# EUR-Lex - 52011SC0826 - EN

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# 52011SC0826

**Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Swedenand delivering a Council opinionon the updated Convergence Programme of Sweden, 2011-2014 /* SEC/2011/0826 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the National Reform Programme 2011 of
Sweden
and delivering a Council opinion
on the updated Convergence Programme of Sweden, 2011-2014

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(3) thereof,

Having regard to the recommendation of the
European Commission[2],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

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

(2) 
On 13 July 2010, the Council adopted a
recommendation on the broad guidelines for the economic policies of the Member
States and the Union (2010 to 2014) and on 21 October 2010, adopted a decision
on guidelines for the employment policies of the Member States[3],
which together form the “integrated guidelines”. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.

(3) 
On 12 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first European semester of ex-ante and integrated
policy coordination, which is anchored in the Europe 2020 strategy.

(4) 
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the
Commission’s Annual Growth Survey). It underscored the need to give priority to
restoring sound budgets and fiscal sustainability, reducing unemployment
through labour market reforms and making new efforts to enhance growth. It
requested Member States to translate these priorities into concrete measures to
be included in their Stability or Convergence Programmes and National Reform
Programmes.

(5) 
On 29 April 2011, Sweden submitted its updated
2011 Convergence Programme covering the period 2011-2014 and its 2011 National
Reform Programme. The two programmes have been assessed
at the same time.

(6) 
Before the economic crisis of 2008-2009, the
Swedish economy enjoyed more than a decade of strong growth driven by both
domestic demand and net exports. Being an export-oriented economy with a
sizeable financial sector, it was strongly affected by the slump in external
demand and the freezing of financial markets in 2008, causing GDP to contract
by 5.1% in 2009 and the unemployment rate to increase from around 6% to above
9%. Thanks to a sound starting position without large adjustment needs in the
household, banking and public sectors, as well as an adequate monetary and
fiscal policy response, the recession was rather short-lived and affected
mainly the export-oriented manufacturing sector. As world trade revived, the
Swedish economy experienced a very strong and broad-based recovery, with real
GDP rebounding by 5.5% in 2010. Due to the combined
effect of automatic stabilisers and discretionary measures, the fiscal balance
went from a surplus of 3.7% of GDP in 2007 to a deficit of 0.9% in 2009, before
returning to balance in 2010.

(7) 
Based on the assessment of the updated
Convergence Programme pursuant to Council Regulation (EC) No 1466/97, the
Council is of the opinion that the macroeconomic scenario underpinning the
budgetary projections is broadly plausible, except for 2012 when it is too
favourable. The budgetary strategy, as outlined in the updated Convergence
Programme, is appropriate, as it would contribute to meeting Sweden's
medium-term objective (MTO) of 1% GDP surplus over a cycle. This would provide
some margin against breaches of the 3% of GDP reference value in any future
downturn. The programme projects the general government surplus to widen from
0.6% of GDP in 2011 to 3.7% of GDP in 2014, the last year of the programme.
This improvement would result from assumed strong economic growth, as the
programme does not envisage any consolidation efforts in these years. Risks to
the budgetary targets are broadly balanced. As the revenue forecast presented
in the programme is somewhat cautious for 2011, budgetary outcomes could turn
out slightly better this year, whereas certain downside risks to budgetary
projections from 2012 onwards are linked to favourable macroeconomic
assumptions. As the government has indicated that further expansionary fiscal
measures envisaged in the 2011 Budget Bill (including a fifth step in the in-work tax credit for wage-earners,
a further rise in the threshold for paying state income tax, lower VAT on
restaurant services, and lower taxes on pensions) could be implemented as from
2012, if there is sufficient fiscal space, there is a risk of a pro-cyclical
fiscal policy stance. Given the demographic outlook, it is important that
Sweden continues to meet its MTO.

(8) 
The current situation in the housing and
mortgage markets is a source of potential instability. After a short-lived and
mild correction at the height of the financial crisis, house prices in Sweden -
in contrast to other countries - resumed the strong upward trend observed since
the second half of the 1990s and are now at a record high. The strong increase
in house prices has gone hand in hand with rising household indebtedness which
represented around 170% of disposable income by mid-2010, a historical high.
Moreover, a large share of mortgage debt is at variable rates with little
amortisation. This makes Swedish households particularly vulnerable to interest
rate hikes or set-backs in employment. A marked correction in the housing
market could have negative repercussions for macro-economic stability by making
households rein in consumption to balance their budgets and by increasing
financing costs for Swedish banks.

(9) 
As regards the Swedish labour market, non-EU
nationals and youth have a relatively weak position compared with the EU
average. Further improvement of their position on the labour market is
essential to raise the overall employment rate and to improve the labour supply
in the long term so as to meet the demographic challenge of an ageing
population. The Swedish government is currently implementing several reforms in
order to improve the employment situation of both groups such as increased
funds for coaching, work-experience positions, vocational adult education,
apprenticeship training coaching, targeted wage subsidies and streamlined
Swedish language courses. The latest statistics show clear signs that the
Swedish labour market is improving across the board, except for foreign-born
women.

(10) 
The Commission has assessed the Convergence
Programme and National Reform Programme[4]. It has taken into
account not only their relevance for sustainable fiscal and socio-economic
policy in Sweden but also their conformity with EU rules and guidance, given
the need to reinforce the overall economic governance of the European Union by
providing EU-level input into future national decisions. It considers that the
programmes are adequately addressing the main challenges for Sweden. However,
while the government's fiscal strategy to continue meeting the MTO is
appropriate, care needs to be taken from 2012 onwards to avoid an excessively
loose fiscal policy in times of favourable growth. The risks of macro-economic
imbalances should be assessed, notably those stemming from rising house prices and
household indebtedness. In addition, the labour market participation of
vulnerable groups needs to be monitored and improved, notably for youth and
foreign-born women.

(11) 
In light of this assessment,  the Council has
examined the 2011 update of the Convergence Programme of Sweden and its opinion[5]
is reflected in particular in its recommendation under (1) set out below.
Taking into account the European Council conclusions of 25 March 2011, the
Council has examined the National Reform Programme of Sweden,

HEREBY RECOMMENDS that Sweden should
take action within the period 2011-2012 to

(1) 
Keep fiscal policy on a path that ensures that
the medium-term objective continues to be met and avoid a pro-cyclical fiscal
policy stance in the current economic upturn.

(2) 
Take preventive action to deal with the
macro-economic risks associated with rising house prices and household
indebtedness, including reforms to the mortgage system, rent regulation,
property taxation and construction permits.

(3) 
Monitor and improve the
labour market participation of young people and other vulnerable groups.

Done at Brussels,

For
the Council

The
President

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

[2]               OJ C , p. .

[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.

[4]               SEC(2011) 735.

[5]               Foreseen in Article 9(3) of Council Regulation (EC)
No 1466/97.