Recommendation for a COUNCIL RECOMMENDATION on Spain’s 2013 national reform programme and delivering a Council opinion on Spain’s stability programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Spain, banking system, budget deficit, budgetary equilibrium, domestic market, financial solvency, international trade, job creation, liberalisation of the market, public expenditure, stability programme, tax reform, trans-European network, youth unemployment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 359 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Spain’s 2013 national reform programme  

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

{SWD(2013) 359 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Spain’s 2013 national reform programme  

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

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament,4 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

On  26  March  2010,  the  European  Council  agreed  to  the  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. 

(3) 

On  29  June  2012,  the  Heads  of  State  and  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 

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OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25. 
COM(2013) 359 final  
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision 2013/208/EU of 22 April 2013. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

to be taken at the level of the Member States, in particular expressing full commitment 
to achieve the objectives of the Europe 2020 Strategy and to implement the country-
specific recommendations. 

On  6  July  2012,  the  Council  adopted  a  recommendation  on  Spain’s  national  reform 
programme for 2012 and delivered its opinion on Spain’s updated stability programme 
for 2011-2015. 
On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey6, 
marking the start of the 2013 European Semester of economic policy coordination. On 
28 November 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, 
adopted  the  Alert  Mechanism  Report7,  in  which  it  identified  Spain  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 
Spain, under Article 5 of Regulation (EU) no 1176/2011. The Commission's analysis 
lead it to conclude that Spain is experiencing excessive macroeconomic imbalances. In 
particular,  very  high  domestic  and  external  debt  levels  continue  to  pose  risks  for 
growth  and  financial  stability;  the  banking  sector  is  undergoing  a  process  of 
recapitalisation  and  restructuirng,  including  with  public  money;  rigidities  in  product 
and  labour  markets  contribute  to  high  and  rising  unemployment,  and  more  generally 
hinder  the  adjustment  of  the  economy.  Although  adjustment  is  taking  place,  the 
magnitude of the necessary correction requires continuous strong policy action, in the 
areas  of  product  and  service  markets,  labour  market,  financial  sector,  and  public 
finances. 

On 30 April 2013, Spain submitted its 2013 stability programme covering the period 
2012-2016 and its 2013 national reform programme (NRP). 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 stability programme pursuant to Article 5(1) of 
Council  Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the 
macroeconomic scenario underpinning the budgetary projections in the programme is 
broadly  plausible  for  2013  and  subject  to  some  downside  risks  in  2014  and  beyond 
compared  with  the  Commission's  2013  spring  forecast.  Although  the  programme 
projects  growth  to  be  lower  over  the  2014-16  period  compared  to  the  Commission's 
2013 spring forecast, the latter is based on a no-policy-change assumption and hence 
does  not  take  into  account  the  fiscal  consolidation  that  will  be  needed  to  attain  the 
budgetary targets in the programme. The objective of the budgetary strategy outlined 
in  the  programme  is  to  bring  the  general  government  deficit  below  the  3%  of  GDP 
reference value by 2016. The consolidation relies mainly on expenditure restraint with 
the expenditure ratio decreasing by 3.7 percentage points over the 2012-16 period, but 
also  on  some  revenue-increasing  measures.  Based  on  the  (recalculated)  structural 

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COM(2012)750 final 
COM(2012)751 final 
SWD(2013) 116 final 

