Recommendation for a COUNCIL RECOMMENDATION on Lithuania’s 2012 national reform programme and delivering a Council opinion on Lithuania’s convergence programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Lithuania, budgetary equilibrium, energy saving, labour market, long-term unemployment, poverty, public sector, retirement conditions, social integration, tax reform, trans-European network, youth unemployment

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 319 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Lithuania’s 2012 national reform programme  

and delivering a Council opinion on Lithuania’s convergence programme for 2012-2015

{SWD(2012) 319 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Lithuania’s 2012 national reform programme  

and delivering a Council opinion on Lithuania’s convergence 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 the recommendation of the European Commission2, 

Having regard to the resolutions of the European Parliament3, 

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 States4, 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, 02.08.1997, p. 1 
COM(2012)319 final 
P7_TA(2012)0048 and P7_TA(2012)0047 
Council Decision 2012/238/EU of 26 April 2012 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On  12  July  2011,  the  Council  adopted  a  recommendation  on  Lithuania’s  national 
reform  programme  for  2011  and  delivered  its  opinion  on  Lithuania’s  updated 
convergence 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)  No  1176/2011,  adopted  the  Alert 
Mechanism  Report5,  in  which  it  did  not  identify  Lithuania  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. It invited Member States to implement the Council’s country-specific 
recommendations for 2011 and to translate these  priorities  into  concrete  measures  to 
be  included  in  their  stability  or  convergence  programmes  and  national  reform 
programmes. 

On 2 March 2012, the European Council also invited the Member States participating 
in  the  Euro  Plus  Pact  to  present  their  commitments  in  time  for  inclusion  in  their 
stability or convergence programmes and their national reform programmes. 

On  27  April  2012,  Lithuania  submitted  its  convergence  programme  covering  the 
period  2012-2015  and,  on  30  April  2012,  its  2012  national  reform  programme.  In 
order to take account of their interlinkages, the two programmes have been assessed at 
the same time. 

Based  on  the  assessment  of  the  2012  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.  It  is 
broadly  in  line  with  the  Commission's  2012  spring  forecast  for  2012  and  2013.  The 
objective  of  the  budgetary  strategy  outlined  in  the  programme  is  to  correct  the 
excessive deficit by 2012 as recommended by the Council and progressing towards the 
medium-term  budgetary  objective  (MTO)  thereafter.  The  programme  confirms  the 
previous MTO, i.e. a structural general government surplus of 0.5 % of GDP, which 
adequately reflects the requirements of the Stability and Growth Pact, and outlines a 
consolidation  of  at  least  1  percentage  point  per  year,  planning  a  balanced  budget  by 
2015. While the budgetary plans are in line with a timely correction of the excessive 
deficit,  the  average  annual  fiscal  effort  in  2010-2012,  based  on  the  (recalculated) 
structural budget balance6, is expected to be lower than 2.25% of GDP required by the 
Council  in  its  recommendation  of  16  February  2010.  The  planned  annual  progress 
towards  the  MTO  in  the  years  following  the  correction  of  the  excessive  deficit  is 
slightly  higher  than  0.5%  of  GDP  in  structural  terms,  that  is,  the  benchmark  of  the 

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COM(2012) 68 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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Stability  and  Growth  Pact.  The  planned  rate  of  growth  of  government  expenditure, 
taking  into  account  discretionary  revenue  measures,  complies  with  the  expenditure 
benchmark  of  the  Stability  and  Growth  Pact  in  2013  and  2014,  but  not  in  2015. 
General  government  debt  is  projected  to  remain  below  60%  of  GDP  over  the 
programme  period,  increasing  to  nearly  41%  of  GDP  in  2013,  according  to  the 
Commission's 2012 spring forecast, while the convergence programme targets the debt 
to decrease to around 35% by 2015. The reform of budget planning and execution is 
progressing  but  the  government  has  still  to  approve  the  proposed  laws.  These  laws 
would  improve  accountability  within  the  fiscal  framework,  by  establishing  an 
independent body, and to tighten rules on treasury reserves.  

