Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Sweden and delivering a Council opinion on the 2017 Convergence Programme of Sweden
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Sweden, economic policy, economic reform, employment policy, fiscal policy, housekeeping economy, housing, price increase, real estate credit, stability programme

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 526 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Sweden  and delivering a Council opinion on the 2017 Convergence Programme of Sweden  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of Sweden 

and delivering a Council opinion on the 2017 Convergence Programme of Sweden 

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  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  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 Sweden as one of the Member States for which an in-depth review would 
be carried out.  

1 
2 
3 
4 
5 
6 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2017) 526 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 

EN 

2 

   EN 

 
 
 
                                                 
(2) 

(3) 

(4) 

(5) 

7 
8 
9 

10 

The 2017 country report for Sweden7 was published on 22 February 2017. It assessed 
Sweden’s  progress  in  addressing  the  country-specific  recommendation  adopted  by 
the Council on 12 July 2016, the follow-up given to the recommendations adopted in 
previous  years  and  Sweden’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  2017.8  The  Commission’s 
analysis  leads  it  to  conclude  that  Sweden  is  experiencing  macroeconomic 
imbalances.  In  particular,  persistent  house  price  growth  from  already  overvalued 
levels  coupled  with  a  continued  rise  in  household  debt  poses  risks  of  a  disorderly 
correction.  Although  banks  appear  adequately  capitalised,  a  disorderly  correction 
could also affect the financial sector as banks have a growing exposure to household 
mortgages. In such a case, there could be spill-overs to neighbouring countries since 
Swedish  banking  groups  are  of  systemic  importance  in  the  Nordic-Baltic  region. 
Awareness  of  mounting  risks  among  the  Swedish  authorities  is  high,  and  in  recent 
years  measures  have  been  taken  to  rein  in  mortgage  debt  growth  and  increase 
housing  construction.  However,  policy  steps  implemented  so  far  have  not  been 
sufficient to address overheating in the housing sector. Overall, policy gaps remain in 
the  area  of  housing-related  taxation,  the  macroprudential  framework,  and  in 
addressing bottlenecks for new housing supply as well as barriers to efficient usage 
of the existing housing stock. 

On 28 April 2017, Sweden submitted its 2017 National Reform Programme and its 
2017  Convergence  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,9 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.10 

Sweden  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact.  In  its 
2017 Convergence Programme, the government plans to achieve a surplus of 0.3% of 
GDP  in  2017  and  to  continue  to  meet  the  medium-term  budgetary  objective  —  a 
structural deficit of 1 % of GDP — throughout the programme period. According to 
the Convergence Programme, the general government debt-to-GDP ratio is expected 
to  fall  to  39.5%  in  2017  and  to  continue  declining  to  31.4%  in  2020.  Robust 
economic growth and sound public finances are set to be the main drivers behind the 
declining  general  government  debt-to-GDP  ratio.  The  macroeconomic  scenario 

SWD(2017) 92 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. 
COM(2014) 494 final. 

EN 

3 

   EN 

 
                                                 
 
(6) 

(7) 

underpinning  these  budgetary  projections  is  plausible.  Based  on  the  Commission 
2017 spring forecast, the structural balance is forecast to show a surplus of 0.4% of 
GDP  in  2017  and  a  surplus  of  0.8%  of  GDP  in  2018,  above  the  medium-term 
budgetary  objective.  Based  on  its  assessment  of  the  Convergence  Programme  and 
taking  into  account  the  Commission  2017  spring  forecast,  the  Council  is  of  the 
opinion that Sweden is projected to comply with the provisions of the Stability and 
Growth Pact in 2017 and 2018.   

Household debt has continued to rise from already high levels. Household debt grew 
by 7.1 % in 2016, approaching 86 % of GDP and about 180 % of disposable income, 
driven mainly by higher mortgage borrowing linked to continued house price rises. 
The  distribution  of  debt  levels  has  become  increasingly  uneven,  with  an  elevated 
fraction  of  newly  mortgaged  households  (16.4 %  in  2016)  borrowing  as  much  as 
600 %  of  their  disposable  income.  The  government  has  taken  some  relevant 
macroprudential  measures  —  including  the  introduction  of  a  new  mortgage 
amortisation requirement in 2016 — but it remains unclear whether these will have 
sufficient impact over the medium term. In February 2017, the government launched 
a legislative process to enhance the legal mandate of the macroprudential authority, 
to  ensure  that  in  the  future  the  authority  can  introduce  potential  macroprudential 
measures  in  a  timely  manner  and  use  a  wider  range  of  tools.  The  legislative 
amendments  are  expected  to  be  in  force  by  February  2018.  Adjusting  fiscal 
incentives,  for  example  by  gradually  limiting  the  tax  deductibility  of  mortgage 
interest  payments  or  by  increasing  recurrent  property  taxes,  would  help  curb 
household debt growth, but the government has made no progress on this.  

