CELEX: 52011SC0805
Language: en
Date: 2011-06-07 00:00:00
Title: Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Finlandand delivering a Council opinionon the updated Stability Programme of Finland, 2011-2014

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		52011SC0805
		
			Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Finlandand delivering a Council opinionon the updated Stability Programme of Finland, 2011-2014 /* SEC/2011/0805 final */
			
				
		
		
			
			   	Recommendation for a
COUNCIL RECOMMENDATION
on the National Reform Programme 2011 of Finland
and delivering a Council opinion
on the updated Stability Programme of Finland, 2011-2014
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,
Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1],
and in particular Article 5(3) thereof,
Having regard to the recommendation of the
European Commission[2],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
After consulting the Economic and Financial
Committee,
Whereas:
(1)              
On 26 March 2010, the European Council agreed to
the European Commission's proposal to launch a new strategy for jobs and
growth, Europe 2020, based on enhanced coordination of economic policies, which
will focus on the key areas where action is needed to boost Europe’s potential
for sustainable growth and competitiveness.
(2)              
On 13 July 2010, the Council adopted a
recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and on 21 October 2010, adopted a decision on
guidelines for the employment policies of the Member States,[3]
which together form the “integrated guidelines”. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.
(3)              
On 12 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first European semester of ex-ante and integrated
policy coordination, which is anchored in the Europe 2020 strategy. 
(4)              
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the
Commission’s Annual Growth Survey). It underscored the need to give priority to
restoring sound budgets and fiscal sustainability, reducing unemployment
through labour market reforms and making new efforts to enhance growth. It
requested Member States to translate these priorities into concrete measures to
be included in their Stability or Convergence Programmes and National Reform
Programmes.
(5)              
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments in time to be included in their Stability or Convergence Programmes
and their National Reform Programmes. 
(6)              
On 6 April 2011, Finland submitted its 2011-2014
Stability Programme update and its 2011 National Reform Programme. In order to
take account of the interlinkages, the two programmes have been assessed at the
same time. 
(7)              
At the trough of the global economic crisis, Finland experienced a very steep fall in GDP, given that the Finnish economy has
traditionally been reliant on the export performance of its main industries. In
2009, GDP contracted by 8.2%, driven by an exceptionally steep fall in exports
(20% fall in volume) and related adverse confidence effects on investment. The
unemployment rate increased by about 2 percentage points, rising from 6.4% of
the labour force in 2008 to 8.3% in 2010. The economic recovery has been
strong, with GDP expanding by 3.1% in 2010, sustained by both domestic demand
and a rebound in exports. After a brief dip in 2009, real-estate prices and housing
construction volumes rebounded rapidly to above the pre-crisis levels, raising
some concern about excessive expansion of the real-estate market. Finland emerged from the economic crisis with a general government deficit at 2.5% of GDP
in 2010 and debt at 48.5% of GDP.
(8)              
Based on the assessment of the updated Stability
Programme pursuant to Council Regulation (EC) No 1466/97, the Council is of the
opinion that the macroeconomic scenario underlying the programme is plausible
for 2011-2012, but slightly too favourable thereafter. For 2011-2012, the
macroeconomic scenario is in line with the Commission services' Spring
forecast. For 2013-2015, the programme projects growth of about 2% of GDP,
which is slightly above the potential growth estimate of 1.5% and could
therefore be subject to some downside risks. The objective of the budgetary
strategy is to bring the deficit down to 0.9% of GDP in 2011 and 0.7% in 2012,
reflecting the cyclical improvement in the economy and some consolidation
measures already decided by the previous government. However, the Stability
Programme update does not plan any further fiscal consolidation over 2013-2015.
Risks to the budgetary targets appear to be balanced. The most notable risk
factor stems from the global macroeconomic environment, which has traditionally
had a strong impact on the export-reliant Finnish economy.
(9)              
The latest programme update does not envisage
making use of the forecast improvement in economic conditions for budgetary
consolidation in the medium term. While the medium-term objective (MTO), set by
the Finnish authorities of a structural surplus of 0.5% of GDP, is projected to
be achieved in 2011, in the following years, the structural balance is set to
fall below the target. 
(10)          
Taking action to counter the effects of
population ageing has been one of the priorities of successive Finnish
governments. Reflecting these efforts, Finland appears to be at medium risk
with regard to the long-term sustainability of public finances. Nevertheless,
the country faces a strong and immediate demographic shift and a notable
sustainability gap still exists in public finances. This challenge has
implications for many policy areas. Population ageing will lead to a
significant rise in demand for ageing-related services, which are mostly
provided by local governments in Finland. Various studies have found that
productivity improvement in public services has been poor over the past few
years. The Finnish authorities have already implemented several reforms to
restructure public services and boost productivity at both central and local
government level. The relatively large investments in information technology in
the public sector have not yet shown up in productivity improvements, implying
that structural and administrative changes are needed to accompany investments.
Overall, there is still room for additional measures to achieve productivity
gains and cost savings in public service provision.
(11)          
The current increase in long-term unemployment