(9) 

Based  on  a  comprehensive  tax  compliance  strategy,  measures  were  implemented  in 
2011,  which  reinforced  tax  compliance  and  yielded  additional  revenue.  However, 
continuing  implementation  will  be  required  to  advance  significantly  against  tax 
evasion. 

(10)  Demographic  developments  cast  serious  doubts  on  the  sustainability  of  the  pension 
system. Although Lithuania adopted a gradual increase in the pension age to 65 years 
by 2026, this alone will not ensure a sustainable and adequate retirement income in the 
future and  needs to  be  complemented with additional measures.  These could include 
linking  the  statutory  retirement  age  and  future  benefits  to  demographic  factors; 
establishing clear rules for indexation; introducing a closer link between contributions 
and  benefits,  eliminating  incentives  to  take  early  retirement.  Lithuania  could  in 
addition  make  better  use  of  supplementary  voluntary  pension  provision.  The 
establishment  of  occupational  pension  schemes  could  ease  the  burden  of  the  social 
security system and at the same time improve the adequacy of future pension incomes. 
Disincentives to continuing to work longer have been removed. 

(11)  The  Law  on  Temporary  Employment  Agencies,  designed  to  facilitate  short-term 
employment, entered into force on 1 December 2011. However, its impact may not be 
significant, since temporary work agencies were already operating in Lithuania before. 
A  comprehensive  review  of  labour  law  could  identify  unnecessary  restrictions  and 
administrative  hurdles 
that  prevent  flexible  contractual  agreements,  dismissal 
provisions  and  flexible  working  time  arrangements.  Additional  measures  to  enhance 
participation in the labour market, especially for young people, unskilled persons and 
older workers, and to improve labour market flexibility are necessary. 

(12)  The  challenge  of  youth  unemployment  (above  30 %)  and  low-skilled  unemployment 
became  especially  evident  during  the  crisis.  The  government  is  implementing  a 
number  of  measures  to  promote  youth  employment,  such  as  first  job  subsidies  and 
reduced  social  security  contributions.  Nevertheless,  activation  rates  remain  too  low 
and  the  financial  allocations  for  active  labour  market  policies  could  be  used  more 
effectively  by  targeting  public  works  to  the  most  vulnerable.  To  ensure  a  better 
transfer from education to the labour market, apprenticeships and internships could be 
made  more  attractive  and  a  qualification  demand  forecasting  system  put  in  place. 
Measures  should  be  in  line  with  the  outcome  of  the  Lithuania  -  Commission  joint 
action team on youth unemployment. 

(13)  Around one third of the Lithuanian population is facing the risk of poverty and long-
term  exclusion.  This  is  the  fourth  highest  figure  in  the  EU.  In  2011,  Lithuania 
amended the Law on Cash Social Assistance to reform the social support system as of 

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January 2012. It has launched a pilot model of social support distribution, changed the 
method  for  calculating  the  amount,  introduced certain work incentives and increased 
coverage.  The  social  assistance  reform  is  a  step  towards  reducing  disincentives  to 
work. It is necessary to set in place a monitoring system to assess its efficiency and its 
impact  on  poverty  alleviation.  The  reform  should  also  link  with  activation  measures 
that enhance participation, in particular for long-term social beneficiaries.  

(14)  The government has been undertaking an ambitious reform of state-owned enterprises 
since  2010,  aiming  to  restructure  corporate  governance,  increase  transparency  and 
separate ownership and regulatory functions, and increase competition and efficiency. 
The reform is relevant, involving legislative as well as organisational changes. Major 
progress  has  been  made  in  transparency  and  accountability  as  reports  are  now 
published  on  a  quarterly  and  annual  basis.  Clear  enterprise  objectives  have  been 
established.  However,  the  government  has  postponed  some  parts  of  the  reform,  in 
particular the separation of commercial and non-commercial activities of state-owned 
enterprises, and intends to implement them in 2012. 

(15)  Lithuania has made some progress in improving the energy efficiency of buildings. A 
Multi-Apartment Building Modernisation Programme was adopted by the government 
in  December  2011,  but  it  is  weakened  by  counteracting  subsidies  available  in  other 
policy areas that reduce incentives for inhabitants of residential buildings to improve 
energy  efficiency.  Further  substantial  and  accelerated  efforts  are  needed  to  improve 
energy efficiency of buildings. 

