania's tax revenue is largely dependent on indirect and labour taxation, while the revenue from environmental and wealth taxation remains very low. Lithuania continues to face challenges in the area of tax compliance, in particular in relation to VAT.

| (9) | Lithuania is facing a substantial fall in the working-age population, driven by demographics, migration and poor performance of the healthcare system. The persistently low level of participation in life-long learning is not conducive to strengthening human capital, improving employability or increasing productivity. Schools have an above-average rate of low-achievers in basic skills, indicating a need to modernise teacher training and to promote continuing professional development. The education and training on offer is not always relevant to the labour market. The proportion of students following vocational education and training programmes in secondary education is low. Lithuania is taking action to improve and extend apprenticeships and work-based learning, but the number and quality of such programmes is still insufficient. The number of hospital beds per capita remains high as compared with the rest of the Union, suggesting there may be imbalances in the provision of healthcare. At the same time, total public investment in the healthcare sector remains low. The reported high frequency of informal payments for healthcare services, together with concerns about corruption in public procurement procedures for medical goods, demonstrate the need to improve the governance of the healthcare system. |
| --- | --- |

(9)

Lithuania is facing a substantial fall in the working-age population, driven by demographics, migration and poor performance of the healthcare system. The persistently low level of participation in life-long learning is not conducive to strengthening human capital, improving employability or increasing productivity. Schools have an above-average rate of low-achievers in basic skills, indicating a need to modernise teacher training and to promote continuing professional development. The education and training on offer is not always relevant to the labour market. The proportion of students following vocational education and training programmes in secondary education is low. Lithuania is taking action to improve and extend apprenticeships and work-based learning, but the number and quality of such programmes is still insufficient. The number of hospital beds per capita remains high as compared with the rest of the Union, suggesting there may be imbalances in the provision of healthcare. At the same time, total public investment in the healthcare sector remains low. The reported high frequency of informal payments for healthcare services, together with concerns about corruption in public procurement procedures for medical goods, demonstrate the need to improve the governance of the healthcare system.

| (10) | The pension reform measures that have been adopted are not sufficient to address the issue of the medium-term sustainability of the pension system. The statutory retirement age is being gradually increased over the period to 2026, but the pension system does not take into account indicators of life expectancy. Moreover, the rules for the indexation of pensions are unclear. Low participation in voluntary pension savings schemes and the absence of occupational pension schemes create risks for future pension adequacy. The Government intends to implement a comprehensive reform of the pension system as part of a wider ‘new social model’. However, this strategy has not yet been finalised and adopted, and consultation with social partners must first be concluded. Lithuania has introduced financial support measures for the elderly and financial incentives for employing older workers. A comprehensive active ageing strategy is, however, still lacking. |
| --- | --- |

(10)

The pension reform measures that have been adopted are not sufficient to address the issue of the medium-term sustainability of the pension system. The statutory retirement age is being gradually increased over the period to 2026, but the pension system does not take into account indicators of life expectancy. Moreover, the rules for the indexation of pensions are unclear. Low participation in voluntary pension savings schemes and the absence of occupational pension schemes create risks for future pension adequacy. The Government intends to implement a comprehensive reform of the pension system as part of a wider ‘new social model’. However, this strategy has not yet been finalised and adopted, and consultation with social partners must first be concluded. Lithuania has introduced financial support measures for the elderly and financial incentives for employing older workers. A comprehensive active ageing strategy is, however, still lacking.

| (11) | Over 30 % of Lithuania's population is at risk of poverty or social exclusion. The reform of cash social assistance, combined with the effect of an improved economic situation, has led to a considerable fall in expenditure and in the number of recipients of social assistance. Active labour market measures and other services for supporting beneficiaries are still, however, limited. |
| --- | --- |

(11)

Over 30 % of Lithuania's population is at risk of poverty or social exclusion. The reform of cash social assistance, combined with the effect of an improved economic situation, has led to a considerable fall in expenditure and in the number of recipients of social assistance. Active labour market measures and other services for supporting beneficiaries are still, however, limited.

| (12) | Lithuania has made substantial progress on reforming state-owned companies and has enacted legislation to ensure that the reforms have a lasting effect. The Government has completed the separation of commercial and non-commercial activities, which are now disclosed in annual reports. The remaining state-owned companies are required to appoint independent board members by the end of September 2015. |
| --- | --- |

(12)

Lithuania has made substantial progress on reforming state-owned companies and has enacted legislation to ensure that the reforms have a lasting effect. The Government has completed the separation of commercial and non-commercial activities, which are now disclosed in annual reports. The remaining state-owned companies are required to appoint independent board members by the end of September 2015.

| (13) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Lithuania's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Lithuania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (3) below. |
| --- | --- |

(13)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Lithuania's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Lithuania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (3) below.

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

(14)

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

| (15) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (6). As a country whose currency is the euro, Lithuania should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(15)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (6). As a country whose currency is the euro, Lithuania should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Lithuania take action in 2015 and 2016 to:

| 1. | Avoid deviating from the medium-term budgetary objective in 2015 and ensure that the deviation in 2016 is limited to the allowance linked to the systemic pension reform. Broaden the tax base and improve tax compliance. |
| --- | --- |

1.

Avoid deviating from the medium-term budgetary objective in 2015 and ensure that the deviation in 2016 is limited to the allowance linked to the systemic pension reform. Broaden the tax base and improve tax compliance.

| 2. | Address the challenge of a shrinking working-age population by improving the labour-market relevance of education, increasing attainment in basic skills, and improving the performance of the healthcare system; reduce the high tax wedge for low-income earners by shifting the tax burden to other sources less detrimental to growth. |
| --- | --- |

2.

Address the challenge of a shrinking working-age population by improving the labour-market relevance of education, increasing attainment in basic skills, and improving the performance of the healthcare system; reduce the high tax wedge for low-income earners by shifting the tax burden to other sources less detrimental to growth.

| 3. | Adopt a comprehensive reform of the pension system that also addresses the challenge of achieving pension adequacy. Improve the coverage and adequacy of unemployment benefits and cash social assistance and improve the employability of those looking for work. |
| --- | --- |

3.

Adopt a comprehensive reform of the pension system that also addresses the challenge of achieving pension adequacy. Improve the coverage and adequacy of unemployment benefits and cash social assistance and improve the employability of those looking for work.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Lithuania and delivering a Council opinion on the Convergence Programme of Lithuania, 2014 (OJ C 247, 29.7.2014, p. 67).

3

(4)  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).

4

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

5

(6)  OJ C 272, 18.8.2015, p. 98.

6

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/73 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/73

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Luxembourg and delivering a Council opinion on the 2015 Stability Programme of Luxembourg

(2015/C 272/19)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Luxembourg's National Reform Programme for 2014 and delivered its opinion on Luxembourg's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Luxembourg's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Luxembourg's National Reform Programme for 2014 and delivered its opinion on Luxembourg's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Luxembourg's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Luxembourg was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Luxembourg was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Luxembourg. This assessed Luxembourg's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Luxembourg. This assessed Luxembourg's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 30 April 2015, Luxembourg submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, Luxembourg submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Luxembourg is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to bring down the headline surplus from 0,6 % of GDP in 2014 to 0,1 % of GDP in 2015. Thereafter, it plans to raise it again to 0,9 % of GDP in 2018. The Government plans to remain at the medium-term objective — a structural surplus of 0,5 % of GDP — throughout the programme period. According to the Stability Programme, the Government plans to keep the government debt-to-GDP ratio well below the 60 % Treaty reference value. The debt ratio is expected to hover around 24 % throughout the programme period, peaking slightly above 24 % in 2016 and declining to below 24 % of GDP by 2019. The macroeconomic scenario underpinning these budgetary projections is favourable in 2015 and plausible thereafter. However, from 2016 onwards there are risks to the implementation of the budgetary measures. The Commission's 2015 spring forecast expects the structural balance to remain at the medium-term objective in 2015 and 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Luxembourg is expected to comply with the provisions of the Stability and Growth Pact. The fiscal framework of Luxembourg has been significantly strengthened with the adoption of the medium-term budgetary framework and the setting-up of the fiscal council. Nevertheless, significant weaknesses should be tackled in terms of the regular publication of intra-annual fiscal statistics, which is an essential element for real-time monitoring of budgetary developments. |
| --- | --- |

(8)

Luxembourg is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to bring down the headline surplus from 0,6 % of GDP in 2014 to 0,1 % of GDP in 2015. Thereafter, it plans to raise it again to 0,9 % of GDP in 2018. The Government plans to remain at the medium-term objective — a structural surplus of 0,5 % of GDP — throughout the programme period. According to the Stability Programme, the Government plans to keep the government debt-to-GDP ratio well below the 60 % Treaty reference value. The debt ratio is expected to hover around 24 % throughout the programme period, peaking slightly above 24 % in 2016 and declining to below 24 % of GDP by 2019. The macroeconomic scenario underpinning these budgetary projections is favourable in 2015 and plausible thereafter. However, from 2016 onwards there are risks to the implementation of the budgetary measures. The Commission's 2015 spring forecast expects the structural balance to remain at the medium-term objective in 2015 and 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Luxembourg is expected to comply with the provisions of the Stability and Growth Pact. The fiscal framework of Luxembourg has been significantly strengthened with the adoption of the medium-term budgetary framework and the setting-up of the fiscal council. Nevertheless, significant weaknesses should be tackled in terms of the regular publication of intra-annual fiscal statistics, which is an essential element for real-time monitoring of budgetary developments.

| (9) | The expected drop in consumption tax revenues due to the change in regulation related to e-commerce highlights the fragility of at least one part of fiscal revenues. To better ensure their predictability, there is scope for further broadening the tax base and harmonising taxation, in particular by revisiting the currently low taxation on housing property, and making greater use of alternative sources, including environmental taxation. Preparatory work on a comprehensive tax reform (for entry into force in 2017) has been launched. |
| --- | --- |

(9)

The expected drop in consumption tax revenues due to the change in regulation related to e-commerce highlights the fragility of at least one part of fiscal revenues. To better ensure their predictability, there is scope for further broadening the tax base and harmonising taxation, in particular by revisiting the currently low taxation on housing property, and making greater use of alternative sources, including environmental taxation. Preparatory work on a comprehensive tax reform (for entry into force in 2017) has been launched.

| (10) | The long-term sustainability of public finances is threatened by the growth in pension expenditure, despite recent reform of the system, and by the steady increase in long-term care outlays. Long-term care insurance is projected to run a deficit in 2015 (6) and its reserves are expected to gradually reduce with the result that already in 2017 they will fall below the legal minimum of 10 % of expenses. Some measures with saving potential were adopted in the 2015 budget (7). However, the planned reform of long-term care insurance, which aims at providing people in need of long-term care with an adequate level of services and securing the corresponding financing, has not yet been translated into legislation. The 2012 pension system reform was not ambitious enough, as it addressed only partially the large gap between the statutory and the effective retirement age. Several avenues for early retirement persist. The participation of older workers in the labour market remains very low compared to other Member States. Draft legislation linked to the pension reform and amending the Code of Work (Age Pact) has been prepared. It comprises a package of measures that aims to keep older workers in employment. |
| --- | --- |

(10)

The long-term sustainability of public finances is threatened by the growth in pension expenditure, despite recent reform of the system, and by the steady increase in long-term care outlays. Long-term care insurance is projected to run a deficit in 2015 (6) and its reserves are expected to gradually reduce with the result that already in 2017 they will fall below the legal minimum of 10 % of expenses. Some measures with saving potential were adopted in the 2015 budget (7). However, the planned reform of long-term care insurance, which aims at providing people in need of long-term care with an adequate level of services and securing the corresponding financing, has not yet been translated into legislation. The 2012 pension system reform was not ambitious enough, as it addressed only partially the large gap between the statutory and the effective retirement age. Several avenues for early retirement persist. The participation of older workers in the labour market remains very low compared to other Member States. Draft legislation linked to the pension reform and amending the Code of Work (Age Pact) has been prepared. It comprises a package of measures that aims to keep older workers in employment.

| (11) | The Luxembourg economy is characterised by a sizeable divergence of labour productivity across economic sectors, with productivity in the financial sector twice as high as that in the non-financial sectors. This implies that greater variation in sectoral real wages, in line with sectoral labour productivity, could support the reallocation of labour towards emerging competitive sectors or sectors that are suffering from cost-competitiveness losses. Barriers remain to the necessary sectoral wage adjustments in the long term. |
| --- | --- |

(11)

The Luxembourg economy is characterised by a sizeable divergence of labour productivity across economic sectors, with productivity in the financial sector twice as high as that in the non-financial sectors. This implies that greater variation in sectoral real wages, in line with sectoral labour productivity, could support the reallocation of labour towards emerging competitive sectors or sectors that are suffering from cost-competitiveness losses. Barriers remain to the necessary sectoral wage adjustments in the long term.

| (12) | Despite generally well-performing labour markets and high tertiary education attainment rates, employment rates are comparatively low for older workers, women and low-skilled young people. There remain institutional obstacles to effective activation policies. Within the public employment service, an important reform is advancing to provide individual guidance to jobseekers, which the Government intends to complete by the end of 2015. The draft vocational education and training reform and the secondary school reform to improve educational outcomes, in particular for those with a disadvantaged socioeconomic background, have not been adopted. The announced measures on maternity and education allowances and the planned reform of parental leave can be expected to contribute to increasing the labour market participation of women. Disincentives for second-earners to work arise from the ‘joint taxation’ system and from the design of the social benefit system. Despite high tertiary education attainment rates, education outcomes remain unsatisfactory, and alleviating the situation of people from migrant backgrounds and low-skilled young people remains difficult. Labour market supply challenges related to institutional factors and to the design of the social benefit system persist and are the source of labour market problems. |
| --- | --- |

(12)

Despite generally well-performing labour markets and high tertiary education attainment rates, employment rates are comparatively low for older workers, women and low-skilled young people. There remain institutional obstacles to effective activation policies. Within the public employment service, an important reform is advancing to provide individual guidance to jobseekers, which the Government intends to complete by the end of 2015. The draft vocational education and training reform and the secondary school reform to improve educational outcomes, in particular for those with a disadvantaged socioeconomic background, have not been adopted. The announced measures on maternity and education allowances and the planned reform of parental leave can be expected to contribute to increasing the labour market participation of women. Disincentives for second-earners to work arise from the ‘joint taxation’ system and from the design of the social benefit system. Despite high tertiary education attainment rates, education outcomes remain unsatisfactory, and alleviating the situation of people from migrant backgrounds and low-skilled young people remains difficult. Labour market supply challenges related to institutional factors and to the design of the social benefit system persist and are the source of labour market problems.

| (13) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Luxembourg's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Luxembourg in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Luxembourg but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below. |
| --- | --- |

(13)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Luxembourg's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Luxembourg in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Luxembourg but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below.

| (14) | In the light of this assessment, the Council has examined the Stability Programme, and is of the opinion (8) that Luxembourg complies with the Stability and Growth Pact. |
| --- | --- |

(14)

In the light of this assessment, the Council has examined the Stability Programme, and is of the opinion (8) that Luxembourg complies with the Stability and Growth Pact.

| (15) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (9). As a country whose currency is the euro, Luxembourg should also ensure the full and timely implementation of these recommendations, |
| --- | --- |

(15)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (9). As a country whose currency is the euro, Luxembourg should also ensure the full and timely implementation of these recommendations,

HEREBY RECOMMENDS that Luxembourg take action in 2015 and 2016 to:

| 1. | Broaden the tax base, in particular on consumption, recurrent property taxation and environmental taxation. |
| --- | --- |

1.

