Recommendation for a COUNCIL RECOMMENDATION on Sweden’s 2012 national reform programme and delivering a Council Opinion on Sweden’s convergence programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Sweden, VAT rate, budgetary equilibrium, catering, innovation, job access, property market

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 328 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Sweden’s 2012 national reform programme 

and delivering a Council Opinion on Sweden’s convergence programme for 2012-2015 

{SWD(2012) 328 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Sweden’s 2012 national reform programme 

and delivering a Council Opinion on Sweden’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  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 recommendation of the European Commission3, 

Having regard to the resolutions of the European Parliament4, 

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) 

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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 

OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)328 final 
P7_TA(2012)0048 and P7_TA(2012)0047 

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(3) 

(4) 

(5) 

(6) 

(7) 

Member States5, which together form the ‘integrated guidelines’. Member States were 
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 Sweden’s national reform 
programme  for  2011  and  delivered  its  opinion  on  Sweden’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  Report6,  in  which  it  identified  Sweden  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 20 April 2012, Sweden submitted its convergence 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 Sweden is affected by macroeconomic imbalances. The 
Commission  concluded  in  its  in-depth  review7  that  Sweden  is  experiencing 
imbalances, although not excessive. 

Based  on  the  assessment  of  the  convergence  programme  pursuant  to  Article  5(1)  of 
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  for  2012  and  optimistic  in  2013-15,  when  GDP  growth  is  expected  to 
average around 3.5%. The Commission's 2012 spring forecast foresees GDP growth of 
2.1% in 2013. The objective of the budgetary strategy outlined in the programme is to 
ensure  long-term  sustainability  by  respecting  the  rules  of  the  Swedish  fiscal 
framework, including the target of having a surplus in general government net lending 
of 1% of GDP over the cycle. The strategy also aims at fulfilling the requirements of 
the Stability and Growth Pact, notably respecting the 3% of GDP reference value. The 
programme has changed the medium-term budgetary objective (MTO) from a general 
government  surplus  of  1.0%  of  GDP  to  a  deficit  of  1.0%  of  GDP.  The  new  MTO 
adequately  reflects  the  requirements  of  the  Stability  and  Growth  Pact.  Due  to  the 
change, the MTO is, based on the (recalculated) structural budget balance,8 likely to be 

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Council Decision 2012/238/EU of 26 April 2012 
COM(2012) 68 final 
SWD(2012)160 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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met  over  the  programme  period,  even  taking  into  account  the  likelihood  of  further 
expansionary discretionary measures in 2013 or 2014, which could derive from a need 
to  restore  the  real  value  of  non-indexed  government  expenditure.  Certain  downside 
risks  to  budgetary  projections  from  2013  onwards  are  linked  to  the  optimistic 
macroeconomic assumptions. After a temporary breach of the expenditure benchmark 
in  2012,  the  planned  growth  rate  of  government  expenditure,  taking  into  account 
discretionary revenue measures, would comply with the expenditure benchmark of the 
Stability  and  Growth  Pact  as  from  2013.  The  debt  ratio  is  below  60%  of  GDP  and, 
according to the programme, is projected to continue to decrease over the programme 
period. 

The Commission’s in-depth review under Article 5 of Regulation (EU) No 1176/2011 
confirmed that Sweden has a rather high level of household debt. While the situation 
in  the  housing  and  mortgage  market  stabilised  in  2011,  several  structural  distortions 
persist that threaten the stability of these markets in the long-term. Relevant measures 
have been taken to strengthen the resilience of the financial sector. However, there are 
currently  a  number  of  policies  in  place  that  may  contribute  to  the  volatility  of  the 
Swedish  housing  market  and  mortgage  debt  accumulation,  which  have  received  less 
attention: generous tax deductibility of interest payments and low property taxes, little 
amortisation  and  stringent  rent  regulation.  On  the  supply  side,  local  planning 
monopoly, lengthy zoning processes and a lack of competition hinder the flexibility of 
housing supply.  

Despite a general improvement on the labour market during 2011, the unemployment 
rates  for  young  people  and  vulnerable  groups  remain  high,  in  particular  for  people 
with  migrant  background.  Sweden  is  currently  implementing  several  active  labour 
market policy measures and education reforms to address this situation. Most of these 
measures  seem  relevant  and  credible,  although  it  is  too  early  to  assess  their  impact. 
However,  the  relevance  and  effectiveness  of  the  main  measure  targeted  at  youth 
employment — the VAT reduction for restaurants and catering services — is uncertain 
and needs to be assessed. In addition, the level of ambition could be increased if the 
challenges  were  tackled  in  a  more  comprehensive  way,  by  also  addressing  relatively 
high  wages  at  the  lower  end  of  the  wage  scale  and  differences  in  employment 
protection between regular and temporary workers. 

(8) 

(9) 

(10)  Sweden has the second highest R&D expenditure as a share of GDP in the EU and is 
considered  an  innovation  leader  according  to  the  Innovation  Union  Scoreboard. 
However, as regards the commercialisation of innovative products, Sweden performs 
below the EU average and shows a negative  trend. Moreover, Sweden appears to be 
lagging behind in creating fast-growing innovative enterprises. Furthermore, Sweden's 
overall  strong  position  in  R&D  is  vulnerable  due  to  its  strong  dependence  on  a  few 
large multinational companies, which are increasingly relocating their R&D activities 
away  from  Sweden.  These  issues  should  be  addressed  in  the  new  research  and 
innovation bill due in autumn 2012. 

(11) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of Sweden’s economic policy. It has assessed the convergence 
programme and 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  Sweden  but  also  their  compliance  with  EU  rules  and  guidance,  given  the 
need  to  reinforce  the  overall  economic  governance  of  the  European  Union  by 

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providing EU-level input into future national decisions. Its recommendations under the 
European Semester are reflected in recommendations (1) to (4) below.  

(12) 

(13) 

In  the  light  of  this  assessment,  the  Council  has  examined  Sweden’s  convergence 
programme, and its opinion9 is reflected in particular in recommendation (1) below. 

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  Sweden’s  2012  national  reform  programme  and 
its  convergence 
programme.  Its  recommendations  under  Article  6  of  Regulation  (EU)  No  1176/2011 
are reflected in particular in recommendation (2) below, 

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

1. 

2. 

3. 

4. 

Preserve a sound fiscal position in 2012 and beyond by implementing the budgetary 
strategy  as  envisaged  and  ensuring  continued  achievement  of  the  medium-term 
budgetary objective, including meeting the expenditure benchmark. 

Take  further  preventive  measures  to  strengthen  the  stability  of  the  housing  and 
mortgage  market  in  the  medium  term,  including  by  fostering  prudent  lending, 
reducing  the  debt  bias  in  the  financing  of  housing  investments,  and  tackling 
constraints in housing supply and rent regulations. 

Take  further  measures  to  improve  the  labour  market  participation  of  youth  and 
vulnerable  groups  by  focusing  on  effective  active  labour  market  policy  measures, 
encouraging increased wage flexibility, notably at the lower end of the wage scale, 
and reviewing selected aspects of employment protection legislation like trial periods 
to  ease  the  transition  to  permanent  employment.  review  the  effectiveness  of  the 
current  reduced  VAT  rate  for  restaurants  and  catering  services  in  support  of  job 
creation. 

Focus  the  upcoming  research  and  innovation  bill  on  measures  to  improve  the 
commercialisation of innovative products and the development of new technologies 
to support high-growth innovative firms. 

Done at Brussels, 

For the Council 
The President 

9 

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

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