Council Recommendation of 27 March 2007 on the 2007 up-date of the broad guidelines for the economic policies of the Member States and the Community and on the implementation of Member States' employment policies
Date: 2007-03-27
Institutions: Council of the European Union
Subjects: EU Member State, economic growth, economic policy, employment policy

3.4.2007

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Official Journal of the European Union

L 92/23

RECOMMENDATIONS

COUNCIL

COUNCIL RECOMMENDATION

of 27 March 2007

on the 2007 up-date of the broad guidelines for the economic policies of the Member States and the
Community and on the implementation of Member States' employment policies

(2007/209/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 99(2) and
Article 128(4) thereof,

Having regard to the recommendation from the Commission,

Having regard to the conclusions of the European Council on 8 and 9 March 2007,

Having regard to the opinion of the Employment Committee,

Whereas:

The Spring 2005 European Council renewed the Lisbon
Strategy by refocusing on growth and employment in
Europe.

agreed a limited number of specific actions which it
urged Member States to complete before the end of
2007.

(6)

(7)

(8)

The Council adopted in July 2005 a recommendation on
the broad guidelines for the economic policies of the
Member States and the Community (2005 to 2008) (1)
and a decision on Guidelines for the employment policies
of the Member States (2), which together form the ‘Inte-
grated guidelines for jobs and growth’.

The Member States were invited to take the integrated
guidelines for jobs and growth into account
in their
national reform programmes regarding economic and
employment policies.

reform
submitted their national
All Member States
programmes
(NRPs) by October 2005, which the
Commission assessed and reported on in its contribution
to the 2006 Spring European Council.

The 2006 Spring European Council took note of these
documents and identified four priority areas (R&D and
innovation, business environment, employment opportu-
nities and an integrated energy policy) within which it

In accordance with the conclusions of the 2006 Spring
the Member States have presented
European Council,
the
their annual
national reform programmes.

reports on the implementation of

These annual implementation reports have been analysed
by the Commission, which has presented its findings in
the 2007 Annual Progress Report (3).

the

On the basis of this analysis, a number of recommen-
dations should be issued. In order to pursue the Lisbon
strategy for growth and jobs in a coherent and integrated
manner,
recommendations
country-specific
concerning economic policies and employment policies
should now be adopted in a single instrument. This
approach reflects
the
National Reform Programmes and the Implementation
Reports, as well as the necessary consistency between
the employment guidelines and the Article 99(2) broad
economic policy guidelines, as underlined in Article
128(2), last sentence.

structure of

integrated

the

(1)

(2)

(3)

(4)

(5)

(1) OJ L 205, 6.8.2005, p. 28.
(2) OJ L 205, 6.8.2005, p. 21.

(3) COM(2006) 816, Part II.

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(9)

To fully implement the Lisbon strategy for growth and jobs, this recommendation should also
contain specific recommendations to the Member States belonging to the euro area.

(10)

The European Parliament has adopted a resolution regarding this Recommendation (1),

HEREBY RECOMMENDS that Member States should take action along the lines set out in the Annex and
report on their follow up in their next annual progress reports on the implementation of their national
reform programmes in the framework of the renewed Lisbon strategy for growth and jobs.

Done at Brussels, 27 March 2007.

For the Council
The President

P. STEINBRÜCK

(1) Opinion delivered on 15 February 2007 (not yet published in the Official Journal).

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ANNEX

BELGIUM

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

2. Belgium is making good progress in the implementation and reinforcement of its 2005-2008 National Reform
Programme. While there is a certain risk for the sustainability of public finances in the context of an ageing
population, overall the policy framework is appropriate. Despite moderate progress on R&D, Belgium is implementing
the measures announced in the microeconomic field and reinforcing existing reforms to increase investment. The
picture in the employment field is more mixed and steps are needed to achieve the EU-wide employment rate goals, in
particular for older people. Belgium has launched a series of measures to respond to the commitments made by the
2006 Spring European Council.

3. Among the strengths of the Belgian National Reform Programme and its implementation are: the continued downward
trend of the debt ratio; the stabilisation in R&D intensity after a decline in 2002-2003; the development of clusters
and competitiveness poles; the improved record on the transposition of internal market directives; further measures in
the field of better regulation and administrative simplification; the policy to promote business start-ups; the measures
to improve the alternate learning system; and the formal recognition of acquired skills and the quality of the technical
education system are welcome.

4. The policy areas in the Belgian National Reform Programme where challenges need to be tackled with the highest
priority are: reducing the tax burden on labour and reducing regional disparities in unemployment and employment.
Against this background Belgium is recommended to:

— while continuing fiscal improvement, undertake further efforts to reduce the tax burden on labour towards the

average of its neighbouring countries,, especially by reducing the tax wedge on low-skilled workers,

— take further measures aimed at reducing regional disparities in unemployment and employment

through a
comprehensive economic strategy, including active labour market policies, reintegration and education policies.

5. In addition, it will be important for Belgium over the period of the National Reform Programme to focus on: ensuring
the long-term sustainability of public finances; identifying further emission reduction policies and measures; improving
competition in gas and electricity markets,
including through independent and effective regulators and through
additional measures concerning transmission and distribution operators; and increasing the employment rate for
older workers and vulnerable groups, in particular by further tightening the eligibility criteria for early retirement
schemes and by enhancing preventive (education, training) and active labour market policies.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

CZECH REPUBLIC

2. The Czech Republic is making limited progress in the implementation of its National Reform Programme: progress in
several areas is not clearly spelled out, some reforms have been postponed, while others have not been set in motion.
Yet the strong economic growth should facilitate reforms. There are certain risks in the macroeconomic area,
particularly for medium-term budgetary consolidation and the long-term sustainability of public finances in the
context of an ageing population. The Czech Republic is generally moving ahead relatively well
in the micro-
economic field. Although private R&D spending is developing favourably overall progress on R&D policies has
been moderate. In the employment area more efforts are required to respond to the key challenge of improving
labour market flexibility. Progress on meeting the commitments made at the 2006 Spring European Council has also
been mixed.

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3. Among the strengths of the implementation of the National Reform Programme are positive measures to increase the
control and transparency of public finances; to improve regulation and the business environment; to reform curricula
for primary and secondary education, to stimulate participation in tertiary education, to make work pay.

