Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Spain and delivering a Council opinion on the 2017 Stability Programme of Spain
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Spain, budget deficit, economic policy, economic reform, education, innovation, investment, labour market, research and development, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 508 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Spain  and delivering a Council opinion on the 2017 Stability Programme of Spain   
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of Spain 

and delivering a Council opinion on the 2017 Stability Programme of Spain 

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: 

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On  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,5 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,6  in  which  it 
identified Spain as one of the Member States for which an in-depth review would be 
carried out. On the same day, the Commission also adopted a recommendation for a 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2017) 508 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 

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Council  Recommendation  on  the  economic  policy  of  the  euro  area.  That 
Recommendation  was  endorsed  by  the  European  Council  on  9-10 March  2017  and 
adopted by the Council on 21 March 2017.7  

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, Spain should ensure the 
full  and  timely  implementation  of  the  Recommendation  for  the  euro  area  which  is 
reflected in recommendations 1 to 3 below. 
The 2017 country report for Spain8 was published on 22 February 2017. It assessed 
Spain’s progress in addressing the country-specific recommendations adopted by the 
Council  on  12 July  2016,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and Spain’s progress towards its national Europe 2020 targets. It also 
included an in-depth  review under Article 5 of Regulation (EU)  No 1176/2011, the 
results  of  which  were  also  published  on  22 February  2017.9  The  Commission’s 
analysis  leads  it  to  conclude  that  Spain  is  experiencing  macroeconomic  imbalances 
which  have  cross-border  relevance.  In  particular,  the  current  account  surpluses  are 
translating  into  a  reduction  of  Spain’s  net  external  liabilities,  which  nonetheless 
remain sizeable and expose the country to shifts in market sentiment. Private sector 
debt  has  decreased  significantly,  especially  for  corporations,  but  household  debt 
remains  high.  Economic  growth  has  become  the  main  driver  of  debt  reduction,  but 
fiscal  sustainability  risks  remain  high  in  the  medium  term.    The  need  for  action  to 
reduce the risk of adverse effects of imbalances on the Spanish economy and, given 
its  size  and  cross-border  relevance,  on  the  economic  and  monetary  union,  is 
particularly important. The financial sector  has continued to show a high degree  of 
stability, supported by its ongoing restructuring, low funding costs and the economic 
recovery.  Job  creation  has  been  strong  in  recent  years  and  unemployment  has 
decreased  rapidly,  but  remains  very  high.  Labour  market  reforms  and  wage 
moderation  have  been  important  drivers  of  strong  job  creation  and  competitiveness 
gains in recent years.  

On 28 April 2017, Spain submitted its 2017 National Reform Programme and on 29 
April  2017 Spain  submitted  its  2017 Stability  Programme.  To  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

The relevant country-specific recommendations have been taken into account in the 
Member States’ programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,10 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 

OJ C92/01, 24.3.2017, p. 1. 
SWD(2017) 74 final. 
COM(2017) 90 final. 
Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 

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and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.11 

Spain is currently in the corrective arm of the Stability and Growth Pact. In its 2017 
Stability  Programme,  Spain  plans  to  correct  the  excessive  deficit  by  2018,  in  line 
with the Council notice of 8 August 2016. The headline deficit is planned to continue 
declining  to  0.5%  of  GDP  in  2020.  The  expenditure  projections  in  the  programme 
incorporate the materialisation of contingent liabilities related to the motorways and 
the financial sector, amounting to close to 0.4% and 0.2% of GDP in 2017 and 2018, 
respectively. The medium-term budgetary objective of a balanced budgetary position 
in  structural  terms  is  not  planned  to  be  reached  within  the  time  horizon  of  the 
Stability  Programme.  The  recalculated  structural  balance12  is  projected  to  reach          
-1.9%  of  GDP  in  2020.  The  Stability  Programme  projects  the  government  debt-to-
GDP  ratio  to  decline  to  98.8%  in  2017,  97.6%  in  2018,  and  92.5%  in  2020.  The 
programme's  macroeconomic  assumptions  are  plausible  until  2018  and  turn 
somewhat  favourable  thereafter.  Overall,  the  planned  achievement  of  the  targets 
continues  to  rely  on  the  strong  economic  outlook,  which  is  nevertheless  subject  to 
risks.  Other  risks  to  the  achievement  of  the  fiscal  targets  relate  to  uncertainty 
regarding  the  impact of  the recent  tax  measures.  Moreover, taking  into  account  the 
assumed  materialisation  of  contingent  liabilities  (which  are  not  included  in  the 
Commission  forecast),  the  programme  relies  on  considerably  higher  expenditure 
restraint  than  projected  in  the  Commission  forecast  in  2017  and  2018.  Finally,  the 
measures  needed  to  support  the  planned  deficit  targets  for  2018  have  not  yet  been 
specified. 

