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# 52009DC0034

**Companion document - Implementation of the Lisbon Strategy Structural Reforms in the context of the European Economic Recovery Plan - A more detailed overview of progress across the EU in the specific macro- and micro-economic as well as the employment areas /\* COM/2009/0034 final \*/**

  

EN

|| COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 28.1.2009

COM(2009) 34 final
Volume I

Implementation of the Lisbon Strategy Structural
Reforms in the context of the European Economic Recovery Plan - Annual country
assessments:
Recommendation for a

COUNCIL RECOMMENDATION

on the 2009
up-date of the broad guidelines for the economic policies of the Member States
and the Community and on the implementation of Member States' employment
policies

Implementation of the Lisbon Strategy
Structural Reforms in the context of the European Economic Recovery Plan -
Annual country assessments:
Recommendation for a

COUNCIL RECOMMENDATION

on the 2009
up-date of the broad guidelines for the economic policies of the Member States
and the Community and on the implementation of Member States' employment
policies

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing
the European Community, and in particular Article 99(2) and Article 128(4)
thereof,

Having regard to the recommendation from
the Commission,

Having regard to the conclusions of the
European Council on […],

Having regard to the opinion of the
Employment Committee,

Whereas:

(1)
The Council adopted in July 2005 a recommendation
on the broad guidelines for the economic policies of the Member States and the
Community (2005 to 2008)[1]
and a decision on Guidelines for the employment policies of the Member States[2], which together form the
"Integrated guidelines for growth and jobs". Member States were
invited to take the integrated guidelines for growth and jobs into account in
their national reform programmes (NRPs).

(2)
The 2006, 2007 and 2008 Spring European Council
identified four priority areas (R&D and innovation, business environment,
employment opportunities and an integrated energy/infrastructure policy) which
are the pillars of the renewed Lisbon Strategy. Within these areas the European
Council agreed a limited number of specific actions which it urged Member
States to complete by set deadlines.

(3)
The Member States present each year reports on
the implementation of the national reform programmes (implementation reports).

(4)
On the basis of the Commission's analysis, a
number of country-specific recommendations were issued to the Member States in
2007 and in 2008[3].

(5)
In order to pursue the Lisbon strategy for
growth and jobs in a coherent, integrated manner, these recommendations are
adopted in a single instrument. This approach reflects the integrated structure
of the NRPs and Implementation Reports, as well as the necessary consistency
between the employment guidelines and the Article 99(2) broad economic policy
guidelines, as underlined in Article 128(2).

(6)
The 2008 Spring European Council launched the
second cycle of the renewed Lisbon Strategy, which will be completed in 2010.
The Council adopted in May 2008 a recommendation on the broad economic policy guidelines
for the Member States and the Community (2008 to 2010)[4] and in July 2008 a decision on guidelines
for the employment policies of the Member States[5],
which together form the "Integrated guidelines for growth and jobs".

(7)
Following this, Member States have confirmed,
updated or drawn up new NRPs, which they have submitted to the Commission by
October 2008 together with an implementation report. In order to reinforce
co-ordination of reforms and enhance the multilateral surveillance process in
Council, the 2008 Spring European Council asked Member States to set out their
policy responses to the country-specific recommendations, accompanied by
time-tables ('action plans').

(8)
In the context of the current economic downturn,
the Commission has proposed a European Economy Recovery Plan (hereafter 'the
Recovery Plan'[6]),
which the European Council in December 2008 agreed. This plan provides for a
co-ordinated budgetary stimulus, within the Stability and Growth Pact, to boost
demand and restore confidence, taking account of Member States starting
positions and efforts already undertaken in response to the economic problems.
The Recovery Plan foresees that the budgetary stimulus be accompanied by an
acceleration of structural reforms, grounded in the Lisbon Strategy, to
stimulate the economy whilst boosting the Union's long-term growth potential,
notably by promoting the transition towards a low-carbon, knowledge-intensive
economy.

(9)
The Recovery Plan agreed by the European Council
called on Member States to submit updated stability or convergence programmes,
which the Commission has assessed, taking due account of the need to ensure the
reversibility of the fiscal deterioration, improving budgetary policy-making,
and ensuring long-term sustainability of public finances.

(10)
The country specific recommendations should be
updated, taking account of the principles of the Recovery Plan and progress
made with their implementation since they were adopted. These reforms should be
implemented swiftly. The Commission will provide assistance as part of the Lisbon
partnership, monitor and regularly report on progress.

(11)
To fully implement the Lisbon strategy for
growth and jobs, this recommendation should also contain specific
recommendations to the Member States belonging to the euro area.

(12)
The European Parliament has adopted a resolution
regarding this Recommendation,

HEREBY RECOMMENDS that Member States
should take action along the lines set out in the Annex.

Done at Brussels,

                                                                       For
the Council

                                                                       The
President

ANNEX

TABLE OF CONTENTS

COUNCIL RECOMMENDATION............................................................................................ 2

Belgium................................................................................................................................... 8

Bulgaria............................................................................................................................... 10

Czech Republic.................................................................................................................. 12

Denmark............................................................................................................................... 14

Germany............................................................................................................................... 16

Estonia.................................................................................................................................. 18

Ireland.................................................................................................................................. 20

Greece.................................................................................................................................... 22

Spain....................................................................................................................................... 24

France................................................................................................................................... 26

Italy....................................................................................................................................... 28

Cyprus................................................................................................................................... 30

Latvia.................................................................................................................................... 32

Lithuania............................................................................................................................. 34

Luxembourg....................................................................................................................... 36

Hungary............................................................................................................................... 37

Malta..................................................................................................................................... 39

The
Netherlands.............................................................................................................. 41

Austria.................................................................................................................................. 42

Poland.................................................................................................................................. 44

Portugal.............................................................................................................................. 46

Romania................................................................................................................................ 48

Slovenia............................................................................................................................... 50

Slovakia.............................................................................................................................. 52

Finland................................................................................................................................. 54

Sweden.................................................................................................................................. 56

United Kingdom................................................................................................................ 57

Euro Area
Member States............................................................................................ 59

Belgium

1.           GDP growth slowed
noticeably to 1.3% in 2008. This was due to weakening external demand and
subdued domestic demand largely related to high inflation and the impact of the
financial crisis. The economic situation is expected further to weaken
considerably in 2009. Inflation in 2008 is estimated to
have been around 4.5%, almost
double the rate observed in 2007, driven largely by
higher domestic energy prices. Falling global energy
prices should bring inflation down in 2009. A public finance deficit of around
0.9% of GDP is expected for 2008. Gross debt is expected to stand at around 88%
of GDP in 2008. The current account surplus shrunk in 2008 and is expected to
shrink further in 2009.

2.           Employment growth was
positive in 2008 and the unemployment rate declined to 6.9%. However the
outlook for 2009 is much less positive, with unemployment rising. The sectors
most affected by the crisis are the automotive and steel industries as well as
the financial sector.

3.           In
response to the financial crisis, and as part of a co-ordinated EU approach,
Belgium has adopted financial sector support measures to stabilise the banking
sector, which should also help improve access to finance and thus support the
wider economy, and underpin macro-economic stability. In addition, in response
to the economic downturn, Belgium recently announced
measures, including financial support for SMEs.

4.           The Commission will assess
measures taken by Belgium to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Belgium has continued the
implementation of its National Reform Programme. Measures were announced to
further reduce tax on labour through an increase in the amount of tax-exempt
income for low and average-income workers, although further steps may still be
needed. Additional efforts are needed to improve labour market performance,
especially for older workers and disadvantaged groups, ensure the long-term
sustainability of public finances, increase competition in gas and electricity
markets, and improve R&D performance.

6.           Belgium is an
export-oriented economy, making it particularly important to preserve
competitiveness. In this context a development of unit labour costs in line
with the most important trading partners is crucial. However, cost
competitiveness deteriorated in 2008. Improved competition in the gas and
electricity markets would be beneficial. Sustained investment in R&D and
skills are important to accelerate productivity growth and promote
competitiveness. Low labour market participation, increasing age-related
expenditure, and a high public debt, put the long-term sustainability of the
public finances at risk, underlining the need to increase primary surpluses and
implement policies supporting growth and employment. An integrated approach
towards the implementation of structural reforms could accelerate the delivery
of results in Belgium. The implementation of the energy and climate change
package, agreed by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Belgium to
pursue the implementation of structural reforms. In particular, it is
recommended that Belgium:

· further reduces the tax burden on labour, especially by reducing the
tax wedge on low wage workers, while in the medium-term improving expenditure
restraint to support fiscal consolidation;

· improves competition in gas and electricity markets by adopting a
more pro-competitive regulatory framework, with fully independent and effective
regulators, and continues efforts concerning transmission and distribution
operators;

· within an integrated flexicurity approach, accelerates the
implementation of coordinated policy measures that improve labour market
efficiency, reviews unemployment benefits to facilitate a rapid return of the unemployed
to the labour market, enhances labour market participation (especially for
older workers and people with a migrant background), reduces regional
disparities and increases participation in lifelong learning across all
regions.

Bulgaria

1.           Driven
by strong domestic demand, GDP growth in Bulgaria accelerated to 7% for the
first nine months of 2008, bringing GDP per capita to around 40% of the EU
average. Growth is expected to moderate considerably in 2009 as tighter lending
conditions discourage domestic investment and private consumption. Inflation
hit a record high of 12% in 2008, boosted by domestic demand and strong wage
increases which far exceeded productivity growth, and is likely to remain above
the EU average. The budgetary position remains strong, with a budget surplus of
above 3% of GDP in 2008, owing both to a favourable composition of growth and
improved tax collection. However, strong domestic demand has worsened the
already significant macro-economic imbalances. The current account deficit
stands at a high level of almost 25% of GDP and is unlikely to improve
substantially given global prospects and Bulgaria's weakening competitiveness.

2.           Employment grew by over 3%
in 2008, but this rate of growth will slow in the next two years. Unemployment
declined to 6% in 2008, but is expected to increase somewhat
in 2009. The recent deterioration of the business climate and reduced demand in
several sectors, in particular manufacturing, construction, and retail, are
likely to considerably reduce employment in these and in accompanying economic
sectors.

3.           To
respond to the macro-economic imbalances, Bulgaria
recently announced measures, including improving competition in energy and
retail.

4.           The Commission will assess
measures taken by Bulgaria to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact. In this context, Bulgaria should maintain a tight fiscal stance and
urgently address its macro-economic imbalances. Moreover, the measures
recommended in paragraph 7 should be implemented swiftly, in particular to
encourage the transition towards a low carbon economy and enhance long-term
growth potential.

5.           Bulgaria has continued the implementation of its National Reform Programme,
although progress has been slow. Recently, measures
have been speeded up as a result of deliberate government decisions. Bulgaria
continued implementing its prudent fiscal policy although the efficiency of
public expenditure can still be improved. Encouraging measures have also been
taken to enhance the organisation and quality of education, but further
modernisation is necessary to improve governance and outcomes. More efforts are
needed to improve radically the efficiency and effectiveness of public
administration; the delay of the announced functional review, which the World
Bank was ready to undertake, slows down the implementation of reforms. There
also remains major scope for progress to cut red tape, to invest much more in
skills and to reform the public R&D system.

