Recommendation for a COUNCIL RECOMMENDATION on Sweden’s 2013 national reform programme and delivering a Council opinion on Sweden’s convergence programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Sweden, budget deficit, budgetary equilibrium, indebtedness, job access, property market, tax reform, youth unemployment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 377 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Sweden’s 2013 national reform programme  

and delivering a Council opinion on Sweden’s convergence programme for 2012-2016 

{SWD(2013) 377 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Sweden’s 2013 national reform programme  

and delivering a Council opinion on Sweden’s convergence programme for 2012-2016 

THE COUNCIL OF THE EUROPEAN UNION,  

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

On  26  March  2010,  the  European  Council  agreed  to  the  Commission’s  proposal  to 
launch  a  new  strategy  for  growth  and  jobs,  Europe  2020,  based  on  enhanced 
coordination of economic policies, which will focus on the key areas where action is 
needed to boost Europe’s potential for sustainable growth and competitiveness. 

On 13 July 2010, on the basis of the Commission's proposals, the Council adopted a 
recommendation  on  the  broad  guidelines  for  the  economic  policies  of  the  Member 
States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on 
guidelines  for  the  employment  policies  of  the  Member  States5,  which  together  form 
the  ‘integrated  guidelines’.  Member  States  were  invited  to  take  the  integrated 
guidelines into account in their national economic and employment policies. 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2013) 377 final. 
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision 2013/208/EU of 22 April 2013. 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

On 29 June 2012, the Heads of State or Government decided on a Compact for Growth 
and  Jobs,  providing  a  coherent  framework  for  action  at  national,  EU  and  euro  area 
levels using all possible levers, instruments and policies. They decided on action to be 
taken  at  the  level  of  the  Member  States,  in  particular  expressing  full  commitment  to 
achieving the objectives of the Europe 2020 Strategy and to implementing the country-
specific recommendations. 

On 6 July 2012, the Council adopted a recommendation on Sweden’s national reform 
programme  for  2012  and  delivered  its  opinion  on  Sweden’s  updated  convergence 
programme for 2011-2015. 
On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey6, 
marking  the  start  of  the  2013  European  Semester  for  economic  policy  coordination. 
Also  on  28  November  2012,  the  Commission,  on  the  basis  of  Regulation  (EU)  No 
1176/2011  on  the  prevention  and  correction  of  macroeconomic  imbalances,  adopted 
the  Alert  Mechanism  Report7,  in  which  it  identified  Sweden  as  one  of  the  Member 
States for which an in-depth review would be carried out. 

On  14  March  2013,  the  European  Council  endorsed  the  priorities  for  ensuring 
financial stability, fiscal consolidation and action to foster growth. It underscored the 
need  to  pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal 
lending conditions to the economy, to promote growth and competitiveness, to tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 
On  10  April  2013,  the  Commission  published  the  results  of  its  in-depth  review8  for 
Sweden,  under  Article  5  of  Regulation  (EU)  No  1176/2011  on  the  prevention  and 
correction  of  macroeconomic  imbalances.  The  Commission’s  analysis  leads  it  to 
conclude  that  Sweden  is  experiencing  macroeconomic  imbalances,  which  deserve 
monitoring  and  policy  action.  In  particular,  macroeconomic  developments  regarding 
private  sector  debt  and  deleveraging,  coupled  with  remaining  inefficiencies  in  the 
housing  market  deserve  continued  attention.  Although  the  large  current  account 
surplus  does  not  raise  risks  similar  to  large  deficits  the  Commission  will  continue 
monitoring the developments of the current account in Sweden. 

On  19 April  2013, Sweden submitted its 2013 convergence programme covering the 
period 2012-2016 and its 2013 national reform programme. In order to take account of 
their interlinkages, the two programmes have been assessed at the same time. 

