TABLE OF CONTENTS

1........... General Context 5

1.1........ Convergence and economic development in the beneficiary Member States. 5

1.1.1..... Greece. 5

1.1.2..... Spain. 6

1.1.3..... Portugal 7

1.1.4..... Cyprus. 8

1.1.5..... Czech Republic. 10

1.1.6..... Estonia. 11

1.1.7..... Hungary. 12

1.1.8..... Latvia. 13

1.1.9..... Lithuania. 14

1.1.10... Malta. 16

1.1.11... Poland. 17

1.1.12... Slovakia. 18

1.1.13... Slovenia. 19

1.1.14... Bulgaria. 20

1.1.15... Romania. 22

1.2........ Conditionality. 23

2........... Financial execution of the 2000-2006 period in 2010 and closure of projects. 24

2.1........ Extension of the final date of eligibility of expenditure. 24

2.2........ Payments made in 2010 for projects adopted during the 2000-2006 period. 25

2.3........ Outstanding commitments from the 2000-2006 period. 26

2.4........ Closure of projects. 27

3........... The implementation of the 2000-2006 projects by Member State. 28

3.1........ Greece. 28

3.2........ Spain. 29

3.3........ Portugal 30

3.4........ Cyprus. 32

3.5........ Czech Republic. 32

3.6........ Estonia. 33

3.7........ Hungary. 34

3.8........ Latvia. 35

3.9........ Lithuania. 35

3.10...... Malta. 36

3.11...... Poland. 38

3.12...... Slovakia. 39

3.13...... Slovenia. 40

3.14...... Bulgaria. 41

3.15...... Romania. 42

4........... Monitoring, inspections, financial corrections and irregularities. 44

4.1........ Monitoring: committees and missions. 44

4.1.1..... Greece. 44

4.1.2..... Spain. 44

4.1.3..... Portugal 45

4.1.4..... Cyprus. 46

4.1.5..... Czech Republic. 46

4.1.6..... Estonia. 46

4.1.7..... Hungary. 46

4.1.8..... Latvia. 47

4.1.9..... Lithuania. 47

4.1.10... Malta. 47

4.1.11... Poland. 48

4.1.12... Slovakia. 48

4.1.13... Slovenia. 48

4.1.14... Bulgaria. 49

4.1.15... Romania. 49

4.2........ Audits and financial corrections. 50

4.2.1..... Greece. 55

4.2.2..... Spain. 55

4.2.3..... Portugal 56

4.2.4..... Cyprus. 57

4.2.5..... Czech Republic. 57

4.2.6..... Estonia. 58

4.2.7..... Hungary. 58

4.2.8..... Latvia. 59

4.2.9..... Lithuania. 59

4.2.10... Malta. 59

4.2.11... Poland. 60

4.2.12... Slovakia. 60

4.2.13... Slovenia. 61

4.2.14... Bulgaria. 61

4.2.15... Romania. 62

4.3........ Irregularities notified by the Member States. 63

4.4........ Irregularities and financial corrections. 64

5........... Evaluation. 65

6........... Information and publicity. 66

6.1........ Information to/from the Member States. 66

6.2........ Commission measures on publicity and information. 66

1. General Context

1.1. Convergence and economic development in the beneficiary Member States

1.1.1. Greece

In 2010, Greece's GDP per capita in PPS attained 89% of the EU-27 average. GDP fell by 4.5% in real terms in the same year, after having contracted by 2.5% in 2009. Annual inflation rose to 4.7% in 2010 from 1.3% in 2009, on the back of VAT rates increases and persisting market rigidities. The 2010 deficit outturn was 10.5% of GDP, which compares with the 8.0% of GDP target established last May. This was mostly because of a more-severe-than-anticipated revenue shortfall, a worse-than-estimated balance of the social security sector and the accumulation of arrears in the other-than-state sectors. In addition, the reclassifications of some state-owned enterprises (SOEs) within the general government sector will have a more durable impact on the deficit. The debt-to-GDP ratio was at 142.7% in 2010 up from 127.1% a year earlier.

In its recommendation of 20 June 2011 on the National Reform Programme, the Council concluded that Greece's growth performance over the last decade was based on unsustainable drivers. The 2008-2009 global crisis exposed the vulnerabilities of the Greek economy, including: unsustainable fiscal policies, partly hidden by unreliable statistics and temporarily high revenues; rigid labour and product markets; loss of competitiveness and rising external debt. The extent of the deterioration in the fiscal position was revealed late due to grave deficiencies in Greece's accounting and statistical systems. This delayed the implementation of corrective measures. As concerns about Greek fiscal sustainability arose and global risk aversion heightened, market sentiment vis-à-vis Greece worsened sharply in early 2010. In April 2010, Greece asked for international financial assistance as it was confronted with sizeable financing needs and not able to access international capital markets. On 3 May 2010, Greece presented an encompassing adjustment programme supported by financial assistance provided by the euro-area Member States and the IMF amounting to EUR 110 billion. The accompanying Memorandum of Understanding and its successive supplements lay down the economic policy conditions on the basis of which the financial assistance is disbursed.

Greece committed to implementing the economic and financial adjustment programme with the aim of correcting fiscal and external imbalances and restoring confidence in the short term. In the medium run, it should lay the foundations for a growth model that relies more on investment and exports supporting growth and employment. The programme foresees comprehensive action on three fronts: (i) a frontloaded fiscal consolidation strategy, supported by structural fiscal measures and better fiscal control; (ii) structural reforms in the labour and product markets to address competitiveness and growth; and (iii) efforts to safeguard banking system stability. The key elements of policy conditionality have been enshrined in Council Decision 2010/320/EU and its subsequent amendments[1] addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit under the provisions of Articles 136 and 126(9) of the Treaty.

The Programme macroeconomic scenario is broadly conservative, with a cumulative loss in real GDP in 2010-11 of around 8%, driven by a decline in domestic demand, which is partly compensated by a significant contraction in imports and smooth export growth. Real GDP growth is expected to return to positive territory in 2012 (0.8%). The government deficit is projected to reach 7.6% of GDP in 2011, 6.3% in 2012, 4.9% of GDP in 2013 and 2.6% of GDP in 2014. The debt-to-GDP ratio is projected to peak at about 160% by 2012, decreasing thereafter.

The Council recommended that Greece:

(i) fully implement the measures laid down in the Decision 2010/320/EU, as amended by Decision 2011/257/EU, and as further specified in the Memorandum of Understanding of 3 May 2010 and its subsequent supplements.

1.1.2. Spain

Spain's GDP per capita in PPS attained 101% of the EU-27 average in 2010, compared to 103% in the preceding year. In 2010, GDP fell by 0.1%, reflecting both the global economic downturn and a marked correction in the construction sector. The annual inflation rate increased to 1.8% in 2010 on the back of higher commodity and administered prices as well as an increase in indirect taxes. The downturn took a heavy toll on public finances. For 2010, the general government deficit reached 9.2% of GDP, down from 11.2% in 2009. In June 2010, the Commission assessed the action taken by Spain in response to the Council recommendations under Article 126(7) of Treaty on the Functioning of the European Union of December 2009, to end this the excessive deficit situation by 2013 at the latest, and concluded that Spain had up to then acted in accordance with the Council’s recommendations to correct the excessive deficit and that no additional step in the excessive deficit procedure was therefore necessary at that stage.

According to the latest update of the stability programme submitted in April 2011, the targets for the general government deficit are 6% of GDP in 2011, 4.4% in 2012, and 3% in 2013. These figures are based on the programme's assumptions that GDP will grow by 1.3% in 2011, by 2.3% in 2012 and by 2.5% on average in 2013 and 2014. According to the Commission services' spring 2011 forecast, the government deficit is projected to reach 6.3% of GDP in 2011 and, based on a no policy change assumption, 5.3% of GDP in 2012. The spring forecast projects that real GDP will grow by 0.8% in 2011 and by 1.5% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Stability Programme of Spain pursuant to Regulation 1466/1997. In this opinion the Council concluded that while the macroeconomic scenario underpinning the budgetary projections is favourable in 2011 and 2012, the Programme plans to bring the budget deficit below the 3% of GDP reference value by 2013, in line with the Council recommendations of April 2009, and to reduce the deficit further in 2014. The medium-term objective (MTO), which remains a balanced budget in structural terms, is not expected to be achieved over the programme period. The adjustment path is appropriate and the annual average improvement of the structural balance of 1.5% of GDP during 2010-2013 is in line with the Council recommendation. The debt-to-GDP ratio is projected to rise to 69.3% in 2013 and to decline slightly in 2014. Downside risks to the consolidation path are related to the macroeconomic assumptions and to the respect of budgetary targets at regional level.

In relation to its opinion on the 2011 update of the Stability Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Spain should take action within the period 2011-2012 to:

(i) implement the budgetary strategy in 2011 and 2012 and correct the excessive deficit in the year 2013 in line with the Council recommendation under the EDP, ensuring the achievement of deficit targets at all levels of government, including by strictly applying the existing deficit and debt control mechanisms for regional governments; adopt further measures in case budgetary and economic developments do not turn out as expected; take any opportunity including from better economic conditions to accelerate the deficit reduction; set out concrete measures to fully underpin the targets for 2013 and 2014 which should bring the high public debt ratio on a downward path and ensure adequate progress towards the medium-term objective. Keep public expenditure growth below the rate of medium-term GDP growth, by introducing a binding expenditure rule at all levels of government, as envisaged. Further improve the provision of information in relation to regional and local government budgets and their execution.

1.1.3. Portugal

Portugal’s GDP per capita in PPS attained 81% of the EU-27 average in 2010, having risen by 1 percentage point compared to the previous year. In 2010, GDP grew by 1.3% in real terms, after having contracted by 2.5% in 2009. This positive growth rate was, however, largely driven by exceptional factors that boosted exports and private consumption. Annual inflation rose to 1.4% in 2010 from -0.9% in 2009, on the back of base effects, VAT rates increases and rising commodity prices. The 2010 deficit outturn was 9.1% of GDP, which compares with the 7.3% of GDP target established last May. The difference was mostly due to a number of deficit-increasing one-off operations, notably the rescue costs of two troubled banks, and the reclassification of public-private partnerships (PPPs) into the general government sector. In addition, the reclassifications of some state-owned enterprises (SOEs) within the general government sector will have a more durable impact on the deficit. The debt-to-GDP ratio was at 93% in 2010 up from 83% a year earlier.

