Recommendation for a COUNCIL RECOMMENDATION on Romania’s 2014 national reform programme and delivering a Council opinion on Romania’s 2014 convergence programme
Date: 2014-06-02
Institutions: European Commission
Subjects: Romania, balance of payments assistance, budget deficit, economic convergence, economic disparity, economic growth, economic reform, job creation, macroeconomics, marginalisation, poverty, stability programme, structural adjustment













EUR-Lex - 52014DC0424 - EN











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52014DC0424

Recommendation for a COUNCIL RECOMMENDATION on Romania’s 2014 national reform programme and delivering a Council opinion on Romania’s 2014 convergence programme /* COM/2014/0424 final - 2014/ () */









 
 
Recommendation for a
COUNCIL RECOMMENDATION
on Romania’s 2014 national reform
programme
and delivering a Council opinion on Romania’s 2014 convergence programme

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 policies[1], and in particular
Article 9(2) thereof,
Having regard to the recommendation of the
European Commission[2],
Having regard to the resolutions of the
European Parliament[3],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
Having regard to the opinion of the
Economic and Financial Committee,
Having regard to the opinion of the Social
Protection Committee,
Having regard to the opinion of the
Economic Policy Committee,
Whereas:
(1)                   
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.
(2)                   
On 13 July 2010, the Council, on the basis of
the Commission's proposals, 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 States, 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 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.
(4)                   
On 9 July 2013, the Council adopted a recommendation
on Romania’s 2013 national reform programme and delivered its opinion on Romania’s 2013 convergence programme for 2012-2016.
(5)                   
On 13 November 2013, the Commission adopted the
Annual Growth Survey[4],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[5].
(6)                   
On 20 December 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.
(7)                   
On 6 May 2014, Romania submitted its 2014
national reform programme and on 5 May 2014 its 2014 convergence programme. In
order to take account of their interlinkages, the two programmes have been
assessed at the same time.
(8)                   
On 22 October 2013, the Council adopted Decision
2013/531/EU providing medium-term financial assistance to Romania of up to EUR 2 billion until September 2015. Precautionary medium-term financial
assistance for Romania under the balance-of-payments facility for non euro-area
Member States was considered appropriate due to unstable capital flows
affecting in particular emerging markets, risks to the macroeconomic scenario,
and remaining vulnerabilities in the banking sector. While, under present
market conditions, Romania does not intend to request the disbursement of any
instalment, the precautionary assistance is expected to help consolidate
macroeconomic, budgetary and financial stability and, through the pursuit of
structural reforms, to increase the resilience and the growth potential of the
Romanian economy. The Memorandum of Understanding of 6 November 2013 and its
subsequent supplements laying down the conditions to be fulfilled under the EU
precautionary assistance complement and support the country-specific
recommendations of the European Semester.  The EU precautionary assistance will
be conditional upon the implementation of a comprehensive economic policy
programme, with a particular focus on structural reform measures including
those country-specific recommendations relating to administrative capacity,
product market reforms, the business environment, labour markets, pensions,
state-owned enterprises, and healthcare. This agenda does not exempt the
Romanian government from fully implementing all the country-specific
recommendations. The policy prioritisation, implementation and coordination
necessary for implementing the Memorandum of Understanding and the country specific
recommendations, should be dealt with where priority decisions are made, in a
coherent way.
(9)                   
The objective of the budgetary strategy outlined
in the 2014 Convergence Programme is to achieve the medium-term objective of a
structural deficit of 1% of GDP in 2015, which reflects the requirement of the
Stability and Growth Pact, and to remain at it thereafter. Romania is benefitting in 2014 from the possibility of a temporary deviation from the
adjustment path towards the medium-term objective allowed for jointly financed
projects. The temporary deviation has to be compensated in the following year.
The programme plans a stabilisation of the (recalculated) structural balance in
2014 and an improvement of 0.8% of GDP in 2015. Expenditure is forecast to grow
at a pace consistent with the expenditure benchmark in both 2014 and 2015. The
debt to GDP ratio is forecast to reach 40% in 2015, and to decrease in
2016-2017. Overall, the budgetary strategy outlined in the programme is in line
with the requirements of the Stability and Growth Pact. The macroeconomic scenario
underpinning the budgetary projections is plausible. It is broadly in line with
the Commission 2014 spring forecast. However the potential GDP estimate underlying
the Convergence Programme is slightly higher, mainly on account of a more
optimistic labour market outlook. There are downside risks to the 2014
budgetary plans related to expenditure control and lower-than-envisaged tax
collection. Moreover, for 2015 and beyond, the measures underpinning the
proposed fiscal path are not yet specified. According to the Commission forecast,
despite a small deterioration in the structural balance in 2014, Romania is compliant with the Stability and Growth Pact requirements in 2014, taking into
account the temporary deviation allowed for jointly financed projects. For
2015, there is a risk of a significant deviation from the required structural adjustment,
taking into account the necessary compensation for the temporary deviation
allowed for jointly financed projects). Moreover, Romania is forecast to
deviate from the expenditure benchmark in 2015. Based on its assessment of the
programme and the Commission forecast, pursuant to Council Regulation (EC) No
1466/97, the Council is of the opinion that the programme presents risks of a
significant deviation from the requirements of the preventive arm in 2015.
(10)               
Tax fraud and tax avoidance in the areas of VAT,