Based  on  the  assessment  of  the  2013  convergence  programme  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario  underpinning  the  budgetary  projections  in  the  programme  is  plausible  for 
2013.  The  government  projects  a  GDP  growth  of  1.2%  and  2.2%  in  2013  and  2014, 
respectively, whereas the Commission forecasts 1.5% and 2.5%. The objective of the 
budgetary strategy outlined in the programme is to ensure long-term sustainability of 
public finances by respecting the rules of the Swedish fiscal framework, including the 
target of having a surplus in general government net lending of 1% of GDP on average 
over the business cycle. General government balance slipped from a small surplus of 
0.2%  of  GDP  in  2011  to  a  deficit  of  0.5%  in  2012.  The  programme  confirms  the 
previous medium-term budgetary objective (MTO) of -1.0 % of GDP. The MTO is in 

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COM(2012) 750 final. 
COM(2012) 751 final. 
SWD(2013) 124 final. 

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line with the requirements of the Stability and Growth Pact. The programme foresees a 
structural general government balance, as recalculated by the Commission, to improve 
from  a  minor  deficit  around  0.4%  of  GDP  in  2012-13  to  a  surplus  in  2014  and 
onwards.  Therefore,  the  MTO  is  likely  to  be  met  over  the  programme  period. 
According  to  the  information  in  the  programme,  the  growth  rate  of  government 
expenditure,  net  of  discretionary  revenue  measures,  would  exceed  the  reference 
medium-term rate of potential GDP growth in 2012 and 2013, but would be below that 
rate  in  2014.  Even  taking  into  account  the  possibility  of  further  expansionary 
discretionary  measures  in  2014,  the  risks  to  the  budgetary  targets  are  limited. 
According to the programme, the debt ratio, which is below the 60% of GDP reference 
value, is projected to increase temporarily to 42% of GDP in 2013, but fall back below 
40% of GDP in 2015. The Commission forecasts the debt ratio to decline to 39% in 
2014. 

(10)  The high indebtedness of the private sector (at 235 % of GDP in 2012) continues to be 
a matter of concern. Household debt, hovering around 80 % of GDP or roughly 170 % 
of  disposable  income,  has  only  recently  stabilised  and  is  not  likely  to  decline  in  the 
near future given continued credit growth and a slow pace of mortgage amortisation. 
The  current  tax  deductibility  of  interest  payments  and  low  recurrent  property  taxes 
contribute to a debt bias in Swedish housing taxation, contributing to high debt levels. 
Moreover, the relatively big gap between the effective marginal tax rate on debt and 
on  equity  for  new  investment  suggests  a  continued  bias  towards  debt-financing  for 
corporations.  Sweden  has  recently  restricted  the  deductibility  of  intra-group  interest 
expenses  but  has  no  comprehensive  system  to  correct  the  debt-equity  tax  bias. 
Corporate debt remains substantial at 149% of GDP. 

(11)  Although the Swedish housing market has been stable in the recent past, it remains a 
potential  source  of  instability.  On  the  supply  side,  the  Swedish  housing  market  is 
characterised  by  some  inefficiencies  which  may  contribute  to  drive  house  prices 
upwards and create undesirable lock-in effects. Swedish construction investments are 
only  half  of  those  of  other  Nordic  countries,  both  in  relation  to  GDP  as  well  as 
population.  At  present,  it  often  takes  several  years  to  launch  a  new  project,  due  to 
lengthy processes at the municipal level. Streamlining these processes would increase 
the  flexibility  of  housing  supply,  foster  competition  in  the  construction  sector  and 
decrease  construction  costs.  Further  reforms  to  the  rent-setting  system  are  needed  to 
allow  market  forces  to  establish  an  optimal  supply  of  rental  housing  at  an  adequate 
price. Addressing the inefficiencies of the housing market is likely to also help reduce 
household debt levels, as these issues are interlinked. 

