Recommendation for a COUNCIL RECOMMENDATION on Germany’s 2012 national reform programme and delivering a Council opinion on Germany’s stability programme for 2012-2016
Date: 2012-05-30
Institutions: European Commission
Subjects: Germany, banking system, budgetary equilibrium, competition, indebtedness, pay policy, tax reform, tertiary sector, trans-European network

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 305 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Germany’s 2012 national reform programme 

and delivering a Council opinion on Germany’s stability programme for 2012-2016 

{SWD(2012) 305 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Germany’s 2012 national reform programme 

and delivering a Council opinion on Germany’s stability programme for 2012-2016 

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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4 

OJ L 209, 02.08.1997, p. 1 
COM(2012)305 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) 

(9) 

On  12  July  2011,  the  Council  adopted  a  recommendation  on  Germany’s  national 
reform programme for 2011 and delivered its opinion on Germany’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)  No  1176/2011,  adopted  the  Alert 
Mechanism Report5, in which it did not identify Germany 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  present  their  commitments  in  time  for  inclusion  in  their 
stability or convergence programmes and their national reform programmes. 

On  18  April  2012,  Germany  submitted  its  stability  programme  for  the  period  2012-
2016  and,  on  12  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. 

According to the first 2012 notification of deficit and debt figures by Germany for the 
years  2008-2011  for  the  application  of  the  excessive  deficit  procedure  (EDP),  the 
general government deficit in 2011 was below the 3% of GDP reference value of the 
Treaty.  Moreover,  the  Commission's  2012  spring  forecast  projects  the  general 
government  deficit  to  stay  below  the  reference  value  of  the  Treaty  and  to  further 
decline  over  the  forecast  period.  As  a  result,  and  in  line  with  the  provisions  of  the 
Stability and Growth Pact, on 30 May the Commission adopted a recommendation for 
a  Council  decision  abrogating  the  decision  on  the  existence  of  an  excessive  deficit 
under Article 126(12) of the Treaty.  

Based  on  the  assessment  of  the  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.  The 
programme's projections for 2012-13 are broadly in line with the Commission's 2012 
spring forecast as regards the pace and pattern of economic growth as well as labour 
market developments. The programme's projections for economic growth in the outer 
years are broadly in line with the Commission's estimate of Germany's medium-term 
potential  growth  rate.  The  objective  of  the  budgetary  strategy  outlined  in  the 
programme  is  to  meet  the  medium-term  budgetary  objective  (MTO)  already  in  2012 
and to reach virtually balanced nominal budgets as from 2014, starting from a nominal 
deficit  of  1.0%  of  GDP  in  2011,  thus  below  the  3%  of  GDP  reference  value  of  the 
Treaty significantly ahead of the 2013 deadline. The programme specifies the previous 

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COM(2012) 68 final 

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MTO  of  a  structural  deficit  of  ½%  of  GDP,  (interpreted  as  a  narrow  range  around 
0.5% of GDP), which adequately reflects the requirements of the Stability and Growth 
Pact,  to  imply  a  deficit  not  exceeding  0.5%  of  GDP.  Risks  to  the  deficit  and  debt 
targets may arise notably if additional measures to stabilise the financial sector turned 
out  to  be  required.  Based  on  the  (recalculated)  structural  deficit6,  Germany  plans  to 
respect  its  MTO  throughout  the  programme  period,  which  should  also  be  the  case 
taking into account the risk assessment. According to the information provided in the 
programme  and  also  taking  into  account  the  risk  assessment,  the  growth  rate  of 
government  expenditure,  taking  into  account  discretionary  revenue  measures,  would 
exceed  the  expenditure  benchmark  of  the  Stability  and  Growth  Pact  in  2012,  while 
respecting it in 2013. Gross debt is planned to increase by 0.8 pp. to 82.0% of GDP in 
2012,  before  falling  to  80%  of  GDP  in  2013  and  remaining  on  a  downward  path 
thereafter. Following the correction of the excessive deficit, Germany is in a transition 
period and, according to plans, is making sufficient progress towards compliance with 
the debt reduction benchmark of the Stability and Growth Pact. 

(10)  The  federal  government  has  taken  measures  to  improve  the  efficiency  of  public 
spending  on  health  care  and  has  proposed  a  reform  of  long-term  care.  Additional 
efforts to improve efficiency in health care are necessary to contain expected further 
expenditure  increases.  The  proposed  reform  of  long-term  care  is  also  insufficient  to 
cope with expected future cost increases. There is scope for improving the efficiency 
of the tax system. The federal government is well on track to meet its commitment to 
increase growth-enhancing  spending on  education  and research. However, it remains 
important that also the Länder and municipalities, which bear the bulk of expenditure 
on education and research, ensure adequate and efficient spending in these areas. The 
introduction of the new constitutional debt brake has further strengthened the German 
fiscal  framework.  However, 
the 
implementation of the budgetary rule at Länder level. 

there  has  been  no  significant  progress 

in 

(11)  Substantial public support for the financial sector, in conjunction with the sector’s own 
adjustment efforts and the beneficial effects of the rebound of the German economy, 
has  stabilised  the  sector  as  a  whole.  Despite  the  overall  relatively  stable  financial 
sector and the absence of a credit crunch, there remain weaknesses, in particular, the 
structural  problems  of  some  Landesbanken,  notably  the  lack  of  a  viable  business 
model,  weak  governance  structures  and  vulnerabilities  due  to  a  high  degree  of 
dependence on wholesale funding. 