On 8 August 2016, the Council requested Spain to put an end to the excessive deficit 
situation by 2018 and, in particular, to reduce the general government deficit to 4.6% 
of GDP in 2016, 3.1% of GDP in 2017 and 2.2% of GDP in 2018. This improvement 
in the general government balance was deemed consistent with a deterioration of the 
structural balance by 0.4% of GDP in 2016, and a 0.5% of GDP improvement in both 
2017  and  2018,  based  on  the  updated  Commission  2016  spring  forecast.  Spain 
reached a headline deficit of 4.5% of GDP in 2016, slightly below the target set by 
the  Council.  The  Commission  2017  spring  forecast  projects  the  headline  deficit  to 
decline to 3.2% of GDP in 2017 and further to 2.6% of GDP in 2018 on a no-policy-
change  basis,  0.1%  and  0.4%  of  GDP  above  the  headline  deficit  targets  in  the 
Stability Programme and those set by the Council. Unlike the Stability Programme, 
the forecast does not assume the materialisation of the above-mentioned contingent 
liabilities.  The  cumulative  fiscal  effort  over  2016-2017  is  expected  to  be  narrowly 
ensured,  while  in  2018,  on  a  no-policy-change  basis,  the  fiscal  effort  is  forecast  to 
fall  short  of  what  was  requested  by  the  Council.  In  addition,  in  August  2016,  the 
Council  requested  Spain  to  take  measures  to  improve  its  fiscal  framework,  but  the 
Stability  Programme  does  not  report  plans  to  strengthen  the  contribution  of  the 
Stability  Law's  spending  rule  to  the  sustainability  of  public  finance.  Overall,  the 
Council  is  of  the  opinion  that  further  measures  will  be  needed,  notably  in  2018,  to 
comply  with  the  provisions  of  the Stability and  Growth  Pact  and  in  particular  with 
the terms of the Council notice of 8 August 2016. 

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COM(2014) 494 final. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission     
using the commonly agreed methodology. 

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Spain  still  lacks  a  clear  and  consistent  public  procurement  policy  framework  that 
ensures  legal  compliance,  a  high  level  of  competition  and  economic  efficiency, 
namely  through  effective  ex  ante  and  ex  post  control  mechanisms,  enhanced 
transparency  and  coordination  across  contracting  authorities  and  entities  at  all 
government  levels.  The  government  has  put  forward  some  measures  in  2017  that 
would  improve  the  procurement  supervision  system  and  are  currently  awaiting 
parliamentary approval. 

Spain  has  made  progress  in  the  fight  against  corruption,  in  particular  regarding 
transparency  of  administrative  decision-making,  and  more  concretely  on  enacting 
legislation  on  transparency  of  party  financing,  asset  disclosure  and  conflicts  of 
interest.  The  focus  now  shifts  to  the  implementation  of  these  measures.  However, 
despite a surge in corruption investigations involving cases at the local and regional 
levels,  no  tailor-made  preventive  strategies  to  mitigate  corruption  risks  have  been 
developed at those government levels nor is there a shared preventive strategy across 
government  levels.  Other  shortcomings  such  as  the  lack  of  legislation  to  protect 
whistle-blowers,  the  degree  of  independence  of  the  recently  established  Office  of 
Conflicts of Interest and the lack of regulation of lobbying have not been the object 
of a specific follow up yet. Another issue concerns the protracted judicial procedure 
for  corruption  cases.  While  the  Criminal  Procedure  law  was  amended  in  2015  to 
limit  the  time  allocated  to  investigations  and  reduce  undue  delays  in  criminal 
procedures,  this  measure  could  result  in  impunity  in  complex  corruption  cases  for 
which the time limits would not be sufficient for building cases. 