Broaden the tax base, in particular on consumption, recurrent property taxation and environmental taxation.

| 2. | Close the gap between the statutory and effective retirement age, by limiting early retirement and by linking statutory retirement age to life expectancy. |
| --- | --- |

2.

Close the gap between the statutory and effective retirement age, by limiting early retirement and by linking statutory retirement age to life expectancy.

| 3. | Reform the wage-setting system, in consultation with the social partners and in accordance with national practices, with a view to ensuring that wages evolve in line with productivity, in particular at sectoral level. |
| --- | --- |

3.

Reform the wage-setting system, in consultation with the social partners and in accordance with national practices, with a view to ensuring that wages evolve in line with productivity, in particular at sectoral level.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Luxembourg and delivering a Council opinion on the Stability Programme of Luxembourg, 2014 (OJ C 247, 29.7.2014, p. 72).

3

(4)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

4

(5)  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).

5

(6)  CNS, Budget de l'Assurance Dépendance, exercise 2015, available at http://cns.lu/files/publications/Budget_AD_2015.pdf

6

Budget de l'Assurance Dépendance

(7)  Measures 255 and 256 of the 2015 Budget, available at http://www.budget.public.lu/

7

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

8

(9)  OJ C 272, 18.8.2015, p. 98.

9

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/76 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/76

---

COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/20)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Hungary's National Reform Programme for 2014 and delivered its opinion on Hungary's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Hungary's National Reform Programme for 2014 and delivered its opinion on Hungary's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which it identified Hungary as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which it identified Hungary as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Hungary. This assessed Hungary's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Hungary is experiencing macroeconomic imbalances which require decisive policy action and monitoring. Attention should be given, in particular, to the risks stemming from the net international position (which, despite some progress in the rebalancing of external accounts, is still highly negative), the high level of public debt, the significant regulatory burden on the financial sector and the high level of non-performing loans, which make deleveraging difficult. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Hungary. This assessed Hungary's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Hungary is experiencing macroeconomic imbalances which require decisive policy action and monitoring. Attention should be given, in particular, to the risks stemming from the net international position (which, despite some progress in the rebalancing of external accounts, is still highly negative), the high level of public debt, the significant regulatory burden on the financial sector and the high level of non-performing loans, which make deleveraging difficult.

| (7) | On 30 April 2015, Hungary submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, Hungary submitted its 2015 National Reform Programme and its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule for 2013-2015. In its 2015 Convergence Programme, the Government plans to gradually improve the headline deficit to 2,4 % of GDP in 2015 and further to 1,6 % in 2018, and according to the recalculated structural balance (5) the medium-term objective — a structural deficit of 1,7 % of GDP — is expected to be reached by 2017. According to the Convergence Programme, the Government plans to gradually reduce the debt-to-GDP ratio to 74,9 % in 2015 and to 68,9 % in 2018. The macroeconomic scenario underpinning these budgetary projections is broadly plausible until 2016 and becomes favourable thereafter. Measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified, in particular beyond 2016. Based on the Commission's 2015 spring forecast, both the structural balance and net expenditure growth point to a risk of a significant deviation from the required adjustment path towards the medium-term objective in 2015 and 2016. Therefore, further measures will be needed in 2015 and 2016. At the same time, Hungary is forecast to comply with the transitional debt rule in 2015 and, following the end of the transition period, the debt reduction benchmark in 2016. Based on its assessment of the Convergence Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Hungary will not comply with the provisions of the Stability and Growth Pact. Hungary's fiscal governance system would benefit from the rigorous application of the already legislated medium-term budgetary framework and from assigning a more prominent analytical role to the Fiscal Council. |
| --- | --- |

(8)

Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule for 2013-2015. In its 2015 Convergence Programme, the Government plans to gradually improve the headline deficit to 2,4 % of GDP in 2015 and further to 1,6 % in 2018, and according to the recalculated structural balance (5) the medium-term objective — a structural deficit of 1,7 % of GDP — is expected to be reached by 2017. According to the Convergence Programme, the Government plans to gradually reduce the debt-to-GDP ratio to 74,9 % in 2015 and to 68,9 % in 2018. The macroeconomic scenario underpinning these budgetary projections is broadly plausible until 2016 and becomes favourable thereafter. Measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified, in particular beyond 2016. Based on the Commission's 2015 spring forecast, both the structural balance and net expenditure growth point to a risk of a significant deviation from the required adjustment path towards the medium-term objective in 2015 and 2016. Therefore, further measures will be needed in 2015 and 2016. At the same time, Hungary is forecast to comply with the transitional debt rule in 2015 and, following the end of the transition period, the debt reduction benchmark in 2016. Based on its assessment of the Convergence Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Hungary will not comply with the provisions of the Stability and Growth Pact. Hungary's fiscal governance system would benefit from the rigorous application of the already legislated medium-term budgetary framework and from assigning a more prominent analytical role to the Fiscal Council.

| (9) | The banking sector's main challenges have persisted over the last 12 months, in particular the challenges of restoring market-based lending through better capital accumulation possibilities and more efficient portfolio cleaning. Since mid-2013, bank lending has relied mainly on subsidised schemes, including for about 40 % of lending to SMEs. The combination of significant tax and regulatory burdens and a high proportion of problematic loans does not provide banks with the necessary incentives to increase their normal, non-subsidised lending activity. Hungary's external exposure and the related financial stability risks have decreased considerably due to the recent conversion of foreign exchange denominated mortgages into local currency. At the same time, the legacy left by foreign-exchange indebtedness of households remains still the major reason behind the high share of non-performing credit.The majority of the foreign exchange relief schemes adopted to date have not been targeted at distressed borrowers, with the exception of that of the national asset management agency in the household sector, and it is unlikely to resolve the problem of non-performing loans. Efficient portfolio cleaning is hindered by, inter alia, the lack of foreclosures and the inefficiency of in-court and out-of-court resolution proceedings. An agreement recently concluded with the European Bank for Reconstruction and Development includes a number of commitments by the Government to tackle the challenges in the financial sector, including, inter alia, by gradually reducing the bank levy and respecting the prior consultation principle. Implementing rigorously these measures would be conducive to returning to a sound and predictable financial policy framework. Over the last year, Hungary has repeatedly extended its direct ownership in the banking sector. State intervention in the banking sector, carried out via increased direct ownership, may entail significant fiscal risks, even where it is only temporary. |
| --- | --- |

(9)

The banking sector's main challenges have persisted over the last 12 months, in particular the challenges of restoring market-based lending through better capital accumulation possibilities and more efficient portfolio cleaning. Since mid-2013, bank lending has relied mainly on subsidised schemes, including for about 40 % of lending to SMEs. The combination of significant tax and regulatory burdens and a high proportion of problematic loans does not provide banks with the necessary incentives to increase their normal, non-subsidised lending activity. Hungary's external exposure and the related financial stability risks have decreased considerably due to the recent conversion of foreign exchange denominated mortgages into local currency. At the same time, the legacy left by foreign-exchange indebtedness of households remains still the major reason behind the high share of non-performing credit.The majority of the foreign exchange relief schemes adopted to date have not been targeted at distressed borrowers, with the exception of that of the national asset management agency in the household sector, and it is unlikely to resolve the problem of non-performing loans. Efficient portfolio cleaning is hindered by, inter alia, the lack of foreclosures and the inefficiency of in-court and out-of-court resolution proceedings. An agreement recently concluded with the European Bank for Reconstruction and Development includes a number of commitments by the Government to tackle the challenges in the financial sector, including, inter alia, by gradually reducing the bank levy and respecting the prior consultation principle. Implementing rigorously these measures would be conducive to returning to a sound and predictable financial policy framework. Over the last year, Hungary has repeatedly extended its direct ownership in the banking sector. State intervention in the banking sector, carried out via increased direct ownership, may entail significant fiscal risks, even where it is only temporary.

| (10) | Recent changes in the area of taxation (the introduction of new taxes and increases to existing taxes) have seen a return to the earlier trend of increasing the weight of sector-specific corporate taxes. Both the unpredictability and selectivity of these changes give rise to distortions to investment across sectors. Although a number of new measures have been introduced, the tax burden on some groups of low-income earners has remained among the highest in the Union, with single people especially affected. There appears to be scope for further shifting of the tax burden towards more growth-friendly sources of revenue. Various measures introduced over the last year are helping to tighten up systems to fight tax evasion. Following the successful completion of the programme linking retail outlets' cash registers to an online system, it is now planned to extend the programme to a number of market services in 2015. The threshold above which an itemised VAT declaration must be submitted was lowered. A system for electronic road-cargo inspection was introduced in 2015, the main aim of which is to reduce carousel VAT fraud. There is, however, still significant scope to improve the administrative efficiency of tax collection and to reduce taxation compliance costs, especially for SMEs. |
| --- | --- |

(10)

Recent changes in the area of taxation (the introduction of new taxes and increases to existing taxes) have seen a return to the earlier trend of increasing the weight of sector-specific corporate taxes. Both the unpredictability and selectivity of these changes give rise to distortions to investment across sectors. Although a number of new measures have been introduced, the tax burden on some groups of low-income earners has remained among the highest in the Union, with single people especially affected. There appears to be scope for further shifting of the tax burden towards more growth-friendly sources of revenue. Various measures introduced over the last year are helping to tighten up systems to fight tax evasion. Following the successful completion of the programme linking retail outlets' cash registers to an online system, it is now planned to extend the programme to a number of market services in 2015. The threshold above which an itemised VAT declaration must be submitted was lowered. A system for electronic road-cargo inspection was introduced in 2015, the main aim of which is to reduce carousel VAT fraud. There is, however, still significant scope to improve the administrative efficiency of tax collection and to reduce taxation compliance costs, especially for SMEs.

| (11) | Overall, the Hungarian labour market improved in 2014, with employment recovering in the private sector due to the economic upturn. Significant challenges remain with regard to the public work scheme, which has been significantly extended since 2011. The scheme appears to be an inefficient and ineffective active labour market policy, that risks distorting the proper functioning of the labour market. The same resources if spent differently could potentially be more beneficial to the Hungarian economy. The budgetary cost of the scheme has quadrupled over the last four years, to 0,8 % of GDP, and is expected to double again between 2015 and 2018, preventing resources from being used for essential improvements to training and to services required to facilitate participation in the open labour market. There is a risk of public works of such a magnitude creating significant ‘lock-in’ effects and permanently replacing the system of welfare benefits for the low-skilled. The scheme is not adequately coordinated with other active labour market policy measures and does not sufficiently promote the reintegration of participants into the open labour market. The rate of successful exit from the public work scheme was only 13,8 % in the first half of 2014, which suggests that public works do not sufficiently support the reintegration of participants into the labour market. Although the scheme is targeted to the long-term unemployed and low-skilled (and unemployed living in disadvantaged areas), in 2013 47 % of participants had secondary or tertiary education. The period of eligibility for unemployment benefits (three months) has not been increased and thus does not match the average time (over a year) that job seekers need to find employment. A number of programmes have been implemented to improve the inclusion of Roma in the labour market and a monitoring system has been put in place. Streamlined, coordinated policy measures, capable of significantly reducing poverty should be developed. Poverty indicators, although suggesting moderately improving trends, still show poverty to be at a worryingly high level, especially among Roma and children. Gaps remain in both the adequacy and coverage of social assistance. |
| --- | --- |

(11)

Overall, the Hungarian labour market improved in 2014, with employment recovering in the private sector due to the economic upturn. Significant challenges remain with regard to the public work scheme, which has been significantly extended since 2011. The scheme appears to be an inefficient and ineffective active labour market policy, that risks distorting the proper functioning of the labour market. The same resources if spent differently could potentially be more beneficial to the Hungarian economy. The budgetary cost of the scheme has quadrupled over the last four years, to 0,8 % of GDP, and is expected to double again between 2015 and 2018, preventing resources from being used for essential improvements to training and to services required to facilitate participation in the open labour market. There is a risk of public works of such a magnitude creating significant ‘lock-in’ effects and permanently replacing the system of welfare benefits for the low-skilled. The scheme is not adequately coordinated with other active labour market policy measures and does not sufficiently promote the reintegration of participants into the open labour market. The rate of successful exit from the public work scheme was only 13,8 % in the first half of 2014, which suggests that public works do not sufficiently support the reintegration of participants into the labour market. Although the scheme is targeted to the long-term unemployed and low-skilled (and unemployed living in disadvantaged areas), in 2013 47 % of participants had secondary or tertiary education. The period of eligibility for unemployment benefits (three months) has not been increased and thus does not match the average time (over a year) that job seekers need to find employment. A number of programmes have been implemented to improve the inclusion of Roma in the labour market and a monitoring system has been put in place. Streamlined, coordinated policy measures, capable of significantly reducing poverty should be developed. Poverty indicators, although suggesting moderately improving trends, still show poverty to be at a worryingly high level, especially among Roma and children. Gaps remain in both the adequacy and coverage of social assistance.