is a cause for concern. Between 2005 and 2008, long-term unemployment fell
substantially, but it began to rise again in 2009. At the end of March 2011,
the number of long-term unemployed stood at 57 400, up 12 400 on the
previous year. Many of the long-term unemployed are currently in the 55–64 age group.
Due to retirement patterns, the greatest increase in unemployment will be among
45–54 year-olds. Although the long-term unemployment rate in Finland is below the EU average, the issue should be looked at in the context of securing
labour supply in the future and social inclusion. Experience shows that
long-term unemployment, in particular, increases the risk of poverty and social
exclusion. Although the Finnish authorities recognise the increase in long-term
unemployment as a pressing issue, so far no comprehensive strategy has been
designed to combat it. Finland expanded its active labour market policy (ALMP)
measures efficiently during the crisis to fight youth unemployment. While this
helped to reduce youth unemployment over 2010-2011, it still remains above the
EU average, and may warrant new measures. In the same way, reinforcement and
better targeting of ALMP measures would help to reverse the negative trend in
long-term unemployment..
(12)          
In view of demographic changes, raising the
employment rate of older workers is important for public finances and crucial
to meet the demand for labour in the future. The Finnish pension system was
reformed in 2005 and pension benefits were linked to a life-expectancy
coefficient in 2009. However, the statutory pension age is currently not linked
to life expectancy. Given the continuing increase in life expectancy, such a
link would not only contribute to labour supply but also help to ensure
adequate pensions. Early retirement schemes have been reduced over the last few
years, but there is still some room for further measures to enhance employment
incentives among the elderly. For example, the extended unemployment benefit
for the elderly functions broadly in the same way as the abolished unemployment
pension. Despite improvements over the last decade, employment rates of older
workers and the effective exit age are low by Nordic standards. Disability is
very often the cause of early retirement. Increasing the effective retirement
age requires measures that also take into account the quality of working life,
including the well-being and health of employees. This is important in
particular in view of the high number of people on disability pensions. Since
2009, Finland has spent about EUR 14 million on projects to improve the working
environment. The impact of these initiatives merits to be assessed.
Participation in lifelong learning has traditionally been very high in Finland and will continue to be important given emerging new skills requirements and
demographic changes. 
(13)          
Greater competition, particularly in the
services sector, has become increasingly relevant for boosting productivity and
enhancing potential economic growth. Finland's remote location and sparse
population density weakens business competition, resulting in relatively low
productivity growth in non-tradable sectors. Existing business structures are
occasionally highly concentrated, particularly in the food industry or
wholesale and retail trade. This might contribute to the relatively high
consumer price level, although long transport distances could also play a role.
Retail prices are among the highest in the EU. Competition in the retail trade
continues to be partly hindered by regulations, despite some recent loosening,
and by barriers to foreign and domestic enterprises entering and exiting the
market.
(14)          
Specific commitments under the Euro Plus Pact
are not explicitly set out in Finland's Stability and National Reform
Programmes but are expected to be submitted once the new government has been
formed.
(15)          
The Commission has assessed the Stability
Programme and National Reform Programme[4], taking into account not
only their relevance for sustainable fiscal and socio-economic policy in Finland but also their conformity with EU rules and guidance, given the need to reinforce
the overall economic governance of the European Union. It considers that
consolidation measures should be specified for the medium term and that further
action is needed to improve the sustainability of public finances, including by
boosting public sector productivity. Further action is also needed to increase
incentives to work and to raise the effective exit age from the labour market,
as well as to enhance productivity and competition in the service sector
markets.
(16)          
In light of this assessment, also taking into
account the Council Recommendation under Article 126(7) Treaty on the
Functioning of the European Union of 2 June 2010, the Council has examined the
2011 update of the Stability Programme of Finland and its opinion[5]
is reflected in particular in its recommendations under (1) and (2) set out
below. Taking into account the European Council conclusions of 25 March 2011,
the Council has examined the National Reform Programme of Finland,
HEREBY RECOMMENDS that Finland should take action within the period 2011-2012 to:
(1)                   
Continue the fiscal consolidation using any
windfall revenue to reduce the deficit, while taking additional measures to
maintain the fiscal position above the medium-term objective.
(2)                   
Take further measures to achieve productivity gains
and cost savings in public service provision, including
structural changes, in order to respond to the challenges arising from
population ageing.
(3)                   
Target active labour market measures better on
the long-term unemployed and young people.
(4)                   
Take measures to improve the employability of
older workers and their participation in lifelong learning. Take further steps
to discourage early exit from the labour market and further link the statutory
retirement age limits to life expectancy.
(5)                   
Take further measures to open up further the
service sector, by redesigning the regulatory framework and removing
restrictions in order to facilitate new entry into service sector markets,
especially in the retail sector.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               OJ C , p. .
[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.
[4]               SEC(2011) 734.
[5]               Foreseen in Article 5(3) of Council Regulation (EC)
No 1466/97.