6.           Against the backdrop of
the global financial and economic crisis, it is ever more urgent for Bulgaria
to tackle its macro-economic vulnerabilities (high inflation and a large
current account deficit) by maintaining its tight fiscal policy and by speeding
up structural reforms to strengthen its competitiveness. The pace of implementation will have to be stepped up for Bulgaria
to transform its economy from one based essentially on cost advantages into a
more productive and knowledge-intense economy. In the
current economic and monetary context, these reforms are also essential to
maintain the competitiveness of the Bulgarian economy. The effective
implementation of the required reforms critically depends on Bulgaria's ability
to improve urgently the efficiency and effectiveness of its public
administration. The implementation of the energy and climate change package,
agreed by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Bulgaria to
pursue the implementation of structural reforms. In particular, it is
recommended that Bulgaria:

· urgently further strengthens the efficiency and the effectiveness of
the public administration, in particular by focusing on key government
functions, including the competition, supervisory and regulatory authorities,
and the judiciary, and continues taking all measures necessary to ensure
effective financial controls and sound management of structural funds;

· maintains a tight fiscal policy, improves the quality and efficiency
of public expenditure, keeps wage developments in line with productivity gains,
and enhances effective competition;

· rapidly adopts and implements new measures to substantially cut red
tape at central and local level and shortens procedural delays in order to
improve the business environment, which will also help in the fight against
corruption;

· as part of an integrated flexicurity approach, focuses on increasing
the quality of labour supply and the employment rate by improving the
efficiency, effectiveness and targeting of active labour market policies and by
further modernising and adapting the way education is governed to raise skills
to levels that better match labour market needs, and reducing early school
leaving.

Czech Republic

1.           GDP growth is expected to
have moderated to about 4.2% in 2008, with a further slowdown expected over 2009.
Inflation peaked in mid-2008 at 6.3%, and is now set to fall due to the
diminishing effect of earlier tax rises and lower energy prices. The budget
deficit has been reduced over several years, to 1.2% of GDP in 2008. The
current account deficit was about 1% of GDP in 2008 and there is a significant
trade surplus.

2.           The employment rate has
increased annually by over 1 percentage point since 2005, reaching 66.6% in
2008. The unemployment rate dropped to 4.3% in the 3rd quarter of 2008,
reaching a 12-year low. Current forecasts indicate a moderate decline in employment
growth and an increase in unemployment. In view of falling export demand,
unemployment is expected to particularly affect workers in the automotive
industry and other export oriented industries.

3.           The Commission will assess
measures taken by the Czech Republic to respond to the economic downturn in
line with the principles set out in the European Economic Recovery Plan as
adopted by the European Council. As regards public finances, the Commission
will assess the compatibility of the updated Convergence Programme with the
Stability and Growth Pact. Moreover, the measures recommended in paragraph 6
should be implemented swiftly, in particular to encourage the transition
towards a low carbon economy and enhance long-term growth potential.

4.           The Czech Republic has
continued the implementation of the National Reform Programme. A number of
reforms have been taken to improve the long-term sustainability of public
finances, increase investment in R&D, reform the education system, ensure
active ageing, and to develop a flexicurity-based approach to labour market
reform. Additional efforts are needed to improve access to finance, to further increase
R&D investment, to strengthen the enforcement of intellectual property
rights and to integrate disadvantaged groups into the labour market.

5.           The Czech Republic has one
of the most rapidly ageing populations in the EU which will have a significant
impact on the pension and health care systems. The main structural challenges
therefore include ensuring the long-term sustainability of public finances, and
encouraging a transition to a knowledge-based economy. Tackling these
structural challenges will improve growth potential, create jobs, and make the
economy more resilient to external shocks. All this requires further reforms in
the areas of R&D, innovation, education and training, a more integrated
flexicurity approach to labour market reform, and further improvement of the
conditions for entrepreneurial activity. The
implementation of the energy and climate change package, agreed by the European
Council, will require close attention.

6.           In
light of the Commission's assessment of progress made, the Council recommends
the Czech Republic to pursue the implementation of structural reforms. In
particular, it is recommended that the Czech Republic:

· improves the long-term sustainability of public finances, and
continues to reform the pension and health care system;

· strengthens efforts to improve collaboration among business,
universities and public R&D institutions, promotes an increased supply of
human resources for R&D, and increases the amount and effectiveness of
public R&D investment in order to meet the R&D expenditure targets;

· within an integrated flexicurity approach, further modernises
employment protection, improves the efficiency and equity of education and
training, especially its responsiveness to labour market needs, and provides
incentives to invest in training particularly for older workers and the
low-skilled.

Denmark

1.           GDP growth has slowed down
markedly in 2008. The downward correction of house prices has dampened domestic
demand, weakening private consumption and construction activity. Tighter
financing conditions are likely to drive house prices down more rapidly,
aggravating the impact of the global slowdown on the economy. Inflation,
underpinned by higher energy and food prices, averaged 3.5% in 2008, but has
started to slow. The government budget surplus could exceed 3% of GDP in 2008.
Denmark should have a small current account surplus in 2008 and 2009.

2.           Employment has grown in
the course of 2008, but is expected to fall over 2009. Similarly, the
unemployment rate of around 3.5% in 2008 is expected to increase in 2009. While
this should alleviate the pressure on the labour market in the shorter term, it
will still be important to address remaining labour shortages and further
facilitate labour market transition. The medium term employment challenge
remains to increase the overall size and skill match of the labour force and in
the shorter term a tax reform should sustain efforts in this respect.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Denmark has adopted financial sector support measures to stabilise
the banking sector, which should also help improve access to finance and thus
support the wider economy, and underpin macro-economic stability. In addition,
in response to the economic downturn, Denmark recently
announced measures, including investment in green transport and financial
support for households.

4.           The Commission will assess
measures taken by Denmark to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact.

5.           Denmark has continued the
implementation of its National Reform Programme. Further
progress has been made within the framework of
previously launched reform plans, particularly with regard to stimulating
labour supply. Further tax and labour market reform plans are being developed
in the light of the ageing of the population.

6.           Denmark’s
growth potential depends crucially on a better use and enhanced quality of its
labour resources, improving labour productivity, and on increasing returns from
investment in human capital, research and innovation. Demographic ageing has
started to affect labour supply, accentuating the need for reforms stimulating
participation and hours worked. A further challenge consists of enhancing
competition to lower the relatively high consumer price level in Denmark. The
implementation of the energy and climate change package, agreed by the European
Council, will require close attention.

Germany

1.           GDP growth in Germany
decelerated to 1.3% in 2008 from 2.5% in 2007, as the
global downturn triggered a sharp decrease in export growth. In addition, tighter financing conditions
and a worsened economic outlook are likely to reduce investment. Economic activity is therefore set to slow considerably in 2009. On
the back of commodity price rises in the first half of 2008, inflation peaked
at 3.2%, and is expected to diminish in 2009. The government budget was close to
balance in 2008, and is expected to move to a deficit of almost 3% in 2009. Considerable
gains in price competitiveness in recent years have contributed to a current
account surplus of over 7% of GDP in 2008.

2.           In 2008, employment grew
by 1.3%, but the economic slowdown is expected to hit the labour market with
unemployment rising in 2009. The automotive and construction sectors are at
particular risk. Due to the on-going contraction of the workforce and
as a consequence of demographic change, companies might try to keep
their skilled personnel and dismissals could therefore mostly affect
low-skilled and interim workers.

3.           In
response to the financial crisis and as part of a co-ordinated EU approach,
Germany has adopted financial sector support measures to stabilise the banking
sector, which should also help improve access to finance and thus support the
wider economy, and underpin macro-economic stability. In addition, in response
to the economic downturn, Germany recently announced
measures, including support for households and SMEs, and investment in schools
and infrastructure.

4.           The Commission will assess
measures taken by Germany to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Germany has continued the
implementation of its National Reform Programme. A number of positive measures
have been taken to help deliver a knowledge society, to promote eco-innovation
and reform the labour market. Progress with regard to the medium-term budgetary
objective and the quality of public finances has been good. Additional measures
are needed to promote competition in services, to improve the business
environment and reduce structural unemployment.

6.           Improving productivity
growth and addressing high unemployment among the low-skilled, especially in
the East should help sustain the strong German economic
performance in the future. In this respect the
improvements in R&D and innovation are helpful. However, an improved
functioning of services markets, in particular professional services, energy
sector and rail services, and improvements in the business environment would
further increase the growth potential of the German economy. The implementation of the energy and climate change package, agreed
by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Germany to
pursue the implementation of structural reforms. In particular, it is
recommended that Germany:

· improves the framework for competition in services by improving
public procurement procedures, further relaxing restrictive rules in regulated
trades and services, and ensuring the effective separation of rail
infrastructure and transport services;

· proceeds with planned measures that enhance the efficiency and
effectiveness of job placement services and promote the integration of the low
skilled and long-term unemployed into the labour market through a flexicurity
approach which combines better access to qualifications with improved
incentives to work.

Estonia

1.           After GDP growth of 6.3%
in 2007, the economy contracted in 2008. A further contraction is expected in
2009. This development is driven by a fall in private consumption and
investment in a context of high inflation and tighter lending conditions.
Inflation is receding along with lower wage increases and lower international
commodity prices. Public finances have markedly deteriorated, and despite
significant expenditure cuts, there was a budget deficit in 2008 after a
surplus of 2.7% of GDP in 2007. The current account deficit decreased markedly
to 10% of GDP in 2008, and is projected to narrow further.

2.           The slowdown in economic
activity is affecting the labour market with rapidly growing unemployment.
Current forecasts suggest an increase in the unemployment rate in 2009 from
around 5% in 2008. The construction, housing and retail sectors are those most
likely to be affected. A significant slowdown in wage increases and possible
wage reductions in the private sector are expected. Labour market conditions
are particularly difficult for older workers and young people.

3.           In response to the
economic downturn, Estonia recently announced measures, including investment in
infrastructure and skills.

4.           The Commission will assess
measures taken by Estonia to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact. In this context, Estonia should pursue
fiscal consolidation. Moreover, the measures
recommended in paragraph 7 should be implemented swiftly, in particular to
encourage the transition towards a low carbon economy and enhance long-term
growth potential.

5.           Estonia has continued the
implementation of its National Reform Programme. A number of measures have been
taken to improve R&D and innovation performance, to strengthen competition
and to encourage lifelong learning. The policy response was more mixed with
respect to fiscal policy and in terms of structural reforms aimed at
facilitating labour market adjustment (in particular active labour market
policies) that would help contain inflation and wage inflation. Given the
crucial role of the Structural Funds to finance the measures in the National Reform
Programme, it is important to strengthen administrative capacity to implement
the programmes.