| (12) | Barriers introduced in recent years to market entry in the service sector have not been removed; rather, further barriers were introduced in 2014, hampering the efficient allocation of economic resources, increasing uncertainty for investors and restricting competition. The new barriers include, for example, the requirement for medium to large retail establishments to be centrally authorised. The corruption and lack of transparency affecting public administration, decision-making and public procurement remain a cause of concern. The low level of competition in public procurement and the extensive use of direct awarding of contracts both persisted in 2014. A reorganisation of public procurement administration was undertaken in 2014, the results of which are to be closely monitored. In November 2014, Hungary submitted an action plan for transposing the new public procurement directives and promoting competition and transparency. Several measures to improve the anti-corruption framework have also been announced. |
| --- | --- |

(12)

Barriers introduced in recent years to market entry in the service sector have not been removed; rather, further barriers were introduced in 2014, hampering the efficient allocation of economic resources, increasing uncertainty for investors and restricting competition. The new barriers include, for example, the requirement for medium to large retail establishments to be centrally authorised. The corruption and lack of transparency affecting public administration, decision-making and public procurement remain a cause of concern. The low level of competition in public procurement and the extensive use of direct awarding of contracts both persisted in 2014. A reorganisation of public procurement administration was undertaken in 2014, the results of which are to be closely monitored. In November 2014, Hungary submitted an action plan for transposing the new public procurement directives and promoting competition and transparency. Several measures to improve the anti-corruption framework have also been announced.

| (13) | Although some measures have been implemented to support the education of Roma children, a systematic approach to promoting inclusive mainstream education is yet to be developed. The proportion of Roma children attending schools or classes where the majority of pupils are Roma remains high, and the educational attainment of Roma pupils is lower than the national average. Teachers are not trained to provide sufficient support to disadvantaged groups. More needs to be done to improve the transition between different forms and stages of education, and from education to the labour market. The planned changes to the allocation of state-funded places in secondary education and the increasing admission requirements for higher education may further limit the opportunities for transition between different forms of education, especially for disadvantaged groups. Hungary has a very high drop-out rate in higher education. The Government announced the adoption of a national higher education strategy in December 2014. The strategy included raising the national target for tertiary attainment to 34 %. Overall, recent measures have failed to improve the participation of disadvantaged groups in higher education, and to tackle non-completion of education. The current funding system does not sufficiently support equitable access. |
| --- | --- |

(13)

Although some measures have been implemented to support the education of Roma children, a systematic approach to promoting inclusive mainstream education is yet to be developed. The proportion of Roma children attending schools or classes where the majority of pupils are Roma remains high, and the educational attainment of Roma pupils is lower than the national average. Teachers are not trained to provide sufficient support to disadvantaged groups. More needs to be done to improve the transition between different forms and stages of education, and from education to the labour market. The planned changes to the allocation of state-funded places in secondary education and the increasing admission requirements for higher education may further limit the opportunities for transition between different forms of education, especially for disadvantaged groups. Hungary has a very high drop-out rate in higher education. The Government announced the adoption of a national higher education strategy in December 2014. The strategy included raising the national target for tertiary attainment to 34 %. Overall, recent measures have failed to improve the participation of disadvantaged groups in higher education, and to tackle non-completion of education. The current funding system does not sufficiently support equitable access.

| (14) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Hungary's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Hungary in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (5) below. |
| --- | --- |

(14)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Hungary's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Hungary in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (5) below.

| (15) | In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation (1) below. |
| --- | --- |

(15)

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

| (16) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (3) below, |
| --- | --- |

(16)

In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (3) below,

HEREBY RECOMMENDS that Hungary take action in 2015 and 2016 to:

| 1. | Achieve a fiscal adjustment of 0,5 % of GDP towards the medium-term budgetary objective in 2015 and of 0,6 % of GDP in 2016. |
| --- | --- |

1.

Achieve a fiscal adjustment of 0,5 % of GDP towards the medium-term budgetary objective in 2015 and of 0,6 % of GDP in 2016.

| 2. | Take measures to restore normal lending to the real economy and remove obstacles to market-based portfolio cleaning; considerably reduce the contingent liability risks linked to increased state ownership in the banking sector. |
| --- | --- |

2.

Take measures to restore normal lending to the real economy and remove obstacles to market-based portfolio cleaning; considerably reduce the contingent liability risks linked to increased state ownership in the banking sector.

| 3. | Reduce distortive sector-specific corporate taxes; remove the unjustified entry barriers in the service sector, including in the retail sector; reduce the tax wedge for low-income earners, including by shifting taxation to areas less distortive to growth; continue to fight tax evasion, reduce compliance costs and improve the efficiency of tax collection. Strengthen structures in public procurement that promote competition and transparency and further improve the anti-corruption framework. |
| --- | --- |

3.

Reduce distortive sector-specific corporate taxes; remove the unjustified entry barriers in the service sector, including in the retail sector; reduce the tax wedge for low-income earners, including by shifting taxation to areas less distortive to growth; continue to fight tax evasion, reduce compliance costs and improve the efficiency of tax collection. Strengthen structures in public procurement that promote competition and transparency and further improve the anti-corruption framework.

| 4. | Reorient the budget resources allocated to the public work scheme to active labour market measures to foster integration into the primary labour market; and improve the adequacy and coverage of social assistance and unemployment benefits. |
| --- | --- |

4.

Reorient the budget resources allocated to the public work scheme to active labour market measures to foster integration into the primary labour market; and improve the adequacy and coverage of social assistance and unemployment benefits.

| 5. | Increase the participation of disadvantaged groups in particular Roma in inclusive mainstream education, and improve the support offered to these groups through targeted teacher training; strengthen measures to facilitate the transition between different stages of education and to the labour market, and improve the teaching of essential competences. |
| --- | --- |

5.

Increase the participation of disadvantaged groups in particular Roma in inclusive mainstream education, and improve the support offered to these groups through targeted teacher training; strengthen measures to facilitate the transition between different stages of education and to the labour market, and improve the teaching of essential competences.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Hungary and delivering a Council opinion on the Convergence Programme of Hungary, 2014 (OJ C 247, 29.7.2014, p. 77).

4

(5)  The structural balance as recalculated by the Commission based on the information in the Convergence Programme, following a commonly agreed methodology.

5

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

6

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/80 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/80

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Malta and delivering a Council opinion on the 2015 Stability Programme of Malta

(2015/C 272/21)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Malta's National Reform Programme for 2014 and delivered its opinion on Malta's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Malta's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Malta's National Reform Programme for 2014 and delivered its opinion on Malta's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Malta's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Malta was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Malta was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Malta. This assessed Malta's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Malta. This assessed Malta's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 17 April 2015, Malta submitted its 2015 National Reform Programme and on 30 April 2015 its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 17 April 2015, Malta submitted its 2015 National Reform Programme and on 30 April 2015 its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Malta is currently in the preventive arm of the Stability and Growth Pact following the abrogation of the Excessive Deficit Procedure in June 2015 (6). In its 2015 Stability Programme, the Government plans a gradual improvement of the headline deficit to 1,6 % of GDP in 2015 and further to 0,2 % of GDP in 2018. Based on the Commission's 2015 spring forecast, the excessive deficit can be considered to have been corrected in 2014. According to the Stability Programme, the Government plans to meet the medium-term objective — a balanced budgetary position in structural terms — by 2019, one year after the programme period. According to the Stability Programme, the government debt-to-GDP ratio is expected to gradually decline to 61,2 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. There appears to be a risk of some deviation from the required adjustment of 0,6 % of GDP towards the medium-term objective in both 2015 and 2016. In 2015, the improvement in the structural balance is forecast to be 0,1 % of GDP below the requirement. While the adjustment projected for 2016 is in line with the requirement, there is a risk of some deviation over 2015 and 2016 taken together. Measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Therefore, further measures will be needed in 2015 and 2016. Based on its assessment of the Stability Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that Malta is expected to broadly comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Malta is currently in the preventive arm of the Stability and Growth Pact following the abrogation of the Excessive Deficit Procedure in June 2015 (6). In its 2015 Stability Programme, the Government plans a gradual improvement of the headline deficit to 1,6 % of GDP in 2015 and further to 0,2 % of GDP in 2018. Based on the Commission's 2015 spring forecast, the excessive deficit can be considered to have been corrected in 2014. According to the Stability Programme, the Government plans to meet the medium-term objective — a balanced budgetary position in structural terms — by 2019, one year after the programme period. According to the Stability Programme, the government debt-to-GDP ratio is expected to gradually decline to 61,2 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. There appears to be a risk of some deviation from the required adjustment of 0,6 % of GDP towards the medium-term objective in both 2015 and 2016. In 2015, the improvement in the structural balance is forecast to be 0,1 % of GDP below the requirement. While the adjustment projected for 2016 is in line with the requirement, there is a risk of some deviation over 2015 and 2016 taken together. Measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Therefore, further measures will be needed in 2015 and 2016. Based on its assessment of the Stability Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that Malta is expected to broadly comply with the provisions of the Stability and Growth Pact.

| (9) | The sustainability of Malta's public finances is at risk in the long term, in particular in view of a projected increase in age-related expenditure.In the pension system, the legislated increase in the statutory retirement age is being introduced at a very slow pace and there is no specific link between the statutory retirement age and life expectancy. Malta has addressed the challenges of its pensions system through labour market measures and the introduction of third-pillar pensions, and has made further policy announcements in its National Reform Programme, but measures aimed at substantially improving the sustainability and adequacy of the system remain to be announced and implemented. Implementation of the 2014 national health systems strategy has started, with the aim of maximising the efficiency of the healthcare system while pursuing its financial sustainability. This needs to be monitored. |
| --- | --- |

(9)

The sustainability of Malta's public finances is at risk in the long term, in particular in view of a projected increase in age-related expenditure.In the pension system, the legislated increase in the statutory retirement age is being introduced at a very slow pace and there is no specific link between the statutory retirement age and life expectancy. Malta has addressed the challenges of its pensions system through labour market measures and the introduction of third-pillar pensions, and has made further policy announcements in its National Reform Programme, but measures aimed at substantially improving the sustainability and adequacy of the system remain to be announced and implemented. Implementation of the 2014 national health systems strategy has started, with the aim of maximising the efficiency of the healthcare system while pursuing its financial sustainability. This needs to be monitored.

| (10) | Malta has put in place measures to help its population manage their work and family life balance, in particular through fiscal incentives, the continuing provision of free childcare centres and the introduction of flexible working arrangements. At the same time, the increased demand for informal long-term care and a lack of suitable skills may be preventing older women from seeking work in the labour market. A national literacy strategy and an early school-leaving strategy were published in June 2014. Work is also ongoing on aligning educational outcomes with market needs, though tangible results are yet to be seen. |
| --- | --- |

(10)

Malta has put in place measures to help its population manage their work and family life balance, in particular through fiscal incentives, the continuing provision of free childcare centres and the introduction of flexible working arrangements. At the same time, the increased demand for informal long-term care and a lack of suitable skills may be preventing older women from seeking work in the labour market. A national literacy strategy and an early school-leaving strategy were published in June 2014. Work is also ongoing on aligning educational outcomes with market needs, though tangible results are yet to be seen.

| (11) | Efforts have been made to provide a framework for the use of venture capital funds and to facilitate access to capital markets, in particular through the review of the start-up scheme Malta Enterprise and the announced seed investment programme. Work is also ongoing on setting up a development bank. This needs to be monitored. |
| --- | --- |

(11)

Efforts have been made to provide a framework for the use of venture capital funds and to facilitate access to capital markets, in particular through the review of the start-up scheme Malta Enterprise and the announced seed investment programme. Work is also ongoing on setting up a development bank. This needs to be monitored.

| (12) | Malta's efforts to fight tax evasion and encouraging tax compliance through the pursuit of a streamlined revenue collection framework go in the right direction. While work is ongoing, there is a need for concrete measures to accelerate the uptake of electronic payments. |
| --- | --- |

(12)

Malta's efforts to fight tax evasion and encouraging tax compliance through the pursuit of a streamlined revenue collection framework go in the right direction. While work is ongoing, there is a need for concrete measures to accelerate the uptake of electronic payments.

| (13) | The length of public procurement procedures has been significantly reduced through the introduction of mandatory e-procurement and the strengthening of the relevant government departments. It will be further reduced through the implementation of announced measures, in particular the recruitment of additional staff and the introduction of a tracking system. Transport costs play a substantial role in Malta's economy. A reform of transport has recently been launched, but the Government still needs to present a comprehensive transport strategy. |
| --- | --- |

(13)

The length of public procurement procedures has been significantly reduced through the introduction of mandatory e-procurement and the strengthening of the relevant government departments. It will be further reduced through the implementation of announced measures, in particular the recruitment of additional staff and the introduction of a tracking system. Transport costs play a substantial role in Malta's economy. A reform of transport has recently been launched, but the Government still needs to present a comprehensive transport strategy.

| (14) | The National Reform Programme specifies measures to reform the justice system beyond those identified in the country report. As a result, Malta has made some progress in addressing the 2014 country-specific recommendation on increasing the efficiency of the judiciary. Also, a draft bill is being finalised. When it has been enacted and implemented, it is expected to improve further the efficiency of the judicial system, in particular through the digitisation of court proceedings and the promotion of alternative dispute resolution mechanisms. |
| --- | --- |

(14)

The National Reform Programme specifies measures to reform the justice system beyond those identified in the country report. As a result, Malta has made some progress in addressing the 2014 country-specific recommendation on increasing the efficiency of the judiciary. Also, a draft bill is being finalised. When it has been enacted and implemented, it is expected to improve further the efficiency of the judicial system, in particular through the digitisation of court proceedings and the promotion of alternative dispute resolution mechanisms.

| (15) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Malta's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Malta in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Malta but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below. |
| --- | --- |

(15)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Malta's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Malta in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Malta but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

| (16) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (7) is reflected in particular in recommendation 1 below. |
| --- | --- |

(16)

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

| (17) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (8). As a country whose currency is the euro, Malta should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(17)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (8). As a country whose currency is the euro, Malta should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Malta take action in 2015 and 2016 to:

| 1. | Following correction of the excessive deficit, achieve a fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2015 and 2016. |
| --- | --- |

1.

