Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Finland and delivering a Council opinion on the 2019 Stability Programme of Finland
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: Finland, budget deficit, economic policy, economic reform, employment policy, innovation, investment, public expenditure, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 526 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Finland and delivering a Council opinion on the 2019 Stability Programme of Finland    
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of Finland and delivering a Council opinion 
on the 2019 Stability Programme of Finland 

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 Commission, 

Having regard to the resolutions of the European Parliament, 

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 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  21  March 
2019.  On  21  November  2018,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  in  which  it  did  not  identify 
Finland as one of the Member States for which  an in-depth  review would be carried 
out. On the same date, the Commission also adopted a recommendation for a Council 
recommendation on the economic policy of the euro area, which was endorsed by the 
European  Council  on  21  March  2019.  On  9  April  2019,  the  Council  adopted  the 
recommendation  on  the  economic  policy  of  the  euro  area  (‘Recommendation  for  the 
euro area’).  

(2) 

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,  Finland  should  ensure 

1 

OJ L 209, 2.8.1997, p. 1. 

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(3) 

(4) 

(5) 

(6) 

the  full  and  timely  implementation  of  the  Recommendation  for  the  euro  area,  as 
reflected  in  recommendations  (3)  and  (4)  below.  In  particular,  focusing  economic 
policy  related  to  investment  in  the  specified  areas  will  help  address  the  second  euro 
area  recommendation  as  regards  supporting  investment,  and  measures  to  contain 
household  indebtedness  will  help  address  the  fourth  euro  area  recommendation  as 
regards reducing private debt. 
The 2019 country report for Finland2 was published on 27 February 2019. It assessed 
Finland’s progress in addressing the country-specific recommendations adopted by the 
Council  on  13  July  2018,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and Finland's progress towards its national Europe 2020 targets.  

On 4 April 2019, Finland submitted its 2019 National Reform Programme and its 2019 
Stability Programme. To take account of their interlinkages, the two programmes have 
been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council3,  where  it  is  necessary  to  support  the 
implementation of relevant Council recommendations, the Commission may request a 
Member  State  to  review  and  propose  amendments  to  its  Partnership  Agreement  and 
relevant programmes. The Commission has provided further details on how it would 
make use of that provision in guidelines on the application of the measures linking the 
effectiveness of the ESI Funds to sound economic governance4.  

Finland is currently in the preventive arm of the Stability and Growth Pact. In its 2019 
Stability Programme, which was submitted on a no-policy-change basis by the previous 
government  shortly  before  the  general  elections  in  April,  the  government  plans  a 
headline  balance  of  -0.3%  of  GDP  in  2019,  down  from  0.7%  of  GDP  from  2018. 
According to the Government, the balance is projected to improve further in 2020 to 
0% and, thereafter, to worsen again to -0.1% in 2021 and -0.3% in 2022. Based on the 
recalculated  structural  balance5,  the  medium-term  budgetary  objective,  set  at  a 
structural  deficit  of  0.5%  of  GDP,  is  planned  to  continue  to  be  overachieved 
throughout the programme period, taking account of the allowances in 2019 linked to 
the  implementation  of  the  structural  reforms  for  which  a  temporary  deviation  is 
granted. The general government debt-to-GDP ratio, which peaked at 63.4% in 2015, 
declined to 58.9% in 2018. According to the 2019 Stability Programme, the debt ratio 
will continue to decrease and reach 57.4% of GDP in 2021. It is projected to increase 
again  in  2022  to  57.7%  of  GDP.  The  macroeconomic  scenario  underpinning  those 
budgetary projections appears to be broadly plausible. The main risks to the budgetary 
projections  relate  to  the  possible  larger-than-expected  cost  of  ageing  and  higher 
inflation. 

2 

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SWD(2019) 1025 final. 
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. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 

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(7) 

(8) 

(9) 

 On  13  July  2018,  the  Council  recommended  Finland  to  achieve  the  medium-term 
budgetary  objective  in  2019,  taking  account  of  the  allowances  linked  to  the 
implementation  of the structural  reforms  for which a temporary deviation  is  granted. 
This  is  consistent  with  a  maximum  nominal  growth  rate  of  net  primary  government 
expenditure6  of  2.9%  in  2019,  corresponding  to  an  allowed  deterioration  in  the 
structural  balance  by  0.2%  of  GDP.  According  to  the  Commission  2019  spring 
forecast,  Finland  is  expected  to  be  at  its  medium-term  budgetary  objective  in  2019 
taking account of the granted allowance linked to the structural reform clause.  