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balance9 the annual improvement of the structural deficit planned in the programme is 
1.2%,  0.4%,  0.9%  and  0.9%  of  GDP  for  the  years  2013  to  2016.  Following  the 
correction  of  the  excessive  deficit,  the  programme  confirms  the  medium-term 
objective (MTO) of a balanced budgetary position in structural terms, which would be 
achieved  by  2018.  The  MTO  is  more  ambitious  than  required  by  the  Stability  and 
Growth  Pact.  The  envisaged  pace  of  adjustment  in  structural  terms  in  2017-18 
represents  sufficient  progress  towards  the  MTO.  The  programme  projects  the 
government debt ratio to peak in 2016 and to start declining thereafter. The deficit and 
debt  adjustment  paths  are  subject  to  downside  risks.  Measures  to  support  the  deficit 
targets  are  not  sufficiently  specified,  especially  at  regional  level.  For  2016  the 
programme  does  not  present  any  measures  and  previous  temporary  measures  are 
extended only to 2014. Planned savings from the local government reform are subject 
to significant implementation risks. Moreover, there are uncertainties surrounding the 
economic,  labour  market  and  financial  situation  as  well  as  revenue  developments  in 
the  context  of  persisting  large  macroeconomic  imbalances.  Fully  implementing  the 
adopted early retirement reform and reaching an agreement on the sustainability factor 
would mitigate risks in the social security system. A further risk stems from contingent 
liabilities linked with asset protection schemes/guarantees. There were major progress 
in the reporting of budgetary execution, but there is scope for a more transparent and 
timely  implementation  of  the  Budgetary  Stability  Law's  preventive  and  corrective 
mechanisms.  Systematic  and  timely  reporting  on  government  arrears,  whose  large 
outstanding stock required an ad-hoc repayment scheme, is missing. The establishment 
of  an  independent  fiscal  council  has  been  lagging  behind  schedule.  A  proposed 
revision  of  indexation  rules  for  all  public  revenues  and  expenditures  would  bring 
budgetary savings and a higher responsiveness of prices to economic conditions. The 
NRP  also  acknowledges  the  need  to  further  improve  cost-effectiveness  in  healthcare 
and  pharmaceutical  expenditure,  e.g.  by  revising  reference  prices  and  centralising 
purchasing of pharmaceutical products, or extending co-payments.  

(10)  While  significant  rebalancing  of  the  relative  tax  burden  towards  consumption  and 
environmental taxes took place in 2012, the Spanish tax-to-GDP ratio remains among 
the  lowest  in  the  EU.  The  efficiency  of  the  tax  system  can  be  improved  further  by 
increasing the share of more growth-friendly indirect taxes and by tackling tax fraud 
and evasion, in line with the fiscal consolidation efforts. Spain took some measures to 
address  the  debt  bias  in  corporate  taxation,  but  further  efforts  are  necessary  in  the 
context of high private indebtedness. 

(11)  The  financial  sector  adjustment  programme  is  on  track.  In  particular,  the  necessary 
recapitalisations have been carried out, and the asset management company Sareb has 
been set up. The restructuring of banks, in accordance to the decisions under state aid 
rules,  will  require  continued  attention  in  the  coming  years.  To  alleviate  the  funding 
and  liquidity  constraints  on  companies  Spain  implemented  in  2012  a  large  plan  of 
payment of State commercial debt to companies (EUR 27.3 bn) and launched various 
initiatives to widen the financing options for firms. An extension of the plan to repay 
State commercial debt is foreseen for 2013.  

(12)  The situation on the labour market remains critical. The readjustment of the economy 
away  from  domestic  demand  and  construction  in  a  context  of  market  rigidities  and 
skills mismatch, among others, have contributed to the increase in the unemployment 

9 

Cyclically  adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
services  on  the  basis  of  the  information  provided  in  the  programme,  using  the  commonly  agreed 
methodology. 

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rate to 27% in early 2013. Of particular concern is the marked increase of the youth 
unemployment rate to 56% and the rise of long-term unemployment to 44.4% of total 
unemployment at the end of 2012. Available data suggest that the 2012 labour market 
reform  has  started  to  lead  to  higher  internal  (within  the  firm)  flexibility,  to  some 
reduction  of  dismissal  costs  and  to  increasing  wage  moderation.  An  official 
assessment  of  the  reform  against  its  stated  objectives,  with  a  view  to  complement  it 
where needed, has been announced in the NRP for July 2013. Reforms in the field of 
active  labour  market  policies  have  lagged  behind  and  actions  to  modernise  and 
reinforce  the  Public  Employment  Service  itself  are  still  needed  and  the  recently 
adopted opening for private placement agencies remains to be made fully operational 
as well as the co-operation between national and regional public employment services 
(Single Job Portal).  

