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

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 824 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Poland 

and delivering a Council opinion 

on the updated Convergence Programme of Poland, 2011-2014 

{SEC(2011) 729 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Poland 

and delivering a Council opinion 

on the updated Convergence Programme of Poland, 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. 

1 
2 
3 

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) 

(8) 

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  in  time  to  be  included  in  their 
Stability or Convergence Programmes and their National Reform Programmes. 

On  27  April  2011,  Poland  submitted  its  2011  Convergence  Programme  update 
covering  the  period  2011-2014  and  on  29  April  2011  its  2011  National  Reform 
Programme.  In  order  to  take  account  of  the interlinkages,  the  two  programmes  have 
been assessed at the same time. 

The global financial crisis led to a slowdown in economic activity in Poland, with the 
rate of real GDP growth dropping to 1.7% in 2009, but stopping short of a recession. 
In  2010,  real  GDP  growth  bounced  back  to  3.8%  as  strong  external  demand  fuelled 
manufacturing  and  turned  the  inventory  cycle,  while  a  resilient  labour  market 
supported private consumption. The unemployment rate rose to 9.6% in 2010, up from 
7.1%  in  2008,  despite  increasing  employment.  The  crisis  has  taken  a  heavy  toll  on 
public  finances.  The  general  government  deficit  rose  from  3.7%  of  GDP  in  2008  to 
7.3%  in  2009.  In  2010,  despite  a  modest  consolidation  package  and  in  the  face  of 
strong growth, it reached 7.9% of GDP. The debt-to-GDP ratio has risen from 50.9% 
in  2009  to  55.1 %  in  2010,  still  below  the  60%  Treaty  threshold  and  the  Polish 
Constitutional debt break. 

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 plausible,  while based on slightly 
too favourable growth assumptions for 2012. The programme plans to bring the deficit 
below the 3% of GDP reference value by 2012, the deadline set by the Council. The 
average  annual  fiscal  effort  over  the  period  2010-2012  is  broadly  in  line  with  the 
1.25%  of  GDP  recommended  by  the  Council  under  the  excessive  deficit  procedure 
(EDP)  on  7  July  2009.  Achievement  of  the  medium-term  objective  (MTO)  is  not 
envisaged  during  the  programme  period.  The  amendment  to  the  pension  reform  — 
reducing the structural budget deficit by 0.7% in 2011 and by a further 0.5% of GDP 
in 2012 — does not improve the underlying budgetary situation as it increases long-
term  liabilities  by  the  same  magnitude.  Risks  to  budgetary  targets  are  tilted  to  the 
downside.  In  particular,  direct  tax  revenues  might  turn  out  lower  than  projected 
because  of  optimistic  assumptions  on  elasticities  with  respect  to  the  tax  base; 
programme  projections  on  social  contributions  rely  on  favourable  scenarios  for 
employment  and  wage  growth;  and  potential  implementation  delays  and  changes  to 

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the deficit-reducing measures, also beyond the direct control of the government, could 
result in a slippage in budget execution. 

(9) 

The  Polish  government  committed  itself  to  bringing  the  general  government  deficit 
below  3%  of  GDP  by  2012,  as  recommended  by  the  Council,  and  to  ensuring  the 
stability of public finances in the long term. To this end, in 2011 it has embarked on a 
plan to substantially consolidate public finances, with measures affecting both revenue 
and  expenditure,  including  major  cuts  in  public  investment  expenditure.  The  draft 
2012  budget  was  adopted  by  the  government  on  5  May  2011.  It  is  expected  to 
contribute to a further significant reduction in the deficit. Measures may still need to 
be implemented in addition to the ones presented in the draft 2012 budget to meet the 
2012 deadline for correction of the excessive deficit. However, further cuts in public 
investment  spending  would  risk  limiting  the  capacity  to  co-fund  the  investment 
projects financed by the EU. 