6.           Export performance is a
crucial component of the country's overall economic performance. Structural
reforms are urgently needed to support the required re-allocation of resources
towards exporting sectors. Continued investment in R&D, innovation and
education is needed to offset the loss of cost-competitiveness in labour
intensive sectors and ensure medium to long-term growth. The deteriorating
labour market will require a stronger focus on active labour market policies
and lifelong learning in order to respond to evolving labour market needs. A
further important aspect of restoring competitiveness is to ensure that wage developments
are more closely aligned with productivity developments. Labour market
rigidities need to be further reduced. In order to improve macro-economic
stability, a determined fiscal policy, an effective competition policy and
improved energy efficiency are necessary. The implementation of the energy and
climate change package, agreed by the European Council, will require close
attention

7.           In light of the
Commission's assessment of progress made, the Council recommends Estonia to
pursue the implementation of structural reforms. In particular, it is
recommended that Estonia:

· speeds up the implementation of the new labour law package and
increases the efficiency of public employment services, in particular by well
targeted active labour market policies aimed at facilitating labour market
transition.

Ireland

1.           Due to the deterioration
in the housing market, amplified by the financial crisis, GDP is estimated to
have contracted by 2% in 2008 (compared to growth of 6% in 2007). In addition,
Ireland is particularly exposed to the lower growth prospects in its main
trading partners and real GDP is expected to contract further in 2009.
Inflation, which peaked at close to 4% in mid-2008, is now easing. The public
finances have deteriorated because of a significantly reduced tax intake linked
to the property market correction and the wider recession. The budget deficit was
6% of GDP in 2008, reversing recent modest surpluses, and this deficit risks widening
considerably further subsequently. External balances have weakened in recent
years due to losses in cost competitiveness and a current account deficit (of
around 6% of GDP) is projected for 2008 and somewhat smaller for 2009.

2.           Current labour market estimates
suggest employment declined in 2008, and will further decline in 2009. The
unemployment rate increased to 6% in 2008 and is expected to increase further in
2009. The number of people claiming unemployment benefits rose by over 50% in
2008. Workers from the construction sector, particularly young males, are most
affected by rising unemployment.

3.           In
response to the financial crisis and as part of a co-ordinated EU approach,
Ireland has adopted financial sector support measures to stabilise the banking
sector, which should also help improve access to finance and thus support the
wider economy, and underpin macro-economic stability. In addition, in response
to the economic downturn, Ireland recently adopted
measures, including support for the housing sector and income support for the
most vulnerable.

4.           The Commission will assess
measures taken by Ireland to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Ireland has continued the
implementation of its National Reform Programme. Measures have been taken to increase
the availability of childcare places and to improve skills. Additional efforts
are needed to reform pensions. Developments in the housing market have had a
more adverse effect on public finances and GDP growth than expected.

6.           The main challenges
Ireland currently faces arise from the aftermath of the housing boom and the
financial crisis. However, the Irish economy has also become more vulnerable as
its competitive position has been gradually eroded. There is now an urgent need
to rebalance growth and to rebuild competitiveness. In the medium term further
pension reform is needed to ensure sustainability. As the budgetary situation has
also deteriorated significantly, restoring fiscal sustainability should be a
priority. Together with a careful prioritisation of public expenditures and the
promotion of reforms that strengthen higher-productivity growth through
expanding and improving physical and human capital, this will increase the
capacity of the Irish economy to adjust and gradually return to medium-term
sustainable growth. In this context, strengthened competition in the retail
sector is needed. The implementation of the energy and climate change package,
agreed by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Ireland to
pursue the implementation of structural reforms. In particular, it is
recommended that Ireland:

· gradually restores fiscal sustainability;

·
fosters a swift adjustment to sustainable
medium-term growth by productivity-enhancing measures.

Greece

1.           GDP growth slowed somewhat
in 2008 to just below 3%, mainly due to weakening external demand. It is
expected to slow further in 2009, dragged down by the contraction of the
housing sector and less buoyant investment. Inflation, pushed up by energy and
food prices, went above 4% in 2008, but is expected to ease in 2009. The budget
deficit reached 3.4% of GDP in 2008 due to revenue shortfalls and, to a lesser
extent, expenditure overruns. Gross debt is expected to stand at around 94% of
GDP in 2008. The current account will record a deficit of 13.4% of GDP in 2008.
This is expected to decrease in 2009.

2.           Employment increased in
2008, although employment growth was at a slower pace than the previous year. This
growth is expected to turn negative in 2009. Unemployment is forecast to
increase to 9% in 2009. The financial crisis is expected to hit SMEs in
particular, through a tightening of credit conditions. Its effects are already
felt in the construction and the maritime transport sector.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Greece has adopted financial sector support measures to stabilise the
banking sector, which should also help improve access to finance and thus
support the wider economy, and underpin macro-economic stability. In addition,
in response to the economic downturn, Greece recently
announced measures, including support for SMEs.

4.           The Commission will assess
measures taken by Greece to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programmes with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Greece has continued the
implementation of its National Reform Programme. A number of measures have been
taken to reform the pension system. The fiscal
slippages in 2007 underlined the need to continue fiscal consolidation that
started in 2004. Greece has placed a welcome policy
focus on reforming its public administration with success now depending on
effective implementation. More policy effort, in particular with regard to
active labour market policies and measures to tackle undeclared work, are
needed in order for Greece to address its labour market challenges.
Implementation of reforms in the field of education and training should be accelerated.

6.           The adverse international
environment makes it imperative to intensify efforts to address the
macro-economic imbalances and structural weaknesses of the Greek economy. In
order to enhance competitiveness and growth potential, continued structural
reform is fundamental. Greece must notably focus on the implementation of
policies to invest in human capital, R&D and innovation, to improve the
business environment, including through establishing one-stop-shops, to
increase the efficiency of the public administration, and to work towards a
sustainable macro-economic environment. A further important aspect of restoring
competitiveness is to ensure that wage developments are more closely aligned
with productivity developments. The implementation of the energy and climate
change package, agreed by the European Council, will require close attention.

7.           In light of the Commission's
assessment of progress made, the Council recommends Greece to pursue the
implementation of structural reforms. In particular, it is recommended that Greece:

· pursues fiscal consolidation in the medium-term and improves the
efficiency of primary expenditure, speeds up ongoing reforms in tax
administration and the budgetary process, reduces the debt-to-GDP ratio, and
proceeds rapidly with the implementation of the pension reform;

· takes measures to increase competition in professional services,
implements reforms to increase investment in R&D; and uses the Structural
Funds more effectively to accelerate growth oriented investment projects;

· implements reform of the public administration by building up
effective regulatory, control, and enforcement capacities, with an emphasis on
simplifying the regulatory environment for business, and reducing red tape;

· within an integrated 'flexicurity' approach, modernises employment
protection legislation, reduces non-wage costs to the low-paid, strengthens active labour market policies,
and transforms undeclared work into formal employment; and accelerates the
implementation of reforms on education and training, increases participation in
lifelong learning and facilitates transition to work, particularly for the
young.

Spain

1.           Spain's real GDP has
slowed significantly to 1.2% in 2008. A further deceleration is likely in 2009.
This development is driven by the ongoing contraction of residential
construction, and has been aggravated by the global financial crisis and the
tightening of credit conditions, resulting in a sharp decline in domestic
demand. Inflation accelerated to 4% in 2008, but is expected to moderate significantly.
In 2008 the government budget recorded a deficit of 3.4% of GDP, representing a
deterioration of over 5 percentage points compared to 2007. The current account
deficit reached almost 9.5% of GDP in 2008.

2.           Employment fell in 2008
and will continue to do so in 2009, even though participation, especially of
women, remained strong. This has pushed the unemployment rate above 11% in
2008, with a further significant increase to over 16% expected in 2009. Immigrants, the young, and the low skilled are the most affected,
and the residential construction and automobile sectors face particular risks.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Spain has adopted financial sector support measures to stabilise the
banking sector, which should also help improve access to finance and thus
support the wider economy, and underpin macro-economic stability. In addition,
in response to the economic downturn, Spain recently
announced measures, including investment in public works, facilitating finance
for SMEs, and support for the unemployed.

4.           The Commission will assess
measures taken by Spain to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Spain has continued to
implement its National Reform Programme. Progress has been achieved under the
better regulation agenda and in terms of improving access to childcare, in
addressing the challenge of improving the functioning of the energy sector, in
particular in terms of interconnection with neighbouring countries. Additional
measures are needed to reform education.

6.           The key challenge in the
medium term is to continue with structural reforms to sustain potential growth,
correct the large current account deficit and facilitate the restructuring of
the housing sector. Key in this respect is the challenge of improving
competitiveness by enhancing innovation, reinforcing competition, especially in
services, improving the regulation of the rental market, and increasing the
quality of human capital through lifelong learning and further education
reform. A further important aspect of improving competitiveness is to ensure that
wage developments are more closely aligned with productivity developments, in
the context of social dialogue. Restructuring public expenditure towards
productivity enhancing items, such as R&D and innovation, would help
sustain employment and economic activity. Increased competition in the services
sector would help hold down inflation and increase the cost-competitiveness of
exports. The implementation of the energy and climate change package, agreed by
the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Spain to pursue
the implementation of structural reforms. In particular, it is recommended that
Spain:

· promotes a swift transition into employment, further encouraging
mobility, upgrading skills and countering segmentation in the labour market;

· ensures the effective implementation of education reforms, also at
regional level, with the main objectives of reducing early school leaving and
increasing the graduation rate in upper secondary education;

· improves competitiveness by increasing competition in services and
in electricity, by continuing efforts to eliminate below-cost electricity
retail and network tariffs, and continues to enhance the efficiency of R&D.

France

1.           GDP growth in France
slowed noticeably to 0.7% in 2008, mainly due to weak domestic demand. Capital
and residential investment growth are stalling due to the worsening economic
outlook and tightening credit conditions. The weak growth performance is
expected to continue in 2009. Inflation increased in
2008 to a rate of 3.2%, but will slow in 2009. The public deficit was 3.2% of GDP in 2008. The
global slowdown is hitting exports contributing to an expected widening of the
current account deficit to about 3.8% of GDP in 2008, which is expected to
persist.

2.           Employment growth was
almost stagnant in 2008 and is expected to become negative in 2009.
Unemployment stayed at around 8% in 2008 but should increase in 2009. The
current economic slowdown has started to significantly affect the labour market
with the industrial sector, in particular the car industry and construction
suffering job losses.

3.           In response to the
financial crisis and as part of a co-ordinated EU approach, France has adopted
financial sector support measures to stabilise the banking sector, which should
also help improve access to finance and thus support the wider economy, and
underpin macro-economic stability. In addition, in response to the economic
downturn France recently announced measures, including investment in
infrastructure, energy efficiency and production, and supporting SMEs and the
construction sector.

4.           The Commission will assess
measures taken by France to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           France
has continued the implementation of its National Reform Programme. As part of a
comprehensive reform programme, several measures have been taken, notably in
the areas of support for SMEs, ICT use, R&D performance, environmental
policies, on labour market reform, and in improving social dialogue. Additional
efforts are needed to improve budgetary consolidation in the medium term,
competition in the energy and rail freight sectors, and in regulated
professions, to further modernise labour law, and increase opportunities in
vocational training.