In its recommendation of 12 July 2011 on the National Reform Programme (NRP) 2011 of Portugal, the Council concluded that the macroeconomic and fiscal scenarios included in the NRP, submitted on 19 April 2011, have been overtaken by the Memorandum of Understanding (MoU) signed on 17 May 2011. The MoU and the accompanying Council Decision 2011/0122 are making available to Portugal medium-term financial assistance for a period of three years 2011-2014 in accordance with Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism.[2] The MoU and its successive supplements lay down the economic policy conditions on the basis of which the financial assistance is disbursed.

The Council recalled that unfavourable developments in public finances in 2009/10 and a bleak outlook for economic growth had led to a deterioration of confidence and rising pressures in sovereign bond markets. As a result, Portugal had requested international financial assistance from the European Union and the International Monetary Fund (IMF) on 7 April 2011.

The Economic Adjustment Programme for Portugal includes external financing from the European Union, the euro-area Member States and IMF of up to € 78 billion and a commitment by Portugal to undertake deep structural reforms, to follow a credible fiscal consolidation strategy and to make efforts to safeguard the financial sector. The Programme macroeconomic scenario is broadly conservative, with a cumulative loss in real GDP in 2011-12 of around 4%, mainly driven by a decline in domestic demand, which is partly compensated by a significant contraction in imports and smooth export growth. Real GDP growth is expected to return to positive territory in 2013 (1.2%). The government deficit is projected to reach 5.9% of GDP in 2011, 4.5% in 2012 and 3% of GDP in 2013. The debt-to-GDP ratio is projected to peak at about 108% by 2013, decreasing thereafter.

The Council recommended that Portugal:

(i) implement the measures as laid down in Implementing Decision 2011/344/EU and further specified in the Memorandum of Understanding of 17 May 2011 and its subsequent supplements.

1.1.4. Cyprus

In 2010, GDP per capita in PPS in Cyprus remained unchanged compared to the previous year, at 98% of the EU-27 average. Economic activity grew by 1% in the same year. Domestic demand (excl. inventories), hitherto the key driver of growth, continued to shrink, albeit at a slower pace than in the previous year. Private consumption picked up moderately, after a contraction in 2009, on the back of continued wage growth. Public consumption also supported growth. Nevertheless, with lacklustre foreign demand for housing and the restructuring of corporate balance sheets, investment remained on a downward path. Inventory accumulation provided a considerable positive impulse to economic activity, after the large destocking that took place in 2009. Furthermore, the improvement in the external environment also led to significant growth in exports of goods. Tourism receipts posted a mild recovery after a strong decline in 2009. Moreover, financial intermediation and business services continued to grow solidly. Inventory build-up and one-off factors, such as the import of buses and other equipment, led to growing imports, after a significant correction during the previous year. Public finances in Cyprus deteriorated substantially as a result of the global economic crisis and discretionary fiscal stimulus measures, as well as rather large composition effects due to a less tax-rich GDP growth pattern. The budgetary deficit in 2010 declined to 5.3% of GDP from 6% the previous year, also benefiting from a one-off revenue factor accounting for almost 0.5 percentage point of GDP.

In the latest update of the Stability Programme, submitted in May 2011, the Cypriot authorities plan that the general government deficit would fall to 4.0% of GDP in 2011 and remain of a declining trend reaching 2.6% in 2012, 2.0% in 2013 and 1.6% in 2014. The macroeconomic scenario underlying the programme envisages that real GDP will grow modestly by 1.5% in 2011, before recovering with an average rate of about 2.75% for the remainder of the programme period. The Commission services' spring 2010 forecast predicts that the deficit will decrease to only to 5.1% of GDP in 2011 and, assuming no policy change, will recede further to 4.9% in 2011. Real GDP is expected to grow by 1.5% in 2011 and by 2.4% in 2012.

The overall conclusion is that Cyprus' public finances have significantly deteriorated. The programme outlines a consolidation path, the aim of which is to bring the general government balance to below 3% of the GDP reference value by 2012. The projected adjustment is planned to be achieved mainly from the expenditure side, while the revenue-to-GDP ratio remains at around similar levels. However, most measures in 2011 are on the revenue side. Overall, there are downside risks to the consolidation path mapped out in the programme. In view of these risks, additional measures may need to be adopted if macroeconomic or budgetary developments turn out to be worse than expected.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the stability programme of Cyprus pursuant to Regulaton 1466/1997. In this opinion the Council concluded that the macroeconomic scenario underpinning the budgetary projections is plausible until 2012, but rather favourable thereafter, as assessed against the Commission services' spring 2011 forecast. The Stability Programme aims to correct the excessive deficit in 2012, in line with the Council Recommendation of 13 July 2010, and to continue consolidation afterwards. The programme projects the debt ratio to peak in 2012 and to decline thereafter. The annual average improvement in the structural balance for the period 2011-2012 is 1.5% of GDP, in line with the Council Recommendation of 13 July 2010, but the structural improvement is set to be below the requirements of the Stability and Growth Pact in both 2013 and 2014. The medium-term objective (MTO), reaffirmed as a balanced budget in structural terms, will not be reached within the programme period. While the overall adjustment planned is based on expenditure restraint, most measures in 2011 are on the revenue side. Overall, there are downside risks to the consolidation path mapped out in the programme. In view of these risks, the Council concluded that additional measures may need to be adopted if macroeconomic or budgetary developments turn out to be worse than expected.

In relation to its opinion on the 2011 update of the Stability Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Cyprus should take action within the period 2011-2012 to:

(i) adopt the necessary measures of a permanent nature to achieve the budgetary target in 2011 and the correction of the excessive deficit by 2012, in line with the Council recommendations under the EDP. Take measures to keep tight control over expenditure and make use of any better-than-expected budgetary developments for faster deficit and debt reduction. Ensure progress towards the medium-term objective by at least 0.5% of GDP annually and bring the public debt ratio on a downward path. Accelerate the phasing-in of an enforceable multiannual budgetary framework with a binding statutory basis and corrective mechanisms, as from the preparation of the 2012 Budget. The Programme and Performance Budgeting should be implemented as soon as possible;

(ii) improve the long-term sustainability of public finances by implementing reform measures to control pension and healthcare expenditure in order to curb the projected increase in age-related expenditure. For pensions, extend years of contribution, link retirement age with life expectancy or adopt other measures with an equivalent budgetary effect, while taking care to address the high at-risk-of-poverty rate for the elderly. For healthcare, take further steps to accelerate implementation of the national health insurance system.

1.1.5. Czech Republic

In 2010, Czech GDP per capita in PPS reached 80% of the EU-27 average. The recovery in 2010 started to take hold fuelled by robust export growth and the ensuing build up in inventories and real GDP rebounded to 2.3%, up from the 4.1% decline in 2009. Annual inflation increased only modestly in 2010, to 1.2% on average. This was mainly due to the only very limited growth in domestic demand. The general government deficit in 2010 is estimated to have reached 4.7% of GDP, as compared to 5.9% in 2009. The lower deficit reflects significant cuts in public investment, together with consolidation measures targeting mostly the revenue side (increase in the two VAT rates, in excise duties and in social contributions). In June 2010, the Commission assessed the action taken by the Czech Republic in response to the Council recommendations under Article 126(7) of Treaty on the Functioning of the European Union of December 2009, to end the excessive deficit situation by 2013 at the latest, and concluded that the Czech Republic had up to then acted in accordance with the Council’s recommendations to correct the excessive deficit and that no additional step in the excessive deficit procedure was therefore necessary at that stage.

According to the most recent update of the convergence programme, which was submitted in May 2011, the general government deficit in the Czech Republic is due to decline to 4.2% of GDP in 2011, and further to 3.5% and 2.9% of GDP in 2012 and 2013 respectively. The macroeconomic scenario underlying the programme assumes real GDP growth of 1.9% in 2011, slightly rising to 2.3% of GDP in 2012 and further accelerating to an average ratio of 3.7% over the rest of the programme period. According to the Commission services' spring forecast, real GDP growth is estimated at 2% in 2011, rising to 2.9% in 2012. The deficit would reach 4.4% of GDP in 2011 and is set to decline to 4.1% of GDP in 2012, assuming no changes in policy.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Convergence Programme of the Czech Republic pursuant to Regulation 1466/1997. In this opinion the Council concluded that the proposed measures are broadly sufficient to reach the target by 2013, as recommended by the Council, but there are risks to the actual budgetary outcome of measures as presented in the programme. Moreover, the attainment of the targets for the outer years of the programme seems to rely on favourable cyclical conditions and further efficiency gains in public administration, which may become increasingly difficult to realise. The average annual fiscal effort over the period 2010-2013 would be slightly below 1% of GDP recommended by the Council under the EDP procedure of 2 December 2009.

In relation to its opinion on the 2011 update of the Convergence Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that the Czech Republic should take action within the period 2011-2012 to:

(i) implement the planned consolidation in 2011 and take countervailing measures of a permanent nature as needed in case of any revenue shortfalls or expenditure slippages. Adopt fiscal measures as planned in the Convergence Programme for 2012 and underpin the target for 2013 by more specific measures; subject to this, avoid cutting expenditure on growth-enhancing items. Improve the efficiency of public investments, and continue efforts to exploit the available space for increases in indirect tax revenue to shift taxes away from labour, improve tax compliance, and reduce tax evasion. Ensure an average fiscal effort over the period 2010-2013 of 1% of GDP, in line with the Council recommendations on correcting the excessive deficit, which will allow meeting the EDP deadline with a sufficient margin in 2013;

(ii) implement the planned pension reform in order to improve the long-term sustainability of public finances and to ensure the future adequacy of pensions. Additional efforts should focus on further changes to the public pillar to ensure that the system is not a source of fiscal imbalances in the future, and on the development of private savings. With a view to raising the effective retirement age, measures such as a link between the statutory retirement age and life expectancy could be considered. Ensure that the envisaged funded scheme attracts broad participation, and is designed to keep administrative costs transparent and low.

1.1.6. Estonia

In 2010, Estonia's GDP per capita in PPS amounted to 65% of the EU-27 average. The deterioration from almost 70% in 2007 was due to a steep contraction in 2008-2009 when the cumulative loss of GDP amounted to 18% following the reversal of the economic cycle and the severe global financial crisis. In 2010, economic recovery started gaining ground. The GDP growth of 3.1% was driven by exports and inventories, while domestic demand remained subdued. Inflation (HICP) increased to 2.7% in 2010 reflecting a spike in world commodity prices and tax changes, which added about 1% to average inflation. While the contraction in economic activity resulted in general government deficits in 2008-2009, the general government budget position was a surplus of 0.1% of GDP in 2010 due to a faster-than-expected recovery and the sizeable sales of so-called ‘Kyoto carbon credits’, which amounted to 1% of GDP.

