Recommendation for a COUNCIL RECOMMENDATION on Finland's 2012 national reform programme and delivering a Council opinion on Finland's stability programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Finland, budget deficit, budgetary equilibrium, competitiveness, economic disparity, economic situation, fight against unemployment, free competition, long-term unemployment, population ageing, public expenditure, structural adjustment

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 312 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Finland's 2012 national reform programme 

and delivering a Council opinion on Finland's stability programme for 2012-2015 

{SWD(2012) 312 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Finland's 2012 national reform programme 

and delivering a Council opinion on Finland'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 recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament,4  

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 

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2 
3 
4 

OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)312 final 
P7_TA(2012)0048 and P7_TA(2012)0047 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

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 Finland’s national reform 
programme  for  2011  and  delivered  its  opinion  on  Finland’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  Report6,  in  which  it  identified  Finland  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  19  April  2012,  Finland  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 Finland is affected by macroeconomic imbalances. The 
Commission  concluded  in  its  in-depth  review7  that  Finland  is  experiencing  an 
imbalance, although not excessive. 

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 underpinning the budgetary projections in the programme is 
plausible  for  the  2012-13  period,  GDP  growth  expected  in  the  programme  is  in  line 
with the Commission's 2012 spring forecast. Projections are also realistic for the years 
2014 and 2015 as they foresee GDP growth to be substantially lower than encountered 
before  the  crises  and  lower  than  in  the  recovery  years  2010-11.  The  main  budgetary 
goal of Finland's 2012 stability programme is to reduce the central government deficit 
by limiting expenditures and increasing revenues. As the central government budget is 
the  main  source  of  the  general  government  deficit,  improving  its  position  will 
contribute  to  balancing  of  the  general  government  budget.  The  medium-term 
budgetary  objective  (MTO)  of  a  surplus  of  0.5%  of  GDP  in  structural  terms  reflects 
adequately  the  requirements  of  the  Stability  and  Growth  Pact.  Based  on  the 

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Council Decision 2012/238/EU of 26 April 2012 
COM(2012) 68 final 
SWD(2012)154 final 

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(recalculated) structural budget balance8, Finland has met the MTO in 2011 but would 
marginally  deviate  from  it  over  2012-15.  The  rate  of  growth  of  government 
expenditure,  taking  into  account  discretionary  revenue  measures,  complies  with  the 
expenditure benchmark of the Stability and Growth Pact in all years except 2015. The 
programme  aims  at  balancing  the  general  government  budget  by  2015  and  reaching 
surpluses as from 2016. The debt ratio is well below 60% of GDP and according to the 
programme,  the  debt  level  will  peak  in  2014 at  close  to  52%  of  GDP  and  then  start 
declining. A notable sustainability gap still exists in Finland’s public finances, mainly 
stemming from a rapidly deteriorating dependency ratio caused by population ageing. 
The  sustainability  gap  in  public  finances  needs  to  be  continuously  monitored  and 
measures adjusted accordingly. Finland’s fiscal framework is anchored to multi-annual 
expenditure ceilings, but these do currently not apply for the municipal sector.  

(9) 

The productivity of public services has been in decline over the past decade. Finnish 
authorities  have  already  implemented  several  reforms  to  address  the  issue,  but  their 
implementation has been slow, especially at the local government level. In addition, a 
nation-wide  municipal  reform  and  a  central  government  productivity  programme  are 
underway.  Further  productivity  gains  and  cost  savings  could  be  achieved  by 
encouraging more competition in shielded private and public service sectors, through 
further product and labour market deregulation. 

(10)  Over  the  past  year,  the  Finnish  government  has  introduced  new  measures  to  reduce 
youth  and  long-term  unemployment.  These  included  a  pilot  programme  to  reduce 
long-term unemployment and introduction of a social guarantee for young people. The 
measures introduced are ambitious and relevant, but now need to be implemented with 
a  clear  focus  on  improving  the  skills  levels  and  labour  market  position  of  the  target 
groups. In view of demographic changes, raising the employment rate of older workers 
is important to ensure sustainable public finances and meet the demand for labour in 
the future. The increase in life expectancy has been more rapid than envisaged during 
the 2005 pension reform, and therefore over time the current statutory retirement age 
range could turn out to be too low. In its programme, the government committed itself 
to  increase  the  effective  retirement  age  to  62.4  years  by  2025.  In  March  2012,  the 
social  partners  agreed  to  several  measures  to  lengthen  working  careers.  The 
government has committed itself to carry out a pension reform no later than 1 January 
2017.  The  focus  now  needs  to  be  on  implementing  the  agreed  line  of  action  in  the 
short term. 