4. The policy areas in the Czech National Reform Programme where challenges need to be tackled with the highest
priority are: the sustainability of public finances, since the 2007 budget anticipates a breach of the expenditure ceilings
and an increased deficit; increasing the amount and effectiveness of public R&D expenditure; improving security and
flexibility in the labour market; improving the efficiency and equity in education and training and increasing par-
ticipation in lifelong learning. Against this background the Czech Republic is recommended to:

— with a view to improving the long-term sustainability of public finances, take steps to implement reforms of the
in particular on the basis of the 2005 all-party pensions report, and fix a

pension and health care systems,
timetable for their implementation,

— strengthen efforts to improve collaboration between business, universities and public R&D institutions, while

increasing the amount and effectiveness of public R&D investment,

— further modernise employment protection, including legislation and tax and benefit systems, improve efficiency
and equity in education and training especially in their responsiveness to labour market needs, provide incentives
to invest in training, particularly for older workers and the low-skilled, and increase the diversification of tertiary
education supply.

5. In addition, it will be important for the Czech Republic over the period of the National Reform Programme to focus
on: improving the system for patenting and the protection of intellectual property rights; speeding up progress in the
ICT area, including by implementing and monitoring the development of a fully enabling legal environment for e-
Government; meet targets for reducing the administrative burden on enterprises; further developing access to finance
for innovative companies; developing links between foreign-owned and domestic companies; introducing entrepre-
neurship education into the curricula; better integrating disadvantaged groups into the labour market; reducing
regional employment disparities; reconciling work and family life; tackling the gender pay gap and implementing
the active ageing strategy.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

DENMARK

2. Denmark is making very good progress in the implementation of its National Reform Programme and the 2006
Spring European Council conclusions. Denmark has with the June 2006 Welfare Agreement further strengthened its
reform strategy in terms both of macroeconomic and employment policy and has made very good progress in
reaching a national consensus on reforms. Denmark has also made progress on microeconomic policies, including
in the area of competition.

3. Among the strengths of the Danish National Reform Programme and its implementation are: the comprehensive,
integrated nature of the reform strategy, which is a benchmark for other Member States; the combination of a medium
and long-term approach, reinforced by consistently taking into account stakeholder input; the ‘flexicurity’ based
approach to the labour market;
long-term fiscal sustainability,
including expenditure restraint, fiscal surpluses and a rapid reduction of government debt; and the sound measures
aimed at increasing labour supply in the long term, in particular the agreement to defer early retirement.

the overall macroeconomic strategy aimed at

4. It will be important for Denmark over the period of the National Reform Programme to focus on: measures aimed at
increasing labour supply over the medium term, up until 2015, including further initiatives to improve incentives to
work and additional steps to integrate older workers and immigrants into the labour market; following through
proposed reforms in competition law and ensuring that new competition powers are vigorously exercised by the
relevant authorities; additional measures in energy interconnection supply, in order to improve the functioning of the
electricity and gas markets; identifying further emission reduction policies and measures; and reinforce existing well-
targeted measures to improve primary and secondary education and increase the number of students finalising upper-
secondary or tertiary education, if the measures prove insufficient to reach the ambitious targets set.

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1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

GERMANY

2. Germany is making good progress overall in the implementation of its National Reform Programme, and especially on
the macro- and micro-economic key challenges and priority actions. It is moving forward more slowly in the field of
employment. Germany is also responding reasonably well to the commitments made at the 2006 Spring European
Council.

3. Strengths of the reforms in 2006 include the progress in the area of consolidation and sustainability of public finances,
as well as the implementation of various better regulation measures, such as the establishment of an independent
council at federal level for impact assessment (Normenkontrollrat) and the web-based information tool ‘Startothek’ for
business start-ups. Other strengths are evident in the field of knowledge society (R&D and innovation), as well as in
the higher visibility given to measures for the integration of older unemployed people.

4. The policy areas in the German National Reform Programme where challenges need to be tackled with the highest
priority are: improving the long-term sustainability of public finances; improving competition, notably in regulated
trades and professions and new broadband markets; and tackling structural unemployment. Against this background, it
is recommended that Germany:

— improves long-term sustainability of public finances by continuing fiscal consolidation, leading to debt reduction,
and by implementing the health care reform with a view to keeping expenditure growth in check and
strengthening efficiency in the health sector,

— improves the framework for competition in product and services markets, notably by continuing to relax restrictive

rules in regulated trades and professions and effectively regulating wholesale bitstream access,

— tackles structural unemployment including by integrating the low-skilled into the labour market through better
access to qualifications, pursuing the proposed tax-benefit reform and by providing more effective employment
services for the long-term unemployed and enhance occupational integration of young people.

5. In addition,

it will be important for Germany over the period of the National Reform Programme to focus on:
improving public procurement procedures; improving the framework for competition in the rail sector, and in the gas
and electricity networks, where competition is insufficient due to high concentration; speeding up business start-ups
including
and facilitating hiring the first employee; building on existing measures to improve lifelong learning,
enhancing adults' vocational training; increasing the provision of childcare facilities.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

ESTONIA

2. Estonia is making very good progress with the implementation of measures responding to the country’s key challenges
of R&D and innovation and employment and to the four priority actions formulated by the 2006 Spring European
Council. It also makes impressive efforts to ensure coherence between the National Reform Programme and cohesion
policy and the Implementation Report can be considered a model in this regard.

3. Among the strengths of the Estonian National Reform Programme and its implementation are: the upgrading of
several policy targets, which shows an appropriately ambitious approach; the establishment of the new Strategy Office
to strengthen implementation, which is a good example for others; the successful macroeconomic policies proposed in
the National Reform Programme on fiscal sustainability and on creating favourable conditions for employment
growth; the considerable effort made to increase both public and private R&D expenditure and to improve the
framework conditions for business R&D; measures to facilitate start-ups and financing of innovative SMEs; and
progress on a broad range of environmental issues, notably ecological tax reform.

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4. It will be important for Estonia over the period of the National Reform Programme to focus on, clearer prioritisation
and improved interministerial cooperation for the effective use of R&D and innovation expenditure; reinforcing efforts
to ensure that R&D results are translated into innovative services or products; encouraging closer cooperation between
universities and enterprises; vigorously implementing the planned proactive competition policy;
improving labour
market flexibility through further progress in the renewal of labour laws; reinforcing active labour market policies
and raising the skills level of the labour force further by reinforcing the reforms in education and lifelong learning.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

GREECE

2. Greece is making some progress in the implementation of its National Reform Programme, though it is more limited
in respect of the microeconomic and employment aspects. Greece is moving ahead relatively strongly in the macro-
economic area, whereas additional progress is needed with respect to microeconomic and employment reforms. Greece
is partly responding to the commitments made by the 2006 Spring European Council. Regarding governance, better
coordination among administrative levels could reinforce further the constructive cooperation, which has already been
established with a wide range of stakeholders.