Following correction of the excessive deficit, achieve a fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2015 and 2016.

| 2. | Take measures to improve basic skills and further reduce early school-leaving by promoting the continuous professional development of teachers. |
| --- | --- |

2.

Take measures to improve basic skills and further reduce early school-leaving by promoting the continuous professional development of teachers.

| 3. | To ensure the long-term sustainability of public finances, continue the ongoing pension reform, such as by accelerating the already enacted increase in the statutory retirement age and by consecutively linking it to changes in life expectancy. |
| --- | --- |

3.

To ensure the long-term sustainability of public finances, continue the ongoing pension reform, such as by accelerating the already enacted increase in the statutory retirement age and by consecutively linking it to changes in life expectancy.

| 4. | Improve small and micro-enterprises' access to finance, in particular through non-bank instruments. |
| --- | --- |

4.

Improve small and micro-enterprises' access to finance, in particular through non-bank instruments.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Malta and delivering a Council opinion on the Stability Programme of Malta, 2014 (OJ C 247, 29.7.2014, p. 83).

3

(4)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

4

(5)  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).

5

(6)  Council Decision (EU) 2015/1025 of 19 June 2015 abrogating Decision 2013/319/EU on the existence of an excessive deficit in Malta (OJ L 163, 30.6.2015, p. 35).

6

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

7

(8)  OJ C 272, 18.8.2015, p. 98.

8

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/83 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/83

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of the Netherlands and delivering a Council opinion on the 2015 Stability Programme of the Netherlands

(2015/C 272/22)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission’s proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on the Netherlands' National Reform Programme for 2014 and delivered its opinion on the Netherlands' updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on the Netherlands' draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on the Netherlands' National Reform Programme for 2014 and delivered its opinion on the Netherlands' updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on the Netherlands' draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission 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. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission 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.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for the Netherlands. This assessed the Netherlands' progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that the Netherlands is experiencing macroeconomic imbalances, which require policy action and monitoring. Risks stemming from the high level of private debt persist and merit attention, even if recent measures support a recovery in the housing market and will help to curb mortgage growth. While the high current account surplus partly reflects structural features of the economy, the structure of the pension and tax systems may potentially be a source of inefficient allocation of capital. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for the Netherlands. This assessed the Netherlands' progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that the Netherlands is experiencing macroeconomic imbalances, which require policy action and monitoring. Risks stemming from the high level of private debt persist and merit attention, even if recent measures support a recovery in the housing market and will help to curb mortgage growth. While the high current account surplus partly reflects structural features of the economy, the structure of the pension and tax systems may potentially be a source of inefficient allocation of capital.

| (7) | On 30 April 2015, the Netherlands submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 30 April 2015, the Netherlands submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | The Netherlands is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. In its 2015 Stability Programme, the Government plans a gradual improvement of the headline deficit to 1,8 % of GDP in 2015 and further to 0,7 % of GDP in 2018. The Government plans to meet the medium-term objective — a structural deficit of 0,5 % of GDP — throughout the programme period. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak at 68,8 % in 2015 and to gradually decline to 66,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. The Commission's 2015 spring forecast expects the structural balance to meet the medium-term objective and to reach -0,3 % of GDP in 2015 and -0,4 % of GDP in 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that the Netherlands is expected to comply with the provisions of the Stability and Growth Pact. At 0,84 % of GDP in 2013, public expenditure on research and development is low in view of the educational attainment, academic achievement and the level of economic development. Government expenditure in this area is on a declining trend since 2014, while private R & D spending remains low. Shifting public expenditure towards innovation and research, in particular fundamental research, and implementing framework policies to unlock private investment in R & D would help enhance the long-term growth potential of the Dutch economy. |
| --- | --- |

(8)

The Netherlands is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. In its 2015 Stability Programme, the Government plans a gradual improvement of the headline deficit to 1,8 % of GDP in 2015 and further to 0,7 % of GDP in 2018. The Government plans to meet the medium-term objective — a structural deficit of 0,5 % of GDP — throughout the programme period. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak at 68,8 % in 2015 and to gradually decline to 66,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. The Commission's 2015 spring forecast expects the structural balance to meet the medium-term objective and to reach -0,3 % of GDP in 2015 and -0,4 % of GDP in 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that the Netherlands is expected to comply with the provisions of the Stability and Growth Pact. At 0,84 % of GDP in 2013, public expenditure on research and development is low in view of the educational attainment, academic achievement and the level of economic development. Government expenditure in this area is on a declining trend since 2014, while private R & D spending remains low. Shifting public expenditure towards innovation and research, in particular fundamental research, and implementing framework policies to unlock private investment in R & D would help enhance the long-term growth potential of the Dutch economy.

| (9) | A key challenge lies in the housing market, where rigidities and distortive incentives that have built up over decades shape house financing and sectoral savings patterns. Households' tendency to leverage up gross mortgage debt against housing wealth largely reflects long-standing fiscal incentives, in particular the full tax deductibility of mortgage interest. Since 2012, a series of measures have been implemented to partly address these incentives. Some of these involve adjustments to the fiscal treatment of housing finance. The gradual move to limit mortgage interest tax deductibility and increase the incentive to amortise is warranted. However, this measure could be phased in at a higher pace to influence amortising behaviour more. A sizeable tax incentive to invest in unproductive assets will persist. The loan-to-value ratio of 100 %, to be reached in 2018, is still high. The rental market is constrained by regulation and the existence of a very large social housing sector that also has to cope with long waiting lists. The introduction of more income-based rent differentiation in the social housing sector is a step in the right direction, but its impact is limited. Under a new law, housing corporations will have to separate activities of general economic interest (i.e. social housing) from other activities. It remains to be seen whether this leads to the intended redirection of social housing towards people in need and ensures that social housing is available to disadvantaged people unable to obtain housing at market conditions. |
| --- | --- |

(9)

A key challenge lies in the housing market, where rigidities and distortive incentives that have built up over decades shape house financing and sectoral savings patterns. Households' tendency to leverage up gross mortgage debt against housing wealth largely reflects long-standing fiscal incentives, in particular the full tax deductibility of mortgage interest. Since 2012, a series of measures have been implemented to partly address these incentives. Some of these involve adjustments to the fiscal treatment of housing finance. The gradual move to limit mortgage interest tax deductibility and increase the incentive to amortise is warranted. However, this measure could be phased in at a higher pace to influence amortising behaviour more. A sizeable tax incentive to invest in unproductive assets will persist. The loan-to-value ratio of 100 %, to be reached in 2018, is still high. The rental market is constrained by regulation and the existence of a very large social housing sector that also has to cope with long waiting lists. The introduction of more income-based rent differentiation in the social housing sector is a step in the right direction, but its impact is limited. Under a new law, housing corporations will have to separate activities of general economic interest (i.e. social housing) from other activities. It remains to be seen whether this leads to the intended redirection of social housing towards people in need and ensures that social housing is available to disadvantaged people unable to obtain housing at market conditions.

| (10) | The long-term sustainability of the pension system has been improved. In addition to gradually increasing the first-pillar statutory retirement age from 65 years in 2012 to 67 years in 2021 and linking it to life expectancy thereafter, the Netherlands has adopted comprehensive reforms of the privately funded pillar of the pension system and in the long-term care system. The financial supervision of pension funds has been improved and the system made more resilient to financial shocks. This has been complemented by successful reforms encouraging older workers to work longer. Long-term care reforms have shifted responsibilities to municipalities, bringing a reduction in overall expenditure and a focus on efficiency gains. The quality and accessibility of long-term care needs to be monitored. |
| --- | --- |

(10)

The long-term sustainability of the pension system has been improved. In addition to gradually increasing the first-pillar statutory retirement age from 65 years in 2012 to 67 years in 2021 and linking it to life expectancy thereafter, the Netherlands has adopted comprehensive reforms of the privately funded pillar of the pension system and in the long-term care system. The financial supervision of pension funds has been improved and the system made more resilient to financial shocks. This has been complemented by successful reforms encouraging older workers to work longer. Long-term care reforms have shifted responsibilities to municipalities, bringing a reduction in overall expenditure and a focus on efficiency gains. The quality and accessibility of long-term care needs to be monitored.

| (11) | Remaining challenges include an appropriate intra- and inter-generational distribution of costs and risks beyond the adopted rules on indexation and financial buffers (financial assessment framework), in particular by lowering contributions by those in the early years of working life. Improving the actuarial fairness of the contributions to the second pension pillar would help households to allocate their financial means in more growth-friendly ways. |
| --- | --- |

(11)

Remaining challenges include an appropriate intra- and inter-generational distribution of costs and risks beyond the adopted rules on indexation and financial buffers (financial assessment framework), in particular by lowering contributions by those in the early years of working life. Improving the actuarial fairness of the contributions to the second pension pillar would help households to allocate their financial means in more growth-friendly ways.

| (12) | The comprehensive reform of employment protection legislation enacted in 2014 aims to increase labour market participation and mobility. Fiscal disincentives to work have been reduced. Legislation adopted by the Parliament has introduced the possibility to activate a quota, in case employers fail to deliver the extra jobs for people with disabilities that they committed themselves to. The impact of these measures can only be fully assessed once implemented. Further measures are needed to improve the integration of people on the margins of the labour market, including those with a migrant background. |
| --- | --- |

(12)

The comprehensive reform of employment protection legislation enacted in 2014 aims to increase labour market participation and mobility. Fiscal disincentives to work have been reduced. Legislation adopted by the Parliament has introduced the possibility to activate a quota, in case employers fail to deliver the extra jobs for people with disabilities that they committed themselves to. The impact of these measures can only be fully assessed once implemented. Further measures are needed to improve the integration of people on the margins of the labour market, including those with a migrant background.

| (13) | Taking into account compulsory non-tax payments, the tax wedge in the Netherlands is significantly higher than the EU average and there is scope to shift taxation to factors less detrimental to growth. The envisaged tax reform would contribute to increasing labour market participation. Once adopted, its impact needs to be closely monitored. |
| --- | --- |

(13)

Taking into account compulsory non-tax payments, the tax wedge in the Netherlands is significantly higher than the EU average and there is scope to shift taxation to factors less detrimental to growth. The envisaged tax reform would contribute to increasing labour market participation. Once adopted, its impact needs to be closely monitored.

| (14) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Netherlands' economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to the Netherlands in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Netherlands but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below. |
| --- | --- |

(14)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Netherlands' economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to the Netherlands in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Netherlands but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below.

| (15) | In the light of this assessment, the Council has examined the Stability Programme, and is of the opinion (6) that the Netherlands complies with the Stability and Growth Pact. |
| --- | --- |

(15)

In the light of this assessment, the Council has examined the Stability Programme, and is of the opinion (6) that the Netherlands complies with the Stability and Growth Pact.

| (16) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 3 below. |
| --- | --- |

(16)

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

| (17) | In the context of the European Semester the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, the Netherlands should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(17)

In the context of the European Semester the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, the Netherlands should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that the Netherlands take action in 2015 and 2016 to:

| 1. | Shift public expenditure towards supporting investment in R & D and work on framework conditions for improving private R & D expenditure in order to counter the declining trend in public R & D expenditure and increase the potential for economic growth. |
| --- | --- |

1.

Shift public expenditure towards supporting investment in R & D and work on framework conditions for improving private R & D expenditure in order to counter the declining trend in public R & D expenditure and increase the potential for economic growth.

| 2. | With the strengthening of the recovery, accelerate the decrease in mortgage interest tax deductibility so that tax incentives to invest in unproductive assets are reduced. Provide for a more market-oriented pricing mechanism in the rental market and further relate rents to household income in the social housing sector. |
| --- | --- |

2.

With the strengthening of the recovery, accelerate the decrease in mortgage interest tax deductibility so that tax incentives to invest in unproductive assets are reduced. Provide for a more market-oriented pricing mechanism in the rental market and further relate rents to household income in the social housing sector.

| 3. | Reduce the level of contributions to the second pillar of the pension system for those in the early years of working life. |
| --- | --- |

3.