(13)  A  high  share  of  unemployed  without  formal  qualifications  (35%)  and  inadequate 
labour  market  relevance  of  education  and  training  contribute  to  the  high  youth 
unemployment  rate,  as  well  as  to  long  term  unemployment.The  national  Youth 
Employment  and  Entrepreneurship  Strategy  2013-2016,  presented  in  March  2013, 
incorporates  a  range  of  short-  and  longer-term  measures  intended  to  improve 
employment  opportunities  for  young  people.  At  the  same  time,  dual  vocational 
training has been introduced and pilot projects have already started in 2012. The 2013 
NRP  also  highlights  the  importance  of  a  swift  implementation  of  the  reform  of  the 
educational system and improving the overall quality of education and training. 

(14)  Mainly as a result of the labour market situation, but also due limited effectiveness of 
social protection in reducing poverty, Spain is below the EU average in the main key 
indicators  measuring  poverty  and  social  exclusion,  with  children  being  particularly 
exposed. Overall, no major improvements were registered in the development of new 
policy  measures.  The  NRP  does  not  include  information  on  the  content  or  the 
timeframe for the approval of the National Action Plan on Social Inclusion 2013-2016. 
The  key  challenges  lie  in  the  need  to  rationalise  targets  and  resources  under  an 
adequate policy framework, improve governance and inter-institutional coordination at 
national, regional and local level, simplify procedures for social assistance claimants 
and review mobility barriers. Some progress was registered in measures to tackle child 
poverty and improve the efficiency of family support services. 

(15)  Weaknesses in the business environment such as segmentation of the domestic market 
or entry barriers in services' industries, hold back job creation and reform progress in 
this area is taking longer than envisaged in the September 2012 reform plan. The first 
draft of the Law on market unity was adopted by the government in January 2013 and 
its final approval by Parliament is foreseen by end-2013. The reiterated commitments 
in the 2013 NRP foresee a first draft of the law on professional services by the end of 
June  2013  and  final  adoption  of  the  Law  on  entrepreneurship  and  on  company 
internationalization  before  the  end  of  2013.  In  spite  of  the  expected  effects  of  these 
reforms,  there  is  still  scope  to  further  ease  market  entry  and  exit  conditions,  in 
particular  by  reducing  the  time  needed  for  business  licencing  and  by  reviewing  the 
insolvency  framework.  Moreover,  regulatory  and  other  barriers  to  firms'  growth 
should be tackled. In spite of recent reforms, barriers to entry for large-surface outlets 
continue to limit competition in the retail sector. In September 2012 the government 
adopted a draft law to merge the national competition authority with supervisory and 
regulatory  authorities  in  six  sectors,  thus  creating  a  single  body  —  the  National 
Commission for Markets and Competition (CNMC). This reform aims at a consistent 
application of competition principles across the various economic sectors. Removing 

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the  tax  deductability  of  mortgage  interest  payments  and  re-payments  in  2012  was 
essential  to  shifting  incentives  away  from  home  ownership,  but  efforts  to  create  a 
larger and more efficient rental market, which would also support labour mobility, are 
still at an early stage. 

(16)  The  electricity  tariff  deficit,  which  implies  a  potentially  sizeable  contingent  liability 
for  the  budget  and  non-negligible  macroeconomic  risks,  has  not  yet  been  tackled 
conclusively,  as  the  measures  presented  during  2012  and  in  early  2013  have  been 
insufficient.  In  the  2013  NRP,  the  government  announced  that  a  draft  law  further 
reforming  the  electricity  sector  will  be  presented  by  the  end  of  June  2013.  There  is 
scope for further improving competition in the retail electricity market. The transport 
infrastructure is abundant but there is scope to make the selection of investment more 
stringent  and  prioritise  efficient  maintenance  of  existing  networks.  Setting  up  an 
independent  observatory,  as  planned,  would  help  in  this  respect.  At  the  same  time, 
technical  and  legal  obstacles  prevent  competition  in  railway  freight  and  passenger 
transport. 

