               EUROPEAN COMMISSION
            Brussels, 2.6.2021
            COM(2021) 510 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            delivering a Council opinion on the 2021 Stability Programme of France
            {SWD(2021) 501 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               delivering a Council opinion on the 2021 Stability Programme of France

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union,

               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(2) thereof,

               Having regard to the Recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               After consulting the Economic and Financial Committee,

               Whereas:

               (1)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause
                  2
                of the Stability and Growth Pact.
                  3
                In its Communication, the Commission set out its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the conditions to activate the general escape clause were met. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The general escape clause has granted Member States budgetary flexibility to deal with the crisis. It has facilitated the coordination of budgetary policies in times of severe economic downturn. Its activation allows for a temporary departure from the adjustment path towards the medium-term budgetary objective of each Member State, provided this does not endanger fiscal sustainability in the medium term. On 17 September 2020, in its Annual Sustainable Growth Strategy, the Commission announced that the general escape clause would remain active in 2021.
                  4

               (2)On 20 July 2020, the Council recommended France
                  5
                to take all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended France to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment.

               (3)The Council Recommendation on the economic policy of the euro area indicates that fiscal policies remain supportive in all euro area Member States throughout 2021 and that policy measures should be tailored to country-specific circumstances and be timely, temporary and targeted.
                  6
                When the epidemiological and economic conditions allow, emergency measures should be phased out, while combatting the social and labour-market impact of the crisis. Fiscal policies should be pursued that are aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Member States should pursue reforms that strengthen the coverage, adequacy, and sustainability of health and social protection systems for all.

               (4)On 18 November 2020, the Commission adopted its Opinions on the 2021 Draft Budgetary Plans of the euro area Member States, which were based on a qualitative assessment of the fiscal measures. The Commission was of the opinion that the Draft Budgetary Plan of France was overall in line with the fiscal policy recommendations adopted by the Council on 20 July 2020, and that most of the measures included in the plan supported economic activity against the background of considerable uncertainty. However, some measures did not appear to be temporary or matched by offsetting measures.

               (5)Next Generation EU, including the Recovery and Resilience Facility, will ensure a sustainable, inclusive and fair recovery. Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility
                  7
                came into force on 19 February 2021. This Facility will provide financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the EU. It will contribute to the economic recovery, to the implementation of sustainable and growth-enhancing reforms and investment, notably to promote the green and digital transitions, and it will strengthen the economies’ resilience and potential growth. In turn, it will also help public finances to return to more favourable positions in the near term and will contribute to strengthening sustainable public finances, growth and job creation in the medium and long term.

               (6)On 3 March 2021, the Commission adopted a Communication providing further policy orientations to facilitate the coordination of fiscal policies and the preparation of Member States’ Stability and Convergence Programmes.
                  8
                The overall fiscal stance, taking into account national budgets and the Recovery and Resilience Facility, should remain supportive in 2021 and 2022. At the same time, given the expectation of economic activity gradually normalising in the second half of 2021, Member States’ fiscal policies should become more differentiated in 2022. Member States’ fiscal policies should take into account the state of the recovery, fiscal sustainability and the need to reduce economic, social and territorial divergences. In view of the need to support a sustainable recovery for the EU, Member States with low sustainability risks should gear their budgets towards maintaining a supportive fiscal policy in 2022, taking into account the impact of the Recovery and Resilience Facility. Member States with high debt levels should pursue prudent fiscal policies, while preserving nationally-financed investment and making use of grants under the Recovery and Resilience Facility to fund additional high-quality investment projects and structural reforms. For the period beyond 2022, fiscal policies should continue to take into account the strength of the recovery, the degree of economic uncertainty and fiscal sustainability considerations. A refocusing of fiscal policies towards achieving prudent medium-term fiscal positions, including by phasing out support measures in due course, will contribute to ensuring fiscal sustainability in the medium term.