The April 2011 update of the stability programme projects some deterioration of the general government budgetary position to a deficit of 0.4% and 2.1% of GDP in 2011 and 2012, respectively, due to the gradual expiring of several consolidation measures of a temporary nature and the one-off impact of environmental investment obligations related to sales of the ‘Kyoto carbon credits’. The programme targets reaching headline and structural surpluses from 2013. In the underlying macroeconomic scenario, real GDP is expected to grow at sustainable rates of around 3.75% on average in 2011-15, with growth becoming more balanced as domestic demand recovers. Projections from the Commission services' spring forecast point to the general government deficit reaching 0.6% and 2.4% in 2011 and 2012, respectively, with real GDP growing by 4.9% in 2011 and 4.0% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 Stability Programme of Estonia pursuant to Regulation 1466/1997. In this opinion the Council concluded that the macroeconomic scenario underpinning the budgetary projections was plausible. The Council also found that the programme provided some information regarding measures to reach the targeted position, in particular vis-à-vis efficiency-seeking reforms in several areas. Taking into account previous track record of the Estonian authorities in meeting the fiscal targets, risks to the budgetary scenario were assessed as broadly balanced. The Council nevertheless concluded that it would be important for the upcoming budgets to provide the key details of measures to further enhance the efficiency of public spending, thus underpinning the implementation of the stability programme.

In relation to its opinion on the 2011 Stability Programme, the Council recommended that Estonia should take action within the period 2011-2012 to:

(i) achieve structural surplus by 2013 at the latest, while limiting deficit in 2012 to at most 2.1% of GDP, keeping tight control over expenditure and enhancing the efficiency of public spending.

1.1.7. Hungary

In 2010, GDP per capita in PPS stood at 64% of the EU-27 average. GDP grew by 1.2% the same year (following on the heels of a sharp contraction of -6.7% of GDP in 2009), led by a strong export performance. Domestic demand continued to decline, with unemployment at 11.2% and inflation relatively high at 4.7%. The general government deficit was 4.2% of GDP in 2010, slightly down from 4.5% in 2009 but not as low as targeted (3.8% of GDP). This broad stabilisation in the deficit level was achieved through a series of temporary revenue-increasing measures as well as expenditure freezes adopted in the second half of 2010, which largely compensated for the emerging budgetary slippages and some within-the-year tax cuts. Given the structural deterioration in both 2010 and 2011 and an expected deficit well above 3% of GDP in 2012 shown in the Commission services’ autumn 2010 forecast, in January 2011 Commissioner Rehn addressed a letter to Hungary asking to reconfirm its commitment to fully respect the recommendations by the Council and to soon announce permanent, concrete and specific measures necessary to underpin this commitment.

The April 2011 update of the convergence programme contains a general government surplus target of 2.0% of GDP for this year, much better than the 2.9% of GDP deficit set in the 2011 budget adopted on 23 December 2010 thanks to the huge one-off revenues notably stemming from the pension reform reversal. Without these one-off revenues the 3% of GDP threshold would have been breached. For 2012, the authorities target a deficit of 2.5% of GDP and a further gradual decline to 1.5% in 2015. The macroeconomic baseline scenario forecasts real GDP to expand by 3.1% in 2011, followed by sustained growth in the range of 3-3.5% thorough the entire programme horizon (until 2015). According to the Commission services' spring forecast, the government balance is projected to be in surplus (1.6% of GDP) in 2011 and to return to a deficit of 3.3% of GDP in 2012. Real GDP is expected to increase by 2.7% in 2011 and again by 2.6% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Convergence Programme of Hungary pursuant to Regulation 1466/1997. In this opinion the Council concluded that the macroeconomic scenario underpinning the budgetary projections is slightly favourable. The consolidation strategy is expected to reduce the budgetary deficit in a structural way and put the debt on a downward path to reach 64% of GDP by 2015. On the basis of the spring forecast, it cannot be excluded that the 3% of GDP deficit threshold may be breached again in 2012 unless further measures are taken. In addition, consolidation appears to be rather back-loaded with structural improvement starting only from 2012. The cumulative structural deterioration of over 3% of GDP over 2010 and 2011 is not in line with the Council recommendation of July 2009 asking Hungary to achieve a structural adjustment of at least 0.5% of GDP.

In relation to its opinion on the 2011 update of the Convergence Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Hungary should take action within the period 2011-2012 to:

(i) strengthen the fiscal effort in order to comply with the Council recommendation to correct the excessive deficit in a sustainable manner, inter alia by avoiding the structural deterioration in 2011 implicit in the planned 2% of GDP budget surplus and ensure that the budget deficit is kept safely below the 3% of GDP threshold in 2012 and beyond, contributing to the reduction of the high public debt ratio. Fully implement the announced fiscal measures and adopt additional measures of a permanent nature if needed at the latest in the 2012 budget to secure the budgetary target for that year. The 2012 budget should also identify the additional measures in order to attain the 2013 target in the Convergence Programme. Ensure progress towards the medium-term objective (MTO) by at least 0.5% of GDP annually until the MTO is reached and use possible windfall revenues to accelerate the fiscal consolidation;

(ii) adopt and implement regulations specifying the operational aspects of the new constitutional fiscal governance framework, including, inter alia, the numerical rules that will be implemented at the central and local level until the debt ratio has declined to below 50% of GDP. Regarding the fiscal framework, implement and strengthen multiannual fiscal planning, improve the transparency of public finances and broaden the remit of the Fiscal Council.

1.1.8. Latvia

In 2010, GDP per capita in PPS attained 52% of the EU-27 average. It was thus unchanged compared to 2009, when it had contracted from 56% in 2008 and 2007. After a steep deterioration in 2008-09, real GDP moved back to positive quarter-on-quarter growth rates in 2010, although a small decline was recorded in 2010 annualised terms, reflecting the negative carry-over from the previous year. Increased export demand supported the economic recovery in 2010, while domestic demand and investments remained relatively weak. Sizeable fiscal consolidation, as well as improving macroeconomic conditions, allowed lowering the general government deficit to 7.7% of GDP in 2010 from 9.7% in 2009. In January 2010, the Commission assessed the action taken by Latvia in response the Council recommendations under Article 104(7) TEC of July 2009, to correct the excessive deficit situation by 2012 at the latest, and concluded that, as Latvia had acted in accordance with the Council’s recommendations, no additional step in the excessive deficit procedure was therefore necessary.

The April 2011 update of the convergence programme projects a further decline of the general government deficit to 4.5% of GDP in 2011, 2.5% in 2012, 1.9% in 2013, and 1.1% in 2013. According to the programme, and in line with commitments made in the framework of the international financial assistance, fiscal policy is set to remain restrictive throughout the programme period, with the envisaged measures being mostly expenditure based. The underlying macroeconomic scenario envisages that real GDP will rise by 3.3% in 2011 and by 4% annually in 2012-14. The spring 2011 forecast by the Commission services projects the general government deficit at 4.5% in 2011 and 3.8% in 2012 under no-policy-change terms. The Commission services’ growth forecast for 2011-12 is fully identical to the projections in the convergence programme.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Convergence Programme of Latvia pursuant to Regulation 1466/1997. In this opinion the Council concluded that the macroeconomic scenario underpinning the budgetary projections in the programme was plausible although the inflation projection might be on the low side for 2011. The Council also found that, taking into account the measures implemented since the issuance of the recommendation to correct the excessive deficit situation and additional consolidation implied in the updated convergence programme, the planned fiscal effort for 2011-2012 was in line with the required adjustment. While, in view of the starting point, the programme did not foresee the achievement of the medium-term objective (MTO) by the end of the programme period, the Council found that the planned fiscal effort to reach the MTO after the correction of the excessive deficit situation could be accelerated in particular in 2013.

The Council also concluded that the budgetary targets were subject to downside risks, as the programme did not provide full information on measures to underpin the achievement of the set targets; these measures were expected to be spelled out in the forthcoming budgets. Finally, the Council found that reducing the primary deficit over the medium term, as foreseen in the programme, would help reduce the risks to the sustainability of public finances.

In relation to its opinion on the 2011 update of the Convergence Programme, also taking into account the central role of the medium-term financial assistance programme in bringing the economy and public finances on a sustainable path, the Council recommended that Latvia:

(i) implement the measures laid down in the Decision 2009/290/EC, as amended by Decision 2009/592/EC, and further specified in the Memorandum of Understanding of 20 January 2009 and its subsequent supplements, in particular the last supplement of 7 June 2011.

1.1.9. Lithuania

Lithuania's GDP per capita in PPS increased to 58% of the EU-27 average in 2010, up from 55% in 2009. This reflects a recovery after a deep economic recession, when output contracted by nearly 15% in 2009, following the burst of an externally-financed housing and credit bubble. In 2010 the economy returned to growth, expanding by 1.3%, on the back of determined policy action of the Lithuanian authorities and the global economic recovery. The upturn in the inventory cycle also supported the recovery, offsetting a contraction in domestic demand as consumers, non-financial corporations and the public sector continued to restore their balance sheets. Continued fiscal consolidation efforts and the improved macroeconomic environment resulted in a larger-than-expected reduction in the general government deficit, which declined to 7.1% of GDP in 2010 (1.0 percentage point below the target under the excessive deficit procedure).

According to the April 2011 update of the convergence programme, the general government deficit is to decline to 5.3% in 2011 and 2.8% in 2012. In the underlying macroeconomic scenario, real GDP growth is projected to stand at 5.8% in 2011, before slowing down to 4.7% in 2012. According to the Commission services' spring 2011 forecast, the general government deficit is expected to narrow to 5.5% in 2011 and 4.8% in 2012 under the customary assumption of no policy change. Real GDP is set to expand by 5.0% and 4.7% in 2011 and 2012 respectively.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Convergence Programme of Lithuania pursuant to Regulation 1466/1997. In this opinion the Council concluded that the macroeconomic scenario underlying the 2011 Convergence Programme is plausible although economic growth and inflation may turn out higher than currently projected. While the programme plans to bring the deficit below the 3% reference value by 2012, the deadline set by the Council, it is not sufficiently underpinned by measures for 2012. At the same time, the accelerating economic momentum may lead to better 2011 budgetary outcomes than expected in the programme. This should allow a faster deficit reduction than expected at the time of the Council EDP Recommendation. Yet, the Council foresees that if temporary consolidation measures that will expire at the end of 2011 are not renewed and complemented by sizable permanent measures, Lithuania is not likely to meet the Convergence Programme's budgetary targets for 2012 despite the improving macro-economic outlook. The average annual fiscal effort over the period of 2010-2012 is well below the 2.25% of GDP recommended by the Council under the excessive deficit procedure adopted on 16 February 2010. The medium-term objective (MTO) of a structural surplus of 0.5% of GDP is not foreseen to be achieved within the programme period and the Council considers that progress towards the MTO should be accelerated. According to the Commission's latest assessment, the risks with regard to long term sustainability of public finances appear to be high.

