Recommendation for a COUNCIL RECOMMENDATION on Spain’s 2012 national reform programme and delivering a Council opinion on Spain’s stability programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Spain, administrative formalities, banking system, budgetary equilibrium, corporate finance, educational reform, electricity supply, employment service, institutional reform, job creation, poverty, public debt, regions of Spain, retirement conditions, small and medium-sized enterprises, tax reform

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 310 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Spain’s 2012 national reform programme  

and delivering a Council opinion on Spain’s stability programme for 2012-2015 

{SWD(2012) 310 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Spain’s 2012 national reform programme  

and delivering a Council opinion on Spain’s stability programme for 2012-2015 

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(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendations of the European Commission3, 

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 
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 
Member States4, which together form the ‘integrated guidelines’. Member States were 

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OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)310 final 
Council Decision 2012/238/EU of 26 April 2012 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

On 12 July 2011, the Council adopted a recommendation on Spain’s national reform 
programme for 2011 and delivered its opinion on Spain’s updated stability programme 
for 2011-2014. 

On 23 November 2011, the Commission adopted the second Annual Growth Survey, 
marking  the  start  of  the  second  European  Semester  of  ex-ante  and  integrated  policy 
coordination,  which  is  anchored  in  the  Europe  2020  strategy.  On  14  February  2012, 
the  Commission,  on  the  basis  of  Regulation  (EU)  1176/2011,  adopted  the  Alert 
Mechanism  Report5,  in  which  it  identified  Spain  as  one  of  the  Member  States  for 
which an in-depth review would be carried out. 

On 2 March 2012, the European Council endorsed the priorities for ensuring financial 
stability,  fiscal  consolidation  and  action  to  foster  growth.  It  underscored  the  need  to 
pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal  lending 
conditions  to  the  economy,  to  promote  growth  and  competitiveness,  to  tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 

On 2 March 2012, the European Council also invited the Member States participating 
in the Euro Plus Pact to include further commitments focusing on a small number of 
essential, timely and measurable reforms to achieve the objectives of the Pact. 

On 30 April 2012, Spain submitted its stability programme covering the period 2012-
2015  and  its  2012  national  reform  programme.  In  order  to  take  account  of  their 
interlinkages,  the  two  programmes  have  been  assessed  at  the  same  time.  The 
Commission  has  also  assessed,  in  an  in-depth  review  under  Article  5  of  Regulation 
(EU)  No  1176/2011,  whether  Spain  is  affected  by  macroeconomic  imbalances.  The 
Commission concluded in its in-depth review6 that Spain is experiencing very serious 
imbalances, which are not excessive, but need to be urgently addressed. 

Based  on  the  assessment  of  the  stability  programme  pursuant  to  Article  5(1)  of 
Council  Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that the 
macroeconomic scenario underlying the programme is broadly plausible for 2012 and 
optimistic thereafter. The Commission's 2012 spring forecast projected GDP growth to 
reach -1.8% in 2012 and -0.3% in 2013, against -1.7% and 0.2%, respectively, in the 
programme. In compliance with the Excessive Deficit Procedure, the objective of the 
budgetary  strategy  outlined  in  the  programme  is  to  bring  the  general  government 
deficit  below  3%  of the  GDP  reference value by 2013, based mainly on expenditure 
restraint,  but  also  on  some  revenue-increasing  measures.  Based  on  the  (recalculated) 
structural balance,7 the annual average improvement of the structural balance planned 
in the programme is 2.6 % of GDP for 2011-13, above the fiscal effort of over 1.5 % of 
GDP  on  average  over  the  period  2010-13  recommended  under  the  Excessive  Deficit 

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COM(2012) 68 final 
SWD(2012)159 final 
Cyclically  adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
services  on  the  basis  of  the  information  provided  in  the  programme,  using  the  commonly  agreed 
methodology. 

