COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION ANNUAL REPORT ON THE COHESION FUND (2011)
Date: 2012-11-07
Institutions: European Commission
Subjects: Bulgaria, Cohesion Fund, Cyprus, Czechia, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, audit, financial year

EUROPEAN 
COMMISSION 

Brussels, 7.11.2012  
SWD(2012) 362 final 

COMMISSION STAFF WORKING DOCUMENT 
Accompanying the document 

REPORT FROM THE COMMISSION 

ANNUAL REPORT ON THE COHESION FUND (2011) 

{COM(2012) 642 final} 

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TABLE OF CONTENTS 

1. 

2. 

3. 

General Context......................................................................................................................................................4 
Convergence and economic development in the beneficiary Member States ...........................................................4 
Greece.......................................................................................................................................................4 
Spain .........................................................................................................................................................5 
Portugal.....................................................................................................................................................6 
Cyprus.......................................................................................................................................................7 
Czech Republic.........................................................................................................................................8 
Estonia ....................................................................................................................................................10 
Hungary ..................................................................................................................................................11 
Latvia ......................................................................................................................................................12 
Lithuania.................................................................................................................................................13 
Malta.......................................................................................................................................................15 
Poland .....................................................................................................................................................16 
Slovakia ..................................................................................................................................................17 
Slovenia ..................................................................................................................................................19 
Bulgaria ..................................................................................................................................................20 
Romania..................................................................................................................................................21 

1.1. 
1.2. 
1.3. 
1.4. 
1.5. 
1.6. 
1.7. 
1.8. 
1.9. 
1.10. 
1.11. 
1.12. 
1.13. 
1.14. 
1.15. 

The implementation of the 2000-2006 projects in the beneficiary Member States..........................................23 
Greece.....................................................................................................................................................23 
Spain .......................................................................................................................................................23 
Portugal...................................................................................................................................................24 
Cyprus.....................................................................................................................................................25 
Czech Republic.......................................................................................................................................25 
Estonia ....................................................................................................................................................26 
Hungary ..................................................................................................................................................27 
Latvia ......................................................................................................................................................28 
Lithuania.................................................................................................................................................28 
Malta.......................................................................................................................................................29 
Poland .....................................................................................................................................................30 
Slovakia ..................................................................................................................................................31 
Slovenia ..................................................................................................................................................32 
Bulgaria ..................................................................................................................................................33 
Romania..................................................................................................................................................35 

2.1.  
2.2.  
2.3. 
2.4. 
2.5.  
2.6. 
2.7. 
2.8. 
2.9. 
2.10. 
2.11. 
2.12. 
2.13. 
2.14. 
2.15. 

Monitoring, inspections, financial corrections and irregularities.....................................................................35 
3.1.  Monitoring activities in the beneficiary Member States .........................................................................................35 
Greece.....................................................................................................................................................36 
3.1.1. 
Spain .......................................................................................................................................................36 
3.1.2. 
Portugal...................................................................................................................................................37 
3.1.3. 
Cyprus.....................................................................................................................................................37 
3.1.4. 
Czech Republic.......................................................................................................................................37 
3.1.5. 
Estonia ....................................................................................................................................................38 
3.1.6. 
Hungary ..................................................................................................................................................38 
3.1.7. 
Latvia ......................................................................................................................................................38 
3.1.8. 
3.1.9. 
Lithuania.................................................................................................................................................38 
3.1.10.  Malta.......................................................................................................................................................39 
Poland .....................................................................................................................................................39 
3.1.11. 
Slovakia ..................................................................................................................................................40 
3.1.12. 
Slovenia ..................................................................................................................................................40 
3.1.13. 
Bulgaria ..................................................................................................................................................40 
3.1.14. 
Romania..................................................................................................................................................41 
3.1.15. 

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3.2.  Audits and financial corrections in the beneficiary Member States........................................................................41 
Greece.....................................................................................................................................................41 
3.2.1.  
Spain .......................................................................................................................................................42 
3.2.2. 
Portugal...................................................................................................................................................42 
3.2.3. 
Cyprus.....................................................................................................................................................43 
3.2.4. 
Czech Republic.......................................................................................................................................43 
3.2.5. 
Estonia ....................................................................................................................................................43 
3.2.6. 
Hungary ..................................................................................................................................................43 
3.2.7.  
Latvia ......................................................................................................................................................44 
3.2.8. 
Lithuania.................................................................................................................................................44 
3.2.9.  
3.2.10.  Malta.......................................................................................................................................................45 
Poland .....................................................................................................................................................45 
3.2.11. 
Slovakia ..................................................................................................................................................45 
3.2.12. 
Slovenia ..................................................................................................................................................45 
3.2.13. 
Bulgaria ..................................................................................................................................................46 
3.2.14.  
Romania..................................................................................................................................................46 
3.2.15.  
3.3.  Financial corrections...............................................................................................................................................47 

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COMMISSION STAFF WORKING DOCUMENT 
Accompanying the document 

REPORT FROM THE COMMISSION 

ANNUAL REPORT ON THE COHESION FUND (2011) 

1. 

GENERAL CONTEXT 

Convergence and economic development in the beneficiary Member States 

1.1. 

Greece 

In 2011, Greece's GDP per capita in PPS attained 82.3% of the EU-27 average. GDP fell by 
6.9% in real terms in the same year, after having contracted by 3.5% in 2010. Annual inflation 
fell to 3.1% in 2011 from 4.7% in 2010, reflecting still persisting market rigidities. The 2011 
public  deficit  outturn  was  9.1%  of  GDP,  which  compares  with  the  8.0%  of  GDP  target 
established  in  the  2011  State  budget.  This  was  mostly  because  of  a  more-severe-than-
anticipated revenue shortfall, a worse-than-estimated balance of the social security sector and 
the accumulation of arrears in the other-than-state sectors. The debt-to-GDP ratio was 165.3% 
in 2011, up from 145.0% a year earlier. 

Since  May  2010,  Greece  has  committed  to  implementing  the  economic  and  financial 
adjustment programme with the aim of correcting fiscal and external imbalances and restoring 
confidence  in  the  short  term.  In  2010  and  2011,  partial  progress  was  made  towards  the 
ambitious objectives of the adjustment programme. Several factors hampered implementation: 
political  instability,  social  unrest  and  issues  of  administrative  capacity  and,  more 
fundamentally, a recession that was much deeper than previously projected. Important fiscal 
targets  were  missed,  which  led  to  the  adoption  of  additional  consolidation  measures 
throughout 2010 and 2011. However, Greece achieved a substantial reduction in the general 
government deficit: from 15.6% of GDP in 2009 to 9.1% in 2011. As regards the excessive 
deficit procedure, Greece is subject of a Council decision to give notice under Article 126(9). 
Compliance with the Council decision is reviewed on a quarterly basis in the context of the 
economic adjustment programme.  

On 21 February 2012, the Eurogroup agreed on a second economic adjustment programme for 
Greece.  The  implementation  of  the  economic  policies  outlined  in  the  Memorandum  of 
Understanding  on  Specific  Policy  Conditionality  will  contribute  to  reduce  the  Greek  public 
debt  to  116.5%  of  GDP  by  2020.  It  was  agreed  that  the  official  sector  financing  of  the 
programme  would  amount  to  EUR  130  billion  until  2014,  additional  to  the  amounts 
committed in the first financing programme. By May 2012, Greece has received EUR 147.6 
billion from official financing under the first and the second programme. The release of the 
tranches  is  based  on  compliance  with  quantitative  performance  criteria  and  a  positive 
evaluation of progress made with respect to the policy criteria laid down in Council Decision 
2011/734/EU of 12 July 2011 (as amended on 8 November 2011 and 13 March 2012) and the 
Memorandum of Understanding setting the economic policy conditionality, which was signed 
on 14 March 2012. The Programme's macroeconomic scenario is broadly conservative, with a 
cumulative  loss  in  real  GDP  in  2010-12  of  around  15%,  driven  by  a  decline  in  domestic 

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demand,  which  is  partly  compensated  by  a  significant  contraction  in  imports  and  smooth 
export growth. Real GDP growth will not return to positive territory in 2012 - at the moment 
estimated at around – 6 % of GDP in real terms. The government deficit is projected to reach 
7.3%  of  GDP  in  2012,  4.6%  in  2013  and  2.1%  of  GDP  in  2014.  The  debt-to-GDP  ratio  is 
projected to peak at about 164.3% by 2013, decreasing thereafter. 

On 10 July 2012 the Council recommended Greece to implement the measures laid down in 
Council  Decision  2011/734/EU  of  12  July  2011,  as  amended  on  8  November  2011  and 
13 March  2012,  and  the  Memorandum  of  Understanding  on  specific  economic  policy 
conditionality, which was signed on 14 March 2012. 

1.2. 

Spain 

Spain's  GDP  per  capita  in  PPS  attained  99.8%  of  the  EU-27  average  in  2010,  compared  to 
103% in the preceding year. After recording a significant contraction in 2009, when real GDP 
growth fell by 3.7%, the economy continued contracting in 2010, albeit by -0.3%, reflecting 
both the global economic downturn and a marked correction in the construction sector. The 
economy returned to positive economic growth in 2011 (0.4%), supported by the dynamism 
of  Spanish  exports  and  the  contraction  of  imports,  in  line  with  the  weakness  of  domestic 
demand. The downturn took a heavy toll on public finances. The general government deficit 
reached 9.3% of GDP in 2010, down from 11.2% in 2009. In July 2012, the Council issued a 
revised excessive deficit procedure (EDP) recommendation, granting Spain an additional year 
until 2014 to correct its excessive deficit. The agreed intermediate targets for the government 
deficit are now 6.3% of GDP for 2012, 4.5% of GDP for 2013 and 2.8% of GDP for 2014. 

In its recommendation of 10 July 2012 the Council delivered an opinion on the 2012 stability 
programme of Spain pursuant to Regulation 1466/1997. The Council was 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, based mainly on expenditure restraint, but also on some revenue-increasing 
measures.  Based  on  structural  balance1,  the  annual  average  improvement  of  the  structural 
balance planned in the programme is 2.6% of GDP for 2011-13. Following the correction of 
the excessive deficit, the programme confirms the medium-term budgetary 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 

1   Recalculated  by  the  Commission  services,  on  the  basis  of  information  provided  in  the  programme,  following  the 

commonly agreed methodology (hereafter: the (recalculated) structural balance).  

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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. 

In  relation  to  its  opinion  on  the  2012  update  of  the  stability  programme,  the  Council 
recommended that Spain should take action within the period 2011-2012 to: deliver an annual 
average structural fiscal effort of above 1.5% of GDP over the period 2010-13 as required by 
the EDP recommendation (new fiscal effort target set in the EDP procedure) by implementing 
the  measures  adopted  in  the  2012  budget  and  adopting  the  announced  multi-annual  budget 
plan for 2013-14 by end July. Spain should 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.  Finally 
Spain  was  recommended  to  establish  an  independent  fiscal  institution  to  provide  analysis, 
advice  and  monitor  fiscal  policy,  as  well  as  to  estimate  the  budgetary  impact  of  proposed 
legislation. 

1.3. 

Portugal 

Portugal’s GDP per capita in PPS amounted to 77.4 % of the EU-27 average in 2011. In 2011, 
GDP contracted by 1.7% in real terms. The decline in economic activity has been driven by 
an  across-the-board  fall  in  domestic  demand.  This  was  partly  compensated  by  a  significant 
positive  growth  contribution  of  net  exports,  as  exports  posted  robust  growth  while  imports 
shrank  in  line  with  domestic  demand.  The  current  account  deficit  fell  by  more  than  3%  of 
GDP to 6.5% of GDP, suggesting that the necessary external rebalancing of the economy is 
underway. The 2011 budget deficit outturn was 4.2% of GDP which compares with a target of 
5.9%.  While  this  reflects  far-reaching  consolidation  efforts,  the  overachievement  is  mostly 
explained by the transfer of banks' pension funds to the state amounting to 3.5% of GDP. The 
debt-to-GDP  ratio  was  at  107.8%  in  2011.  The  excessive  deficit  procedure  for  Portugal  is 
currently  in  abeyance,  with  the  deadline  for  correction  of  the  excessive  deficit  situation 
postponed to 2014. 

According to the latest stability programme 2012-2016 submitted in May 2012 the targets for 
the general government deficit-to-GDP ratios are 4.5% in 2012, 3% in 2013, 1.8% in 2014, 
1%  in  2015  and  0.5%  in  2016.  These  targets  were  reviewed  in  the  Fifth  review  of  the 
Economic Adjustment Programme (28 August-10 September) to 5.0% in 2012, 4.5% in 2013 
and 2.5% in 2014. The overall structural adjustment in 2011-2013 including the second round 
effects of budgetary consolidation is estimated to be close to 8% of GDP. The debt-to-GDP 
ratio  is  projected  to  be  at  below  124%  and  to  start  declining  in  2014.  These  targets  are  set 
against underlying growth assumptions of -3% in 2012, -1.0% in 2013 and 1.2% in 2014. The 
headline growth outlook for 2012 is better than initially projected, as exports remain strong, 
while  prospects  for  2013  and  2014  are  slightly  worse  due  to  the  effect  of  additional  fiscal 
consolidation  measures.  On  17  May  2011,  the  Council  adopted  Implementing  Decision 
2011/344/EU to make available to Portugal medium-term financial assistance for a period of 
three years from 2011 to 2014. The accompanying Memorandum of Understanding signed on 
the same day and its successive supplements lay down the economic policy conditions on the 
basis of which the financial assistance is disbursed.  A  joint  EC/ECB/IMF  staff  mission  met 
with  the  Portuguese  authorities  in  Lisbon  from  28  August  to  10  September  for  the  Fifth 

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Review under the Economic Adjustment Programme. The successful completion of the Fifth 
Review will pave the way for the release of the next loan instalment of around EUR 4 billion, 
of which EUR 2.8 billion from the EU and about EUR 1.5 billion from the IMF. 

On 10 July 2012 the Council recommended Portugal to implement the measures as laid down 
in  Implementing  Decision  2011/344/EU  and  further  specified  in  the  Memorandum  of 
Understanding and its subsequent supplements. 

1.4. 

Cyprus 

In  2011,  GDP  per  capita  in  PPS  in  Cyprus  amounted  to  91.5%  of  the  EU-27  average.  The 
Cypriot economy grew by a modest 0.5% in 2011. After a stronger first half year when GDP 
rose  by  1.5%  y-o-y  thanks  to  an  exceptionally  good  tourist  season,  economic  activity  was 
badly affected by the accident in July 2011 that destroyed the Vassilikos electricity producing 
plant,  which  accounted  for  half  of  the  island's  total  generating  capacity.  Domestic  demand, 
traditionally  the  main  driver  of  growth,  decreased  considerably  in  2011.  Tightening  bank 
lending conditions along with a worsening labour market outlook and weakening confidence 
weighed  on  private  consumption.  In  addition,  subdued  foreign  demand  for  housing  and  a 
restructuring of corporate balance sheets kept investment on a correction path for the fourth 
year in a row. On the other hand, the external sector made a positive contribution to growth. 
Revenues from tourism increased by 13%. In addition, import growth decelerated, in line with 
the  contraction  in  domestic  demand.  Public  finances  also  deteriorated  with  the  government 
deficit  increasing  from  5.3%  in  2010  to  6.3%  in  2011  and  the  public  debt  increasing  from 
61.5%  of  GDP  in  2010  to  71.6%  of  GDP  in  2011.  The  Council  in  January  2011  concluded 
that  Cyprus  had  taken  action  representing  adequate  progress  towards  the  correction  of  the 
excessive deficit within the time limits set by the Council. In particular, it had taken measures 
to correct the excessive deficit by 2012, while ensuring an adequate fiscal effort in 2011, in 
line  with  the  Council’s  recommendations.  According  to  the  Commission's  January  2012 
Communication, the excessive deficit procedure for Cyprus is currently in abeyance.  

According to the latest stability programme, submitted in May 2012, the Cypriot authorities 
plan that the general government deficit would fall to 2.6% of GDP in 2012 and remain of a 
declining  trend  reaching  0.6% in  2013  and  a  balanced  budget  in  2014.  The  macroeconomic 
scenario underlying the programme envisages that real GDP will shrink slightly by 0.5% in 
2012, before recovering mildly by 0.5% in 2013, 1.0% in 2014 and 1.5% in 2015. According 
to  the  Commission  services'  2012  spring  forecast,  the  government  deficit  is  projected  to 
decrease to 3.4% of GDP in 2012 and, assuming no policy change, will recede further to 2.5% 
in  2013.  However,  based  on  the  2012  Q2  GDP  figures  released  in  mid-August  2012,  a 
considerable  worsening  of  economic  conditions  is  depicted  with  the  2012  fiscal  deficit 
projected  by  the  Cypriot  authorities  rising  to  4.5%  of  GDP.  In  its  2012  spring  forecast,  the 
Commission expects public debt to increase to 76.5% of GDP in 2012 and 78.1% of GDP in 
2013. Real GDP is expected to decline by 0.8% in 2012 and mildly grow by 0.3% in 2013. 

