Recommendation for a COUNCIL RECOMMENDATION on Germany’s 2013 national reform programme and delivering a Council opinion on Germany’s stability programme for 2012-2017
Date: 2013-05-29
Institutions: European Commission
Subjects: Germany, budget deficit, budgetary equilibrium, competition law, energy policy, labour market, liberalisation of the market, pay rise, tax reform, tertiary sector

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 355 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Germany’s 2013 national reform programme  

and delivering a Council opinion on Germany’s stability programme for 2012-2017 

{SWD(2013) 355 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Germany’s 2013 national reform programme  

and delivering a Council opinion on Germany’s stability programme for 2012-2017 

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 the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

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) 

(3) 

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  States4,  which  together  form 
the  ‘integrated  guidelines’.  Member  States  were  invited  to  take  the  integrated 
guidelines into account in their national economic and employment policies. 

On 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. 

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OJ L 209, 2.8.1997, p. 1. 
COM(2013)355 final. 
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision2013/208/EU of 22 April 2013. 

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(4) 

(5) 

(6) 

(7) 

(8) 

On 6 July 2012, the Council adopted a recommendation on Germany’s national reform 
programme  for  2012  and  delivered  its  opinion  on  Germany’s  updated  stability 
programme for 2011-2016. 
On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey5, 
marking  the  start  of  the  2013  European  Semester  of  economic  policy  coordination. 
Also  on  28  November  2012,  the  Commission,  on  the  basis  of  Regulation  (EU)  No 
1176/2011, adopted the second Alert Mechanism Report6, in which it did not identify 
Germany 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  17  April  2013,  Germany  submitted  its  2013  stability  programme  covering  the 
period  2012-2017  and,  on  12  April  2013,  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  stability  programme  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  public  finances  in 
Germany  have  been  overall  sound  and  the  medium-term  budgetary  objective  (MTO) 
has  been  achieved.  The  macroeconomic  scenario  underpinning  the  budgetary 
projections in the programme is plausible. The stability programme's macroeconomic 
projections are broadly in line with the Commission's 2013 spring forecast as regards 
the  pace  and  pattern  of  economic  growth  in  2013  and  2014  as  well  as  with  the 
Commission's  estimate  of  Germany's  medium-term  potential  growth  rate.  The 
objective of the budgetary strategy outlined in the programme is to ensure continued 
achievement  of  the  medium-term  budgetary  objective  (MTO).  The  programme 
confirms  the  previous  MTO  of  -0.5  %  of  GDP.  The  MTO  is  in  line  with  the 
requirements  of  the  Stability  and  Growth  Pact.  Germany  achieved  a  structural 
budgetary surplus and hence the MTO in 2012. According to the stability programme, 
the (recalculated)7 structural balance will remain positive in 2013 and 2014, which is 
broadly in line with the Commission’s forecast, and hence created space for automatic 
stabilisers to play freely. Germany also complied with the expenditure benchmark in 
2012.  According  to  the  information  provided  in  the  stability  programme,  the  growth 
rate of government expenditure, net of discretionary revenue measures, would exceed 
the expenditure benchmark in 2013, while respecting it in 2014. The programme plans 
gross  debt  to  fall  to  80½  %  of  GDP  in  2013  and  to  remain  on  a  downward  path 
thereafter. Following the correction of the excessive deficit in 2011, Germany is in a 
transition  period  regarding  compliance  with  the  debt  criterion  and  made  sufficient 
progress  towards  compliance  with  the  debt  criterion  in  2012.  If  the  programme  is 
implemented as planned, it is also making sufficient progress towards compliance with 

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COM(2012) 750 final. 
COM(2012) 751 final. 
Cyclically  adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
services  on  the  basis  of  the  information  provided  in  the  programme,  using  the  commonly  agreed 
methodology 

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the  debt  criterion  in  2013  and  the  debt  benchmark  will  be  met  at  the  end  of  the 
transition period in 2014. Overall, the deficit and debt targets appear realistic. 