6.           France's key challenges in
the medium term will be to continue modernising the labour market to improve
its functioning and tackle labour market segmentation, and to continue
improving the overall competition framework in the services sector including
the retail sector. These need to be addressed whilst strictly sticking to the
expenditure target announced by the government of a zero volume growth for the
State. The implementation of the energy and climate change package, agreed by
the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends France to
pursue the implementation of structural reforms. In particular, it is
recommended that France:

· strengthens the pace of budgetary consolidation and debt reduction in
the medium term by adhering to its expenditure targets and notably respects
zero volume growth for State expenditure. This should go hand in hand with a
further improvement of the pension system, in order to ensure long-term sustainability
of public finances;

· further improves the overall competition
framework, with particular emphasis on: the network industries (gas, electricity
and rail freight); relaxing restrictive regulations in regulated trades and
professions, in particular in services and in the retail sector; and
strengthening the powers of the competition authority and of the rail
regulator;

· within an integrated flexicurity approach, further modernises
employment protection in order to reduce labour market segmentation among
contract types and support entry and transitions in the labour market, notably
of the young; and improves lifelong learning opportunities so they are better
aligned with labour market needs.

Italy

1.           In 2008 the Italian economy
contracted by an estimated 0.6%. High inflation, negative wealth effects, and
heightened uncertainty have held back private consumption, while falling demand
and tighter financing conditions have led to lower investment. Deteriorating
cost competitiveness and weaker global demand also hit exports. GDP is expected
to contract further by 2% in 2009. Inflation peaked in the third quarter of
2008, and is forecast to ease. After falling to 1.6% of GDP in 2007, the budget
deficit is again on the rise. Gross debt is expected to have climbed above 105%
of GDP in 2008 and rise further in 2009 and 2010. The current account deficit
is expected to be over 2% of GDP in 2008, but to remain contained in 2009 and
2010.

2.           While employment growth is
estimated to have remained slightly positive in 2008, it is expected to turn
negative in 2009. With labour force growth outpacing
employment growth, the unemployment rate increased in 2008 for the first time
in ten years and this negative trend is expected to
continue in 2009. The low skilled and workers on atypical contracts are amongst
the groups most likely to be hit by the crisis.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Italy has adopted financial sector support measures to stabilise the
banking sector, which should also help improve access to finance and thus
support the wider economy, and underpin macro-economic stability. In addition,
in response to the economic downturn, Italy recently
adopted measures, aimed at sustaining private consumption, in particular
supporting low income households.

4.           The Commission will assess
measures taken by Italy to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Italy has continued the
implementation of its National Reform Programme. Progress is most visible in
the area of fiscal adjustment. Some measures have been introduced to improve the
business environment. Initial steps were taken towards a flexicurity-based
approach, and it remains to be seen what the impact of new measures in the area
of education and research will be. Additional efforts are needed in order to further
enhance competition.

6.           Italy's economy has been
held back for several years by weak productivity growth and a level of public
debt persistently above GDP. This debt weighs heavily on fiscal sustainability. Key policies necessary to address the productivity challenge involve
far-reaching structural reforms, including strengthening the competition
framework, further enhancing the business environment by cutting red tape at all
government levels, improving the functioning of the labour market, and promoting
R&D. Greater attention should be paid to human capital formation, and
unused labour potential should be better exploited, particularly in the South. A further important aspect of restoring competitiveness is to
ensure that wage developments are aligned with productivity developments, via a
further decentralisation of the wage fixing mechanism. In
order to build upon budgetary reforms undertaken in July 2008, it is important in
the medium term to keep public finances on a permanent, sustainable path to create
more favourable conditions for investment, and make room for enhanced
expenditure on human capital and infrastructure. The
implementation of the energy and climate change package, agreed by the European
Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Italy to
pursue the implementation of structural reforms. In particular, it is
recommended that Italy:

· pursues fiscal consolidation in the medium term with a view to
improving the sustainability of public finances, in particular by curbing
growth in current primary expenditure while enhancing spending efficiency, and
ensures that the forthcoming fiscal federalism framework is fully consistent
with this objective.

· rapidly introduces and enforces comprehensive reforms to: strengthen
the framework for competition in product and services markets, particularly in
retailing and fuel distribution, professional and financial services, gas, air
transport and local public services; and cuts red-tape at all levels of
Government, reforming the organisation of the public administration and improves
its productivity;

· addresses the productivity challenge, improves the efficiency and
outcomes of the education system, inter alia by closely monitoring
quality standards, while paying attention to equity issues;

· within a flexicurity approach and with a view to reducing regional
disparities, reallocates social expenditure so as to put in place a uniform unemployment
benefit system, ensures the efficient operation of employment services and
promotes lifelong learning, and furthers tackle undeclared work.

Cyprus

1.           Real GDP growth slowed
only moderately to 3.6% in 2008, as domestic demand, and especially private
consumption, continued to grow robustly. Growth is projected to decelerate significantly
in 2009, mostly because of the impact that lower economic activity in Cyprus'
main trading partners will have on tourism and foreign demand for housing. A
rising household debt burden and an uncertain environment should also dampen
private consumption. The inflation rate of 4.4% in 2008
was double its rate in 2007, mainly due to higher imported oil and food prices.
This is expected to move down in 2009. The government
budget is expected to have been 1% of GDP in surplus in 2008. Relatively high
wage increases have negatively affected the competitiveness of the Cypriot
economy which, together with lower external demand, lower tourism revenues and considerably
higher commodity prices, has widened the current account deficit to over 13% of
GDP in 2008 and is expected to narrow to 12% in 2009.

2.           Current labour market
estimates show that employment growth was around 2% in 2008 with unemployment
falling marginally to 3.9%. Employment growth is forecasted to slow down over 2009,
leading to a rise in unemployment. Current developments in the labour market
indicate that the tourism and construction sectors along with the largely
low-skilled foreign workforce employed in these sectors are likely to be the
most hit by the impact of the crisis.

3.           In response to the
economic downturn, Cyprus recently announced measures, including support for
low income households.

4.           The Commission will assess
measures taken by Cyprus to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Cyprus has continued the
implementation of its National Reform Programme. Micro-economic policies aimed
at developing the information society and creating the conditions for
sustainable growth are, together with social inclusion policies, largely
responsible for Cyprus strong performance in 2008. Measures have been taken to
help ensure long-term fiscal sustainability, especially in the area of
pensions. To complement this further measures are needed to reform the
healthcare system. Additional
measures are needed if Cyprus is to improve R&D performance. Cyprus has adopted a Lifelong Learning Strategy, and now needs to
implement it, including through further actions to reform secondary technical
and vocational education and the apprenticeship system. In the micro-economic
domain some new measures have helped tackle insufficient competition in professional services.

6.           The Cypriot economy has a
high degree of trade specialisation, which coupled with the country’s openness,
increases its exposure to external shocks. The ongoing transition towards a
more diversified and innovation-driven economy is important to increase
resilience to competition from lower-cost economies. Efforts are needed to
increase the productivity of labour through investments in knowledge, skills,
the business environment, and innovation. The immediate policy challenge in
2009 will be to improve the country's competitiveness. Given the relatively
high external imbalances, it would be important to align wages with
productivity. The implementation of the energy and climate change package,
agreed by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Cyprus to
pursue the implementation of structural reforms. In particular, it is
recommended that Cyprus:

· continues with the efforts to expand lifelong learning
opportunities, especially for the low skilled, unemployed and disadvantaged
groups, by implementing actions within the approved Lifelong Learning National
Strategy including the reforms of the vocational, education, training and the
New Modern Apprenticeship Scheme.

Latvia

1.           Latvia's GDP growth deteriorated
sharply in 2008, from over 10% in 2007 to an expected contraction of around 2%.
The weak economic situation and the financial crisis have tightened credit
availability, depressing private consumption and the housing market. Investment
has been particularly affected and is expected to have contracted by around 9%
in 2008. GDP is likely to continue to contract significantly for some time.
Inflation accelerated to 15.3% in 2008, but will come down in 2009. The deep recession
will have a negative effect on the government balance, which is expected to have
reached a deficit of around 3.5% of GDP in 2008. Falling domestic demand has
contributed to an unwinding of large external imbalances. Imports shrunk
significantly in 2008, helping to narrow the current account deficit to around
15% of GDP.

2.           Employment will fall considerably
in 2009. Unemployment is now increasing and is expected to increase
substantially from around 6.5% in 2008. Thus far job losses have mostly
affected low-skilled workers from the construction and retail sectors but other
groups are also being increasingly affected. A range of disadvantaged groups and
the young are likely to suffer, reversing the improvements in employment
amongst these groups over the recent past.

3.           In response to the
financial crisis, and in association with international financial assistance
agreed in December 2008, Latvia has adopted financial sector
support measures to stabilise the banking sector, which should also help
improve access to finance and thus support the wider economy, underpinning macro-financial stability. It emerged during the course of 2008 that Latvia would experience a
pronounced and prolonged downturn. Pressures accumulated on Latvian capital and
financial markets and in its banking system, leading to the authorities'
acceptance of the urgent need for international financial assistance. In this
context, on 12 December 2008 the Parliament adopted an Economic Stabilisation
Programme, which should help maintain domestic and international confidence in
the financial system, contribute directly and indirectly to arresting and
reversing the worsened cost competitiveness and inflationary pressures by
reductions in public sector wage costs as a centrepiece of a much tighter
fiscal stance, and strengthen the economy’s growth potential by a range of
structural reforms.

4.           The Commission will assess
measures taken by Latvia to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact. In this context, Latvia should respect the public finance targets set out in its Economic Stabilisation
Programme, urgently address its macro-economic imbalances, and fully implement its balance of payments memorandum. Moreover, the measures recommended in paragraph 7 should be
implemented swiftly, in particular to encourage the transition towards a low
carbon economy and enhance long-term growth potential.

5.           Latvia has continued the
implementation of its National Reform Programme. The government tightened
planned expenditures and proposed measures to limit public sector wage growth.
Measures have been taken to improve R&D performance. Notable actions have
been taken to increase labour supply in the medium term, but more is needed to
develop a lifelong learning strategy. The regulatory environment has further
improved. Some progress has also been made in improving access to childcare.

6.           The immediate economic
policy challenge for Latvia is to secure macro-financial stability as there is
a risk of a pronounced and prolonged downturn. In the medium-term, productivity
enhancing investment in R&D, innovation and education has to facilitate a
shift from domestic-demand-driven sectors towards tradeables. Structural reforms
are urgently needed to further labour market flexibility and support
transition, primarily through more efficient activation and training. Public
wage policy should give the right signal for wage moderation in the private
sector, helping to contain inflation, and to maintain the cost-competitiveness
of exports. A timely and determined implementation of the Structural Fund
programmes will have a positive effect on strengthening the supply potential of
the economy, support employment and safeguard access to finance for businesses.
It is essential to maintain administrative capacity to implement the
programmes. The implementation of the energy and climate change package, agreed
by the European Council, will require close attention.