3. Among the strengths of the Greek National Reform Programme and its implementation is the good progress made on
the consolidation of public finances. There are promising signs of progress on: improving public resource allocation;
improving the business environment; R&D and innovation; ICT; women's participation in employment, total unem-
ployment rates and education and training. The qualitative aspects of economic growth have been improved, with
private investment as a leading contributor.

4. The policy areas in the Greek National Reform Programme where challenges need to be tackled with the highest
priority are: improving the long-term sustainability of public finances by reforming the pension system; modernisation
of the public administration; stronger measures to increase employment rates, tackle unemployment and undeclared
work, modernise employment protection and promote labour mobility; and enhancing the quality and labour market
relevance of education and training. Against this background, it is recommended that Greece:

— ensures the continuation of fiscal consolidation and debt reduction and fix a timetable for the implementation of

pension reform with a view to improving long-term fiscal sustainability,

— modernises its public administration by building up effective regulatory, control and enforcement capacities,

including through upgrading skills so as to also ensure effective use of Structural Funds,

— modernises employment protection including legislation, reduce the tax wedge on labour, and strengthen active
labour policies to foster flexibility and security in the labour market and transform undeclared work into formal
employment,

— pushes forward with reforms of

in compulsory and higher
education, accelerate the implementation of the reform of lifelong learning and improve quality and responsiveness
to labour market needs, reduce early school leaving, and increase adult participation.

the education system and increase investment

5. In addition,

it will be important for Greece over the period of the National Reform Programme to focus on:
accelerating efforts to set up a research and innovation strategy and to increase investment in R&D; improving the
transposition of internal market directives; speeding up progress towards meeting the SME policy targets set by the
2006 Spring European Council;
implementing policies to encourage women's participation in employment; and
putting in place a consistent active ageing strategy.

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1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

SPAIN

2. Spain is making good progress in the implementation of its National Reform Programme and the commitments agreed
at the 2006 Spring European Council. Further implementation of new laws and measures across the seven key policy
areas are now essential in order to increase employment and productivity and progress towards full GDP per capita
convergence with EU-25.

3. Important strong points in the implementation and reinforcement of the Spanish National Reform Programme include:
a quicker than targeted reduction of government debt; good progress on implementation of the R&D and innovation
plan; the inclusion of entrepreneurship in national curricula at all education levels; progress within the Social Dialogue,
as reflected in the comprehensive May 2006 tripartite agreement, and satisfactory progress towards the quantified
objectives, in particular for female employment.

4. The policy areas in the Spanish National Reform Programme where challenges need to be tackled with the highest
priority are: improving competition in electricity markets and further reducing segmentation in the labour market; and
further improvements to education and training. Against this background, it is recommended that Spain:

— takes further measures to increase competition in the energy sector, notably by improving cross-border inter-

connection capacity to ensure security of supply,

— modernises employment protection, building on recent measures,

including legislation to foster flexibility and
security in the labour market; to counter segmentation; and to increase the attractiveness of part-time work,

— continues its efforts to implement the new training model, which integrates occupational and vocational training,
to provide a better response to labour market needs; and ensure the effective implementation of education reforms,
also at regional level, to reduce early school leaving.

5. In addition, it will be important for Spain, over the period of the National Reform Programme, to focus on: the need
to contain inflation in the medium-term; raising competition in professional services and retail markets; improving the
regulatory framework; implementing environmental measures, in particular to reduce CO2 emissions; raising skill levels
and productivity and integrating immigrants into the labour market; increasing access to childcare, implementing the
foreseen housing market measures so as to gradually reduce house price pressures in the medium-term; and pension
and health care reforms which also impact favourably on long term fiscal sustainability.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

FRANCE

2. France is making some good progress on the implementation of its National Reform Programme and the actions
agreed by the 2006 Spring European Council. Against the background of a buoyant economy, France is continuing
with its budgetary consolidation drive while at the same time seeking to continue to increase its growth potential,
notably through fresh commitments towards research and innovation. Its performance in relation to employment has
improved but remains by and large mixed.

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3. Among the strong points of the reforms undertaken, the establishment of competitiveness poles and of new structures
for research and innovation appears particularly promising, as does the target for total expenditure on R&D of 3 % of
GDP by 2010. The recent reform of the public finance regulatory framework ought to contribute decisively to better
public spending management. The decline in unemployment, for the first time since 2001, is a positive development
and the recent measures to help young job-seekers seem to be a step in the right direction. As regards the employment
of older workers, first steps are being taken within the framework of a national action plan agreed in June 2006.

4. The policy areas in the French National Reform Programme where challenges need to be tackled with the highest
priority are: sustaining the improvements in the public finance situation by ensuring that central government
commitments are respected and monitoring developments in local
the
framework for competition in some network industries and some transport sectors; and implementation of an
overall strategy both to ensure a more fluid labour market and to secure individual careers, as well as continued
employment of older workers, notably by an improved access to lifelong learning. Against this background it is
recommended that France:

funding and social security spending;

— ensures the sustainability of its public finances taking into account the ageing of the population through continued
budgetary consolidation and debt reduction. The meeting on pension systems scheduled for 2008 will have to
hang on to the gains made following the introduction of the 2003 reform,

— improves the framework for competition in the gas, electricity and rail freight sectors,

— enhances lifelong learning and modernise employment protection to foster flexibility and security in the labour
market and combat segmentation among contract types by making it easier to switch between fixed-term contracts
and permanent contracts.

5. In addition,

it will be important for France over the period of the National Reform Programme to focus on:
strengthening competition in the regulated trades and professions; enhancing the policies of improving regulation
and encouraging entrepreneurship, notably as regards support for the young businesses and promotion of the
entrepreneurial spirit in society; and take further steps to increase labour supply.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

IRELAND

2. Ireland is making very good progress in the implementation of

the
commitments made by the 2006 Spring European Council. Furthermore, governance of
the Growth and Jobs
Strategy has gained political visibility, notably due to the recently concluded social partnership agreement, ‘Towards
2016’.

its National Reform Programme and of

3. Among the strengths of the Irish National Reform Programme and its implementation are: the recently adopted
Science, Technology and Innovation Strategy 2007-2013 and the substantial increase of public investment in R&D;
recognition of the need to prioritise public investment in infrastructure and other growth-promoting expenditure;
measures to address early school leaving and enhance skills, such as the welcome commitment to develop by 2007 a
long-term national skills strategy.

