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		52012PC0566

			Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in Portugal /* COM/2012/0566 final  */

			   	Recommendation for a
COUNCIL RECOMMENDATION
with a view to bringing an end to the
situation of an excessive government deficit in Portugal
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the
Treaty on the Functioning of the European Union (TFEU), and in particular
Article 126(7) thereof,
Having regard to the
recommendation from the European Commission,
Whereas:
(1)       According to Article 126 of the TFEU Member States are to
avoid excessive government deficits.
(2)       The Stability and Growth
Pact is based on the objective of sound government finances as a means of
strengthening the conditions for price stability and for strong sustainable
growth conducive to employment creation.
(3)       On 2 December 2009, the
Council decided, in accordance with Article 126(6) of the TFEU, that an
excessive deficit exists in Portugal and issued a recommendation to correct the
excessive deficit by 2013 at the latest, in accordance with Article 126(7) TFEU
and Article 3 of Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding
up and clarifying the implementation of the excessive deficit procedure. In
order to bring the headline government deficit below the 3% of GDP reference
value by 2013, an average annual fiscal effort of 1¼ % of GDP over the period
2010-2013 was recommended. In calculating the average annual fiscal effort, the
2011 deficit in the Commission services’ 2009 Autumn Forecast was taken as the
starting point. The total fiscal effort needed to reach the nominal below 3%
deficit target by the deadline was then calculated by assuming a gradual
closure of the output gap by 2015.
(4)       On 15 June 2010, the
Commission concluded that Portugal had taken effective action in compliance
with the Council recommendation of 2 December 2009 to bring its government
deficit below the 3% of GDP reference value and considered that no additional
step in the excessive deficit procedure was therefore necessary.
(5)       According to Article 3(5)
of Regulation (EC) No 1467/97, the Council may decide, on a recommendation from
the Commission, to adopt a revised recommendation under Article 126(7) TFEU, if
effective action has been taken and unexpected adverse economic events with
major unfavourable consequences for government finances occur after the
adoption of that recommendation. The occurrence of unexpected adverse economic
events with major unfavourable budgetary effects is to be assessed against the
economic forecast underlying the Council recommendation.
(6)       In accordance with Article
126(7) of the TFEU and Article 3 of Council Regulation (EC) No 1467/97, the
Council is required to make recommendations to the Member State concerned with
a view to bringing the situation of excessive deficit to an end within a given
period. The recommendation has to establish a deadline of at most six months
for effective action to be taken by the Member State concerned to correct the
excessive deficit. Furthermore, in a recommendation to correct an excessive
deficit the Council should request the achievement of annual budgetary targets
which, on the basis of the forecast underpinning the recommendation, are
consistent with a minimum annual improvement in the structural balance, i.e.
the cyclically-adjusted balance net of one-off and temporary measures, of at
least 0.5% of GDP as a benchmark.
(7)       After recording a
significant contraction in 2009, when real GDP fell by 2.9%, the Portuguese
economy rebounded in 2010 to positive growth of 1.4%, largely due to
exceptional factors that boosted exports and private consumption. The economy
fell back into recession in 2011 when real GDP fell by 1.7%, but this decline
was smaller than initially expected as strong net exports partly compensated
for the substantial decline in private consumption and investment. At the same
time, the labour market situation continued to worsen. In 2012, according to
the most recent update by Commission services of the economic outlook for
Portugal, which takes into account the fiscal measures presented by the
authorities during the fifth review of the Economic Adjustment Programme in early
September, real GDP is expected to contract by 3.0% in 2012 reflecting a
further deterioration of domestic demand, particularly investment activity. At
the same time exports are holding up well and, despite their deceleration from
last year on the back of a worsening of external demand, are set to record
further market share gains. Growth will continue to be sluggish in 2013,
reflecting weaker import growth in euro area trading partners and additional
budget consolidation measures, but is expected to move into moderate positive
territory around mid-year due to a recovery in exports and investment activity.
For the year as a whole, GDP growth is projected to decline by about 1%.
Unemployment is expected to peak at somewhat above 16% in 2013.
(8)       The general government
deficit reached -9.8% of GDP in 2010, slightly down from -10.2% of GDP in 2009.
The poor performance was mostly due to the statistical reclassification of some
state-owned enterprises and Public-Private Partnerships within the general
government as well as the costs related to the rescue of two troubled banks.
These effects were only partly compensated by the one-off effect of the
transfer of a pension fund to the government and somewhat better revenues than
in the previous year. In 2011, the deficit outturn was 4.2% of GDP compared
with a 5.9% of GDP target. The better nominal performance is explained by a
transfer of banks' pension funds to the social security system which was used
to close a fiscal gap amounting to 1½% of GDP. The government reacted promptly
to correct budgetary underperformance during the first half of the year by
adopting additional revenue measures such as a one-time tax surcharge on
personal income and raising the VAT rate on electricity and natural gas from
the reduced to the standard rate while tightening expenditures. Hence, the
fiscal gap is explained mainly by non-recurrent deficit-increasing factors,
namely non-tax revenue underperformance at the level of concessions and real
state, the recording of the debts of an SOE and a PPP both in the remit of the
Madeira regional government and the reclassification of a PPP within the
general government after the introduction of tolls.
(9)       According to the most
recent update by the Commission services of the economic outlook in Portugal,
the general government deficit in 2012 is projected at 5.3% based on unchanged
policies, which compares with an expected deficit of 4.5% of GDP in the 2012
Budget Law and the 2012 Stability Programme. The 2012 budget, as amended by its
March supplement, includes consolidation measures estimated at 5½% of GDP.
Expenditure reducing measures include wage and pension cuts together with lower
public sector employment and a reduction in health, education and SOEs capital
and current expenditures. Revenue-raising measures are based on higher indirect
taxation by shifting certain goods and services from the reduced and
intermediate to higher VAT rates. Changes in direct taxation mostly aimed at
broadening the tax base by reducing deductions and exemptions applicable to
personal and corporate income taxation.
(10)     In 2012, the projected
deviation from the budget plan is about 2¼% of GDP, mainly linked to a
faster-than-expected rebalancing of the economy towards less tax-intensive
exports and higher-than-projected unemployment weighing on social security
budgets. Revenue shortfalls are broad-based and relate to lower-than-expected
direct and indirect taxes but also social security contributions. The change in
tax bases has led to an overall shortfall of about 2% of GDP compared to the
revenues projected in the 2012 budget, while ¼% of GDP is due to one-off
operations. Overall expenditure is developing according to plans, with higher
expenditure on unemployment benefits balanced by savings in other areas, particularly
compensations for employees. Savings amounting to 1.5% of GDP – lower net
interest payments and the reprogramming of EU structural funds - and, possibly,
one-off revenues from an airport concession will help to partly offset the
revenue shortfalls. As some of the deficit-reducing factors in 2012 are
one-off, the 2012 gap translates into a carry-over of about 1½% of GDP in 2013
caused by the shrinkage in tax revenue bases and labour market developments.
(11)     According to the most
recent update by the Commission services of the economic outlook in Portugal,
on the basis of unchanged policies, the government deficit in 2013 is projected
at 4¾ % of GDP which compares with an original target of 3%. Within the
framework of the Economic Adjustment Programme for Portugal, the unchanged
policies scenario takes into account the measures agreed in the Council
Implementing Decision 2011/344/EU on granting Union financial assistance to
Portugal of 17 May 2011 and the Fourth update to the Memorandum of Understanding
on Specific Economic Conditionality between the European Commission, acting on
behalf of the European Union, and the Republic of Portugal. The Fourth Review
Update of the Memorandum of Understanding on Specific Economic Conditionality
considered fiscal consolidation measures worth about 2% of GDP in 2013
including a sizeable decrease in expenditures through lower compensation per
employees and cuts in the areas of education and health coupled with gains from
restructuring the central administration and SOEs. On the revenue side,
measures aimed at broadening the tax base by reducing tax benefits and tax
deductions in corporate and personal income taxes and by increasing excises
duties. Along the same lines of action, the 2012 Stability Programme considers
fiscal consolidation measures worth about 1.4% of GDP.
(12)     The latest update by the
Commission services of the economic outlook in Portugal shows that the