In relation to its opinion on the 2011 update of the Convergence Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Lithuania should take action within the period 2011-2012 to:

(i) adopt additional fiscal measures of a permanent nature by the time of the 2012 budget to correct the excessive deficit in line with the Council recommendations under the EDP; reinforce tax compliance and take full advantage of the economic recovery to further accelerate deficit reduction and ensure progress towards the medium-term objective by at least 0.5% of GDP annually. Strengthen the fiscal framework, in particular by introducing enforceable and binding expenditure ceilings in the medium-term budgetary framework;

(ii) adopt the proposed implementing legislation on Pension System Reform. In order to enhance participation in the labour market, remove fiscal disincentives to work, especially for people at pensionable age.

1.1.10. Malta

In 2010, Malta's GDP per capita in PPS was 83% of the EU-27 average, having risen from 81% the previous year. After declining by 3.3% in 2009 as a result of the global crisis, real GDP rebounded strongly in 2010, with growth estimated at 3.2%, driven by exports and business investment. The general government deficit remained broadly stable in 2010, at 3.6% of GDP, compared to 3.7% in 2009. In February 2010, the Council extended the deadline for the correction of the excessive deficit by one year, to 2011. In January 2011 the Council concluded, based on a Commission communication and according to the information available at the time, that Malta had taken action representing adequate progress towards the correction of the excessive deficit within the time limit set by the Council and that no further steps in the excessive deficit procedure were therefore necessary at that stage.

According to the 2011 update of the stability programme, the general government deficit is planned to decline gradually, to 2.8% of GDP in 2011 and 1.0% of GDP in 2014. The macroeconomic scenario underlying the programme projects real GDP growth to strengthen from 2.4% and 2.3% in 2011-2012 to 2.6% in 2013 and 2.8% in 2014. The Commission services' spring 2011 forecast projects the deficit at 3.0% of GDP in both 2011 and 2012, the latter under the usual no-policy change scenario. Real GDP is expected to grow by 2.0% in 2011 and 2.2% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Stability Programme of Malta pursuant to Regulation 1466/1997. In this opinion the Council concluded that the general government deficit is due to return below the 3% of the GDP reference value in 2011, which is the deadline set by the Council for the correction of the excessive deficit, and to gradually decline thereafter towards the medium-term objective (MTO) of a balanced position in structural terms, at a pace that is broadly in line with the Stability and Growth Pact. The Council further concluded that the budgetary outcomes could be worse than targeted because of possible expenditure overruns and lack of information on the measures underpinning the consolidation effort after 2011.

In relation to its opinion on the 2011 update of the Stability Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Malta should take action within the period 2011-2012 to:

(i) ensure correction of the excessive deficit in 2011, in line with the EDP recommendations, standing ready to take additional measures so as to prevent possible slippages, and adopt concrete measures to back up the 2012 deficit target. Bring the high public debt ratio on a downward path and ensure adequate progress towards the MTO. With a view to strengthening the credibility of the medium-term consolidation strategy, define the required broad measures from 2013 onwards, embed the fiscal targets in a binding, rule-based multi-annual fiscal framework and improve the monitoring of budgetary execution;

(ii) take action to ensure the sustainability of the pension system such as by accelerating the progressive increase in the retirement age and by linking it to life expectancy. Accompany the higher statutory retirement age with a comprehensive active ageing strategy, discourage the use of early retirement schemes and encourage private pension savings.

1.1.11. Poland

In 2010, Poland’s GDP per capita in PPS was 62% of the EU-27 average. The global financial crisis led to a deceleration in the real GDP growth rate, but Poland avoided recession. Real GDP increased by 1.6% in 2009, down by 3.5 percentage points from 2008. In 2010 real GDP grew by 3.8%, as rebounding external demand fuelled the domestic manufacturing sector and strengthened the turnaround in the inventories cycle and the resilient labour market supported private consumption. The economic crisis has taken a heavy toll on public finances. General government deficit rose steadily from 1.9% of GDP in 2007 to 3.7% in 2008 and 7.3% of GDP in 2009. In February 2010, the Commission assessed the action taken by Poland in response the Council recommendations under Article 104(7) TEC of July 2009, to end the excessive deficit situation by 2012 at the latest, and concluded that Poland had up to then acted in accordance with the Council’s recommendations to correct the excessive deficit and that no additional step in the excessive deficit procedure was therefore necessary at that stage. The general government deficit rose further to 7.9% of GDP in 2010, 1 percentage point above the target presented in the 2010 update of the convergence programme. The budgetary slippage was due to lower revenues from corporate income tax, higher consumption and investment expenditure by local government entities and higher interest expenditure. Given the above, in January 2011 Commissioner Rehn addressed a letter to Poland asking to reconfirm its commitment to fully respect the recommendations by the Council and to soon announce permanent, concrete and specific measures necessary to underpin this commitment.

According to the 2011 update of the convergence programme, the general government deficit will decrease to 5.6% of GDP in 2011, before shrinking further to 2.9% in 2012, driven by an ambitious budgetary consolidation package supported by a strong GDP growth projected to amount to 4% in real terms in both 2011 and 2012. The Commission services' spring 2011 forecast projects that the budget deficit will reach 5.8% in 2011, before declining to 3.6% in 2012. The macroeconomic forecast puts real GDP growth at 4% in 2011 and 3.7% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Convergence Programme of Poland pursuant to Regulation 1466/1997. In this opinion the Council concluded that the Convergence Programme was based on a plausible macroeconomic scenario and noted that it plans to bring the deficit below the 3% of GDP reference value by 2012, the deadline set by the Council. It further stressed that the average annual fiscal effort over the period 2010-2012 was fully in line with the 1.25% of GDP recommended by the Council and that the amendment to the pension reform reducing the structural budget deficit by 0.7% in 2011 and by a further 0.5% of GDP in 2012 did not substantially improve the underlying budgetary situation as an improvement in the initial budgetary position was accompanied by an increase in long-term liabilities. The Council stated that risks to budgetary targets are tilted to the downside as direct tax revenues might turn out lower than projected, programme projections on social contributions rely on favourable scenarios for employment and wage growth and potential implementation delays and changes to the deficit-reducing measures, also beyond the direct control of the government, could result in a slippage in the consolidation path.

In relation to its opinion on the 2011 update of the Convergence Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Poland should take action within the period 2011-2012 to:

(i) implement the measures announced in the draft 2012 Budget Law and take additional measures of a permanent nature if needed to reduce the general government deficit to below 3% of GDP in 2012, in line with the Council recommendations under the EDP. While ensuring adequate progress towards the medium term objective, minimise cuts in growth-enhancing expenditure in the future;

(ii) enact legislation with a view to introducing a permanent expenditure rule by 2013. This rule should be based on sufficiently broad budgetary aggregates and should be consistent with the European system of accounts. Moreover, take measures to strengthen the mechanisms of coordination among the different levels of government in the medium term and annual budgetary processes.

1.1.12. Slovakia

In 2010, GDP per capita in PPS in Slovakia further increased slightly to 74% of the EU-27 average, compared to 73% in the preceding year, and 72% in 2008. In the same year growth rebounded to 4%, mostly on account of the recovery in external demand and investment. After an unprecedented slump in 2009, investment grew by 3.6% in 2010, partly in response to the need to replace fixed capital in the wake of the crisis, but also as a result of a return to higher corporate profitability and a gradual improvement in access to credit. However, the labour market deteriorated further and the unemployment rate reached 14.5%. Due to the rapid worsening of labour market conditions and with wages increasing only moderately, private consumption growth stalled. Inflation decelerated further to 0.7%. The general government deficit remained high at 7.9% of GDP in 2010. In June 2010, the Commission assessed the action taken by Slovakia in response to the Council recommendations under Article 126(7) of Treaty on the Functioning of the European Union of December 2009, to end the excessive deficit situation by 2013 at the latest, and concluded that Slovakia had up to then acted in accordance with the Council’s recommendations to correct the excessive deficit and that no additional step in the excessive deficit procedure was therefore necessary at that stage.

The April 2011 update of the stability programme targets a reduction of the headline deficit from 4.9% of GDP in 2011 to 2.9% of GDP in 2013 and 2.8% in 2014. The macroeconomic scenario underlying the programme forecasts real GDP growth of 3.4% in 2011 and 4.8% in 2012-14. The Commission services’ spring 2011 forecast projects the deficit at 5.1% of GDP in 2011 and, on the usual no-policy-change basis, 4.6% of GDP in 2012. Real GDP is projected to grow by 3.5% in 2011 and 4.4% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Stability Programme of Slovakia pursuant to Regulation 1466/1997. In this opinion the Council concluded that the macroeconomic scenario underlying the programme is plausible for the initial two years but favourable towards the end of the programme period. The proposed consolidation measures appear to be sufficient to meet the fiscal targets but there are downside risks mainly related to the implementation of proposed measures. For the period 2011-2013 meeting the budgetary targets would imply an average annual fiscal effort of around 1.4% of GDP. In addition, the challenge for Slovakia is to ensure that consolidation safeguards expenditure on growth-enhancing items, such as education and transport infrastructure. The programme does not foresee the achievement of the medium-term objective (MTO) during the programme period.

In relation to its opinion on the 2011 update of the Stability Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Slovakia should take action within the period 2011-2012 to:

(i) rigorously implement both the 2011 budget as envisaged and the planned specific measures of a permanent nature in 2012 and 2013, to reduce the deficit below 3% of GDP by 2013 in line with Council recommendations on correcting the excessive deficit and ensure adequate progress towards the medium-term objective. Subject to this, safeguard growth-enhancing expenditure, and use available room to increase revenue through environmental and property taxes and by increasing the efficiency of VAT collection;

(ii) strengthen fiscal governance by adopting in 2011 and implementing from 2012 binding multi-annual expenditure ceilings, covering the central government and the social security system. In addition, introduce an independent Fiscal Council and ensure timely publication of budgetary data at all levels of the government;

(iii) enhance the long-term sustainability of public finances by further adjusting the pay-as-you-go pillar of the pension system also by changing the indexation mechanism and implement further measures with a view to raising the effective retirement age, in particular by linking the pensionable age to life expectancy. Introduce incentives to ensure the viability of the fully-funded pension pillar so as to progress towards fiscal sustainability while assuring adequate pensions.