Sweden  has  experienced  rapid  and  persistent  house  price  growth  since  the  mid-
1990s.  House  prices  have  continued  to  grow  rapidly  and  persistently,  especially  in 
the main urban areas. Key drivers include generous tax treatment of home ownership 
and  mortgage  debt,  accommodative  credit  conditions  coupled  with  relatively  low 
mortgage amortisation rates, and an ongoing housing supply shortage. This shortage 
is linked to structural inefficiencies in the housing market. Housing construction has 
continued  to  increase,  but  remains  well  below  new  construction  needs.  The 
government’s  22-point  housing  market  plan  addresses  some  underlying  factors  for 
housing  shortage,  including  measures  to  increase  the  amount  of  available  land  for 
construction,  reduce  construction  costs  and  shorten  planning  process  lead  times. 
However,  some  other  structural  inefficiencies,  including  weak  competition  in  the 
construction  sector,  do  not  receive  appropriate  attention.  The  housing  shortage  is 
exacerbated  by  barriers  hindering  the  efficient  use  of  the  existing  housing  stock. 
Sweden’s  tightly  regulated  rental  market  creates  lock-in  and  ‘insider/outsider’ 
effects, but no significant policy action has been taken to introduce more flexibility 
in  setting  rents.  In  the  owner-occupancy  market,  relatively  high  capital  gains  taxes 
reduce  homeowner  mobility.  A  temporary  reform  of  the  deferral  rules  for  capital 
gains  taxes  on  property  transaction  was  introduced,  but  this  will  probably  have 
limited effect. Lack of available and affordable housing can also limit labour market 
mobility  and  the  effective  integration  of  migrants  into  the  labour  market,  and 
contribute to intergenerational inequality. 

(8) 

In 2016 Sweden had one of the highest employment rates in the EU (81.2 %), while 
recording  one  of  the  lowest  long-term  unemployment  rates.  However,  challenges 
remain, such as integrating low-skilled people and non-EU migrants into the labour 
market  and  reducing  the  substantial  employment  gap  for  non-EU-born  women. 
Sweden has made considerable efforts in the reception of asylum seekers and in the 

EN 

4 

   EN 

 
integration of refugees and other immigrants. Further improvements appear possible 
as in 2016 only one third of participants to the introduction programme were in work 
or  education  90  days  after  having  completed  the  programme,  and  a  comprehensive 
approach and governance on the corresponding recognition of qualifications are still 
missing. 

Basic  skills  proficiency  of  15  year  olds  has  improved  after  years  of  deteriorating 
performance, according to  OECD’s  PISA 2015  survey. However, the proportion of 
low achievers is still around the EU average and the performance gap linked to the 
socioeconomic background of students has widened. The measures launched by the 
government  to  improve  school  outcomes  and  equity  warrant  close  monitoring, 
together  with  the  initiatives  aimed  at  integrating  newly-arrived  migrant  pupils  into 
the school system. 

In  the  context  of  the  European  Semester  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Sweden’s  economic  policy  and  published  it  in  the  2017 
country  report.  It  has  also  assessed  the  Convergence  Programme  and  the  National 
Reform  Programme  and  the  follow-up  given  to  the  recommendations  addressed  to 
Sweden  in  previous  years.  It  has  taken  into  account  not  only  their  relevance  for 
sustainable  fiscal  and  socioeconomic  policy  in  Sweden,  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  Convergence 
Programme  and  is  of  the  opinion11  that  Sweden  is  expected  to  comply  with  the 
Stability and Growth Pact. 

In  the  light  of  the  Commission’s  in-depth  review  and  this  assessment,  the  Council 
has examined the National Reform Programme and the Convergence Programme. Its 
recommendations  made  under  Article  6  of  Regulation  (EU)  No 1176/2011  are 
reflected in recommendation 1 below, 

(9) 

(10) 

(11) 

(12) 

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

1. 

Address  risks  related  to  household  debt,  in  particular  by  gradually  limiting  the  tax 
deductibility of mortgage interest payments or by increasing recurrent property taxes, 
while  constraining  lending  at  excessive  debt-to-income  levels.  Foster  investment  in 
housing and improve the efficiency of the housing market, including by introducing 
more  flexibility  in  setting  rental  prices  and  revising  the  design  of  the  capital  gains 
tax.  

Done at Brussels, 

For the Council 
The President 

11 

Under Article 9(2) of Council Regulation (EC) No 1466/97. 

EN 

5 

   EN