In its recommendation of 10 July 2012 the Council delivered an opinion on the 2012 stability 
programme of Cyprus pursuant to Regulation 1466/1997. The Council was of the opinion that 
that  the  macroeconomic  scenario  underpinning  the  budgetary  projections  in  the  programme 
appears  optimistic  in  2012-2014.  Although  incorporating  a  major  downward  revision  of  the 
growth  outlook,  the  macroeconomic  scenario  underpinning  the  budgetary  projections  in  the 
programme  remains  subject  to  downside  risks  relating  in  particular  to  the  evolution  of 
domestic  demand  in  2012-2013.  The  objective  of  the  budgetary  strategy  outlined  in  the 

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programme is to correct the excessive deficit by 2012 and to reach MTO by 2014, and to stay 
at  MTO  in  2015.  The  programme  confirms  the  previous  MTO  of  a  balanced  budget  in 
structural terms, which adequately reflects the requirements of the Stability and Growth Pact. 
The planned correction of the excessive deficit is in line with the deadline set by the Council 
recommendation  issued  in  the  context  of  the  Excessive  Deficit  Procedure  on  13  July  2010. 
Based on the structural deficit, the average annual fiscal effort planned at 1.5% of GDP for 
the  period  2011-2012  is  equal  to  the  effort  recommended  by  the  Council.  The  envisaged 
progress  towards  the  MTO  in  2013  is  sufficient  as  it  is  higher  than  the  0.5%  of  GDP 
benchmark of the Stability and Growth Pact both according to the Commission's 2012 spring 
forecast and the programme. 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  in  2013-2014,  but  not  in  2015.  There  are  risks  accompanying  the  budgetary 
targets of the programme linked to the macroeconomic scenario appearing optimistic in 2012-
2014  and  the  planned  consolidation  effort  in  2013,  party  relying  on  not  fully  specified 
measures. According to the programme, the debt-to-GDP ratio, which amounted to 71.6% in 
2011, is to increase to 72.1% in 2012 before gradually dropping to 65.4% in 2015. In terms of 
the debt reduction benchmark of the Stability and Growth Pact, Cyprus will be in a transition 
period  in  the  years  2013-2015  and  the  plans  presented  in  the  programme  would  ensure 
sufficient  progress  towards  compliance  with  the  debt  reduction  benchmark.  However,  there 
are  risks  attached  to  this  projection  linked  to  the  possible  rescue  operations  of  financial 
corporations. 

In  relation  to  its  opinion  on  the  2012  stability  programme,  the  Council  recommended  that 
Cyprus  takes  additional  measures  to  achieve  a  durable  correction  of  the  excessive  deficit  in 
2012  and  rigorously  implements  the  budgetary  strategy,  supported  by  sufficiently  specified 
measures, for the year 2013 and beyond to ensure the achievement of the MTO by 2014 and 
compliance  with  the  expenditure  benchmark  and  ensure  sufficient  progress  with  the  debt 
reduction benchmark. Cyprus should accelerate the phasing-in of an enforceable multiannual 
budgetary  framework  with  a  binding  statutory  basis  and  corrective  mechanism  and  take 
measures to keep tight control over expenditure and implements programme and performance 
budgeting  as  soon  as  possible.  Furthermore,  Cyprus  should  take  measures  to  keep  tight 
control  over  expenditure  and  implement  programme  and  performance  budgeting  as  soon  as 
possible. Finally, measures to improve tax compliance and fight against tax evasion should be 
considered. In addition, initiatives to render tax collection more efficient should be reinforced.  

On 25 June 2012 Cyprus formally requested financial assistance from the EFSF/ESM, in view 
of the challenges that Cyprus is facing, in particular due to distress in the banking sector and 
the presence of macroeconomic imbalances. 

1.5. 

Czech Republic 

In 2011, the Czech Republic’s GDP per capita in PPS amounted to 79.6% of the EU average. 
After a year of moderate recovery, real GDP growth contracted for the first time since 2009 in 
the  fourth  quarter  of  2011  (-0.2%  q-o-q).  Economic  activity  was  driven  by  weaker  but  still 
solid external demand, while consumption and investment activity remained below their 2010 
levels.  Domestic  demand  was  affected  mainly  by  continuing  fiscal  consolidation  efforts  but 
also  by  a  negative  economic  sentiment  weighing  on  investment.  Annual  inflation  averaged 
2.1%  in  2011  on  account  of  temporary  food  and  oil  price  shocks.  The  general  government 
deficit in 2011 is estimated to have reached 3.1% of GDP, as compared to 4.8% in 2010. The 
general  government  deficit  was  significantly  lower  than  expected  in  the  2011  convergence 

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programme. The outturn reflected a large drop in public investment (by 15% year-on-year) as 
well  as  consolidation  measures  targeted  mainly  at  the  expenditure  side.  The  main  measures 
included a reduction in the wage bill in the public sector and in social expenditure, together 
with  additional  cuts  in  operational  expenditure  of  the  central  government.  General 
government debt increased to 41.2% of GDP in 2011. The excessive deficit procedure for the 
Czech  Republic  is  currently  in  abeyance,  with  the  deadline  for  correction  of  the  excessive 
deficit situation in 2013. 

According  to  the  latest  convergence  programme  submitted  in  April  2012,  the  general 
government deficit is set to decline gradually from 3% of GDP in 2012 to 2.9% in 2013 and 
1.9% in 2014. The deficit reduction would continue in 2015 when the nominal deficit is set to 
reach  0.9%  of  GDP.  The  macroeconomic  scenario  underpinning  the  programme  forecasts 
near-stagnation of GDP growth in 2012. The pace of economic recovery in 2013 is projected 
to be rather slow with real GDP growth reaching 1.3%. A gradual improvement of economic 
conditions  is  expected  in  2014  and  2015  when  growth is forecast to accelerate to 2.2% and 
2.8%  respectively.  According  to  the  Commission  services'  2012  spring  forecast,  real  GDP 
growth is expected to stall during 2012 and pick up to 1.5% in 2013. The government deficit 
is projected to reach 2.9% of GDP in 2012 and decline to 2.6% of GDP in 2013. The debt-to-
GDP  ratio  is  forecast  to  increase  further  over  the  forecast  horizon,  reaching  around  45%  in 
2013.  

In  its  recommendation  of  10  July  2012  the  Council  delivered  an  opinion  on  the  2012 
convergence  programme  of  the  Czech  Republic  pursuant  to  Regulation  1466/1997.  The 
Council  was  of  the  opinion  that  the  macroeconomic  scenario  underpinning  the  budgetary 
projections in the programme is plausible. The objective of the budgetary strategy outlined in 
the programme is to reach a balanced budget in 2016. The general government deficit target 
of 2.9% of GDP in 2013 is in line with the deadline for correcting the excessive deficit set out 
in  the  Council  recommendations  of  2  December  2009.  The  average  annual  fiscal  effort  of 
0.9%  of  GDP  over  the  period  2010-2013,  based  on  the  (recalculated)  structural  budget 
balance,  is  slightly  below  the  effort  of  1%  of  GDP  recommended  by  the  Council.  The 
programme confirms the previous MTO of a deficit of 1% of GDP, which adequately reflects 
the  requirements  of  the  Stability  and  Growth  Pact,  to  be  reached  in  2015.  The  progress 
towards  the  MTO  is  0.8%  and  0.7%  of  GDP  in  2014  and  2015  respectively,  based  on  the 
(recalculated) structural balance and the rate of growth of government expenditure complies 
with the expenditure benchmark of the Stability and Growth Pact. The budgetary projections 
of the programme are subject to several risks. The law on financial compensation to churches, 
currently discussed in Parliament, would increase the general government deficit by 1.5% of 
GDP  once,  in  the  year  of  entry  into  force.  More  generally,  the  nature  and  extent  of  the 
envisaged  consolidation  measures  on  both  the  revenue  and  the  expenditure  side  entails  a 
considerable risk for the sustainability of the fiscal adjustment beyond the programme period. 
Budgetary  adjustment  has  so  far  relied  mostly  on  across-the-board  cuts,  which  affect  also 
growth-enhancing  expenditure.  Additional  savings  in  public  administration  expenditures 
amounting to almost 1% of GDP are planned for 2013 - 2015, but details are not sufficiently 
specified in the programme. Finally, most of the planned revenue measures are of a temporary 
nature  and  should  expire  in  2015.  According  to  the  programme,  the  debt-to-GDP  ratio  is 
expected to peak at 45.1% of GDP in 2013 and decline thereafter, mainly on account of the 
projected continuous improvement of the primary balance.  

In relation to its opinion on the 2012 convergence programme, the Council recommended that 
the  Czech  Republic  should  take  action  within  the  period  2012-2013  to  ensure  planned 

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progress  towards  the  timely  correction  of  the  excessive  deficit.  To  this  end,  it  should  fully 
implement the 2012 budget and specify measures of a durable nature necessary for the year 
2013  so  as  to  achieve  the  annual  average  structural  adjustment  specified  in  the  Council 
recommendation  under  the  Excessive  Deficit  Procedure.  Thereafter,  it  should  ensure  an 
adequate  structural  adjustment  effort  to  make  sufficient  progress  towards  the  medium-term 
objective,  including  meeting  the  expenditure  benchmark.  In  this  context,  it  should  avoid 
across-the-board cuts, safeguard growth-enhancing expenditure and step up efforts to improve 
the  efficiency  of  public  spending;  exploit  the  available  space  for  increases  in  taxes  least 
detrimental to growth; shift the high level of taxation on labour to housing and environmental 
taxation;  reduce  the  discrepancies  in  the  tax  treatment  of  employees  and  the  self-employed; 
and take measures to improve tax collection, reduce tax evasion and improve tax compliance, 
including by implementing the Single Collection Point for all taxes. 

1.6. 

Estonia 

In 2011, Estonia’s GDP per capita in PPS amounted to 67% of the EU average. After a deep 
contraction of foreign trade and GDP in 2008 and 2009, the Estonian economy has rebounded 
promptly, with growth reaching 3.3% in 2010 and 8.3% in 2011 and exports the driving force 
behind  the  recovery.  In  2011,  private  consumption  and  investment  were  also  on  a  solid 
footing. In 2011, the general government budget position was a surplus of 1% of GDP, which 
was  considerably  better  than  the  deficit  of 0.4%  projected  in  the  2011  stability  programme. 
This was primarily a result of significantly stronger-than-expected economic and employment 
growth. In addition, the outcome was positively affected by the sizeable sales of the excess 
greenhouse  gas  emission  certificates,  which  amounted  to  1.2%  of  GDP  in  2011,  combined 
with delays in implementation of the related investment projects.  

According  to  the  latest  stability  programme  submitted  in  April  2012,  the  targets  for  the 
general government deficit are 2.6% of GDP in 2012 and 0.7% in 2013. The improvement on 
2012 primarily stems from an improving macroeconomic outlook and the gradual completion 
of  Kyoto-related  investment  projects.  The  (recalculated)  structural  balance  is  expected  to 
improve  by  0.3%  of  GDP  in  2013  reaching  a  balanced  position.  In  the  underlying 
macroeconomic scenario, real GDP is expected to grow by 1.7% in 2012 and 3.0% in 2013, 
while  sustainable  rates  of  around  3.5%  on  average  are  expected  for  2014-16,  with  growth 
becoming  more  balanced  as  domestic  demand  recovers.  Projections  from  the  Commission 
services' spring forecast point to the general government deficit reaching -2.4% and -1.3% in 
2012 and 2013, respectively, with real GDP growing by 1.6% in 2012 and 3.8% in 2013. The 
structural  deficit  is  estimated  at  0.8%  and  0.5%  of  GDP  in  2012  and  2013.  The  general 
government  debt  will  increase  over  the  forecast  horizon  to  11.7%  of  GDP  in  2013,  but  is 
likely to decrease to about 10% in 2015. 

In its recommendation of 10 July 2012 the Council delivered an opinion on the 2012 stability 
programme  of  Estonia  pursuant  to  Regulation  1466/1997.  It  is  of  the  opinion  that  the 
macroeconomic  scenario  underpinning  the  budgetary  projections  in  the  programme  is 
plausible in 2012-13, when GDP growth is expected to average around 2.4%. The objective of 
the  budgetary  strategy  outlined  in  the  programme  is  to  ensure  sustainable  fiscal  policy  that 
supports  balanced  growth,  by  achieving  a  structural  surplus  while  ensuring  sufficient  fiscal 
buffers and reducing the tax burden on labour. The programme aims at over-achieving MTO 
of a structural surplus as of 2013. Based on the (recalculated) structural budget balance, the 
rate  of  growth  of  government  expenditure,  taking  into  account  discretionary  revenue 

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measures, will meet the expenditure benchmark of the Stability and Growth Pact by 2015. In 
parallel, the programme aims at reaching headline surpluses as of 2014.  

In  relation  to  its  opinion  on  the  2012  stability  programme,  the  Council  recommended  that 
Estonia  needs  to  preserve  a  sound  fiscal  position  by  implementing  budgetary  plans  as 
envisaged,  ensuring  achievement  of  the  medium-term  budgetary  objective  by  2013  at  the 
latest,  and  compliance  with  the  expenditure  benchmark.  In  parallel,  Estonia  needs  to 
complement the planned budget rule with more binding multi-annual expenditure rules within 
the medium-term budgetary framework, continue enhancing the efficiency of public spending 
and implement measures to increase tax compliance. 

1.7. 

Hungary 

In 2011, Hungary’s GDP per capita in PPS amounted to 65.8% of the EU average. GDP grew 
by 1.6% in the same year, driven exclusively by the external balance. Domestic demand, and 
in particular investment, continued to decline for the third year in a row. In 2011, according to 
the  spring  2012  notification,  the  headline  general  government  balance  reached  a  surplus  of 
4.3% on the back of substantial one-off revenues of close to 10% of GDP stemming from the 
transferred  pension  assets  to  the  state.  Thus,  the  headline  deficit  excluding  all  one-offs  was 
around 5.25% of GDP. 

In  January  2012,  also  in  view  of  the  structural  deterioration  in  both  2010  and  2011  and  an 
expected  deficit  well  above  3%  of  GDP  in  2013  shown  in  the  Commission  services’  2011 
Autumn Forecast, the Council decided that effective action had not been taken by Hungary. In 
March  2012  it  proposed  the  suspension  of  a  part  of  the  Cohesion  Fund  2013  commitments, 
accompanied with a new recommendation under the EDP.  

According to the latest convergence programme submitted in April 2012, the targets for the 
general  government  deficit  are  2.5%  of  GDP  in  2012  and  2.2%  of  GDP  in  2013,  also  to 
ensure the sustainable correction of the excessive deficit by the 2012 deadline. The deficit is 
planned to decrease further to 1.5% of GDP by 2015. The macroeconomic baseline scenario 
forecasts real GDP to stagnate in 2012, followed by a pick in a growth to 1.6% in 2013 and 
further  expansion  by  2.5%  in  2014  and  2015,  on  the  account  of  an  increasingly  positive 
contribution from domestic demand. 

In the spring forecast the Commission services projected GDP to contract by 0.3% in 2012, 
and to recover to a modest growth rate of 1% in 2013. Based on new measures incorporated in 
the  2012  convergence  programme,  in  a  communication  issued  on  30  May  the  Commission 
found that Hungary had taken the necessary corrective action and that its budget deficit was 
expected  to  reach  2.5%  of  GDP  in  2012  and  to  remain  well  below  3%  of  GDP,  the  EU's 
reference  value  for  government  deficits  in  2013.  Based  on  the  Commission's  proposal  of 
adequate  action,  in  its  decision  of  22  June  2012,  the  Council  adopted  a  decision  lifting  the 
suspension of Cohesion Fund commitments for Hungary. It concurred with the Commission 
assessment  that  Hungary  had  taken  effective  action  in  response  to  the  Council's 
recommendation  of  13  March.  Hungary's  excessive  deficit  procedure  nevertheless  remains 
open. 

In  its  recommendation  of  10  July  2012  the  Council  delivered  an  opinion  on  the  2012 
convergence programme of Hungary pursuant to Regulation 1466/1997. The Council was of 
the  opinion  that  the  macroeconomic  scenario  underpinning  the  budgetary  projections  in  the 

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programme was somewhat optimistic. The Hungarian authorities’ growth projections for 2012 
and  2013  were  higher  by  around  half  a  percentage  point  compared  to  the  Commission 
services'  2012  spring  forecast  on  the  account  of  the  more  optimistic  official  assumptions 
regarding  domestic  demand,  particularly  in  2013.  The  objective  of  the  budgetary  strategy 
outlined in the programme is to ensure the sustainable correction of the excessive deficit by 
the  2012  deadline  set  by  the  Council  in  line  with  the  Council  Recommendation  of  March 
2012. The official deficit targets and the planned fiscal efforts comply with the March 2012 
Council  recommendations  based  on  Article  126(7).  The  programme  confirms  the  MTO  of 
1.5%  of  GDP,  which  it  plans  to  achieve  by  2013.  The  MTO  adequately  reflects  the 
requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget 
balance,  progress  towards  the  MTO  does  not  appear  to  be  adequate  in  2013  against  the 
assessment  of  the  Commission  services'  2012  spring  forecast,  which  takes  into  account  the 
implementation risks related to selected saving measures and a less optimistic macroeconomic 
scenario. 

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 in 2013, 
but not in 2014 and in 2015. According to government plans, the public debt is continuously 
reduced  throughout  the  programme  period  to  below  73%  of  GDP  in  2015,  but  will  remain 
above  the  60%  of  GDP  reference  value.  Regarding  the  debt  reduction  benchmark,  Hungary 
will be in transition period in 2013-2014 and the programme would ensure sufficient progress 
towards  compliance  with  the  benchmark.  According  to  the  programme,  the  debt  reduction 
benchmark would be met at the end of the transition period, in 2015, and thereby should help 
to reduce the accumulated external and internal indebtedness.  