(10)  Poland  has  strengthened  its  fiscal  framework  over  the  years.  However,  in  order  to 
assure sustainability of public finances in the medium to long term the existing fiscal 
rules  and  medium-term  programming  procedures  do  not  appear  to  provide  for 
sufficient transparency of the budgetary process, incentives for coordination between 
various  tiers  of  government  and  flexibility  to  address  macroeconomic  shocks  and 
imbalances.  The  fiscal  rules  should  also  be  based  on  sufficiently  broad  budgetary 
aggregates and should be fully consistent with the European System of National and 
Regional  Accounts  (ESA95).  On  the  basis  of  current  policies,  the  risks  to  the  long-
term sustainability of public finances stemming from the ageing of the population can 
be assessed as medium. 

(11)  Although  the  government  has  abolished  special  early  pensions  for  a  majority  of 
beneficiaries, special early retirement arrangements for uniformed services and miners 
remain in place, and the statutory retirement age for women is lower than for men. The 
effective  retirement  age  is  therefore  still  low.  Moreover,  the  very  heavily  subsidised 
farmers’ social security fund (KRUS) provides little incentive for farmers to leave the 
sector, slowing economic restructuring and hampering productivity growth.  

(12)  The education and training system is not fully tailored to labour market needs. Despite 
a sharp increase in tertiary education attainment, employability is affected by a skills 
and  jobs  mismatch.  The  higher  education  system  is  not  adequately  linked  to  the 
business and employment environment. The proportion of adults (especially older and 
low-skilled  workers)  participating  in  education  and  vocational  training  remains  very 
low.  

(13)  Public spending on R&D is low in Poland, and private spending, amongst the lowest 
in  the  EU,  does  little  to  compensate.  Furthermore,  it  has  been  declining  over  recent 
years, as the private sector lacks sufficient incentive to invest. This is likely to become 
a major obstruction to medium- and long-term economic growth. The R&D system is 
not  integrated  as  universities,  research  institutes  and  industry  are  only  weakly 
interlinked. 

(14)  Low female labour market participation is partly due to insufficient provision of care 
facilities  for  children  and  dependents.  The  number  of  children  under  three  years  for 
whom formal care arrangements are made in Poland is far below the EU average. The 
enrolment  rate  of  older  children,  although  it  has  risen  over  the  last  few  years,  is 

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similarly low. In many cases young parents can only participate in the labour market if 
childcare  is  provided  by  their  relatives.  In  addition,  insufficient  provision  of  care 
services  reduces  the  labour  force  potential  of  older  women  in  particular  since  they 
leave  their  jobs  or  retire  early  in  order  to  take  care  of  their  grandchildren  or  other 
dependents. 

(15)  The  underdeveloped  network  infrastructure  is  an  obstacle  to  business  and  foreign 
investment  and  the  underdeveloped  transport  infrastructure  amplifies  regional 
disparities.  The  energy  infrastructure  is  ageing  rapidly  and  has  reached  its  capacity 
limits. Moreover, it needs significant adjustments to meet the requirements associated 
with  climate  change  mitigation  policies.  Although  Poland’s  rail  system  is  the  third 
largest  in  Europe,  it  cannot  properly  support  the  expansion  of  economic  activity 
because of outdated infrastructure and rolling stock. 

(16)  The quality of the business environment and efficiency of public administration is low 
in Poland. In cross-country comparisons, Poland has particular problems in the areas 
of  tax  collection,  starting  and  closing  businesses,  enforcing  contracts  and  registering 
property.  Companies  are  hindered  by  lengthy  licensing  and  permit  procedures.  As 
regards legal actions, such as contract enforcement and obtaining construction permits, 
the number of procedures involved is rather high and the overall process is too long.  