7.           In light of the Commission's
assessment of progress made, the Council recommends Latvia to pursue the implementation
of structural reforms. In particular, it is recommended that Latvia:

· pursues a restrictive fiscal policy, within which expenditures are
carefully prioritised and both tax and expenditure measures are focused on
strengthening the supply potential of the economy; this should be facilitated
by adopting a strong, medium-term fiscal framework with tight expenditure
ceilings;

· in order to reduce inflation and improve competitiveness, promotes
wage moderation in the public and private sector;

· within an integrated flexicurity approach, intensifies efforts to
increase labour supply and productivity by: reinforcing activation measures;
and by enhancing the responsiveness of education and training systems to labour
market needs, including the implementation of a coherent lifelong learning
strategy;

· integrates more closely R&D and innovation policies, especially
through partnerships amongst key private and public actors, and through
additional incentives for investment by the private sector.

Lithuania

1.           GDP is expected to have grown
by 3.4% in 2008, much less than in 2007 (8.9%). With the correction of the
housing market, investment contracted. Tighter credit constraints, eroding real
income, and falling confidence among business and consumers is set to depress
domestic demand for 2009. Inflation has peaked at 11% in 2008, fed by high
commodity prices and domestic wage pressures, but has fallen subsequently. Due
to the deterioration of the economic situation and additional spending, the
government deficit is rapidly increasing. It is expected to have been close to
3% of GDP in 2008 and to increase beyond this level in 2009 if no additional
saving measures are adopted. Significant
wage increases have undermined external competitiveness, which together with
weak external demand should depress export growth in 2009. Nevertheless,
subdued domestic demand will probably weaken import growth, leading to a
lowering of the current account deficit from 12.6% of GDP in 2008.

2.           Current labour market
figures suggest that in 2008 employment growth turned negative and unemployment
is expected to increase to over 5%. Large-scale employee dismissals are already
on the increase, affecting in particular the lower skilled, low qualified young
people, rural residents, and older workers. Regional differences in
unemployment may become more pronounced.

3.           On 9 December 2008 the
newly elected government adopted an anti crisis government programme that announced
a number of fiscal measures to address the country's macro-economic imbalances
and to reduce the general government deficit from 2009 onwards.

4.           The Commission will assess
measures taken by Lithuania to respond to the economic downturn in line with
the principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact. In this context, Lithuania should respect
public finance targets as set out in its anti-crisis programme. Moreover, the measures recommended in paragraph 7 should be
implemented swiftly, in particular to encourage the transition towards a low
carbon economy and enhance long-term growth potential.

5.           Lithuania
has continued the implementation of its National Reform Programme. A number of
measures have been implemented to improve youth employability and provide
entrepreneurship training. More efforts are needed to address the key policy
areas improving macro-financial stability and reducing inflation. In addition
further support will be needed to encourage foreign direct investment, improve
R&D and innovation performance, the regulatory environment, increase childcare
and improve health and safety.

6.           The high economic growth
and emigration have tightened the labour market and
fuelled increases in labour costs, thus eroding Lithuania's competitiveness.
The current economic slowdown will however lead to rising unemployment and
active labour market policy therefore becomes of vital importance. However, the
most urgent challenge remains reducing the sizeable macro-economic imbalances.
In order to contain inflation and halt the deterioration in competitiveness,
wage developments need to be more closely aligned to productivity and the
business environment and administrative capacity should be strengthened.
Moreover, productivity growth needs strengthening by improving skills and
raising innovation performance, including through the attraction of foreign
direct investment. The implementation of the energy and climate change package,
agreed by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Lithuania to
pursue the implementation of structural reforms. In particular, it is
recommended that Lithuania:

· strengthens macro-economic stability by pursuing a restrictive
fiscal policy within which expenditures are carefully prioritised;

· preserves external competitiveness by keeping wage developments in
line with productivity gains;

· ensures the implementation of the structural reform of the R&D
and innovation system remains a priority matched by sufficient financial
commitment, with a greater focus on human resources for R&D and wider
engagement of companies in innovation;

· intensifies efforts to reform the education and training systems to
ensure their quality and relevance to the labour market needs and promote
lifelong learning, especially for older workers.

Luxembourg

1.           GDP growth slowed in 2008
to about 1%, much less than the pace of 2007 (5.2%), as the slowdown in the
international economy began to impact. This deceleration is set to continue in
2009. Driving this development are low external demand and private investment.
Inflation accelerated to over 4% in 2008 on the back of rising energy and food
prices, but is expected to ease in 2009. The economic
slowdown is likely to have reduced the budget surplus to 3.0% of GDP in 2008. Luxembourg should post a current account surplus of over 8% of GDP
for 2008, which is likely to decrease somewhat in 2009.

2.           Employment continued to
grow in 2008 and the unemployment rate remained at 4.1%. The situation in 2009
is expected to be less positive, with employment growth slowing and
unemployment increasing. Luxembourg will face challenges induced by the current
crisis that are likely to affect the financial, transportation and steel
sectors as well as enterprises related to the automotive industry.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Luxembourg has adopted financial sector support measures to stabilise
the banking sector, which should also help improve access to finance and thus
support the wider economy, and underpin macro-economic stability. In addition, in response to the economic downturn,
Luxembourg recently announced measures, including reduced taxation on business
and support for lower income households.

4.           The Commission will assess
measures taken by Luxembourg to respond to the economic downturn in line with
the principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact.

5.           Luxembourg has continued
the implementation of its National Reform Programme. Luxembourg has made some
progress to increase the employment rate of older workers, reduce the number of
early school leavers and remove artificial barriers in the education system,
and to make the economic environment more attractive. Further measures are
needed to address these underlying challenges.

6.           With the financial sector
accounting for more than one quarter of GDP, the current financial crisis could
deeply affect the country.In addition,  the comparatively rapid increase in
unit-labour costs is likely to negatively affect competitiveness. This
deterioration is likely to continue in the coming years because productivity is
projected to decrease in 2008 and 2009. In a longer
perspective, the pension system needs reform in order to insure its long-term
sustainability. The employment rate of the resident population remains below
the European average with that of older workers being particularly low.
Luxembourg also needs to further enhance the attractiveness of the business
environment. The implementation of the energy and climate change package,
agreed by the European Council, will require close attention.

Hungary

1.           After falling sharply to
1.1% in 2007 (mainly due to the fiscal adjustment programme that began in
mid-2006), GDP growth slowed to 0.9 % in 2008 despite significant agricultural
production. Looking forward, a sharp economic downturn is expected in view of
the rapidly worsening external environment. The financial crisis has had
particularly strong adverse effects on Hungarian financial and foreign exchange
markets, leading to a temporary freezing of the government bond market, a sharp
fall in the stock market, and strong currency depreciation. Inflation was above
6% in 2008, but the trend has been downwards since mid-2007 and it should
continue to fall. Notwithstanding the slowdown, the budget deficit is expected
to have been reduced to 3.3% of
GDP in 2008 with further adjustments planned by the authorities. The current
account deficit increased somewhat to about 7% of GDP in 2008.

2.           Employment contracted in
2008 by around 1% and this trend will continue in 2009. The unemployment rate
should continue to rise from the rate of around 7.7% in
2008. Depending on the intensity of the economic
slowdown, unemployment may not be restricted to the low-skilled and
disadvantaged groups.

3.           In
the context of a Community balance of payments loan to support Hungary's
response to the financial market turbulences, the authorities signed a
memorandum of understanding on 19 November 2008 setting out economic policy
conditions attached to its disbursement, in particular regarding fiscal
consolidation and fiscal governance reform.

4.           The Commission will assess
measures taken by Hungary to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact. In this context, Hungary should fully
implement its balance of payments memorandum. Moreover,
the measures recommended in paragraph 7 should be implemented swiftly, in
particular to encourage the transition towards a low carbon economy and enhance
long-term growth potential.

5.           Hungary has continued
implementing its National Reform Programme. Fiscal policy is likely to again
result in a level of consolidation in 2008 that is better than targeted. Additional
efforts are needed on structural and labour market reforms. The Structural
Funds play a key role in the implementation of the NRP and their execution is
largely on track. Following the financial market turmoil the Hungarian authorities
adopted a series of measures to restore market confidence, including
accelerated deficit reduction, enhanced fiscal governance and strengthened
financial sector regulation and supervision.

6.           The policy challenge for
Hungary is to mitigate the negative impact of the financial crisis whilst
maintaining fiscal stability and fostering the credibility of the economic
policy. To this end, a further deterioration of external competitiveness should
be prevented by ensuring wage increases are in line with productivity. In the
medium term efforts to improve macro-economic and fiscal stability are
paramount. This requires increasing the effectiveness of the public and health
care sector and improving the functioning of the labour market. Despite some
progress, further efficiency savings can be made in the public sector. The
overall employment rate in Hungary (57.3%) was the third lowest in the EU in
2007, with the participation of young and older people and other disadvantaged
groups being particularly low. The responsiveness of the educational and
training system to labour market needs must be further developed to effectively
reduce the problem of skills-mismatch. The
implementation of the energy and climate change package, agreed by the European
Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Hungary to
pursue the implementation of structural reforms. In particular, it is
recommended that Hungary:

· building on the significant progress achieved in fiscal
consolidation, implements the necessary measures to ensure a durable reduction
of the government deficit and of the public debt ratio, with increased reliance
on the expenditure side;

· continues to reform the public administration, health care, pension
and education systems with a view to ensuring long-term fiscal sustainability
and improving economic efficiency. This should include steps to further raise
the effective retirement age, to rigorously implement the adopted reform of the
disability pensions system and to further restructure health care;

· further strengthens and better targets active labour market policies
to improve the labour market situation, especially of disadvantaged groups and
geographical areas;

· continues upgrading skill levels, also by increasing adult
participation in lifelong learning; further improves the responsiveness of
education and training systems to labour market needs and ensures access to
high quality education and training for all.

Malta

1.           GDP
is expected to have grown by 2.1% in 2008, down from 3.9% in 2007. GDP growth
is expected to weaken in 2009. Inflation accelerated to 4.7% in mid-2008,
driven by higher international food and oil prices, and possibly reinforced by
weak domestic competition and a high dependency on energy imports. The fiscal
position deteriorated in 2008, with the budget deficit rising to 3.5% of GDP.
Weaker global demand has led to a widening of the current account deficit.

2.           Employment growth
decelerated in 2008 and this is set to continue in 2009
as the pace of economic activity slows. Female
employment increased slightly in 2007, but at 36.9% remains the lowest in the
EU. The employment rate among older workers actually fell (to 28.3%) in 2007.
Unemployment is likely to rise from 6.5% in 2008, mainly affecting low skilled workers from the manufacturing and tourism
sectors, although other sectors (financial services and ICT) are now
increasingly at risk.

3.           Malta recently announced
measures, including advanced investment in infrastructure, the environment and
tourism, and reduced taxation on households, to respond
to the economic downturn.

4.           The Commission will assess
measures taken by Malta to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Malta
has continued the implementation of its National Reform Programme. Progress has
been made in addressing competition and reforming the labour market. Positive
initiatives in 2008 include the first steps towards the privatisation of the
shipyards, the establishment of an integrated flexicurity pathway and the
setting of a target for the reduction of administrative burden. Additional
measures are needed to improve the health care system, the business
environment, and the functioning of the energy market. Progress has slowed in
terms of pursuing budgetary consolidation in 2008.