Despite  a standard  VAT  rate in  line  with  the EU  average,  Spain  has  relatively low 
VAT  revenues.  This  is  mainly  due  to  Spain  extensively  applying  exemptions  or 
reduced  rates  on  various  products  and  services.  As  a  result,  Spain  recorded  the 
largest  policy  gap  in  the  EU  in  2014  (59  %  compared  to  the  EU  average  of  about 
44 %). Similarly, Spain’s revenues from environmentally related taxes are among the 
lowest in the EU, despite some measures taken in recent years, mainly in the energy 
sector. Taxing pollution and resource use can generate increased revenue and bring 
important  social  and  environmental  benefits.  There  is  also  normative  dispersion 
resulting in a heterogeneous approach to certain environmental taxes at the regional 
level.  Regarding  expenditure,  the  government  has  commissioned  AIReF,  Spain's 
independent  fiscal  institution,  to  carry  out  a  spending  review  covering  all  levels  of 
general government. The review can help identify areas where spending needs can be 
met with a more efficient use of resources. 

Job creation has been strong in recent years, supported by labour market reforms and 
wage  moderation.  Unemployment  has  decreased  rapidly,  but  remains  among  the 
highest in the EU, in particular among young and low skilled people, entailing risks 
of disengagement from the labour market. Almost half of the unemployed have been 
without a job for more than a year. Spain is taking measures to support young people, 
notably  by  extending  the  Youth  Guarantee  eligibility  criteria,  and  to  strengthen 
individual support to the long-term unemployed. Their effectiveness depends also on 
the  performance  of  the  regional  public  employment  services.  There  is  scope  to 
enhance  their  cooperation  with  social  services,  so  as  to  improve  the  provision  of 
extended  services  to  jobseekers,  in  particular  the  long-term  unemployed  and 
beneficiaries of income guarantee schemes. At the same time, cooperation of public 
employment  services  with  employers  could  be  enhanced,  notably  by  increasing  the 
share of vacancies handled by the employment services. 

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Spain has one of the highest shares of temporary employment in the EU, and many 
temporary  contracts  are  of  very  short  duration.  Transition  rates  from  temporary  to 
permanent contracts are very low in comparison to the EU average. The widespread 
use  of  temporary  contracts  is  associated  with  lower  productivity  growth  (including 
through  lower  on-the-job  training  opportunities),  poorer  working  conditions  and 
higher  poverty  risks.  The  recent  labour  market  reforms  seem  to  have  had  a  mildly 
positive  effect  in  reducing  segmentation  between  permanent  and  temporary 
contracts,  and  the  ongoing  reinforcement  of  labour  inspections  is  showing  positive 
results in addressing the abuse of temporary contracts. However, some features of the 
Spanish labour market may still discourage hiring on permanent contracts, including 
uncertainty in case of legal dispute following a dismissal, along with comparatively 
high severance payments for workers on permanent contracts. Moreover, the system 
of hiring incentives remains scattered and not effectively targeted at the promotion of 
open-ended  employment.  Although  it  has  recently  established  a  working  group  on 
the  quality  of  employment,  Spain  has  not  yet  developed  a  comprehensive  plan  for 
fighting  labour  market  segmentation,  following  the  2014  agreement  between  the 
government and social partners. 