including cross-border schemes, excises, social security contributions and
income taxation remain a major challenge. Tangible progress in fighting
undeclared work is limited, while the effectiveness of the tax compliance
strategy is hampered by the lack of realistic and binding implementation
measures and insufficient focus on prevention. A reform of the tax
administration to increase its efficiency is ongoing; cross-border
administrative cooperation, in particular in the VAT area, remains weak. The
tax wedge on low and middle-income wage earners remains high and encourages
undeclared work and under-declared earnings. There has been some progress in
the field of environmental taxation, as the vehicle taxation system was
improved and excise duties on fuel were increased and are now automatically
indexed. Romania faces long-term sustainability risks, mainly due to
age-related expenditure. There are concerns as regards the sustainability and
adequacy of the pension system due to the low ratio of employed contributors to
people drawing pensions. Romania has taken steps to equalise the pensionable
age for women and men as of 2035.
(11)               
Inefficient use of resources and poor management
increase the fiscal sustainability risk in the health sector. Widespread
informal payments in the public healthcare further hinder the accessibility,
efficiency and quality of the system. Reforms to improve the efficiency of the
healthcare sector and its financial sustainability have begun but continuous
efforts are needed. Some of the measures are incurring delays and suffer from insufficient
funding and the services' low capacity. Reducing the excessive use of hospital
in-patient care and strengthening primary care and referral systems will
increase cost-effectiveness. Further reforms of the healthcare system aimed at
improving the health of the population by promoting, among other things,
equitable access to quality health services has been launched.
(12)               
High inactivity, insufficient utilisation of
labour potential and the need to increase the quality and productivity of the
work force remain key challenges of the Romanian labour market. The quality of
public job search and retraining services is still low, despite some
small-scale measures. Limited resources within the public employment service
and a lack of measurement of performance constrain the efficient delivery of
personalised services to jobseekers, employer services and the integration of
active and passive labour market policies. Romania has a high and increasing percentage
of young people not in employment, education or training (17.3% in 2013). A
national Active Ageing Strategy to support an increase in the employment rate
of older workers has been delayed and now is due by the end of 2014.
(13)               
There is no transparent guideline for minimum
wage setting involving social partners aiming at supporting employment and
competitiveness and safeguarding labour income in a sustainable way.
(14)               
The Education Reform of 2011, which set a
long-term agenda for upgrading the quality of education at all levels, is not
yet fully operational, due to insufficient financial and human resources.
Following sharp decline in vocational education and training in the last twenty
years, several reforms and pilot projects have been initiated in recent years
but the availability of vocational education and training, its relevance to the
labour market and business involvement in work-based learning and
apprenticeships remains low. Important skills mismatches persist for tertiary
graduates and the link between business and academia remains weak, as shown by
a high unemployment rate and many university graduates being employed either in
professions not corresponding to their training or in jobs requiring lower
levels of qualification. Participation in lifelong learning activities
continues to be among the lowest in the EU. The early school leaving rate
continues to be one of the highest in the EU and is now higher than prior to
2010, affecting in particular Roma. Female employment is hindered by low
provision of and limited access to affordable quality childcare facilities, in
particular for the 0-3 years old.
(15)               
Poverty reduction remains a major challenge. , Despite
the relatively stable employment situation, gross household incomes have been
declining and income inequalities have been growing. Families with children are
particularly exposed. There was only limited progress in speeding up the
transition from institutional to alternative care for children deprived of
parental care. There is still a high number of persons with disabilities in
large residential institutions, while community services for the disabled are
not sufficiently developed.. The low take-up, coverage and adequacy of social
benefits remain a challenge for the efficiency of social benefits in reducing
poverty. The introduction of the Minimum Insertion Income combining three
existing social benefits (the Guaranteed Minimum Income, the family allowance
and the heating benefits)planned for 2015 has been delayed. The implementation
of the National Roma Integration Strategy started in 2012, but financial
allocation for the implementation of key action plans was insufficient and the
results are modest. The revision of the Strategy and the implementation of the
revised action plans are delayed. 
(16)               
The weak capacity of the public administration
to develop and implement policies remains a core challenge for Romania, hampering overall development of the country, the business environment and the
capacity for public investment, while not allowing for the provision of public
services of sufficient quality. The structural causes that led to a low
administrative capacity were analysed in 2013. Based on this, a 2014-20 strategy
on strengthening public administration is currently under preparation and is
expected to be finalised by mid-2014. 
(17)               
Despite important progress, the absorption rate
for EU funds remains one of the lowest in the EU. Continuously weak management
and control systems and public procurement practices may negatively impact the
preparations for and implementation of the next generation of programmes.  Public
procurement legislation suffers from instability and a lack of coherence. The
institutional set-up, with multiple actors and frequently overlapping
responsibilities is not equipped to tackle the shortcomings and provide
appropriate guidance to contracting authorities. Corruption and conflicts of
interests continue to be concerns for contracting authorities. A system for
ex-ante checks for conflicts of interest in the award process of public