structural deficit was -8.7%, -8.5% and -6.3% of GDP in 2009, 2010 and 2011
respectively. It is expected to reach -4.2% of GDP in 2012. This implies an
average apparent fiscal effort, measured as the difference between the
structural deficits, of 1.5% of GDP between 2010 and 2012, which is above the
minimum required average annual fiscal effort of 1¼% of GDP specified by the
Council in 2010-2013. Correcting for the change in the macroeconomic scenario
between the projections underlying the Council recommendations of 2 December
2009 and the current forecast, the estimated average annual fiscal effort between
2010 and 2012 would be about 0.8 pp. of GDP higher. Portugal has thus taken
effective action as regards the path for the structural deficit up to 2012.
(13)     According to the Commission
services’ 2009 Autumn Forecast, which was underlying the Council recommendation
under Article 126(7) TFEU of 2 December 2009, the Portuguese economy was
expected to grow by 0.3% in 2010 and by 1.0% in 2011. The years 2012 and 2013
were beyond that forecast's horizon period, but implicitly higher growth than
in 2011 was expected for 2012 and 2013 given the assumption of a gradual
closure of the large negative output gap by 2015. The outcome of real GDP for
2010 and 2011 was very much at odds with the projected path in the 2009 Autumn
Forecast, with largely due to exceptional factors higher non sustainable growth
in 2010 and much lower growth in 2011. In addition, the composition of economic
growth was much less based on domestic demand. The accumulated contribution of
domestic demand for 2010 and 2011 was -5 percentage points of GDP, compared
with a forecast of 0.6 percentage points. At the same
time, the labour market deteriorated to a larger extent and more rapidly than
foreseen in the Commission Services' Autumn 2009 forecast. The latest
update of the Commission services' forecast of the Portuguese economy expects
significant negative growth rates for 2012 and 2013. Furthermore, the growth
composition is likely to continue to be tilted towards net exports. These
growth projections show that the Portuguese economy has been hit by unexpected
events.
(14)     Gross public debt rose from
93.3% in 2010 to 107.8% of GDP in 2011 and, according to the latest update by
the Commission services of the economic outlook in Portugal, is expected to
rise to 119.1% of GDP in 2012 and to reach 123.7% of GDP in 2013, thus
exceeding the Treaty reference value in all years. This increase in the debt
ratio is mainly driven by higher interest payments including payments linked to
the programme loans and, to a lesser extent, by the dynamics of the primary
deficit. The stock-flow adjustment is sizeable in 2012, contributing 3.3
percentage points of GDP to the increase, and is linked to the plan to settle
invoices of providers of public bodies and other outstanding operations.
(15)     The budgetary position has
deteriorated substantially compared with the assumptions in the initial Council
recommendation, due to a worse-than-expected economic outlook, which is also
less tax-rich. Moreover, the sizeable contraction of the economy is affecting
employment and unemployment in a very negative way. This is having negative
effects on both the revenue and expenditure side, with a shortfall of social
contributions and higher social transfers. Considering all these factors, and
given in particular the marked deterioration in the fiscal outlook since the
original Council recommendation under Article 126(7) TFEU and the fact that
Portugal has taken effective action, an additional year for the correction of
the excessive deficit would therefore be warranted.
(16)     Granting an additional year
for the correction of the excessive deficit requires the attainment of
intermediate headline deficit targets of 5.0% of GDP for 2012, 4.5% of GDP for
2013 and 2.5% of GDP for 2014 as defined in the fifth update to Council
Implementing Decision 2011/344/EU. . On the basis of the Commission services'
update of the economic outlook in Portugal, the underlying required improvement
in the structural fiscal balance resulting from these headline targets is 2.3%
of GDP in 2012, 1.6% of GDP in 2013 and 1.3% of GDP in 2014. The Portuguese
authorities will adopt additional measures to achieve the deficit targets in
2012, 2013 and 2014 in view of the needs identified in the Fifth Review of the
Economic Adjustment Programme. In addition, the authorities will develop
contingency measures for the following years in case of slippages, given
possible implementation risks.
(17)     Despite some relief over
the past few months, market pressure on Portuguese sovereign debt remains high
and there is a need to underpin the
credibility of the consolidation effort. This would require
specifying in detail all the structural measures that are necessary to achieve
the budgetary targets in 2013 and 2014, and accelerating the reduction of the
deficit if economic or budgetary conditions turn out better than currently
expected. The importance of taking timely action to avoid the risk of future
slippages warrants the deadline of three months to take effective action.
(18)     On 6 July the Council
adopted country-specific recommendations for Portugal to implement the measures
as laid down in Council Implementing Decision 2011/344/EU and further specified
in the Memorandum of Understanding of 17 May 2011 and its subsequent
supplements. Overall, these measures aim at adopting a credible and balanced
fiscal consolidation strategy supported by structural fiscal measures and
better fiscal control over SOEs and PPPs, deep and frontloaded structural
reforms in the products and services markets and efforts to safeguard the
financial sector through recapitalisation supported by back-up facilities.
(19)     In parallel to the regular
reviews of the Economic Adjustment Programme for Portugal as defined in Council
Implementing Decision 2011/344/EU, monitoring of progress on implementation of
its EDP commitments will be carried out at an interval of three months.
(20)     Portugal fulfils the
conditions for the extension of the deadline for correcting the excessive
general government deficit as laid out in Article 3(5) of Regulation (EC) No
1467/97 on speeding up and clarifying the implementation of the excessive
deficit procedure,
HEREBY RECOMMENDS:
(1)
That the Portuguese authorities put an end to
the present situation of excessive deficit by 2014.
(2)
That the Portuguese
authorities deliver an improvement of the structural balance of 2.3% of
GDP in 2012, 1.6% of GDP in 2013 and 1.3% of GDP in 2014, in order to bring the
headline government deficit below the 3% of GDP reference value by 2014, based
on the Commission services' update of the economic outlook in Portugal. The
headline deficit targets should be 5.0% of GDP for 2012, 4½% of GDP
for 2013 and 2.5% of GDP in 2014.
(3)
That the Portuguese
authorities implement the measures adopted in the 2012 budget and its March
supplement and that they take additional measures worth 0.3% of GDP to confine
the deficit to 5.0% of GDP. These include freezing some of the 2012 budget
appropriations for investment projects not yet initiated, rising stamp duties
on high value properties and tax rates on investment income, frontloading some
of the 2013 budget measures to reduce social benefits and applying other
measures generating savings in intermediate consumption and revenues from
sales.
(4)
That the Portuguese
authorities adopt permanent consolidation measures of 3.0% of GDP to reach the
4.5% of GDP target in 2013. Unless otherwise specified the measures to be
adopted with the 2013 budget law include: i) a reduction in compensation per
employees generated through a substantial reduction in the number of public
employees, in overtime payments and in non-wage compensation; ii) improved
means testing and scale down some social programmes and benefits; iii) deepen
health care and SOEs reform. On the revenue side, the projected measures
include: i) a reform of the personal income tax simplifying the tax structure,
eliminating some tax expenditures, increasing the average tax rate while
improving progressivity, ii) broadening the corporate income tax base by
eliminating interest deductibility and iii) rising property taxes. The Portuguese
authorities will use contingency measures in 2013 if slippages occur.
(5)
That the Portuguese
authorities adopt permanent consolidation measures of 1¾% of GDP to achieve the
2014 deficit target. A comprehensive expenditure review to fully specify
measures amounting to about EUR 4 billion over 2014-2015 will be carried out
for the Sixth review of the Economic Adjustment Programme and measures will be
fully specified by mid-February 2013. The fiscal consolidation plans for
2014-2015 will be fully detailed in the 2013 Stability Programme.
(6)
The Portuguese government is to take effective
action to implement this recommendation within three months from adoption of
this recommendation and, in accordance with Article 3(4a) of Council Regulation
(EC) No 1467/97, to report in detail the consolidation strategy that is
envisaged to achieve the targets.
Furthermore, the Council invites the
Portuguese authorities:
- In addition to the report foreseen in
recommendation (6) and in parallel to the requirements defined in the Council
Implementing Decision 2011/344/EU on granting Union financial assistance to
Portugal of 17 May 2011, to report on progress made in the implementation of
this recommendation every three months as well as in a separate chapter in the
stability programmes which will be prepared until 2015.
- To maintain reform momentum in public
financial management by reforming the Budget Framework Law to comply with the
new European Union fiscal governance rules and to continue improving
transparency and control at all budgetary stages as well as ensuring adherence
to its medium-term budgetary framework and targets for all levels of general
government. This recommendation is addressed to the Republic of Portugal.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President