               (7)The Communication of 3 March 2021 also announced the Commission’s view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as key quantitative criterion. On the basis of the Commission’s 2021 spring forecast, on 2 June the Commission considered that the conditions to continue to apply the general escape clause in 2022 and to deactivate it as of 2023 were met. Country-specific situations will continue to be taken into account after the deactivation of the general escape clause.
                  9

               (8)On 30 April 2021, France submitted its 2021 Stability Programme, in line with Article 4 of Regulation (EC) No 1466/97.

               (9)In 2020, based on data validated by Eurostat, France’s general government deficit was 9.2% of GDP, while general government debt increased to 115.7% of GDP. The annual change in the primary budget balance amounted to -6.2% of GDP, including discretionary budgetary measures of 3.3% in support of the economy and the operation of automatic stabilisers. France also provided liquidity support to companies and households (such as guarantees and tax deferrals, which do not have a direct and immediate budgetary impact) estimated at 17.4% of GDP.

               On 2 June 2021, the Commission issued a report under Article 126(3) TFEU. This report discusses the budgetary situation of France, as its general government deficit in 2020 exceeded the 3% of GDP Treaty reference value, while its general government debt exceeded the 60% of GDP Treaty reference value and did not diminish at a satisfactory pace. The report concluded that the deficit criterion was not fulfilled and the debt criterion was not complied with.

               (10)The macroeconomic scenario underpinning the budgetary projections is cautious in 2021 and 2022. The Stability Programme projects GDP growth at 5% and 4% in 2021 and 2022 respectively, whereas the Commission expects GDP to expand by 5.7% and 4.2% in the same years. For 2021, the higher growth expected by the Commission is due to higher domestic and net exports contribution to growth than in the Programme. Specifically, the Commission envisages a less dynamic private consumption, whereas investment and exports are expected to expand more quickly than in the macroeconomic scenario in the Stability Programme. For 2022, the higher growth projected by the Commission is mainly due to a higher contribution of net exports to growth, whereas the overall contribution of domestic demand is set to be broadly similar to that in the Programme.

               (11)In its 2021 Stability Programme, the government plans a decrease in the general government deficit from 9.2% of GDP in 2020 to 9.0% of GDP in 2021, while the debt ratio is planned to increase to 117.8% of GDP in 2021. According to the programme, the change in the primary budget balance in 2021 compared with the pre-crisis level (2019) is set to amount to -6.2% of GDP, reflecting the discretionary budgetary measures of 4.0% of GDP in support of the economy and the operation of automatic stabilisers. These projections are in line with the Commission’s 2021 spring forecast.

               (12)In response to the COVID-19 pandemic and related economic downturn, France has adopted budgetary measures to strengthen the capacity of its health system, contain the pandemic and provide relief to those individuals and sectors that have been particularly affected. This forceful policy response has cushioned the contraction in GDP, which, in turn, curtailed the increase in government deficit and public debt. Fiscal measures should maximise support to the recovery without pre-empting future fiscal trajectories. Therefore, measures should avoid creating a permanent burden on public finances. When Member States introduce permanent measures, they should properly fund them to ensure budgetary neutrality in the medium term.  The measures taken by France in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021, and announced for 2022, do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP, mainly consisting of a permanent reduction in taxes on production, the increase of civil servant wages, mainly in the healthcare system as well as capital transfers. Those non-temporary measures also include investment of approximately ⅒% of GDP, which is expected to support medium-term potential growth, and thus sustainability.

               (13)The 2021 Stability Programme assumes investment and reforms financed by grants under the Recovery and Resilience Facility amounting to 0.7% of GDP in 2021 and 0.9% as of 2022. The Commission’s spring forecast includes in its budgetary projections estimated grants of 0.8% and 0.4% of GDP in 2021 and 2022, respectively.

