# EUR-Lex - 52012DC0305 - EN

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# 52012DC0305

**Recommendation for a COUNCIL RECOMMENDATION on Germany’s 2012 national reform programme and delivering a Council opinion on Germany’s stability programme for 2012-2016 /* COM/2012/0305 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Germany’s 2012 national reform
programme
and delivering a Council opinion on Germany’s stability programme for 2012-2016

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 Germany’s national reform programme for
2011 and delivered its opinion on Germany’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 Germany 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 18 April 2012, Germany
submitted its stability programme for the period 2012-2016 and, on 12 April 2012,
its 2012 national reform programme. In order to take account of their
interlinkages, the two programmes have been assessed at the same time.

(8)       According to the first
2012 notification of deficit and debt figures by Germany for the years 2008-2011
for the application of the excessive deficit procedure (EDP), the general
government deficit in 2011 was below the 3% of GDP reference value of the
Treaty. Moreover, the Commission's 2012 spring forecast projects the general
government deficit to stay below the reference value of the Treaty and to
further decline over the forecast period. As a result, and in line with the
provisions of the Stability and Growth Pact, on 30 May the Commission adopted a
recommendation for a Council decision abrogating the decision on the existence
of an excessive deficit under Article 126(12) of the Treaty.

(9)       Based on the assessment of
the 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. The programme's
projections for 2012-13 are broadly in line with the Commission's 2012 spring
forecast as regards the pace and pattern of economic growth as well as labour
market developments. The programme's projections for economic growth in the
outer years are broadly in line with the Commission's estimate of Germany's
medium-term potential growth rate. The objective of the budgetary strategy
outlined in the programme is to meet the medium-term budgetary objective (MTO)
already in 2012 and to reach virtually balanced nominal budgets as from 2014,
starting from a nominal deficit of 1.0% of GDP in 2011, thus below the 3% of
GDP reference value of the Treaty significantly ahead of the 2013 deadline. The
programme specifies the previous MTO of a structural deficit of 1⁄2% of GDP, (interpreted
as a narrow range around 0.5% of GDP), which adequately reflects the
requirements of the Stability and Growth Pact, to imply a deficit not exceeding
0.5% of GDP. Risks to the deficit and debt targets may arise notably if
additional measures to stabilise the financial sector turned out to be
required. Based on the (recalculated) structural deficit[6], Germany plans to respect its
MTO throughout the programme period, which should also be the case taking into
account the risk assessment. According to the information provided in the
programme and also taking into account the risk assessment, the growth rate of
government expenditure, taking into account discretionary revenue measures, would
exceed the expenditure benchmark of the Stability and Growth Pact in 2012,
while respecting it in 2013. Gross debt is planned to increase by 0.8 pp.
to 82.0% of GDP in 2012, before falling to 80% of GDP in 2013 and remaining on
a downward path thereafter. Following the correction of the excessive deficit,
Germany is in a transition period and, according to plans, is making sufficient
progress towards compliance with the debt reduction benchmark of the Stability
and Growth Pact.

(10)     The federal government has
taken measures to improve the efficiency of public spending on health care and
has proposed a reform of long-term care. Additional efforts to improve
efficiency in health care are necessary to contain expected further expenditure
increases. The proposed reform of long-term care is also insufficient to cope
with expected future cost increases. There is scope for improving the efficiency
of the tax system. The federal government is well on track to meet its
commitment to increase growth-enhancing spending on education and research.
However, it remains important that also the Länder and municipalities,
which bear the bulk of expenditure on education and research, ensure adequate
and efficient spending in these areas. The introduction of the new
constitutional debt brake has further strengthened the German fiscal framework.
However, there has been no significant progress in the implementation of the
budgetary rule at Länder level.