               19.2.2016

               EN

               Official Journal of the European Union

               C 65/168

         P7_TA(2013)0278
   2013 review of the organisation and functioning of the EEAS
   European Parliament recommendation to the High Representative of the Union for Foreign Affairs and Security Policy and Vice President of the European Commission, to the Council and to the Commission of 13 June 2013 on the 2013 review of the organisation and the functioning of the EEAS (2012/2253(INI))
   (2016/C 065/24)

      The European Parliament,

               —

               having regard to Article 27(3) of the Treaty on European Union (TEU) which provides for the establishment of a European External Action Service (EEAS) whose task is to assist the High Representative of the Union for Foreign Affairs and Security Policy,

               —

               having regard to Article 21 (3) TEU which stipulates that the High Representative shall assist the Council and the Commission in ensuring the consistency between the different areas of the Union’s external action,

               —

               having regard to Article 26 (2) TEU which provides that the Council and the High Representative shall ensure the unity, consistency and effectiveness of action by the Union,

               —

               having regard to Article 35, third paragraph TEU which states that the diplomatic and consular missions of the Member States and the Union delegations shall contribute to the implementation of the right of citizens of the Union to protection in the territory of third countries,

               —

               having regard to Article 36 TEU which states that the High Representative of the Union for Foreign Affairs and Security Policy/Vice-President of the Commission (hereinafter HR/VP) shall regularly consult the European Parliament on the main aspects and the basic choices of the common foreign and security policy and the common security and defence policy, inform it of how those policies evolve, and ensure that the views of the European Parliament are duly taken into consideration,

               —

               having regard to Article 42 TEU which gives the HR/VP powers to make proposals in the field of common security and defence policy, including the initiation of missions, using both national and Union resources,

               —

               having regard to Article 13 (3) of the Council Decision of 26 July 2010 establishing the European External Action Service (hereinafter EEAS Decision), which lays down that the High Representative shall carry out, by mid-2013, a review of the organisation and functioning of the EEAS which will cover inter alia the implementation of Articles 6(6) and 6(8) on geographical balance, accompanied, if relevant, by a legislative proposal amending the Decision,

               —

               having regard to Articles 298 and 336 of the Treaty on the Functioning of the European Union (TFEU) which provides for the legislative procedure that applies to staff matters,

               —

               having regard to the Declaration by the HR/VP of the Commission on Political Accountability (hereinafter HR/VP Declaration) (1),

               —

               having regard to the 2012 EEAS Staffing Report of 24 July 2012 presented in accordance with Article 6(9) of the EEAS Decision,

               —

               having regard to Rule 97 of its Rules of Procedure,

               —

               having regard to the report of the Committee on Foreign Affairs and the opinions of the Committee on Development, the Committee on Budget, the Committee on Budgetary Control and the Committee on Legal Affairs (A7-0147/2013),

               A.

               whereas the Lisbon Treaty introduced the objective of ensuring the unity, consistency and effectiveness of the European Union's external action;

               B.

               whereas the EEAS is a new body of hybrid nature, drawing upon community and intergovernmental sources, which has no precedent in the EU and which therefore cannot be expected to be fully functional within two years of its establishment; whereas, therefore, a review of its organisation and functioning should be based on fair and constructive criticism;

               C.

               whereas the success of the EEAS should be measured against its ability to pursue a comprehensive approach by the EU to today's external challenges and responsibilities, and its capacity to achieve a more efficient use of scarce resources through greater cooperation and economies of scale at European Union and national levels;

               D.

               whereas the triple-hatted role of the HR/VP is the most tangible manifestation of this search for greater coherence in the EU’s external action;

               E.

               whereas the current structure within the Commission does not adequately reflect the specific role granted to the HR/VP in relation to the EU’s external action;

               F.

               whereas the multiple roles entrusted by the Lisbon Treaty to the HR/VP calls for the creation of (a) political deputy/ies in order to ensure that (s)he is assisted in the accomplishment of her/his tasks;

               G.

               whereas operational decision-making and implementation in the area of the Common Foreign and Security Policy/Common Security and Defence Policy (CFSP/CSDP) are too slow because of structural and procedural reasons; whereas this has become apparent once more with the crisis in Mali, in response of which decision-making procedures and funding decisions have not been swiftly adopted and implemented;

               H.

               whereas the EEAS should be a streamlined, results-orientated, efficient structure, capable of providing support for political leadership in external relations, particularly in the area of CFSP and facilitating decision-making in the Council; whereas, for this reason, the EEAS should be capable of providing, at short notice and in a coordinated fashion, expertise from different departments, including from the Commission; whereas the current structure of the EEAS is too top-heavy and marked by too many decision-making layers;

               I.

               whereas the opportunities for quick deployment offered by the EU battle groups are not yet used;

               J.

               whereas the experience of the past has clearly shown the need for establishing permanent operational Headquarters in Brussels for the conduct of CSDP missions;

               K.

               whereas, in the case of the Arab revolutions, it has become apparent that the EU is unable to ensure, in the short term, a reallocation of resources, including staff, to match new political priorities; whereas the size and staff profiles of EU delegations must reflect the Union’s strategic interests;

               L.

               whereas the role of the EEAS in defining the strategic orientation, and in contributing to the implementation of the EU external financing instruments, should be strengthened in line with the key lines of EU foreign policy;

               M.

               whereas the importance of ensuring better coordination and good governance on development issues at the international level needs to be reaffirmed, in order to allow the EU to speak with one voice and gain visibility;

               N.

               whereas, particularly at times of budgetary restrictions, the EEAS should act as a catalyst for greater synergies, not only within the EU institutional framework but also between the EU and its Member States;

               O.

               whereas, at a time when Member States' governments are reducing their diplomatic and consular presence, the EEAS should be seen and further used as an opportunity to foster greater cooperation and synergies;

               P.

               whereas greater effort should be made to avoid duplication of efforts and structures between the EEAS, the Commission — in particular DG DEVCO and the European Community Humanitarian aid Office (ECHO) — and the Council Secretariat;

               Q.