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Procedure. Following the correction of the excessive deficit, the programme confirms 
the  medium-term  objective  (MTO)  of  a  balanced  budgetary  position  in  structural 
terms,  which  would  be  almost  reached  by  2015  with  a  structural  budget  deficit  of 
0.2 %  of  GDP.  The  MTO  adequately  reflects  the  requirements  of  the  Stability  and 
Growth  Pact.  The  envisaged  pace  of  adjustment  in  structural  terms  in  2012-13, 
represents  sufficient  progress  towards  the  MTO  and  the  growth  rate  of  government 
expenditure,  taking  into  account  discretionary  revenue  measures,  is  in  line  with  the 
expenditure benchmark of the Stability and Growth Pact. The programme projects the 
government  debt  ratio  to  peak  in  2013  and  to  start  declining  thereafter.  In  2014  and 
2015 Spain will be in transition period and plans presented in the programme would 
ensure  sufficient  progress  towards  compliance  with  the  debt  reduction  benchmark  of 
the  Stability  and  Growth  Pact.  The  deficit  and  debt  adjustment  paths  are  subject  to 
important  downside  risks.  Macroeconomic  developments  could  turn  out  less 
favourable than expected. Moreover, measures are not sufficiently specified from 2013 
onwards.  Budgetary  compliance  by  regional  governments,  given  their  recent  poor 
track record, a greater sensitivity of revenues to the ongoing structural adjustment, the 
uncertain  revenue  impact  of  the  fiscal  amnesty  and  potential  further  financial  rescue 
operations also pose risks to the budgetary strategy. Strict enforcement of the Budget 
Stability  Law  and  the  adoption  of  strong  fiscal  measures  at  regional  level  would 
mitigate  the  risks  of  a  slippage  at  regional  level. Given  the  decentralised  nature  of 
Spain’s  public  finances,  a  strong  fiscal  and  institutional  framework  is  essential.  The 
Council welcomes the intention of the Commission to present a thorough assessment 
of  the  implementation  of  the  Council  recommendation  on  correcting  the  excessive 
deficit,  also  taking  into  consideration  the  announced  multi-annual  budget  plan  for 
2013-14 in the coming weeks. 

(9) 

In  2011,  Spain  adopted  a  pension  reform  that  marks  a  significant  step  towards 
enhancing the long-term sustainability of public finances. However, the worsening of 
the economic prospects in Spain is limiting the impact of the reform on the projected 
age-related public expenditure. In addition, the reform still needs to be complemented 
by concrete measures to underpin the Global Employment Strategy for Older Workers 
for 2012-2014. 

(10)  While the Spanish tax-to-GDP ratio is among the lowest in the EU, the efficiency of 
the  tax  system  can  be  improved  by  increasing  the  share  of  more  growth-friendly 
indirect  taxes.  In  particular,  there  is  scope  for  broadening  the  VAT  tax  base  by 
reviewing  the  wide  application  of  exemptions  and  reduced  rates.  The  Spanish  tax 
system also contains a bias in favour of indebtedness and the purchase of housing as 
opposed to rentals thanks to the deductibility of interest on mortgages.  

(11)  Spain  has  made  considerable  progress  regarding  the  restructuring  of  its  financial 
sector. The restructuring needs to continue, to ensure that unviable banks are resolved 
and  that  viable  banks  can  fulfil  their  function  as  providers  of  credit  to  the  real 
economy, in a sustainable way and without unduly distorting competition. Given the 
weakening  of  macroeconomic  prospects,  further  strengthening  of  the  banks'  capital 
base may be required. 

(12) 

In  February  2012,  the  Spanish  government  adopted  a  comprehensive  reform  of  the 
employment  protection  and  collective  bargaining  system  in  order  to  tackle  the  high 
level of unemployment and the sharp segmentation in the labour market. The effects 
need  to  be  monitored,  in  particular  as  regards  wage  developments  and  reduction  of 

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segmentation.  To  address  the  challenge  fully,  this  reform  needs  to  be  complemented 
by  more  substantial  revision  of  the  active  labour  market  policies  to  improve 
employability and job matching.  

(13)  To  tackle  Spain’s  high  youth  unemployment,  the  Youth  Action  Plan  should  be 
implemented  without  delay,  including  for  apprenticeship  and  training  contracts. 
Although Spain has taken measures to combat early school leaving, the rate remains 
high and conceals significant disparities across regions. 

(14)  Poverty has increased with 1.1 million more people at risk in 2010 and child poverty is 
at an alarming high of 26.2%. The in-work poverty rate for temporary workers is more 
than twice as high as the one for permanent workers. 

(15)  Professional  services  in  Spain  remain  protected  from  competition.  Reforming 
professional  services  could  increase  potential  GDP  given  that  they  are  a  major  input 
for the other sectors of the economy. Particular attention should be paid to removing 
unjustified  and  disproportionate  barriers  for  some  highly  regulated  professions  (e.g. 
notaries,  property  registry  agents,  court  officers).  In  addition,  in  Spain  it  takes  the 
longest  in  the  EU  to  obtain  a  business  licence.  Lack  of  coordination  between  local, 
regional  and  national  administrations  has  produced  a  proliferation  of  regulations, 
sometimes  overlapping,  and  a  segmentation  of  Spain’s  internal  market.  The 
adjustment  of  large  external  imbalances  requires  facilitating  export  activities.  Spain 
also  faces  multiple  and  complex  challenges  in  the  energy  sector  which  are  a  serious 
impediment to effective functioning of the product and service markets.  