In  relation  to  its  opinion  on  the  2012  update  of  the  convergence  programme,  the  Council 
recommended  that  Hungary  correct  the  excessive  deficit  by  2012  in  a  durable  manner,  by 
implementing the 2012 budget and the subsequently approved consolidation measures, while 
reducing  the  reliance  on  one-off  measures.  Thereafter,  it  recommended  specifying  all 
structural  measures  necessary  to  ensure  a  durable  correction  of  the  excessive  deficit  and  to 
make  sufficient  progress  towards  the  MTO,  including  meeting  the  expenditure  benchmark, 
and ensure sufficient progress towards compliance with the debt reduction benchmark. Also 
to  help  mitigate  the  accumulated  macroeconomic  imbalances,  it  asked  Hungary  to  put  the 
public debt ratio on a firm downward path. 

In  July  2012,  the  Hungarian  authorities  accepted  new  budgetary  measures,  which  unless 
corrected, would lead to an increase in the fiscal deficit, mainly for 2013. 

1.8. 

Latvia 

In  2011,  Latvia's  GDP  per  capita  in  PPS  amounted  to  57.6%  of  the  EU  average.  Latvia 
remained resilient to external shocks as GDP grew by 5.5% in 2011 pushed mainly by exports 
and  investments.  The  past  consolidation  efforts  and  robust  recovery  supported  public 
finances, with general government deficit of 3.5% of GDP in 2011, significantly better than 
expected and considerably below the deficit of 8.2%  in 2010. The general government debt 
stood at 42.6% of GDP as of end-2011. The excessive deficit procedure for Latvia is currently 
in  abeyance,  with  the  deadline  for  correction  of  the  excessive  deficit  situation  in  2012.  The 
three-year EU balance-of-payments support programme to Latvia, which was provided in co-
operation with the IMF, World Bank, EBRD, several Member States and Norway, expired in 
January 2012. The authorities successfully returned to international financial markets already 

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in  June  2011,  well  ahead  of  the  finalisation  of  the  programme,  and  a  second  major 
international bond issuance took place in February 2012. 

According to the latest convergence programme submitted in April 2012, the targets for the 
general government deficit are 2.1% of GDP in 2012, 1.4% in 2013, 0.8% in 2014 and 0.3% 
in 2015. The reduction in the headline deficit will be achieved through continuous restraint in 
compensation  of  employees  (i.e.  a  nominal  wage  freeze  in  the  public  sector)  and  through 
further  cuts  in  intermediate  consumption.  The  programme  projections  are  based  on 
expectation of GDP growth of 2.0% in 2013, 3.7% in 2014 and 4.0% in both 2014 and 2015. 
According  to  the  Commission  services'  2012  spring  forecast,  the  government  deficit  is 
projected to be 2.1% of GDP in 2012 (corresponding to expectations in the programme) and 
stay at the same level in 2013.  

In  its  recommendation  of  10  July  2012  the  Council  delivered  an  opinion  on  the  2012 
convergence programme of Latvia pursuant to Regulation 1466/1997. The Council was of the 
opinion that the macroeconomic scenario underpinning the budgetary projections is cautious 
in  2012,  taking  into  account  the  latest  available  information,  and  plausible  in  2013.  The 
objective  of  the  budgetary  strategy  outlined  in  the  programme  is  to  correct  an  excessive 
deficit by 2012 and to approach the MTO by the end of the programme period. The planned 
headline  deficit  in  2012  complies  with  the  deadline  for  correction  of  the  excessive  deficit 
established in  Council  Recommendation of  7 July 2009. For 2013, the programme  targets a 
headline deficit of 1.4% of GDP, although the planned expenditure reduction is not yet fully 
supported  by  measures.  However,  tax  changes  from  the  second  half  of  2012  as  adopted  by 
Parliament  on  24  May,  which  were  not  yet  reflected  in  the  programme  scenario  but 
acknowledged  in  the  letter  accompanying  the  submission  of  the  2012  convergence 
programme,  represent  a  risk  to  the  attainment  of  targets  in  2013  and  beyond.  The  general 
government  debt  ratio  is  below  60%  of  GDP,  increasing  from  42.6%  of  GDP  in  2011  to 
46.7% of GDP in 2014, falling to 38.9% in 2015. 

In  relation  to  its  opinion  on  the  2012  update  of  the  convergence  programme,  the  Council 
recommended that Latvia should ensure planned progress towards the timely correction of the 
excessive deficit. To this end, it should implement the budget for the year 2012 as envisaged 
and  achieve  the  fiscal  effort  specified  in  the  Council  recommendation  under  the  Excessive 
Deficit  Procedure;  thereafter,  implement  a  budgetary  strategy,  supported  by  sufficiently 
specified  structural  measures,  for  the  year  2013  and  beyond,  to  make  sufficient  progress 
towards  the  MTO,  and  to  respect  the  expenditure  benchmark;  and,  use  better  than  expected 
cyclical revenue to reduce government debt. 

1.9. 

Lithuania 

In 2011, Lithuania's GDP per capita in PPS increased to 61.9% of the EU average, reflecting a 
significant  pick-up  in  economic  activity.  Lithuania  took  full  advantage  of  growing  export 
markets  as  ongoing 
fostered 
real  wage  declines  and  productivity 
competitiveness.  As  a  result,  net  exports  contributed  positively  to  growth.  Subsequently, 
corporate  profits  as  well  as  employment  increased  and  domestic  demand  took  over  as  the 
main  driver  of  economic  growth.  Despite  the  strong  economic  performance,  unemployment 
remained  high,  averaging  15.4%  over  the  year.  Inflation  (HICP)  rose  on  the  back  of  higher 
energy and food prices, reaching an annual average of 4.1%. In 2011 the general government 
deficit narrowed to 5.5% of GDP. The excessive deficit procedure for Lithuania is currently in 
abeyance, with the deadline for correction of the excessive deficit situation in 2012. 

improvements 

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According to the latest convergence programme submitted in April 2012, the targets for the 
general  government  deficit  are  3.0%  of  GDP  in  2012  and  2.0%  of  GDP  in  2013  before 
reaching  a  balanced  budget  in  2015.  In  the  underlying  macroeconomic  scenario,  real  GDP 
growth is projected to stand at 2.5% in 2012, before accelerating to 3.7% in 2013 and growing 
on  average  by  3.8%  in  2014  and  2015.  According  to  the  Commission  services'  2012  spring 
forecast, the government deficit is projected to narrow to 3.2% of GDP in 2012 and 3.0% of 
GDP in 2013 under the customary assumption of no policy change. Real GDP is set to expand 
by 2.4% and 3.5% in 2012 and 2013 respectively. 

In  its  recommendation  of  10  July  2012  the  Council  delivered  an  opinion  on  the  2012 
convergence programme of Lithuania pursuant to Regulation 1466/1997. In this opinion the 
Council concluded 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  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 balance, 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  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. 

In relation to its opinion on the 2012 convergence programme, the Council recommended that 
Lithuania ensures planned progress towards the timely correction of the excessive deficit. To 
this  end,  Lithuania  should  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,  Lithuania  should  specify  the  measures  necessary  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  MTO, 
including  meeting  the  expenditure  benchmark,  while  minimising  cuts  in  growth-enhancing 
expenditure.  In  that  respect,  Lithuania  should  review  and  consider  increasing  taxes  least 
detrimental to growth, such as housing and environmental taxation, including introducing 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. 

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1.10.  Malta 

In 2011, Malta’s GDP per capita in PPS amounted to 84.7% of the EU average, compared to 
82.7% in the previous year. Real GDP growth in the first half of 2011 was relatively buoyant 
but moderated thereafter. In 2011 as a whole, real GDP expanded by 1.9%, compared to 1.4% 
in the euro area. The general government deficit was reported at 2.7% of GDP in 2011 and 
government  gross  debt  at  72%  of  GDP.  In  January  2012,  the  Commission  adopted  a 
communication  to  the  Council  concluding  that  the  Maltese  authorities  had  taken  effective 
action towards a timely and sustainable correction of the excessive deficit. In particular, the 
Maltese  authorities  adopted  a  2012  budget  including  a  series  of  measures  to  contain  the 
deficit. The Commission concluded that no further steps in the excessive deficit procedure of 
Malta were needed. The Commission has not yet recommended to the Council to abrogate the 
decision on the existence of an excessive deficit, the deadline for correcting which was 2011. 
The  situation  will  be  re-evaluated  later  in  the  year,  subject  to  complementary  information, 
including the results of the EDP dialogue visit to Malta conducted by Eurostat in May 2012.2 

According  to  the  latest  stability  programme  submitted  in  April  2012,  Malta  envisages  to 
gradually reduce the deficit, to 0.3% of GDP in 2015, while the debt ratio is planned to start 
decreasing  from  2012,  reaching  65.3%  of  GDP  in  2015.  When  looking  at  the  entire 
programme period, the revenue and expenditure projections point to a consolidation effort that 
is  primarily  expenditure-based,  even  if  the  planned  narrowing  of  the  deficit  in  2012  is  to  a 
large extent based on revenue-increasing measures, most of which are of a one-off nature. The 
macroeconomic  scenario  underlying  the  programme  projects  that  real  GDP  growth  will 
decelerate  to  1.5%  in  2012  before  recovering  gradually  to  2.1%  in  2015.  According  to  the 
Commission  services'  2012  spring  forecast,  the  government  deficit  is  projected  to  slightly 
decline to 2.6% of GDP in 2012 and, on a no-policy-change basis, to further increase to 2.9% 
of GDP in 2013. The debt ratio is projected to continue increasing and to reach 75.2% of GDP 
by  2013  on  a  no-policy-change  basis.  Real  GDP  growth  is  forecast  to  decelerate  further  in 
2012,  to  1.2%,  due  to  subdued  private  consumption  and  stagnating  business  investment.  In 
2013, growth is projected to recover to 1.9%, supported by stronger employment and average 
wage growth, an improvement in business investment and a strengthening of exports. 

In its recommendation of 10 July 2012 the Council delivered an opinion on the 2012 stability 
programme of Malta pursuant to Regulation 1466/1997. The Council was of the opinion that 
the macroeconomic scenario underpinning the budgetary projections is optimistic, especially 
in the outer years of the stability programme period when compared with potential growth as 
estimated  by  the  Commission.  The  objective  of  the  budgetary  strategy  outlined  in  the 
programme  is  to  gradually  reduce  the  deficit,  to  0.3%  of  GDP  in  2015,  after  the  planned 
correction of the excessive deficit in 2011. The programme confirms the previous MTO of a 
balanced position in structural terms, which is to be achieved beyond the programme period. 
The  MTO  adequately  reflects  the  requirements  of  the  Stability  and  Growth  Pact.  There  are 
risks that the deficit outcomes could be worse than targeted, stemming from (i) lower revenue 
given  the  slightly  optimistic  macroeconomic  scenario;  (ii)  possible  overruns  in  current 
primary expenditure; and (iii) the ongoing restructuring of the national airline (Air Malta) and 
financial  situation  of  the  energy  provider  (Enemalta).  Based  on  the  (recalculated)  structural 

2 In accordance with Council Regulation (EC) No 479/2009 on the application of the Protocol on the EDP annexed to the 
Treaty establishing the European Community. 

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budget balance, annual progress towards the MTO is planned to be in line with the 0.5% of 
GDP benchmark in the Stability and Growth Pact. Using the Commission’s identification of 
the one-offs included in the budgetary targets, average progress towards the MTO is slightly 
higher  (¾%  of  GDP)  but  spread  very  unevenly,  with  no  progress  in  2012  followed  by  an 
effort of 1¼% in 2013. According to the information provided in the programme, the growth 
rate of government expenditure, taking into account discretionary revenue measures, would be 
in  line  with  the  expenditure  benchmark  of  the  Stability  and  Growth  Pact  throughout  the 
programme  period.  The  risks  to  the  budgetary  targets  imply,  however,  that  the  average 
adjustment towards the MTO could be slower than appropriate. After peaking at 72% of GDP 
in  2011,  the  general  government  gross  debt  ratio  is  planned  in  the  programme  to  start 
decreasing and to reach 65.3% of GDP in 2015 (still above the 60% of GDP reference value). 
According  to  the  plans  in  the  programme,  Malta  is  making  sufficient  progress  towards 
meeting  the  debt  reduction  benchmark  of  the  Stability  and  Growth  Pact  at  the  end  of  the 
transition period (2015) but this assessment is subject to risks as the debt ratio could turn out 
higher  than  planned  given  the  possibility  of  higher  deficits  and  stock-flow  adjustments. 
Malta's  medium-term  budgetary  framework  remains  nonbinding,  implying  a  relatively  short 
fiscal  planning  horizon.  The  programme  announces  that  the  Maltese  government  is 
considering reforms to the annual budgetary procedure, including timelines, and introducing a 
fiscal rule embedded in the Constitution, including monitoring and corrective mechanisms, in 
line with recent changes to the euro area governance framework. 

In  relation  to  its  opinion  on  the  2012  stability  programme,  the  Council  recommended  that 
Malta reinforce the budgetary strategy in 2012 with additional permanent measures so as to 
ensure adequate progress  towards the MTO  and  keep the deficit below 3% of GDP without 
recourse to one-offs; continue fiscal consolidation at an appropriate pace thereafter, so as to 
make  sufficient  progress  towards  the  MTO,  including  meeting  the  expenditure  benchmark, 
and  towards  compliance  with  the  debt  reduction  benchmark,  by  specifying  the  concrete 
measures  to  back  up  the  deficit  targets  from  2013,  while  standing  ready  to  take  additional 
measures  in  case  of  slippages;  implement,  by  end-2012  at  the  latest,  a  binding,  rule-based 
multi-annual  fiscal  framework;  Malta  should  also  increase  tax  compliance  and  fight  tax 
evasion, and reduce incentives towards indebtedness in corporate taxation. 

1.11. 

Poland 

In 2011, Poland's GDP per capita in PPS amounted to 65.2% of the EU average. Real GDP is 
estimated to have grown by 4.3% in 2011. In the first half of the year, strong external demand 
fuelled  manufacturing  and  private  investments.  In  addition,  EU  co-financed  infrastructure 
projects  gave  investment  a  further  push.  Private  consumption  picked  up  on  the  back  of  a 
strong  labour  market.  However,  with  growing  tensions  in  global  financial  markets  in  the 
second  half  of  the  year,  consumer  confidence  deteriorated  and  private  consumption  lost 
steam.  Moreover,  a  sharp  fiscal  consolidation,  added  to  negative  pressure  on  domestic 
demand. Despite a substantial decrease in general government deficit from 7.8% of GDP in 
2010 to 5.1% of GDP in 2011, the general government debt increased by 1.5 pps of GDP to 
56.3% of GDP. The excessive deficit procedure for Poland is currently in abeyance, with the 
deadline for correction of the excessive deficit situation in 2012. 

According to the latest convergence programme submitted in April 2012, the targets for the 
general government deficit are 2.9% of GDP in 2012 and 2.2% of GDP in 2013. The Polish 
government  is  committed  to  reach  the  MTO  in  2015,  targeting  a  (recalculated)  structural 
deficit  of  0.7%  of  GDP  for  that  year.  The  planned  consolidation  path  is  based  on  broadly 

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conservative growth scenario assuming real GDP growth of 2.5% in 2012 and 2.9% in 2013. 
According  to  the  Commission  services'  2012  spring  forecast,  the  government  deficit  is 
projected to reach 3% of GDP in 2012 and 2.5% of GDP in 2013, based on real GDP growing 
by 2.7% in 2012 and 2.6% in 2013. In September 2012 the Polish government published its 
draft budget for 2013, which assumes real GDP growth of 2.5% in 2012 and 2.2% in 2013. 
Based  on  revised  figures,  the  government  announced  that  its  deficit  might  reach  3.5%  of 
GDP,  while  for  2013  the  deficit  is  expected  to  be  higher  than  the  2.2%  of  GDP  in  the 
convergence programme. 

In  its  recommendation  of  10  July  2012  the  Council  delivered  an  opinion  on  the  2012 
convergence programme of Poland pursuant to Regulation 1466/1997. The Council was of the 
opinion  that  the  macroeconomic  scenario  underpinning  the  budgetary  projections  in  the 
programme  is  plausible  and  is  in  line  with  the  Commission's  2012  spring  forecast.  The 
objective  of  the  budgetary  strategy  outlined  in  the  programme  is  to  correct  the  excessive 
deficit by 2012 and reach the MTO by 2015. The programme confirms the MTO of a deficit 
of 1% of GDP, which adequately reflects the requirements of the Stability and Growth Pact. 
The planned correction of the deficit is in line with the deadline set by the Council and the 
planned  fiscal  effort  complies  with  the  recommendation  under  the  Excessive  Deficit 
Procedure. Based on the (recalculated) structural deficit, the planned annual progress towards 
the  MTO  is  higher  than  0.5%  of  GDP  (in  structural  terms).  The  growth  rate  of  government 
expenditure,  taking  into  account  discretionary  revenue  measures,  is  in  line  with  the 
benchmark  of  the  Stability  and  Growth  Pact over entire programme period, but exceeds  the 
expenditure  benchmark  by  a  small  margin  in  2013,  according  to  the  Commission's  2012 
spring  forecast.  Sufficient  progress  towards  the  MTO  may  require  additional  efforts  as  it 
predominantly relies on sizeable cuts in public investment expenditure and is not sufficiently 
supported  by  detailed  measures  in  the  outer  years  of  the  programme.  General  government 
debt  is  projected  to  remain  below  60%  of  GDP  in  Poland  over  the  programme  period.  The 
national authorities forecast it to decrease gradually from 56.3% of GDP in 2011 to 49.7% of 
GDP in 2015, whereas the Commission, taking account of possible risks to the consolidation 
plans, expects the improvement to be slower.  

