# EUR-Lex - 52012DC0315 - EN

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# 52012DC0315

**Recommendation for a COUNCIL RECOMMENDATION on Luxembourg’s 2012 national reform programme and delivering a Council opinion on Luxembourg’s stability programme for 2012-2015 /* COM/2012/0315 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Luxembourg’s 2012 national reform
programme
and delivering a Council opinion on Luxembourg’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 the recommendation of the
European Commission[2],

Having regard to the resolutions of the
European Parliament[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 Luxembourg’s national reform programme for
2011 and delivered its opinion on Luxembourg’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) No 1176/2011, adopted the Alert Mechanism Report[5], in which it did not identify
Luxembourg 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 present their commitments in time for inclusion in
their stability or convergence programmes and their national reform programmes.

(7)       On 27 April 2012, Luxembourg
submitted its 2012 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.

(8)       Based
on the assessment of the 2012 Stability Programme pursuant to Council
Regulation (EC) No 1466/97, the Council is of the opinion that the
macroeconomic scenario underpinning the budgetary projections in the programme
is plausible. In particular, the programme scenario for 2012 and 2013 is very
close to the Commission's 2012 spring forecast. Medium-term deficit projections
are made under a slightly optimistic growth scenario, above potential growth
although still well below average historic rates. The objective of the
budgetary strategy outlined in the programme is to bring the deficit from 1.5%
in 2012 to 0.9% in 2014 with a package of consolidation measures of around 1.2%
of GDP and provide a wider room for manoeuvre in case of negative shocks. The
programme confirms the previous medium term objective (MTO) of a structural
surplus of 0.5%. However, this MTO cannot be regarded as appropriate under the
provisions of the Stability and Growth Pact because, based on current policies
and projections, this MTO does not appear to take sufficiently into account the
implicit liabilities related to ageing, despite the debt being below the Treaty
reference value. Moreover, based on both the Commission's 2012 spring forecast
as well as on the (recalculated) structural budget balance in the programme,
Luxembourg would significantly depart from its own MTO starting from 2012. The
growth rate of government expenditure, net of discretionary revenue measures,
is expected to significantly exceed the expenditure benchmark as defined in the
Stability and Growth Pact. At 20 % of GDP, gross government debt is below the
reference value of the Treaty.

(9)       On 20 January 2012, the
Luxembourg government adopted a draft law to reform the pension system for both
the private and the public sector. The reform would build in some corrective
mechanisms in case of an adverse evolution of the financial situation of the
scheme and contains adaptations to the very generous calculations method of
benefits. However, the new calculation method will be phased in over a very
long time horizon of 40 years. Moreover the possibilities for early retirement
remain broadly unchanged and no measures have been proposed to link the
statutory retirement age to life expectancy. Overall, Luxembourg is taking
steps into the right direction, but the proposed reform does not seem to
constitute a sufficient guarantee of long-term sustainability of public
finances.

(10)     In January 2012, the
national Parliament adopted a law to limit the application of the automatic
indexation of wages between 2012 and 2015 in order to increase the
competitiveness of the Luxembourg economy. However, besides a possible
modification of the reference index, the government has
not announced any further plans for a permanent revision of the wage-setting
system. While Luxembourg’s productivity is currently very high, the room for manoeuvre
in terms of productivity gains is getting smaller. A permanent revision of the
wage-setting system, in consultation with social
partners and in accordance with national practices, is
necessary to preserve the competitiveness of the Luxembourg economy in the
longer term.

(11)     Luxembourg has taken some
relevant and credible steps to tackle its relatively high youth unemployment. However,
in order to ease young people’s integration into the labour market, a coherent
strategy is needed to, inter alia, strengthen collaboration between
municipalities and improve the effectiveness of employment services. Young
jobseekers, and particularly those with lower education level, would also
benefit from more investment in training and education.

(12)     Luxembourg is expected to face
difficulties in reaching its 2020 target for greenhouse gas (GHG) emission
reduction. According to the latest 2020-projections based on existing measures,
Luxembourg is expected to increase its emissions in non-ETS sectors by 9%
between 2005 and 2020, compared to a reduction target of 20%. The road sector
represents the most significant source of emissions and possesses a large
emission reduction potential. The price of transport fuels remains one of the
lowest in the EU, encouraging ‘fuel tourism’ and inducing negative
externalities in terms of pollution and congestion. Additional policies are necessary
to reduce GHG emissions, or costly flexibility mechanisms will have to be used.

(13)     Luxembourg has made a
number of commitments under the Euro Plus Pact. The commitments, and the
implementation of the commitments presented in 2011, relate to improving
competitiveness, enhancing employment and strengthening financial stability.
The Commission has assessed the implementation of the Euro Plus Pact
commitments. The results of this assessment have been taken into account in the
recommendations.

(14)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of Luxembourg’s economic policy. It has assessed the stability
programme and national reform programme. It has taken into account not only
their relevance for sustainable fiscal and socio-economic policy in Luxembourg
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 (5) below.

(15)     In the light of this
assessment, the Council has examined Luxembourg’s stability programme, and its opinion[6]
is reflected in particular in recommendation (1) below,

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

1.           Preserve a sound fiscal
position correcting any departure from a medium-term budgetary objective (MTO)
that ensures the long-term sustainability of public finances, in particular
taking into account implicit liabilities related to ageing. To this end,
reinforce and rigorously implement the budgetary strategy, supported by
sufficiently specified measures, for the year 2013 and beyond, including
meeting the expenditure benchmark.

2.           Increase the impact of
the proposed pension reform by accelerating the implementation of measures that
curb age-related expenditure, take additional measures to increase the
participation rate of older workers, in particular by reducing early
retirement, and take steps to link the statutory retirement age to life
expectancy, in order to ensure the long-term sustainability of the pension
system

3.           Take further steps to reform,
in consultation with the social partners and in accordance with national
practice, the wage bargaining and wage indexation system, with a view to
preserve the competitiveness of the Luxembourg economy in the longer term, as a
first step by maintaining the current one-year indexation interval beyond 2014 and
by reducing the impact of energy and other volatile items on the reference
index.

4.           Continue efforts to reduce
youth unemployment by reinforcing stakeholders’ involvement, and by
strengthening training and education measures, in particular for those with low
education levels, with the aim of better matching young people's skills and
qualifications to labour demand

5.           Ensure that the targets
for reducing greenhouse gas emissions from non-ETS (Emissions Trading System)
activities will be met, in particular by greening the taxation system.

Done at Brussels,

For
the Council

The
President

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

[2]               COM(2012)315 final

[3]               P7_TA(2012)0048
and P7_TA(2012)0047

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

[5]               COM(2012) 68 final

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