6.           Malta depends heavily on
imported energy, natural resources, production inputs, and consumer goods. The
backbone of Malta's economic development is its human resources, where major
improvements, in particular in reducing early school leaving, are needed. The
small size of the economy makes competition issues particularly relevant and
demands improvements in the business environment, as well as a diversification
of energy sources. An efficient use of public finance requires further reform
of the healthcare system. Although Malta has been diversifying its economic
base, further progress is still required to tackle the current heavy reliance
on tourism and manufacturing of electronics. Ensuring competitiveness demands
further structural reforms that will enhance productivity and wage growth which
is aligned to productivity increases. The implementation of the energy and
climate change package, agreed by the European Council, will require close
attention.

7.           In
light of the Commission's assessment of progress made, the Council recommends
Malta to pursue the implementation of structural reforms. In particular, it is
recommended that Malta:

· strengthens competition with a view to containing inflation and
maintaining competitiveness, notably by reducing state aids and redirecting
them towards horizontal objectives as well as by reinforcing the competition
authority;

· steps up efforts to attract more people, particularly women and
older workers, into the labour market by, inter-alia, facilitating childcare; intensifying
efforts to tackle undeclared work and encouraging participation in the labour
market, including by tightening access conditions to the benefit system.

The Netherlands

1.           Real
GDP growth in the Netherlands has slowed to 1.9% in 2008 from 3.5% in 2007.
Growth is set to fall in 2009 as a result of the global downturn, shrinking
investment and a substantial slowdown in private consumption. Boosted by the
earlier rise in food and energy prices, inflation has
risen to 2.2% in 2008. The budget surplus has increased
in 2008 to 1.1% of GDP. Despite the global downturn,
the Netherlands is expected to have a current account surplus of over 8% of GDP
in 2008, which is likely to narrow to 6.5% of GDP in 2009.

2.           Employment
growth, at slightly below 2%, continue in 2008, but is expected to turn
negative in 2009. As a result, unemployment has fallen
in 2008, but is expected to increase in 2009. Employers
have thus far been reluctant to resort to dismissals as they fear not being
able to find qualified personnel once the economy recovers. The industrial
sector and the financial sector are likely to be hit the hardest.

3.           In response to the
financial crisis and as part of a co-ordinated EU approach, the Netherlands has
adopted financial sector support measures to stabilise the banking sector,
which should also help improve access to finance and thus support the wider
economy, and underpin macro-economic stability. In addition, in response to the economic downturn, the
Netherlands recently announced measures, including lowering corporate taxation
for SMEs and reduced social security contributions for workers.

4.           The Commission will assess
measures taken by the Netherlands to respond to the economic downturn in line
with the principles set out in the European Economic Recovery Plan as adopted
by the European Council. As regards public finances, the Commission will assess
the compatibility of the updated Stability Programme with the Stability and
Growth Pact. Moreover, the measures recommended in paragraph 7 should be
implemented swiftly, in particular to encourage the transition towards a low
carbon economy and enhance long-term growth potential.

5.           The Netherlands has
continued the implementation of its National Reform Programme. Measures have
been taken to increase labour supply but more is needed to increase the overall
hours worked. There has been some progress made in improving the governance
structures and putting in place a coherent strategy for R&D and innovation,
as well as streamlining the innovation policy mix.

6.           Increasing the overall
number of hours worked and improved R&D and innovation performance will
help sustain the strong economic performance in the future. The challenge is to
translate the long term R&D strategy into a set of coherent and effective
policy measures to stimulate in particular private R&D expenditure. In view
of the ageing population and the resulting reduction in labour supply, the
sustainability of public finances will need to be ensured. The implementation of the energy and climate change package, agreed
by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends the
Netherlands to pursue the implementation of structural reforms. In particular,
it is recommended that the Netherlands:

· develops further measures, including fostering labour market
transitions within an integrated flexicurity approach, to improve the participation
of women, older workers and disadvantaged groups with a view to raising overall
hours worked.

Austria

1.           GDP growth slowed in 2008,
down from 3.1% in 2007 to 1.7%. Growth is expected to contract by over 1% on
the back of declining exports and a slump in investment. Headline inflation reached
almost 4% in mid-2008, but is now easing. Austria recorded a small budget
deficit of 0.6% of GDP in 2008 that is set to widen markedly in 2009. With an
expected current account surplus of over 3% of GDP in 2008 that are forecast to
stay near that level over 2009 and 2010, external balances are healthy.

2.           Employment grew at a rate
of 1.6% in 2008, but is expected to shrink in 2009, and unemployment is
expected to increase. Those groups of the labour market with a traditionally
limited employment outlook, notably older workers and low-qualified school
leavers, are likely to suffer the most. Apprenticeship places and jobs for
temporary workers in the industrial sector have been reduced first. Currently,
the most affected part of the economy is the automotive sector.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Austria has adopted financial sector support measures to stabilise
the banking sector, which should also help improve access to finance and thus
support the wider economy and underpin macro-economic stability. In addition, in response to the economic downturn, Austria recently announced
measures, including lower taxation and additional financial support for
households, and advanced investment in infrastructure, energy efficiency and
R&D.

4.           The Commission will assess
measures taken by Austria to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Austria has continued the
implementation of its National Reform Programme. Some efforts have been taken
to increase the employment rate of older workers, the education outcomes of
disadvantaged youth, tackling gender segregation within the labour market, and
strengthening entrepreneurship education. Additional measures are needed to
strengthen fiscal consolidation in the medium term and to increase competition.

6.           Austria's key medium-term
challenge is to transform into a more knowledge intensive economy. Despite
increased spending on R&D and innovation, this shift has yet to
materialise, suggesting that greater attention should also be paid to human
capital formation. Sustained wage moderation has bolstered Austria's global
competitive position, and has been conducive to job creation for a growing
labour force. A challenge for Austria is to ensure a better use of labour
resources, notably of older workers, and to improve the integration, education
and job training of disadvantaged groups. Ensuring the sustainability of the
social welfare system depends on lasting fiscal consolidation, which needs to
be reconciled with reinforced public spending in areas that are crucial for
medium-term growth. The implementation of the energy and climate change
package, agreed by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Austria to
pursue the implementation of structural reforms. In particular, it is
recommended that Austria:

· further improves incentives for older workers to continue working by
implementing a comprehensive strategy including enhanced job-related training,
adaptation of working conditions, and tightening the conditions for early
retirement; and improves education outcomes for disadvantaged youth.

Poland

1.           Poland's GDP growth slowed
to 5% in 2008, after growing by 6.7% in 2007. This vigorous growth has been
mainly driven by private consumption and buoyant investment. GDP growth will
slow further in 2009 on the back of lower export and investment dynamics.
Inflation peaked at around 4¼% in 2008, but should slow in 2009. The budget
deficit is expected to have widened slightly to 2.5% of GDP in 2008 and this is
projected to further deteriorate by about 1 percentage point in 2009. The
current account deficit, of 5.6% of GDP in 2008, is likely to remain at that
level in 2009.

2.           Employment grew by 3% in
2008 and unemployment further decreased to 7.4%. However, employment growth
will slow significantly over 2009, with unemployment expected to increase to well
over 8%. Current developments in the labour market show that export-oriented
sectors, manufacturing, construction and transport are hit the worst by the
slowdown in economic activity. More pressure will be put on increasing labour
activity and improving labour mobility across sectors and industries, helping
also to restore cost-competitiveness of the economy after the period of fast
employment and wage growth.

3.           Poland recently announced
measures, including support to SMEs and low-income households, to respond to
the economic downturn.

4.           The Commission will assess
measures taken by Poland to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact. Moreover, the measures recommended in paragraph 7 should be
implemented swiftly, in particular to encourage the transition towards a low
carbon economy and enhance long-term growth potential.

5.           Poland has continued the
implementation of the National Reform Programme. A number of measures have been
taken to improve competition in network industries, reinforce active labour
market policies, improve the legal environment for entrepreneurs, and link
education and training with the labour market. Further efforts are needed to
enhance control over expenditure, boost R&D performance, review benefit
systems and increase participation in lifelong learning.

6.           Poland's economic
performance is held back by a number of interconnected structural problems, a
low level of labour productivity and low utilisation of the workforce.
Combining efforts to complete the reform of the social security systems with an
increase in the number of older workers could simultaneously strengthen the
labour supply and improve the long-term sustainability of public finance.
Growth and employment would benefit from stepping up actions to improve the
business environment, developing infrastructure and improving the quality of
human capital. The implementation of the energy and climate change package,
agreed by the European Council, will require close attention.

7.           In
light of the Commission's assessment of progress made, the Council recommends
Poland to pursue the implementation of structural reforms. In particular, it is
recommended that Poland:

· sustains budgetary discipline in the medium term and introduces
further mechanisms to enhance control over expenditure, in particular by
reforming the Farmers' Social Security System;

· pursues the reform of the public research sector to boost R&D
and innovation, and encourage private sector R&D;

· accelerates investment in energy and transport infrastructure by
streamlining the procedures for, and efficiently using the Structural Funds;

· develops an integrated flexicurity approach, by implementing an
active ageing strategy, stepping up actions to improve active labour market
policy, notably for disadvantaged groups, reviewing benefit systems to improve
incentives to work, and putting in place the lifelong learning strategy.

Portugal

1.           Portugal's GDP growth
dropped to 0.2% in 2008, from almost 2% in 2007. This slowdown was driven by
sluggish investment and a weaker export performance. In 2009, domestic demand
is expected to weaken further, resulting in growth slowing further. Inflation
accelerated to 2.7% in 2008, but it remained below the euro area average and is
on a decelerating path due to the recent downward trend in world prices and
sluggish demand. Continuing the contracting path of recent years, Portugal's
budget deficit was just over 2% of GDP in 2008. The current account deficit has
widened to 11.8% of GDP in 2008 due to slower exports growth, and high
commodity prices. The current account deficit is likely to improve in 2009.

2.           Employment in Portugal
increased slightly in 2007, with the employment rate stabilised at around 68%.
Unemployment peaked at 8.1% in 2007, but has declined moderately in 2008. Weak
foreign demand is starting to affect employment in the large export-oriented
sector. As the economy goes through further transition structural unemployment
will continue to increase, particularly affecting the low skilled and
disadvantaged groups.

3.           In response to the
financial crisis and as part of a co-ordinated EU approach, Portugal has
adopted financial sector support measures to stabilise the banking sector,
which should also help improve access to finance and thus support the wider
economy, and underpin macro-economic stability. In addition, in response to the economic downturn,
Portugal recently announced measures, including reduced
taxation on business and financial support for low-income families.

4.           The Commission will assess
measures taken by Portugal to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Portugal has continued the
implementation of its National Reform Programme. Important steps have been
taken towards a sustainable reduction of the government deficit, to reform the
public administration and improve the sustainability of public finances.
Measures have been taken to achieve the public R&D target and some steps
have been taken to increase private investment, and towards addressing the
shortcomings in the innovation system. The educational system has become more
efficient, and an agreement to revise the labour code has been reached with
social partners, and already approved by Parliament. More efforts are needed to
redirect public spending towards uses more supportive to potential growth, to
monitor results, and to increase effective competition in energy markets.