1.1.13. Slovenia

In 2010, Slovenia's GDP per capita in PPS further declined to 87% of the EU-27 average, from 88% in the preceding year, and 91% in 2008. A halting export-led recovery has been underway since the second quarter of 2009 and in 2010 real GDP is estimated to have grown by 1.2%, driven by net exports and the turning of the inventory cycle. A weak labour market, high corporate indebtedness, adverse banking sector developments and the slump in the construction sector have all contained domestic demand. The resumption of growth and the first steps made in fiscal consolidation have helped to decrease the general government deficit to 5.6% of GDP in 2010, from 6% in 2009. In June 2010, the Commission assessed the action taken by Slovenia in response to the Council recommendations under Article 126(7) of Treaty on the Functioning of the European Union of December 2009, to end the excessive deficit situation by 2013 at the latest, and concluded that Slovenia had up to then acted in accordance with the Council’s recommendations to correct the excessive deficit and that no additional step in the excessive deficit procedure was therefore necessary at that stage.

The April 2011 update of the stability programme targets a gradual narrowing of the general government deficit from 5.5% of GDP in 2011 to 2.0% in 2014. The macroeconomic scenario underlying the programme forecasts a gradual strengthening of real GDP growth, from 1.8% in 2011 to 2.8% in 2014. The Commission services’ spring 2011 forecast projects the deficit at 5.8% of GDP in 2011 and, on the usual no-policy-change basis, 5.0% of GDP in 2012. Real GDP is projected to grow by 1.9% in 2011 and 2.5% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Stability Programme of Slovenia pursuant to Regulation 1466/1997. In this opinion the Council concluded that the average annual change in the structural balance over the period 2010-13, as calculated by the Commission services based on the commonly agreed methodology, is planned to be below the level recommended by the Council and that deficit and debt outcomes could fall short of the targets.

In relation to its opinion on the 2011 update of the Stability Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Slovenia should take action within the period 2011-2012 to:

(i) achieve the 2011 deficit target, underpin the 2012 deficit target with concrete measures and implement the necessary consolidation rigorously, standing ready to adopt additional measures to prevent possible slippages. Underpin this required adjustment process over the programme period with additional measures to ensure the average annual fiscal effort in line with the Council recommendations under the EDP and adequate progress towards an appropriate medium-term objective; To this purpose, use structural measures to contain expenditure and address identified inefficiencies and implement a more binding medium-term budgetary framework. Accelerate the reduction of the deficit if economic or budgetary conditions turn out better than currently expected;

(ii) take the required steps to ensure the long-term sustainability of the pension system, while preserving the adequacy of pensions. Increase the employment rate of older workers through later retirement, and by further developing active labour market policies and lifelong learning measures.

1.1.14. Bulgaria

In 2010, Bulgaria's GDP per capita in PPS reached 43% of the EU-27 average, thus having declined by 1 percentage point from the previous year. Following five consecutive quarters of decline, which left real GDP around 7% below the peak reached at the end of 2008, the economy bottomed out in 2010 with growth returning to positive territory in the second quarter. Recovery gained momentum in the second half of the year leading to 0.2% real GDP growth for 2010 as a whole, against a severe contraction by -5.5% in 2009. A strong upturn in exports, restocking of inventories, and improved utilization of EU funds were the main growth drivers. The economic downturn led to a significant deterioration of public finances. The general government balance turned into a deficit of 4.7% of GDP in 2009 and 3.2% in 2010 compared to a surplus of 1.7% in 2008. Upon notifying a breach of the 3% of GDP reference value for 2009, Bulgaria entered an excessive deficit procedure in July 2010. The Council issued recommendations under Article 126(7) of Treaty on the Functioning of the European Union to end this situation by 2011 at the latest. In January 2011, the Commission assessed the action taken by Bulgaria in response to the Council recommendations and concluded that Bulgaria had up to then acted in accordance with the Council’s recommendations to correct the excessive deficit and that no additional step in the excessive deficit procedure was therefore necessary at that stage.

The most recent update of Bulgaria's convergence programme, submitted in April 2011, projects the general government deficit to continue to decline to 2.5% of GDP in 2011, 1.5% in 2012, 1% in 2013, and 0.5% in 2014. According to the macroeconomic scenario underlying the programme, real GDP will increase by 3.6% in 2011 and further accelerate to an average rate of 4.25% over the remainder of the programme period. In the Commission services' spring 2011 forecast the general government deficit is projected to decline to 2.7% of GDP in 2011 and, assuming a no policy change, to 1.6% of GDP in 2012. Real GDP is expected to grow by 2.8% in 2011 before picking up by 3.6% in 2012.

In its recommendation of 12 July 2011 the Council delivered an opinion on the 2011 update of the Convergence Programme of Bulgaria pursuant to Regulation 1466/1997. In this opinion the Council concluded that after the achieved considerable and frontloaded budgetary adjustment of more than 2 percentage points in structural terms in 2010, fiscal consolidation plans for 2011 should be implemented as envisaged and the deficit should be brought below the 3% reference value in line with the Council Recommendation under the excessive deficit procedure. However, it was considered that the update does not provide sufficient details for planned budgetary measures to achieve the fiscal targets in 2012-14. In addition, the full implementation of the programme depends on an optimistic macroeconomic scenario, while the projected expenditure growth in 2012-13 seems to be on the high side, when assessed against a prudent estimate of medium-term rate of growth, posing a risk to the structural fiscal position in the medium term. In that vein, strengthening of the domestic fiscal framework would permit to further enhance predictability and credibility of government policy in the medium-term, while anchoring fiscal discipline.

In relation to its opinion on the 2011 update of the Convergence Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Bulgaria should take action within the period 2011-2012 to:

(i) proceed with effective budget implementation so as to correct the excessive deficit in 2011, in line with the Council recommendation of 13 July 2010 under the EDP; specify the measures underpinning the budgetary strategy for 2012-2014; take advantage of the economic recovery to ensure adequate progress towards the medium-term objective, primarily by keeping tight control over expenditure growth, while prioritizing growth-enhancing expenditure;

(ii) take further steps to improve the predictability of budgetary planning and the implementation control, including on an accruals basis, in particular by strengthening fiscal governance. To this end, design and put in place binding fiscal rules and a well-defined medium-term budgetary framework that ensures transparency at all government levels.

1.1.15. Romania

Romania's GDP per capita in PPS was 45% of the EU-27 average in 2010. In the same year, real economic activity declined by -1.3%, after having fallen by -7.1% in 2009. The long duration of the recessionary period was a result of a sharp downward adjustment in domestic demand, which in the run-up to the crisis had been fuelled by lax fiscal policy and a boom in credit lending, mostly in foreign currencies. The current-account balance in 2009-10 remained in negative territory (at -4.2% in both years) despite the sharp economic decline and depreciation of the exchange rate. Following the Council’s decision under Art. 104(6) TEC of July 2009 establishing the existence of an excessive deficit, in February 2010 the Council issued revised recommendations under Art. 126(7) of Treaty on the Functioning of the European Union to end the excessive deficit in 2012 at the latest. In September 2010, the Commission assessed the action taken by Romania in response to the Council recommendations, and concluded that Romania had up to then acted in accordance with the Council’s recommendations to correct the excessive deficit and that no additional step in the excessive deficit procedure was therefore necessary at that stage.

The May 2011 update of the convergence programme projects a further decline of the general government deficit to 4.9% of GDP in 2011, 3.0% in 2012, 2.6% in 2013, and 2.1% in 2014. The underlying macroeconomic scenario envisages that real GDP will rise by 1.5% in 2011 and 4% in 2012, rising to 4.5% and 4.7% in 2013 and 2014. The spring 2011 forecast by the Commission services projects the general government deficit at 4.7% in 2011 and 3.6% in 2012 under no-policy-change terms. The Commission growth forecast for 2011 is fully identical to the projections in the convergence programme, for 2012 it is slightly more cautious (3.7%). The implementation of the fiscal governance reforms decided upon within the context of the EU balance of payments assistance programme in Romania should help in achieving the budgetary targets. In February 2011, a follow-up joint EU/IMF precautionary financial assistance program was requested to support the re-launch the economic growth with a focus on structural reforms, while consolidating fiscal and financial stability. It also contains explicit targets for the absorption of EU structural funds. The World Bank will continue providing earlier committed support to Romania under its development loan programme (DPL3) and support for social assistance and health reforms. The Council has adopted the relevant decisions for the new precautionary Balance-of-payments (BoP) programme on 12 May 2011, thus making available precautionary EU medium-term financial assistance of up to EUR 1.4 billion. The last instalment of EUR 150 million under the previous BoP programme was disbursed on 22 June, meaning that the total amount of the EU loan to Romania of EUR 5 billion has been made available.

In its recommendation of 12 July 2011, the Council delivered an opinion on the 2011 update of the Convergence Programme of Romania pursuant to Regulation 1466/1997. In this opinion the Council concluded that macroeconomic assumptions underpinning the programme are plausible. The programme aims to limit the general government deficit to 2.6% and 2.1% of GDP in 2013 and 2014, respectively. The envisaged consolidation is mostly expenditure-based and the structural improvement appears to be frontloaded in 2011 and 2012. In contrast, no such improvement is foreseen in 2013 and 2014. The medium-term objective (MTO) will not be reached in the programme period, according to the structural balance recalculated by Commission services. The main risks to the budgetary targets are linked to budget implementation risks, arrears of state-owned enterprises, and reservations expressed by Eurostat about Romania’s fiscal notification under the excessive deficit procedure.

In relation to its opinion on the 2011 update of the Convergence Programme, also taking into account the Council Recommendation under Article 126(7), the Council recommended that Romania:

(i) implement the measures laid down in Decision 2009/459/EC as amended by Decision 2010/183/EU, together with the measures laid down in Decision 2011/288/EU and further specified in the Memorandum of Understanding of 23 June 2009 and its subsequent supplements, and in the Memorandum of Understanding of 29 June 2011 and its subsequent supplements.

