Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Belgiumand delivering a Council opinion on the updated Stability Programme of Belgium 2011-2014
Date: 2011-06-07
Institutions: European Commission
Subjects: Belgium, budget deficit, economic policy, employment policy, energy industry, pension scheme, social rights

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 802 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Belgium 

and delivering a Council opinion  

on the updated Stability Programme of Belgium 2011-2014 

{SEC(2011) 710 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Belgium 

and delivering a Council opinion  

on the updated Stability Programme of Belgium 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 5(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 States,3 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 15 April 2011, Belgium submitted its 2011 Stability 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.  

Belgium  experienced  robust  GDP  growth  averaging  2.3 %  per  year  in  the  decade 
before 2008. The country felt the full impact of the global economic recession in 2009, 
and  GDP  contracted  by  2.8 %.  The  impact  of  the  recession  on  employment  was 
relatively  contained.  A  temporary  decline  in  hours  worked  and  a  decline  in  labour 
productivity  per  hour  provided  a  buffer.  After  a  decrease  of  0.4 %  in  2009, 
employment increased again in 2010. However, unemployment rose from 7 % before 
the  recession  to  8.3 %  in  2010.  Thanks  to  the  upturn  in  world  trade,  the  recovery  in 
2010 was stronger than expected, with GDP growing by 2.2 %. Due to the automatic 
stabilisers  and  the  discretionary  measures  taken  in  reaction  to  the  crisis,  the  general 
government deficit rose from 1.3 % in 2008 to 5.9 % of GDP in 2009.  

Based  on  the  assessment  of  the  updated  Stability  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. 
Although  it  is  based  on  slightly  less  favourable  growth  assumptions  for  2011,  it  is 
broadly in line with the latest Commission’s Spring 2011 forecast. After a better-than-
expected deficit of 4.1 % in 2010, the objective of the budgetary strategy outlined in 
the  programme  is  to  further  reduce  the  deficit  to  3.6 %  in  2011  and  below  the  3 % 
reference value by 2012, the deadline set by the Council for correcting the excessive 
deficit.  The  reduction  in  the  deficit  planned  for  2011  seems  feasible  in  view  of  the 
rather cautious economic projections. However, the fiscal effort is likely to be below 
the 0.75 % of GDP average annual effort recommended by the Council, in particular in 
2011 and 2012 when it would only amount to 0.4 and 0.3 % of GDP in structural terms 
respectively.  Moreover,  the  deficit  targets  for  2012  and  subsequent  years  are  not 
supported by specific adjustment measures. Lastly, the medium-term objective, which 
is a structural surplus of 0.5 % of GDP, is not expected to be achieved within the 2011-
2014 programme period. 

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(9) 

In  view  of  the  better-than-expected  outcome  recorded  in  2010,  a  more  ambitious 
reduction in the deficit in 2011, and faster-than-projected progress towards the 3 % of 
GDP  threshold,  would  be  appropriate.  Moreover,  it  will  not  be  possible  to  bring  the 
excessive  deficit  to  an  end  by  2012  and  to  continue  to  make  progress  towards  the 
medium-term objective without further consolidation measures. Since the tax burden, 
especially that on labour income, is already very high in Belgium, these consolidation 
measures should be essentially expenditure-based. 

(10)  The economic and financial crisis reversed the previous long-term trend of declining 
government  debt.  The  debt  ratio,  which  had  been  on  a  downward  trend  since  1993 
(when it peaked at 134 % of GDP, after which it continued falling to 84 % of GDP in 
2007), has increased again since 2008 and reached 96.8 % of GDP at the end of 2010. 
The  high  level  of  public  debt  remains  a  major  challenge,  in  particular  because  the 
long-term budgetary impact of ageing is higher than the EU average, mainly as a result 
of a relatively high increase in pension expenditure, which will put further strains on 
public  finances.  Ensuring  sufficient  primary  surpluses  over  the  medium-term  and 
further reforming the Belgian social security system, in particular the pension system, 
to  curb  the  projected  substantial  increase  in  age-related  expenditure,  should  improve 
the long-term sustainability of public finances.  