               whereas the target of one third of staff originating from Member States has been reached, and whereas the staff originating from the three components (the Commission, the Council Secretariat and the national diplomatic services) should be appropriately distributed at all levels and between delegations and Headquarters;

               R.

               whereas women are under-represented in AD and senior positions, and over-represented in AST positions;

               S.

               whereas any modification regarding the rules on staff has to be adopted under the codecision procedure;

               T.

               whereas there is a clear need to develop the EEAS' capacity to identify and learn lessons from previous operational experiences, particularly in the area of conflict prevention, conflict mediation, crisis management, reconciliation and peace-building;

               U.

               whereas, two and a half years after the adoption of the HR/VP Declaration, there should be a thorough assessment of the political accountability of the EEAS towards Parliament, notably as regards the extent to which Parliament is consulted on strategic decisions and its views and inputs are taken into account;

               V.

               whereas this assessment should also address ways to improve appearances before Parliament and its bodies by the HR/VP and EEAS officials, including the Heads of Delegations and EUSRs, and how the EEAS follows up Parliament's resolutions;

               W.

               whereas Parliament's oversight over the EEAS is essential if European external action is to be better understood and supported by EU citizens; whereas parliamentary scrutiny enhances the legitimacy of the external action;

               X.

               whereas flexibility is lacking in the current financial circuits in delegations, with detrimental effect on the workload of the staff;

               1.

               Addresses the following recommendation to the High Representative/Vice President, the Council and the Commission, bearing in mind that there has been good progress in setting up the EEAS but that more can be achieved in terms of synergy and coordination between institutions, as well as political leadership and visibility, due to the opportunities created by the combination of the roles of High Representative, Vice-President of the Commission and Chair of the Foreign Affairs Council, and by strengthening the instrumental nature of the Service:

         On leadership and a more rational and efficient structure for 21st century diplomacy

               2.

               to provide support to the HR/VP in the accomplishment of his/her multiple duties as entrusted by the TEU, by foreseeing the appointment of (a) political deputy/ies who would be accountable to Parliament and appear before its responsible committee prior to taking up duties, and empowered to act on behalf of the HR/VP; to ensure also that RELEX Commissioners can fully represent the HR/VP for parliamentary matters and internationally; furthermore, to consider involving Member States' foreign ministers for specific tasks and missions on behalf of the Union, as a way of reinforcing common EU positions;

               3.

               in light of the above, to simplify the command structure of the EEAS and enhance the role of its Executive Secretary General by establishing a clear chain of command to support effective decision-making as well as timely policy response, in this context, to rationalise the posts of Chief Operating Officer and Managing Director in charge of Administration, to reduce and simplify the hierarchical structure of the Managing Directorates, to clearly define the relevant competences within the management structure of the EEAS, and to review the current structure based on the Corporate Board, with a view to achieving efficiency, clarity and coherence in decision-making; in the same spirit, to ensure that the HR/VP receives political advice, for instance through a Political Council, from all the relevant institutional actors, thus allowing him/her to assess the impact of actions to be undertaken by the EEAS;

               4.

               to improve and strengthen the HR/VP's coordinating, initiating and political leadership roles, in particular as chair of the Foreign Affairs Council, by ensuring that, in the next Commission, (s)he realises his/her full potential as Vice-President of the Commission and is entrusted with the chairing of the group of RELEX Commissioners, enlarged to other Commissioners whose portfolios have an external dimension, in order to develop further the practice of joint proposals and joint decisions;

               5.

               to make full use of the synergy effect of the EEAS and in this context to envisage the possibility of qualified majority voting on CFSP matters, as laid down in Article 31(2) TEU, and to formally explore the broadening of qualified majority voting on CFSP matters by means of the respective passerelle clause;

               6.

               to ensure that, in compliance with Article 9(3) of the EEAS Decision, the EEAS plays a leading role in the definition of the strategies of the relevant external financing instruments and that, for this purpose, the EEAS has the expertise to lead in these areas;

               7.

               to safeguard, at the same time, the ‘community’ character of the neighbourhood policy, bearing in mind that Parliament rejects any intergovernmentalisation of Union policies, and that the Treaty bestows upon the Commission the main responsibility for negotiating international agreements for and on behalf of the Union;

               8.

               to further improve the interface between the Directorate for Foreign Policy Instruments and the EEAS;

               9.

               to ensure that the European Union Special Representatives (EUSRs) are closely integrated into the work of the EEAS by anchoring them and their staff in the EEAS structure, and to consider, whenever possible, double-hatting them with EU Heads of Delegation;

               10.

               to carry out a systematic and in-depth audit in order to unify the external policy-related structures put in place by the Commission and the Council Secretariat, with a view to overcoming current duplications and promoting cost efficiency; to make this report available to Parliament;

               11.

               in the same vein, to further develop the practice of joint technical and logistical services between institutions, with a view to achieving economies of scale and improved efficiency; as a first step, to put under a ‘single joint structure’ the various logistical services of the Commission and EEAS for early warning, risk assessment and security tasks covering events outside of the Union, in which these services have to cooperate;

               12.

               in coordination with the Member States, to set out options over the medium to long-term for achieving economies of scale between Member States’ diplomatic services and the EEAS in third countries, including in relation to the provision of consular services;

               13.

               to adopt a coherent approach as regards the chairing of working groups of the Council and to end the rotating presidency of those groups;

               14.

               in line with Article 24 TEU, to ensure that Member States support the Union’s external and security policy actively and unreservedly, in a spirit of loyalty and mutual solidarity, and that they comply with the Union’s actions and support the EEAS in carrying out its mandate;

               15.

               to this end, to promote deeper cooperation with Member States and to develop joint political reporting between delegations and embassies;

         On the ‘appropriate structure’ for ensuring a comprehensive approach

               16.

               to implement the full potential of the Lisbon Treaty by pursuing a Comprehensive Approach that integrates diplomatic, economic, development, and — in the last resort and in full compliance with the UN Charter — military means behind common Union strategic policy guidelines in order to protect and promote the security and prosperity primarily of EU citizens and those in their neighbourhood, as well as further afield; in this context, to ensure coherence between short-term and longer-term measures; in addition, to ensure that the EEAS has the capacity for strategic thinking and to forward proposals for implementing important innovations offered by the Lisbon Treaty, like entrusting the implementation of certain tasks to groups of capable Member States, and the development of Permanent Structured Cooperation, including the use of battle groups;

               17.

               to that end, to develop further an ‘appropriate structure’ (for instance identified as a Crisis Board) that integrates conflict prevention, crisis response, peace building, the foreign policy instruments concerned, security policy and CSDP structures, and assures coordination with the geographical desks, delegations and other policy departments concerned in crisis management, building on the crisis platform concept; to ensure overall coherence and the avoidance of duplication within the EEAS; furthermore, to enhance inter-institutional coordination and clarity of roles;

               18.

               to ensure effective and integrated planning, and faster decision-making, for CSDP operations, by combining the relevant planning capacities from the Crisis Management and Planning Directorate (CMPD) and the Civilian Planning and Conduct Capability (CPCC); in addition, to create a permanent conduct structure by establishing a permanent military Operational Headquarter, co-located with a Civilian Conduct Capability, in order to allow the effective implementation of military and civilian operations whilst safeguarding their respective chains of command;

         On reforming financial procedures for effective external action

               19.

               to make full use of all possible flexibilities under the Financial Regulation relating to the financial management of administrative and operational expenditure so as to authorise Heads of Delegations, where circumstances so require, to sub-delegate further to their deputy and to Commission staff, thereby facilitating the management and smooth running of Delegations and allowing Heads of Delegations to focus on their political tasks;

               20.