Reduce the level of contributions to the second pillar of the pension system for those in the early years of working life.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

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

2

(3)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of the Netherlands and delivering a Council opinion on the Stability Programme of the Netherlands, 2014 (OJ C 247, 29.7.2014, p. 88).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/87 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/87

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Austria and delivering a Council opinion on the 2015 Stability Programme of Austria

(2015/C 272/23)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Austria's National Reform Programme for 2014 and delivered its opinion on Austria's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Austria's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Austria's National Reform Programme for 2014 and delivered its opinion on Austria's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Austria's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Austria was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), the Commission adopted the Alert Mechanism Report, in which Austria was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Austria. This assessed Austria's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Austria. This assessed Austria's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 21 April 2015, Austria submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 21 April 2015, Austria submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Austria is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule over 2014-2016. In its 2015 Stability Programme, the Government plans to improve the headline deficit gradually to 2,2 % of GDP in 2015 and further to 0,5 % of GDP in 2019. According to the Stability Programme, the medium-term objective — a structural deficit not higher than 0,45 % of GDP — was reached in 2014, and the Government plans to meet the medium-term objective throughout the programme period. However, the recalculated structural balance points to a departure from the medium-term objective as of 2015. The government debt-to-GDP ratio is expected to peak at 86,8 % in 2015 and to gradually decline to 79,7 % in 2019. The macroeconomic scenario underpinning the budgetary projections in the Stability Programme is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, the structural balance is forecast to deviate by 0,4 % of GDP from the medium-term objective in 2015. The deviation is set to become significant in 2016 in view of the projected 0,6 % of GDP worsening of the structural balance compared to the 0,3 % of GDP structural adjustment required in order to reach the medium-term objective. This would imply a deviation of about 0,9 % of GDP from the requirement of the Stability and Growth Pact. Therefore, further measures will be needed. At the same time, according to the Stability Programme and the Commission's 2015 spring forecast, gross debt will remain on a downward path in line with the transitional debt rule in 2015 and 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Austria will not comply with the provisions of the Stability and Growth Pact. |
| --- | --- |

(8)

Austria is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule over 2014-2016. In its 2015 Stability Programme, the Government plans to improve the headline deficit gradually to 2,2 % of GDP in 2015 and further to 0,5 % of GDP in 2019. According to the Stability Programme, the medium-term objective — a structural deficit not higher than 0,45 % of GDP — was reached in 2014, and the Government plans to meet the medium-term objective throughout the programme period. However, the recalculated structural balance points to a departure from the medium-term objective as of 2015. The government debt-to-GDP ratio is expected to peak at 86,8 % in 2015 and to gradually decline to 79,7 % in 2019. The macroeconomic scenario underpinning the budgetary projections in the Stability Programme is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, the structural balance is forecast to deviate by 0,4 % of GDP from the medium-term objective in 2015. The deviation is set to become significant in 2016 in view of the projected 0,6 % of GDP worsening of the structural balance compared to the 0,3 % of GDP structural adjustment required in order to reach the medium-term objective. This would imply a deviation of about 0,9 % of GDP from the requirement of the Stability and Growth Pact. Therefore, further measures will be needed. At the same time, according to the Stability Programme and the Commission's 2015 spring forecast, gross debt will remain on a downward path in line with the transitional debt rule in 2015 and 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Austria will not comply with the provisions of the Stability and Growth Pact.

| (9) | Relations between different levels of government remain complex and cause efficiency losses in crucial sectors of public administration. Austria remains one of the countries with the lowest level of subnational own taxes in percentage of GDP. Despite this low level of tax autonomy, subnational governments have several spending and administrative responsibilities. The high level of complexity and misalignment between revenue and spending responsibilities is not conducive to implementation of broad policy reforms. |
| --- | --- |

(9)

Relations between different levels of government remain complex and cause efficiency losses in crucial sectors of public administration. Austria remains one of the countries with the lowest level of subnational own taxes in percentage of GDP. Despite this low level of tax autonomy, subnational governments have several spending and administrative responsibilities. The high level of complexity and misalignment between revenue and spending responsibilities is not conducive to implementation of broad policy reforms.

| (10) | The long-term fiscal sustainability of the Austrian pension system still suffers from structural weaknesses. Austria's reforms to date do not seem sufficient to ensure the system's long-term fiscal sustainability. First, the effective retirement age remains considerably below the statutory retirement age. Secondly, the statutory retirement age of women is well below that of men and will not be raised until 2024. Thirdly, the statutory retirement age is still not coupled to continuously rising life expectancy. Austria has taken some measures to increase the effective retirement age, which is now at 59,7 years (2014), but which remains below the EU average of 63,1 years (2013). Measures have been put in place to close avenues to early retirement and invalidity schemes, thereby extending working lives. Also, the penalty per year of early retirement and the period of pensionable service needed to qualify for such schemes have been increased. It remains unclear whether the expected positive budgetary effects of these measures will materialise. |
| --- | --- |

(10)

The long-term fiscal sustainability of the Austrian pension system still suffers from structural weaknesses. Austria's reforms to date do not seem sufficient to ensure the system's long-term fiscal sustainability. First, the effective retirement age remains considerably below the statutory retirement age. Secondly, the statutory retirement age of women is well below that of men and will not be raised until 2024. Thirdly, the statutory retirement age is still not coupled to continuously rising life expectancy. Austria has taken some measures to increase the effective retirement age, which is now at 59,7 years (2014), but which remains below the EU average of 63,1 years (2013). Measures have been put in place to close avenues to early retirement and invalidity schemes, thereby extending working lives. Also, the penalty per year of early retirement and the period of pensionable service needed to qualify for such schemes have been increased. It remains unclear whether the expected positive budgetary effects of these measures will materialise.

| (11) | Austrian healthcare spending ranks amongst the highest in the Union. The ongoing healthcare reform (2013-2016) is aimed at stabilising it as a proportion of GDP as of 2016. However, even if the reforms are successful, the fiscal sustainability and efficiency of the healthcare system still face structural challenges. Measures should be taken now with regard to the period after 2016. For example, more patients should be treated in multidisciplinary primary outpatient care settings and the average length of stay for inpatient treatment should be lowered further. |
| --- | --- |

(11)

Austrian healthcare spending ranks amongst the highest in the Union. The ongoing healthcare reform (2013-2016) is aimed at stabilising it as a proportion of GDP as of 2016. However, even if the reforms are successful, the fiscal sustainability and efficiency of the healthcare system still face structural challenges. Measures should be taken now with regard to the period after 2016. For example, more patients should be treated in multidisciplinary primary outpatient care settings and the average length of stay for inpatient treatment should be lowered further.

| (12) | Ensuring the long-term availability of adequately qualified labour remains a challenge for Austria. At about 5,6 %, the unemployment rate is among the lowest in the Union, but the labour market potential of certain parts of the labour force is not fully tapped. Austria has taken some measures to extend working lives, better facilitate labour market participation by women and exploit more fully the potential of labour market participants of migrant background, including through improved recognition of their qualifications. However, recent reforms must be closely monitored and more measures are necessary to utilise fully the labour market potential of these groups. |
| --- | --- |

(12)

Ensuring the long-term availability of adequately qualified labour remains a challenge for Austria. At about 5,6 %, the unemployment rate is among the lowest in the Union, but the labour market potential of certain parts of the labour force is not fully tapped. Austria has taken some measures to extend working lives, better facilitate labour market participation by women and exploit more fully the potential of labour market participants of migrant background, including through improved recognition of their qualifications. However, recent reforms must be closely monitored and more measures are necessary to utilise fully the labour market potential of these groups.

| (13) | On 13 March 2015, Austria presented a comprehensive tax reform aimed at remodulating tax brackets and rates of personal income tax, in particular by reducing the entry rate for personal income tax from 36,5 % to 25 %. The tax relief is estimated to amount to EUR 4,9 billion, while EUR 300 million of additional expenditure is envisaged to support family policy and research activities. Under the proposal, the tax shift will be financed partly by fighting tax evasion, lowering public expenditure, increasing reduced VAT rates to 13 % in some areas and raising capital income tax from 25 % to 27,5 %. These reform plans are broadly in line with the Council's 2014 recommendations. They are likely to increase incentives to work for individuals with low earnings potential and second earners, and to support disposable income. However, the reform should be implemented in a budget-neutral way. |
| --- | --- |

(13)

On 13 March 2015, Austria presented a comprehensive tax reform aimed at remodulating tax brackets and rates of personal income tax, in particular by reducing the entry rate for personal income tax from 36,5 % to 25 %. The tax relief is estimated to amount to EUR 4,9 billion, while EUR 300 million of additional expenditure is envisaged to support family policy and research activities. Under the proposal, the tax shift will be financed partly by fighting tax evasion, lowering public expenditure, increasing reduced VAT rates to 13 % in some areas and raising capital income tax from 25 % to 27,5 %. These reform plans are broadly in line with the Council's 2014 recommendations. They are likely to increase incentives to work for individuals with low earnings potential and second earners, and to support disposable income. However, the reform should be implemented in a budget-neutral way.

| (14) | The Austrian school system is characterised by a low number of early school leavers, well below the EU average. A strong and well-functioning system of vocational education and training provides a large pool of highly skilled workers. However, improving educational outcomes and hence the employability of young people with low socioeconomic status, in particular those from migrant backgrounds, remains a challenge. The evaluation of the implementation of a new secondary school system (Neue Mittelschule) has revealed weaknesses that still need to be addressed. |
| --- | --- |

(14)

The Austrian school system is characterised by a low number of early school leavers, well below the EU average. A strong and well-functioning system of vocational education and training provides a large pool of highly skilled workers. However, improving educational outcomes and hence the employability of young people with low socioeconomic status, in particular those from migrant backgrounds, remains a challenge. The evaluation of the implementation of a new secondary school system (Neue Mittelschule) has revealed weaknesses that still need to be addressed.

| (15) | In the context of the European Semester, the Council has consistently recommended that Austria improve and promote competition in services, but the policy response has been limited so far. Legal form, shareholding and tariff requirements are still in place for several professions, creating regulatory barriers to market access and preventing professionals or professional companies from other Member States from setting up a business in Austria. In the context of the mutual evaluation exercise, Austria is reviewing its rules on access to professions and the performance of professional activities to assess whether they are proportionate and in the general interest. Compared with competition authorities in other Member States, the Federal Competition Authority is under-resourced and this impedes more effective action. |
| --- | --- |

(15)

In the context of the European Semester, the Council has consistently recommended that Austria improve and promote competition in services, but the policy response has been limited so far. Legal form, shareholding and tariff requirements are still in place for several professions, creating regulatory barriers to market access and preventing professionals or professional companies from other Member States from setting up a business in Austria. In the context of the mutual evaluation exercise, Austria is reviewing its rules on access to professions and the performance of professional activities to assess whether they are proportionate and in the general interest. Compared with competition authorities in other Member States, the Federal Competition Authority is under-resourced and this impedes more effective action.

| (16) | The Austrian banking sector has remained resilient, but still faces a number of challenges both domestically and as regards vulnerable foreign exposures. Banking sector capitalisation continued to improve in 2014, but the profitability of Austrian banks remained under pressure. Five of the six largest Austrian credit institutions passed the ECB comprehensive assessment in 2014, the exception being Österreichische Volksbanken (ÖVAG). Austria made considerable progress in restructuring ÖVAG and Hypo Group Alpe Adria (HGAA). |
| --- | --- |

(16)

The Austrian banking sector has remained resilient, but still faces a number of challenges both domestically and as regards vulnerable foreign exposures. Banking sector capitalisation continued to improve in 2014, but the profitability of Austrian banks remained under pressure. Five of the six largest Austrian credit institutions passed the ECB comprehensive assessment in 2014, the exception being Österreichische Volksbanken (ÖVAG). Austria made considerable progress in restructuring ÖVAG and Hypo Group Alpe Adria (HGAA).

| (17) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Austria's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Austria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Austria but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below. |
| --- | --- |

(17)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Austria's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Austria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Austria but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

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

(18)

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

| (19) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Austria should also ensure the full and timely implementation of those recommendations, |
| --- | --- |

(19)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Austria should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Austria take action in 2015 and 2016 to:

| 1. | Avoid deviating from the medium-term budgetary objective in 2015 and 2016. Ensure the budget neutrality of the tax reform aimed at reducing the tax burden on labour. Correct the misalignment between the financing and spending responsibilities of the different levels of government. Take measures to ensure the long-term sustainability of the pension system, including by earlier harmonisation of the statutory retirement age for men and women, and link the statutory retirement age to life expectancy. |
| --- | --- |

1.

Avoid deviating from the medium-term budgetary objective in 2015 and 2016. Ensure the budget neutrality of the tax reform aimed at reducing the tax burden on labour. Correct the misalignment between the financing and spending responsibilities of the different levels of government. Take measures to ensure the long-term sustainability of the pension system, including by earlier harmonisation of the statutory retirement age for men and women, and link the statutory retirement age to life expectancy.

| 2. | Strengthen measures to increase the labour market participation of older workers and women, including by improving the provision of childcare and long-term care services. Take steps to improve the educational achievement of disadvantaged young people. |
| --- | --- |

2.

Strengthen measures to increase the labour market participation of older workers and women, including by improving the provision of childcare and long-term care services. Take steps to improve the educational achievement of disadvantaged young people.

| 3. | Remove disproportionate barriers for service providers and impediments to setting up interdisciplinary companies. |
| --- | --- |

3.

Remove disproportionate barriers for service providers and impediments to setting up interdisciplinary companies.

| 4. | Address the potential vulnerabilities of the financial sector in terms of foreign exposure and insufficient asset quality. |
| --- | --- |

4.

Address the potential vulnerabilities of the financial sector in terms of foreign exposure and insufficient asset quality.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Austria and delivering a Council opinion on the Stability Programme of Austria, 2014 (OJ C 247, 29.7.2014, p. 92).

