Recommendation for a COUNCIL RECOMMENDATION on Finland’s 2014 national reform programme and delivering a Council opinion on Finland’s 2014 stability programme
Date: 2014-06-02
Institutions: European Commission
Subjects: Finland, budget deficit, competitiveness, economic convergence, economic disparity, financial control, financial statistics, job creation, macroeconomics, public debt, social situation, stability programme













EUR-Lex - 52014DC0427 - EN











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52014DC0427

Recommendation for a COUNCIL RECOMMENDATION on Finland’s 2014 national reform programme and delivering a Council opinion on Finland’s 2014 stability programme /* COM/2014/0427 final */









 
Recommendation for a
COUNCIL RECOMMENDATION
on Finland’s 2014 national reform
programme
and delivering a Council opinion on Finland’s 2014 stability 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 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 imbalances[2],
and in particular Article 6(1) thereof,
Having regard to the recommendation of the
European Commission[3],
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,
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 Finland’s national reform programme for 2013 and delivered
its opinion on Finland’s updated stability programme for 2012-2016. On 15 November 2013, in line with Regulation (EU) No 473/2013[5],
the Commission presented its opinion on Finland's draft
budgetary plan for 2014[6].

(5)                   
On 13 November 2013, the Commission adopted the
Annual Growth Survey[7],
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[8],
in which it identified Finland as one of the Member States for which an
in-depth review would be carried out. 
(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 5 March 2014, the Commission published the
results of its in-depth review for Finland[9],
under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis
leads it to conclude that Finland continues to experience macroeconomic
imbalances, which require monitoring and policy action. In particular, its weak
export performance in recent years, driven by industrial restructuring and by cost
and non-cost competitiveness factors, deserves continued attention.
(8)                   
On 17 April 2014, Finland submitted its 2014
national reform programme and its 2014 stability programme. In order to take
account of their interlinkages, the two programmes have been assessed at the
same time.
(9)                   
The objective of the budgetary strategy outlined
in the 2014 Stability Programme is to return to the medium-term objective in
2015, to keep the structural balance above this target during the rest of the
programme horizon and to balance the general government budget from 2017
onwards. Finland's medium-term objective of a 0.5% of GDP structural deficit
reflects the requirements of the Stability and Growth Pact. Finland attained
its medium-term objective in 2013 and plans to stay close to it in 2014, being
also compliant with the expenditure benchmark. Finland plans to be above its
medium-term objective in 2015 and continues to be compliant with the
expenditure benchmark. Overall, this is broadly in line with the requirements
of the Stability and Growth Pact. At the same time, the gross debt ratio is on
an increasing path and is expected to breach temporarily the 60% of GDP
threshold in 2015, mainly due to a weak macroeconomic outlook. The
macroeconomic scenario underpinning the budgetary projections in the programme,
which has not been produced independently, is plausible, although slightly more
optimistic than the Commission spring forecast regarding economic growth in
2014 and 2015. The Commission 2014 spring forecast projects a deterioration of
the structural balance by 0.3% of GDP in 2014, entailing a deviation from the
medium-term objective, and an improvement of 0.6% of GDP in 2015, while the
expenditure benchmark is projected to be adhered to in both years. Based on its
assessment of the programme and on the Commission forecast, pursuant to Council
Regulation (EC) No 1466/97, the Council is of the opinion that Finland can be
expected to achieve the aims of its programme, which are broadly in line with
Stability and Growth Pact.
(10)               
Finland is at high sustainability risk in the
long term due to the budgetary impact of the cost of ageing. Finland has
recognized the sustainability gap and produced a structural policy programme in
2013 aimed at closing the gap and re-launching growth. Another major step is
the central government spending limits and the general government fiscal plan
for 2015–2018 of March 2014 which foresees adjustment measures, structural
reforms and investments in growth. Revenue side adjustment measures mainly
concern the income and product tax increases.
(11)               
The efficiency of public services has not kept
up with productivity developments in the private sector. Finland is preparing
administrative reforms on municipal structure and on healthcare and social
services. The municipality reform is built on voluntary merger of
municipalities, with financial incentives from the State. The outcome of the
voluntary mergers is as yet uncertain. Social welfare and health care services
are to be delivered by five regional providers, and municipalities will
continue to participate in the provision of the services. Details are not yet
known, and a legislative proposal is planned for autumn 2014. New structures
should be in place at the beginning of 2017. The July 2013 act on supporting
the functional capacity of older people with a stronger focus on prevention,
rehabilitation and independent living should contribute to reducing the need
for institutional care and contain the future costs of long-term care. 
(12)               
The key labour market challenge for Finland
continues to be long-term labour supply, as the number of people exiting the labour
market is now higher than the number of entering. Lengthening working careers
and improving labour supply are necessary to meet the demand for labour in
future. The government's 2013 structural policy programme includes measures to
extend working careers and improve the labour supply, also increasing the
incentives to accept jobs. Finland is reducing early exit but some pathways
such as the so-called 'unemployment tunnel', where older unemployed persons can
under certain conditions continue to draw unemployment benefits  until they
retire, remain. The recently introduced life-expectancy coefficient and the
tripling of the entitlement accrual rate seem to have a limited effect on
retirement practices. Moreover, as life expectancy is increasing faster than
foreseen and people fail to work longer, there is a risk that pension adequacy
will fall. Finland has set itself the target of raising the effective