(17)  The  highly  decentralised  setting  calls  for  an  enhanced  coordination  between  the 
various  public  administrations,  both  to  reduce  costs  and  to  limit  the  administrative 
burden  on  companies  and  households.  To  this  end,  several  initiatives  have  been 
undertaken or are on-going. In particular in February 2013 the government presented a 
draft  Law  on  local  administration  reform  (to  be  adopted  by  Parliament  before  end-
2013) and a committee for the reform of the public administration was established. It 
shall present proposals for a reform of the Spanish public administration by the end of 
June  2013.  Reforms  to  improve  the  working  of  the  judicial  system  are  on-going, 
although some measures are cumulating delays and scope to improve the efficiency of 
the Spanish judiciary remains. 

(18) 

(19) 

(20) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Spain's  economic  policy.  It  has  assessed  the  stability 
programme  and  national  reform  programme.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socio-economic  policy  in  Spain  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 (10) below. 

In the light of this assessment, the Council has examined Spain’s stability programme, 
and its opinion10 is reflected in particular in recommendation (1) below, 

In the light of the Commission's in-depth review and this assessement, the Council has 
examined  the  national  reform  programme  and  the  stability  programme.  The 
assessment concludes that the proposed reform agenda is comprehensive and goes in 
the  right  direction.  At  the  same  time,  the  assessment  underscores  the  urgency  of 
adopting  and  effectively  implementing  the  missing  reforms  so  that  they  can  start 
deploying  the  expected  positive  effects.  Its  recommendations  under  Article  6  of 
Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3), (4), (5), 
(7), (8) and (9) below. 

(21) 

In  the  context  of  the  European  Semester  the  Commission  has  also  carried  out  an 
analysis of the economic policy of the euro area as a whole. On this basis the Council 
has issued specific recommendations addressed to the Member States whose currency 

10 

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

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is  the  euro.  Spain  should  also  ensure  the  full  and  timely  implementation  of  these 
recommendations. 

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

1. 

2. 

3. 

4. 

Deliver the structural fiscal effort as required by the Council recommendation under 
the  EDP  to  ensure  correction  of  the  excessive  deficit  by  2016.  To  this  end, 
implement  the  measures  adopted  in  the  2013  budget  plans  at  all  levels  of 
government,  reinforce  the  medium-term  budgetary  strategy  with  sufficiently 
specified structural measures for the years 2014-16. A durable correction of the fiscal 
imbalances  is  predicated  upon  the  credible  implementation  of  ambitious  structural 
reforms  which  would  increase  the  adjustment  capacity  and  boost  potential  growth 
and employment. After achieving the correction of the excessive deficit, pursue the 
structural adjustment at an appropriate pace so as to reach the medium term objective 
by 2018. Ensure a strict and transparent enforcement of the preventive and corrective 
measures  provided  for  in  the  Budgetary  Stability  Organic  Law.  Establish  an 
independent fiscal authority before the end of  2013  to provide analysis, advice and 
monitor  compliance  of  fiscal  policy  with  national  and  EU  fiscal  rules. Improve  the 
efficiency and quality of public expenditure at all levels of government, and conduct 
a  systematic  review  of  major  spending  items  by  March  2014.  Increase  the  cost-
effectiveness of the health-care sector, while maintaining accessibility for vulnerable 
groups,  for  example  by  reducing  hospital  pharmaceutical  spending,  strengthening 
coordination  across  types  of  care  and  improving  incentives  for  an  efficient  use  of 
resources.  Take  measures  to  reduce  the  outstanding  amount  of  government  arrears, 
avoid their further accumulation and regularly publish data on outstanding amounts. 
Adopt  the  dis-indexation  law  to  reduce  the  degree  of  price  inertia  in  public 
expenditures and revenues, in time to have it in force by the beginning of 2014 and 
consider  additional  steps  to  limit  the  application  of  indexation  clauses.  Finalise  by 
end-2013  the  regulation  of  the  sustainability  factor  so  as  to  ensure  the  long-term 
financial stability of the pension system, including by  providing that  the retirement 
age will rise in line with gains in life expectancy.  