               to speed up procedures in the Foreign Policy Instruments Service for administering CFSP finances against the objective of guaranteeing flexible and timely response to crisis situations and, in particular, to ensure that civilian CSDP operations are launched rapidly and with efficiency; in this regard, to examine whether changes to the Financial Regulation can be introduced without reducing oversight;

               21.

               to increase the flexibility and reactivity of EU external assistance by reviewing the rules for decisions on programming and spending for external financial instruments;

               22.

               to improve financial accountability by extending transparency to all CFSP budget lines including CSDP operations, EUSRs, non-proliferation and conflict prevention;

         On the Delegations

               23.

               to grant the EEAS a greater say in the (re)allocation of Commission staff in EU delegations in order to ensure that the staff profiles and size of EU delegations reflects the Union’s strategic interests and its political priorities;

               24.

               to take the necessary steps to ensure that Heads of EU Delegations are appointed on the basis of merit and sound knowledge of the Union's interests, values and policies, in order to ensure motivation and the highest degree of quality and efficiency among those selected for such sensitive functions;

               25.

               to provide that, particularly in delegations where the number of EEAS staff is small, the Head of Delegation can, in compliance with Article 5(2) of the EEAS Decision, also task Commission staff to carry out political analysis and political reporting;

               26.

               in this context, to strengthen the authority of the Heads of Delegation over the whole staff, including Commission staff, and to ensure that the Head of Delegation is the addressee of all instructions issued by Headquarters;

               27.

               to seriously develop the opportunities opened up by the EEAS Decision and by the TEU, notably by enhancing the coordinating role of delegations, especially in crisis situations, and by enabling them to provide consular protection to EU citizens from Member States who are not represented in a given country; to ensure any additional tasks do not take resources away from existing policies, institutions and priorities at EU level;

               28.

               given that the vast majority of EU Delegations now have human rights focal points, to ensure that human rights and women’s rights in particular are mainstreamed within every Delegation and Office of the EU; furthermore, to give visibility to European culture based on its diversity; to ensure, where appropriate, that EU delegations have among their existing staff a liaison officer for the European Parliament charged with providing adequate assistance to Parliament's delegations in third countries and enquiries, based on the principle that EU delegations represent all EU institutions in the same manner;

               29.

               to ensure, furthermore, that delegations have expertise in those policy areas (e.g. climate change, energy security, social and labour policy, culture, etc.) which are relevant for the EU’s relations with the country in question;

               30.

               to ensure that, wherever applicable, every delegation has a security and defence attaché, in particular where delegations operate in situations of political instability or fragility or where a recent CSDP operation or mission has been terminated, in order to ensure operational continuity and adequate monitoring of the political environment;

               31.

               Calls on the HR/VP to order a review of the security arrangements and requirements at EU delegations abroad, so as to ascertain that security decisions are made by the EEAS and not by outside security contractors;

         On implementing the Declaration on Political Accountability

               32.

               in line with the quadripartite agreement reached in Madrid in June 2010, to ensure full and effective implementation of the obligation in Article 36 TEU to have the Parliament’s views duly taken into consideration, for example by a proactive and systematic consultation with the appropriate committee of Parliament before the adoption of strategies and mandates in the area of CFSP/CSDP;

               33.

               to ensure full political reporting from Union delegations to key office holders of Parliament under regulated access;

               34.

               to ensure, in line with Article 218(10) TEU, that Parliament is immediately and fully informed at all stages of the procedure for negotiations on international agreements, including agreements concluded in the area of CFSP;

               35.

               in line with the positive experience of newly appointed Heads of Delegations and EUSRs appearing before AFET before taking up their posts, to extend this practice to newly appointed CSDP Heads of Missions and Operations;

               36.

               to ensure that, once appointed by the HR/VP, the new Heads of Delegations are officially confirmed by the relevant committee of Parliament before taking up their posts;

               37.

               to have a systematic exchange with the appropriate committee of Parliament ahead of each Foreign Affairs Council and to debrief this committee after each Council meeting;

         On training and consolidating a European diplomatic esprit de corps

               38.

               to promote common training and other concrete measures for the consolidation of an esprit de corps among EEAS staff with various diplomatic, cultural and institutional backgrounds, and to consider joint training initiatives for EEAS staff and national diplomats, as part of their continuous professional development;

               39.

               in this spirit, to review the relevant existing training and educational programmes at EU and national levels, with a view to consolidating them alongside the existing European Security and Defence College;

         On the recruitment base

               40.

               to further pursue and intensify efforts to achieve better gender balance, with due regard to merit and competences; to emphasise the importance of achieving balance at the level of Heads of Delegations and other managerial levels; to introduce transitional measures, whilst developing an action plan, that would include mentoring programmes, special training and a family-friendly working environment in order to promote the representation of women and to address the structural obstacles to their diplomatic careers;

               41.

               to take all necessary measures to redress geographical representativity at senior levels and at all other grades and positions in order to foster and encourage political ownership of the EEAS by officials and Member States alike, and as required by Article 6(6) and 6(8) of the EEAS Decision;

               42.

               given that the target of one third of staff recruited from Member States has been reached, to ensure that staff from national ministries are not concentrated at managerial levels, thereby enabling career opportunities for all, and to focus now on the recruitment of new EU staff on a permanent basis; also to explore, in that regard, the options for national diplomats working at the EEAS to apply for permanent posts within the Service;

               43.

               in order to develop a truly European esprit de corps and to ensure that the Service only serves common European interests, to oppose all attempts by the Member States to interfere with the recruitment process of EEAS staff; now that the transition period is over, to ensure that the EEAS can develop its own and independent recruitment procedure, open also to officials from all EU institutions and to candidates from the outside through open competitions;

               44.

               to consider in particular, in view of the European Parliament's special role with regard to the definition of objectives and basic choices of the Common Foreign and Security Policy, Parliament's competences as a budgetary authority, its role in democratic scrutiny of foreign policy as well as its practice of parliamentary foreign relations, the possibility for officials from the European Parliament to be able to apply for posts in the EEAS on an equal footing with those from the Council and the Commission from 1 July 2013;

               45.

               to ensure that the EEAS has the appropriate mix of skills for responding to conflict, in particular by developing skills in the area of mediation and dialogue.

         The longer term

               46.

               Calls, in the context of a future Convention, for the further development of CFSP/CSDP and of the role of the EEAS, including a change of name, to be put on the agenda;

         o
   o o

               47.

               Instructs its President to forward this recommendation to the High Representative of the Union for Foreign Affairs and Security Policy/Vice-President of the Commission, the Council, the Commission and the governments and parliaments of the Member States.

      (1)  OJ C 210, 3.8.2010, p. 1.


title: Council Recommendation of 11 July 2017 on the 2017 National Reform Programme of Hungary and delivering a Council opinion on the 2017 Convergence Programme of Hungary

text:
               9.8.2017

               EN

               Official Journal of the European Union

               C 261/71

         COUNCIL RECOMMENDATION
   of 11 July 2017
   on the 2017 National Reform Programme of Hungary and delivering a Council opinion on the 2017 Convergence Programme of Hungary
   (2017/C 261/16)
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
   Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,
   Having regard to the recommendation of the European Commission,
   Having regard to the resolutions of the European Parliament,
   Having regard to the conclusions of the European Council,
   Having regard to the opinion of the Employment Committee,
   Having regard to the opinion of the Economic and Financial Committee,
   Having regard to the opinion of the Social Protection Committee,
   Having regard to the opinion of the Economic Policy Committee,
   Whereas:

               (1)

               On 16 November 2016, the Commission adopted the Annual Growth Survey, marking the start of the 2017 European Semester for economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission adopted the Alert Mechanism Report, in which it did not identify Hungary as one of the Member States for which an in-depth review would be carried out.