6.           As a result of progress in
fiscal consolidation and public administration reform, public finances have
become sounder. The business environment has improved, as has education and
training. Nonetheless, Portugal still faces a number of significant challenges
to ensure increased productivity growth and a more balanced external position.
Against this backdrop, Portugal would benefit from implementing and monitoring
a more integrated policy approach which addresses the quality of public
expenditure, improves the functioning of markets, raises the efficiency of the
education and training systems, and addresses
competiveness. A further
important aspect of restoring competitiveness is to ensure that wage developments
are more closely aligned with productivity developments. The implementation of
the energy and climate change package, agreed by the European Council, will
require close attention

7.           In light of the
Commission's assessment of progress made, the Council recommends Portugal to
pursue the implementation of structural reforms. In particular, it is
recommended that Portugal:

· within the context of fiscal consolidation in the medium-term and
public administration reform, pursues the efforts to redirect public
expenditure towards areas beneficial to raising the country's growth potential and
external competitiveness whilst maintaining firm overall expenditure control.

· continues the efforts to improve in a sustained way the overall
efficiency of the education system, and developing a vocational training system
relevant to labour market needs, by the full achievement of the National
Qualifications Framework and with the involvement of appropriate stakeholders;

· implements the legislation to modernise employment protection, in
order to reduce the high levels of labour market segmentation, within the flexicurity
approach.

Romania

1.           Romania's
GDP growth accelerated to an estimated 7.8% in 2008, mainly driven by a record
surge in private consumption and investment. However, it is likely to
decelerate considerably in 2009, following significantly tighter lending
conditions, a decrease in consumer and investor confidence, and weaker external
demand. While inflation has surged to almost 8% in 2008, it is projected to
fall in 2009. The government deficit reached an estimated 5.2% of GDP in 2008
and without a change in policy is likely to increase further in 2009. Despite
some easing following weaker domestic demand, the current account deficit is
expected to remain high, at 13% of GDP in 2008 and stay at a two-digit level in
2009.

2.           The employment rate is expected
to remain below 60% in 2009 and unemployment is anticipated to slightly
pick-up. Youth unemployment, at over 20%, is among the
highest in the EU. The global downturn is expected to result in higher
unemployment, in particular in some economic sectors, including those that have
faced labour shortages (automotive, textile, petro-chemical industries and
construction). It will affect the low skilled and young people in particular.

3.           The Commission will assess
measures taken by Romania to ensure fiscal consolidation and respond to the
economic downturn in line with the principles set out in the European Economic
Recovery Plan as adopted by the European Council. As regards public finances,
the Commission will assess the compatibility of the updated Convergence
Programme with the Stability and Growth Pact. In this context, Romania should intensify
steps to pursue fiscal consolidation and urgently address its macro-economic
imbalances. Moreover, the measures recommended in paragraph 6 should be
implemented swiftly, in particular to encourage the transition towards a low
carbon economy and enhance long-term growth potential.

4.           Romania has continued the implementation of its National Reform Programme,
although progress has been slow. Romania has continued
to conduct a loose fiscal policy, which has contributed to macro-economic and
fiscal imbalances. It has implemented some measures to improve the quality of
education and continued the implementation of its R&D strategy. More
efforts are needed to radically improve the efficiency and effectiveness of
public administration. There remains major scope for progress to cut red tape,
and invest much more in skills.

5.           In the current economic
context, Romania’s first priority should be to tackle macro-economic and fiscal
imbalances that pose risks to the sustainability of its medium to long-term
growth path. At the same time, as its cost-advantages are gradually eroding,
Romania should speed up structural reforms to transform the economy from one
based on cost-advantages to one based more on productivity, innovation and
knowledge, tapping into new sources of growth. The
effective implementation of the required reforms critically depends on
Romania's ability to improve urgently the efficiency and effectiveness of its
public administration. The implementation of the energy and climate change
package, agreed by the European Council, will require close attention.

6.           In
light of the Commission's assessment of progress made, the Council recommends
Romania to pursue the implementation of structural reforms. In particular, it
is recommended that Romania:

· strengthens the efficiency, effectiveness and independence of the
public administration, at both central and local level, by building up
effective regulatory control and enforcement capacity;

· in order to preserve external competitiveness, and to contain the
current account deficit and inflation, significantly tightens fiscal policy and
urgently implements a binding medium-term fiscal framework, revises the
composition of expenditure to increase the share of growth-enhancing spending
inter alia by reducing and redirecting state aid to horizontal objectives and
keeps wage developments in line with productivity growth;

· in the context of a coherent better regulation policy, urgently implements
measures to substantially reduce administrative procedures and delays in
obtaining authorisations, in order to improve the business environment and
reduce sources for corruption;

· improves the quality and labour market relevance of the education and
training systems, including lifelong learning, reduces early school leaving,
and facilitates the transition of young people into employment, including
through work-based training.

Slovenia

1.           Slovenia's GDP growth
decelerated to 4% in 2008 from 6.8% in 2007, and is set to further slow in
2009. Inflation picked up markedly in 2007 due to rising energy and food
prices, and strong demand pressures, and will fall from its peak of 6½%. The
current account deficit is expected to have been 6% of GDP in 2008. It is
expected to improve only slightly in 2009. The public finances, which recorded
a surplus in 2007, are projected to have slipped into a deficit in 2008.

2.           In line with economic
activity, employment growth lost momentum in 2008 and is expected to weaken
further in 2009. The unemployment rate is expected to have fallen to 4.5% in
2008, and to increase in 2009. Current indications suggest a rise in
unemployment in export-oriented and labour-intensive services that will mostly
affect workers on fixed-term contracts (mainly the young and foreign workers)
and low skilled.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Slovenia has adopted financial sector support measures to stabilise
the banking sector, which should also help improve access to finance and thus
support the wider economy, and underpin macro-economic stability. In addition, in response to the economic downturn, Slovenia recently announced measures.

4.           The Commission will assess
measures taken by Slovenia to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Slovenia has continued the implementation of its National Reform
Programme. Notable measures have been taken to strengthen the link between the
educational system and the labour market Additional efforts are needed to
improve long-term fiscal sustainability, to further develop flexicurity,
R&D performance, improving competition, and further implementing energy
efficiency measures. There has been also some progress with regard to unlocking
business potential.

6.           Slovenia
faces challenges in the area of pension reform and active ageing in order to
address the budgetary implications of the ageing population. Removing structural rigidities in the labour and product markets
would help to absorb country-specific shocks and strengthen the adjustment
capacity of Slovenia within the euro area. Containing
wage growth in excess of productivity improvements is also essential to ensure
sustained growth and competitiveness. The
implementation of the energy and climate change package, agreed by the European
Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends Slovenia to
pursue the implementation of structural reforms. In particular, it is
recommended that Slovenia:

· reforms the pension system and implements active ageing, with a view
to increasing the employment rate of older workers and improving the long-term
sustainability of public finances;

· within an integrated flexicurity approach counters labour market
segmentation in particular by reviewing employment protection for permanent contracts
and conditions for so-called student work.

Slovakia

1.           Slovak
GDP growth moderated to 7.1% in 2008, down from 10.4% in 2007, mainly as a
result of a slowdown in the external demand. Growth has been supported by
buoyant domestic demand, including strong public and private consumption and by
vigorous investment in construction. In 2009 the Slovak economy will grow more
slowly. Inflation increased to 4% in 2008, but will ease in 2009. The
government budget deficit is expected to have widened to 2.25% of GDP in 2008.
The current account deficit is estimated to have been 6% of GDP in 2008, and is
expected to remain at that level in 2009.

2.           Employment grew by 2.3% in 2008, but
is expected to slow in 2009. Unemployment is likely to stay high, at above 10%. The export-oriented companies, in particular the automotive sector,
and employees with atypical contracts will likely be hardest hit by the
slowdown.

3.           Slovakia
recently adopted measures, including support for SMEs, to respond to the
economic downturn.

4.           The Commission will assess
measures taken by Slovakia to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact. Moreover, the measures recommended in paragraph 7 should be implemented
swiftly, in particular to encourage the transition towards a low carbon economy
and enhance long-term growth potential.

5.           Slovakia has continued the
implementation of its National Reform Programme. Some steps have been taken to
improve the business environment, and to reform the education and training
system. Additional measures are needed to improve entrepreneurship, to improve
competition in the supply of energy, to create an active ageing strategy and to
address youth employment.

6.           Slovakia's main
medium-term challenges are to continue reducing unemployment, notably long-term
unemployment, to improve the quality of the education and training system, to
enhance the employability of certain groups, and reduce regional differences in both income and employment. In the area of R&D and innovation it
will be important to increase the quality of output and
private sector involvement. In view of the recent entry into the euro area,
Slovakia also needs to enhance the focus on fiscal discipline in order to
ensure macro-economic stability and improve the adjustment capacity of the
economy. The implementation of the energy and climate change package, agreed by
the European Council, will require close attention.

7.           In
light of the Commission's assessment of progress made, the Council recommends
Slovakia to pursue the implementation of structural reforms. In particular, it
is recommended that Slovakia:

· in the medium term ensures implementation of further fiscal
consolidation measures in order to preserve macro-economic stability while
continuing to reallocate expenditure towards education, R&D and innovation,
creating further incentives for the private sector in R&D and innovation
and implementing a coherent R&D and innovation strategy, with a particular
focus on the institutional reform and substantial improvement of
business-research cooperation;

· implements a comprehensive better regulation strategy, conducts
impact assessments and continuously simplifies the existing legislation, while
stepping up the reduction of administrative burdens on businesses, particularly
SMEs;

· within an integrated flexicurity approach, makes progress in the implementation
of the lifelong learning strategy and continues the reforms of education and
training systems to address the skill mismatch, develops an active ageing
strategy and enhances access to employment for the long-term unemployed and
disadvantaged groups.

Finland

1.           Finland's GDP growth
decelerated to 1.5% in 2008, driven by weaker external demand and investment. Economic
activity is expected to further weaken in 2009. Inflation accelerated sharply
to 3.9% in 2008, reflecting global food and fuel price increases and relatively
high wage increases. However, falling global commodity prices should lead to a marked
deceleration in 2009. Finland’s budget surplus should still have reached 4.5%
of GDP in 2008. The present current account surplus of 4% of GDP is expected to
moderate somewhat.

2.           Employment grew in 2008,
although at a slower pace than in 2007. This growth is expected to reverse in
2009. Recent tight labour market conditions are expected to dampen the
immediate impact of the downturn on unemployment, which is expected to rise in
exporting industries and among older workers and the young.

3.           In response to the
financial crisis and as part of a co-ordinated EU
approach, Finland has adopted financial sector support measures to stabilise
the banking sector, which should also help improve access to finance and thus
support the wider economy, and underpin macro-economic stability. In addition,
in response to the economic downturn Finland recently
announced measures, including financial support for SMEs and promoting
construction.