               (14)The established indicators of fiscal adjustment set out in Regulation (EC) No 1466/97 need to be considered in the context of the current circumstances. First, there is significant uncertainty surrounding output gap estimates. Second, there is a need for fiscal policy to stand ready to rapidly adapt to the evolution of the pandemic, shifting from emergency relief to more targeted measures once health risks diminish. Third, the current context is characterised by a significant policy response to support economic activity. In the presence of sizeable transfers from the EU budget (such as those from the Recovery and Resilience Facility), the established indicators do not capture the full impulse provided by fiscal policies to the economy. Against this background, the structural balance does not appear adequate in the current circumstances. The expenditure benchmark, in turn, needs to be adapted
                  10
                and complemented with additional information in order to fully gauge the fiscal policy orientation.

               First, similarly to the approach pursed in the assessment of the 2021 Draft Budgetary Plans, temporary emergency measures have been excluded from the expenditure aggregate. These crisis-related temporary emergency measures support health systems and compensate workers and firms for the losses in income due to lockdowns and supply chain disruptions; their reversal by the public authorities is contingent on the return of the public health and economic situation to normality.

               Second, to assess the overall fiscal stance at the current juncture, the sizeable transfers from the EU budget (such as those from the Recovery and Resilience Facility) should be included in the relevant expenditure aggregate.

               Therefore, the fiscal stance is then measured by the change in primary expenditure (net of discretionary revenue measures and excluding crisis-related temporary emergency measures) including expenditure financed by grants under the Recovery and Resilience Facility and other EU funds.

               Going beyond the overall fiscal stance, the analysis also aims at assessing whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions. For that reason, particular attention is paid to the evolution of nationally financed primary current expenditure and investment.

               (15)In its 2021 Stability Programme, France’s general government deficit is planned to decrease to 5.3% of GDP in 2022, mainly due to a discontinuation of the temporary support measures adopted in 2020 and 2021. The general government debt ratio is planned to decrease to 116.3 % of GDP in 2022. While the debt projection is in line with the Commission’ 2021 spring forecast, the deficit projection is above the Commission forecast, mainly due to the lower deficit expected by the Commission in 2021 and the slightly less favourable macroeconomic scenario in the Programme.

               Based on the Commision’s forecast, the overall fiscal stance as defined above – also including the impact on aggregate demand in 2022 from investment financed by both the national and the EU budgets, notably the Recovery and Resilience Facility – is estimated to be neutral
                  11
               . The positive contribution of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to  decrease by 0.3 percentage points of GDP. Nationally financed investment is projected to provide an expansionary contribution of 0.2 percentage points of GDP.
                  12
                Nationally financed primary current expenditure (net of discretionary revenue measures) is projected to provide an expansionary contribution of 0.2 percentage points of GDP.

               (16)The quality of Member States’ budgetary measures appear particularly important. Fiscal structural reforms aimed at improving the composition of national budgets can support potential growth, create much-needed fiscal space and help ensuring fiscal sustainability over the longer term, including in view of climate change and health challenges. On the revenue side, the COVID-19 crisis has reinforced the importance of reforms for more efficient and fairer public revenue systems. On the expenditure side, it has made even more crucial to increase the level and quality of sustainable and growth-enhancing investments, consistent with serving the objectives of enhancing growth potential, economic and social resilience and the green and digital twin transition. The Recovery and Resilience Plans will allow improving the composition of national budgets.

               (17)According to the programme’s medium-term budgetary plans, the general government deficit is planned to decrease from 4.4% in 2023, to 3.9% in 2024, 3.5% in 2025, 3.2% in 2026. The general government deficit is planned to no longer exceed 3% of GDP in 2027 when it will reach 2.8% of GDP.

               Based on the programme, the overall fiscal stance – also including the impact on aggregate demand from investment financed by both the national and the EU budgets, notably the Recovery and Resilience Facility – is estimated at 0.4% of GDP in 2023 and 2024 on average. The programme does not include the information required to estimate the contributions of EU-financed expenditure, nationally financed investment and nationally financed primary current expenditure to the overall fiscal stance.

               The current estimate of the 10-year average nominal potential growth is 2 ¼ %
                  13
               . However, this estimate does not include the impact of the reforms that are part of the Recovery and Resilience Plan and can boost France’s potential growth.