               (2)

               The 2017 country report for Hungary was published on 22 February 2017. It assessed Hungary’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the country-specific recommendations adopted in previous years and Hungary’s progress towards its national Europe 2020 targets.

               (3)

               On 2 May 2017, Hungary submitted its 2017 National Reform Programme and its 2017 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)

               Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (ESI Funds) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (3), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking effectiveness of the ESI Funds to sound economic governance.

               (5)

               Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2017 Convergence Programme, the Government plans a deterioration of the headline deficit from 1,8 % in 2016 to 2,4 % in both 2017 and 2018 and a gradual improvement thereafter to 1,2 % of GDP by 2021. The medium-term budgetary objective — a structural deficit of 1,7 % of GDP until 2016 and revised to 1,5 % of GDP as of 2017 — is planned to be met by 2020. However, based on the recalculated (4) structural balance, the medium-term budgetary objective would not be reached over the programme horizon. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to decline gradually to close to 61 % by the end of 2021. The macroeconomic scenario underpinning those budgetary projections is favourable, which poses risks to the implementation of the deficit targets.

               (6)

               The 2017 Convergence Programme indicates that the budgetary impact of the exceptional inflow of refugees and security-related measures in 2016 and 2017 is significant, and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure in 2015 amounted to 0,04 % of GDP for the exceptional inflow of refugees and there is no additional eligible expenditure in relation to refugee inflows in 2016. The eligible additional expenditure concerning security-related measures amounted to 0,04 % of GDP in 2016. In 2017, no further increase in expenditure is expected due to the exceptional inflow of refugees, whereas the additional budgetary impact of the security-related measures is currently estimated at 0,14 % of GDP. The provisions set out in Articles 5(1) and 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of refugees as well as the severity of the terrorist threat are unusual events, their impact on Hungary’s public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2016 has been reduced to take into account additional security-related costs. Regarding 2017, a final assessment, including on the eligible amounts, will be made in spring 2018 on the basis of observed data as provided by the Hungarian authorities.

               (7)

               On 12 July 2016, the Council recommended Hungary to achieve an annual fiscal adjustment of 0,6 % of GDP towards the medium-term budgetary objective in 2017. Based on the Commission 2017 spring forecast, there is a risk of a significant deviation from that requirement in 2017.

               (8)

               In 2018, in light of its fiscal situation and, in particular, of its debt level, Hungary is expected to further adjust towards its medium-term budgetary objective of a structural deficit of 1,5 % of GDP. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure (5) which does not exceed 2,8 % in 2018. It would correspond to a structural adjustment of 1,0 % of GDP. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2018. At the same time, Hungary is forecast to comply with the debt rule in 2017 and 2018. Overall, the Council is of the opinion that further measures will be needed as of 2017 to comply with the provisions of the Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State’s budgetary balance in light of the cyclical conditions. As recalled in the Commission communication accompanying these country-specific recommendations, the assessment of 2018 budget outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Hungary’s public finances. In that context, the Council notes that the Commission intends to carry out an overall assessment in line with Regulation (EC) No 1466/97, in particular in light of the cyclical situation of Hungary.

               (9)

               Hungary’s competitiveness and potential growth is held back by low private investment and low productivity. Factors adversely affecting the business environment and corporate investment are linked particularly to weaknesses in institutional performance and governance. Frequent changes in the regulatory and tax environment are one of the biggest barriers to doing business in Hungary, with insufficient stakeholder engagement and evidence-based policymaking. Regulatory barriers in services also tend to limit market dynamics and hamper investment. Restrictive regulations, including in retail, limit competition in the services sector and weigh on the business climate.

               (10)

               Hungary’s total tax-to-GDP ratio remains well above those of its regional peers and challenges in the tax system remain. The Government has decreased employers’ social security contributions by 5 percentage points in 2017, and a further 2 percentage points reduction is planned for 2018. This measure has significantly reduced the tax wedge for low-income earners but it remains high. This is particularly the case for low-income earners without children, where it is still among the highest in the Union. The tax system remains complex. Despite a declining trend since 2013, sector-specific taxes — some of which remain highly distortive — still tend to complicate the tax system and weaken investor confidence. The complexity and uncertainty of the tax system, associated with high compliance costs and administrative burdens, continue to weigh on investor confidence in Hungary.

               (11)

               Weaknesses in institutional performance are weighing on the business climate and reducing the economy’s growth potential. In particular, despite recent improvements and the amendment to the Public Procurement Act, progress on strengthening transparency and competition in public procurement is still limited. The current e-procurement strategy is a solid basis to enhance transparency, but its implementation and impact on efficiency and transparency need to be monitored. Corruption risks remain high, adversely impacting the business climate, and there are notable gaps in the measures taken to address the issue. Hungary is also experiencing delays in the implementation of its e-procurement strategy. This is slowing the timely introduction of e-procurement in Hungary, which is crucial for strengthening transparency and increasing competition.

               (12)

               The situation in the services sector including retail remains particularly challenging in Hungary. Over the past year, the Government continued to intervene on markets previously open to competition and adopted tighter requirements for passenger transport services operated by independent dispatching centres. The Government took no substantial step to ease the regulatory environment in the services sector, in particular regarding retail, public waste-management services, textbook publishing and distribution or mobile payment systems. In the retail sector, clear guidelines on the granting of authorisation to open new shops larger than 400 m2 are missing. This adds to the lack of transparency and predictability in the sector. The continuing existence of the regulatory barriers in services, including in retail, is limiting market dynamics and hampering investment, while also generating uncertainty for investors, in particular international investors.

               (13)

               To support Hungary’s competitiveness and potential growth in the medium term, structural reforms to promote investment in human capital, particularly in education and healthcare, and to continue improving the functioning of the labour market will be key. Enhancing social fairness will be also essential to deliver more inclusive growth.

               (14)

               Performance in providing basic skills remains weak by international standards. The 2015 OECD Programme for International Student Assessment (PISA) survey of educational systems showed significantly worsening results and the impact of pupils’ socioeconomic background on education outcomes is one of the highest in the Union. The impact of the school type on education outcomes is very significant. The reduction in teaching hours for science subjects in vocational grammar schools since 2016 is likely to amplify Hungary’s backlog in science skills. The share of early school leavers has been stagnating for the last 5 years and remains especially high among Roma people. The distribution of disadvantaged pupils between schools is uneven, and Roma children increasingly attend Roma-majority schools and classes. Measures are in place to support teacher training, early education and school achievement and to combat early school leaving among Roma. Although steps have been taken to address segregation, they are insufficiently comprehensive and systemic to address the challenge. The growing demand for a highly skilled workforce is not matched by a sufficiently large pool of applicants to tertiary education and adequate completion rates. The modification of the Act on higher education adopted in 2017 may cause the situation to deteriorate further.

               (15)

               The labour market has developed favourably in recent years, with unemployment returning to its pre-crisis level. Employment reached historical high levels thanks to private-sector job creation and the public work scheme, which is still the largest active labour market policy in Hungary with over 200 000 participants. In recent years, a set of measures have been adopted to facilitate the transition from the scheme to the primary labour market. However, the scheme is still not sufficiently targeted and its effectiveness in reintegrating participants into the open labour market continues to be limited. At the same time, certain sectors face increasing labour shortages. Other active labour market policies are being reinforced, partly with the support of Union funds, but further efforts are needed to facilitate transitions to the primary labour market effectively. The profiling system for the unemployed is operational but not yet fully effective. The gender employment gap has increased in recent years and the impact of parenthood on women’s employment is one of the highest in the Union. Labour market participation is affected by comparatively weak health outcomes and unequal access to healthcare. The participation of social partners in policy-making is limited.