4. It will be important for Ireland over the period of the National Reform Programme to focus on: speeding up progress
in formulating concrete measures to reform pension arrangements; further emission reduction measures; accelerating
progress in increasing labour market participation, including by establishing a comprehensive childcare infrastructure,
further developing the policy framework for labour market and social
integration of migrants and by placing a
particular emphasis on support to older and low-skilled workers. The intermediate level of R&D investment should
be indicated for 2010 and developments in the housing market, which may affect medium-term growth prospects,
should be carefully monitored.

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1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

ITALY

2. Italy is making progress in the implementation of its National Reform Programme. Compared to last year's National
Reform Programme, the Italian Implementation report presents a clearer strategy, covering all policy areas and the
synergies between them and is thus more ambitious. Progress is most extensive in the microeconomic field. Strategies
and measures proposed in the macro area are generally appropriate but implementation is crucial. Employment policy
needs to be reinforced in certain key areas. Progress has been mixed on meeting the commitments agreed at the 2006
Spring European Council.

3. Among the strengths shown by the Italian Implementation Report are: measures to enhance competition in pro-
fessional and other services; initiatives to expand the use of ICT; and measures to step up the coordination of action to
improve the business environment.

4. The policy areas in the Italian National Reform Programme where challenges need to be tackled with the highest
priority are: fiscal sustainability, where commitment needs to be translated into effective action; competition in
product and services markets, where the vigorous implementation of proposed reforms will provide the basis for
further progress; increasing formal employment and flexicurity in the labour market; and improving education and
lifelong learning. Against this background it is recommended that Italy:

— rigorously pursues fiscal consolidation so as to put the debt-to-GDP ratio on a declining path and fully implement

the pension reforms with a view to improving the long-term sustainability of public finances,

— pursues the implementation of recently announced reforms, and further progress in the liberalisation strategy,

aiming at increasing competition in products and service markets,

— reduces regional disparities in employment by tackling undeclared work,

increasing childcare provision and

ensuring the efficient operation of the employment services throughout the country,

— develops a comprehensive lifelong learning strategy and improve quality and labour market relevance of education.

5. In addition, it will be important for Italy over the period of the National Reform Programme to focus on: R&D, where
despite welcome policy developments in specific areas, the overall strategy has to be completed; effective measures to
improve the sustainability of health care provision, while preserving quality and accessibility; sustainable use of
resources, where implementation and subsequent further reinforcement of existing measures are essential;
imple-
menting plans to improve infrastructure; strengthening and fully implementing the system of impact assessment
for proposed regulation.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

CYPRUS

2. Cyprus is making good progress in the implementation of its National Reform Programme, and of the four areas for
priority action formulated by the 2006 Spring European Council. Overall, the implementation of the majority of
measures seems to be proceeding as planned.

3. The strengths of the National Reform Programme and its implementation in 2006 include: progress in the field of
fiscal consolidation; a new policy to develop a comprehensive research and innovation system; and the maintenance of
a good overall employment performance supported by a broad range of active labour market measures.

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4. The policy areas in the Cypriot National Reform Programme where challenges need to be tackled with the highest
priority are: addressing ageing-related expenditure, where measures are not progressing; and further increasing labour
market opportunities for young people. Against this background, it is recommended that Cyprus:

— takes steps to implement reforms of the pension and health care systems and sets a timetable for their imple-

mentation with a view to improving long-term sustainability,

— enhances lifelong learning, and further increase employment and training opportunities for young people by

accelerating the reforms of the vocational, education, training and apprenticeship system.

5. In addition, it will be important for Cyprus over the period of the National Reform Programme to focus on: measures

to encourage venture capital investments and to improve competition in the regulated trades and professions.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

LATVIA

2. Latvia is making progress in the implementation of its National Reform Programme, in particular in the microe-
conomic and employment areas. However, policy responses to address the macroeconomic key challenge are less
comprehensive. With respect to the 2006 Spring European Council conclusions, progress is mixed. Regarding the
governance of the Growth and Jobs Strategy, the process has gained political visibility since the adoption of the
National Reform Programme and stakeholder involvement has improved.

3. Among the strengths of the Latvian National Reform Programme and its implementation are several measures taken to
facilitate the start-up and financing of innovative SMEs, including the establishment of new guarantee and venture
capital funds and developments in promoting a one-stop-shop to establish companies. Latvia has also implemented a
set of measures that have successfully supported labour market performance.

4. The policy areas in the Latvian National Reform Programme where challenges need to be tackled with the highest
priority are: more concrete measures to secure macroeconomic stability and prevent the overheating of the economy;
further development of the R&D strategy to improve prioritisation and increase private sector involvement; and
stronger measures to increase labour supply and strengthen the skills of the labour force. Against this background,
it is recommended that Latvia:

— maintains economic and budgetary sustainability by pursuing a more restrictive fiscal policy, so as to contribute to

the prevention of overheating and a careful prioritisation of expenditure,

— makes faster progress in the implementation of the research and innovation policy reforms, in order to meet
effectively the ambitious targets set out in its National Reform Programme. This concerns especially policies to
stimulate partnerships between research and education institutions and businesses,

— intensifies efforts to increase labour supply and productivity by improving regional mobility, enhancing the
responsiveness of education and training systems to labour market needs and putting in place a lifelong
learning system.

5. In addition, it will be important for Latvia over the period of the National Reform Programme to focus on: faster
progress on establishing a single contact point for the administrative formalities involved in hiring the first employee;
promoting entrepreneurship education; pursuing active labour market policies; and improving access to childcare.

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L 92/33

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

LITHUANIA

2. Lithuania is making good progress in the implementation of the National Reform Programme, in most of the main
policy areas across the macro, micro and employment sectors. However, with many important measures at the
conceptual stage, there remains much to do in terms of implementation. Progress has been moderate on fulfilling
the commitments agreed at the 2006 Spring European Council.

3. Among the strengths of the Lithuanian National Reform Programme and its implementation are: the pension, health
infrastructure; the adoption of the updated national energy
and tax reforms; measures to upgrade road and rail
strategy; the reinforcement of active labour market policy, notably the new job rotation measures; and steps to
modernise initial education and training.