(11)  An  important  challenge  for  Belgium  is  to  ensure  a  stable  and  well-functioning 
financial  sector,  capable  of  meeting  the  financial  intermediation  needs  of  the  real 
economy. During the past two years, the Belgian financial sector has been severely hit 
by the financial crisis, resulting in reduced balance sheets, substantial state aid and a 
modification  of  banking  supervision.  The  financial  situation  of  the  banking  sector 
remains  fragile.  Furthermore,  in  Belgium  the  banking  sector  is  highly  concentrated 
and relatively large compared to the size of the economy.  

(12)  The  1996  Law  on  ‘Employment  Promotion  and  Precautionary  Protection  of 
Competitiveness’ stipulates that the trend in wages in Belgium should be in line with 
the  wage  trend  in  the  three  neighbouring  countries  (France,  Germany,  The 
Netherlands),  thereby  keeping  labour  costs  under  control.  Nevertheless,  this  law  has 
not  been  able  to  prevent  a  situation  where,  over  the  period  2005-2010,  wages  have 
increased  faster  in  Belgium  than  in  the  three  neighbouring  countries,  while 
productivity growth has been slower. As a consequence, unit labour costs have risen at 
a  faster  rate  in  Belgium  compared  to  its  neighbouring  countries  and  the  euro-area 
average.  This  is  particularly  problematic  as  Belgium  is  specialised  in  goods  with 
relatively low technology content, facing fierce competition from lower-cost countries. 
Even though the wage rule helps to frame the wage negotiations, it could be improved 
by  taking  into  account  differences  in  productivity  growth  and  by  providing  a  more 
effective system to implement corrections ex post if the targets are not met. 

(13)  The  labour  market  is  characterised  by  a  number  of  rigidities  that  create  significant 
disincentives  to  taking  up  work,  namely:  unlimited  unemployment  benefit  duration; 
high  effective  marginal  tax  rates  and  high  tax  wedge  (particularly  for  low  paid 
workers); and the combination of the withdrawal of social assistance benefits and high 
taxation when taking up work. Moreover, several exit routes for older workers provide 
incentives to leave the labour market before the statutory retirement age of 65. Further 
reform  of  active  labour  market  policies,  and  extending  them  to  cover  the  over  50, 
would  help  increase  the  overall  employment  rate  and  improve  incentives  to  look  for 
jobs. In addition, further decreases in the level and duration of unemployment benefits 

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over time would provide younger workers with a greater incentive to enter the labour 
market.  Making  the  access  criteria  for  early  retirement  more  stringent  would 
encourage older workers to stay within the active labour force, and older workers who 
have been out of work for a period of time to return to the labour market. Lastly, non-
EU nationals have an employment rate (40.9 %) much lower than the EU average.  

(14)  The overall tax burden on labour in Belgium is one of the highest in the EU; therefore, 
its  reduction  would  contribute  to  making  work  more  attractive.  However,  given  the 
substantial  consolidation  effort  ahead,  this  needs  to  be  compensated  by  equivalent 
increases in less distorting taxes, for example on consumption or by means of a shift 
towards environmentally-friendly taxes. Belgium has much lower implicit tax rates on 
energy  than  neighbouring  countries.  Combined  with  the  high  tax  wedge  on  labour, 
Belgium has the lowest ratio of environmental taxes compared with labour taxes in the 
whole  of  the  EU.  This  has  contributed  to  a  situation  where  high  unemployment 
coexists  with  a  relatively  high  use  of  energy,  making  it  more  difficult  to  achieve 
targets on employment and energy efficiency. 

(15)  Prices for many goods and services are generally higher than in other Member States, 
reflecting  weak  competitive  pressures  —  especially  in  the  retail  sector  and  network 
industries — and a weak supervisory framework. In the retail sector, barriers to entry 
and operational restrictions are high. In particular, competition-restricting regulations 
still restrict opening hours, protect incumbents against new entry and inhibit the spread 
of  new  business  models  and  technologies.  A  common  competition  problem  in  the 
network sectors in Belgium is the strong position of the incumbent and the high entry 
barriers compared to other Member States, meaning that former monopolists in these 
sectors  can  still  reap  higher  profits  by  charging  higher  prices  than  a  competitive 
market would allow.  

