# EUR-Lex - 52012DC0310 - EN

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# 52012DC0310

**Recommendation for a COUNCIL RECOMMENDATION on Spain’s 2012 national reform programme and delivering a Council opinion on Spain’s stability programme for 2012-2015 /* COM/2012/0310 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Spain’s 2012 national reform programme
and delivering a Council opinion on Spain’s stability programme for 2012-2015

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 recommendations of the
European Commission[3],

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[4],
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 July 2011, the
Council adopted a recommendation on Spain’s national reform programme for 2011
and delivered its opinion on Spain’s updated stability programme for 2011-2014.

(4)       On 23 November 2011, the
Commission adopted the second Annual Growth Survey, marking the start of the second
European Semester of ex-ante and integrated policy coordination, which is
anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on
the basis of Regulation (EU) 1176/2011, adopted the Alert Mechanism Report[5], in which it identified Spain as
one of the Member States for which an in-depth review would be carried out.

(5)       On 2 March 2012, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth. It underscored the need to pursue
differentiated, growth-friendly fiscal consolidation, to restore normal lending
conditions to the economy, to promote growth and competitiveness, to tackle
unemployment and the social consequences of the crisis, and to modernise public
administration.

(6)       On
2 March 2012, the European Council also invited the Member States participating
in the Euro Plus Pact to include further commitments focusing on a small number
of essential, timely and measurable reforms to achieve the objectives of the
Pact.

(7)       On 30 April 2012, Spain submitted
its stability programme covering the period 2012-2015 and its 2012 national reform
programme. In order to take account of their interlinkages, the two programmes
have been assessed at the same time. The Commission has also assessed, in an
in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Spain
is affected by macroeconomic imbalances. The Commission concluded in its
in-depth review[6]
that Spain is experiencing very serious imbalances, which are not excessive,
but need to be urgently addressed.

(8)       Based on the assessment of
the stability programme pursuant to Article 5(1) of Council Regulation (EC) No
1466/97, the Council is of the opinion that the macroeconomic scenario
underlying the programme is broadly plausible for 2012 and optimistic
thereafter. The Commission's 2012 spring forecast projected GDP growth to reach
-1.8% in 2012 and -0.3% in 2013, against -1.7% and 0.2%, respectively, in the
programme. In compliance with the Excessive Deficit Procedure, the objective of
the budgetary strategy outlined in the programme is to bring the general
government deficit below 3% of the GDP reference value by 2013, based mainly on
expenditure restraint, but also on some revenue-increasing measures. Based on
the (recalculated) structural balance,[7]
the annual average improvement of the structural balance planned in the
programme is 2.6 % of GDP for 2011-13, above the fiscal effort of over 1.5 %
of GDP on average over the period 2010-13 recommended under the Excessive Deficit
Procedure. Following the correction of the excessive deficit, the programme
confirms the medium-term objective (MTO) of a balanced budgetary position in
structural terms, which would be almost reached by 2015 with a structural
budget deficit of 0.2 % of GDP. The MTO adequately reflects the
requirements of the Stability and Growth Pact. The envisaged pace of adjustment
in structural terms in 2012-13, represents sufficient progress towards the MTO
and the growth rate of government expenditure, taking into account
discretionary revenue measures, is in line with the expenditure benchmark of
the Stability and Growth Pact. The programme projects the government debt ratio
to peak in 2013 and to start declining thereafter. In
2014 and 2015 Spain will be in transition period and plans presented in the
programme would ensure sufficient progress towards compliance with the debt reduction
benchmark of the Stability and Growth Pact. The deficit
and debt adjustment paths are subject to important downside risks.
Macroeconomic developments could turn out less favourable than expected.
Moreover, measures are not sufficiently specified from 2013 onwards. Budgetary
compliance by regional governments, given their recent poor track record, a
greater sensitivity of revenues to the ongoing structural adjustment, the
uncertain revenue impact of the fiscal amnesty and potential further financial
rescue operations also pose risks to the budgetary strategy. Strict enforcement
of the Budget Stability Law and the adoption of strong fiscal measures at
regional level would mitigate the risks of a slippage at regional
level. Given the decentralised nature of Spain’s public finances, a strong
fiscal and institutional framework is essential. The Council welcomes the
intention of the Commission to present a thorough assessment of the
implementation of the Council recommendation on correcting the excessive
deficit, also taking into consideration the announced multi-annual budget plan for
2013-14 in the coming weeks.

(9)       In 2011, Spain adopted a
pension reform that marks a significant step towards enhancing the long-term
sustainability of public finances. However, the worsening of the economic
prospects in Spain is limiting the impact of the reform on the projected
age-related public expenditure. In addition, the reform still needs to be
complemented by concrete measures to underpin the Global Employment Strategy
for Older Workers for 2012-2014.

(10)     While the Spanish
tax-to-GDP ratio is among the lowest in the EU, the efficiency of the tax
system can be improved by increasing the share of more growth-friendly indirect
taxes. In particular, there is scope for broadening the VAT tax base by reviewing
the wide application of exemptions and reduced rates. The Spanish tax system
also contains a bias in favour of indebtedness and the purchase of housing as
opposed to rentals thanks to the deductibility of interest on mortgages.

(11)     Spain has made considerable
progress regarding the restructuring of its financial sector. The restructuring
needs to continue, to ensure that unviable banks are resolved and that viable
banks can fulfil their function as providers of credit to the real economy, in
a sustainable way and without unduly distorting competition. Given the
weakening of macroeconomic prospects, further strengthening of the banks'
capital base may be required.