In 2020, in view of Finland's projected output gap of 0.8%, the nominal growth rate of 
net  primary  government  expenditure  should  not  exceed  1.9%,  in  line  with  the 
structural  adjustment  of  0.5%  of  GDP  stemming  from  the  commonly  agreed 
adjustment matrix of requirements under the Stability and Growth Pact. According to 
the Commission  2019 spring forecast  under unchanged policies, Finland is projected 
to  be  at  risk  of  some  deviation  in  2020.  Overall,  the  Council  is  of  the  opinion  that 
Finland is projected to comply with the provisions of the Stability and Growth Pact in 
2019 and needs to stand ready to take further measures to ensure compliance with the 
provisions of the Stability and Growth Pact in 2020. 

Due  to  the  ageing  population  and  declining  workforce,  spending  on  pensions,  health 
and – especially – social care (long-term care) is projected to increase in the coming 
decades. According to the 2018 Fiscal Sustainability Report, the projected increase in 
ageing costs would require a fiscal consolidation amounting to 2% of GDP to stabilise 
the debt-to-GDP ratio in the long term. A reform of regional government, health and 
social  services,  designed  to  address  these  challenges  and  to  ensure  equal  access  and 
reduce  waiting times, was  rejected by the  Finnish Parliament  on 7 March 2019. The 
ratio of self-declared unmet medical needs in Finland remains above the EU average. 
In particular, people outside the workforce are having difficulties getting the necessary 
medical care due to long waiting lists. 

(10)  Amid a shrinking working-age population and rising levels of vacancies, the Finnish 
labour  market  is  tightening.  At  the  same  time,  activity  and  employment  rates  in 
Finland  are  lower  than  in  the  other  Nordic  countries  and  structural  unemployment 
remains  at  7%  in  2018.  This  partly  reflects  inactivity  and  unemployment  traps 
hindering a better use of the labour force. The main barriers to getting people back to 
work  include  the  complex  benefits  system  and  the  combination  of  different  types  of 
allowances. Benefits are phased out rapidly as income increases, which creates the risk 
that  taking  up  work  might  not  be  sufficiently  financially  rewarding.  Uncertainty 
surrounding  the  level  of  benefits  and  the  time  to  reinstate  them  reduces  the 
attractiveness  of  short-term  or  part-time  work.  The  basic  income  experiment,  the 
preliminary  results  of  which  were  published  in  February  2019,  provides  some 
information  for  revising  the  social  security  system  to  combine  benefits  more 
effectively with earnings. 

(11) 

Investments in active inclusion, especially of groups furthest from the labour market, 
are necessary to increase the participation rate now that activity and employment rates 

6 

Net  primary  government  expenditure  comprises  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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are  close  to  pre-crisis  levels.  Comprehensive  reforms  aiming  at  fostering  labour 
market  participation  could  bring  about  better  opportunities  in  the  labour  market  for 
some groups. This concerns people with a migrant background, women at childbearing 
age, low-skilled men, people partially able to work and persons with disabilities. Some 
services for the unemployed and inactive are dispersed among separate authorities and 
providers. Helping these groups to join and remain in the labour market requires tailor-
made  and  integrated  activation  and  rehabilitation  services  and  policies.  Long 
caretaking  responsibilities  for  women  contribute  to  the  gender  employment  gap  and 
the gender pay gap. The government initiated a process to reform family leave, but did 
not carry it through. 

(12)  Ensuring  the  supply  of  labour  in  times  of  demographic  and  technological  change  is 
key  to  fostering  sustainable  and  inclusive  growth  in  Finland.  Investing  in  skills, 
especially those relevant to the labour market, would help meet the challenges created 
by  structural  change  in  the  economy.  Technological  change  calls  for  continuous 
training  and  reskilling  of  the  workforce  through  flexible  ways  of  learning,  including 
by  focusing  on  adult  learning,  education  and  training.  This  should  increase 
occupational  mobility,  reducing  skills  mismatches  and  helping  to  meet  future  labour 
market needs.  

(13)  Finland  is  at  risk  of  missing  the  2020  municipal  waste  recycling  target  of  50%.  In 
particular, municipal waste is increasingly incinerated (60% in 2017 compared to 55% 
in 2016). 