In  relation  to  its  opinion  on  the  2012  update  of  the  convergence  programme,  the  Council 
recommended  that  Poland  ensures  planned  progress  towards  the  correction  of  the  excessive 
deficit. To this end, Poland should  implement the budget for the year 2012 and achieve the 
structural  adjustment  effort  specified  in  the  Council  recommendations  under  the  Excessive 
Deficit  Procedure.  Thereafter,  Poland  should  specify  the  measures  necessary  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  MTO, 
including  meeting  the  expenditure  benchmark,  and  minimise  cuts  in  growth-enhancing 
expenditure in the future and improve tax compliance.  

1.12. 

Slovakia 

In 2011, GDP per capita in PPS in Slovakia amounted to 73.4% of the EU average. Economic 
activity  remained  strong,  with  real  GDP  growing  at  3.3%  driven  by  net  exports.  With  the 
government slashing its capital expenditure, the solid performance of investment in 2011 was 
driven mainly by the private sector, notably in the automotive sector. Private consumption, on 
the  other  hand,  stagnated,  as  gross  disposable  income  declined  in  real  terms  in  2011  and 
unemployment  remained  high  for  a  third  consecutive  year.  After  remaining  below  1%  for 
2009  and  2010,  inflation  spiked  at  4.1%  in  2011,  driven  largely  by  energy  and  commodity 

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prices and by the increase in the standard VAT rate and in excise taxes introduced in January 
2011. With regard to public finances, the headline deficit was significantly reduced to 4.8% of 
GDP from 7.7% of GDP a year earlier. General government debt stood at 43.3% of GDP. The 
excessive  deficit  procedure  for  Slovakia  is  currently  in  abeyance,  with  the  deadline  for 
correction of the excessive deficit situation in 2013. 

According  to  the  latest  stability  programme  submitted  in  April  2012,  the  targets  for  the 
general government deficit are 4.6% of GDP in 2012, 2.9% of GDP in 2013, 2.3% of GDP in 
2014  and  1.7%  of  GDP  in  2015.  The  macroeconomic  scenario  underlying  the  programme 
forecasts real GDP growth of 1.1% in 2012, picking up to 2.7% in 2013 and 3.6% in 2014. 
The Commission services' 2012 spring forecast projects the deficit at 4.7% of GDP in 2012. 
In the absence of policy measures, the deficit is forecast to increase slightly to 4.9% of GDP 
in 2013. Real GDP is projected to grow by 1.8% in 2012 and 2.9% in 2013. The public debt-
to-GDP ratio is expected to reach 49.7% in 2012 and 53.5% of GDP in 2013. 

In its recommendation of 10 July 2012 the Council delivered an opinion on the 2012 stability 
programme  of  Slovakia  pursuant  to  Regulation  1466/1997.  The  Council  was  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, although the latter 
assumes  somewhat  higher  real  GDP  growth  in  2012.  The  stated  objective  of  the  budgetary 
strategy outlined in the programme is to ensure the long-term sustainability of public finances. 
The intermediary steps defined to reach this are a rigorous implementation of the 2012 budget 
and a reduction of the headline deficit below 3% of GDP in 2013, the deadline for correction 
of the excessive deficit set by the Council. The achievement of the headline deficit target in 
2013 (below  3%),  however, may fall short of plans. The programme has changed the MTO 
from a close-to-balance budget to a structural deficit of 0.5% of GDP, which is not foreseen to 
be  achieved  within  the  programme  period.  Based  on  the  (recalculated)  structural  budget 
balance, the average annual fiscal effort in 2010-2013 amounts to 1.3% of GDP – well above 
the  required  value  recommended  by  the  Council  –  whereby  the  residual  fiscal  effort  is 
somewhat back loaded to 2013. The target for 2013 is subject to risks, as suggested revenue 
measures  may  fall  short  of  the  objective;  simultaneous  implementation  of  all  small-scale 
measures can be difficult to implement; in light of upwards revisions of the deficit targets that 
took  place  in  the  past.  In  addition,  further  across-board  expenditure  cuts  may  prove 
unsustainable in the medium term. In 2014 and 2015, the average fiscal effort stands at 0.3% 
of GDP annually, which is below the required adjustment of 0.5% of GDP for countries which 
have not yet reached the MTO. Nevertheless, according to the programme 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  in  the  outer  years  of  the 
programme. Government debt would remain well below 60% of GDP. While Slovakia passed 
legislation establishing the Fiscal Council, so far it has not been set up and the legislation on 
expenditure ceilings has not yet been adopted. 

In  relation  to  its  opinion  on  the  2012  update  of  the  stability  programme,  the  Council 
recommended that Slovakia should take action within the period 2012-2013 to take additional 
measures in 2012 and specify the necessary measures in 2013, to correct the excessive deficit 
in  a  sustainable  manner  and  ensure  the  structural  adjustment  effort  specified  in  the  Council 
recommendations under the Excessive Deficit Procedure. Slovakia should implement targeted 
spending  cuts,  while  safeguarding  growth-enhancing  expenditure,  and  step  up  efforts  to 
improve  the  efficiency  of  public  spending.  Thereafter,  it  ensures  an  adequate  structural 
adjustment  effort  to  make  sufficient  progress  towards  the  medium-term  objective,  including 

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meeting the expenditure benchmark, and to accelerate the setting up of the Fiscal Council and 
adopt rules on expenditure ceilings. 

1.13. 

Slovenia 

In 2011, Slovenia’s GDP per capita in PPS amounted to 83.7% of the EU average. Real GDP 
increased by 0.6%. Private consumption increased by 0.9% in real terms and net exports made 
a  large  positive  contribution  to  real  GDP  growth.  The  on-going  sharp  retrenchment  in 
investment, with construction output declining by a quarter in 2011, acted as the main drag on 
growth. The general government deficit was 6.4% of GDP in 2011. Without deficit-increasing 
one-offs  from  capital  support  operations,  the  deficit  would  have  been  5.4%  of  GDP. 
Government  gross  debt  increased  from  some  39%  in  2010  to  47.6%  of  GDP  in  2011.  The 
excessive  deficit  procedure  for  Slovenia  is  currently  in  abeyance,  with  the  deadline  for 
correction of the excessive deficit situation in 2013. 

According  to  the  latest  stability  programme  submitted  in  April  2011,  the  targets  for  the 
general  government  deficit  are  3.5%,  2.5%,  1.5%  and  0.4%  of  GDP  over  2012-2015. 
However, the final version of the austerity package, which was approved by Parliament after 
the submission of the stability programme, increases these deficit targets by 0.1 pp. of GDP in 
each  year.  The  consolidation  effort  is  predominantly  expenditure-based,  affecting  all 
categories  of  primary  expenditure.  The  macroeconomic  scenario  underlying  the  programme 
projects that real GDP growth will rebound and strengthen gradually, from -0.9% in 2012 to 
2.2% in 2015, driven by improving investment and private consumption prospects. According 
to  the  Commission  services  2012  spring  forecast,  which  reflected  the  draft  version  of  the 
austerity package, the government deficit is projected to decline to 4.3% of GDP in 2012 and 
3.8% of GDP in 2013, while the debt ratio is projected to grow to some 58% of GDP in 2013. 
Real GDP is forecast to contract by 1.4% in 2012 before rebounding by 0.7% in 2013. 

In its recommendation of 10 July 2012 the Council delivered an opinion on the 2012 stability 
programme  of  Slovenia  pursuant  to  Regulation  1466/1997.  The  Council  was  of  the  opinion 
that the macroeconomic scenario underpinning the budgetary projections in the programme is 
optimistic when compared with the Commission services’ 2012 spring forecast. The objective 
of the budgetary strategy outlined in the programme is to bring the general government deficit 
below  3%  of  GDP  in  2013,  the  deadline  set  by  the  Council,  and  to  pursue  further  deficit 
reduction thereafter so as to broadly achieve Slovenia’s MTO by 2015. The MTO is defined 
as  a  balanced  position  in  structural  terms,  unchanged  from  the  previous  programme,  but 
cannot  be  regarded  as  appropriate  under  the  provisions  of  the  Stability  and  Growth  Pact 
because,  based  on  current  policies  and  projections,  it  does  not  ensure  sufficiently  rapid 
progress towards long-term sustainability. There are risks that the deficit outcomes could be 
worse than targeted, due to (i) a lack of specification of the measures foreseen, in particular 
for the period 2014-15; (ii) a track record of primary current expenditure overruns; (iii) lower 
revenue  given  the  relatively  optimistic  macroeconomic  scenario  and  uncertainty  about  the 
impact  of  the  recently  decided  tax  measures;  and  (iv)  possible  additional  capital  support 
operations  and  calling  of  guarantees.  Based  on  the  (recalculated)  structural  balance,  the 
average annual fiscal effort over the period 2010-2013, is planned to be almost 1% of GDP, 
slightly above the one recommended by the Council. However, the Commission's 2012 spring 
forecast  implies  that  an  additional  effort  will  have  to  be  made  in  2013  to  respect  the 
recommendation  over  the  entire  correction  period.  After  the  planned  correction  of  the 
excessive deficit, the annual pace of progress towards the MTO according to the programme 
is in line with the 0.5% benchmark set in the Stability and Growth Pact in 2015 but below it in 

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2014, while the rate of growth of government expenditure, taking into account discretionary 
revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact 
in both years, so overall the programme plans a broadly appropriate adjustment path towards 
the MTO. Taking account of the risks mentioned above, the progress towards the MTO could 
be  slower  than  appropriate  in  both  years.  From  around  48%  of  GDP  in  2011,  general 
government gross debt is projected in the programme to peak by 2013 at 53% (thus remaining 
below the 60% of GDP reference value) before falling slightly by the end of the programme 
period. The debt projections are subject to upward risks from the possibility of higher deficits 
mentioned  above  and  higher  stock-flow  adjustments.  Slovenia’s  medium-term  budgetary 
framework and expenditure rule remain insufficiently binding and insufficiently focussed on 
achieving the MTO and securing long-term sustainability. 

In  relation  to  its  opinion  on  the  2012  stability  programme,  the  Council  recommended  that 
Slovenia  implement  the  2012  budget,  and  reinforce  the  budgetary  strategy  for  2013  with 
sufficiently specified structural measures, standing ready to take additional measures so as to 
ensure  a  correction  of  the  excessive  deficit  in  a  sustainable  manner  by  2013  and  the 
achievement  of  the  structural  adjustment  effort  specified  in  the  Council  recommendations 
under  the  Excessive  Deficit  Procedure;  thereafter,  Slovenia  should  ensure  an  adequate 
structural adjustment effort to make sufficient progress towards an appropriate medium-term 
objective  for  the  budgetary  position,  including  meeting  the  expenditure  benchmark,  and 
strengthen the medium-term budgetary framework, including the expenditure rule, by making 
it more binding and transparent. 

1.14.  Bulgaria 

in 

the  construction  sector.  Additionally,  given 

In 2011, Bulgaria's GDP per capita in PPS amounted to 44.7% of the EU average. Following 
the  economic  crisis,  the  Bulgarian  economy  expanded  slowly  over  2010-2011.  As  in  other 
converging  EU  economies,  which  had  undergone  a  period  of  economic  overheating  and  a 
build-up of imbalances, the growth pattern in the recovery over 2010-11 was largely driven by 
exports,  while  domestic  demand  remained  stagnant.  Annual  GDP  growth  reached  1.7%  in 
2011,  with  a  decelerating  trend  within  the  year.  The  recovery  is  mainly  restrained  by  the 
weaknesses  of  the  labour  market,  the  continued  deleveraging  of  the  corporate  sector  and  a 
downsizing 
the  regional  economic 
uncertainties,  capital  inflows  and  FDI  have  stabilised  at  lower  levels  and  have  not  given  a 
notable boost to growth, unlike in the past decade. On the positive side, the financial sector 
has remained stable, providing a modest growth in private sector credit in 2011. The economy 
also benefits from relatively strong public finances, which do not face major adjustment needs 
in the medium term. Budgetary discipline led to a further improvement in the fiscal position 
in 2011. The budget deficit (which had peaked at 4.3% of GDP in 2009) narrowed from 3.1% 
of GDP in 2010 to 2.1% in 2011. The general government debt ratio amounted to 16.3% of 
GDP in 2011. Fiscal consolidation is set to continue in 2012-13, although at a slower pace. On 
22  June  2012,  on  a  recommendation  from  the  Commission,  the  Council  decided  that  the 
excessive deficit situation in Bulgaria has been corrected. 

According to the latest convergence programme submitted in April 2012, the targets for the 
general  government  deficit  are  1.6%  in  2012,  1.3%  in  2013  and  a  further  improvement  to 
reach a balanced position by 2015. The general government debt ratio is projected to edge up 
to 18.4% of GDP in 2013. According to the Commission services' 2012 spring forecast, the 
government deficit is projected to be somewhat higher at 1.9% of GDP in 2012 and 1.7% of 
GDP in 2013, in line with a weaker GDP growth forecast.  

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In its recommendation of 10 July 2012 the Council delivered an opinion on the convergence 
programme  of  Bulgaria  pursuant  to  Regulation  1466/1997.  The  Council  was  of  the  opinion 
that  compared  with  the  Commission´s  2012  spring  forecast  the  macroeconomic  scenario 
underpinning  the  budgetary  projections  in  the  programme  is  optimistic  for  the  2012-2013 
period,  when  annual  growth  is  expected  to  reach  1.4%  in  2012  and  2.5%  in  2013.  The 
Commission's  2012  spring  forecast  foresees  a  GDP  growth  of  0.5%  in  2012  and  1.9%  in 
2013.  After  the  correction  of  the  excessive  deficit  in  2011,  the  objective  of  the  budgetary 
strategy  outlined  in  the  programme  is  to  achieve  a  budgetary  position  which  is  close  to 
balance,  both  in  terms  of  the  structural  and  headline  budget  balances,  by  the  end  of  the 
programme period. The MTO, defined in structural terms, has been marginally revised from a 
deficit of 0.6% of GDP to a deficit of 0.5% of GDP. The new MTO adequately reflects the 
requirements of the Stability and Growth Pact. Based on the (recalculated) structural deficit, 
Bulgaria plans to achieve its MTO over the programme period. In 2012-2014, the growth rate 
of  government  expenditure,  taking  into  account  discretionary  revenue  measures,  would 
respect  the  expenditure  benchmark  of  the  Stability  and  Growth  Pact,  yet  breach  it  in  2015. 
Planned fiscal consolidation faces a number of risks stemming from (i) lower revenue given 
the optimistic macroeconomic scenario as well as less tax-rich underlying growth structure of 
the economy and (ii) inefficiencies in the public sector, particularly with respect to arrears in 
healthcare, which may lead to considerable expenditure pressures. There is considerable scope 
for  improvement  in  tax  compliance  and  advancing  in  this  area  would  allow  Bulgaria  to 
support  higher  growth  enhancing  expenditures.  A  requirement  to  keep  the  budget  deficit 
below  2%  and  limiting  government  expenditure  to  40%  of  GDP  was  adopted  as  an 
amendment  to  the  Organic  Budget  Law,  thus  strengthening  the  binding  nature  of  the  fiscal 
framework  and  improving  the  predictability  of  budgetary  planning.  However,  challenges 
remain  with  respect  to  further  improving  the  contents  of  the  medium-term  budgetary 
framework and strengthening the reporting on accrual basis including through improving the 
quality and timeliness of reporting by State Owned Enterprises and sub-national governments. 

In  relation  to  its  opinion  on  the  2012  update  of  the  convergence  programme,  the  Council 
recommended that Bulgaria continues with sound fiscal policies to achieve the medium-term 
budgetary  objective  by  2012.  To  this  end,  the  Council  recommended  to  implement  the 
budgetary strategy as envisaged, to ensure compliance with the expenditure benchmark, and 
to stand ready to take additional measures in case risks to the budgetary scenario materialise. 
At the same time, Bulgaria was recommended to strengthen efforts to enhance the quality of 
public  spending,  particularly  in  the  education  and  health  sectors  and  implement  a 
comprehensive  tax-compliance  strategy  to  further  improve  tax  revenue  and  address  the 
shadow  economy.  Bulgaria  was  also  recommended  to  further  improve  the  contents  of  the 
medium-term budgetary framework and the quality of the reporting system. 

1.15.  Romania  

In 2011, Romania’s GDP per capita in PPS amounted to 49% of the EU average. After two 
years of recession with cumulated GDP contraction of more than 8%, growth resumed in 2011 
with  the  economy  growing  by  2.5%.  Growth  was  mainly  driven  by  a  robust  increase  in 
industrial output and an exceptional agricultural harvest. On the demand side, the main drivers 
of  growth  were  gross  fixed  capital  formation  and,  in  the  second  half  of  the  year,  a  modest 
recovery in private consumption. The budget deficit decreased from 6.8% in 2010 to 5.2% of 
GDP  in  2011.  The  deficit  for  2011  would  have  been  significantly  below  5%  without  the 
inclusion  of  a  substantial  one-off  item,  worth  1.1%  of  GDP,  due  to  payment  obligations 
related to court decisions which became definitive in 2011. Public debt in 2011 increased to 

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33.3%  from  30.5%  in  2010.  The  excessive  deficit  procedure  for  Romania  is  currently  in 
abeyance,  with  the  deadline  for  correction  of  the  excessive  deficit  situation  in  2012. 
Following a request by Romania on 17 February 2011, a precautionary Economic Adjustment 
Programme was agreed by the European Council on 12 May 2011 and by the IMF board on 
25 March 2011. The programme covers a two-year period until 31 March 2013. Its financial 
package covers up to EUR 4.9 billion, of which EUR 1.4 billion from the EU and EUR 3.5 
billion from the IMF. Both the EU and the IMF programme are treated as precautionary and 
no  disbursements  have  taken  place  so  far.  The  programme  focuses  on  structural  reforms  to 
support  the  re-launch  of  economic  growth,  while  consolidating  fiscal  and  financial  Stability 
and also has explicit targets for absorption of EU funds. 