1.2. Conditionality

Article 6 of the Council Regulation (EC) No 1164/1994 which governs the Cohesion Fund for projects approved prior to the end of 2006 attaches budgetary policy conditions to the disbursements by the Fund. It provides that "no new projects or, in the event of important projects, no new project stages shall be financed by the Fund in a Member State in the event of the Council, acting by a qualified majority on a recommendation from the Commission, finding that the Member State […] has not implemented [its stability or convergence programme] in such a way as to avoid an excessive deficit".

At the end of 2010, fourteen Member States that were eligible for support under the Cohesion Fund (Greece, Spain, Portugal, Bulgaria, Romania, Cyprus, Czech Republic, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia) were in the excessive deficit procedure (EDP), which, according to the aforementioned Regulation, may under certain conditions be associated with the suspension of transfers from the Fund.

In 2010, there were eleven cases (Czech Republic, Spain, Latvia, Lithuania, Hungary, Malta, Poland, Portugal, Romania, Slovenia and Slovakia) where effective action taken in compliance with the Council recommendations under Article 126(7) of Treaty on the Functioning of the European Union (TFEU) was assessed. In three of those cases (Lithuania, Malta and Romania), the Council also issued new recommendations under Article 126(7) TFEU with a view to bringing the excessive deficit situation to an end, and later that year the Commission also concluded that action had been taken in compliance with the renewed recommendations. The Council further decided to open an excessive deficit procedure in two cases (Bulgaria and Cyprus). For both, the Commission concluded in early 2011 that effective action had been taken in compliance with the Council’s recommendations.

The Council decided to give notice under Article 126(9) TFEU to Greece, having had established in 2009 under Article 126(8) TFEU that the authorities had not taken effective action in response to the Council recommendations to end the excessive deficit, although suspension of payments from the Cohesion Fund was not recommended at the time. Since then, compliance with the Council decision is examined by the Commission on a quarterly basis. On each of these occasions, the Council (on a recommendation from the Commission) also revises its decision under Article 126(9) TFEU.

2. Financial execution of the 2000-2006 period in 2010 and closure of projects

The Member States eligible for the Cohesion Fund support can be divided into three groups: a group of four Member States eligible from the beginning of the programming period 2000-2006 (Greece, Spain, Ireland and Portugal), a second group of ten Member States that joined the European Union in May 2004 (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia), and the group of two Member States (Romania and Bulgaria) that joined the European Union in January 2007.

2.1. Extension of the final date of eligibility of expenditure

The "Guidelines on the Closure of Cohesion Fund and Ex-ISPA projects 2000-2006 refers to the period of eligibility of expenditure which is set out in each individual decision granting financial assistance. In accordance with the principle of sound financial management, and the guidance sent on 9 March 2005 by the Directorate-General for Regional Policy to the Member States, for all Cohesion Fund projects the Commission set the final eligibility date, as a general rule, not beyond 31 December 2010.

In April 2010, the Commission adopted as one of the measures in support of the European Economic Recovery Plan, the "Amendment of the Guidelines on the closure of Cohesion Fund and ex-ISPA projects 2000-2006"[3].This amendment stated that the Commission may under justified circumstances decide to extend the final date of eligibility. The Commission took into account that projects first approved from 2004 onwards may have been particularly affected by issues of providing the required national public or private co-financing, or by the ability of beneficiaries to respect the original schedule of works. The Commission reflected that such projects were in the midst or even only at the start of their implementation when the crisis set in.

For projects first approved by Commission decision after 1 January 2004 the Commission may decide, on the basis of a duly justified request, to extend the final date of eligibility to 31 December 2011. If, moreover, it concerns a project with a Cohesion Fund contribution of at least EUR 100 million, the final date of eligibility may be extended to 31 December 2012.

Exception for the extension of the final date of eligibility beyond the dates above is possible only under exceptional and duly justified circumstances (i.e. administrative or legal proceedings having suspensory effects, cases of force majeure which have serious repercussions for the implementation of the project supported by the Cohesion Fund, or manifest errors attributable to the Commission).

The amendment of the guidelines on closure was welcomed by the respective Member States and the Commission believes it will contribute to more efficient and effective implementation of the 2000-2006 Cohesion Fund projects. As a consequence, a number of the Member States requested extensions of the final date of eligibility for several dozens of Cohesion Fund projects in 2010 which would mean that implementation of these projects will continue to the end of 2011 or 2012.

2.2. Payments made in 2010 for projects adopted during the 2000-2006 period

In general, there were fewer final payments for Cohesion Fund projects (and ex-ISPA) for the period 2000-2006 than initially expected. Closure payment claims require thorough analysis of the closure documents and, depending on their completeness and quality, it can result in final payments at later stage than initially foreseen.

The 2010 initial budget for payments for the 2000-2006 Cohesion Fund projects amounted to EUR 2,500 million. The transfer of appropriations resulted in a final budget of EUR 2,321 million. In order to close the gap between the available resources and the demand for payments, transfers have been made to the budget line related to the 2007-2013 Cohesion Fund programmes. For the period 2000-2006, the available appropriations of EUR 2,321 million were fully implemented by the end of 2010. This is a lower execution than in year 2009 (EUR 2,777 million) illustrating the fact that the Cohesion Fund project implementation cycle is reaching its final stage.

As far as the ex-ISPA budget lines are concerned, the budget initially foreseen for 2010 amounted to EUR 560 million. In September (during the Global Transfer procedure), the appropriations were reduced by an amount of EUR 184 million. After further transfers in December 2010, the final appropriations amounted to some EUR 368 million. The available appropriations were implemented in their entirety.

Table 1 presents the overall execution of payments in 2010 (including technical assistance) for the Cohesion Fund and the ex-ISPA projects.

Table 1. Implementation of the Cohesion Fund and ex-ISPA payments in 2010 (in EUR)

Payment appropriations || Initial || Movements || Final Resources || Outturn

Cohesion Fund || 2 500 000 000 || -179 383 717 || 2 320 616 283 || 2 320 616 283

Ex-ISPA || 560 000 000 || -191 878 478 || 368 121 522 || 368 121 522

TOTAL || 3 060 000 000 || -371 262 195 || 2 688 737 805 || 2 688 737 805

Table 2 shows the level of 2010 payments for each Member State and for each sector. The main beneficiary countries are Spain in the EU-4 group, Poland in the EU-10 group and Romania in the EU-2 group.

In 2010, payments were higher in comparison to the payments made in 2009 for the following countries: Poland (+ EUR 108 million or 13% increase of payments made in 2009), Slovakia (+ EUR 14 million or 29% increase of 2009 payments).

Table 2. Payments made in 2010 to the Cohesion Fund and ex-ISPA projects per Member State and per sector

Member State || Environment || Transport || Technical Assistance || TOTAL

Amount || % (as compared to the CF 2010 outturn by MS) || Amount || % (as compared to the CF 2010 outturn by MS) || Amount || Amount || % (as compared to the global CF amount)

Greece || 196 285 182 || 7,3% || 60 562 484 || 2,3% || 0 || 256 847 666 || 9,55%

Portugal || 109 709 657 || 4,1% || 127 564 819 || 4,7% || 985 244 || 238 259 720 || 8,86%

Ireland || 0 || 0,0% || 0 || || 0 || 0 || 0,00%

Spain || 328 329 637 || 12,2% || 280 813 392 || 10,4% || 0 || 609 143 029 || 22,66%

EU-4 || 634 324 476 || 23,6% || 468 940 695 || 17,4% || 985 244 || 1 104 250 415 || 41,07%

Cyprus || 0 || 0,0% || 0 || 0,0% || 0 || 0 || 0,00%

Czech Republic || 55 297 256 || 2,1% || 30 680 718 || 1,1% || 425 379 || 86 403 353 || 3,21%

Estonia || 15 878 636 || 0,6% || 22 039 712 || 0,8% || 0 || 37 918 348 || 1,41%

Hungary || 29 331 827 || 1,1% || 17 526 811 || 0,7% || 856 105 || 47 714 743 || 1,77%

Latvia || 10 338 526 || 0,4% || 25 859 859 || 1,0% || 544 591 || 36 742 976 || 1,37%

Lithuania || 8 740 955 || 0,3% || 15 252 592 || 0,6% || 6 138 958 || 30 132 506 || 1,12%

Malta || 0 || 0,0% || 0 || 0,0% || 40 420 || 40 420 || 0,00%

Poland || 448 619 538 || 16,7% || 491 467 969 || 18,3% || 4 116 085 || 944 203 592 || 35,12%

Slovakia || 26 049 461 || 1,0% || 34 584 958 || 1,3% || 0 || 60 634 419 || 2,26%

Slovenia || 11 790 480 || 0,4% || 440 792 || 0,0% || 96 250 || 12 327 522 || 0,46%

EU-10 || 606 046 680 || 22,5% || 637 853 411 || 23,7% || 12 217 789 || 1 256 117 879 || 46,70%

Bulgaria || 47 080 251 || 1,8% || 68 561 660 || 2,5% || 3 351 764 || 118 993 675 || 4,43%

Romania || 109 605 808 || 4,1% || 97 810 588 || 3,6% || 1 959 440 || 209 375 836 || 7,79%

EU-2 || 156 686 059 || 5,8% || 166 372 248 || 6,2% || 5 311 204 || 328 369 511 || 12,21%

TOTAL || 1 397 057 214 || 52,0% || 1 273 166 354 || 47,4% || 18 514 237 || 2 688 737 805 || 100,00%

2.3. Outstanding commitments from the 2000-2006 period

At the end of 2010, the average absorption rate (payments vs. commitments) of all current beneficiary countries for both the Cohesion Fund and ex-ISPA projects was 83.7% (Table 3). The absorption rates range from 70.1% (Bulgaria) and 72.6% (Hungary) to 86.7% (Estonia) and 92.8% (Ireland).

At the end of 2010, the outstanding commitments ("reste à liquider", RAL) corresponding to the 2000-2006 period amounted to EUR 5.7 billion. During 2010, the outstanding RAL was reduced by EUR 2.7 billion. In terms of absorption, the most significant decreases in RAL compared to year 2009 were notified for Poland (-16.8 percentage points), Bulgaria (- 13.6 percentage points) and Romania (- 10.3 percentage points).