4. The policy areas in the Lithuanian National Reform Programme where challenges need to be tackled with the highest
priority are: reinforcing measures aimed at increasing investment in R&D, which do not so far appear sufficient to
reach the ambitious target set; placing a stronger emphasis on measures to promote labour mobility; and taking
additional steps to increase participation in lifelong learning, especially by older workers. Against this background, it is
recommended that Lithuania:

— continues its efforts to strengthen its R&D system and to reach its ambitious target for overall investment in R&D,

by raising public expenditure and fostering private sector investment in this area,

— intensifies efforts to increase the supply of skilled labour by improving regional mobility of labour and by

promoting lifelong learning, with a special focus on the participation of older workers.

5. In addition,

it will be important for Lithuania over the period of the National Reform Programme to focus on:
improving macroeconomic stability and containing inflation; increasing foreign direct investment; facilitating business
start-ups; environmental protection; improving youth employability; expanding entrepreneurship education; increasing
the availability of childcare; and strengthening occupational health and safety.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

LUXEMBOURG

2. Luxembourg is making very good progress on implementation of its National Reform Programme and of the actions
agreed by the 2006 Spring European Council, but there is still room for improvement regarding the weaknesses
identified in 2005. The macroeconomic measures adopted hold out the prospect of fiscal consolidation and lower
inflation. A promising set of measures are now being implemented at the microeconomic level. Greater efforts are
required, however, to implement a system to monitor and assess annual progress, and a number of measures need to
be introduced, for instance to assist business start-ups and SMEs. Despite encouraging reforms on the employment
front, no new initiative has been announced to raise the level of employment among older workers, and major
reforms to improve the education system have yet to materialise.

3. Among the strengths of the drafting, implementation and reinforcement of the National Reform Programme is the
agreement between the government and the social partners on a system designed to curb the inflationary trends
observed since 2002 by temporarily suspending the indexation of wages and benefits. The same tripartite agreement
organises a system of assistance for businesses that promotes ways of keeping workers in employment where there is a
danger of redundancy. Luxembourg can also pride itself on the major expansion in childcare facilities. The priority
accorded to R&D is also to be applauded. Last but not least, a comprehensive set of measures have been taken to
guarantee sustainable development, and the energy strategy is a step in the right direction.

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4. It will also be important for Luxembourg over the period of the National Reform Programme to focus on: a strategy
for further increasing the employment rate among older workers; a detailed strategy aimed in particular at further
reforming the current early retirement systems; further efforts are also needed to reduce dropout rates, especially in
secondary education, and to remove the artificial barriers between different types of education; the impact on youth
unemployment of the measures recently adopted for young people needs to be monitored very closely; and in order to
render the economic environment more attractive, greater support is needed for competitive markets, for the trans-
position of EU directives and for SMEs.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

HUNGARY

2. Hungary has made limited progress in the implementation of its National Reform Programme. However, it should be
noted that in October 2006 Hungary submitted a revised National Reform Programme. After major budgetary
slippages, the government has had to significantly review its fiscal adjustment path. Some reforms have been imple-
mented in both the employment and microeconomic policy areas. But much more remains to be done in those fields
as well as in improving macroeconomic stability. Limited progress has been made towards meeting the commitments
made at the 2006 Spring European Council.

3. Among the strengths of the National Reform Programme and its implementation are: recently adopted corrective
measures, including both revenue increases and to an increasing extent expenditure cuts, aiming to reduce the deficit;
the reform of the unemployment benefit system; initial steps towards the integration of the employment and social
services systems; and the lifting of restrictions to market entry in certain areas, in particular the retail pharmaceutical
sector.

4. The policy areas in the Hungarian National Reform Programme where challenges need to be tackled with the highest
priority are: implementing the planned budgetary consolidation strategy and laying the foundations for the long-term
sustainability of public finances, currently at high risk; reinforcing active labour market policies; increasing incentives
to work; improving the quality of education and training and making it more responsive to labour market needs.
Against this background, it is recommended that Hungary:

— continues to implement the necessary measures to ensure a credible reduction of the government deficit and of
gross debt ratios, with increased reliance on the expenditure side, including through the establishment of more
thorough and comprehensive expenditure rules,

— reforms the public administration, health care, pension and education systems with a view to ensuring long-term
fiscal sustainability and improve economic efficiency. This should include steps to further limit early retirement,
reduce the number of new recipients of disability pensions and further restructure health care,

— reinforces active labour market policies, introduce further incentives to work and to remain on the labour market

and complete the establishment of an integrated employment and social services system,

— ensures access to high quality education and training for all, upgrade skills levels, and increase responsiveness of
education and training systems to labour market needs, especially through the provision of a sufficient number of
technology and science graduates.

5. In addition, it will be important for Hungary over the period of the National Reform Programme to focus on: reform
of the public research system; reducing and redirecting State aids; developing a more coherent strategy for R&D,
innovation and ICT; further reductions of the administrative burden on enterprises;
improving the labour market
situation of the disadvantaged; transforming undeclared work into formal employment; reducing persistent regional
disparities in employment; and implementing the Hungarian lifelong learning strategy.

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1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

MALTA

2. Malta is making good progress in the implementation of its National Reform Programme. It also addresses most of the
commitments made by the 2006 Spring European Council. Implementation is advancing strongly in the area of fiscal
sustainability, considered by the authorities to be a crucial element for achieving more growth and jobs and adopting
the euro. The implementation efforts in the microeconomic and employment area are more moderate.

3. Among the strengths of the Maltese National Reform Programme and its implementation are: the recently announced
tax reforms; the ongoing development of essential R&D and innovation strategies; a new scheme to foster entrepre-
neurial skills; and a promising set of comprehensive initiatives in the field of training.

4. The policy areas in the National Reform Programme where challenges need to be tackled with the highest priority are:
improving competition in several sectors, including professional services; reduction and redirection of State aids; and
boosting investment in R&D; and improve labour supply. Against this background, it is recommended that Malta:

— takes further measures,

to
strengthen competition, notably in professional services; reduce State aids and redirect them towards horizontal
objectives, especially R&D,

including reinforcing the competition authority,

following the ongoing review,

— steps up efforts to attract more people into the labour market, particularly women,

intensify efforts to tackle

undeclared work and take further action on the benefit system to make working more attractive.