According  to  the  latest  convergence  programme  submitted  in  May  2012,  the  targets  for  the 
general government deficit are: 2.8% in 2012, 2.2% in 2013, 1.2% of GDP in 2014 and 0.9% 
of  GDP  in  2015.  The  underlying  macroeconomic  scenario  envisages  a  slowdown  in  GDP 
growth in 2012 to 1.7%, rising to 3.1% in 2013, 3.6%% in 2014 and 3.9% in 2015. According 
to  the  Commission  services'  2012  spring  forecast,  the  government  deficit  is  projected  to 
decrease to 2.8% of GDP in 2012 and to 2.2% in 2013, while public debt is projected to be 
34.6% of GDP in both 2012 and 2013. The GDP growth is forecast at 1.4% in 2012 and 2.9% 
in 2013. For 2012-2013, the growth forecast of the convergence programme is broadly in line 
with the Commission services' forecast, while beyond this horizon, GDP growth is above the 
potential GDP estimated by the Commission services. The implementation of the conditions 
in  the  EU  balance  of  payments  assistance  programme  in  Romania  should  help  in  achieving 
the budgetary targets. 

In  its  recommendation  of  10  July  2012  the  Council  delivered  an  opinion  on  the  2012 
convergence programme of Romania pursuant to Regulation 1466/1997. The Council was of 
the opinion that that the macroeconomic scenario underpinning the budgetary projections in 
the  programme  is  plausible.  The  objective  of  the  budgetary  strategy  outlined  in  the 
programme is to reach a budget deficit below 3% of GDP in 2012, in line with the Council 
recommendations  given  to  Romania  under  the  Excessive  Deficit  Procedure.  Thereafter,  it 
aims at achieving an MTO defined as a deficit of 0.7% of GDP in structural terms. The MTO 
adequately reflects the requirements of the Stability and Growth Pact. Following the planned 
correction of the excessive deficit in 2012, the deficit is expected to decrease further to 2.2% 
of  GDP  in  2013,  to  1.2%  of  GDP  in  2014  and  0.9%  of  GDP  in  2015.  Based  on  the 
(recalculated) structural budget balance, this implies an improvement in the deficit by 1.5% in 
2012,  0.5%  in  2013  and  0.7%  in  2014,  in  line  with  the  0.5%  of  GDP  benchmark  of  the 
Stability  and  Growth  Pact.  The  growth  rate  of  government  expenditure  is  in  line  with  the 
expenditure  benchmark  of  the  Stability  and  Growth  Pact  over  the  2012-2015  period.  The 
programme  foresees  the  achievement  of  the MTO in 2014. The main risks to the budgetary 
targets  are  the  arrears  of  state  owned  enterprises,  as  well  as  potential  re-accumulation  of 
arrears at local government level and in the health sector, even if some measures have been 
taken in the health sector. As regards public debt, it was below 34% of GDP by end 2011 thus 
remaining substantially below 60% of GDP. 

On 10 July 2012 the Council recommended Romania to implement the measures laid down in 
Decision  2009/459/EC,  as  amended  by  Decision  2010/183/EU,  together  with  the  measures 
laid  down  in  Decision  2011/288/EU  and  further  specified  in  the  Memorandum  of 
Understanding of 23 June 2009 and its subsequent supplements, and in the Memorandum of 
Understanding of 29 June 2011 and its subsequent supplements. 

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2.  

THE  IMPLEMENTATION  OF  THE  2000-2006  PROJECTS  IN  THE  BENEFICIARY 
MEMBER STATES 

2.1.   Greece 

Environment 

In  the  environment  sector,  92  projects  have  been  adopted.  Most  of  the  projects  closed  in  2011 
concerned  solid  waste  and  waste  water  treatment  plans.  The  10  environmental  projects  closed 
during 2011 are operational and have achieved their objectives. Their objective was to serve the 
regional needs in the above sectors and comply with the EU acquis requirements. It is important 
to note that for the waste management projects a 5% net financial correction was applied due to 
the non-respect of the specific conditions of the Commission's decisions linked to the diminution 
of the biodegradable waste. One project relating to nature protection had to be cancelled as there 
was no progress at all.  

Transport 

In the transport sector, 30 projects (+1 mixed project relating the Metro of Athens) have been 
adopted. In 2011 there were 13 projects  under implementation  in 2011 and there is a stable 
progress of the physical and financial implementation of the projects, with higher absorption 
presented in the road projects while the rail and the port projects are still lagging behind. The 
2  projects  closed  in  2011  concerned  motorways  construction  and  their  objective  was  to 
complete parts of infrastructures related to TEN-T motorways.  

2.2.  

Spain 

The year 2011 was confined to physical and financial monitoring of ongoing projects leading, 
in  particular,  to  interim  payments  based  on  their  degree  of  advancement,  to  the  closure  of 
completed  projects  and  to  adjustments  of  the  terms  of  assistance  in  relation  to  the  actual 
situation on the ground via changes in the Commission decisions. 

A  total  of  44  projects  were  closed  in  2011.  Half  of  the  closed  projects  concerned  the 
environmental sector; the remaining 22 were related to the transport sector. A reduction in the 
pace of closures took place in 2011 compared to 2010. The closure process remains not as fast 
as  desired  and  complex  mainly  due  to  the  problem  concerning  the  transposition  of  EU 
Directives on public procurement into Spanish law, especially with regard to changes in the 
contracts being implemented by negotiated procedure. The closures completed in 2011 were 
significantly more than in 2009 and 2008 when only 34 and 18 closures were approved. 

Many projects are likely to present problems of irregularities related to non-compliance with 
the  said  Directives,  but  they  have  to  be  completed  pursuant  to  section  H  of  Annex  II  to 
Regulation  (EC)  No  1164/1994.  The  organisation  and  management  of  such  a  procedure 
involves  an  extremely  heavy  burden,  both  for  the  Member  State  and  for  the  services  of  the 
Commission.  In  2011  two  hearings  took  place,  one  in  March  (10  projects)  and  in  July 
(5 projects).  In  2010,  the  Commission  organised  four  hearings  (March,  June,  July  and 
November) dealing with a total of 30 projects. In 2009 the hearings organised only dealt with 
3 projects.  

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As  regards  payments  (interim  and  final  balance),  a  total  of  84  requests  for  payments  have 
been  implemented  for  an  amount  equivalent  to  EUR  400.1  million.  Compared  to  the  year 
2010, this represents a decrease in terms of payment claims (128 in 2010) and a decrease in 
terms of amounts paid (EUR 609 million in 2010).  

In  2011,  the  Commission  experienced  difficulties  in  obtaining  all  the  necessary  information 
from  the  Spanish  authorities  to  complete  the  closure  of  some  projects.  In  particular,  the 
technical reports required when contracts are modified and information on contracts below the 
thresholds of the procurement directives. This had an effect on the rate of closure. As a result, 
in September the Commission sent an EU pilot letter informing Spain of the first steps of an 
infringement procedure for the lack of sincere co-operation under Article 4(3) of the Treaty. 

Environment  

Regarding changes in the conditions of Commission's decisions, in 2011, these changes affect 
the  date  of  completion  of  works,  often  accompanied  by  -  usually  minor  -  changes  to  the 
physical subject of the projects. The changes have had no impact on either the total eligible 
costs of projects or Community assistance. Also, in terms of number of amendments, we are 
seeing a reduction which is due to the close end of projects for most of decisions. 

Transport 

During  2011,  18  High  Speed  Railway  projects  were  closed,  mainly  projects  on  the  lines 
between Madrid-Barcelona and the French border and the line Madrid- Castilla La Mancha-
Valencia-Murcia, with a total CF aid allocation (for the 18 projects) of EUR 1,456 million.  

2.3. 

Portugal 

Environment 

The  projects  under  implementation  help  to  promote,  develop  and  complete  the  basic 
environment  infrastructure  as  well  as  to  ensure  the  conditions  for  sustainable  development, 
environmental  protection  and  management  of  natural  resources.  These  projects  relate  to  the 
priority sectors of ‘Water Supply’, ‘Sewerage and Wastewater Treatment’ and ‘Urban Waste 
Management’, in line with the reference framework. 

During 2011, 19 amending decisions were adopted to make general adjustments to the final 
specifications of projects, mostly in order to include new additional elements and/or to revise 
others, and to extend the final date of eligibility.  

In 2011, 6 environmental projects were closed: ‘Despoluição das Bacias do Rio Lis e Ribeira 
de  Seiça’,  ‘Sistema  Multisectorial  da  Raia,  Zêzere  e  Nabão,  1ª  fase’,  ‘Saneamento  do 
Concelho  de  Braga’,  ‘Multisectorial  tras-os-Montes  e  Alto  Douro,  1ª  fase’,  ‘RUB  Cova  da 
Beira/Valnor’ and ‘Estudos, Projectos e Assessorias, IPE’. 

As at December 2011, 29 environmental projects were already in the process of closure. From 
a  financial  point  of  view  the  most  significant  projects  are  ‘Tratamento  de  Resíduos  da 
Madeira’  (with  a  total  Fund  contribution  of  EUR  72  million),  ‘Abastecimento  de  Água  e 
Saneamento  de  Trás-os-Montes  e  Alto  Douro  –  3ª  Fase’  (EUR  50  millions),  ‘Sistema 
(EUR 47  million), 
Multimunicipal  de  Aguas 

residuais  da  Peninsula  de  Setubal’ 

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‘Multisectorial  Raia,  Zêzere,  Nabão-  1a  fase’  (EUR  45  millions),  and  ‘Abastecimento  e 
Saneamento de Águas de Trás-os Montes e Alto Douro – Fase 2’ (EUR 43 million).  

Transport 

The  projects  being  implemented  contribute  to  the  development  of  the  Trans-European 
Transport  Network  and  enhance  multimodal  articulation  between  the  various  means  of 
transport in place, in line with the objectives of the reference framework.  

During the year, 2 amending decisions were adopted for the same general reasons of adjusting 
the description of the project and extending the final date of eligibility. One of the projects has 
been extended to 31 December 2012 ‘Metro de Lisboa – Ligação GIL/Aeroporto’. 

In 2011, 4 transport projects were fully closed, ‘Modernisation de la ligne Algarve II’, ‘Linha 
do  Algarve,  Coina/Pinhal  Novo’,  ‘Linha  do  Norte,  Entrecampos/Chelas’  and  ‘Terminal 
Marítimo de Passageiros – Ponta Delgada’.  

10 transport projects were at the closure procedure stage in December 2011; from a financial 
point  of  view  the  most  relevant  ones  are  ‘Linha  do  Norte  –  Vila  Franca/Vale  de  Santarém’ 
‘Linha  do  Norte  – 
(with  a 
Entroncamento/Albergaria’ (EUR 114 million) and ‘Metro de Lisboa, Ligação à RTE’ (EUR 
107 million). 

total  Fund  contribution  of  EUR  151  million), 

The other 2 projects arrived at the end of the eligibility date on 31 December 2011 (Porto do 
Funchal) and to the end of 2012 (Metro de Lisboa – GIL/Aeroporto). 

Technical Assistance 

1 technical assistance decision is at the procedure closure stage at the end of 2011. The other 
2 projects reached the end of eligibility in December 2011.  

2.4. 

Cyprus 

The  Cohesion  Fund  for  Cyprus  amounts  to  approximately  EUR  54  million  Community 
contribution.  Two  projects  are  co-financed  by  the  Cohesion  Fund:  one  transport  project 
(upgrade  of  Limassol  motorway)  and  one  environmental  project  (solid  waste  management 
covering the regions of Larnaka-Ammochostos).  

Both Cohesion Fund projects were completed within the eligibility date set in the decisions. 
The  environmental  project  was  closed  in  2011  and  the  transport  project  is  in  the  closure 
process.  

2.5.  

Czech Republic 

Environment 

The implementation of the Cohesion Fund projects in the environment sector was completed 
satisfactorily  by  the  end  of  2011  (besides  1  project  which  was  announced  to  be  cancelled). 
86% of the committed amounts have already been paid by the Commission. 

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Regarding  the  closure  procedure,  out  of  the  38  projects  approved  in  the  2000-2006 
programming period, 15 were closed (1 in 2011), 5 were in the closure procedure since 2009 
and 2010, and closure procedures have been initiated for 15 other projects in 2011.  

In  2011,  the  Commission  dealt  with  no  requests  to  amend  the  Commission  decision  in  the 
sector of environment.  

Transport 

In the transport sector, the implementation of all projects was completed by the end of 2011. 
95% of the committed amounts have already been paid by the Commission. 

In 2011, the closure procedure was launched for 2 projects. So far, 10 out of the 13 approved 
projects have been closed (1 in 2011).  

In  2011,  the  Commission  dealt  with  no  requests  to  amend  the  Commission  decision  in  the 
sector of transport. 

Technical Assistance 

Regarding the technical assistance projects, the implementation of all projects was completed 
by  the  end  of  2011  (2  in  the  field  of  transport,  2  in  the  field  of  environment  and  2  general 
technical  assistance).  86%  of  the  committed  amounts  have  already  been  paid  by  the 
Commission. 

4 out of the 6 projects were closed, 1 of which in 2011. In 2011, the Commission dealt with 
no requests to amend the Commission decision regarding the technical assistance projects.  

2.6. 

Estonia 

Environment 

The  Commission  has  issued  financial  decisions  for  21  environmental  projects  under  the 
Cohesion Fund (4 of them are technical assistance projects). In environment, Cohesion Fund 
projects mainly concentrated on the water sector. Estonia's larger urban areas – Tartu, Narva, 
Kohtla-Järve,  Pärnu  etc  were  able  to  carry  out  separate  projects  while  smaller  settlements 
were grouped together according to the river or sub-river basin water management plans. In 
waste management the Cohesion Fund supported closure of one hazardous waste landfill and 
the construction of a modern landfill for the Western part of Estonia.  

By the end of 2011, activities of all projects were finished on the ground. 

Cohesion  Fund  projects  were  subject  to  heavy  cost  increases  in  2006  –  2007.  The  situation 
returned back to normal since 2008 and construction prices have been going down during the 
economic  crises.  The  changing  conditions  have  required  that  some  projects  had  to  be 
modified by the Commission. These proposals for amendment are being analyzed in order to 
ensure the delivery of working projects that continue to fulfil the initial objectives. In 2011, 
the  Commission  approved  3  amending  decisions  (increasing  the  ceiling  of  cumulative 
payments  to  the  project  to  90%,  extending  the  final  date  of  eligibility  and  introducing 
adjustments to the physical scope resulted mainly from the cost increase).  

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For environmental projects, 7 projects remain to be closed.  

Transport 

The Commission has issued financial decisions for 15 transport projects under the Cohesion 
Fund (5 of which are technical assistance projects). Already by the end of 2010, all projects 
were  completed  on  ground.  For  a  project  concerning  the  extension  of  Muuga  harbour,  cost 
savings were registered and the managing authority proposed to carry out additional works to 
use these savings for the benefit of the project during 2011. In relation to this, the amended 
Commission decision has been adopted also in 2011. 

All Estonian TEN-T roads have been systematically improved with Cohesion Fund resources. 
At  the  initial  stage,  projects  comprised  mainly  improvements  to  existing  roads  that  were  in 
very bad conditions when ISPA initially became available. At a later stage, work concentrated 
on  the  full  renewal  of  sections  and  junctions  considered  to  be  bottlenecks  or  black  spots  in 
terms of safety. No completely new roads or motorway sections have been built. In addition to 
roads,  Tallinn  Airport  passenger  terminal  and  surrounding  area  have  been  completely 
renovated and extended, allowing the airport to cope with increased passenger numbers. Also, 
a major seaport has been extended with the assistance of the Cohesion Fund.  

Technical assistance has helped preparing transport infrastructure projects for implementation 
in  the  new  programming  period.  This  is  demonstrated  by  good  progress  in  transport  sector 
investments from the 2007 – 2013 period resources. 

For transport sector projects, 2 projects remain to be closed and 1 general technical assistance 
project ‘Support for Cohesion Fund Management Auhtority’ will be closed.  

2.7. 

Hungary 

There  are  47  Cohesion  Fund  projects  in  Hungary:  31  environmental  projects  including 
(6 technical  assistance  projects)  and  16  transport  projects  (including  7  technical  assistance 
projects). 13 projects were closed at the end of 2011. 

Of the 34 projects to be closed, 26 projects have a final eligibility deadline of December 2010, 
for  6  projects  the  deadline  was  December  2011,  and  for  2  projects  the  deadline  will  be 
December 2012.  

Total  payments  made  in  2011  amounted  to  EUR 57.45  million  (EUR 6.66  million  final 
payment,  and  EUR 50.78  million  interim  payments).  The  payments  made  in  2011  only 
concerned environmental projects.  

Six amending decisions were adopted in 2011 and these mainly related to the extension of the 
eligibility  period  and  inclusion  of  additional  project  elements  without  modification  of  grant 
(cost savings). 

The  implementation  of  Cohesion  Fund  projects  is  lagging  behind.  In  particular,  within  the 
environment  sector  not  all  projects  have  yet  reached  80%  of  payments,  the  average  ratio  of 
payment to commitments is only 73%, including advance payments.  

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2.8. 

Latvia 

Environment 

The  Commission  has  issued  26  Cohesion  Fund  decisions  for  environmental  projects 
(including  4  technical  assistance  projects).  In  total,  out  of  26  projects  by  the  end  of  2011, 
11 projects were closed and 15 closure files were pending with the Commission. 