(16)  The Belgian authorities have made a number of commitments related to the Euro Plus 
Pact4. The commitments refer to the four areas of the Pact. They focus on measures to 
bring down the deficit, keep energy prices under control and encourage competition, 
control  real  wage  increases,  implement  a  supervisory  framework  to  monitor  the 
financial  sector  and  introduce  measures  to  increase  the  effective  retirement  age. 
However, there is no information on the measures to be taken in order to achieve the 
required  objective  on  the  fiscal  side;  nor  is  there  any  information  on  how  real  wage 
growth or energy prices could be controlled. Concerning early retirement schemes, it 
is  not  clear  whether  and  when  the  'Generation  Pact'  will  be  reviewed  and  what  the 
impact  of  that  review  would  be  in  terms  of  concrete  measures.  These  commitments 
have been assessed and taken into account in the recommendations. 

(17)  The  Commission  has  assessed  the  Stability  Programme  and  National  Reform 
Programme, including the Euro Plus Pact5. It has taken into account their relevance for 
sustainable  fiscal  and  socio-economic  policy  in  Belgium,  and  compliance  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.  In  this 
light, the Commission considers that a more ambitious reduction of the deficit in 2011 
should  be  possible,  and  that  further  consolidation  measures  should  be  specified  for 

4 
5 

More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 710. 
SEC(2011) 710. 

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2012 and beyond. In order to improve the long-term sustainability of public finances, 
further reform of the pension system is needed. Further steps should also be taken to 
strengthen competitiveness, to help people into jobs and to shift the tax burden from 
labour  to  consumption  and  energy,  as  well  as  opening  up  more  opportunities  for 
investment and growth in the service sector and network industries.  

(18) 

In the light of this assessment, also taking into account the Council Recommendation 
of  2  December  2009  under  Article  126(7)  of  the  Treaty  on  the  Functioning  of  the 
European  Union,  the  Council  has  examined  the  2011  update  of  the  Stability 
Programme  of  Belgium  and 
its 
recommendation under (1) and (2) below, 

its  opinion6 

in  particular 

is  reflected 

in 

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

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

Take advantage of the ongoing economic recovery to accelerate the correction of the 
excessive  deficit.  To  this  end,  take  the  necessary  measures  —  mainly  on  the 
expenditure side — by the time of the 2012 budget to achieve an average structural 
effort of at least 0.75% of GDP. This should bring the government deficit well below 
the 3 % of the GDP reference value by 2012 at the latest. Ensure progress towards the 
Medium Term Objective by at least 0.5% of GDP annually. 

Take  steps  to  improve  the  long-term  sustainability  of  public  finances.  The  focus 
should  be  on  putting  in  place  a  strategy  aimed  at  curbing  age-related  expenditure, 
including  by  preventing  early  exit  from  the  labour  market  in  order  to  increase  the 
effective retirement age, and linking the statutory retirement age to life expectancy. 

Address the structural weaknesses in the financial sector, in particular by finalising 
restructuring  of  the  banks  in  need  of  an  adequately  funded  and  viable  business 
model. 

Reform,  in  consultation  with  the  social  partners  and  in  accordance  with  national 
practice,  the  system  of  wage  bargaining  and  wage  indexation,  to  ensure  that  wage 
growth better reflects developments in labour productivity and competitiveness.  

Improve  participation  in  the  labour  market  by  reducing  the  high  tax  and  social 
security  burden  for  the  low-paid  in  a  budgetary  neutral  way  and  by  introducing  a 
system  in  which  the  level  of  unemployment  benefits  decreases  gradually  with  the 
duration  of  unemployment.  Take  steps  to  shift  the  tax  burden  from  labour  to 
consumption and to make the tax system more environmentally friendly. Improve the 
effectiveness  of  active  labour  policies  by  targeting  measures  at  older  workers  and 
vulnerable groups.  

Introduce measures to boost competition in the retail sector, by lowering barriers to 
entry  and  reducing  operational  restrictions;  and  introduce  measures  to  strengthen 
competition in the electricity and gas markets by further improving the effectiveness 
of the sectoral regulatory and competition authorities.  

6 

Foreseen in Article 5(3) of Council Regulation (EC) No 1466/97. 

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Done at Brussels, 

For the Council 
The President 

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