5. In addition, it will be important for Malta over the period of the National Reform Programme to focus on: imple-
menting and reinforcing delayed measures on health care reform;
introducing systematic impact assessment and
speeding up progress towards simplification of regulations; measuring R&D expenditure more accurately; connecting
Malta to Europe's energy networks; building on results achieved in raising educational attainment and reducing early
school leaving; and increasing the employment rate of older workers, in which using early retirement schemes to
downsize the public sector should be avoided.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

THE NETHERLANDS

2. The Netherlands is making good progress with the implementation of its National Reform Programme. While there are
certain risks in the macro area, notably with regard to potential wage inflation, household indebtedness, and the
tightening of the labour market, overall the policy framework is appropriate. The Netherlands is generally moving
ahead significantly in the microeconomic field. However, whilst policies to foster R&D and innovation have been put
in place much remains to be done given the ambitious R&D target set by the government. The overall picture in the
employment field is also positive, with high employment rates for most groups but labour supply should be improved
further, notably for women, disadvantaged groups, and older workers. The Netherlands is reinforcing its National
Reform Programme to respond to the commitments made by the 2006 Spring European Council but further steps will
be needed especially to create a single public administration point for the recruitment of the first employee.

3. Among the strengths of the Dutch National Reform Programme and its implementation are: the measures to boost
competition; the application of the Standard Cost Model for measuring administrative burdens and the scheme for
innovation vouchers, both of which being widely taken up by other Member States; measures on reforming pensions,
health insurance and disability schemes; and reforms aimed at raising educational attainment, expanding lifelong
learning and creating better links between education and the labour market.

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4. The policy area in the Dutch National Reform Programme where challenges need to be addressed with the highest

priority is in improving labour supply. Against this background, it is recommended that the Netherlands:

— takes further measures to improve labour supply, notably of older workers, women and disadvantaged groups.

5. In addition, it will be important for the Netherlands over the period of the National Reform Programme to focus on:
measures to increase private sector R&D expenditure; create a single public administration point for the recruitment of
the first employee In addition, if existing measures do not over time succeed in significantly raising overall hours
worked in the economy, further incentives will need to be considered.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

AUSTRIA

2. Austria is making good progress in the implementation of its National Reform Programme, especially in the micro-
economic area, where a substantial range of measures has been implemented across the board except on competition
in services. Macroeconomic stability is strong, though additional impetus will be necessary to continue addressing risks
to the long-term sustainability of public finances. Progress has also been generally good on employment policy,
although more needs to be done in some areas. Austria's response to the conclusions of
the 2006 Spring
European Council is adequate overall.

3. Among the most promising areas of reform undertaken by Austria and which could inspire others are its good record
in using renewable energy sources. Another area is Austria's efforts to reduce SMEs' administrative costs. Furthermore,
Austria is making progress with regard to the 3 % R&D target, with particularly promising models for science/industry
cooperation.

4. The policy areas in the Austrian National Reform Programme where challenges need to be tackled with the highest
priority are increasing labour supply from older workers and improving the skills of disadvantaged young people.
Against this background Austria is recommended to:

— improve incentives for older workers to continue working, notably by implementing a comprehensive lifelong
learning strategy with a particular focus on job-related training and reforming tax benefits systems; and enhance
the conditions for the education of vulnerable youth.

5. In addition, it will be important for Austria over the period of the National Reform Programme to focus on: achieving
the target of a balanced budget in 2008; increasing competition in services; strengthening the entrepreneurial culture;
identifying further emission reduction policies and measures; and tackling the gender segregation of the labour market,
including by improving the availability of childcare.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

POLAND

2. Poland is making limited progress in the implementation of its National Reform Programme. There are signs that
Poland is beginning to move ahead strongly in the microeconomic area, even though implementation of many
measures is still in the early stages. There is a need for a more vigorous implementation of employment reforms.
Public finance reforms are delayed, although Poland has planned steps in the right direction. There is a limited policy
response to the commitments made by the 2006 Spring European Council.

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3. Among the most promising reforms being undertaken by Poland are simplifications to the tax system, the devel-

opment of an explicit Better Regulation strategy and steps to increase SME access to finance.

4. The policy areas in the Polish National Reform Programme where challenges need to be tackled with the highest
priority are: fiscal consolidation; improving competition in network industries; increasing the quantity and quality of
R&D; making active labour market policies more extensive and more effective; and improving human capital and
incentives to work. Against this background, Poland is recommended to:

— pursue its action to continue fiscal consolidation and supplement the nominal State budget deficit ‘anchor’ (deficit

ceiling) with further mechanisms to enhance control over expenditure,

— improve the framework for competition in network industries, including through a review of the role of regulators,

— pursue the reform of the public research sector with a view to R&D and innovation being boosted, and improving

the framework for private sector R&D, thereby maximising the benefits from Foreign Direct Investment,

— complete the reform of public employment services in order to increase the level and efficiency of active labour
market policy, especially for older persons and youth; lower the tax burden on labour and review benefit systems
to improve work incentives, develop policies to increase adult participation in lifelong learning and to modernise
education and training systems in view of labour market needs.

5. In addition, it will be important for Poland over the period of the National Reform Programme to focus on: upgrading
transport infrastructure; improving environmental protection; further reducing and redirecting State aids; ensuring an
effective framework for competition in the financial sector; vigorously continuing the process of the liberalization of
energy markets; speeding-up the business registration process; and ensuring that cohesion policy instruments underpin
the structural measures highlighted in the Implementation Report, with a view to contributing to boosting growth,
competitiveness, employment and social cohesion. A firm and realistic target for overall investment in R&D by 2010
should be set.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

PORTUGAL

2. Portugal is making good progress on implementing the measures in the National Reform Programme, especially in the
macro- and microeconomic areas. On employment related policies, there has also been progress, especially on
reforming education and training, in the framework of the New Opportunities Programme but the important area
of the adaptability of the labour market and flexicurity is not yet being fully addressed. Progress towards meeting the
commitments made at the 2006 Spring European is generally good. Considerable further efforts across all policy areas
will be necessary to fully achieve the objectives of the programme, given their welcome ambition and Portugal’s point
of departure.

3. Important strong points of the reform process in Portugal

include the extensive reforms launched to the public
administration, the measures to facilitate business start-ups within an hour, the adjustment of old-age pension
schemes and comprehensive consolidation measures in health care and the measures to improve the young and
adults qualification levels. Efforts to reinforce R&D have been strengthened and dovetailed into a coherent strategy
through the ambitious Technological Plan. Extensive reforms are also being implemented in the education and training
sector in particular with measures to increase literacy levels of the young and rationalise the national school network
and strengthen the national vocational training system.

