# EUR-Lex - 52011SC0828 - EN

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# 52011SC0828

**Recommendation for a COUNCIL RECOMMENDATION on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro /* SEC/2011/0828 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the implementation of the broad
guidelines for the economic policies of the 
Member States whose currency is the euro

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 136 in combination
with Article 121(2) thereof,

Having regard to the recommendation of the
European Commission[1],

Having regard to the conclusions of the
European Council,

After consulting the Economic and Financial
Committee,

Whereas:

(1) 
On [...] the Euro Group held a discussion on the
implementation of the broad guidelines for the economic policies of Member
States whose currency is the euro area, recognising the need further to
strengthen within the Euro Group the policy coordination and the monitoring of
the implementation of the recommendations addressed to the Member States whose
currency is the euro.

(2) 
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.

(3) 
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). Member States and, where relevant, the European Union
were invited to take the guidelines into account in their economic policies.

(4) 
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.

(5) 
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.

(6) 
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments in time to be included in their Stability or Convergence Programmes
and their National Reform Programmes.

(7) 
In April and May 2011 the euro area Member
States submitted their 2011 Stability Programmes covering the period 2011-2014
and their 2011 National Reform Programmes. These programmes have been assessed
at the same time.

(8) 
The experience of the first decade of the euro
generally underlined the many benefits of the single currency. However, the global
crisis resulted in a deep contraction in 2009, which sent euro area GDP below
its 2006 level. While 2010 saw that GDP grow again, output still remains below
that of 2007. As a consequence, euro area unemployment rose from 7.6% in 2007
to 10.1% in 2010. Public finances in the euro area deteriorated, triggering a
significant reassessment of sovereign debt risks in some Member States and bringing
about risks to macro-financial stability. Growth is now recovering, with
divergences between Member States reflecting both structural and cyclical
differences. The crisis triggered reduction in macroeconomic imbalances which
had developed before the crisis. However, it remains to be seen whether this is
sufficient and sustainable.

(9) 
General government balances in the euro area
have, on average, begun to improve in 2010. Based on the Commission spring
forecast, assuming unchanged policies, they are expected to continue improving
in 2011. However, public debt will continue to grow until 2012. If not
corrected in the years to come, it may jeopardise long-term fiscal
sustainability given the combination of low potential growth and unfavourable
demographic developments. In 2010, the euro area deficit decreased to 6.0% of
GDP, while the debt ratio increased to 85.1% of GDP. According to the 2011
Stability Programme targets, the euro area deficit would fall to 1.3% of GDP in
2014 and the debt ratio would begin to decline again to below 85% of GDP in
2014, after peaking in 2012. Such a path of fiscal consolidation for the euro
area as a whole would be broadly compatible with the strengthening of the
recovery. The planned emphasis of consolidation on expenditure reduction
relative to tax increases enhances the likelihood of its success. Still, a
concern remains in a number of countries as to the effective implementation of
the plans. Moreover, several euro area Member States have recently implemented new
fiscal rules or announced the strengthening of existing ones, but these will in
some Member States require additional measures to be fully effective. In view
of ageing populations, reforms of pensions and social security systems are not
yet sufficient to ensure fiscal sustainability.

(10) 
The EU policy response has brought improvements
to the functioning and stability of the financial system. Challenges in the financial sector in several euro area Member
States include banks' exposure to further losses on their asset holdings or a tightening of conditions
on refinancing markets, the continuation of banking sector restructuring and
recapitalisation, while public sector support to the banking sector is still to
be phased out.

(11) 
Improvements in productivity and competitiveness
are needed to increase the growth potential of the euro area and to address the
macroeconomic imbalances within the euro area. In this respect, euro area
Member States announced a number of structural reforms in their National Reform
Programmes. However, there are still shortcomings on measures needed to improve
the functioning of their product and labour markets, notably regarding service
sectors, growth-friendly fiscal consolidation, and the wage setting systems.

(12) 
In order to ensure the proper functioning of
EMU, euro area Member States are under a particular obligation to regard their
economic policies as a matter of common concern due to the potential for
spillover effects among countries sharing a common currency. Therefore, a more
comprehensive and permanent overhaul of economic policy coordination at the EU
and euro area level proved necessary in light of the crisis and the current
challenges. The integrated annual surveillance cycle enshrined in the 'European
Semester', the strengthened economic governance framework as proposed by the
Commission, the creation of the European Systemic Risk Board and the European
supervisory agencies, and the European Stability Mechanism are essential
elements some of which remain to be fully adopted and/or implemented. The 'Euro
Plus Pact' further reinforces this framework.

(13) 
The Commission has assessed the Stability
Programmes and the National Reform Programmes of the euro area Member States[2],
taking into account the need to reinforce the overall economic governance of
the euro area. It considers that strict adherence to budgetary targets, with a reinforcement
in some Member States, and further measures to strengthen fiscal rules and
sustainability are required. Additional steps should also be taken to improve financial
stability, incentives to work, wage setting mechanisms, the efficiency of
service sectors, and euro area governance,

RECOMMENDS that Member States whose
currency is the euro should take action within the period 2011-2012 to:

(1) 
Strictly adhere to the budgetary targets set out
in their 2011 Stability Programmes as well as the Memoranda
of Understanding in Member States receiving EU/IMF
financial assistance and, where applicable, reinforce consolidation efforts in
line with the opinion delivered by the Council.

(2) 
Ensure fiscal discipline at both national and
sub-national levels by introducing fiscal rules supported by a sufficiently
strong and binding legal framework.

(3) 
Implement reforms to social security systems
that ensure fiscal sustainability with due regard to the adequacy of pensions
and social benefits, notably by aligning pension systems with the national
demographic situation.

(4) 
Improve the functioning and stability of the
financial system, following up immediately on the forthcoming EU-wide stress
tests to ensure that the banking sector becomes resilient to possible further
losses or funding constraints and that non-viable financial institutions are
able to restructure or exit the market without creating undue tensions on financial
markets.

(5) 
Pursue further tax
reforms which give priority to growth-friendly sources of taxation while
preserving overall tax revenues, in particular by lowering taxes on labour to
make work pay; when reducing public expenditure, protect growth-enhancing items
such as spending on research and development, education and energy efficiency; where
necessary adjust wage setting arrangements and indexation mechanisms in
consultation with social partners, so as to ensure that wages are evolving in
line with productivity and competitiveness.

(6) 
Introduce further reforms in service sectors, in
particular by removing unjustified restrictions on professional services,
retailing and network industries.

(7) 
Fully implement the commitments made in the Euro
Plus Pact so as to enhance growth, competitiveness and employment within the
area.

Done at Brussels,

For
the Council

The
President

[1]               OJ C , , p. .

[2]               SEC(2011) 737.