               (18)The general government debt ratio is planned to increase from 117.2% of GDP in 2023 to 118.0% in 2024 and to 118.3% of GDP in 2025, before reducing to 118.2% and 117.7% of GDP in 2026 and 2027, respectively. In light of the high debt ratio, which is projected to only gradually fall over time, France is considered to face high fiscal sustainability risks over the medium term, as per the latest debt sustainability analysis
                  14
               .

               (19)In view of the currently still exceptionally high degree of uncertainty, the fiscal policy guidance should remain predominantly qualitative. More precise quantified guidance for the later years should be provided in 2022, if the degree of uncertainty has sufficiently declined by then.

               The Council has assessed the 2021 Stability Programme and the follow-up by France to the Council Recommendation of 20 July 2020.

               HEREBY RECOMMENDS FRANCE TO:

               1.In 2022, use the Recovery and Resilience Facility to finance additional investment in support of the recovery while pursuing a prudent fiscal policy. Preserve nationally financed investment.

               2.When economic conditions allow, pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term. At the same time, enhance investment to boost growth potential.

               3.Pay particular attention to the composition of public finances, both on the revenue and expenditure sides of the budget, and to the quality of budgetary measures, to ensure a sustainable and inclusive recovery. Prioritise sustainable and growth-enhancing investment, notably supporting the green and digital transition. Give priority to fiscal structural reforms that will help provide financing for public policy priorities and contribute to the long-term sustainability of public finances, including by strengthening the coverage, adequacy, and sustainability of health and social protection systems for all.

               Done at Brussels, 2.6.2021

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn.

                     (3)

                        Communication from the Commission to the Council on the activation of the general escape clause of   the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final.

                     (4)

                        Communication from the Commission on Annual Sustainable Growth Strategy 2021, Brussels, 17.9.2020, COM(2020) 575 final.

                     (5)

                        Council Recommendation of 20 July 2020 on the National Reform Programme of France and delivering a Council opinion on the 2020 Stability Programme of France, OJ C 282, 26.8.2020, p. 62.

                     (6)

                        Pending final adoption by the Council, after endorsement by the European Council. The text agreed by the Eurogroup on 16 December 2020 is available at: https://data.consilium.europa.eu/doc/document/ST-14356-2020-INIT/en/pdf

                     (7)

                     OJ
                      L57, 18.2.2021, p.17.

                     (8)

                        Communication from the Commission to the Council on one year since the outbreak of COVID-19: fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final.

                     (9)

                        Communication from the Commission on Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy, Brussels, 2.6.2021, COM(2021)500 final.

                     (10)

                        In particular, the 4-year smoothing of investment used in the expenditure benchmark does not allow assessing properly the fiscal support to the recovery provided by nationally financed investments.

                     (11)

                        A negative sign of the indicator corresponds to an excess of the primary expenditure growth compared with medium-term economic growth, which indicates an expansionary fiscal policy.

                     (12)

                        Other nationally financed capital expenditure is projected to provide a neutral contribution.

                     (13)

                        Estimated by the Commission, following the commonly agreed methodology.

                     (14)

                        See Commission Staff Working Document – Statistical Annex providing background data relevant for the assessment of the 2021 Stability and Convergence Programmes


               EUROPEAN COMMISSION
            Brussels, 2.6.2021
            COM(2021) 503 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            delivering a Council opinion on the 2021 Convergence Programme of Czechia
            {SWD(2021) 501 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               delivering a Council opinion on the 2021 Convergence Programme of Czechia

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union,

               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,

               After consulting the Economic and Financial Committee,

               Whereas:

               (1)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause
                  2
                of the Stability and Growth Pact.
                  3
                In its Communication, the Commission set out its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the conditions to activate the general escape clause were met. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The general escape clause has granted Member States budgetary flexibility to deal with the crisis. It has facilitated the coordination of budgetary policies in times of severe economic downturn. Its activation allows for a temporary departure from the adjustment path towards the medium-term budgetary objective of each Member State, provided this does not endanger fiscal sustainability in the medium term. On 17 September 2020, in its Annual Sustainable Growth Strategy, the Commission announced that the general escape clause would remain active in 2021.
                  4

               (2)On 20 July 2020, the Council recommended Czechia
                  5
                to take all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended Czechia to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment.