(9) 

Germany has made only limited efforts to improve the efficiency of public spending 
on healthcare and long-term care. Past reform efforts in the health sector as well as this 
year's  reform  of  long-term  care  appear  insufficient  to  contain  expected  future  cost 
increases. Germany appears on track with respect to the national target on education 
and research expenditure but should envisage even more ambitious follow-up targets 
with a view to catching up with the most innovative economies.  

(10)  Germany is not sufficiently tapping growth-friendly revenue sources. The application 
of the reduced VAT rate (of currently 7 %) to what is now quite a wide range of goods 
and  services  could  be  narrowed  and  VAT  administration  reviewed  in  an  effort  to 
increase  efficiency,  improve  tax  collection  and  fight  fraud.  Revenues  from  recurrent 
property taxes are particularly low in Germany (0.5 % of GDP in 2011 vs 1.3 % in the 
EU-27), which may leave room for increasing revenues from the municipal real estate 
tax (Grundsteuer), in particular by reassessing the tax base. 

(12)  There  has  been  some  progress  in  the  implementation  of  the  constitutional  balanced-
budget  rule  ("debt  brake")  since  last  year’s  recommendation,  However,  specific 
implementing  rules  appear  still  to  be  required  in  most  Länder  so  as  to  ensure  the 
effective application of the debt brake in the annual budgetary procedure.  

(13)  The  financial  sector  has  undergone  significant  adjustment  and  the  regulatory  and 
supervisory  framework  has  been  strengthened.  Commission  state  aid  decisions  have 
continued to drive the restructuring of Landesbanken. However, there still appear to be 
governance  obstacles  to  market-driven  consolidation  in  the  banking  sector,  which 
affect the overall efficiency of the financial sector. 

(14)  Germany  has  not  taken  action  to  remove  significant  disincentives  faced  by  second 
earners and progress in increasing the availability of full-time childcare facilities and 
all-day  schools  remains  limited.  Germany  has  made  some  progress  in  raising  the 
educational  achievement  of  disadvantaged  people,  but  all  Länder  should  continue 
ambitious  efforts  to  create  a  school  system  that  provides  equal  opportunities  for  all. 
Policy  action  to  reduce  the  high  tax  wedge  for  low-wage  earners  and  improve  the 
integration  of  the  long-term  unemployed  into  the  labour  market  has  been  limited  so 
far. Germany should do more to reduce the high taxes and social security contributions 
that  they  levy  on  low  wages.  Further  efforts  are  needed  to  improve  transition  from 
certain  types  of  contracts,  like  mini-jobs,  into  more  sustainable  forms  of  contracts, 
thus avoiding labour market segmentation. While real wages are still below their level 
in  the  year  2000,  which  contributed  to  the  structural  reduction  in  the  unemployment 
rate  from  8%  to  5.5%,  they  have  started  to  grow  dynamically  since  then  without 
adversely affecting competitiveness. At the same time wage disparities have increased. 

(15)  Germany is aiming to minimise the overall economic costs of transforming the energy 
system.  This  has  not  yet  led  to  tangible  results  and  major  risks  and  potential 
inefficiencies  remain.  Germany  is  making  significant  efforts  to  accelerate  the 
expansion  of  energy  networks.  Coordination  of  its  national  energy  policy  with  the 
policies of neighbouring countries is insufficient. 