procurement contracts is expected to become operational by the end of 2014. 
(18)               
Poor quality of regulations and the lack of
transparency and predictability of the regulatory framework hinder businesses
and citizens. Procedures for obtaining electricity, dealing with construction
permits and paying taxes are still complex. Unclear land ownership rights
represent a further challenge for Romania's business environment; less than 50
% of real estate are recorded in the land book system and only around 15 % of
real estate records are verified and registered digitally. Romania has made some progress in improving the quality, independence and efficiency of the
Romanian justice system and in the fight against corruption, but these issues remain
a concern for businesses seeking effective redress. Resistance to integrity and
anti-corruption measures at political and administrative levels is still
strong. 
(19)               
Price regulation in the electricity market for
industrial customers ended in 2013 and phasing-out of gas and electricity price
regulation is ongoing. Efficiency and transparency of governance of the
state-owned enterprises in these sectors represent a major challenge. Energy
price deregulation is expected to bring incentives to enhance energy
efficiency, although concrete measures and resource commitments are needed to
further improve energy efficiency in the housing, district heating, industry
and urban transport sectors. The integration of Romania's electricity and gas
markets in the EU markets remains incomplete and substantial barriers remain
for the implementation of cross-border connections for gas, which would
contribute to enhancing diversification of supply.
(20)               
The underdeveloped basic
transport infrastructure continues to be a bottleneck to growth in Romania. High growth of the vehicle fleet and the low quality of the road infrastructure
hamper businesses and the economy. Poor maintenance of the railway network has
affected safety and reliability. Freight transport on inland waterways remains
far below its potential, particularly on the Danube. The inefficiency and
untransparent governance of state-owned enterprises in the transport sector
hinder the development of network infrastructures. 
(21)               
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Romania’s economic policy. It has assessed the convergence programme and the national
reform programme. It has taken into account not only their relevance for
sustainable fiscal and socio-economic policy in Romania 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 (8) below.
(22)               
In the light of this assessment, the Council has
examined Romania’s convergence programme, and its opinion[6] is reflected in
particular in recommendation (2) below.
HEREBY RECOMMENDS that Romania take action within the period 2014-2015 to:
1.           Implement
the EU/IMF financial assistance programme by fully addressing the policy
conditionality included in the Memorandum of Understanding of 6 November 2013
and its subsequent supplements that complements and supports the implementation
of these country specific recommendations.
2.           Implement the budgetary
strategy for 2014, significantly strengthen the budgetary effort to ensure
reaching the medium-term objective in 2015 in line with commitments under the
Balance of Payments programme and as reflected in the 2014 convergence
programme, in particular by specifying the underlying measures, and remain at
the medium-term objective thereafter. Improve tax collection by continuing to
implement a comprehensive tax compliance strategy, stepping up efforts to
reduce VAT fraud. Fight undeclared work. Reduce tax burden for low- and
middle-income earners in a budget-neutral way. Finalise the pension reform
started in 2010 by equalising the pensionable age for men and women.
3.           Step up reforms in the health
sector to increase its efficiency, quality and accessibility, including for
disadvantaged people and remote and isolated communities. Increase efforts to
curb informal payments, including through proper management and control
systems. 
4.           Strengthen active
labour-market measures and the capacity of the National Employment Agency. Pay
particular attention to the activation of unregistered young people. Strengthen
measures to promote the employability of older workers. Establish, in
consultation with social partners, clear guidelines for transparent minimum
wage setting, taking into account economic and labour market conditions. 
5.           Increase the quality and
access to vocational education and training, apprenticeships, tertiary
education and of lifelong learning and adapt them to labour market needs.
Ensure better access to early childhood education and care. 
6.           In order to alleviate
poverty, increase the efficiency and effectiveness of social transfers,
particularly for children, and continue reform of social assistance,
strengthening its links with activation measures. Step up efforts to implement
the envisaged measures to favour the integration of Roma in the labour market,
increase school attendance and reduce early school leaving, through a
partnership approach and a robust monitoring mechanism. 
7.           Step up efforts to
strengthen the capacity of public administration, in particular by improving
efficiency, human resource management, the decision-making tools and
coordination within and between different levels of government; and by
improving transparency, integrity and accountability. Accelerate the absorption
of EU funds, strengthen management and control systems, and improve capacity
for strategic planning, including the multi-annual budgetary element. Tackle
persisting shortcomings in public procurement. Continue to improve the
qualityand efficiency of the judicial system, fight corruption at all levels,
and ensure the effective implementation of court decisions. 
8.           Promote competition and
efficiency in energy and transport industries. Accelerate the corporate
governance reform of state-owned enterprises in the energy and transport
sectors and increase their efficiency. Improve and streamline energy efficiency
policies. Improve the cross-border integration of energy networks and enable
physical reverse flows in gas interconnections as a matter of priority. 
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               COM(2014) 424 final.
[3]               P7_TA(2014)0128 and P7_TA(2014)0129.
[4]               COM(2013) 800 final.
[5]               COM(2013) 790 final.
[6]               Under Article 9(2) of Council Regulation (EC) No
1466/97.