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4. The policy areas in the Portuguese National Reform Programme where challenges need to be tackled with the highest
priority are: improving educational attainment and lifelong learning; improving the adaptability of the labour market
and addressing segmentation. These issues must be addressed in the context of further progress with the administrative
reform and keeping rising spending on social transfers under control. Against this background Portugal
is re-
commended to:

— in the context of the ongoing correction of fiscal imbalances and public administration reform, redirect public
spending towards uses more supportive to potential growth, while maintaining firm control over public expen-
diture overall,

— implement measures to strongly improve the education attainment levels of the young, and develop a vocational
training system that is relevant to labour market needs and based on the recent proposal to establish a ‘National
Qualifications Framework’,

— pursue the modernisation of employment protection,
reduce the high levels of labour market segmentation.

including legislation to foster flexibility and security to

5. In addition, it will be important for Portugal over the period of the National Reform Programme to focus on: ensuring
that the promising Technological Plan is fully implemented, the linkages between research and industry consolidated
and the involvement of the private sector strengthened; ensuring effective competition in energy and financial services
markets; reducing emissions; reducing the deficit in transposing EU legislation into national law; and addressing the
factors undermining social cohesion.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

SLOVENIA

2. Slovenia is making good progress in the implementation of its National Reform Programme. Slovenia is taking
appropriate measures in some key areas such as entrepreneurship and better regulation. It has launched most of
the major reforms of employment policies, benefiting from relatively favourable macroeconomic growth conditions.
Some measures have been adopted with regard to public expenditure reform aiming at its reduction. The same is true
in the microeconomic field of progress in enhancing the innovation and competition framework. With respect to the
labour market, progress on the implementation of the active ageing strategy and on the removal of barriers to youth
employment has not so far been rapid enough. Progress in implementing the commitments made at the 2006 Spring
European Council is moderate.

3. The strengths of the National Reform Programme and its implementation include: the fiscal reform efforts; the various
measures to promote entrepreneurship; the ongoing restructuring of State funds into portfolio investors; the decreasing
share of State aid in GDP; and the progress towards the full liberalisation of energy markets and the creation of a
second player in the market.

4. The policy areas in the Slovenian National Reform Programme where challenges need to be tackled with the highest
priority are:
improving long-term fiscal sustainability and increasing the employment rate of older workers; and
strengthening the activation and prevention aspects of employment policy, currently slow in responding to the fast
changing conditions on the labour market. Against this background, it is recommended that Slovenia:

— takes further steps to strengthen the reform of the pension system and promote active ageing, with a view to

increasing the employment rate of older workers and improving long-term sustainability,

— enhances employment services in light of the move towards more flexible contractual arrangements and the
already increased conditionality of benefits, giving high priority to offering services at an earlier stage of un-
employment.

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5. In addition, it will be important for Slovenia over the period of the National Reform Programme to focus on: setting
concrete and realistic targets for investment in R&D; strengthening the role of the new Office for Growth and of the
Slovenian Technology Agency; strengthening the enforcement of the legal framework for protecting intellectual
property rights;
improving competition, notably in regulated trades and professional services, and enhancing the
effectiveness of the Competition Protection Office; better promotion of environmental technologies and energy
efficiency; shortening start-up times for businesses and reducing related costs; reducing the segmentation and inte-
grating young people in the labour market; strengthening the link between the education system and the labour
market.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

SLOVAKIA

2. Slovakia is making progress in the implementation of its National Reform Programme. However, important challenges
and the need for further measures remain, particularly in the microeconomic and employment fields. Progress has
been mixed in meeting the commitments made at the 2006 Spring European Council.

3. Among the strengths of the National Reform Programme and its implementation are: policies to improve the business
environment and create an information society are now beginning to pay off; employment growth has been
strengthened by new tax incentives, mobility measures and some improvement in the service offered to certain
disadvantaged groups; and progress in the reform of tertiary education alongside new measures to support ICT use
and the integration of disadvantaged children into education system.

4. The policy areas in the Slovak National Reform Programme where challenges need to be tackled with the highest
priority are: within the context of fiscal consolidation, redirecting more resources to R&D, innovation and education
and developing clear strategies and priorities in these areas; reinforcing action on improving skills and lifelong
learning; and additional efforts to reduce long-term unemployment, especially among vulnerable groups including
the Roma minority. Against this background, it is recommended that Slovakia:

— reallocates expenditure towards R&D and education and complete the development of a coherent national R&D

and innovation strategy, with strong interconnections between research institutions and business,

— adopts a lifelong learning strategy covering development in all systems and levels of education and training that
addresses the needs of the labour market and individuals and improves qualification levels and skills, and
complement the reform of tertiary education with reform of primary and secondary education,

— develops a comprehensive approach to tackling long-term unemployment, notably by developing targeted active

labour market policies for the most vulnerable groups.

5. In addition,

it will be important for Slovakia over the period of the National Reform Programme to focus on:
continued efforts on ICT policies, especially on broadband infrastructure;
improvements in the better regulation
system; addressing the gender pay gap; and developing an active ageing strategy to increase employment of older
workers.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

FINLAND

2. Finland is making very good progress in the implementation of its National Reform Programme. Finland is also
generally responding well to the commitments made by the 2006 Spring European Council. Progress has been made
in particular on the business environment for SMEs.

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3. Among the many strengths of the Finnish National Reform Programme and its implementation are: further action to
postpone retirement, complementing the already extensive action to strengthen sustainability of public finances and to
prepare Finland for the effects of an ageing population; a range of important measures to further improve Finland's
excellent knowledge base.

4. It will be important for Finland over the period of the National Reform Programme to focus on: implementing reforms
to improve competition and productivity in some service sectors simplifying recruitment procedures for businesses;
encouraging local wage bargaining systems; and addressing bottlenecks in the labour market, with a particular view to
including young people.
tackling high structural unemployment, especially unemployment of low skilled workers,

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

SWEDEN

2. Sweden is making very good progress in the implementation of its National Reform Programme which has been
revised by the new government. It addresses most of the commitments made by the 2006 Spring European Council.
The stability oriented macroeconomic framework is appropriate and performs well. A strong effort is being made to
strengthen incentives to work. Additional measures are needed to enhance competition in services.

3. Among the strengths of the Swedish National Reform Programme and its implementation are: the progress made on
increasing public investment in R&D and in bringing forward measures to encourage innovation; the vigorous
approach to encouraging entrepreneurship; Sweden's performance on encouraging the sustainable use of energy,
which is among the best in the EU; progress in increasing labour supply; measures to make it simpler and more
profitable to run a business by phasing out taxes and reducing administrative burdens; and proposals to enhance
incentives to work, notably changes in labour taxation and benefit systems.