3

(4)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

4

(5)  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).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/91 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/91

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Poland and delivering a Council opinion on the 2015 Convergence Programme of Poland

(2015/C 272/24)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (3) on Poland's National Reform Programme for 2014 and delivered its opinion on Poland's updated Convergence Programme for 2014. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (3) on Poland's National Reform Programme for 2014 and delivered its opinion on Poland's updated Convergence Programme for 2014.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Poland was not identified as one of the Member States for which an in-depth review would be carried out. |
| --- | --- |

(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (4), the Commission adopted the Alert Mechanism Report, in which Poland was not identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
| --- | --- |

(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Poland. This assessed Poland's progress in addressing the country-specific recommendations adopted on 8 July 2014. |
| --- | --- |

(6)

On 26 February 2015, the Commission published its 2015 country report for Poland. This assessed Poland's progress in addressing the country-specific recommendations adopted on 8 July 2014.

| (7) | On 29 April 2015, Poland submitted its 2015 National Reform Programme and on 30 April 2015 its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
| --- | --- |

(7)

On 29 April 2015, Poland submitted its 2015 National Reform Programme and on 30 April 2015 its 2015 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Poland is currently in the preventive arm of the Stability and Growth Pact following the abrogation of the Excessive Deficit Procedure in June 2015 (5). In its 2015 Convergence Programme, the Government plans to gradually reduce the headline deficit from 3,2 % of GDP to 2,7 % of GDP in 2015 and further to 1,2 % of GDP in 2018. Based on the Commission's 2015 spring forecast, the excessive deficit can be considered to have been already corrected in 2014, one year ahead of the deadline, taking into account that the excess over the 3 %-of-GDP Treaty reference value is explained by the net budgetary cost of the systemic pension reform. According to the Convergence Programme, the Government plans to reach the medium-term objective — a structural deficit of 1 % of GDP — by 2019. After a peak of 51,7 % in the government debt-to-GDP ratio in 2015 the Government plans to reduce it to 49,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible in 2015 and favourable in 2016. On the basis of an overall assessment, Poland is projected to comply with the required adjustment towards the medium-term objective in 2015 since net expenditure growth is below the benchmark. Measures to support the planned deficit targets from 2016 have not been sufficiently specified. In the light of the Commission's 2015 spring forecast, there is a risk of some deviation from the required adjustment in 2016 as the structural adjustment falls short of the requirement. Therefore, further measures will be needed in 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Poland is expected to broadly comply with the provisions of the Stability and Growth Pact. Tax revenues could be increased by reducing the extensive use currently made of reduced VAT rates and by increasing the efficiency of the tax administration. |
| --- | --- |

(8)

Poland is currently in the preventive arm of the Stability and Growth Pact following the abrogation of the Excessive Deficit Procedure in June 2015 (5). In its 2015 Convergence Programme, the Government plans to gradually reduce the headline deficit from 3,2 % of GDP to 2,7 % of GDP in 2015 and further to 1,2 % of GDP in 2018. Based on the Commission's 2015 spring forecast, the excessive deficit can be considered to have been already corrected in 2014, one year ahead of the deadline, taking into account that the excess over the 3 %-of-GDP Treaty reference value is explained by the net budgetary cost of the systemic pension reform. According to the Convergence Programme, the Government plans to reach the medium-term objective — a structural deficit of 1 % of GDP — by 2019. After a peak of 51,7 % in the government debt-to-GDP ratio in 2015 the Government plans to reduce it to 49,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible in 2015 and favourable in 2016. On the basis of an overall assessment, Poland is projected to comply with the required adjustment towards the medium-term objective in 2015 since net expenditure growth is below the benchmark. Measures to support the planned deficit targets from 2016 have not been sufficiently specified. In the light of the Commission's 2015 spring forecast, there is a risk of some deviation from the required adjustment in 2016 as the structural adjustment falls short of the requirement. Therefore, further measures will be needed in 2016. Based on its assessment of the Convergence Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that Poland is expected to broadly comply with the provisions of the Stability and Growth Pact. Tax revenues could be increased by reducing the extensive use currently made of reduced VAT rates and by increasing the efficiency of the tax administration.

| (9) | Poland's fiscal framework would benefit from the creation of an independent body, either as a stand-alone institution or within an existing institution, responsible for carrying out ex ante and ex post assessments of compliance with fiscal rules, assessment of macroeconomic and budgetary forecasts, and analysis of the long-term sustainability of public finances. |
| --- | --- |

(9)

Poland's fiscal framework would benefit from the creation of an independent body, either as a stand-alone institution or within an existing institution, responsible for carrying out ex ante and ex post assessments of compliance with fiscal rules, assessment of macroeconomic and budgetary forecasts, and analysis of the long-term sustainability of public finances.

| (10) | Poland reversed the systemic pension reform of 1999 at the end of 2013. While producing some budgetary relief in the short term, the reversal of the systemic pension reform of 1999 does not improve the long-term sustainability of public finances, as the short-term benefits from higher social contributions and lower interest payments will be offset by higher future pension payments from the public pension pillar. Overall the reversal of the systemic pension reform of 1999 carries some risks for Polish public finance in the long run. |
| --- | --- |

(10)

Poland reversed the systemic pension reform of 1999 at the end of 2013. While producing some budgetary relief in the short term, the reversal of the systemic pension reform of 1999 does not improve the long-term sustainability of public finances, as the short-term benefits from higher social contributions and lower interest payments will be offset by higher future pension payments from the public pension pillar. Overall the reversal of the systemic pension reform of 1999 carries some risks for Polish public finance in the long run.

| (11) | The social security privileges granted to farmers and miners continue to hamper professional mobility and impose significant costs on public finances. These preferential schemes deter people from moving to more productive sectors, create hidden unemployment and, due to low contributions, are heavily subsidised by taxpayers. In 2014 Poland's agricultural sector employs 11,5 % of the workforce, more than double the EU average, while generating only 3,3 % of national gross value added. State subsidies to the social security scheme for farmers are worth almost 1 % of GDP, and those to miners' pensions 0,5 % of GDP. The link between contributions and benefits is weak and contributions are mostly based on a flat rate. Farmers on high incomes cannot be systematically excluded from the scheme, and the system is therefore open to abuse. Introducing a system for recording and assessing farmers' incomes would constitute an indispensable first step towards a reform of the social security scheme for farmers. |
| --- | --- |

(11)

The social security privileges granted to farmers and miners continue to hamper professional mobility and impose significant costs on public finances. These preferential schemes deter people from moving to more productive sectors, create hidden unemployment and, due to low contributions, are heavily subsidised by taxpayers. In 2014 Poland's agricultural sector employs 11,5 % of the workforce, more than double the EU average, while generating only 3,3 % of national gross value added. State subsidies to the social security scheme for farmers are worth almost 1 % of GDP, and those to miners' pensions 0,5 % of GDP. The link between contributions and benefits is weak and contributions are mostly based on a flat rate. Farmers on high incomes cannot be systematically excluded from the scheme, and the system is therefore open to abuse. Introducing a system for recording and assessing farmers' incomes would constitute an indispensable first step towards a reform of the social security scheme for farmers.

| (12) | Labour market segmentation persists in Poland. The incidence of temporary contracts is the highest in the Union, while the transition rate from temporary to permanent employment is low and the wage differential the highest in the Union. Rigid dismissal provisions, long judicial proceedings and other burdens placed on employers encourage the use of fixed-term and non-standard employment contracts. Furthermore, the perceived high cost of contracts covered by the Labour Code leads to excessive use of civil law contracts (umowy cywilnoprawne), which are attractive to employers due to the associated lower social security contributions. The high proportion of contracts of this type, i.e. associated with lower contributions, may, however, reduce the quality of employment available, especially for young workers. Youth unemployment is high, partly as a result of the mismatch between candidates' qualifications and skills, on the one hand, and labour market needs, on the other. Continued efforts are therefore needed to reform the system of vocational education and training and to increase the low level of participation in lifelong learning. Female labour market participation remains low. In order to address this issue, Poland has increased the availability of pre-school education, but still ranks among the poorest-performing Member States for the availability of early childcare services. |
| --- | --- |

(12)

Labour market segmentation persists in Poland. The incidence of temporary contracts is the highest in the Union, while the transition rate from temporary to permanent employment is low and the wage differential the highest in the Union. Rigid dismissal provisions, long judicial proceedings and other burdens placed on employers encourage the use of fixed-term and non-standard employment contracts. Furthermore, the perceived high cost of contracts covered by the Labour Code leads to excessive use of civil law contracts (umowy cywilnoprawne), which are attractive to employers due to the associated lower social security contributions. The high proportion of contracts of this type, i.e. associated with lower contributions, may, however, reduce the quality of employment available, especially for young workers. Youth unemployment is high, partly as a result of the mismatch between candidates' qualifications and skills, on the one hand, and labour market needs, on the other. Continued efforts are therefore needed to reform the system of vocational education and training and to increase the low level of participation in lifelong learning. Female labour market participation remains low. In order to address this issue, Poland has increased the availability of pre-school education, but still ranks among the poorest-performing Member States for the availability of early childcare services.

| (13) | The railway sector suffers as a result of high track-access charges and inadequate national financing. Procedures for designing and implementing projects tend to be lengthy and cumbersome, as a result of the regulatory and administrative environment. While the recent legislative changes may have a positive effect on railway transport, they are unlikely to affect investment projects launched during the 2007-2013 programming period. Over the period 2014-2020, however, EU funding for the railway sector is to be significantly increased. |
| --- | --- |

(13)

The railway sector suffers as a result of high track-access charges and inadequate national financing. Procedures for designing and implementing projects tend to be lengthy and cumbersome, as a result of the regulatory and administrative environment. While the recent legislative changes may have a positive effect on railway transport, they are unlikely to affect investment projects launched during the 2007-2013 programming period. Over the period 2014-2020, however, EU funding for the railway sector is to be significantly increased.

| (14) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Poland's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Poland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Poland but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below. |
| --- | --- |

(14)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Poland's economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Poland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Poland but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

| (15) | In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (6) is reflected in particular in recommendation (1) below. |
| --- | --- |

(15)

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

HEREBY RECOMMENDS that Poland take action in 2015 and 2016 to:

| 1. | Following the correction of the excessive deficit, achieve a fiscal adjustment of 0,5 % of GDP towards the medium-term budgetary objective both in 2015 and 2016. Establish an independent fiscal council. Broaden the tax base, in particular by limiting the use of the extensive system of reduced VAT rates. |
| --- | --- |

1.

Following the correction of the excessive deficit, achieve a fiscal adjustment of 0,5 % of GDP towards the medium-term budgetary objective both in 2015 and 2016. Establish an independent fiscal council. Broaden the tax base, in particular by limiting the use of the extensive system of reduced VAT rates.

| 2. | Start the process of aligning the pension arrangements for farmers and miners with those for other workers, and adopt a timetable for progressive full alignment; put in place a system for assessing and recording farmers' incomes. |
| --- | --- |

2.

Start the process of aligning the pension arrangements for farmers and miners with those for other workers, and adopt a timetable for progressive full alignment; put in place a system for assessing and recording farmers' incomes.

| 3. | Take measures to reduce the excessive use of temporary and civil law contracts in the labour market. |
| --- | --- |

3.

Take measures to reduce the excessive use of temporary and civil law contracts in the labour market.

| 4. | Remove obstacles to investment in railway projects. |
| --- | --- |

4.

Remove obstacles to investment in railway projects.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

---

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

1

(2)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

2

(3)  Council Recommendation of 8 July 2014 on National Reform Programme 2014 of Poland and delivering a Council opinion on the Convergence Programme of Poland, 2014 (OJ C 247, 29.7.2014, p. 97).

3

(4)  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).

4

(5)  Council Decision (EU) 2015/1026 of 19 June 2015 abrogating Decision 2009/589/EC on the existence of an excessive deficit in Poland (OJ L 163, 30.6.2015, p. 37).

5

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

6

---

| 18.8.2015 | EN | Official Journal of the European Union | C 272/94 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/94

---

COUNCIL RECOMMENDATION

of 14 July 2015

on the 2015 National Reform Programme of Portugal and delivering a Council opinion on the 2015 Stability Programme of Portugal

(2015/C 272/25)

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

(1)

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

| (2) | On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies. |
| --- | --- |

(2)

On 14 July 2015, the Council, on the basis of the Commission's proposals, adopted a Recommendation on the broad guidelines for the economic policies of the Member States and the Union and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (3). Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

| (3) | On 8 July 2014, the Council adopted a Recommendation (4) on Portugal's National Reform Programme for 2014 and delivered its opinion on Portugal's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Portugal's draft budgetary plan for 2015. |
| --- | --- |

(3)

On 8 July 2014, the Council adopted a Recommendation (4) on Portugal's National Reform Programme for 2014 and delivered its opinion on Portugal's updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (5), the Commission presented its opinion on Portugal's draft budgetary plan for 2015.

| (4) | On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Portugal was identified as one of the Member States for which an in-depth review would be carried out. |
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(4)

On 28 November 2014, the Commission adopted the Annual Growth Survey, marking the start of the 2015 European Semester for economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which Portugal was identified as one of the Member States for which an in-depth review would be carried out.

| (5) | On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation. |
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(5)

On 18 December 2014, the European Council endorsed the priorities for fostering investment, intensifying structural reforms and pursuing responsible growth-friendly fiscal consolidation.

| (6) | On 26 February 2015, the Commission published its 2015 country report for Portugal. This assessed Portugal's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Portugal is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. It is true that considerable progress has been achieved through the adjustment programme, both as regards economic adjustment and policies. Despite the deleveraging effort observed in the households and non financial corporations sectors, significant risks remain, linked to the high levels of internal and external indebtedness across various sectors, and these deserve close attention. There are also strong deleveraging pressures in a context of low growth, low inflation and high unemployment. |
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(6)

On 26 February 2015, the Commission published its 2015 country report for Portugal. This assessed Portugal's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude that Portugal is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. It is true that considerable progress has been achieved through the adjustment programme, both as regards economic adjustment and policies. Despite the deleveraging effort observed in the households and non financial corporations sectors, significant risks remain, linked to the high levels of internal and external indebtedness across various sectors, and these deserve close attention. There are also strong deleveraging pressures in a context of low growth, low inflation and high unemployment.

| (7) | On 28 April 2015, Portugal submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. |
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(7)