(12)  The good performance of the German labour market, with increasing employment and 
moderate  unemployment,  has  not  benefited  all  participants  to  the  same  extent  and 
wages have not always increased in line with productivity. Fiscal disincentives arising 
from  the  high  tax  wedge,  in  particular  due  to  the  high  social  security  contributions, 
continue  to  hinder  the  integration  of  low-wage  earners  in  particular  into  the  labour 
market.  Extensive  use  of  mini-jobs  leads  to  low  acquisition  of  pension  rights. 
Therefore,  there  is  a  need  to  improve  the  transition  from  mini-jobs  to  more  stable 
forms  of  contracts.  The  recent  reform  of  labour  market  instruments  should  support 
employment  opportunities  for  all.  Raising  the  effectiveness  of  the  education  system 
and  the  educational  achievement  of  disadvantaged  groups  is  a  major  challenge  for 

6 

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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Germany.  In  the  medium-  to  long-term,  ensuring  the  availability  of  qualified  labour 
will  be  crucial  to  mitigate  the  negative  effects  of  demographic  changes  on  potential 
growth.  The  low  full-time  participation  of  women  in  the  labour  force  is  a  concern. 
Fiscal disincentives for second earners and the lack of full-time childcare facilities and 
all-day schools hinder female labour market participation. 

(13)  Germany is pursuing a major reform of the energy system. The overall economic costs 
of  transforming  the  energy  system  should  be  minimised  by  accelerating  the  national 
and cross-border network expansion, continuously increasing the cost-effectiveness of 
climate  and  renewables  policies,  taking  decisive  steps  to  further  foster  energy 
efficiency,  and  raising  competition  in  the  energy  markets.  Given  Germany’s  central 
geographical  position,  the  German  railway  system  has  a  significant  impact  on  the 
overall  European  railway  system.  Competition  in  the  passenger  and  freight  rail 
markets remains very low, mainly due to the lack of effective separation between the 
infrastructure manager and the railway holding. Despite progress made in recent years, 
inter  alia  through  the  implementation  of  the  Services  Directive,  there  is  scope  to 
further  stimulate  competition  and  productivity  growth  in  some  services  sectors  (e.g. 
construction). 

(14)  Germany  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.  The  results  of  this  assessment 
have been taken into account in the recommendations.  

(15) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Germany’s  economic  policy.  It  has  assessed  the  stability 
programme  and  national  reform  programme.  It  has  taken  into  account  not  only  their 
relevance for sustainable fiscal and socio-economic policy in Germany 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 (4) below. 

(16) 

In  the  light  of  this  assessment,  the  Council  has  examined  Germany’s  2012  stability 
programme, and its opinion7 is reflected in particular in recommendation (1) below, 

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

1. 

Continue with sound fiscal policies to achieve the medium-term budgetary objective 
by  2012.  To  this  end,  implement  the  budgetary  strategy  as  envisaged,  ensuring 
compliance  with  the  expenditure  benchmark  as  well  as  sufficient  progress  towards 
compliance  with  the  debt  reduction  benchmark.  Continue  the  growth-friendly 
consolidation  course  through  additional  efforts  to  enhance  the  efficiency  of  public 
spending  on  health  care  and  long-term  care,  and  by  using  untapped  potential  to 
improve the efficiency of the tax system; use available scope for increased and more 
efficient  growth-enhancing  spending  on  education  and  research  at  all  levels  of 
government. Complete the implementation of the debt brake in a consistent manner 

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

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2. 

3. 

4. 

across all Länder, ensuring timely and relevant monitoring procedures and correction 
mechanisms.  

Address  the  remaining  structural  weaknesses  in  the  financial  sector,  inter  alia  by 
further  restructuring  of  those  Landesbanken  which  are  in  need  of  an  adequately 
funded viable business model while avoiding excessive deleveraging. 

Reduce  the  high  tax  wedge  in  a  budgetary  neutral  way,  in  particular  for  low-wage 
earners, and maintain appropriate activation and integration measures, notably for the 
long-term  unemployed.  Create  the  conditions  for  wages  to  grow  in  line  with 
productivity.  Take  measures  to  raise  the  educational  achievement  of  disadvantaged 
groups,  notably  through  ensuring  equal  opportunities  in  the  education  and  training 
system.  Phase  out  the  fiscal  disincentives  for  second  earners,  and  increase  the 
availability of fulltime child-care facilities and all-day schools.  

Continue  efforts  to  keep  the  overall  economic  costs  of  transforming  the  energy 
system  to  a  minimum,  including  by  accelerating  the  expansion  of  the  national  and 
cross-border  electricity  and  gas  networks.  Ensure  that  the  institutional  set-up 
guarantees  effective  competition  in  railway  markets.  Take  measures  to  further 
stimulate  competition  in  the  services  sectors,  including  professional  services  and 
certain crafts, in particular in the construction sector.  

Done at Brussels, 

For the Council 
The President 

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