retirement age to at least 62.4 years by 2025. It is questionable whether the
target can be achieved without new measures such as raising the statutory
retirement age and strengthened efforts to enhance the employability of older
workers. The social partners are working on their proposal for the pension
reform to be implemented by the new government after the general election in
spring 2015 and to enter into force in the beginning of 2017. Finland has taken
relevant and ambitious measures to tackle youth and long-term unemployment. A
permanent improvement in the job-relevant skills of the target groups and their
labour market prospects  will take time.
(13)               
Finland has taken measures to improve the
overall competition climate and some progress has been made in implementing the
programme on healthy competition. The competition and consumer authorities have
merged and the new structure is in the early stages of implementation. The Competition
Act now imposes a dominant position threshold for the consumer goods retail
sector, and specific powers have been given to the Finnish Competition and
Consumer Authority to intervene under certain conditions against economic
activities engaged in by public bodies which distort competition in the market.
The retail market in Finland is highly concentrated, and there are some factors
in relevant legislation that make competition potentially less efficient and
strengthen the position of the two retail market leaders. Examples include urban
planning requirements, which are very strict, both for large commercial
establishments and small units. Land use and planning regulation is currently
under review, presenting an opportunity to make it more supportive of 'healthy'
competition. The retail sector continues to be among the most regulated in the
Member States, including obstacles to competition created by regulation of
large retail premises. 
(14)               
Restoring growth and competitiveness is a key
challenge for the Finnish economy. Finland is very strong in international
competitiveness rankings but nevertheless lost export market shares at the
fastest pace in the EU in 2007-12. Business R&D intensity is on a downward
path and the national target for R&D expenditure seems  further out of
reach. The efficiency of the Finnish research and innovation system in turning
investments in R&D into new innovative products and services is a critical
issue. Currently there are not sufficient investments to turn the R&D
potential into new products. A limited number of large exporting firms selling
a narrow product range as well as the lower propensity of Finnish small
companies to export weigh on trade performance and on potential growth. The
export potential could be boosted by providing further tailored support for the
internationalisation of smaller companies. Finland has launched reforms to
address the capacity to deliver innovative products and support the diversification
of industry, including a comprehensive reform of the research institutes and
research funding. The 2013 structural policy programme and the government
spending limits and fiscal plan for 2015-18 of March 2014 not only contain adjustment
measures and structural reforms, but also include initiatives to promote growth
and innovation. Finland could also benefit from diversifying its energy supply,
particularly as it relies on a single gas source.
(15)               
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Finland’s economic
policy. It has assessed the stability programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in Finland 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 (5) below.
(16)               
In the light of this assessment, the Council has
examined Finland’s stability programme, and its opinion[10] is reflected in
particular in recommendation (1) below.
(17)               
In the light of the Commission's in-depth review
and this assessment, the Council has examined the national reform programme and
the stability programme. Its recommendations under Article 6 of Regulation (EU)
No 1176/2011 are reflected in recommendations (2), (4) and (5) below.
(18)               
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 the basis of this analysis the Council has issued specific
recommendations for the Member States whose currency is the euro. Finland also
should ensure the full and timely implementation of these recommendations.
HEREBY RECOMMENDS that Finland take
action within the period 2014-2015 to:
1.                      
Reinforce the budgetary measures for 2014 in the
light of the emerging gap relative to the medium-term objective. In 2015 and
thereafter respect  the medium-term objective as planned, and ensure that the
debt criterion is fulfilled, while pursuing a growth-friendly fiscal policy. Implement
rapidly the reforms set out in the structural policy programme and government's
spending limits and fiscal plan for 2015-18 in order to reduce the fiscal
sustainability gap and strengthen conditions for growth. 
2.                      
Ensure effective implementation of the on-going
administrative reforms concerning municipal structure and social and healthcare
services, in order to increase the cost-effectiveness in the provision of
public services.
3.                      
Improve the use of the full labour force
potential in the labour market, including by improving the employment rate and
the employability of older workers, reducing early exit pathways and aligning
statutory retirement age to changes in life expectancy. Improve the
labour-market prospects of young people and the long-term unemployed, with a
particular focus on vocational education and targeted activation measures.
4.                      
Continue efforts to enhance competition in
product and service markets, especially in the retail sector, by implementing
the programme on promoting healthy competition, including amendments of the land
use and building act to make it more supportive to healthy competition.
5.                      
Continue to boost Finland's capacity to deliver
innovative products, services and high-growth companies in a rapidly changing
environment, and continue the diversification of industry, in particular by
raising incentives to invest in Finland and further facilitating smaller firms
entry into export markets. Step up the development of cross-border gas
connection to Estonia.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               OJ L 306, 23.11.2011, p. 25.
[3]               COM(2014) 427 final.
[4]               P7_TA(2014)0128 and P7_TA(2014)0129.
[5]               OJ L 140, 27.5.2013, p.11.
[6]               C(2013) 8012 final
[7]               COM(2013) 800 final.
[8]               COM(2013) 790 final.
[9]               SWD(2014) 89 final.
[10]             Under Article 5(2) of Council Regulation (EC) No
1466/97.