4. It will be important for Sweden over the period of the National Reform Programme to focus on: taking further
regulatory measures to increase competition, notably in services; implementing rapidly planned improvements to the
impact assessment system; taking a more coherent approach to better regulation, strengthening its strategy to increase
labour supply and hours worked, including through the implementation of proposals to increase incentives to work, as
well as stronger measures to increase the employment rate of immigrants and young people and to reintegrate people
on sickness-related schemes.

1. In the light of the analysis presented in the Commission's 2007 Annual Progress Report — Part II — and based on the

Integrated Guidelines for Jobs and Growth, the following conclusions are appropriate:

UNITED KINGDOM

2. The UK is making good progress in the implementation of its National Reform Programme and of the commitments
made by the 2006 Spring European Council. Solid progress has been made in all policy areas, particularly in
microeconomic and employment policy. In macroeconomic policy, fiscal consolidation has begun and plans for
further fiscal consolidation are in place and should be implemented; and, plans for pension reform have been
drawn up, with draft legislation already tabled in Parliament. The UK has made greater efforts to involve stakeholders.

3. The particularly strong points in the UK reform implementation are in encouraging entrepreneurship, promoting
better regulation, and undertaking welfare reforms. Many other successful reforms have already taken place, such as
energy market opening, increasing investment in transport infrastructure, and in introducing charging policies, for
example the London road transport congestion charge. The UK has also undertaken innovative reforms to improve the
quality of public expenditure that are still in the course of implementation.

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4. The policy areas in the UK National Reform Programme where challenges remain which need to be tackled with the
highest priority are:
improving basic and intermediate skills compared with other economies; and taking further
measures to tackle disadvantage and exclusion in the labour market. Against this background, it is recommended
that the UK:

— increase basic and intermediate skills, which is addressed by the recent Leitch review of skills, in order to raise

productivity, and further improve employment prospects for the most disadvantaged.

5. In addition, it will be important for the UK over the period of the National Reform Programme to focus on: ensuring
that the current proposals on pension reform are effectively implemented; progressively increasing housing supply to
reduce house price pressures in the medium-term; implementing its science and innovation strategy, the intermediate
level and quality of R&D investment should be indicated for 2010 and measures should be taken to further strengthen
investment incentives and to increase private sector engagement; and further improve access to childcare.

EURO AREA MEMBER STATES

1. In light of the analysis presented above and based on the Integrated Guidelines for Growth and Jobs, it is concluded

that:

2. The Implementation Reports of the Member States of the euro area show that progress is being made overall,
reflecting substantive action in many countries. With the euro area growing in line with its potential, positive
developments in the labour markets as reflected in a falling unemployment rate and an increase in employment,
and a number of reforms under way, the outlook for a prolonged economic upturn has improved significantly. To
some extent, this improved economic situation is due to past structural reforms. This momentum should be used to
press ahead with vigour the implementation of the reform and budgetary consolidation strategies. Closer economic
and financial
interdependence generated by having a single currency makes it necessary for its Member States to
implement ambitious policies which, in addition to aiming at raising growth potential, also include measures that
ensure the smooth functioning of adjustment in monetary union. In this context, effective economic policy coordi-
nation is necessary at euro area level. It would also help to promote policy action in Member States aiming to achieve
fiscal discipline and structural reforms. This is necessary to increase the growth potential of the economy, enhance the
euro area’s resilience to asymmetric shocks and thereby preserve price stability while promoting economic dynamism
in the euro area.

3. Among the strengths of the implementation of the National Reform Programmes of euro area Member States is that
promising reforms are being undertaken or are planned to increase labour utilisation and labour productivity, boost
R&D and innovation, develop human capital, and create a more attractive business environment, notably via policies
to increase competition and further improve regulation. Putting National Reform Programmes in a consistent and
ambitious overall policy framework could give them further strength.

4. Building upon the policy conclusions identified for each individual euro area Member State based on their National
Reform Programmes, action for all euro area countries is needed most urgently in policy areas that would improve the
functioning of EMU and contribute to address persistent divergences in inflation, competitiveness and growth. On the
budgetary side, while progress is being made to reduce deficits, some countries need to accelerate the pace of structural
budgetary consolidation and continue reforming pension and health care systems in order to address the budgetary
impact of ageing populations. Furthermore, the quality of public finances should be improved, in particular with the
intention of enhancing productivity and innovation, thereby contributing to economic growth and fiscal sustainability.
To ensure more dynamic and efficient internal adjustment mechanisms in EMU, markets should be made to function
better, through enhanced competition and liberalisation, namely to ensure better mobility of production factors, a
rapid adaptation of prices and wages to shocks, and stronger trade integration. It is essential to foster innovation and
productivity growth. Within a monetary union, a firm commitment to stability-conducive wage developments is also
important to secure competitiveness and employment over the medium and longer term. The regular review of the
functioning of price and (public and private) wage setting must therefore be continued. More attention must be paid to
labour mobility in the euro area countries. Both financial and product markets have a key role to play in smoothing
internal adjustment. The forthcoming Internal Market Review will be of particular importance for the euro area, as well
as a rapid implementation of the Services Directive and full implementation of the Financial Services Action Plan.
Improvements in competition in the services markets would further contribute to smoothen adjustment in EMU.

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Against this background, the euroarea Member States are recommended to, together with their specific country
recommendations:

— make use of the favourable cyclical conditions to aim at or pursue ambitious budgetary consolidation towards their
medium-term objectives in line with the Stability and Growth Pact, hence striving to achieve an annual structural
adjustment of at least 0,5 % of GDP as a benchmark,

— improve the quality of public finance by reviewing public expenditures and taxation, with the intention to enhance

productivity and innovation, thereby contributing to economic growth and fiscal sustainability,

— effectively implement measures that improve competition, especially in services, and step up measures that

promote the full integration of financial markets and the competition in retail financial services,

— improve flexibility and security on labour markets,

inter alia, by better aligning wage and productivity devel-
opments, balancing employment protection and security in the market and enacting measures to promote labour
mobility across borders and between occupations.

5. In view of the spillovers and synergies arising from national policies and local developments within the monetary
union, euro area Member States should aim at an effective policy coordination, especially in the context of the
Eurogroup and, where appropriate and in line with earlier agreements, in international forums. This would significantly
contribute to successfully addressing policy challenges within the euro area and in the global economy. Euro area
Member States are invited to take into account these recommendations in their national policies. The Eurogroup will
regularly review their implementation.