Table 3. Cohesion Fund and ex-ISPA accepted amounts in 2000-2006 (including RAL)

Member State || Committed || Paid || % Paid || RAL || % RAL

(until 12/2010) || (until 12/2010) || as at 31/12/2010

Greece || 3 546 948 416 || 2 972 182 523 || 83,8% || 574 765 893 || 16,2%

Spain || 12 884 382 648 || 11 128 639 199 || 86,4% || 1 755 743 450 || 13,6%

Ireland || 625 755 407 || 580 710 223 || 92,8% || 45 045 184 || 7,2%

Portugal || 3 482 652 576 || 2 979 319 277 || 85,5% || 503 333 299 || 14,5%

TOTAL EU-4 || 20 539 739 048 || 17 660 851 221 || 86,0% || 2 878 887 827 || 14,0%

Cyprus || 54 014 695 || 40 029 810 || 74,1% || 13 984 885 || 25,9%

Czech Republic || 1 226 218 717 || 1 061 982 697 || 86,6% || 164 236 020 || 13,4%

Estonia || 425 431 731 || 368 686 651 || 86,7% || 56 745 080 || 13,3%

Hungary || 1 481 998 333 || 1 075 837 677 || 72,6% || 406 160 656 || 27,4%

Latvia || 713 737 155 || 578 052 034 || 81,0% || 135 685 121 || 19,0%

Lithuania || 825 210 750,63 || 691 544 300 || 83,8% || 133 666 450 || 16,2%

Malta || 21 966 289 || 17 573 031 || 80,0% || 4 393 258 || 20,0%

Poland || 5 634 539 614 || 4 652 759 522 || 82,6% || 981 780 092 || 17,4%

Slovakia || 765 689 903 || 646 665 528 || 84,5% || 119 024 375 || 15,5%

Slovenia || 254 129 012 || 214 745 183 || 84,5% || 39 383 829 || 15,5%

TOTAL EU-10 || 11 402 936 200 || 9 347 876 435 || 82,0% || 2 055 059 765 || 18,0%

Bulgaria || 876 877 183 || 614 479 975 || 70,1% || 262 397 209 || 29,9%

Romania || 2 035 838 573 || 1 550 268 645 || 76,1% || 485 569 928 || 23,9%

TOTAL EU - 2 || 2 912 715 755 || 2 164 748 620 || 74,3% || 747 967 135 || 25,7%

TOTAL || 34 855 391 003 || 29 173 476 276 || 83,7% || 5 681 914 727 || 16,3%

2.4. Closure of Cohesion Fund projects

In total there are 1192 Cohesion Fund projects for 2000-2006 (including the ex-ISPA projects and bridge projects 1994-1999), of which 795 were still on-going in the Member States at the end of 2010.

At the end of 2010, the total number of closed 2000-2006 Cohesion Fund projects (including ex-ISPA projects) was 397 and 102 projects were closed in 2010. The majority of closures were notified for the following Member States: Spain (58 projects closed), Latvia (9), Greece and Czech Republic (8). Table 4 provides information on the projects closed until the end of 2010 per Member State.

Table 4. Cohesion Fund projects closed until the end of 2010 (including ex-ISPA)

Member State || Total number of CF projects || Projects closed as of end 2010 || Number of open projects as of end 2010

Total number of projects closed || Number of projects closed in 2010 || Total paid in EUR

Czech Republic || 58 || 27 || 8 || 549 846 707 || 31

Estonia || 37 || 21 || 1 || 129 290 305 || 16

Greece || 124 || 58 || 8 || 1 298 010 305 || 66

Spain || 407 || 164 || 57 || 4 272 630 917 || 243

Ireland || 10 || 4 || 0 || 357 368 796 || 6

Cyprus || 2 || 0 || 0 || 0 || 2

Latvia || 46 || 19 || 9 || 143 251 895 || 27

Lithuania || 51 || 16 || 1 || 171 791 687 || 35

Hungary || 47 || 12 || 1 || 34 389 692 || 35

Malta || 3 || 0 || 0 || 0 || 3

Poland || 130 || 6 || 0 || 68 915 348 || 124

Portugal || 109 || 36 || 6 || 825 206 357 || 73

Slovenia || 28 || 13 || 3 || 81 180 871 || 15

Slovakia || 39 || 11 || 3 || 145 781 900 || 28

EU-14 || 1091 || 387 || 97 || 8 077 664 780 || 704

Bulgaria || 38 || 4 || 1 || 27 407 620 || 34

Romania || 63 || 6 || 4 || 15 776 582 || 57

EU-2 || 101 || 10 || 5 || 43 184 202 || 91

TOTAL || 1 192 || 397 || 102 || 8 120 848 982 || 795

3. The implementation of the 2000-2006 projects by Member State

3.1. Greece

3.1.1. Environment

In the environmental sector, 60 projects were under implementation in 2010, contributing to waste management, the treatment of waste water, drinking water supply, rehabilitation of a lake and prevention of forest fires. The aim of these projects is to contribute to implementing the relevant EU Directives.

Progress is noted during 2010 in particular in relation to those Cohesion Fund projects that concern waste water treatment plants however, the rate of performance of the environment projects differs from one sector to another. Projects on solid waste infrastructure in particular in Attiki Region, drinking water and nature protection projects, and in particular major projects such as the construction of dams, are seriously delayed due to administrative delays, archaeological findings, the economic crisis, violent public/social reactions or not full implementation of the EU relevant Directives. This is due to the condition that a number of requirements that should be implemented are deriving from relevant Directives and reflected in the specific terms of the funding decisions and are linked to payments. These specific clauses can be divided into those of an administrative nature (e.g. setting up of a solid waste management body or of an agency to manage the operation of a dam), and those of a legal or technical character (e.g. the completion of the legal framework relating to the solid waste management or certain actions considered necessary for the integrated management of solid waste). The timely and efficient application and implementation of these requirements are directly related to the implementation of the projects concerned.

Due to all the above, most of the granting decisions have been modified upon request of the Greek authorities. These modification decisions concerned mainly the extension of the final date of eligibility, the adaptation of the physical object and the financing plan.

3.1.2. Transport

In the transport sector there were 12 projects under implementation in 2010 and there is a stable progress of the physical and financial implementation of the projects, with higher absorption presented in the road projects while the rail and the port projects are still lagging behind.

Cohesion Fund transport projects contribute to the development of the sustainable transport policy in Greece and concern in particular the priority trans-European (TEN) road axes in Greece, i.e. the PATHE, EGNATIA; the modernisation of the PATHE railway axis, also part of the TEN, including its electrification and signalling systems, construction of a freight railway line from the Ikonio port to the railway freight centre of Thriassio; the infrastructure facilities in different ports; public transport infrastructures in Attica such as the metro. The transport projects are progressing better than the environment projects, with motorways projects being particularly well advanced.

3.2. Spain

The year 2010 was confined to physical and financial monitoring of ongoing projects leading, in particular, to interim payments based on their degree of advancement, to the closure of completed projects and to adjustments of the terms of assistance in relation to the actual situation on the ground via changes in the Commission decisions granting Community assistance.

A total of 57 projects were closed in 2010 and 243 projects remained open as at the end of 2010, including one from the 1993-1999 period, with a RAL of EUR 1,755.7 million, of which EUR 5.4 million was related to the 1993-1999 period. This represents a decrease of 26.7% in the RAL associated with the Cohesion Fund for 2010.

Despite a significant acceleration in the pace of closures compared to 2009 and 2008 when 34 and 18 project's closures was completed, the closure process remains not as fast as desired and complex mainly due to the problem concerning the transposition of EU Directives on public procurement into Spanish law, especially with regard to changes in the contracts being implemented by negotiated procedure.

Many projects are likely to present problems of irregularities related to non compliance with the said Directives, but they have to be completed pursuant to section H of Annex II to Regulation (EC) No. 1164/1994. The organisation and management of such a procedure involves an extremely heavy burden, both for the Member State and for the services of the Commission. However, four hearings took place in 2010 (11 March, 23 June, 14 July and 22 November) dealing with a total of 30 projects, compared to only one hearing in 2009 which dealt only with 3 projects.

As regards payments (intermediate and final balance), a total of 128 requests for payments have been implemented for an amount equivalent to EUR 609.1 million. Compared to the year 2009, this represents a decrease in terms of payment claims (162 in 2009) and a decrease in terms of amounts paid (EUR 712 million in 2009).

3.2.1. Environment

Regarding changes in the conditions for granting aid, in 2010 a total of 30 amending decisions were approved, all of which were within the environmental sector. In general, the changes affect the date of completion of works, often accompanied by - usually minor - changes to the physical subject of the projects. The changes have had no impact on either the total eligible costs of projects or Community assistance.

Also, in terms of changes, there was a significant reduction compared to 2009 when 71 amending decisions were approved. This is probably due to the unusual high number of modification in 2009.

3.2.2. Transport

In 2010, the Commission services paid particular attention to the implementation of high speed trains projects. In particular in September 2010 two new lines started operating: Madrid-Albacete and Madrid-Valencia (adding 438 km to the global network). The trip between Madrid and Valencia takes now only 1 hour and a half (for 391 km) what can be considered a very good result of the cohesion policy in Spain. The total EU co-financing of this infrastructure was EUR 1,949 million. For the programming period 2000-2006 the total EU aid was EUR 747.3 million (EUR 574.6 million from the Cohesion Fund). The total cost of the infrastructure was EUR 12,410 million.

3.3. Portugal

3.3.1. Environment

The projects under implementation help to promote, develop and complete the basic environment infrastructure as well as to ensure the conditions for sustainable development, environmental protection and management of natural resources. These projects relate to the priority sectors of "Water Supply", "Sewerage and Wastewater Treatment" and "Urban Waste Management", in line with the reference framework.

During 2010, 12 amending decisions were adopted to make general adjustments to the final specifications of projects, mostly in order to include new additional elements and/or to revise others, and to extend the final date of eligibility.

In 2010, 4 environmental projects were closed: "Resíduos Cova da Beira", "Sistema multimunicipal de Valorizaçao eTratam. De RSU do Norte Alentejano", "Residuos Solidos Acçoes Vomplementaires para o Ano 2001-EGF" and "Sistema Multimunicipal de Abastecimento de Agua e de Saneamento do Vale do Ave-Estudos/Projectos/Assessorias".

As at December 2010, 16 environmental projects were already in the process of closure. From a financial point of view the most significant projects are "Tratamento de Resíduos da Madeira" (with a total Fund contribution of EUR 72 million), "Abastecimento e Saneamento de Águas de Trás-os Montes e Alto Douro – Fase 1" (EUR 52 million), "Abastecimento de Água e Saneamento de Trás-os-Montes e Alto Douro – 3ª. Fase" (EUR 50 millions), "Multisectorial Raia, Zêzere, Nabão- 1a fase" (EUR 45 millions), and "Abastecimento e Saneamento de Águas de Trás-os Montes e Alto Douro – Fase 2" (EUR 43 million).