(11)     Substantial public support
for the financial sector, in conjunction with the sector’s own adjustment
efforts and the beneficial effects of the rebound of the German economy, has
stabilised the sector as a whole. Despite the overall relatively stable
financial sector and the absence of a credit crunch, there remain weaknesses,
in particular, the structural problems of some Landesbanken, notably the
lack of a viable business model, weak governance
structures and vulnerabilities due to a high degree of
dependence on wholesale funding.

(12)     The good performance of the
German labour market, with increasing employment and moderate unemployment, has
not benefited all participants to the same extent and wages have not always
increased in line with productivity. Fiscal disincentives arising from the high
tax wedge, in particular due to the high social security contributions,
continue to hinder the integration of low-wage earners in particular into the
labour market. Extensive use of mini-jobs leads to low acquisition of pension
rights. Therefore, there is a need to improve the transition from mini-jobs to
more stable forms of contracts. The recent reform of labour market instruments should
support employment opportunities for all. Raising the effectiveness of the
education system and the educational achievement of disadvantaged groups is a
major challenge for Germany. In the medium- to long-term, ensuring the
availability of qualified labour will be crucial to mitigate the negative
effects of demographic changes on potential growth. The low full-time
participation of women in the labour force is a concern. Fiscal disincentives
for second earners and the lack of full-time childcare facilities and all-day
schools hinder female labour market participation.

(13)     Germany
is pursuing a major reform of the energy system. The overall economic costs of transforming the energy system should
be minimised by accelerating the national and
cross-border network expansion, continuously increasing the cost-effectiveness
of climate and renewables policies, taking decisive steps to further foster
energy efficiency, and raising competition in the energy markets. Given
Germany’s central geographical position, the German railway system has a
significant impact on the overall European railway system. Competition in the
passenger and freight rail markets remains very low, mainly due to the lack of
effective separation between the infrastructure manager and the railway
holding. Despite progress made in recent years, inter alia through the
implementation of the Services Directive, there is scope to further stimulate
competition and productivity growth in some services sectors (e.g.
construction).

(14)     Germany 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. The results of this
assessment have been taken into account in the recommendations.

(15)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of
Germany’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 Germany 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 (4) below.

(16)     In the light of this
assessment, the Council has examined Germany’s 2012 stability programme, and
its opinion[7]
is reflected in particular in recommendation (1) below,

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

1.           Continue with sound fiscal
policies to achieve the medium-term budgetary objective by 2012. To this
end, implement the budgetary strategy as envisaged, ensuring compliance with
the expenditure benchmark as well as sufficient progress towards compliance
with the debt reduction benchmark. Continue the growth-friendly consolidation
course through additional efforts to enhance the efficiency of public spending
on health care and long-term care, and by using untapped potential to improve
the efficiency of the tax system; use available scope for increased and more
efficient growth-enhancing spending on education and research at all levels of
government. Complete the implementation of the debt brake in a consistent
manner across all Länder, ensuring timely and relevant monitoring
procedures and correction mechanisms.

2.           Address the remaining
structural weaknesses in the financial sector, inter alia by further restructuring
of those Landesbanken which are in need of an adequately funded viable
business model while avoiding excessive deleveraging.

3.           Reduce the high tax wedge
in a budgetary neutral way, in particular for low-wage earners, and maintain
appropriate activation and integration measures, notably for the long-term
unemployed. Create the conditions for wages to grow in line with productivity. Take
measures to raise the educational achievement of disadvantaged groups, notably
through ensuring equal opportunities in the education and training system. Phase
out the fiscal disincentives for second earners, and increase the availability
of fulltime child-care facilities and all-day schools.

4.           Continue efforts to keep
the overall economic costs of transforming the energy system to a minimum,
including by accelerating the expansion of the national and cross-border
electricity and gas networks. Ensure that the institutional set-up guarantees
effective competition in railway markets. Take measures to further stimulate
competition in the services sectors, including professional services and
certain crafts, in particular in the construction sector.

Done at Brussels,

For
the Council

The
President

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

[2]               COM(2012)305 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]               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.

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