(11)  Regulatory  barriers  in  the  services  sector  in  Finland  are  still  restrictive  and  market 
concentration  is  high  not  only  in  retail  trade,  but  also  in  areas  of  production.  In  the 
grocery retail market, Finland has the highest degree of market concentration and food 
prices  are  among  the  highest  in  Europe.  Competition  law  fines  in  Finland  have 
traditionally been low, raising issues regarding their deterrent effect. There have been 
some  policy  developments  on  competition,  such  as  a  new  national  competition  law 
and  a  new  law  on  land  use  planning  and  construction.  The  government  is  also 
committed to launching a new programme on promoting competition. This should be 
brought  forward  without  delay  with  a  view  to  further  strengthening  the  competition 
framework in product and service markets. 

8 

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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(12)  Productivity  growth  in  Finland  is  stagnating  and  Finnish  exporting  firms  have  lost 
market shares in foreign markets over recent years. Unit labour costs have increased, 
although  not  in  the  manufacturing  sector.  Some  currently  dominant  industries, 
especially electronics and paper, appear to have peaked in their growth and in general 
the share of manufacturing in GDP is declining. Finland is exporting intermediate and 
investment goods mainly to mature, slowly growing economies and its products have 
limited  presence  in  developing  economies.  The  Finnish  economy  needs  to  become 
more diversified both in terms of companies as in terms of export markets in order to 
develop  multiple  strong  exporters  in  the  future.  Notwithstanding  the  past  strong 
Finnish  R&D  and  innovation  performance,  without  a  significant  increase  in  the 
number of innovative high-growth firms, Finland’s ranking as an EU innovation leader 
risks declining. This requires facilitating innovation, enabling the transformation from 
R&D  into  marketable  products,  and  encouraging  the  penetration  of  fast  growing 
export markets. In the short term, it will also be crucial to exploit and disseminate the 
extensive  ICT  know-how  also  in  other  industries  in  Finland,  including  the  public 
sector. Regarding wage growth, the tripartite wage agreement of 2011 paves the way 
for modest wage increases in 2012 and 2013, which should improve Finland’s relative 
position vis-à-vis its main trading partners. 

(13)  Finland  has  made  a  number  of  commitments  under  the  Euro  Plus  Pact.  These 
commitments,  presented 
the 
employment  rate  and  the  sustainability  of  public  finances,  strengthening  financial 
stability  and  ensuring 
the 
implementation  of  the  Euro  Plus  Pact  commitments.  The  results  of  this  assessment 
have been taken into account in the recommendations. 

tax  coordination.  The  Commission  has  assessed 

improving  competitiveness, 

in  2011,  relate 

to 

(14) 

(15) 

(16) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Finland’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  Finland  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 (5) below.  

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

In the light of the results of the Commission’s in-depth review and this assessment, the 
Council  has  examined  Finland’s  2012  national  reform  programme  and  Finland’s 
stability  programme.  Its  recommendations  under  Article  6  of  Regulation  (EU)  No 
1176/2011 are reflected in particular in recommendation (5) below, 

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

1. 

Preserve  a  sound  fiscal  position  in  2012  and  beyond  by  correcting  any  departure 
from  the  medium-term  budgetary  objective  (MTO)  that  ensures  the  long-term 
sustainability of public finances. To this end, reinforce and rigorously implement the 
budgetary  strategy,  supported  by  sufficiently  specified  measures,  for  the  year  2013 

9 

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

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and  beyond  including  meeting  the  expenditure  benchmark.  Continue  to  carry  out 
annual  assessments  of  the  size  of  the  ageing-related  sustainability  gap  and  adjust 
public  revenue  and  expenditure  in  accordance  with  the  long-term  objectives  and 
needs.  Integrate  the  local  government  sector  better  in  the  system  of  multi-annual 
expenditure ceilings. 

Take  further  measures  to  achieve  productivity  gains  and  cost  savings  in  public 
service  provision,  including  structural  changes  and  efficiency-enhancing  territorial 
administrative  reforms,  also  in  order  to  respond  to  the  challenges  arising  from 
population ageing. 

Implement  the  ongoing  measures  to  improve  the  labour  market  position  of  young 
people and the long-term unemployed, with a particular focus on skills development. 
Take further steps to encourage the employment rate of older workers, including by 
reducing early exit pathways. Take measures to increase the statutory retirement age 
in line with the improved life expectancy. 

Continue  enhancing  competition  in  product  and  service  markets,  especially  in  the 
retail  sector,  by  ensuring  the  effective  implementation  of  the  new  Competition  Act 
and  the  new  programme  on  promoting  healthy  competition.  Continue  to  further 
opening  the  municipal  procurement  of  services  to  competitive  bidding  and  by 
ensuring  competition  neutrality  between  private  and  public  undertakings.  Take 
further steps to ensure that competition law fines are sufficiently deterrent. 

In  order  to  strengthen  productivity  growth  and  external  competitiveness,  continue 
efforts to diversify the business structure, in particular by hastening the introduction 
of planned measures to broaden the innovation base while continuing to align wage 
and productivity developments. 

2. 

3. 

4. 

5. 

Done at Brussels, 

For the Council 
The President 

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