(12) 

In Sweden, unemployment rates for youth, people with a migrant background and the 
low-skilled in general remain far above those of the rest of the working-age population 
and above the EU average. Sweden has taken a large number of new relevant measures 
to  address  this  issue.  Measures  targeting  the  integration  of  people  with  a  migrant 
background  into  the  labour  market  have  already  produced  initial  results  in  lowering 
the  unemployment  rate,  but  continued  efforts  are  needed  to  reduce  the  gap  between 
them  and  the  rest  of  the  population.  Young  people  have  so  far  not  noticeably 
benefited. However, a number of promising measures have been put in place or are in 
the pipeline; these include supporting work introduction agreements within the context 
of the Swedish model of wage setting by fully independent social partners. Efforts to 
strengthen  apprenticeships  and  other  types  of  work-based  vocational  education  are 
also  fully  relevant  but  these  will  have  to  be  more  ambitious  if  they  are  to  have  the 
desired  impact.  Continued  progress  would  be  warranted  in  reviewing  employment-

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protection  legislation  and  exploiting  the  benefits  of  the  job  guarantee  for  young 
people.  More  narrowly-defined  measures  targeting  those  in  most  need  should  be 
preferred  to  general  subsidies.  Under  the  Swedish  Job  guarantee,  young  people  who 
are seeking work through the Public Employment Service and who have already been 
unemployed for 90 days are offered targeted services to help improving their chances 
of finding employment and education opportunities. However, the guarantee currently 
seems  less  effectively  targeted  towards  young  people  who  are  not  in  education  or 
training,  nor  registered  with  the  Public  Employment  Service.  In  line  with  the  2012 
recommendation,  Sweden  has  commissioned  a  review  of  the  effects  of  the  reduced 
VAT  rate  for  restaurants  and  catering  services  on  prices,  wages  and  employment  of 
young  people,  which  should  deliver  preliminary  results  in  January  2014  and  final 
conclusions  in  2016.  This  review  will  be  important,  given  the  concerns  raised  about 
the cost-effectiveness of this measure.  

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of Sweden’s economic policy. It has assessed the convergence 
programme and national reform programme, and presented an in-depth review. It has 
taken into account not only their relevance for sustainable fiscal and socio-economic 
policy  in  Sweden  but  also  their  compliance  with  EU  rules  and  guidance,  given  the 
need  to  reinforce  the  overall  economic  governance  of  the  European  Union  by 
providing EU-level input into future national decisions. Its recommendations under the 
European Semester are reflected in recommendations (1) to (4) below. 

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

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  Sweden’s  national  reform  programme  and  convergence  programme.  Its 
recommendations under Article 6 of Regulation (EU) No 1176/2011 on the prevention 
and  correction  of  macroeconomic  imbalances  are  reflected  in  recommendations  (2) 
and (3) below. 

(13) 

(14) 

(15) 

HEREBY RECOMMENDS that Sweden should take action within the period 2013-2014 to: 

1. 

2. 

3. 

4. 

9 

Implement  the  measures  necessary  to  pursue  a  growth-friendly  fiscal  policy  and 
preserve  a  sound  fiscal  position  ensuring  compliance  with  the  medium-term 
objective over the programme horizon. 

Continue addressing risks related to private debt by reducing the debt bias in housing 
taxation  by  phasing  out  tax  deductibility  of  interest  payments  on  mortgages  or/and 
increasing  property  taxes.  Take  further  measures  to  foster  prudent  lending  by 
measures  promoting  amortisation  of  mortgages.  Further  reduce  the  debt-bias  in 
corporate taxation.  

Improve the efficiency of the housing market by phasing out remaining elements of 
rent  control  and  strengthening  the  freedom  of  contract  between  individual  tenants 
and landlords. Promote increased competition in the construction sector and review 
the planning, zoning and approval processes with the aim of increasing transparency, 
shortening lead times and reducing entry barriers for construction companies.  

Reinforce  efforts  to  improve  the  labour-market  integration  of  low-skilled  young 
people  and  people  with  a  migrant  background  by  stronger  and  better  targeted 
measures  to  improve  their  employability  and  the  labour  demand  for  these  groups. 

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

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Step up efforts to facilitate the transition from school to work, including via a wider 
use of work-based learning, apprenticeships and other forms of contracts combining 
employment  and  education.  Complete  the  Youth  Guarantee  to  better  cover  young 
people not in education or training. Complete and draw conclusions from the review 
of  the  effectiveness  of  the  current  reduced  VAT  rate  for  restaurants  and  catering 
services in support of job creation.  

Done at Brussels,  

For the Council 
The President 

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