               (16)

               Some poverty indicators are back down to pre-crisis levels but remain above the Union average. Poverty among children and Roma remains particularly high, although declining. A significant proportion of Roma in employment work in the public works scheme. Their effective integration into the open labour market remains limited so far.

               (17)

               The adequacy and coverage of social assistance and unemployment benefits is limited. The duration of unemployment benefits is still the lowest in the Union at 3 months, below the average time required by jobseekers to find employment. The 2015 social assistance reform streamlined the benefits system but it does not seem to have guaranteed a uniform and minimally adequate living standard for those in need. With regards to the benefits administered by municipalities, there is a high degree of discretion in the eligibility criteria and the level of entitlements, which creates uncertainty for beneficiaries. The minimum income benefit remains frozen at a low level, but the Hungarian authorities are planning to gradually increase the level of the targeted cash benefits in the coming years. Already in 2017 three of these benefits were slightly increased. Additional targeted measures would help alleviate material deprivation of the most disadvantaged groups, in particular children and Roma.

               (18)

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

               (19)

               In the light of this assessment, the Council has examined the 2017 Convergence Programme and its opinion (6) is reflected in particular in recommendation (1) below,

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

               1.

               Pursue a substantial fiscal effort in 2018 in line with the requirements of the preventive arm of the Stability and Growth Pact, taking into account the need to strengthen the ongoing recovery and to ensure the sustainability of Hungary’s public finances.

               2.

               Complete the reduction of the tax wedge for low-income earners and simplify the tax structure, in particular by reducing the most distortive sector-specific taxes. Strengthen transparency and competition in public procurement, by implementing a comprehensive and efficient e-procurement system, and strengthen the anti-corruption framework. Strengthen regulatory predictability, transparency and competition in particular in the services sector, notably in retail.

               3.

               Better target the public works scheme to those furthest away from the labour market and provide effective support to jobseekers in order to facilitate transitions to the labour market, including by reinforcing active labour market policies. Take measures to improve education outcomes and to increase the participation of disadvantaged groups, in particular Roma, in inclusive mainstream education. Improve the adequacy and coverage of social assistance and the duration of unemployment benefits.

      Done at Brussels, 11 July 2017.

            For the Council

            The President

         T. TÕNISTE

      (1)  OJ L 209, 2.8.1997, p. 1.

      (2)  Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (OJ L 306, 23.11.2011, p. 25).

      (3)  Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320).

      (4)  The structural balance as recalculated by the Commission based on the information in the Convergence Programme, following the commonly agreed methodology.

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

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


Recommendation for a Council opinion in accordance with the third paragraph of Article 5 of Council Regulation (EC) n°1466/97 of 7 July 1997 on the updated stability programme of Spain, 2003-2007


Important legal notice

|

52005SC0013

Recommendation for a Council opinion in accordance with the third paragraph of Art. 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Luxembourg, 2004-2007  /* SEC/2005/0013 final */