Conduct  a  systematic  review  of  the  tax  system  by  March  2014.  Consider  further 
limiting  tax  expenditure  in  direct  taxation,  explore  the  scope  to  further  limit  the 
application  of  the  reduced  VAT  rates  and  take  additional  steps  in  environmental 
taxation, notably as regards fuel taxes. Take further measures to address the debt bias 
in corporate taxation. Intensify the fight against the shadow economy and undeclared 
work.  

Implement  the  financial  sector  programme  for  the  recapitalisation  of  the  financial 
institutions,  including  the  measures  promoting  non-bank  intermediation  adopted  in 
November 2012. 

Finalise the evaluation of the 2012 labour market reform covering the full range of 
its objectives and measures by July 2013, and present amendments, if necessary, by 
September 2013. Adopt the 2013 national Employment Plan by July 2013 and enact 
swiftly  a  result-oriented  reform  of  active  labour  market  policies,  including  by 
strengthening  the  targeting  and  efficiency  of  guidance.  Reinforce  and  modernise 
public  employment  services  to  ensure  effective  individualised  assistance  to  the 
unemployed  according 
the 
effectiveness  of  re-skilling  training  programmes  for  older  and  low-skilled  workers. 
Fully operationalize the Single Job Portal and speed up the implementation of public-

training  needs.  Reinforce 

their  profiles  and 

to 

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5. 

6. 

7. 

8. 

9. 

private cooperation in placement services to ensure its effective application already 
in 2013.  

Implement  and  monitor  closely  the  effectiveness  of  the  measures  to  fight  youth 
unemployment  set  out  in  the  Youth  Entrepreneurship  and  Employment  Strategy 
2013-2016,  for  example  through  a  Youth  Guarantee.  Continue  with  efforts  to 
increase the labour market relevance of education and training, to reduce early school 
leaving  and  to  enhance  life-long  learning,  namely  by  expanding  the  application  of 
dual  vocational  training  beyond  the  current  pilot  phase  and  by  introducing  a 
comprehensive monitoring system of pupils' performance by the end of 2013.  

Adopt and implement the necessary measures to reduce the number of people at risk 
of  poverty  and/or  social  exclusion  by  reinforcing  active  labour  market  policies  to 
improve  employability  of  people  further  away  from  the  labour  market  and  by 
improving  the  targeting  and  increasing  efficiency  and  effectiveness  of  support 
measures including quality family support services. 

Urgently  adopt  and  implement  the  draft  Law  on  Market  Unity  and  speed  up  all 
complementary actions needed for its swift implementation. Ensure the effectiveness, 
autonomy and independence of the newly created regulatory authority. By the end of 
2013, adopt and implement the Law on professional associations and services and the 
Law  on  Entrepreneurship.  Regroup  and  concentrate  support  schemes  for  the 
internationalisation  of  firms.  Reduce  the  number  and  shorten  licensing  procedures, 
including  for  industrial  activities,  and  spread  the  use  of  the  "express  licence" 
approach to activities other than retail. Review insolvency frameworks for companies 
and  individuals,  including  through  limiting  personal  liability  of  entrepreneurs  and 
easing second chances for failed businesses. Remove unjustifiable restrictions to the 
establishment of large-scale retail premises. By March 2014, review the effectiveness 
of the regulatory framework to support the development of the housing rental market. 

Tackle the electricity tariff deficit by adopting and implementing a structural reform 
of  the  electricity  sector  by  the  end  of  2013.  Intensify  efforts  to  complete  the 
electricity  and  gas  interconnections  with  neighbouring  countries.  Reduce  the 
contingent  liability  for  public  finances  stemming  from  unprofitable  transport 
infrastructure.  Provide  for  an  independent  national  assessment  of  future  major 
infrastructure projects. Take measures to ensure effective competition in freight and 
passenger rail services.  

Adopt in line with the presented timetable the reform of the local administration and 
define  by  October  2013  a  plan  to  enhance  the  efficiency  of  the  overall  public 
administration. Adopt and implement the on-going reforms to enhance the efficiency 
of the judicial system.  

Done at Brussels,  

For the Council 
The President 

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