Disparities  persist  in  the  eligibility  conditions  of  income  guarantee  schemes  and  in 
the  link  between  activation  and  protection  across  regions  and  schemes.  Certain 
categories  of  vulnerable  households  are  left  out  of  the  income  guarantee 
arrangements. The limited effectiveness of the schemes is partly explained by large 
disparities  in  adequacy  and  access  conditions  of  the  regional  minimum  income 
schemes  and  by  the  fragmentation  of  the  national  benefit  system  into  multiple 
schemes  addressing  various  categories  of  jobseekers  and  managed  by  different 
administrations. Fragmentation introduces discontinuity in the support given to those 
in  need  of  it  and  hampers  the  delivery  of  integrated  pathways.  In  response  to  the 
multiple  challenges,  an  ongoing  study  aims  at  assessing  the  effectiveness  of  the 
national and regional income support schemes. Family benefits are poorly targeted. 
Moreover, when taking into account the impact of tax credits, the tax-benefit system 
is overall slightly regressive. In addition, childcare use strongly increases with family 
income, suggesting barriers to access for low-income parents. The provision of long-
term  care  services  is  improving,  but  it  differs  across  regions  and  current  needs  are 
still not met. 

(14)  Weak education outcomes negatively affect the longer-term potential for productivity 
growth  in  Spain.  Despite  significant  improvements  over  the  past  years,  the  early 
school  leaving  rate  remains  among  the  highest  in  the  EU.  There  are  wide  regional 
disparities in early school leaving and students’ performance, in particular regarding 
basic  skills.  Teachers’  training  and  individual  students’  support  are  among  the 
drivers  of  successful  school  education  in  well  performing  regions.  Spain  has  the 
second  highest  grade  repetition  rate  in  the  EU,  which  increases  the  risk  of  school 
lowers  attainment  expectations  and  weighs  on  education  costs. 
drop-out, 
Employability  of  tertiary  graduates  remains  comparatively  low.  The  reduced 
mobility  of  students  and  academic  staff,  limited  traineeships'  opportunities,  lack  of 
incentives and the rigidity of university governance remain obstacles to cooperation 
with business on education or research.  

(15) 

To  strengthen  productivity  and  competitiveness,  Spain  would  benefit  from  further 
promoting research and innovation. Yet, innovation performance has been declining 
and is now at a lower level than in 2007, while the country’s gap to the EU average 
has  increased  over  time.  Low  innovation  performance  coincides  with  declining 

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private  R&D  expenditure  and  points  to  weaknesses  in  the  research  and  innovation 
governance  framework.  The  State  Agency  for  Research  responsible  for  managing 
central government research and innovation funding has become operational in early 
2017. Until now, there is no systematic multiannual planning of support programme 
budgets.  Also,  the  effectiveness  of  support  programmes  is  not  systematically 
evaluated  to  enhance  their  design  and  implementation.  Due  to  a  lack  of  incentives 
and  the  rigidity  of  university  governance,  public-private  cooperation  also  remains 
weak  and  the  mobility  of  researchers  between  public  and  private  sector  is  low. 
Coordination  across  government  levels  is  not  optimal,  and  as  a  result  national  and 
regional policies do not operate in full synergy. 

Spanish small firms tend to have significantly lower productivity than their peers in 
other large EU Member States. Given the prevalence of small firms in Spain, this has 
a significant impact on productivity in the economy as a whole. Easing the barriers 
for  businesses  to  be  created,  operate  and  grow,  would  therefore  result  in  increased 
investment  and  productivity.  The  Spanish  government  adopted  several  measures  in 
recent  years  aimed  at  facilitating  business  creation  and  growth.  The  consolidation 
and full implementation of these reforms is essential to fully reap their benefits. The 
law on market unity adopted in 2013 has contributed to tackling the additional costs 
for  entrepreneurs  caused  by  the  substantial  differences  and  overlaps  in  business 
regulations  across  regions.  The  increasing  use  by  businesses  of  the  complaint 
mechanism  foreseen  in  this  law  to  seek  redress  on  market  access  barriers  hint  at  a 
possible  need  to  further  simplify  licensing  procedures.  Coordination  between 
relevant public administrations, including at sectoral conference level, requires more 
efforts.  This  is  essential  to  ensure  that  existing  and  forthcoming  legislation  at  all 
levels  effectively  tackles  unnecessary  market  entry  barriers,  including  for  new 
business models in the collaborative economy. In the retail sector, dual authorisations 
for retail establishment continue to unnecessarily restrict market entry. Market access 
requirements foreseen in the vehicle-with-drivers services sector legislation and the 
short-term  rental  accommodation  services  legislation  at  regional  level  may 
unnecessarily hamper the balanced development of the collaborative economy. Spain 
has  taken  steps  in  the  first  months  of  2017  to  leverage  the  market  unity  law,  an 
example  being  the  recently  adopted  guide  on  its  implementation  and  the  published 
catalogue of good and bad practices in applying it. 