On 28 April 2015, Portugal submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

| (8) | Portugal is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to correct the excessive deficit by 2015, in line with the deadline set by the Council. It sets out to reduce the headline deficit to 2,7 % of GDP in 2015 and gradually further to 0,6 % of GDP in 2018. According to the Stability Programme, the Government plans to meet the medium-term objective — a structural deficit of 0,5 % of GDP — in 2016. The government debt-to-GDP ratio is expected to decrease to 124,2 % in 2015 and further to around 112,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible for 2015 and 2016, but rather optimistic for 2017 and 2018 for which some risks have also been identified by the Portuguese Public Finance Council. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2015 is not yet ensured, but within reach. At the same time, the fiscal effort is below what is recommended by the Council. Assuming that the excessive deficit is corrected, Portugal would be subject to the preventive arm of the Pact as of 2016. Balance-improving measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified and appear to be insufficient in size. Therefore, there appears to be a risk of a significant deviation from the required adjustment towards the medium-term objective in 2016 and further structural measures will be needed. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Portugal will not comply with the provisions of the Stability and Growth Pact. |
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(8)

Portugal is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the Government plans to correct the excessive deficit by 2015, in line with the deadline set by the Council. It sets out to reduce the headline deficit to 2,7 % of GDP in 2015 and gradually further to 0,6 % of GDP in 2018. According to the Stability Programme, the Government plans to meet the medium-term objective — a structural deficit of 0,5 % of GDP — in 2016. The government debt-to-GDP ratio is expected to decrease to 124,2 % in 2015 and further to around 112,1 % in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible for 2015 and 2016, but rather optimistic for 2017 and 2018 for which some risks have also been identified by the Portuguese Public Finance Council. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2015 is not yet ensured, but within reach. At the same time, the fiscal effort is below what is recommended by the Council. Assuming that the excessive deficit is corrected, Portugal would be subject to the preventive arm of the Pact as of 2016. Balance-improving measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified and appear to be insufficient in size. Therefore, there appears to be a risk of a significant deviation from the required adjustment towards the medium-term objective in 2016 and further structural measures will be needed. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Portugal will not comply with the provisions of the Stability and Growth Pact.

| (9) | Fiscal consolidation must be underpinned by increased efficiency and quality of public expenditure at all levels of public administration and further reforms of the system for managing public finances. In particular, further efforts are necessary to ensure strict expenditure control by enforcing the commitment control law and strengthening accountability. The Law on the single wage scale was published in September 2014 and has been applied since January 2015; implementation of the Decree-law on the single supplements scale is under preparation. The restructuring of state-owned enterprises has not been completed. There has been limited progress in developing new comprehensive measures as part of the ongoing pension reform following the Constitutional Court judgements of August 2014. Portugal has undergone a comprehensive reform of its tax system in the past two years, targeting corporate income tax, personal income tax and environmental taxation. The overall impact of this reform should be evaluated. There is ample scope for further reforms to modernise the revenue administration and to further improve taxpayer compliance. |
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(9)

Fiscal consolidation must be underpinned by increased efficiency and quality of public expenditure at all levels of public administration and further reforms of the system for managing public finances. In particular, further efforts are necessary to ensure strict expenditure control by enforcing the commitment control law and strengthening accountability. The Law on the single wage scale was published in September 2014 and has been applied since January 2015; implementation of the Decree-law on the single supplements scale is under preparation. The restructuring of state-owned enterprises has not been completed. There has been limited progress in developing new comprehensive measures as part of the ongoing pension reform following the Constitutional Court judgements of August 2014. Portugal has undergone a comprehensive reform of its tax system in the past two years, targeting corporate income tax, personal income tax and environmental taxation. The overall impact of this reform should be evaluated. There is ample scope for further reforms to modernise the revenue administration and to further improve taxpayer compliance.

| (10) | The collective bargaining system has recently undergone several reforms, though not all of them promote the alignment of wages to productivity at sector and firm level. The challenge of the system is to allow firms to adjust to specific circumstances. This includes effective use of existing provisions for firms to derogate from sectorial collective agreements under specific circumstances. Despite the freeze in recent years, the minimum wage has risen significantly faster than the average wage in nominal terms since 2008 and the proportion of workers covered by the minimum wage has risen from 5 % in 2005 to 12,9 % in 2014. |
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(10)

The collective bargaining system has recently undergone several reforms, though not all of them promote the alignment of wages to productivity at sector and firm level. The challenge of the system is to allow firms to adjust to specific circumstances. This includes effective use of existing provisions for firms to derogate from sectorial collective agreements under specific circumstances. Despite the freeze in recent years, the minimum wage has risen significantly faster than the average wage in nominal terms since 2008 and the proportion of workers covered by the minimum wage has risen from 5 % in 2005 to 12,9 % in 2014.

| (11) | Significant progress has been made regarding the deployment of active labour market policies and the reform of public employment services. However, challenges remain as regards reaching the young people who are neither in employment nor in education or training. There is a need to increase the digitisation of services in charge of labour market matching. Ensuring adequate coverage of social assistance, in particular the minimum income scheme, remains a key challenge. Some progress has been made in improving the quality and labour-market relevance of education. Portugal has reformed curricula and teachers' statutes in order to improve the quality of education. The use of the monitoring tool and the diversification of pathways with new vocational education and training programmes should address early school leaving and help improve performance rates. Recent reforms are designed to upgrade the vocational education and training system, but making it more attractive to students remains a challenge. Fostering knowledge transfers between higher education, private-sector firms and research organisations also represents a challenge. |
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(11)

Significant progress has been made regarding the deployment of active labour market policies and the reform of public employment services. However, challenges remain as regards reaching the young people who are neither in employment nor in education or training. There is a need to increase the digitisation of services in charge of labour market matching. Ensuring adequate coverage of social assistance, in particular the minimum income scheme, remains a key challenge. Some progress has been made in improving the quality and labour-market relevance of education. Portugal has reformed curricula and teachers' statutes in order to improve the quality of education. The use of the monitoring tool and the diversification of pathways with new vocational education and training programmes should address early school leaving and help improve performance rates. Recent reforms are designed to upgrade the vocational education and training system, but making it more attractive to students remains a challenge. Fostering knowledge transfers between higher education, private-sector firms and research organisations also represents a challenge.

| (12) | The high debt of Portuguese firms still weighs on their performance and impedes new investments, and households' indebtedness has declined markedly. Following up on the Comprehensive Assessment exercise, the Central Bank stepped up its monitoring of banks' liquidity and capital position, and also assessed banks' recovery plans. The ratio of non-performing corporate loans remains high (above 18 %) and is a burden on banks' balance sheets. The corporate income tax reform initiated in 2014 strengthens the limits for the deductibility of net financial expenses, but the high debt bias in corporate taxation could be further addressed. The corporate restructuring platforms/processes PER and SIREVE are being re-designed, with an enhanced focus on helping viable firms to stay in business rather than go into liquidation. Deleveraging figures for 2014 show substantial progress in implementing measures to reduce corporate debt overhang. The strategic plan for corporate debt restructuring, published in May 2014, is gradually taking shape in legislation through various measures. There is also progress in widening the range of financing alternatives available to non-financial firms by encouraging equity investments. The Development Finance Institution, formally established in September 2014, intends to address market failures that hamper SMEs' access to finance. |
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(12)

The high debt of Portuguese firms still weighs on their performance and impedes new investments, and households' indebtedness has declined markedly. Following up on the Comprehensive Assessment exercise, the Central Bank stepped up its monitoring of banks' liquidity and capital position, and also assessed banks' recovery plans. The ratio of non-performing corporate loans remains high (above 18 %) and is a burden on banks' balance sheets. The corporate income tax reform initiated in 2014 strengthens the limits for the deductibility of net financial expenses, but the high debt bias in corporate taxation could be further addressed. The corporate restructuring platforms/processes PER and SIREVE are being re-designed, with an enhanced focus on helping viable firms to stay in business rather than go into liquidation. Deleveraging figures for 2014 show substantial progress in implementing measures to reduce corporate debt overhang. The strategic plan for corporate debt restructuring, published in May 2014, is gradually taking shape in legislation through various measures. There is also progress in widening the range of financing alternatives available to non-financial firms by encouraging equity investments. The Development Finance Institution, formally established in September 2014, intends to address market failures that hamper SMEs' access to finance.

| (13) | There is scope to strengthen measures to increase the efficiency and quality of the justice system, in particular as regards the evaluation of courts' activities and the use of online tools, and to conduct surveys of court users or legal professionals. According to the 2015 EU Justice Scoreboard, proceedings in civil and commercial cases continue to be lengthy (386 days). The number of enforcement cases is still falling slightly, while disposition time remains long (1 045 days in 2014). Reforms relating to the tax and administrative courts are proceeding at a slower pace than other judicial reforms. The rise in the number of insolvency cases has highlighted the need to step up resources and training for first-instance courts in this field. The liquidity of businesses continues to be aggravated by long delays in payments, in particular by the public sector. No new measures have been taken or commitments made to tackle these late payments. There is insufficient transparency as regards private-public partnerships at local and regional government levels and in the area of concessions at all levels. The prevention of corruption is hampered by the ineffective application of the existing legal framework, where monitoring, implementation and the enforcement of sanctions need improvement. |
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(13)

There is scope to strengthen measures to increase the efficiency and quality of the justice system, in particular as regards the evaluation of courts' activities and the use of online tools, and to conduct surveys of court users or legal professionals. According to the 2015 EU Justice Scoreboard, proceedings in civil and commercial cases continue to be lengthy (386 days). The number of enforcement cases is still falling slightly, while disposition time remains long (1 045 days in 2014). Reforms relating to the tax and administrative courts are proceeding at a slower pace than other judicial reforms. The rise in the number of insolvency cases has highlighted the need to step up resources and training for first-instance courts in this field. The liquidity of businesses continues to be aggravated by long delays in payments, in particular by the public sector. No new measures have been taken or commitments made to tackle these late payments. There is insufficient transparency as regards private-public partnerships at local and regional government levels and in the area of concessions at all levels. The prevention of corruption is hampered by the ineffective application of the existing legal framework, where monitoring, implementation and the enforcement of sanctions need improvement.

| (14) | The new transport regulatory authority is not yet operational. Liberalisation measures in port concessions, railways and metropolitan public transport are slow, thus failing to stimulate investment. There has been limited progress in implementing the long-term transport plan and the timetable for reform of the ports sector. Delays have been experienced in transport concessions for the metropolitan areas of Lisbon and Porto. Moreover, limited progress has been made in port concession renegotiations and in the railways sector. The merger between the railway (REFER) and the road (EP) infrastructure operators, intended to improve the financial sustainability of the new road and railway infrastructure body, is still ongoing. Staff numbers have been reduced in the state-owned enterprises in the transport sector. |
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(14)

The new transport regulatory authority is not yet operational. Liberalisation measures in port concessions, railways and metropolitan public transport are slow, thus failing to stimulate investment. There has been limited progress in implementing the long-term transport plan and the timetable for reform of the ports sector. Delays have been experienced in transport concessions for the metropolitan areas of Lisbon and Porto. Moreover, limited progress has been made in port concession renegotiations and in the railways sector. The merger between the railway (REFER) and the road (EP) infrastructure operators, intended to improve the financial sustainability of the new road and railway infrastructure body, is still ongoing. Staff numbers have been reduced in the state-owned enterprises in the transport sector.

| (15) | In the context of the European Semester, the Commission has carried out a comprehensive analysis of Portugal's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Portugal in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Portugal but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (5) below. |
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(15)

In the context of the European Semester, the Commission has carried out a comprehensive analysis of Portugal's economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Portugal in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Portugal but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (5) below.

| (16) | In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below. |
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(16)

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

| (17) | In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (4) below. |
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(17)

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

| (18) | In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Portugal should also ensure the full and timely implementation of those recommendations, |
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(18)

In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Portugal should also ensure the full and timely implementation of those recommendations,

HEREBY RECOMMENDS that Portugal take action in 2015 and 2016 to:

| 1. | Ensure a durable correction of the excessive deficit in 2015 by taking measures as necessary. Achieve a fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2016. Use windfall gains to accelerate the deficit and debt reduction. Enforce the commitment control law to better control expenditure. Improve the medium-term sustainability of the pension system. Safeguard the financial sustainability of state-owned enterprises. Further improve tax compliance and the efficiency of the tax administration. |
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1.

Ensure a durable correction of the excessive deficit in 2015 by taking measures as necessary. Achieve a fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2016. Use windfall gains to accelerate the deficit and debt reduction. Enforce the commitment control law to better control expenditure. Improve the medium-term sustainability of the pension system. Safeguard the financial sustainability of state-owned enterprises. Further improve tax compliance and the efficiency of the tax administration.

| 2. | Promote the alignment of wages and productivity, in consultation with the social partners and in accordance with national practices, taking into account differences in skills and local labour market conditions as well as divergences in economic performance across regions, sectors and companies. Ensure that developments relating to the minimum wage are consistent with the objectives of promoting employment and competitiveness. |
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2.

Promote the alignment of wages and productivity, in consultation with the social partners and in accordance with national practices, taking into account differences in skills and local labour market conditions as well as divergences in economic performance across regions, sectors and companies. Ensure that developments relating to the minimum wage are consistent with the objectives of promoting employment and competitiveness.

| 3. | Improve the efficiency of public employment services, in particular by increasing outreach to non-registered young people. Ensure effective activation of benefit recipients and adequate coverage of social assistance, in particular the minimum income scheme. |
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3.

Improve the efficiency of public employment services, in particular by increasing outreach to non-registered young people. Ensure effective activation of benefit recipients and adequate coverage of social assistance, in particular the minimum income scheme.

| 4. | Take further measures to reduce the corporate debt overhang, to address the corporate non-performing loans ratio in banks and to reduce the debt bias for corporates under tax provisions. Improve the efficiency of debt restructuring tools for viable companies by introducing incentives for banks and debtors to engage in restructuring processes at an early stage. |
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4.

Take further measures to reduce the corporate debt overhang, to address the corporate non-performing loans ratio in banks and to reduce the debt bias for corporates under tax provisions. Improve the efficiency of debt restructuring tools for viable companies by introducing incentives for banks and debtors to engage in restructuring processes at an early stage.

| 5. | Accelerate measures and increase transparency as regards concessions, including in the transport sector, and private-public partnerships at local and regional level. |
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5.