4.           The Commission will assess
measures taken by Finland to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Stability Programme with the Stability and Growth
Pact.

5.           Finland has continued the
implementation of its National Reform Programme. Efforts have been made within
the framework of previously launched reform plans, in particular with regard to
the implementation of the revised Competition Act and the implementation of the
Services Directive. However, the improvement of competition enforcement has
still to be implemented. A number of reforms are ongoing to address bottlenecks
in the labour markets, but a reinforced implementation of measures is needed to
tackle increasing labour mismatches. Moreover, a review of the social benefit
system is in the making and a new Climate and Energy Strategy has been launched
to secure a more sustainable economic development.

6.           Finland's
export-oriented economy has performed very strongly over the last few years. However,
economic growth and competitiveness are held back by labour shortages that will
increase in the medium term because of a rapidly ageing population. Given the
already high employment level, the main challenges will be to further enhance
participation rates and reduce structural unemployment stemming from regional,
sectoral and skills mismatches. The adoption and implementation of the new
innovation strategy could also contribute to securing long-term sustainable
growth. Given that the Finnish economy is very energy intensive, its growth and
productivity potential would benefit from improvements in energy efficiency. The
implementation of the energy and climate change package, agreed by the European
Council, will require close attention.

Sweden

1.           GDP growth in Sweden
slowed from 2.5% in 2007 to around 0.5% in 2008, as a result of sluggish
external demand, rapidly weakening consumer and
business confidence, falling stock markets and a cooling housing market. A further slowdown is expected in 2009. In
2008, inflation was 3.3%, but should ease in 2009. Sweden ran a budget surplus
of 2.3% of GDP in 2008. Sweden continued enjoying sizeable current account
surpluses (6.2% of GDP) in 2008.

2.           As the economy slows,
employment growth is also slowing. Unemployment looks set to rise significantly
from its current level of around 6%. The sectors most
affected by the crisis are likely to be manufacturing and construction, as well
as private services and retail.

3.           In response to the
financial crisis and as part of a co-ordinated EU approach, Sweden has adopted
financial sector support measures to stabilise the banking sector, which should
also help improve access to finance and thus support the wider economy, and
underpin macro-economic stability. In addition in
response to the economic downturn, Sweden recently
announced measures, including support for the automobile and construction
sectors and reduced taxation for business.

4.           The Commission will assess
measures taken by Sweden to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact.

5.           Sweden has continued the
implementation of its National Reform Programme. In response to the need to
focus on competition, the government has commissioned an in-depth study of the
causes of the lack of competition. In an effort to increase labour supply,
measures have been announced to further reduce taxes and employers'
contributions, and to raise the productivity and employability of people.

6.           While the Swedish economy
is robust and economic reform is being taken forward, further progress could be
made in enhancing competition and raising employment rates among particular
groups. Enhanced competition could raise productivity, growth and narrow the
price gap between Sweden and the rest of the EU. Increased labour market
participation from long-term unemployed, people returning from sick-leave, the
young and people with a migrant background could also raise growth and further
improve the sustainability of public finances. The
implementation of the energy and climate change package, agreed by the European
Council, will require close attention.

United Kingdom

1.           The
UK economy has slowed significantly, falling from 3% GDP growth in 2007, to 0.7%
in 2008, and is set to contract in 2009. The slowdown reflects the impact of
the current financial crisis and a steep downturn in the housing market, which have led to a marked
weakening of domestic demand with reductions in private consumption and
investment. Inflation peaked at almost 4% during 2008, but is expected to fall
back to a very low level in 2009. Public finances are rapidly deteriorating
under the impact of the downturn and large discretionary fiscal easing. The
government deficit is expected to rise to 5.7% of GDP in the financial year
2008/2009 and widen further in the next financial year. Since mid-2007, a large
depreciation of the exchange rate has taken place. The current account deficit
of around 2.3% of GDP in 2008 is expected to widen significantly in 2009.

2.           The employment rate
increased modestly in 2008, but is projected to fall as the economy contracts
in 2009. Unemployment increased to around 6% in the course of 2008, and looks
set to rise further in 2009. The sectors most affected by job losses are
financial services and construction but the effects are likely to be felt
throughout the private sector. Young people have experienced sharper increases
in unemployment rates. Since the financial sector may be particularly hit, many
of the job losses could be among higher skilled workers.

3.           In response to the
financial crises and as part of a co-ordinated EU approach, the UK has adopted
financial sector support measures to stabilise the banking sector, which should
also help improve access to finance and thus support the wider economy, and
underpin macro-economic stability. In addition, in
response to the economic downturn, the UK recently
announced measures, including a reduction in VAT, financial support for SME's and
advancing investment.

4.           The Commission will assess
measures taken by the UK to respond to the economic downturn in line with the
principles set out in the European Economic Recovery Plan as adopted by the
European Council. As regards public finances, the Commission will assess the
compatibility of the updated Convergence Programme with the Stability and
Growth Pact. Moreover, the measures recommended in paragraph 7 should be
implemented swiftly, in particular to encourage the transition towards a low
carbon economy and enhance long-term growth potential.

5.           The UK has continued the
implementation of its National Reform Programme. A number of measures have been
taken to increase skills levels and further improve employment prospects for
the most disadvantaged. Short-term measures have been announced to support
individuals and employers to develop their skills during the downturn. In
addition, there has been good progress in the implementation of R&D and
innovation policy. Whilst some measures have been taken to increase the supply
of housing in the medium term, it is difficult to judge whether these will be
effective in the face of current market conditions.

6.           Given the high
indebtedness of UK households, the importance of the financial sector to the
economy and the large on-going adjustment in the housing market, the UK is
particularly exposed to the sharp deterioration in global financial markets
conditions. Growth potential is likely to have been damaged by the financial
crisis. Structural reforms have facilitated recent productivity catch up, but
the UK still faces a productivity challenge. Continued reform efforts,
including implementation of policies to improve skills, R&D and innovation,
combined with placing the UK fiscal position on a path of sustainable
improvement in the medium term, will be key to enhance the growth potential and
strengthen the resilience of the UK economy to future shocks. The implementation of the energy and climate change package, agreed
by the European Council, will require close attention.

7.           In light of the
Commission's assessment of progress made, the Council recommends the UK to
pursue the implementation of structural reforms. In particular, it is
recommended that the UK:

· ensures a sustainable fiscal position in the medium-term, including
through fiscal consolidation measures geared towards enhancing the quality of
the public finances;

· continues to implement plans to substantially improve skill levels
and establish an integrated approach to employment and skills in order to raise
productivity and increase opportunities for the disadvantaged.

Euro Area Member States

1.           The global financial
crisis has hit the euro-area hard and a recession is now underway. Financial
market conditions are likely to be tighter for longer than expected. Confidence
amongst households and firms has deteriorated considerably and the spreading of
the crisis is having negative effects for exports of euro area countries.
Inflation fell sharply in the second half of 2008 to below the ECB's reference
value, and it is expected to continue to falling to around 1% in the course of
2009. Good progress was made in the consolidation of public finances in the
past few years, but budget deficits and debt are now set to increase reflecting
the economic downturn and the public finance impact of the financial rescue
packages.

2.           Labour market developments
withstood the economic slowdown relatively well until recently also thanks to
past labour market reforms, but will be negatively affected in the near future
with unemployment forecast to rise some 2½-3 percentage points by 2010. While
some countries are being more hit than others, no euro-area Member State is
expected to come out unscathed.

3.           In response to the
financial crisis, and as part of a co-ordinated EU approach, many euro area
Member States have adopted financial sector support measures to stabilise their
banking sectors, which should also help improve access to finances and thus
support the wider economy, and underpin macro-economic stability. Forceful
implementation of such national rescue schemes is key
to safeguarding financial stability, restore the normal functioning of
wholesale credit markets and underpin credit availability for businesses and households.
In addition, given the area-wide nature of the shocks,
the significant risks attached to a stronger contraction of economic activity
and the rapidly falling inflation, macroeconomic policies have been eased to
support demand. The ECB cut its main refinancing rate considerably, thereby
supporting non-inflationary growth and contributing to financial stability. Fiscal
policy has a special role to play at the current juncture given that the
impaired interbank market reduces the effectiveness of monetary policy.

4.           The Commission will assess
measures taken by euro-area Member States to respond to the economic downturn
in line with the principles set out in the European Economic Recovery Plan as
adopted by the European Council. As regards public finances,
the Commission will assess the compatibility of euro-area Member States'
updated Stability Programmes with the Stability and Growth Pact. Moreover, the
measures recommended in paragraph 7 should be implemented swiftly, in
particular to encourage the transition towards a low carbon economy and enhance
long-term growth potential.

5.           The euro-area Member States'
have continued with the implementation of reforms that respond to the euro area
recommendations and the euro area dimension is reflected, albeit to differing
degrees in overall reform strategies as announced in their National Reform Programmes.
The fragile economic situation underlines the need to tackle remaining
structural weaknesses also on product and labour markets, which are essential
for adjustment in a monetary union.

6.           The euro-area Member States'
growth potential depends crucially on stepping up reforms facilitating labour
market transitions and improving competition in service sectors. In addition, especially in economies with large external imbalances, labour cost
developments should take account of intra-area competitiveness positions.

7.           In light of the Commission's assessment of progress,
the Council recommends euro area Member States to pursue the implementation of
structural reforms. In particular, it is recommended that euro area Member
States:

· Ensure timely and consistent implementation of all pending and new
EU financial services legislation and take measures to deepen cooperation among
national authorities in the fields of crisis prevention, management and
resolution.

· Following the fiscal stimulus injected during the current economic
crisis, euro area member states should take appropriate measures to secure the
sustainability of their public finances. Where appropriate address macroeconomic
imbalances, contain persistent inflation divergences or trends of unbalanced
growth.

· Strive to improve the quality of public finances by reviewing public
expenditures and taxation and by modernising public administration, with the
intention to enhance productivity and innovation, thereby contributing to
economic growth, employment and fiscal sustainability underpinned by a dynamic
and competitive single market.

· vigorously implement the EU Common Principles of Flexicurity in
accordance with the specific circumstances of each Member State and fully
compatible with sound and financially sustainable public budgets; and enact
measures to promote labour mobility across borders, regions, sectors and
occupations; better align wage growth with productivity growth at the
aggregate, sector, regional and occupational level.

8.           To maximise policy
synergies, which are stronger in a monetary union, and enhance political
ownership of reforms, euro-area Member States should continue to strengthen
policy coordination in the context of the Eurogroup, to enhance the
effectiveness of the expansionary measures, implement the agreed monitoring of
competitiveness developments, and pursue consistent positions in international
fora. Existing agreements for the external representation of the euro area
should be fully implemented.

[1]               OJ L 205, 6.8.2005, p. 28.

[2]               OJ L 205, 6.8.2005, p. 21.

[3]               OJ L 139, 29.5.2008, p. 57 (2008/399/EC).

[4]               OJ L 137, 27.5.2008, p. 13.

[5]               OJ L 198, 26.7.2008, p.
47.

[6]               COM(2008) 800.

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