(16)  There is scope for shifting taxation towards energy use as revenue from environmental 
taxes is the third lowest in the EU, while transport taxes are the lowest in the EU. The 
implicit  tax  rate  on  energy  consumption  was  the  seventh  lowest  in  the  EU  in  2010 
whereas energy taxes in GDP terms are only slightly below the EU average. 

(17)  The country’s energy system infrastructure lacks competition and interconnections and 
this is a factor that hinders growth. Insufficient interconnections hinder the emergence 
of  competition  in  energy  markets.  Concentration  remains  high  (above  90 %)  in  both 
the gas and electricity markets.  

(18)  Lithuania  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  competitiveness  and  employment,  improving  public  finance  sustainability 
and reinforcing  financial stability.  The Commission  has assessed  the  implementation 
of  the  Euro  Plus  Pact  commitments.  The  results  of  this  assessment  have  been  taken 
into account in the recommendations. 

(19) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Lithuania’s  economic  policy.  It  has  assessed  the 
convergence programme and national reform programme. It has taken into account not 
only their relevance for sustainable fiscal and socio-economic policy in Lithuania 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 (6) below.  

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(20) 

In  the  light  of  this  assessment,  the  Council  has  examined  Lithuania’s  convergence 
programme, and its opinion7 is reflected in particular in recommendation (1) below. 

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

1. 

2. 

3. 

4. 

5. 

Ensure  planned  progress  towards  the  timely  correction  of  the  excessive  deficit.  To 
this  end,  fully  implement  the  budget  for  the  year  2012  and  achieve  the  structural 
adjustment  effort  specified  in  the  Council  recommendation  under  the  Excessive 
Deficit  Procedure.  Thereafter,  specify 
to  ensure 
implementation of the budgetary strategy for the year 2013 and beyond as envisaged, 
ensuring an adequate structural adjustment effort to make sufficient progress towards 
the medium-term budgetary objective, including meeting the expenditure benchmark, 
while  minimising  cuts  in  growth-enhancing  expenditure.  In  that  respect,  consider 
increasing  taxes  least  detrimental  to  growth,  such  as  housing  and  environmental 
taxation,  including  car  taxation,  while  reinforcing  tax  compliance.  Strengthen  the 
fiscal  framework,  in  particular  by  introducing  enforceable  and  binding  expenditure 
ceilings in the medium-term budgetary framework. 

the  measures  necessary 

Adopt  legislation  on  a  comprehensive  pension  system  reform.  Align  the  statutory 
retirement  age  with  life  expectancy,  establish  clear  rules  for  the  indexation  of 
pensions,  and  improve  complementary  savings  schemes.  Underpin  pension  reform 
with active ageing measures. 

Tackle  high  unemployment,  in  particular  among  youth,  low-skilled  and  long-term 
unemployed, by focusing resources on active labour market policies while improving 
their  efficiency.  Enhance  the  effectiveness  of  apprenticeship  schemes.  Amend  the 
labour  legislation  with  regard  to  flexible  contract  agreements,  dismissal  provisions 
and flexible working time arrangements. 

Increase  work  incentives  and  strengthen  the  links  between  the  social  assistance 
reform  and  activation  measures,  in  particular  for  the  most  vulnerable,  to  reduce 
poverty and social exclusion.  

Implement  all  aspects  of  the  State-Owned  Enterprise  reform  package  and  in 
particular ensure a separation of ownership and regulatory functions and a separation 
of commercial and non-commercial activities. Install appropriate monitoring tools to 
assess  the  effectiveness  of  the  reforms  and  ensure  compliance  of  all  State-Owned 
Enterprises with the requirements of the reform. 

7 

Under Article 9(2) of Council Regulation (EC) No 1466/97. 

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6. 

Step  up  measures  to  improve  the  energy  efficiency  of  buildings,  including  through 
removing  disincentives  and  a  rapid  implementation  of  the  Holding  Fund.  Promote 
competition  in  energy  networks  by  improving  interconnectivity  with  EU  countries 
for both electricity and gas. 

Done at Brussels, 

For the Council 
The President 

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