Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Latviaand delivering a Council opinionon the updated Convergence Programme of Latvia, 2011-2014
Date: 2011-06-07
Institutions: European Commission
Subjects: EU programme, Latvia, budget policy, economic growth, employment policy

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 822 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Latvia 

and delivering a Council opinion 

on the updated Convergence Programme of Latvia, 2011-2014 

{SEC(2011) 722 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Latvia 

and delivering a Council opinion 

on the updated Convergence Programme of Latvia, 2011-2014 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies, and in particular Article 9(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

(3) 

On  20  January  2009,  the  Council  of  the  European  Union  (EU)  adopted  a  Decision 
(2009/290) to make available to Latvia medium-term financial assistance for a period 
of  three  years  under  the  provisions  of  Article  143  of  the  Treaty.  The  accompanying 
Memorandum  of  Understanding  signed  on  28  January  2009  and  its  successive 
supplements  lay  down  the  economic  policy  conditions  on  the  basis  of  which  the 
financial assistance is disbursed. The Council decision was amended on 13 July 2009. 
The last supplement to the Memorandum of Understanding was signed in June 2011. 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission's 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
to  boost  Europe’s  potential  for  sustainable  growth  and 
action 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and, on 21 
October  2010,  adopted  a  decision  on  Guidelines  for  the  employment  policies  of  the 

EN 

2 

   EN 

 
 
 
 
(4) 

(5) 

(6) 

(7) 

(8) 

Member States1, which together form the “integrated guidelines”. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

On  12  January  2011,  the  Commission  adopted  the  first  Annual  Growth  Survey, 
marking  the  start  of  a  new  cycle  of  economic  governance  in  the  EU  and  the  first 
European semester of ex-ante and integrated policy coordination, which is anchored in 
the Europe 2020 strategy.  

On  25  March  2011,  the  European  Council  endorsed  the  priorities  for  fiscal 
consolidation  and  structural  reform  (in  line  with  the  Council’s  conclusions  of  15 
February and 7 March 2011 and further to the Commission’s Annual Growth Survey). 
It  underscored  the  need  to  give  priority  to  restoring  sound  budgets  and  fiscal 
sustainability,  reducing  unemployment  through  labour  market  reforms  and  making 
new efforts to enhance growth. It requested Member States to translate these priorities 
into  concrete measures to be included  in their Stability or Convergence Programmes 
and National Reform Programmes. 

On 25 March 2011, the European Council also invited the Member States participating 
in the Euro Plus Pact to present their commitments to be included in their Stability or 
Convergence  Programmes  and 
their  National  Reform  Programmes.  Specific 
commitments  and  actions  for  2011  are  not  explicitly  communicated  in  the  Latvian 
Convergence Programme and the National Reform Programme but are expected to be 
submitted to the European Council. 

On  29  April  2011,  Latvia  submitted  its  2011  Convergence  Programme  update 
covering the period 2011-2014 and its 2011 National Reform Programme. In order to 
take account of the interlinkages, the two programmes have been assessed at the same 
time. 

The  Latvian  economy  grew  faster  than  any  other  EU  Member  State  from  2000  to 
2007,  reflecting  convergence  prospects,  foreign  financial  inflows  and  very  strong 
consumption  demand.  However,  at  least  partly  as  a  result  of  an  expansionary 
macroeconomic  policy,  the  economy  overheated.  Sizable  imbalances  accumulated, 
illustrated by a current account deficit of 22.3% of GDP in 2007 and 13.1% in 2008; 
consequently, during 2008-2009, the economy experienced the steepest contraction in 
the  EU.  During  this  period  real  GDP  contracted  by  25%  from  peak  to  trough  as  a 
collapse  in  domestic  demand  was  amplified  by  a  slump  in  global trade.  The  Latvian 
employment rate, previously amongst the highest in the EU (75.8% in 2008), fell by 
over 10 percentage points and the unemployment rate of over 18% is now one of the 
highest in the EU. The general government deficit was 9.7% in 2009 but as a result of 
fiscal  consolidation  measures,  decreased  to  7.7%  in  2010.  This  outcome  includes 
sizeable financial sector stabilisation measures that amounted to 1.1% of GDP in 2009 
and 2.3% of GDP in 2010.  

(9) 

Based on the assessment of the updated Convergence Programme pursuant to Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario  underpinning  the  budgetary  projections  in  the  programme  is  plausible.  The 

1 

Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

EN 

3 

   EN 

 
                                                 
in 

implied 

medium-term  budgetary  strategy  of  the  programme  is  to  bring  the  headline  general 
government  deficit  below  the  3%  reference  value  by  the  deadline  foreseen  in  the 
Council  Recommendation  of  7  July  2009.  Taking  into  account  the  measures 
implemented since the issuance of the recommendation to correct the excessive deficit 
the  updated  Convergence 
situation  and  additional  consolidation 
Programme,  the  planned  fiscal  effort  for  2011-2012  is  in  line  with  the  required 
adjustment.  In  view  of  the  starting  point,  the  programme  does  not  foresee  the 
achievement  of  the  medium-term  objective  (MTO)  by  the  end  of  the  programme 
period,  while  the  planned  fiscal  effort  to  reach  the  MTO  after  the  correction  of  the 
excessive  deficit  situation  could  be  accelerated  in  particular  in  2013.  The  fiscal 
consolidation  path  envisaged  in  the  programme  is  mostly  expenditure  based.  The 
budgetary  targets  are  subject  to  downside  risks,  as  the  programme  does  not  provide 
full  information  on  measures  to  underpin  the  achievement  of  the  set  targets.  These 
measures  are  expected  to  be  spelled  out  in  the  forthcoming  budgets.  Reducing  the 
primary  deficit  over  the  medium  term,  as  foreseen  in  the  programme,  would  help 
reduce the risks to the sustainability of public finances.  

(10)  The  Commission  has  assessed  the  Convergence  Programme  and  National  Reform 
Programme2.  It  has  taken  into  account  not  only  their  relevance  for  sustainable  fiscal 
and  socio-economic  policy  in  Latvia  but  also  of  their  conformity  with  EU  rules  and 
guidance,  given  the  need  to  strengthen  the  overall  economic  governance  of  the 
European  Union  by  providing  EU  level  input  into  future  national  decisions.  In  this 
context, the Commission stresses the urgency of implementing the planned measures 
to comply with Council Decision (2009/290/EC). 

HEREBY RECOMMENDS that Latvia should : 

Implement the measures as laid down in the Council Decision 2009/290/EC, as amended by 
Council 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 June 
2011]. 

Done at Brussels, 

For the Council 
The President 

2 

See SEC(2011) 722. 

EN 

4 

   EN