(17)  Poland has made a number of commitments under the Euro Plus Pact4. On the fiscal 
side, Poland commits itself to the existing debt and the temporary expenditure rule, the 
introduction  of  new  regulations  limiting  deficit  ratios  of  local  governments  and  the 
introduction of a permanent expenditure rule. To reinforce financial stability, measures 
aim  at  more  efficient  regulation  and  supervision  of  the  banking  sector.  Employment 
measures focus on labour market participation of women as well as of older workers 
and  reforms  to  strengthen  business-education  links.  The  competitiveness  measures 
focus  on  education  and  the  science  sector,  transport  and  broadband  infrastructure 
development and measures to improve the business environment. These commitments 
refer  to  the  four  areas  of  the  Pact  and  largely  reflect  the  agenda  presented  in  the 
Convergence and National Reform Programmes. Several important policy challenges 
remain  unaddressed  (e.g.  the  low  participation  rate  of  older  workers)  or  are  only 
touched  upon  (e.g.  the  improvement  of  the  business  administration).  The  Euro  Plus 
Pact commitments have been assessed and taken into account in the recommendations. 

(18)  The  Commission  has  assessed  the  Convergence  Programme  and  National  Reform 
Programme, including the Euro Plus Pact commitments5. It has taken into account not 
only  their  relevance  for  sustainable  fiscal  and  socio-economic  policy  in  Poland  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 set out an ambitious public 
finance  consolidation  plan  and  encourages  the  government  to  proceed  with 
implementation,  and  to  take  additional  measures,  if  necessary,  to  reduce  the  general 
government deficit to below 3% of GDP by 2012. Building on the achievements of the 
past  decade,  steps  should  be  taken  to  further  increase  employment,  mainly  by 
implementing reforms in the pension and education systems, and by improving child- 
and  dependent-care  services.  Moreover,  non-price  competitiveness  should  be  further 

4 
5 

More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 729. 
SEC(2011) 729. 

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increased  by  improving  the  R&D  framework  and  the  business  environment  and  by 
promoting infrastructure investment.  

(19) 

In the light of this assessment, also taking into account the Council Recommendation 
of 7 July 2009 under Article 126(7) of the Treaty on the Functioning of the European 
Union, the Council has examined the 2011 update of the Convergence Programme of 
Poland and its opinion6 is reflected in particular in its recommendation under (1) and 
(2) below. Taking into account the European Council conclusions of 25 March 2011, 
the Council has examined the National Reform Programme of Poland, 

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

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

Implement  the  measures  announced  in  the  draft  2012  Budget  Law  and  include 
additional measures of a permanent nature to reduce the general government deficit 
to below 3% of GDP in 2012. Minimise cuts in growth-enhancing expenditure in the 
future, particularly the co-financing of EU  funds,  while  ensuring  adequate  progress 
towards the medium term objective. 

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

Raise as planned the statutory retirement age for uniformed services, continue steps 
to  increase  the  effective  retirement  age  and  link  it  to  life  expectancy.  Establish  a 
timetable  to  amend  the  rules  for  farmers’  contributions  to  the  social  security  fund 
(KRUS) to better reflect individual incomes. 

Implement  the  proposed  lifelong  learning  strategy,  enhance  apprenticeships  and 
dedicated  vocational  training  and  education  programmes  for  older  and  low-skilled 
workers.  Strengthen  links  between  science  and  industry  by  implementing  the  ‘We 
build  on  Knowledge’  programme  (‘Budujemy  na  Wiedzy’);  Implement  the  higher 
education  reform  programme 
'Partnership  for  Knowledge'  (‘Partnerstwo  dla 
Wiedzy’) so as to better align educational provision with labour market needs. 

Increase  female  labour  market  participation  by  taking  measures  to  ensure  stable 
funding  for  pre-school  child-care  arrangements,  to  increase  enrolment  rates  of 
children under three years. 

Take measures to rebalance incentives for investment in energy generation capacity 
with a view to encouraging low-carbon emitting technologies, and to further develop 
cross-border  electricity  grid  interconnections;  develop  a  multiannual  plan  for 
investment in railway infrastructure and implement the rail transport master plan. 

Establish  a  timetable  to  simplify  legal  procedures  involved  in  enforcing  contracts; 
revise  construction  and  zoning  legislation,  with  a  view  to  streamlining  appeal 
procedures and speeding up administrative procedures. 

6 

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

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Done at Brussels, 

For the Council 
The President 

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