	Brussels, 11.1.2005SEC(2005) 13 finalRecommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Luxembourg, 2004-2007(presented by the Commission)EXPLANATORY MEMORANDUMCouncil Regulation (EC) No. 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[1] stipulates that participating Member States, that is, those which have adopted the single currency, had to submit stability programmes to the Council and the Commission by 1 March 1999. In accordance with Article 5 of this Regulation, the Council had to examine each stability programme based on assessments prepared by the Commission and the Committee set up by Article 114 of the Treaty (the Economic and Financial Committee). On the basis of a recommendation from the Commission and after having consulted the Economic and Financial Committee, the Council delivered an opinion, following its examination of the programme. According to the Regulation, Member States need to submit annual updates of their stability programmes, which may also be examined by the Council in accordance with these same procedures.Luxembourg’s first stability programme covering the period 1998-2002, was submitted on 16 February 1999 and assessed by the Council on 15 March 1999[2]. Updates have been presented every subsequent year, the most recent having been submitted on 30 November 2004. The Commission services have carried out a technical evaluation of this update, taking into account their own autumn 2004 economic forecasts, and having regard to the code of conduct[3], the commonly agreed methodology for the estimation of potential output and cyclically-adjusted balances, the recommendations in the broad economic policy guidelines for the period 2003-2005 and the principles laid down in the Communication from the Commission to the Council and the European Parliament of 27 November 2002 on strengthening the coordination of budgetary policies and endorsed by the Council[4]. Their evaluation is as follows:-  The 2004 update of Luxembourg’s stability programme, covering the period 2004-2007, was submitted on 30 November 2004 after its approval by the government on 26 November. It partly complies with the data requirements of the “code of conduct on the content and format of stability and convergence programmes” because some compulsory data are missing.-  The macroeconomic scenario presented in the update projects real GDP growth to slow from 4.4% in 2004 to 3.8% in 2005 and 3.3% in 2006 before reaccelerating to 4.3% in 2007. This scenario is plausible: for the period 2004-2006, it is reasonably close to the autumn 2004 forecasts by the Commission services. For the whole period, the real growth rates projected by the programme are consistent with the Commission services’ estimates of potential growth.-  The general government balance having gone from a 0.8% -of-GDP surplus in 2003 to an estimated 1.4%-of-GDP deficit in 2004, the programme aims to reduce the deficit to 1.0% in 2005 and to stabilise it at about the same level in 2006 and 2007. It thus does not envisage a continuation of the reduction in the deficit after 2005 but positively contrasts with the 2003 update, which was based on a significantly less optimistic growth outlook than that of 2004 and anticipated that the general government deficit would widen from 0.6% of GDP in 2003 to around 2% in the remainder of the programme period.-  On the basis of calculations by the Commission services using the commonly agreed methodology, the cyclically-adjusted balance in the 2004 update is expected to post rising surpluses (from a deficit of less than 1% of GDP in 2003) for the rest of the period, reaching 2% of GDP in 2007. However, this dramatic improvement in the cyclically-adjusted balance seems to stem mostly from the unusual margin of uncertainty surrounding estimates of potential growth for Luxembourg rather than to reflect a genuine structural adjustment effort.-  Developments in the general government balance as presented in the programme are significantly better than those projected in the Commission’s autumn 2004 forecasts. This is because the latter were finalised before the 2005 budget was released and, consequently were based on a “no policy change” assumption and on the spending and revenues trends observed in previous years.-  The risks to the budgetary targets of the programme are balanced. On the one hand, revenue estimates in Luxembourg are known to be cautious. On the other hand, however, the programme envisages a slowdown in expenditure growth, which has been very rapid in recent years, but without detailing the measures that should help achieve this. On balance, therefore, the objectives presented in the programme are plausible but hardly ambitious: they should not be difficult to achieve, provided that the authorities stick to their announced intention to rein in the rise in expenditure. In view of this risk assessment, the budgetary stance of the programme as expressed by the evolution of the cyclically-adjusted balance is sufficient to achieve the medium-term objective in the Stability and Growth Pact of a budgetary position close to balance within the programme period (from 2005 onwards). But in nominal terms, the programme does not envisage a continuation of the reduction in the headline deficit after 2005 and contains no commitment to move closer, at least in nominal terms, to a balanced position before the end of the period covered, since the headline deficit remains at around 1% of GDP. However, from 2005 onwards, the budgetary stance in the programme seems to provide a sufficient safety margin within which normal cyclical fluctuations can occur without breaching the 3%-of-GDP deficit threshold.-  The update estimates that the general government debt ratio will decrease from 5.3% of GDP in 2003 to 5.0% in 2004. About half of this debt comes from central government and the other half from local authorities, the debt of the social security institutions being negligible. The debt ratio is forecast to decline somewhat over the time horizon covered by the update, from 5.0% of GDP in 2004 to 4.5% of GDP in 2007. The total net asset position is even more favourable due to the substantial financial assets, estimated at about 50% of GDP, accumulated over past years with fiscal surpluses.-  The programme refers to the measures recently taken in order to rein in the rise in health expenditure, especially the rise in contributions decided in November 2004. It announces additional measures aiming at moderating health expenditure which were incorporated into a bill passed by Parliament in December 2004. The programme also mentions the burden on the pension system that will arise in the coming years from the massive growth in employment in Luxembourg in the last two decades which increasingly comprises non-resident workers . While it does not yet include specific measures to tackle this problem, it announces that this issue will be debated in the course of 2005.-  Due to its very low level of government debt and the considerable reserves that have been accumulated for more than two decades by the social security sector, Luxembourg appears to be in a favourable position with regard to the long-term sustainability of public finances, despite important projected budgetary costs of an ageing population. However, according to a tentative assessment made by the Commission services, on current expenditure projections, the budgetary strategy outlined in the programme would result in a “tax gap” of close to 2% of GDP which would need to be closed in order to fully ensure sustainability. The country has experienced about 20 years of exceptionally strong employment growth, which will progressively translate into a commensurate increase in the number of pensioners. The reserves could significantly contribute to easing the budgetary pressures of this situation and this policy of building up reserves should be continued, along with the adoption of measures aiming at raising the currently low employment rate of residents, especially older ones.Comparison of key macroeconomic and budgetary projections2004 | 2005 | 2006 | 2007 |Real GDP (% change) | SP Nov 2004 | 4.4 | 3.8 | 3.3 | 4.3 |COM | 4.0 | 3.5 | 3.6 | n.a. |SP Nov 2003 | 2.0 | 3.0 | 3.8 | n.a. |HICP inflation (%) | SP Nov 2004 | 2.6 | 3.2 | 1.5 | 1.7 |COM | 3.0 | 2.3 | 1.6 | n.a. |SP Nov 2003 | 1.5 | 1.3 | 1.2 | n.a. |General government balance (% of GDP) | SP Nov 2004 | -1.4 | -1.0 | -0.9 | -1.0 |COM2 | -0.8 | -1.6 | -2.0 | n.a. |SP Nov 2003 | -1.8 | -2.3 | -1.5 | n.a. |Primary balance (% of GDP) | SP Nov 2004 | -1.2 | -0.9 | -0.8 | -0.9 |COM2 | -0.6 | -1.4 | -1.8 | n.a. |SP Nov 2003 | -1.6 | -2.1 | -1.5 | n.a. |Cyclically-adjusted balance (% of GDP) | SP Nov 20041 | -0.7 | 0.3 | 1.4 | 2.0 |COM2 | 0.4 | 0.3 | 0.7 | n.a. |SP Nov 20031 | 0.9 | 1.0 | 2.2 | n.a. |Government gross debt (% of GDP) | SP Nov 2004 | 5.0 | 5.0 | 4.6 | 4.5 |COM2 | 4.9 | 4.8 | 4.7 | n.a. |SP Nov 2003 | 5.2 | 5.0 | 4.4 | n.a. |1 Commission services calculations on the basis of the information in the programme 2 Finalised before the presentation of the 2005 budget Sources: Stability programme (SP); Commission services autumn 2004 economic forecasts (COM); Commission services calculations |On the basis of this assessment, the Commission has adopted the attached recommendation for a Council Opinion on the updated stability programme of Luxembourg and is forwarding it to the Council.Recommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Luxembourg, 2004-2007THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,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, and in particular Article 5(3) thereof,Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:On [18 January] 2005 the Council examined the updated stability programme of Luxembourg, which covers the period 2004 to 2007. The update partly complies with the data requirements of the revised “code of conduct on the content and format of stability and convergence programmes”. In particular, some required data on the macroeconomic assumptions are missing.The update estimates real GDP growth at 4.4% in 2004, from 2.9% in 2003. In 2005 and 2006, growth is projected to decelerate to 3.8% and 3.3% respectively, before reaccelerating to 4.3% in 2007. On the basis of currently available information, this scenario seems to reflect plausible growth assumptions.The budgetary strategy underlying the update aims to slightly reduce the deficit to 1.0% of GDP in 2005 from the 1.4% of GDP estimated for 2004. In 2006 and 2007, the deficit would remain at the 2005 level with both revenues and expenditure projected to remain constant as a percentage of GDP. In cyclically-adjusted terms, the Commission services’ calculations according to the commonly agreed methodology project that a surplus, amounting to 0.3% of GDP, will emerge in 2005 and gradually rise to 2.0% of GDP in 2007, reflecting an estimated widening negative output gap. However, the estimates of output gaps and hence of cyclically-adjusted balances present unusually large margins of uncertainty in the case of Luxembourg, due to the very specific features of its economy, which calls for a very prudent use of such indicators. Over the time horizon covered, the ratio of public investment to GDP would remain broadly constant, at about 5% of GDP, which is well above the EU average.The risks to the budgetary projections in the programme appear broadly balanced. On the one hand, revenue projections in Luxembourg are traditionally cautious, and the 2004 budgetary outcome might be significantly better than currently estimated, which might perhaps entail a favourable base effect for the remaining years of the programme. On the other hand, the programme projects a slowdown in the rise in public spending, which has been particularly rapid in recent years, without detailing the measures that should help achieve this. The budgetary stance in the programme seems to provide a sufficient safety margin against breaching the 3% of GDP deficit threshold with normal cyclical fluctuations. It also seems sufficient to achieve the Stability and Growth Pact’s medium-term objective of a position close to balance within the programme period (from 2005) in cyclically-adjusted terms.The debt ratio is extremely low and is even forecast to decline somewhat over the time horizon covered by the update, from 5.0% of GDP in 2004 to 4.5% of GDP in 2007. The total net asset position is even more favourable due to the substantial financial assets, estimated at about 50% of GDP, accumulated over past years through fiscal surpluses.Luxembourg appears to be in a favourable position with regard to the long-term sustainability of its public finances. The large net positive asset position can be expected to offset at least in part the future costs of ageing. However, the ratio between contributors to and beneficiaries of the pension system will deteriorate, even under a favourable scenario whereby employment growth keeps up with the exceptional rates recorded in the last two decades. Therefore, some restraint is called for in order to ensure that government spending remains in line with revenue and that the policy of accumulating reserves can be maintained, together with the adoption of measures aiming at raising the currently low employment rate of residents, especially older onesKey projections from the updated stability programme of Luxembourg2003 | 2004 | 2005 | 2006 | 2007 |Real GDP growth (%) HICP inflation (%) General government balance (% of GDP) Primary balance (% of GDP) Cyclically-adjusted balance (% of GDP)1 Government gross debt (% of GDP) | 2.9 2.5 +0.8 +1.0 +1.4 5.3 | 4.4 2.6 -1.4 -1.2 -0.7 5.0 | 3.8 3.2 -1.0 -0.9 +0.3 5.0 | 3.3 1.5 -0.9 -0.8 +1.4 4.6 | 4.3 1.7 -1.0 -0.9 +2.0 4.5 |1 Commission services calculations applying the commonly agreed methodology to the information in the programme |[1] OJ L 209, 2.8.1997. All the documents referred to in this text can be found at the following website: http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm.[2] OJ C 124, 5.5.1999.[3] Revised Opinion of the Economic and Financial Committee on the content and format of stability and convergence programmes, endorsed by the ECOFIN Council on 10.7.2001.[4] COM(2002) 668 final, 27.11.2002.