For 5 of the pending closure files, financial corrections were proposed due to wrongful award 
of  supplementary  contracts.  On  1  July  2010,  a  hearing  was  held  for  4  projects,  but  no 
agreement  was  reached.  In  March  2012,  the  Commission  services  issued  the  final  position 
letter, and in May 2012 the Member State accepted the proposed corrections.  

In  2011,  the  Commission  approved  2  amending  decisions  mainly  increasing  the  ceiling  of 
cumulative  payments  to  the  project  to  90%  and  introducing  some  minor  adjustments  to  the 
physical scope.  

Transport 

The  Commission  has  issued  18  Cohesion  Fund  decisions  for  transport  projects  (including  4 
technical assistance projects). In total, by the end of 2011, 10 projects were closed, 7 closure 
files were pending with the Commission and 1 project was ongoing. 

In 2011, the Commission approved 3 amending decisions mainly concerning extension of the 
final date of eligibility to 31 December 2010, increasing the ceiling of cumulative payments to 
the project to 90% and introducing some minor adjustments to the physical scope.  

Technical Assistance 

In  addition  to  the  sectoral  assistance,  co-financing  has  been  granted  to  2  projects  for 
introduction of the Extended Decentralised implementation system for management of ISPA 
and  later  for  strengthening  the  administrative  capacity  of  Cohesion  Fund  management  in 
Latvia. By the end of 2011, 1 of the projects was closed and 1 pending with the Commission.  

In  2011,  the  Commission  approved  1  amending  decision  by  including  new  components  to 
facilitate achievement of the project's objectives.  

2.9. 

Lithuania 

Environment 

29  environmental  projects  were  adopted  under  the  Cohesion  Fund  (and  ex-ISPA)  for  the 
period 2000-2006, of which 16 relate to the drinking and waste water sector, 11 relate to the 
solid waste sector, and 2 are for technical assistance.  

By  the  end  of  2011,  2  waste  water  projects  and  1  solid  waste  project  have  been  closed. 
Currently 13 projects are in the closure process with the Commission. 

10  amending  decisions  were  adopted  in  2011  and  5  other  modification  requests  were  still 
under treatment at the end of 2011. The amendments mainly concern reduction of scope of the 
project, adjustment of physical monitoring indicators, extension of the final date of eligibility 

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to  31  December  2011  and  increase,  up  to  90%,  of  the  ceiling  for  advance  and  interim 
payments. The 5 requests of modification still to be treated in 2012 are intended for reduction 
in scope of the projects and the  corresponding adjustment of physical monitoring indicators 
and objectives.  

Two specific problems identified in the environment sector have been especially scrutinised 
and discussed with the national authorities:  

1)  A majority of projects in water and waste water sector showed only partial achievement 
of project objectives related to the connection rate of new consumers to the water supply 
and waste water collection networks  

2)  A  number  of  projects  were  affected  by  cost  overruns  due  to  unforeseen  inflation,  and 

Lithuania requested for a reduction of projects' scope  

For both problems, after detailed analysis of the situation of each project, the Commission has 
adopted and notified the Member State of its position either to accept the situation as justified 
or to request additional efforts to improve it.   

Transport 

20 transport projects were adopted under the Cohesion Fund (and ex-ISPA) for the 2000-2006 
period; 11 of these projects refer to the road sector, 6 refer to the railway sector, and 3 are for 
technical assistance.  

Prior to year 2011, 9 road projects and 1 technical assistance projects were closed. At the end 
of 2011, closure procedures were underway for 8 projects. 

1  amending  decisions  was  adopted  in  2011  for  extension  of  the  final  date  of  eligibility  and 
increase,  up  to  90%,  of  the  ceiling  for  advance  and  interim  payments.  Another  request  for 
amendment,  related  to  formal  aspects  of  the  existing  decision,  was  rejected  by  the 
Commission.  

Technical Assistance 

In  addition  to  the  sectoral  assistance,  co-financing  has  been  granted  to  2  projects  aimed  at 
strengthening  the  administrative  capacity  of  Cohesion  Fund  management  in  Lithuania.  One 
project  was  closed  before  2011  and  the  other  project's  final  date  of  eligibility  was 
31 December  2011.  This  project  related  to  the  monitoring  of  the  Cohesion  Fund  projects, 
verification of the closure documents and ex-ante evaluation of all Cohesion Fund projects of 
the 2000-2006 programming period.   

2.10.  Malta 

Environment 

The project ‘Upgrading of Sant' Antnin waste treatment facilities’ covers the construction of a 
mechanical  treatment  plant  for  the  pre-treatment  of  household  waste,  a  material  recycling 
facility, and an anaerobic digestion plant for the treatment of biodegradable waste, including a 
reverse  osmosis  plant  providing  water  treatment.  The  main  outcome  is  the  reduction  of  the 
negative environmental impact of the waste cycle, and notably the reduction of the amount of 

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landfilled waste, which is of utmost importance for the Malta main island due to its very high 
population density (1,500 inhabitant/km²). 

An amending Commission Decision extending the final date of eligibility of the project until 
31 December 2011 was adopted on 11 February 2011.  

The project was physically and financially completed in the course of 2011. The documents 
required for the closure of the project are to be submitted to the Commission by the end of 
June 2012.  

Transport 

The  project  ‘Restoration  and  upgrading  of  sections  of  TEN-T’  consists  of  the  upgrading  of 
three lots of the TEN-T network in Malta and Gozo (St. Paul's Bay by-pass, Civil Aviation 
Avenue in Luqa and Mġarr Road in Għajnsielem in Gozo) with the objective to reduce travel 
time,  accident  rates,  transport  costs  and  facilitate  competitiveness  in  the  transportation  of 
goods.  

The project was physically and financially completed in the course of 2010. The final report 
and the final payment claim for the project were received by the Commission in July 2011, 
while  the  winding-up  declaration  in  January  2012.  The  Commission  shall  close  the  project 
and pay the outstanding balance in the course of 2012.  

Technical Assistance 

The  technical  assistance  project  aims  at  preparing  the  environmental  projects  pipeline  for 
2007-2013 Cohesion Fund projects (mechanical biological waste treatment plants and storm 
water master plan). 

The project was physically and financially completed in the course of 2010. The final report 
and the final payment claim for the project were received by the Commission in July 2011, 
while  the  winding-up  declaration  in  January  2012.  The  Commission  closed  the  project  and 
paid the outstanding balance in April 2012.  

2.11. 

Poland 

In 2011, the Commission adopted 18 amending decisions concerning Cohesion Fund projects 
(compared to 43 in 2010), all of them in the environment sector. These mostly concerned the 
end date of the project, changes in the physical scope, and raising the ceiling for advance and 
interim payments from 80% to 90%.  

Out  of  the  total  130  Cohesion  Fund  projects,  15  were  closed  by  the  end  of  2011:  6  in  the 
environment  sector,  4  in  the  transport  sector,  and  5  technical  assistance  projects  (1  in 
environment, 4 in transport). An additional 106 projects were under closure. The remaining 9 
had their eligibility end dates extended beyond 2011 (or were in the process of modification 
for such an extension) and were therefore not required to submit closure documents. Of these, 
all but 3 will be due for closure in 2012. 

The  implementation  of  projects  was  strongly  influenced  by  significant  cost  overruns 
amounting  to  one  third  of  the  entire  Cohesion  Fund  allocation  for  Poland.  The  national 
authorities  have  secured  the  additional  financing  for  all  projects  affected  by  cost  overruns, 

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with the exception of 5 projects in the environment sector and 1 transport project. Poland has 
requested  a  reduction  of  the  physical  scope  in  all  6  projects.  The  decisions  on  these 
amendments  were  not  taken  in  2011  due  to  ongoing  discussions  as  to  the  details  of  the 
modifications and the impact of the scope reduction on the Cohesion Fund contribution. By 
the  end  of  the  year,  however,  a  tentative  agreement  was  reached  for  3  of  these  projects,  all 
from the environment sector.  

On  the  other  hand,  there  were  38  projects  which  achieved  cost-savings  totalling  EUR  52.3 
million of the Cohesion Fund grant.  

At  the  end  of  2011,  there  was  no  project  left  with  an  outstanding  issue  relating  to  the 
Environmental Impact Assessment (EIA) and 122 of the 130 projects were completed. 

In 2011 the Commission authorised payments amounting to EUR 145.8 million. The smaller 
amount compared with previous years is due to the fact that almost all of the projects reached 
their ceilings for advance and interim payments.  

Environment 

The  level  of  contracting  exceeded  120%  of  the  originally  estimated  costs  in  environmental 
projects,  which  represents  99%  of  the  total  expenditure  when  cost  overruns  are  taken  into 
account. The physical progress on the ground, aggregated for the sector, reached 97%, while 
the financial progress exceeded 98%. 

77 closures were ongoing for investment projects in the environment sector. 

Transport 

The level of contracting was over 123% of the originally estimated cost for transport projects, 
or  99%  if  the  cost  overruns  are  taken  into  account.  The  physical  and  financial  progress 
aggregated for the sector exceeded 95% and the financial progress was more than 94%.  

The closure procedure for 17 investment projects was ongoing in the transport sector. 

Technical assistance 

By the end of 2011, 4 technical assistance projects were closed and closure was ongoing for a 
further 12 projects. 

2.12. 

Slovakia 

Environment 

As  a  result  of  common  efforts  and  measures  taken  in  the  previous  period  (action  plans  and 
strengthened  monitoring) all Cohesion Fund environment projects  with an exemption  of the 
‘Prešov - Drinking water and sewerage in the basin of Torysa river’ project were physically 
completed  in  2010.  Prešov  project,  due  to  a  damaged  infrastructure  as  a  result  of  extreme 
flooding in June 2010, asked for extension of the final date of eligibility until the end of 2011.  

Financial  closure  was  completed  in  2011  for  4  Cohesion  Fund  projects  in  the  water  sector: 
Komarno,  Zvolen,  South  East  Zemplin  and  Liptov.  Komarno  was  closed  with  financial 

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corrections  incorporated  by  the  Member  State  in  the  final  claim  at  the  request  of  the 
Commission.  Zvolen  and  South  East  Zemplin  were  closed  also  with  financial  corrections 
following the results of a hearing with the Member State of December 2010 which concluded 
at the same time with the Commission opinion of not applying corrections to the Liptov and 
Trencin  projects.  For  another  project  discussed  at  the  hearing,  Poprad-Matejovce,  the 
Commission  tried  to  get  an  agreement  with  the  Slovak  authorities  on  the  ineligibility  of  a 
contract  of  additional  works  during  2011  without  success,  leading  thus  to  launching  a 
Decision  reducing  the  Cohesion  Fund  contribution  in  the  following  year.  The  16  remaining 
projects  were  all  finished  in  due  time  and  two  of  them  (Samorin  and  Galanta)  fulfilled  all 
Regulation  requirements  to  be  closed  with  the  full  reimbursement  of  the  balance.  The 
remaining 14 projects are still under examination by the Commission services or waiting for 
supplementary information from the Member State concerning in most cases eligibility issues 
on  additional  works  and  application  of  the  public  procurement  rules.  Among  these  projects 
there is one on Technical assistance for the water companies and the remaining are located in 
Banska  Bystrica,  Zilina  (waste  water  and  Heating  plant),  Velky  Krtis,  Kosice,  Sala,  Horné 
Zemplin-Humenne,  Trnava,  Piestany,  Horné  Kysuce,  Vranov,  Orava  and  Bratislava  (Flood 
protection).  

Transport 

All  Cohesion  Fund  transport  projects  were  physically  completed  in  2010.  Administrative 
closure  of  the  project  Technical  assistance  for  the  project  preparation  in  transport  was 
successfully  completed  with  the  reimbursement  of  their  final  payment  claim.  Two  transport 
projects (1 road project Construction of D1 motorway Mengusovce – Jánovce and 1 railway 
project  Modernisation  of  Railway  Track  Trnava  –  Nove  Mesto  nad  Vahom)  remain  to  be 
administratively completed by the end of 2012.  

2.13. 

Slovenia 

The Commission approved 28 Cohesion Fund projects in Slovenia for the period 2000-2006, 
of  which  16  relate  to  the  environment  sector,  8  relate  to  transport  sector  and  4  are  for 
technical assistance. 

During  2011,  about  EUR  10.65  million  were  paid  out  from  the  Cohesion  Fund  in  terms  of 
intermediate and final payments. Four projects were closed during the year.  

A close monitoring of implementation has been put in place both by the Commission services 
and  the  national  authorities  so  as  to  ensure  a  timely  closure  of  projects.  There  is  an  overall 
delay  in  implementation  which  is  mainly  attributable  to  delays  in  public  procurement  and 
related  appeals  by  bidders  as  well  as  to  the  negative  impacts  of  the  crisis  (i.e.  shortage  of 
national/municipal  co-financing).  In  addition,  VAT  has  become  a  non-eligible  expenditure 
due to a change of the national legislation (VAT became recoverable for municipalities).  

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Environment 

In  line  with  the  Strategic  Reference  Framework  for  the  Cohesion  Fund,  the  main  aim  of 
assistance  from  the  Cohesion  Fund  and  ex-ISPA  during  the  period  2000-2006  was  to  help 
municipalities  and  regions  to  improve  drinking  water  supplies,  sewerage  networks  and 
wastewater  treatment  (a  total  of  12  projects  in  the  water  sector)  and  waste  management 
(4 projects in total). 

The crisis in the past years led to a significant drop in municipal revenues, reduced transfers 
from the state budget, worsened access to bank loans and an increasing demand for municipal 
subsidies  which  negatively  influenced  the  municipality's  ability  to  respect  the  original  work 
schedules for infrastructure projects. In addition, VAT has become a non-eligible expenditure 
due  to  a  change  of  the  national  legislation.  At  the  end  of  2010,  the  Commission  received  4 
requests for an extension of the final date of eligibility to 31 December 2011. These requests 
have been screened at the end of 2010 and in 2011 and for all of them the eligibility end date 
was prolonged. 

In 2011, the works on the ground have been implemented for the above 4 mentioned projects. 
While works have been successfully completed for the contracts under 3 projects, the works 
for  1  project  were  not  finished  due  to  a  bankruptcy  of  the  lead  consortium  partner.  For  the 
former  projects,  the  closure  documents  are  due  in  June  2012.  For  the  latter  project,  the 
Commission is assessing a request for extending the end date of eligibility.  

In 2011, 6 environmental projects entered the closure stage. While 3 of them were closed in 
2011, 3 remain to be closed in 2012.  

Transport 

In 2003 the national authorities defined a National Cohesion Strategy for the transport sector 
which  identified  the  objectives  of  its  transport  strategies  and  the  projects  to  be  financed 
through  the  Cohesion  Fund.  It  involves  the  country  establishing  itself  as  a  maritime  transit 
country within the European Union and marketing its geopolitical position at the crossroads of 
two important European corridors (Corridors V and X) along the existing southern border of 
the  EU.  To  this  end,  bottlenecks  on  corridors  must  first  be  removed,  which  involves  the 
completion  of  the  motorway  network,  upgrading,  modernisation  and  completion  of  the  rail 
network and increasing the range of logistical services. 

The Cohesion Fund co-finances 6 railway projects and 2 motorway projects in the transport 
sector. Following reports of delays due to public procurement in previous  years,  all railway 
projects  in  2010  were  fully  contracted  and  made  satisfactory  progress  in  physical  and 
financial terms (all projects reached the 80% ceiling for advance and interim payments). All 
8 transport projects entered the closure stage and 4 out of 8 were closed by the end of 2011 
(1 was closed in 2011).  

2.14.  Bulgaria 

In 2011, the total ex-ISPA grant for Bulgaria reflected in the Commission decisions has been 
reduced from EUR 879 million to EUR 791 million. This reduction results from the adoption 
of 4 amendment decisions.  

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The expenditure paid for the year 2011 was EUR 31.3 million, generated mainly from those 
projects  for  which  the  Commission  agreed  to  extend  the  final  date  of  eligibility  deadline 
beyond 2010. The total payments (interim and advance ex-ISPA payments) by 31 December 
2011 amount to EUR 646 million. 

Environment 

There are 25 Cohesion Fund/ex-ISPA environmental projects (19 in the water sector, 2 in the 
waste  sector,  1  in  the  energy  sector  and  3  technical  assistance  projects).  While  20  projects 
were finalised,  for the rest  of  the  projects full absorption  and potential completion is out of 
reach.  Out  of  the  20  projects  that  were  successfully  completed  and  put  into  operation  the 
achieved  physical  progress  by  the  end  of  2011  is  the  following:  20  waste  water  treatment 
plants  were  built/renovated,  5  regional  disposal  sites  were  constructed,  243  km  of  sewage 
network and 337 km of water supply network were build/rehabilitated, 10 water projects and 
7  waste  projects  were  prepared  under  the  technical  assistance  measures  and  they  will  be 
implemented  through  Operational  programme  Environment  2007-2013.  These  results  were 
possible due to the extension of the final date of eligibility until the end of 2011 for 9 projects.  

A most negative perspective for the absorption of the environment funds of ex-ISPA is due to: 
the mixture of substantial cost-increases during implementation, with the inability to take up 
all the available credits within the eligibility deadlines, the financial corrections applied due to 
the abuse of the negotiated procure in a number of procurement cases and the perspective of 
likely financial corrections in case of non-completion of the projects' objectives. 