Accelerate measures and increase transparency as regards concessions, including in the transport sector, and private-public partnerships at local and regional level.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

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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)  Maintained by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

3

(4)  Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Portugal and delivering a Council opinion on the Stability Programme of Portugal, 2014 (OJ C 247, 29.7.2014, p. 102).

4

(5)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p. 11).

5

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

6

(7)  OJ C 272, 18.8.2015, p. 98.

7

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| 18.8.2015 | EN | Official Journal of the European Union | C 272/98 |
| --- | --- | --- | --- |

18.8.2015

EN

Official Journal of the European Union

C 272/98

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COUNCIL RECOMMENDATION

of 14 July 2015

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

(2015/C 272/26)

THE COUNCIL OF THE EUROPEAN UNION,

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

Having regard to 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 conclusions of the European Council,

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

Having regard to the opinion of the Economic Policy Committee,

Whereas:

| (1) | Sustaining and strengthening the development of the euro area requires continued policy efforts to support a balanced adjustment in the private and public sectors and increase the economy's growth potential in the medium to long term. While economic recovery in the euro area is ongoing, it is hampered by legacies of the recent economic and financial crises, including ongoing external rebalancing, high levels of public and private debt and related deleveraging pressures, persistent structural rigidities in national labour and product markets, high unemployment, and low confidence, and a persistent weakness in investment. So far, implementation of the reforms set out in the country-specific recommendations has not been sufficiently ambitious. |
| --- | --- |

(1)

Sustaining and strengthening the development of the euro area requires continued policy efforts to support a balanced adjustment in the private and public sectors and increase the economy's growth potential in the medium to long term. While economic recovery in the euro area is ongoing, it is hampered by legacies of the recent economic and financial crises, including ongoing external rebalancing, high levels of public and private debt and related deleveraging pressures, persistent structural rigidities in national labour and product markets, high unemployment, and low confidence, and a persistent weakness in investment. So far, implementation of the reforms set out in the country-specific recommendations has not been sufficiently ambitious.

| (2) | The euro area is more than just the sum of its members. The euro area economies are closely interrelated, underscoring the need for stronger coordination of fiscal, financial and structural policies. The policy stance at the euro area level should promote growth and jobs, while at the same time ensuring that the progress made in rebalancing is sustained and fostered. Euro area Member States have a specific responsibility for effective implementation of the governance framework, which has been significantly strengthened in recent years. This calls for increased peer pressure to support national reform implementation and fiscal prudence. It also calls for greater assessment of national reforms from a euro area perspective, internalising potential spillovers and stimulating policies of particular importance for a well-functioning Economic and Monetary Union. |
| --- | --- |

(2)

The euro area is more than just the sum of its members. The euro area economies are closely interrelated, underscoring the need for stronger coordination of fiscal, financial and structural policies. The policy stance at the euro area level should promote growth and jobs, while at the same time ensuring that the progress made in rebalancing is sustained and fostered. Euro area Member States have a specific responsibility for effective implementation of the governance framework, which has been significantly strengthened in recent years. This calls for increased peer pressure to support national reform implementation and fiscal prudence. It also calls for greater assessment of national reforms from a euro area perspective, internalising potential spillovers and stimulating policies of particular importance for a well-functioning Economic and Monetary Union.

| (3) | The implementation of ambitious structural reforms that modernise economies and boost competitiveness and growth potential is not yet sufficient in the euro area. The extent of imbalances prior to the crisis, the position in the business cycle, and the fiscal space available vary significantly across Member States. Despite improvements in labour markets and some progress with reforms to improve the resilience of labour markets, unemployment rates remain high and long-term unemployment risks becoming entrenched, further weakening the social situation in the most vulnerable countries. External rebalancing is ongoing, but progress has been asymmetric and elevated current account surpluses in a few Member States persist. Ambitious structural reforms of labour and product markets would facilitate the necessary economic adjustment within the euro area and boost growth in the countries that implement them. By increasing employment and lowering prices for consumers, reforms also contribute to greater social inclusion. If carried out jointly across Member States, structural reforms offer benefits to the euro area as a whole through positive spillover effects through trade and financial channels. This would also encourage the appropriate policy choices in the rest of the euro area. The thematic discussions of the Eurogroup can help this process via the assessment and benchmarking of reforms and their impact on the euro area as a whole. This can be done through learning from best practice, agreement on common principles for good reforms and peer pressure. In view of the adjustment process at national level and therefore the functioning of the euro area, regular monitoring of progress with reforms in Member States which are experiencing excessive imbalances and imbalances requiring decisive action is particularly important. |
| --- | --- |

(3)

The implementation of ambitious structural reforms that modernise economies and boost competitiveness and growth potential is not yet sufficient in the euro area. The extent of imbalances prior to the crisis, the position in the business cycle, and the fiscal space available vary significantly across Member States. Despite improvements in labour markets and some progress with reforms to improve the resilience of labour markets, unemployment rates remain high and long-term unemployment risks becoming entrenched, further weakening the social situation in the most vulnerable countries. External rebalancing is ongoing, but progress has been asymmetric and elevated current account surpluses in a few Member States persist. Ambitious structural reforms of labour and product markets would facilitate the necessary economic adjustment within the euro area and boost growth in the countries that implement them. By increasing employment and lowering prices for consumers, reforms also contribute to greater social inclusion. If carried out jointly across Member States, structural reforms offer benefits to the euro area as a whole through positive spillover effects through trade and financial channels. This would also encourage the appropriate policy choices in the rest of the euro area. The thematic discussions of the Eurogroup can help this process via the assessment and benchmarking of reforms and their impact on the euro area as a whole. This can be done through learning from best practice, agreement on common principles for good reforms and peer pressure. In view of the adjustment process at national level and therefore the functioning of the euro area, regular monitoring of progress with reforms in Member States which are experiencing excessive imbalances and imbalances requiring decisive action is particularly important.

| (4) | One of the key policy challenges facing the euro area is to reduce government debt by pursuing fiscal responsibility. Thanks to the consolidation efforts of the past years, the euro area fiscal situation has improved but the coordination of fiscal policies remains sub-optimal. A number of euro area Member States still need to continue with fiscal adjustment to bring down very high levels of debt. Other countries have more room for manoeuvre and could use it to encourage domestic demand, with a particular emphasis on investment; this would support domestic growth and the euro area as a whole. The flexibility embedded in the Stability and Growth Pact rules allows Member States to facilitate structural reforms and investment, while following the commonly agreed rules. Fiscal strategies are not yet sufficiently growth-friendly. On the revenue side, despite increased coordination in the Eurogroup, there is further scope for improving the efficiency of tax systems and reducing the tax wedge on labour. On the expenditure side, more focus is needed on public investment, backed by sound cost-benefit analysis, and other public expenditure with strong and positive growth effects. Spending reviews have emphasised the need for efficiency gains in public administration. Well-functioning national fiscal frameworks will support this process. |
| --- | --- |

(4)

One of the key policy challenges facing the euro area is to reduce government debt by pursuing fiscal responsibility. Thanks to the consolidation efforts of the past years, the euro area fiscal situation has improved but the coordination of fiscal policies remains sub-optimal. A number of euro area Member States still need to continue with fiscal adjustment to bring down very high levels of debt. Other countries have more room for manoeuvre and could use it to encourage domestic demand, with a particular emphasis on investment; this would support domestic growth and the euro area as a whole. The flexibility embedded in the Stability and Growth Pact rules allows Member States to facilitate structural reforms and investment, while following the commonly agreed rules. Fiscal strategies are not yet sufficiently growth-friendly. On the revenue side, despite increased coordination in the Eurogroup, there is further scope for improving the efficiency of tax systems and reducing the tax wedge on labour. On the expenditure side, more focus is needed on public investment, backed by sound cost-benefit analysis, and other public expenditure with strong and positive growth effects. Spending reviews have emphasised the need for efficiency gains in public administration. Well-functioning national fiscal frameworks will support this process.

| (5) | Financial market conditions in the euro area have been improving, but lending to the private sector remains subdued and financial markets remain fragmented. This is holding back investment in the euro area. As a result, a wide investment gap has opened, while investment needs exist both in terms of tangible and intangible investments. The EU Investment Plan offers opportunities to mobilise investment and channel it into productive uses. However, the impact of the Investment Plan and the ECB's expanded asset purchase programme will be larger when accompanied by measures in the broader financial sector to restore credit flows, deepen capital markets and boost the long-term financing of the economy. Completion of the banking union is underway and will be supported by the application of the single rulebook and a consistent regulatory approach. Better integrated and more efficient capital markets would mobilise further funding for investment, make the European economy less dependent on banks, and make its financial structures more balanced and more stable. |
| --- | --- |

(5)

Financial market conditions in the euro area have been improving, but lending to the private sector remains subdued and financial markets remain fragmented. This is holding back investment in the euro area. As a result, a wide investment gap has opened, while investment needs exist both in terms of tangible and intangible investments. The EU Investment Plan offers opportunities to mobilise investment and channel it into productive uses. However, the impact of the Investment Plan and the ECB's expanded asset purchase programme will be larger when accompanied by measures in the broader financial sector to restore credit flows, deepen capital markets and boost the long-term financing of the economy. Completion of the banking union is underway and will be supported by the application of the single rulebook and a consistent regulatory approach. Better integrated and more efficient capital markets would mobilise further funding for investment, make the European economy less dependent on banks, and make its financial structures more balanced and more stable.

| (6) | Notwithstanding the recent achievements in strengthening the EMU architecture, current challenges call for progress in completing its design. Further developing EMU will require a step-by-step approach combining discipline with solidarity. The President of the Commission, together with the Presidents of the European Council, the European Parliament, the European Central Bank, and the Eurogroup, will prepare the next steps on better economic governance in the euro area, |
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(6)

Notwithstanding the recent achievements in strengthening the EMU architecture, current challenges call for progress in completing its design. Further developing EMU will require a step-by-step approach combining discipline with solidarity. The President of the Commission, together with the Presidents of the European Council, the European Parliament, the European Central Bank, and the Eurogroup, will prepare the next steps on better economic governance in the euro area,

HEREBY RECOMMENDS that euro area Member States take action within the Eurogroup, in the period 2015-2016, to:

| 1. | Use peer pressure to promote structural reforms that facilitate the correction of large internal and external debts and support investment. Regularly assess the delivery of reforms in those Member States which require specific monitoring within the framework of the Macroeconomic Imbalances Procedure. Continue the regular thematic assessment of structural reforms. By spring 2016, take decisions on the follow-up to the coordination exercise on reducing the high tax wedge on labour and on reforming services markets. |
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1.

Use peer pressure to promote structural reforms that facilitate the correction of large internal and external debts and support investment. Regularly assess the delivery of reforms in those Member States which require specific monitoring within the framework of the Macroeconomic Imbalances Procedure. Continue the regular thematic assessment of structural reforms. By spring 2016, take decisions on the follow-up to the coordination exercise on reducing the high tax wedge on labour and on reforming services markets.

| 2. | Coordinate fiscal policies to ensure that the aggregate euro area fiscal stance is in line with sustainability risks and cyclical conditions. This is without prejudice to the fulfilment of the requirements of the Stability and Growth Pact. By spring 2016, hold thematic discussions on improvements in the quality and sustainability of public finances, focussing in particular on the prioritisation of tangible and intangible investment at national and EU levels, and on making tax systems more growth friendly. Monitor the effective functioning of the recently strengthened national fiscal frameworks. |
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2.

Coordinate fiscal policies to ensure that the aggregate euro area fiscal stance is in line with sustainability risks and cyclical conditions. This is without prejudice to the fulfilment of the requirements of the Stability and Growth Pact. By spring 2016, hold thematic discussions on improvements in the quality and sustainability of public finances, focussing in particular on the prioritisation of tangible and intangible investment at national and EU levels, and on making tax systems more growth friendly. Monitor the effective functioning of the recently strengthened national fiscal frameworks.

| 3. | Ensure the timely finalisation of the follow up of the Comprehensive Assessment carried out by the European Central Bank, implementation of Directive 2014/59/EU of the European Parliament and of the Council (3) (Bank Recovery and Resolution Directive), completion of the ratification of the Intergovernmental Agreement on the Single Resolution Fund and make the Fund fully operational as from January 2016. Promote measures to deepen market-based finance, to improve access to finance for SMEs and to develop alternative sources of finance. Encourage further reforms of national insolvency frameworks. |
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3.

Ensure the timely finalisation of the follow up of the Comprehensive Assessment carried out by the European Central Bank, implementation of Directive 2014/59/EU of the European Parliament and of the Council (3) (Bank Recovery and Resolution Directive), completion of the ratification of the Intergovernmental Agreement on the Single Resolution Fund and make the Fund fully operational as from January 2016. Promote measures to deepen market-based finance, to improve access to finance for SMEs and to develop alternative sources of finance. Encourage further reforms of national insolvency frameworks.

| 4. | Take forward work on deepening Economic and Monetary Union, and contribute to the improvement of the economic surveillance framework in the context of the report on the next steps on better economic governance in the euro area, prepared by the President of the European Commission, Jean-Claude Juncker, in close cooperation with the President of the European Council, Donald Tusk, the President of the European Parliament, Martin Schulz, the President of the European Central Bank, Mario Draghi, and the President of the Eurogroup, Jeroen Dijsselbloem, and its follow-up. |
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4.

Take forward work on deepening Economic and Monetary Union, and contribute to the improvement of the economic surveillance framework in the context of the report on the next steps on better economic governance in the euro area, prepared by the President of the European Commission, Jean-Claude Juncker, in close cooperation with the President of the European Council, Donald Tusk, the President of the European Parliament, Martin Schulz, the President of the European Central Bank, Mario Draghi, and the President of the Eurogroup, Jeroen Dijsselbloem, and its follow-up.

Done at Brussels, 14 July 2015.

For the Council

The President

P. GRAMEGNA

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

1

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

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(3)  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).

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