Regulation  of  professional  services  remains  comparatively  restrictive.  Protectionist 
rights  (‘reserved  activities’)  are  granted  selectively  to  some  service  providers, 
excluding  others  with  relevant  similar  qualifications.  In  a  large  number  of 
professions  there  is  a  mandatory  membership  requirement  in  a  professional 
association.  The  level  of  restrictiveness  is  higher  in  Spain  than  the  EU-weighted 
average  for  civil  engineers,  architects  and  tourist  guides.  It  is  lower  than  the  EU 
average  for  patent  agents  and  lawyers,  although  access  to  the  latter  profession  is 
more  tightly  restricted  than  for  any  other  profession  in  Spain.  13  The  draft 
professional  services  law  envisaging,  among  other  things,  rationalisation  of 
professional  association  membership  has  still  not  been  adopted.  This  reform  also 
defines increased transparency and accountability of professional bodies, opening up 
unjustified  reserved  activities  and  safeguarding  market  unity  in  the  access  to  and 
exercise of professional services in Spain. 

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COM(2016) 436 final. 

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In  the  context  of  the  European  Semester  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Spain’s  economic  policy  and  published  it  in  the  2017 
country report. It has also assessed the Stability Programme and the National Reform 
Programme  and  the  follow-up  given  to  the recommendations  addressed  to  Spain  in 
previous  years.  It  has  taken  into  account  not  only  their  relevance  for  sustainable 
fiscal  and  socioeconomic  policy  in  Spain,  but  also  their  compliance  with  EU  rules 
and guidance, given the need to strengthen the EU’s overall economic governance by 
providing EU-level input into future national decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  Stability  Programme 
and its opinion14 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  the  National  Reform  Programme  and  the  Stability  Programme.  Its 
recommendations  made  under  Article  6  of  Regulation  (EU)  No 1176/2011  are 
reflected in recommendations 1 to 3 below, 

HEREBY RECOMMENDS that Spain take action in 2017 and 2018 to: 

1. 

2. 

3. 

Ensure compliance with the Council decision of 8 August 2016 giving notice under 
the excessive deficit procedure, including also measures to strengthen the fiscal and 
public  procurement frameworks. Undertake  a comprehensive expenditure review in 
order to identify possible areas for improving spending efficiency. 

Reinforce  the  coordination  between  regional  employment  services,  social  services 
and  employers,  to  better  respond  to  jobseekers’  and  employers’  needs.  Take 
measures  to  promote  hiring  on  open-ended  contracts.  Address  regional  disparities 
and  fragmentation  in  income  guarantee  schemes  and  improve  family  support, 
including  access  to  quality  childcare.  Increase  labour  market  relevance  of  tertiary 
education.  Address  regional  disparities  in  educational  outcomes,  notably  by 
strengthening teachers’ training and individual students’ support. 

Ensure adequate and sustained investment in research and innovation and strengthen 
timely 
its  governance  across  government 
implementation of the law on market unity for existing and forthcoming legislation.  

levels.  Ensure  a 

thorough  and 

Done at Brussels, 

For the Council 
The President 

14 

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

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