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

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 826 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Sweden 

and delivering a Council opinion 

on the updated Convergence Programme of Sweden, 2011-2014 

{SEC(2011) 735 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Sweden 

and delivering a Council opinion 

on the updated Convergence Programme of Sweden, 2011-2014 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(3) thereof, 

Having regard to the recommendation of the European Commission2, 

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) 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission's 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
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 
Member States3, which together form the “integrated guidelines”. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

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OJ L 209, 2.8.1997, p. 1. 
OJ C , p. . 
Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

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(3) 

(4) 

(5) 

(6) 

(7) 

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  29  April  2011,  Sweden  submitted  its  updated  2011  Convergence  Programme 
covering  the  period  2011-2014  and  its  2011  National  Reform  Programme.  The  two 
programmes have been assessed at the same time.  

Before the economic crisis of 2008-2009, the Swedish economy enjoyed more than a 
decade  of  strong  growth  driven  by  both  domestic  demand  and  net  exports.  Being  an 
export-oriented economy with a sizeable financial sector, it was strongly affected by 
the slump in external demand and the freezing of financial markets in 2008, causing 
GDP to contract by 5.1% in 2009 and the unemployment rate to increase from around 
6% to above 9%. Thanks to a sound starting position without large adjustment needs 
in  the  household,  banking  and  public  sectors,  as  well  as  an  adequate  monetary  and 
fiscal  policy  response,  the  recession  was  rather  short-lived  and  affected  mainly  the 
export-oriented  manufacturing  sector.  As  world  trade  revived,  the  Swedish  economy 
experienced  a  very  strong  and  broad-based  recovery,  with  real  GDP  rebounding  by 
5.5%  in  2010.  Due  to  the  combined  effect  of  automatic  stabilisers  and  discretionary 
measures, the fiscal balance went from a surplus of 3.7% of GDP in 2007 to a deficit 
of 0.9% in 2009, before returning to balance in 2010.  

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 is broadly plausible, except for 2012 
when  it  is  too  favourable.  The  budgetary  strategy,  as  outlined  in  the  updated 
Convergence  Programme, is appropriate, as it would contribute to meeting  Sweden's 
medium-term objective (MTO) of 1% GDP surplus over a cycle. This would provide 
some  margin  against  breaches  of  the  3%  of  GDP  reference  value  in  any  future 
downturn.  The  programme  projects  the  general  government  surplus  to  widen  from 
0.6% of GDP in 2011 to 3.7% of GDP in 2014, the last year of the programme. This 
improvement would result from assumed strong economic growth, as the programme 
does  not  envisage  any  consolidation  efforts  in  these  years.  Risks  to  the  budgetary 
targets  are  broadly  balanced.  As  the  revenue  forecast  presented  in  the  programme  is 
somewhat  cautious  for  2011,  budgetary  outcomes  could  turn  out  slightly  better  this 
year, whereas certain downside risks to budgetary projections from 2012 onwards are 
linked  to  favourable  macroeconomic  assumptions.  As  the  government  has  indicated 
that further expansionary fiscal measures envisaged in the 2011 Budget Bill (including 
a fifth step in the in-work tax credit for wage-earners, a further rise in the threshold for 
paying  state  income  tax,  lower  VAT  on  restaurant  services,  and  lower  taxes  on 
pensions) could be implemented as from 2012, if there is sufficient fiscal space, there 

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(8) 

(9) 

is  a  risk  of  a  pro-cyclical  fiscal  policy  stance.  Given  the  demographic  outlook,  it  is 
important that Sweden continues to meet its MTO.  

The  current  situation  in  the  housing  and  mortgage  markets  is  a  source  of  potential 
instability. After a short-lived and mild correction at the height of the financial crisis, 
house  prices  in  Sweden  -  in  contrast  to  other  countries  -  resumed  the  strong  upward 
trend observed since the second half of the 1990s and are now at a record high. The 
strong  increase  in  house  prices  has  gone  hand  in  hand  with  rising  household 
indebtedness  which  represented  around  170%  of  disposable  income  by  mid-2010,  a 
historical high. Moreover, a large share of mortgage debt is at variable rates with little 
amortisation.  This  makes  Swedish  households  particularly  vulnerable  to  interest  rate 
hikes  or  set-backs  in  employment.  A  marked correction  in the housing market could 
have negative repercussions for macro-economic stability by making households rein 
in consumption to balance their budgets and by increasing financing costs for Swedish 
banks. 

As regards the Swedish labour market, non-EU nationals and youth have a relatively 
weak position compared with the EU average. Further improvement of their position 
on the labour market is essential to raise the overall employment rate and to improve 
the  labour  supply  in  the  long  term  so  as  to  meet  the  demographic  challenge  of  an 
ageing  population.  The  Swedish  government  is  currently  implementing  several 
reforms in order to improve the employment situation of both groups such as increased 
funds 
for  coaching,  work-experience  positions,  vocational  adult  education, 
apprenticeship  training  coaching,  targeted  wage  subsidies  and  streamlined  Swedish 
language courses. The latest statistics show clear signs that the Swedish labour market 
is improving across the board, except for foreign-born women.  

(10)  The  Commission  has  assessed  the  Convergence  Programme  and  National  Reform 
Programme4.  It  has  taken  into  account  not  only  their  relevance  for  sustainable  fiscal 
and  socio-economic  policy  in  Sweden  but  also  their  conformity  with  EU  rules  and 
guidance,  given  the  need  to  reinforce  the  overall  economic  governance  of  the 
European  Union  by  providing  EU-level  input  into  future  national  decisions.  It 
considers  that  the  programmes  are  adequately  addressing  the  main  challenges  for 
Sweden.  However,  while  the  government's  fiscal  strategy  to  continue  meeting  the 
MTO  is  appropriate,  care  needs  to  be  taken  from  2012  onwards  to  avoid  an 
excessively  loose  fiscal  policy  in  times  of  favourable  growth.  The  risks  of  macro-
economic  imbalances  should  be  assessed,  notably  those  stemming  from  rising  house 
prices  and  household  indebtedness.  In  addition,  the  labour  market  participation  of 
vulnerable groups needs to be monitored and improved, notably for youth and foreign-
born women.  

(11) 

In  light  of  this  assessment,    the  Council  has  examined  the  2011  update  of  the 
Convergence  Programme  of  Sweden  and  its  opinion5  is  reflected  in  particular  in  its 
recommendation  under  (1)  set  out  below.  Taking  into  account  the  European  Council 
conclusions  of  25  March  2011,  the  Council  has  examined  the  National  Reform 
Programme of Sweden, 

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SEC(2011) 735. 
Foreseen in Article 9(3) of Council Regulation (EC) No 1466/97. 

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HEREBY RECOMMENDS that Sweden should take action within the period 2011-2012 to 

(1) 

(2) 

(3) 

Keep fiscal policy on a path that ensures that the medium-term objective continues to 
be met and avoid a pro-cyclical fiscal policy stance in the current economic upturn.  

Take preventive action to deal with the macro-economic risks associated with rising 
house prices and household indebtedness, including reforms to the mortgage system, 
rent regulation, property taxation and construction permits.  

Monitor  and  improve  the  labour  market  participation  of  young  people  and  other 
vulnerable groups. 

Done at Brussels, 

For the Council 
The President 

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