Transport 

There  are  11  Cohesion  Fund/ex-ISPA  transport  project  including  6  technical  assistance 
projects focused specifically on the transport sector. Out of the 8 open transport projects, in 
2011 the Commission has formally extended the final date of eligibility of 1 project (Danube 
Bridge  II)  by  the  end  of  2012.  The  physical  progress  of  the  project  was  delayed  due  to 
contractual  disputes  resulting  from  substantial  cost  overruns  claimed  by  the  contractor.  The 
managing  authority  and  the  contractor  reached  an  agreement  on  the  outstanding  payment 
claims  in  November  2011  and  the  physical  execution  of  the  project  is  expected  to  be 
completed by the end of November 2012.  

In 2011 the Commission completed the amendment of the Plovdiv-Svilengrad rail project and 
bridged  its  non-completed  component  to  the  Operational  programme  Transport  2007-2013. 
The  physical  execution  of  the  remaining  ex-ISPA  component  of  the  project  has  been 
completed  in  2011  with  funding  secured  by  the  Bulgarian  authorities.  As  a  result  a  68  km 
railway section between Plovdiv and Dimitrovgrad has been re-constructed and electrified. 

In mid-2011 the Bulgarian authorities finalised the construction of Liulin motorway and put 
into operation 19 km of motorway which connects Sofia ring road with 2 other highways. 

The physical execution of the remaining 5 Cohesion Fund/ex-ISPA transport projects finished 
in 2010 or earlier. 

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2.15.  Romania 

In  total  63  Cohesion  Fund  projects  were  approved  by  the  Commission  in  the  2000-2006 
programming period for Romania: 36 for the environmental protection-related measures in the 
water  resources  management  and  waste  management  sectors,  12  projects  in  the  transport 
sector  covering  mainly  rail  and  roads,  and  15  technical  assistance  projects  linked  both  with 
the environment and transport sectors. 

Considering  the  2000-2006  programming  period,  the  total  amount  of  grant  decisions  for 
Romania is slightly over EUR 2 billion. These commitments are shared evenly between the 
environment  sector  (50.4%)  and  the  transport  sector  (49.6%),  including  technical  assistance 
related to these sectors. 

Implementation  progress  for  2011  was  according  to  the  revised  schedule.  Half  the  projects 
had  to  be  completed  by  the  end  of  2010.  For  the  other  half  the  implementation  period  was 
prolonged to end 2011 and in 3 cases to end 2012.  

Environment 

The  projects  (deadline  before  end  2010)  for  which  closure  documents  are  complete  in  the 
environment  sector  demand  EUR  25  million  of  payments  and  announce  EUR  9  million  of 
recoveries. 

In  the  environment  sector,  most  of  the  projects behind schedule were those approved in the 
years 2004-2006, which were mostly prolonged by one year for implementation. According to 
the Romanian authorities these projects were all completed at the end of 2011 and first closure 
documents will be sent in 2012.  

Transport 

For  the  projects  in  the  transport  sector  for  which  closure  documents  are  complete  (deadline 
before  end  2010)  the  demanded  payments  amount  to  EUR  16  million  and  the  recoveries 
announced are EUR 34 million. 

The projects, with the final date of eligibility in 2011, reported completion of works in time. 
For 3 big infrastructure projects the period of eligibility was extended to the end 2012, due to 
their  late  adoption  and  the  important  amount  of  funding  involved.  The  scope  of  works  for 
1 railway  project  was  reduced  in  line  with  the  budget  reduction  for  this  project.  A  project 
which is a joint project with Bulgaria is having more difficulties to meet the deadlines. 

Technical assistance 

Out of 15 technical assistance projects, 5 technical assistance projects was closed by the end 
of 2011. 

3. 

MONITORING, INSPECTIONS, FINANCIAL CORRECTIONS AND IRREGULARITIES 

3.1.  Monitoring activities in the beneficiary Member States 

The final date of eligiblity of expenditure was reached for majority of Cohesion Fund projects 
and the project's implementation is coming to the end, only a limited number of monitoring 

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committee  meetings,  monitoring  missions,  site  visits  and  technical  meetings  with  the 
managing authorities and beneficiaries took place in 2011. 

These meetings, however, allowed to review or to follow-up project implementation, discuss 
financial  data  including  payments  and  payment  forecasts,  examine  progress  reports,  explore 
project  achievements  and  discuss  possible  projects  modifications,  in  the  case  of  project 
changes and implementation difficulties. Moreover, such meetings permitted to examine the 
prospects for completion of the Cohesion Fund projects, determine possible solutions of any 
problems and horizontal issues like public procurement and cost overruns.  

The  meetings  of  the  national  authorities  and  the  Commission  representatives  provided 
clarifications  of  any  details  linked  to  the  closure  process  requirements,  helped  to  better 
understand  possible  audit  findings,  explore  impact  of  possible  financial  corrections  and  in 
general contributed to an improved preparation of the closure documents.  

3.1.1.  Greece 

The final date of eligibility was reached for most of the Cohesion Fund projects and therefore 
various technical meetings and site visits took place in 2011. These meeting had as objective to 
ensure the full completion and operation of the co-financed projects. 

3.1.2.  Spain 

Monitoring committees 

The meeting of monitoring committee, which reviewed ongoing projects co-financed by the 
Cohesion  Fund,  was  held  in  Madrid  on  4  May  2011.  To  prepare  the  meeting,  national 
authorities sent the reports reflecting the state of implementation as at 31 December 2010 for 
all decisions (covering a project or a group of projects) that were being implemented on that 
date.  Among  these,  the  managing  authority  -  in  partnership  with  the  Commission  -  selected 
several projects which, by virtue of their particular situation, were subject to monitoring and a 
specific  analysis  during  the  sessions  of  this  Committee.  Specifically  the  following  projects 
were discussed: 

(cid:131)  2004ES16CPE009: Abastecimiento en la Cuenca Hidrográfica del Tajo 

(cid:131)  2000ES16CPE023: Actuaciones en materia de residuos urbanos en Navarra 

(cid:131)  2000ES16CPE143: Plan Director Medioambiental de Getafe 

(cid:131)  2002ES16CPE023: Proyectos de residuos de la Junta de Castilla La Mancha 

(cid:131)  2003ES16CPE020: Planta de recuperación y compostaje de Jaén Sierra Sur  

(cid:131)  2005ES16CPE014: Sistema de Abrera y Sistema Castelloli  

The  Commission  representatives  reminded  the  need  to  submit  all  closure  documents  (final 
payment claim, final report, audit declaration) on time and within the established deadlines. 
There  are  currently  significant  delays  in  the  submission  of  certain  documents  and  of  audit 
declarations in particular. 

Monitoring missions 

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Two  technical  meetings  took  place  in  Madrid  on  26  January  and  11  April  2011.  The 
managing authority, the certification authority and the Commission representatives took part 
in  the  meetings.  The  aim  was  to  address  the  problems  faced  during  the  day-to-day 
management of projects and the measures required to overcome them.  

In  addition,  one  monitoring  mission  was  conducted  in  June  2011  and  its  objective  was  to 
check  the  status  of  11  water  waste  treatment  plants  in  Picos  de  Europa  in  the  north  of  the 
region of Castilla y León. The reason of the visit was the request from the NGO GEDEMOL 
to the European Parliament. The visits further included the following waste water treatment 
plants: Prioro, Boca de Huérgano, Espejos de la Reina y Barniedo de la Reina, Riano, Puebla 
de Lillo, Redipollos de Isoba. All the plants were in good working conditions. 

3.1.3.  Portugal 

Monitoring committees 

According  to  the  internal  regulation  of  the Portuguese  monitoring  committee  relating  to  the 
Cohesion Fund infrastructures for the 2000-2006 period, these meetings are held twice a year. 
However,  at  the  request  of  the  national  authorities  no  meeting  was  held  in  2011.  The  2011 
monitoring  committee  was  postponed  to  the  beginning  of  2012.  The  aim  of  the  monitoring 
committee  meeting  was  to  follow-up  the  implementation  of  the  projects,  and  to  resolve 
problems  related  to  deadlines,  closures  and  audits,  as  well  as  to  examine  the  prospects  for 
completing their implementation in the short time that remained available. At the end of 2011, 
all  the  projects  with  the  exception  of  the  project  ‘Metro  de  Lisboa  –  GIL/Aeroporto’  were 
completed. 

Monitoring missions 

In the course of 2010, the Commission services visited two projects (‘Metro de Lisboe: GIL-
Aeroporto’ and ‘Infraestruturas de tratamento de RSU – Tratolixo’) in order  to take note of 
their  progress  and,  in  certain  cases,  to  discuss  with  the  national  authorities  any  technical  or 
legal problems which had arisen. 

3.1.4.  Cyprus 

Both  Cohesion  Fund  projects  for  Cyprus  were  closed  (completed  and  operational)  and  the 
Commissioner  responsible  for  Cohesion  Policy  visited  those  projects  during  his  official 
mission to Cyprus in July 2011.  

3.1.5.  Czech Republic 

As the implementation of the majority of the projects was completed by the end of 2010, no 
monitoring  committee  meetings  or  monitoring  missions  for  the  remaining  ongoing  projects 
were  carried  out  in  2011.  The  Czech  authorities  submitted  detailed  information  on  the 
progress regarding the 6 ongoing projects with extended eligibility dates by the end of 2011 
on a quartely basis.  

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3.1.6.  Estonia 

The final monitoring committee meeting was held in 2010, discussing the final modification 
proposals and drawing conclusions for a new period. The Commission has mainly highlighted 
the need to learn lessons from the past and to try to improve and build on existing experience 
for the 2007-2013 programming period. No monitoring missions related to the projects were 
carried out in 2011  

3.1.7.  Hungary 

There  were  two  monitoring  committee  meetings  in  2011,  where  all  implementation  reports 
were examined on a project-by-project basis. Problematic issues were raised mainly with the 
implementation  of  the  waste  water  treatment  plant  project  of  Budapest  (possible  non-
implementation  of  the  tertiary  treatment  before  the  end  of  2012  and  delay  in  identifying  an 
appropriate solution for sludge transport and disposal as foreseen in the revised Commission 
decision), and North Balaton waste project because of a fire accident that destroyed part of the 
plant.  

3.1.8.  Latvia 

In 2011, there were no Cohesion Fund monitoring committees, but some technical meetings 
with final beneficiaries were  organised to assist them in preparation of the final reports and 
replies to the Commission comments on closure documentation.  

In  2010,  two  ‘electronic’  Cohesion  Fund  monitoring  committees  and  one  project  visit  took 
place. Main problems concerning implementation and closure of the projects were discussed. 

3.1.9.  Lithuania 

Three monitoring committee meetings took place in Lithuania, on 13-14 July, 24-26 October 
and  19-20  December  2011  (the  last  meeting  was  not  attended  by  the  Commission).  The 
Committee examined the progress reports submitted by the national authorities and discussed 
the  implementation  and  closure  issues  of  open  ex-ISPA  and  Cohesion  Fund  projects.  The 
Committee  meetings  were  combined  with  visits  to  projects:  ‘Neringa  waste  water  treatment 
plant  reconstruction,  sewer  network  extension  and  potable  water  network  rehabilitation’, 
‘Hazardous  Waste  Management  in  Lithuania’  and  ‘Venta-Lielupe  River  basin  Investment 
Programme 1st Phase of the 1st Stage’.  

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Five technical meetings of the Cohesion Fund took place in the course of 2011:  

(cid:131)  March  2011  (middle  and  western  parts  of  Lithuania)  –  monitoring  visit  to  check 
physical  implementation  of  3  waste  projects  ‘Kaunas  regional  waste  management’, 
‘Telšiai  regional  waste  management’,  ‘Vilnius  Waste  Management’  and  2  water 
projects  ‘Mažeikiai  water  and  waste  water  project’,  ‘Kaunas  water  and  waste  water 
project’.  The  on-site  visits  were  followed-up  by  discussions  with  the  managing 
authority, Ministry of Environment and Environmental Projects Management Agency 
on general questions, review of proposed modifications of the Cohesion Fund projects 
and  clarification  of  the  most  problematic  issues  of  the  2000-2006  Cohesion  Fund 
environmental projects.  

(cid:131)  April  2011  (Vilnius,  Lithuania)  –  meeting  with  the  winding-up  body  and  managing 
authority  to  deal  about  general  principles  of  eligibility  issues  and  criteria  to  assess 
flexibility  in  deviation  of  implementation  in  respect  of  project  description  and 
indicators for the 2000-2006 Cohesion Fund projects at the closure.  

(cid:131)  June 2011 (Kaunas, Lithuania) - visit on the spot and discussion on problematic issues 
of the project ‘Rehabilitation of Kaunas Railway Tunnel’ with the managing authority, 
Ministry  of  Transport  and  Communications,  Transport  Investment  Directorate  and 
final  beneficiary,  JSC  Lietuvos  geležinkeliai.  The  visit  was  combined  with  technical 
review  of  the  progress  of  2007-2013  railway  infrastructure  projects  which  was 
followed by project visits to some sections of the priority project No 27 Rail Baltica. 

(cid:131)  July 2011 (Vilnius, Lithuania) – meeting with the managing authority, implementing 
transport and environmental agencies to examine the problematic and priority issues in 
transport  and  environment  sectors  of  2000-06  programming  period,  also  to  have  a 
detailed discussion on the implementation of a number of major projects of 2007-2013 
period.  Two  major  projects  were  visited:  ‘Vilnius  Sludge  Treatment  Facility’  and 
‘Vilnius Western Bypass II stage’. 

(cid:131)  December 2011 (Brussels, Belgium) - meeting with the managing authority, Ministry 
of  Environment  and  national  experts  on  the  problematic  issue  related  to  the  low 
connection  rates  of  new  users  to  the  central  water  and  waste  water  networks  and 
planning of action and follow-up to ensure achievement of objectives.  

3.1.10.  Malta 

Monitoring committees 

Meetings of the monitoring committee for all three Cohesion Fund projects were held on 29 
April 2011 and for the environmental project only on 17 November 2011. The Commission 
representatives attended both monitoring committee meetings.  

Monitoring missions 

No monitoring missions specific to the Cohesion Fund were carried out in 2011. 

3.1.11.  Poland 

Monitoring committees 

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Two meetings of the Cohesion Fund monitoring committee were held in 2011 (on 1 June and 
16 December). The meetings were attended by representatives of the managing authority, the 
paying  authority,  intermediate  bodies,  implementing  agencies,  social  and  economic  partners 
and the final beneficiaries of ongoing projects. 

The meetings were dedicated to a review of the progress in implementing individual projects. 
Discussion focused primarily on the closure process and on projects requesting a modification 
of  the  eligibility  end  date  beyond  2010.  Additionally,  the  following  horizontal  issues  were 
discussed: payment rate and financial forecasts, cost overruns, EIA conditions, and delays in 
implementation. 

Monitoring missions 

No monitoring missions specific to the Cohesion Fund were carried out.  

3.1.12.  Slovakia 

In 2010, it was suggested to present in a last monitoring committee an evaluation of impacts 
of projects in both sectors, i.e. environment and transport which would be closed with a press 
conference  on  the  closure  of  the  Cohesion  Fund  projects  of  the  programming  period  2000-
2006  and  to  disseminate  positive  results  and  achievements  in  both  sectors.  For  several 
reasons, mainly by the fact that only few projects were closed in 2011, all the rest still being 
the object of exchange of information between the national authorities and the Commission, 
this  meeting  was  eventually  not  organised  but  it  is  not  excluded  that  it  will  be  organised  in 
2012.   

3.1.13.  Slovenia 

Monitoring committees 

One  Cohesion  Fund  monitoring  committee  meeting  was  held  in  Slovenia  in  October  2011. 
The meeting focused on the closure process and documents (feedback on the quality of final 
reports),  contractual  relationships  between  implementing  bodies  and  operators  and  the 
implementation of still open projects. Except issue on one environmental project which will 
not be completed by 31 December 2011 due to a bankruptcy of constructor consortium, there 
were no major issues.  

Monitoring missions 

There  were  no  monitoring  missions  in  2011.  In  the  framework  of  the  information  event  in 
September  2011,  the  Slovene  authorities  invited  citizens  to  Open  Days  into  waste 
management  centres.  The  Commission  representatives  paid  a  visit  to  the  regional  waste 
management centre Celje.  

3.1.14.  Bulgaria 

In  2011  two  monitoring  committee  meetings  took  place  in  June  and  in  December.  The 
meetings  of  the  Committees  were  divided  into  two  parts:  project  and sector  based  technical 
discussions,  followed  by  the  official  meeting  to  address  horizontal  issues  and  draw 
conclusions from the technical discussions.  

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In  order  to  enhance  co-ordination  and  co-operation  between  Bulgaria  and  Romania,  a 
Monitoring  Sub-Committee  for  the  construction  of  the  Danube  Bridge  was  set  up  at  the 
initiative of the Commission, involving all relevant parties with a stake in the construction of 
the Danube Bridge. Two meetings were held in 2011 in Vidin and in Calafat.  

3.1.15.  Romania 

Monitoring committees 

During  the  year  2011  two  monitoring  committee  meetings  took  place,  both  focusing  on  the 
ongoing  projects.  They  represented  a  platform  for  advice  and  update  on  the  closure  for  the 
projects  to  prepare  closure  documents.  In  particular,  attention  was  paid  to  the  timing  of 
closure documents preparation and to the efforts to complete the projects. 

Monitoring missions 

Ad-hoc monitoring was carried out for projects presenting higher risk of non-completion for 
both  sectors.  Several  projects  were  also  visited  by  the  Commission  services.  The  joint 
Bulgarian-Romanian  Danube  Bridge  had  special  monitoring  arrangements  in  terms  of  more 
frequent reporting and a dedicated Monitoring Sub-Committee  involving both the Bulgarian 
and the Romanian part of the project. 

3.2. 

Audits and financial corrections in the beneficiary Member States 

The following Member State-specific information complements the information contained in 
the Annual Report. 