(12)     In February 2012, the
Spanish government adopted a comprehensive reform of the employment protection
and collective bargaining system in order to tackle the high level of unemployment
and the sharp segmentation in the labour market. The effects need to be
monitored, in particular as regards wage developments and reduction of
segmentation. To address the challenge fully, this reform needs to be
complemented by more substantial revision of the active labour market policies to
improve employability and job matching.

(13)     To tackle Spain’s high
youth unemployment, the Youth Action Plan should be implemented without delay,
including for apprenticeship and training contracts. Although Spain has taken
measures to combat early school leaving, the rate remains high and conceals
significant disparities across regions.

(14)     Poverty has increased with
1.1 million more people at risk in 2010 and child poverty is at an alarming
high of 26.2%. The in-work poverty rate for temporary workers is more than
twice as high as the one for permanent workers.

(15)     Professional services in Spain remain protected from competition.
Reforming professional services could increase potential GDP given that they
are a major input for the other sectors of the economy. Particular attention
should be paid to removing unjustified and disproportionate barriers for some
highly regulated professions (e.g. notaries, property registry agents, court
officers). In addition, in Spain it takes the longest
in the EU to obtain a business licence. Lack of coordination between local,
regional and national administrations has produced a proliferation of
regulations, sometimes overlapping, and a segmentation of Spain’s internal
market. The adjustment of large external imbalances requires facilitating
export activities. Spain also faces multiple and complex challenges in the
energy sector which are a serious impediment to effective functioning of the
product and service markets.

(16)     Spain has made a number of
commitments under the Euro Plus Pact. The commitments, and the implementation
of the commitments presented in 2011, relate to fostering employment, improving
competitiveness, enhancing sustainability of public finances and reinforcing
financial stability. The Commission has assessed the implementation of the Euro
Plus Pact commitments and the overall state of implementation is partial. The
results of this assessment have been taken into account in the recommendations.

(17)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of Spain’s
economic policy. It has assessed the stability programme and the national reform
programme, and presented an in-depth review. It has taken into account not only
their relevance for sustainable fiscal and socio-economic policy in Spain but
also their compliance with EU rules and guidance, given the need to reinforce
the overall economic governance of the European Union by providing EU-level
input into future national decisions. Its recommendations under the European
Semester are reflected in recommendations (1) to (8) below.

(18)     In the light of this
assessment, the Council has examined Spain’s stability programme, and its opinion[8]
is reflected in particular in recommendation (1) below.

(19)     In the light of the results
of the Commission’s in-depth review and of this assessment, the Council has
examined Spain’s 2012 national reform
programme and Spain’s stability
programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are
reflected in particular in recommendation (1), (3), (4), (5) and (7) below,

HEREBY RECOMMENDS that Spain should
take action within the period 2012-2013 to:

1.           Deliver an annual average structural fiscal effort of
above 1.5% of GDP over the period 2010-13 as required by the EDP recommendation
by implementing the measures adopted in the 2012 budget and adopting the
announced multi-annual budget plan for 2013-14 by end July. Adopt
and implement measures at regional level in line with the approved rebalancing
plans and strictly apply the new provisions of the Budgetary Stability Law
regarding transparency and control of budget execution. Establish an
independent fiscal institution to provide analysis, advice and monitor fiscal
policy, as well as to estimate the budgetary impact of proposed legislation.

2.           Accelerate the increase in
the statutory retirement age and the introduction of the sustainability factor
foreseen in the recent pension reform and underpin the Global Employment
Strategy for Older Workers with concrete measures to develop lifelong learning
further, improve working conditions and foster the reincorporation of this
group in the job market.

3.           Introduce a taxation
system consistent with the fiscal consolidation efforts and more supportive to growth,
including a shift away from labour towards consumption and environmental
taxation. In particular, address the low VAT revenue ratio by broadening the
tax base for VAT. Ensure less tax-induced bias towards indebtedness and
home-ownership (as opposed to renting).

4.           Implement the reform of
the financial sector, in particular complement the on-going restructuring of
the banking sector by addressing the situation of remaining weak institutions,
put forward a comprehensive strategy to deal effectively with the legacy assets
on the banks' balance sheets, and define a clear stance on the funding and use
of backstop facilities.

5.           Implement the labour
market reforms and take additional measures to increase the effectiveness of
active labour market policies by improving their targeting, by increasing the use
of training, advisory and job matching services, by strengthening their links
with passive policies, and by strengthening coordination between the national
and regional public employment services, including sharing information about job
vacancies.

6.           Review spending priorities
and reallocate funds to support access to finance for SMEs, research, innovation
and young people. Implement the Youth Action Plan, in particular as regards the
quality and labour market relevance of vocational training and education, and reinforce
efforts to reduce early school-leaving and increase participation in vocational
education and training through prevention, intervention and compensation
measures.

7.           Take specific measures to
counter poverty, by making child support more effective and improving the
employability of vulnerable groups.

8.           Take additional measures
to open up professional services, including highly regulated professions, reduce
delays in obtaining business licences and eliminate barriers to doing business
resulting from overlapping and multiple regulations by different levels of
government. Complete the electricity and gas interconnections with neighbouring
countries and address the electricity tariff deficit in a comprehensive way, in
particular by improving the cost efficiency of the electricity supply chain.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 02.08.1997, p. 1

[2]               OJ L 306, 23.11.2011, p. 25

[3]               COM(2012)310 final

[4]               Council Decision 2012/238/EU of 26 April 2012

[5]               COM(2012) 68 final

[6]               SWD(2012)159 final

[7]               Cyclically adjusted balance net of one-off and
temporary measures, recalculated by the Commission services on the basis of the information provided in the programme, using
the commonly agreed methodology.

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