(16)  The situation in the services sectors has not changed significantly since last year and 
there  are  still  restrictions  on  entering  and  exercising  certain  professions.  Germany 
should  do  more  to  open  up  their  services  sector  by  removing  unjustified  restrictions 
and  barriers  to  entry,  thereby  leading  to  lower  price  levels,  making  services  more 

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affordable  for  lower  income  groups.  In  many  craft  sectors,  including  in  the 
construction sector, there is still a requirement to hold a master craftsman’s certificate 
(Meisterbrief)  or  an  equivalent  qualification  in  order  to  run  a  business.  The 
construction  sector  also  faces  restrictions  as  regards  commercial  communication  and 
authorisation procedures. Many professional services are also subject to legal form and 
shareholding  requirements.  Germany  could  assess  whether  the  same  public  interest 
objectives  could  not  be  reached  with  lighter  regulation.  The  diversity  of  regulatory 
regimes  across  Länder  also  suggests  there  is  scope  for  further  efforts  to  identify  the 
least burdensome regulatory approaches and extend them throughout the country, thus 
cutting red tape for businesses. The level of effective competition in the railway sector 
remains  unchanged.  Regarding  public  procurement,  the  value  of  the  contracts 
published  by  German  authorities  under  EU  procurement  legislation  is  significantly 
low.  The  legislative  process  involving  the  revision  of  the  Act  against  competition 
restrictions  has  not  yet  been  concluded.  In  the  retail  sector,  planning  regulations 
significantly restrict new entries in the market.  

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Germany’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 Germany 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  Germany’s  stability 
programme, and its opinion8 is reflected in particular in recommendation (1) below, 

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  countries  that  are  part  of  the 
euro area Member States whose currency is the euro. As a country that has adopted the 
euro as its currency Germany should also ensure the full and timely implementation of 
these recommendations. 

(17) 

(18) 

(19) 

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

1. 

2. 

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Preserve  a  sound  fiscal  position  as  envisaged  which  ensures  compliance  with  the 
medium-term objective over the programme horizon. Pursue a growth-friendly fiscal 
policy through additional efforts to enhance the cost-effectiveness of public spending 
on healthcare and long-term through better integration of care delivery and a stronger 
focus on prevention and rehabilitation and independent living. Improve the efficiency 
of the tax system, in particular by broadening the VAT base and by reassessing the 
municipal  real  estate  tax  base;  use  the  available  scope  for  increased  and  more 
efficient  growth-enhancing  spending  on  education  and  research  at  all  levels  of 
government. Complete the implementation of the debt brake in a consistent manner 
across  all  Länder,  ensuring  that  monitoring  procedures  and  correction  mechanisms 
are timely and relevant. 

Sustain  conditions  that  enable  wage  growth  to  support  domestic  demand.  To  this 
purpose, reduce high taxes and social security contributions, especially for low-wage 
earners  and  raise  the  educational  achievement  of  disadvantaged  people.  Maintain 

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

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3. 

4. 

appropriate  activation  and  integration  measures,  especially  for  the  long-term 
unemployed.  Facilitate  the  transition  from  non-standard  employment  such  as  mini-
jobs  into  more  sustainable  forms  of  employment.  Take  measures  to  improve 
incentives to work and the employability of workers, in particular for second earners 
and  low-skilled,  also  with  a  view  to  improving  their  income.  To  this  end,  remove 
disincentives  for  second  earners  and  increase  the  availability  of  fulltime  childcare 
facilities and all-day schools 

Improve the coordination of the energy policy with neighbouring countries and keep 
the overall costs of transforming  the  energy  system  to  a  minimum,  in  particular  by 
reviewing the cost-effectiveness of energy policy instruments designed to achieve the 
renewable energy targets and by continuing efforts to accelerate the expansion of the 
national and cross-border electricity and gas networks. 

Take  measures  to  further  stimulate  competition  in  the  services  sectors,  including 
certain crafts — in the construction sector in particular — and professional services 
to boost domestic sources of growth. Take urgent action to significantly increase the 
value of public contracts open to procurement. Adopt and implement the announced 
legislative  reform  to  improve  the  enforcement  of  competition  law  regarding 
competition  restrictions.  Remove  planning  restrictions  which  unduly  restrict  new 
entries in the retail sector. Take further measures to eliminate the remaining barriers 
to competition in the railway markets. Pursue efforts for consolidation in the banking 
sector, including by improving the governance framework.  

Done at Brussels,  

For the Council 
The President 

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