3.2.1. 

 Greece 

In Greece the main risks in public procurement is considered to have been addressed properly 
by way of Commission Decision C/2008/5026, as amended by C/2008/8720, which imposed a 
net  financial  correction  on  a  number  of  ongoing  and  completed  projects.  In  addition,  the 
Greek law on public procurement does not fully comply with EU rules on public procurement 
as  regards  exemptions  for  the  tendering  of  public  works,  but  entails  no  amount  at  risk  at 
closure by end 2011. The Commission's audit opinion on the Cohesion Fund system as at end 
2011  is  qualified  moderate.  The  residual  risk,  taken  into  account  the  financial  exposure,  is 
low. 

The Commission also examines the winding-up declarations on an individual basis before the 
closure of the projects, ensuring that any irregular expenditure can be identified and deducted 
at the closure of each project.  

No audits were carried out in Greece on Cohesion Fund projects in 2010-2011 period by the 
Commission.  Previous  audits  identified  some  implementation  delays  and  weaknesses  in 
public procurement procedures, resulting in the adoption of a financial correction decision in 
2008. In addition, following an OLAF investigation of one Greek water supply project during 
2008 and 2009, the national authorities took corrective measures.  

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Out  of  a  total  of  124  Greek  Cohesion  Fund  projects,  for  79  (56  environmental  projects  and 
23 transport projects) a winding-up declaration has been submitted. Most winding-up bodies 
have  been  accepted  by  the  Commission.  For  3  projects  a  financial  correction  was  proposed 
and for 4 projects the closure was suspended (these were projects which were not operational 
or which have a high error rate). In order to further examine this, additional information was 
requested from the national authorities.  

3.2.2. 

 Spain 

Regarding  Spain,  it  was  established  already  by  the  end  of  2010  that  about  80%  of  the 
winding-up  declarations  submitted  contained  irregular  expenditure,  mainly  related  to  non-
compliance  with  public  procurement  rules.  During  2011,  one  mission  was  carried  out  in 
Galicia to audit two projects. The Commission concluded with a qualified opinion for both of 
them  due  to  public  procurement  issues  (use  of  irregular  criteria,  lack  of  transparency  in  the 
evaluation  procedure,  contract  modifications)  and  proposed  a  financial  correction  of 
EUR 20.9 million.  

At the end of 2011, 249 winding-up declarations for Spanish projects had been received and 
the assessment of 121 winding-up declarations was closed. However, the eligibility period of 
the  majority  of  Cohesion  Fund  projects  in  Spain  has  been  extended  until  end  2011  or  end 
2012,  meaning  that  the  Commission  will  receive  the  winding-up  declarations  only  in  mid-
2013 and 2014. Interim payments will be made for a large number of Spanish projects in 2011 
and 2012.  

In 2011 two hearings were organised, in order to finalise the closure of projects affected by 
irregularities  but  not  decertified  by  the  Member  State.  A  limited  number  of  projects  were 
discussed  (15  in  2011  versus  28  in  2010)  due  to  failure  to  submit  the  requested  technical 
information necessary to conclude on the regularity of contract modifications by the Spanish 
authorities. In view of the above, and taking into account the financial exposure, the residual 
risk related to Spanish Cohesion Fund projects is considered high.  

The audit opinion of the Commission at the end of 2011 was qualified significant mainly due 
to deficiencies in the quality of Article 4 checks and Article 9 controls and lack of a strict and 
proactive  supervisory  role  of  Spanish  authorities  and  the  absence  of  decertification  of 
irregular  expenditure.  Accordingly,  the  Directorate-General  for  Regional  Policy's  Annual 
Activity Report for 2011 contains a reputational reserve for the Cohesion Fund in Spain.  

The  Commission  will  continue  to  audit  a  sample  of  closed  and  ongoing  Spanish  projects, 
focusing on the risks identified above. 

3.2.3. 

 Portugal 

In  Portugal,  the  main  risk  detected  by  the  Commission's  system  audits  was  in  relation  to 
deficient  management  verifications.  This  risk  has  been  addressed  through  an  action  plan  to 
verify  a  representative  sample  of  expenditure  declared  during  the  years  2000  to  2004.  The 
high coverage (52 out of the total 109 projects audited) and the signature, in January 2008, of 
a contract of confidence with the Portuguese winding-up body and audit authority, provides a 
high  degree  of  reliance  on  the  audit  work  done  by  the  winding-up  body,  therefore  no  audit 
mission was carried out in 2011. 

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In  2011  the  Commission  analysed  the  annual  control  report  under  Article 12  of  Regulation 
(EC) No 1386/2002 and 16 winding-up declarations for the closure of Portuguese Cohesion 
Fund projects. As a result, financial corrections were proposed for 6 projects. 

The Commission's audit opinion on the Cohesion Fund system as at end 2011 is unqualified. 
The residual risk, taking into account the financial exposure, is low. 

3.2.4. 

 Cyprus 

Based on the positive results of the review of the work of the winding-up body in 2008, the 
positive conclusions from other audit missions in Cyprus, and the desk work carried out by 
the  Commission,  a  contract  of  confidence  for  the  Cohesion  Fund  and  ERDF  was  signed 
between the Commission and the Cypriot audit authority in December 2008. 

An  unqualified  opinion  was  issued  for  Cohesion  Fund  expenditure  in  Cyprus  in  the  2011 
Annual Activity Report. The residual risk, taken into account the financial exposure, is low. 
In  addition,  both  Cypriot  Cohesion  Fund  projects  have  submitted  a  winding-up  declaration, 
which have been accepted by the Commission.  

3.2.5. 

 Czech Republic 

In the Czech Republic, 30 Cohesion Fund projects have already been closed, out of a total of 
58.  During  2011,  the  closure  process  was  slow,  mainly  due  to  irregular  use  of  contractual 
penalties, as initially identified  by  the European Court  of  Auditors in one of the DAS 2010 
audits. This issue was resolved in 2012. 

The  Commission's  follow-up  audit  mission  on  retrospective  verifications  revealed  that  the 
Czech  winding-up  declarations  did  not  identify  and  correct  all  relevant  findings  on  public 
procurement. In many cases additional financial corrections have been proposed at closure by 
the Commission.  

The audit opinion of the Commission at the end 2011 was qualified moderate and the residual 
risk taken into account the financial exposure was considered low, provided that the financial 
corrections resulting from the winding-up declaration analyses are implemented.  

3.2.6. 

 Estonia 

Following  the  positive  results  of  the  audit  work  carried  out  in  previous  years,  a  contract  of 
confidence was signed with Estonia in 2007, covering both the Cohesion Fund and the ERDF. 
No audit missions were carried out in Estonia in 2010 and 2011. All previous audit missions 
have been closed. 

The  Commission's  audit  opinion  as  at  end-2011  for  the  Cohesion  Fund  in  Estonia  is 
unqualified. The residual risk, taking into account the financial exposure, is low.  

3.2.7. 

 Hungary 

An audit mission was carried out in December 2009, primarily focusing on the compliance of 
contract modifications with the public procurement provisions. The audited sample included 
five Cohesion Fund environment and transport projects. A financial correction amounting to 
EUR 0.91 million was accepted by the Member State. However, one finding is still contested 
by the authorities for two projects. A 100% financial correction was proposed for the value of 
the contract modification amounting to EUR 1.37 million.  

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Another audit covering two environmental projects was carried out in November 2010 under 
the  EPM  review  of  winding-up  bodies  and  closure  of  projects  2000-2006.  The  audit  was 
closed  in  September  2011.  A  third  audit  was  carried  out  in  July  2011  covering  one  railway 
project. The main finding concerned direct award of  a  contract, for which a 100% financial 
correction to the contract value was proposed amounting to EUR 1.9 million. 

The audits of the Commission detected several public procurement irregularities and also that 
the managing authority does not always implement the winding-up body's recommendations, 
closing findings without implementing financial corrections.  

The  Commission's  audit  opinion  as  at  end  2011  is  qualified  moderate  for  Environment  and 
Technical Assistance and qualified significant for the Transport sector. DG Regional Policy's 
Annual  Activity  Report  for  2011  contains  a  reputational  reserve  for  the  Cohesion  Fund  in 
Hungary (transport sector).  

3.2.8. 

 Latvia 

In  Latvia,  a  fact-finding  audit  mission  in  2010  revealed  weaknesses  in  the  functional 
independence of the winding-up body; improvements were made in 2011. Furthermore, public 
procurement  irregularities  were  detected  during  the  analysis  of  winding-up  declarations.  An 
audit mission was performed in 2011 covering two projects. The findings made are linked to 
public procurement and the audit trail.  

Up  to  the  end  of  2011,  for  the  environmental  sector  25  winding-up  declarations  have  been 
received and analysed by the Commission services (5 with proposed financial corrections and 
most  likely  a  hearing  will  be  organised  in  2012).  For  the  technical  assistance  projects,  2 
winding-up  declarations  have  been  received  and  assessed  by  the  Commission.  For  the 
transport sector, 17 winding-up declarations have been analysed.  

The Commission's audit opinion at the end of 2011 is qualified moderate and the residual risk 
taken into account the financial exposure is medium.  

3.2.9.  

 Lithuania 

For Lithuania, the residual risk is considered low/medium, taking into account the results of 
the audit work carried out by the winding-up body and  by  the  European  Court  of  Auditors. 
However, residual risks remain in the public procurement area.  

During its closure audit carried out in 2011, the Commission noted material deficiencies, as 
the winding-up body did not always estimate the financial impact of its findings and was not 
satisfactorily  following  up  the  findings  and  irregularities  detected.  Important  systemic 
weaknesses related to public procurement procedures were detected by the winding-up body, 
confirmed by the findings of the Commission and the European Court of Auditors.  

The Commission's audit opinion at the end of 2011 was qualified moderate. However, since 
the  beginning  of  2011,  the  winding-up  body  is  proposing  corrections  based  on  the  COCOF 
guidance note (COCOF 07/0037/03).  

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3.2.10.  Malta 

No  audit  missions  or  financial  correction  procedures  were  carried  in  2010-2011.  Previous 
audit missions carried out in 2005 and 2007 did not give rise to any significant findings.  

The Commission examined the annual control report under Article 12 of Regulation (EC) No 
1386/2002  submitted  by  the  Member  State;  this  highlighted  sufficient  audit  coverage  and  a 
zero error rate for Cohesion Fund projects.  

By end 2011, two winding-up declarations have been received. These have been analysed and 
accepted during first quarter of 2012. 

An  unqualified  opinion  was  issued  for  Cohesion  Fund  2000-2006  expenditure  in  the  2011 
Annual Activity Report. The management and control system in Malta shows good practice. 

3.2.11.  Poland 

For Poland, the main risks identified during the previous years' audits have been addressed by 
the completion of an action plan aiming to increase the quality of audit work by the national 
authorities,  in  particular  in  the  public  procurement  area.  The  subsequent  annual  control 
reports  indicate  that  the  audit  authority  identified  and  quantified  irregularities  due  to  non-
compliance  of  public  procurement  procedures.  Results  of  such  additional  verifications  were 
included in the winding-up declarations received after 2009.  

In June 2010, an agreement on self-correction was reached between the Polish authorities and 
the Commission services. In this regard the risks resulting from the systemic findings in the 
public  procurement  area  are  considered  to  be  adequately  addressed  by  the  application  at 
closure of a net flat rate correction on all Cohesion Fund projects closed after this date.  

The Commission's audit opinion at the end 2011 was qualified moderate and the residual risk, 
taken into account the financial exposure, is medium.  

3.2.12. 

 Slovakia 

No  audit  missions  were  carried  out  by  the  Commission  in  2011  for  the  Cohesion  Fund  in 
Slovakia.  

At the end of 2011, 36 winding-up declarations for the closure of projects had been received 
and  20  assessments  had  been  fully  closed.  The  majority  of  the  Cohesion  Fund  projects  are 
affected  by  findings  related  to  public  procurement  issues  and  eligibility  of  expenditure.  No 
hearings were organised in 2011. However, the Slovak authorities have requested a hearing in 
2012 in respect of the selection criteria issue.  

The Commission's audit opinion at end 2011 was qualified moderate. 

3.2.13. 

 Slovenia 

On the basis of audit work carried out in the years 2005-2007, a contract of confidence was 
signed  with  Slovenia  in  February  2008,  covering  the  Cohesion  Fund  and  ERDF.  Following 
this  contract,  no  Cohesion  Fund  audit  missions  were  carried  out  by  the  Commission  in 
Slovenia in 2010 or 2011.  

The audit work in 2011 included the examination of the annual control report under Article 12 
of Regulation (EC) No 1386/2002 and of the annual summary.  

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The  Commission's  audit  opinion  as  at  end  2011  is  unqualified  for  the  Cohesion  Fund  in 
Slovenia. 

3.2.14.  Bulgaria 

The  Commission  started  on-spot  audit  work  in  Bulgaria  in  2004,  covering  mainly  the 
adequacy of the management and control systems. In 2005-2007, the Commission continued 
to carry out systems audits. The audits carried out in 2008-2009 revealed deficiencies in the 
area  of  public  procurement,  resulting  in  financial  corrections  being  proposed  by  the 
Commission.  A  horizontal  audit  of  environmental  projects  was  carried  by  the  winding-up 
body in 2009 in order to address the issue of the incorrect use of the negotiated procedure, the 
results of which were assessed by the Commission. This is considered an important mitigating 
factor for the environment sector. As a consequence, a financial correction of approximately 
EUR 18 million was accepted by the managing authority in 2010 and the remaining EUR 0.7 
million was accepted in 2011.  

An audit in the transport sector carried out by the Commission in 2009 identified deficiencies 
in  the  methodology  and  work  of  the  winding-up  body  in  the  area  of  public  procurement, 
publicity and revenue generation.  

An audit mission was carried out in May 2011 to further assess the work and reliance of the 
winding-up body. Deficiencies were identified relating to the award of additional works and 
delays in project implementation. 

Six winding-up declarations were received and analysed by the end of 2011. The closure of 
one technical assistance project was interrupted.  

The  annual  control  report  under  Article 12  of  Regulation  (EC)  No  1386/2002  was  qualified 
due  to  weaknesses  in  controls  performed  by  the  Road  Infrastructure  Agency  and  irregular 
expenditure identified in one technical assistance project and in one environment project.  

The Commission's audit opinion at the end of 2011 is qualified moderate for Environment and 
Technical Assistance and for the Transport sector except for the Road Infrastructure Agency 
(RIA),  which  is  qualified  significant.  The  overall  residual  risk,  taking  into  account  the 
financial exposure, is considered medium.  

3.2.15.  Romania 

Since 2004, a total of 24 projects have been audited on the spot in Romania up to the end of 
2011.  The  following  residual  risk  factors  have  been  identified  for  the  transport  and 
environment  sector:  weaknesses  detected  in  the  area  of  public  procurement  and  in 
management  verifications,  delayed  implementation  of  improved  reliability  of  accounting, 
monitoring  and  reporting  system  in  computerised  form  and  difficulties  related  to  the 
application of financial corrections due to the complex national legal framework.  

One  mission  was  carried  out  in  2011  covering  three  environment  and  transport  projects. 
Findings were noted in the area of public procurement and eligibility. 

The annual control report under Article 12 of Regulation (EC) No 1386/2002 was submitted 
and examined by the Commission in 2011. Ten winding-up declarations were analysed during 

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2011, leading to further clarifications being requested  from the Romanian  authorities  for  all 
the files.  

In  the  2011  Annual  Activity  Report  of  the  Directorate-General,  the  opinion  issued  for 
Cohesion Fund Romania was qualified with moderate impact. 

3.3. 

Financial corrections 

The amount of financial corrections implemented for the 2000-2006 Cohesion Fund projects 
in the year 2011 reached EUR 114.9 million. About 82% of the amount was implemented by 
decommitment/deduction  at  closure,  15%  was  implemented  by  Member  States  and  3%  was 
implemented  by  recovery  order.  Most  of  the  Member  States  implemented  financial 
corrections in 2011 as presented in the Table 1.  

In  2011,  the  cumulative  amount  of  financial  corrections  decided/agreed  for  the  2000-2006 
Cohesion  Fund  projects  was  EUR  508  million.  By  end  2011,  67%  of  decided/agreed 
corrections  for  the  2000-2006  Cohesion  Fund  have  been  implemented  by  Member  States 
(i.e. EUR 342 million), either immediately through recovery orders issued by the Commission 
(when they resulted from formal Commission decisions) or through withdrawals of the agreed 
amounts  from  subsequent  statements  of  expenditure  by  the  Member  States  (including  after 
recoveries from individual beneficiaries where possible).  

Table 1: Financial corrections decided/agreed and implemented in 2011 for the Cohesion Fund, 
period 2000-2006 by Member State 

Member State 

Decided/agreed 

Implemented 

Greece 
Ireland 
Portugal 
Spain 
Cyprus 
Czech Republic 
Estonia 
Hungary 
Latvia 
Lithuania 
Malta 
Poland 
Slovakia 
Slovenia 
Bulgaria 
Romania 
TOTAL 

1 272 734 

4 139 400 
-5 413 806 

7 921 142 
77 353 
2 581 124 

206 765 

4 796 351 
922 150 

690 206 
221 365 
17 414 784 

1 723 858 
627 640 
4 550 144 
74 297 593 

5 445 680 
77 353 
1 666 250 

206 765 

11 282 427 
2 590 313 

9 432 772 
2 968 735 
114 869 530 

The above table does not include the results of the Member States' own checks of Cohesion Fund expenditure. Corrections 
implemented in 2011 refer to corrections decided/agreed in 2011 or in previous years. 

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