The other 37 open projects arrived at the end of eligibility date on 31 December 2010. However, following the Amendment of the Guidelines on the closure of Cohesion Fund and ex-ISPA projects 2000-2006, the national authorities requested the extension of the deadline of 18 projects/group of projects to the end of 2011 and 1 cancellation (Resitejo). This means that 19 projects should enter in the closure procedure soon.

It should be noted that one project in the sector of waste treatment – "Braval" - has not yet received the advance payment.

3.3.2. Transport

The projects being implemented contribute to the development of the Trans‑European Transport Network and enhance multimodal articulation between the various means of transport in place, in line with the objectives of the reference framework.

During the year, 2 amending decisions were adopted for the same general reasons of adjusting the description of the project and extending the final date of eligibility.

In 2010, 2 transport projects were fully closed, "Porto da Praia da Vitória" and "IC3 – Ligação Tomar/IP6" and 1 partially closed due to legal and administrative issues, "Linha do Minho – Nine/Braga.

Six transport projects were at the closure procedure stage in December 2010; from a financial point of view the most relevant ones are "Linha do Algarve – Coina / Pinhal Novo" (with a total Fund contribution of EUR 86 million), and "Porto do Caniçal" (EUR 41 million).

The other 9 projects arrived at the end of the eligibility date on 31 December 2010. The national authorities requested the extension of the deadline to the end of 2011 for one project (Porto do Funchal) and to the end of 2012 for another one (Metro de Lisboa – GIL/Aeroporto). In the same request for modification, the Portuguese authorities asked for the fusion of this project with another project in the same underground line "Metro de Lisboa – Alameda/S. Sebastião".

3.3.3. Technical Assistance

At the end of 2010, 3 technical assistance decisions still remained open. No projects were closed. One amending decision was adopted in 2010 to extend the final date of eligibility to the end of 2011.

3.4. Cyprus

The Cohesion Fund for Cyprus amounts to approximately € 54 million Community contribution. Two projects are co-financed by the Cohesion Fund: one transport project (upgrade of Limassol motorway) and one environmental project (solid waste management covering the regions of Larnaka-Ammochostos).

The payments made by the Commission for 2 projects (including the advances) amount to approximately EUR 40 million (absorption rate 74%). During the year 2010, no payment claim was submitted by the Cypriot authorities.

The final payment request including the final report for the transport project was submitted on 22 June 2010, which is within the 6 months deadline after the final date of implementation. The winding-up declaration was submitted on 6 December 2010. All closure documents are under assessment and it is expected to complete it during the first semester of 2011.

For the environment project, the works have been completed and the project is operational. It is expected to receive the final payment claim within the 6 months deadline after the final date of implementation (at the end June 2011).

3.5. Czech Republic

3.5.1. Environment

The implementation of the Cohesion Fund projects in the environment sector is progressing satisfactorily. Out of 38 projects approved in the 2000-2006 programming period, 14 were closed (4 in 2010), 1 is in the closure procedure, and closure procedures have been initiated for 5 other projects. The majority of the on-going projects have been completed or are in the final stage of implementation. 81% of the committed amounts have already been paid by the Commission.

In 2010, the Commission dealt with 4 requests to amend the Commission decision in the sector of environment. Most of the modifications concerned the extension of the final date of eligibility. By the end of the year, all of the modification requests had been adopted.

3.5.2. Transport

In the transport sector, implementation is well advanced for almost all projects. 86% of the committed amounts have already been paid by the Commission. In 2010, the closure procedure was launched for 1 project. So far, 9 out of 13 approved projects have been closed (4 in 2010). One modification request was received in 2010 in the transport sector concerning the extension of the final date of eligibility.

In addition, there was also 1 mixed project – environment and transport (Floods 2002 relief: Reconstruction of transport and environment infrastructure damaged or destroyed by floods during August 2002) which was closed in 2004.

3.5.3. Technical Assistance

Regarding the technical assistance projects, their implementation is also well advanced - 3 out of 6 approved projects (2 in the field of transport, 2 in the field of environment and 2 general technical assistance) were closed, none of which in 2010. The closure procedure for one of the technical assistance projects in the field of transport has been launched in 2010.

A request for modification concerning the extension of the final date of eligibility of the technical assistance to the managing authority of the Cohesion Fund was submitted and approved in 2010. A request for modification concerning the extension of the final date of eligibility was submitted and approved in 2010 also for one of the technical assistance projects in the field of environment.

3.6. Estonia

3.6.1. Environment

The Commission has issued financial decisions for 21 environmental projects under the Cohesion Fund (4 of them are technical assistance projects). By the end of 2010, activities of all but 2 projects were finished on the ground. For 2 projects, the extension was asked as contractors were unable to fulfil their tasks and new contractors had to be found at the last moment. The residual works are minor compared to the whole project and there is no danger that the projects will not be operational as a result.

Cohesion Fund projects were subject to heavy cost increases in 2006 – 2007. The situation has normalized since 2008 and construction prices have been going down during the economic crises. The changing conditions have required that some projects had to be modified by the Commission and there are pending requests to decrease the physical objectives of certain projects. These proposals for modification are being analyzed in order to ensure the delivery of working projects that continue to fulfil the initial objectives and to avoid increasing Community contribution except in cases that are justified by unforeseeable increase in initial estimated inflation.

In environment, Cohesion Fund projects mainly concentrated to water sector. Estonia's larger urban areas – Tartu, Narva, Kohtla-Järve, Pärnu etc. were able to carry out separate projects while smaller settlements were grouped together according to the river or sub-river basin water management plans. In waste management the Cohesion Fund supported closure of one hazardous waste landfill and construction of modern landfill for the Western part of Estonia.

3.6.2. Transport

The Commission has issued financial decisions for 15 transport projects under the Cohesion Fund (5 of which are technical assistance projects). By the end of 2010, all projects were completed on ground. For a project concerning the extension of Muuga harbour, cost savings were encountered and the managing authority proposed to carry out additional works to use these savings for the benefit of the project during 2011.

All Estonian TEN-T roads have been systematically improved with Cohesion Fund resources. At the initial stage, projects comprised mainly improvements to existing roads that were in very bad condition when ISPA initially became available. At later stage, work has concentrated on full renewal of sections and junctions considered to be bottlenecks or black spots in terms of safety. No completely new roads or motorway sections have been built. In addition to roads, Tallinn Airport passenger terminal and surrounding area have been completely renovated and extended, allowing the airport to cope with increased passenger numbers. Also, major seaport has been extended with the assistance of the Cohesion Fund.

Technical assistance has helped preparing transport infrastructure projects for implementation in the new programming period. This is demonstrated by good progress in transport sector investments from 2007 – 2013 period resources.

3.7. Hungary

3.7.1. Environment

In the environment sector there are 31 Cohesion Fund/ex-ISPA projects, including 6 technical assistance projects (5 of which are closed) and 25 investment projects (2 are closed) of which 10 are waste water, 13 are solid waste, 1 drinking water and 1 recultivation project. The overall payment/commitment rate is 65% for investment projects and 87% for technical assistance projects. The contracting rate is mainly above 90% and in several cases it is 100%.

In 2010, the Commission adopted 3 amending decisions, 2 of which concerned the extension of the final date of eligibility until 31 December 2010 and 2012 respectively and another relating to the inclusion of new project elements. An additional 8 modifications are on-going. These are mainly related to cost savings and extension of the project eligibility date until 31 December 2011. The requested extension of the final date of eligibility to 31 December 2011 for 2 projects – namely North East Pest and North Balaton waste projects - was not eligible for the extension as these projects were first adopted in 2002 and 2003.

One environment project was closed in 2010. There are 4 pending project closures.

3.7.2. Transport

There are 16 Cohesion Fund/ex-ISPA projects in the transport sector including 7 technical assistance projects (4 of them are closed) and 9 investment projects – 1 for air transport (closed), 3 for road transport and 5 for rail. All transport projects reached the 80% payment/commitment rate. There are 3 pending project closures.

In 2010, the Commission adopted 3 amending decisions, mainly concerning the extension of the final date of eligibility until 31 December 2010 and an inclusion of new project elements. An additional modification is pending related to cost increase and extension of the final date of eligibility until 30 June 2012.

3.8. Latvia

3.8.1. Environment

The Commission has issued 26 Cohesion Fund decisions for environmental projects (including 4 technical assistance projects). In total, out of 26 projects by the end of 2010, 9 projects had been closed, 8 closure files and 1 cancellation request were pending with the Commission (7 projects were closed in 2010), and 8 projects were still ongoing.

For 5 of the pending closure files, financial corrections of EUR 4.45 millions were proposed as a result of the wrongful award of supplementary contracts. On 1 July 2010, a hearing was held for 4 projects, but no agreement was reached. Therefore a second stage hearing will be organized in 2011. Effort is put so that all the 5 remaining cases are closed in 2011.

In 2010, the Commission approved 5 modifying decisions mainly concerning extension of the final date of eligibility to 31 December 2010, increase of the ceiling of cumulative payments to the project to 90% and some minor adjustments of the physical scope.

3.8.2. Transport

The Commission has issued 18 Cohesion Fund decisions for transport projects (including 4 technical assistance projects). In total, by the end of 2010, 9 projects were closed (2 were closed in 2010), 1 closure file was pending with the Commission, and 8 projects were ongoing.

In 2010, the Commission approved 3 modifying decisions mainly concerning extension of the final date of eligibility to 31 December 2010 and some minor adjustments of the physical scope.

3.9. Lithuania

3.9.1. Environment

29 environmental projects were adopted under the Cohesion Fund (and ex‑ISPA) for the period 2000-2006, of which 16 relate to the waste water sector, 11 relate to the solid waste sector, and 2 are for technical assistance.

Prior to 2010 one waste water project was closed and another one has been closed in 2010. Currently 7 other projects are under treatment for closure with the Commission.

3 amending decisions were adopted in 2010 and 13 other modification requests were still under treatment at the end of 2010, of which 1 was completed at the beginning of 2011. The modifications mainly concern reduction of scope of the project, adjustment of physical monitoring indicators, extension of the final date of eligibility to 31 December 2011 and increase, up to 90%, of the ceiling for advance and interim payments. Out of 13 requests, 9 incl