(14)  While  public  spending  on  research  and  development  is  now  stabilising,  Finland 
experienced the sharpest decline of all EU Member States since 2009 in private-sector 
investment  in  research  and  development.  Despite  an  improvement  in  the  macro-
economic  situation  in  recent  years,  private-sector  investment  in  research  and 
development  has not  recovered  yet.  A higher intensity of investment  in  research and 
development is a key factor enabling structural change to favour knowledge-intensive 
sectors  of  the  economy  and  strengthen  long-term  growth  potential.  In  addition, 
cooperation between higher education institutions and the business sector remains one 
of the key bottlenecks to stimulating innovations and bringing them to the market.  

(15)  With a dispersed population, transport bottlenecks may prevent people from moving to 
find  jobs.  Strategic  investment  in  the  transport  infrastructure  may  improve  labour 
mobility  and  thereby  strengthen  the  functioning  of  labour  markets.  In  parallel,  as 
transport costs have a relatively high impact on the final price of products in Finland 
compared  to  other  EU  Member  States,  infrastructure  interconnections  could  enhance 
access to markets abroad. 

(16)  Strategic  investment  in  decarbonising  energy-intensive  industries  and  the  transport 
sector would help achieve long-term economic and climate goals. Finland is a leader 
in clean energy innovation and private research and development spending in this area. 
Further  investment  in  some  of  its  clean  energy  programmes  by  2021,  as  committed, 
would help Finland meet its carbon neutrality objectives. Besides Finland’s ambitious 
objectives for increasing the share of biofuels, electrification is a cost-efficient option 
for  decarbonising  the  transport  sector,  given  the  advanced  decarbonisation  of  power 
generation. 

(17)  Low  interest  rates  and  the  improved  economic  outlook  have  increased  the  overall 
volume  of  lending,  especially  through  housing  corporations  (which  provide  a 
distinctive form of home ownership). In parallel, consumer credit is increasing rapidly 
and  a  rising  share  of  this  lending  is  granted  by  foreign  banks,  financial  institutions 

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other  than  credit  institutions,  small-loan  companies  and  peer-to-peer  lending. 
Household debt therefore remains at a historically high level (67% of GDP in 2017). 
The debt  is  predominantly  at  a variable rate, which constitutes a risk if interest  rates 
rise in the medium term. The Finnish Financial Supervisory Authority has adopted a 
number  of  measures  to  contain  the  increase  in  the  indebtedness  of  households. 
However,  no  active  reduction  of  the  debt  burden  is  expected  soon,  especially  as 
interest rates remain low and consumer confidence is still relatively strong. 

(18)  At this stage, Finland does not have a comprehensive (i.e. collecting both positive and 
negative information on debtors) credit registry that covers its major banks. The lack 
of this can prevent banks having a clear overview of households’ overall indebtedness. 
Some preparatory work for the setting up of a registry of this kind has been carried out 
in the last year. 

(19)  The programming of EU funds for the period 2021-2027 could help address some of 
the  gaps  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex  D  to  the  country  report7.  This  would  allow  Finland  to  make  the  best  use  of 
those funds in respect of the identified sectors, taking into account regional disparities. 

(20) 

(21) 

(22) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Finland’s  economic  policy  and  published  it  in  the  2019 
country  report.  It  has  also  assessed  the  2019  Stability  Programme  and  the  2019 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  Finland  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Finland,  but  also  their 
compliance with Union rules and guidance, given the need to strengthen the Union’s 
overall  economic  governance  by  providing  Union-level  input  into  future  national 
decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Stability 
Programme and its opinion8 is reflected in particular in recommendation (1) below. 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  National  Reform 
Programme  and  the  2019  Stability  Programme.  Its  recommendations  under  Article  6 
of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (4) below. 

HEREBY RECOMMENDS that Finland take action in 2019 and 2020 to: 

1. 

2. 

3. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed  1.9%  in  2020,  corresponding  to  an  annual  structural  adjustment  of  0.5%  of 
GDP.  Improve  the  cost-effectiveness  of  and  equal  access  to  social  and  healthcare 
services. 

Improve incentives to  accept  work  and enhance skills  and active inclusion, notably 
through well-integrated services for the unemployed and the inactive. 

Focus  investment-related  economic  policy  on  research  and  innovation,  low  carbon 
and  energy  transition  and  sustainable  transport,  taking  into  account  regional 
disparities. 

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SWD(2019) 1025 final. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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4. 

Strengthen the monitoring of household debt and establish the credit registry system.  

Done at Brussels, 

For the Council 
The President 

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