(16)  Spain  has  made  a  number  of  commitments  under  the  Euro  Plus  Pact.  The 
commitments, and the implementation of the commitments presented in 2011, relate to 
fostering employment, improving competitiveness, enhancing sustainability of public 
finances  and  reinforcing  financial  stability.  The  Commission  has  assessed  the 
implementation  of  the  Euro  Plus  Pact  commitments  and  the  overall  state  of 
implementation is partial. The results of this assessment have been taken into account 
in the recommendations. 

(17) 

(18) 

(19) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Spain’s  economic  policy.  It  has  assessed  the  stability 
programme and the national reform programme, and presented an in-depth review. It 
has  taken  into  account  not  only  their  relevance  for  sustainable  fiscal  and  socio-
economic policy in Spain but also their 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. Its recommendations under the 
European Semester are reflected in recommendations (1) to (8) below. 

In the light of this assessment, the Council has examined Spain’s stability programme, 
and its opinion8 is reflected in particular in recommendation (1) below. 

In the light of the results of the Commission’s in-depth review and of this assessment, 
the  Council  has  examined  Spain’s  2012  national  reform  programme  and  Spain’s 
stability  programme.  Its  recommendations  under  Article  6  of  Regulation  (EU)  No 

8 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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1176/2011  are  reflected  in  particular  in  recommendation  (1),  (3),  (4),  (5)  and  (7) 
below, 

HEREBY RECOMMENDS that Spain should take action within the period 2012-2013 to: 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

Deliver  an  annual  average  structural  fiscal  effort  of  above  1.5%  of  GDP  over  the 
period  2010-13  as  required  by  the  EDP  recommendation  by  implementing  the 
measures  adopted  in  the  2012  budget  and  adopting  the  announced  multi-annual 
budget  plan  for  2013-14  by  end  July.  Adopt  and  implement  measures  at  regional 
level  in  line  with  the  approved  rebalancing  plans  and  strictly  apply  the  new 
provisions  of  the  Budgetary  Stability  Law  regarding  transparency  and  control  of 
budget  execution.  Establish  an  independent  fiscal  institution  to  provide  analysis, 
advice  and  monitor  fiscal  policy,  as  well  as  to  estimate  the  budgetary  impact  of 
proposed legislation. 

Accelerate  the  increase  in  the  statutory  retirement  age  and  the  introduction  of  the 
sustainability  factor  foreseen  in  the  recent  pension  reform  and  underpin  the  Global 
Employment Strategy for Older Workers with concrete measures to develop lifelong 
learning  further,  improve  working  conditions  and  foster  the  reincorporation  of  this 
group in the job market. 

Introduce a taxation system consistent with the fiscal consolidation efforts and more 
supportive to growth, including a shift away from labour towards consumption and 
environmental  taxation.  In  particular,  address  the  low  VAT  revenue  ratio  by 
broadening the tax base for VAT. Ensure less tax-induced bias towards indebtedness 
and home-ownership (as opposed to renting).  

Implement the reform of the financial sector, in particular complement the on-going 
restructuring  of  the  banking  sector  by  addressing  the  situation  of  remaining  weak 
institutions, put forward a comprehensive strategy to deal effectively with the legacy 
assets on the banks' balance sheets, and define a clear stance on the funding and use 
of backstop facilities.  

Implement  the  labour  market  reforms  and  take  additional  measures  to  increase  the 
effectiveness  of  active  labour  market  policies  by  improving  their  targeting,  by 
increasing the use of training, advisory and job matching services, by strengthening 
their  links  with  passive  policies,  and  by  strengthening  coordination  between  the 
national  and  regional  public  employment  services,  including  sharing  information 
about job vacancies. 

Review  spending  priorities  and  reallocate  funds  to  support  access  to  finance  for 
SMEs, research, innovation and young people. Implement the Youth Action Plan, in 
particular  as  regards  the  quality  and  labour  market  relevance  of  vocational  training 
and  education,  and  reinforce  efforts  to  reduce  early  school-leaving  and  increase 
participation  in  vocational  education  and  training  through  prevention,  intervention 
and compensation measures. 

Take specific measures to counter poverty, by making child support more effective 
and improving the employability of vulnerable groups. 

Take  additional  measures  to  open  up  professional  services,  including  highly 
regulated  professions,  reduce  delays  in  obtaining  business  licences  and  eliminate 

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barriers  to  doing  business  resulting  from  overlapping  and  multiple  regulations  by 
different  levels  of  government.  Complete  the  electricity  and  gas  interconnections 
with  neighbouring  countries  and  address  the  electricity  tariff  deficit  in  a 
comprehensive way, in particular by improving the cost efficiency of the electricity 
supply chain.  

Done at Brussels, 

For the Council 
The President 

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