               (3)Next Generation EU, including the Recovery and Resilience Facility, will ensure a sustainable, inclusive and fair recovery. Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility
                  6
                came into force on 19 February 2021. This Facility will provide financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the EU. It will contribute to the economic recovery, to the implementation of sustainable and growth-enhancing reforms and investment, notably to promote the green and digital transitions, and it will strengthen the economies’ resilience and potential growth. In turn, it will also help public finances to return to more favourable positions in the near term and will contribute to strengthening sustainable public finances, growth and job creation in the medium and long term.

               (4)On 3 March 2021, the Commission adopted a Communication providing further policy orientations to facilitate the coordination of fiscal policies and the preparation of Member States’ Stability and Convergence Programmes.
                  7
                The overall fiscal stance, taking into account national budgets and the Recovery and Resilience Facility, should remain supportive in 2021 and 2022. At the same time, given the expectation of economic activity gradually normalising in the second half of 2021, Member States’ fiscal policies should become more differentiated in 2022. Member States’ fiscal policies should take into account the state of the recovery, fiscal sustainability and the need to reduce economic, social and territorial divergences. In view of the need to support a sustainable recovery for the EU, Member States with low sustainability risks should gear their budgets towards maintaining a supportive fiscal policy in 2022, taking into account the impact of the Recovery and Resilience Facility. Member States with high debt levels should pursue prudent fiscal policies, while preserving nationally financed investment and making use of grants under the Recovery and Resilience Facility to fund additional high-quality investment projects and structural reforms. For the period beyond 2022, fiscal policies should continue to take into account the strength of the recovery, the degree of economic uncertainty and fiscal sustainability considerations. A refocusing of fiscal policies towards achieving prudent medium-term fiscal positions, including by phasing out support measures in due course, will contribute to ensuring fiscal sustainability in the medium term.

               (5)The Communication of 3 March 2021 also announced the Commission’s view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as key quantitative criterion. On the basis of the Commission’s 2021 spring forecast, on 2 June the Commission considered that the conditions to continue to apply the general escape clause in 2022 and to deactivate it as of 2023 were met. Country-specific situations will continue to be taken into account after the deactivation of the general escape clause.
                  8

               (6)On 30 April 2021, Czechia submitted its 2021 Convergence Programme, in line with Article 8 of Regulation (EC) No 1466/97.

               (7)In 2020, based on data validated by Eurostat, Czechia’s general government deficit was 6.2% of GDP, while general government debt increased to 38.1% of GDP. The annual change in the primary budget balance amounted to -6.4% of GDP, including discretionary budgetary measures of 4.6% in support of the economy and the operation of automatic stabilisers. Czechia also provided liquidity support to companies and households (such as guarantees and tax deferrals, which do not have a direct and immediate budgetary impact), estimated at 6.2% of GDP.

               On 2 June 2021, the Commission issued a report under Article 126(3) TFEU. This report discusses the budgetary situation of Czechia, as its general government deficit in 2020 exceeded the 3% of GDP Treaty reference value. The report concluded that the deficit criterion was not fulfilled.

               (8)The macroeconomic scenario underpinning the budgetary projections is realistic in 2021 and cautious in 2022. The Commission projection is slightly more optimistic in terms of real GDP growth for 2021 (3.4% compared to 3.1% in the Convergence Programme) and it is more optimistic for 2022 (4.4% compared to 3.7% in the Convergence Programme), as the Commission expects higher private consumption growth in 2021 and higher gross fixed capital formation in 2022.

               (9)In its 2021 Convergence Programme, the government plans an increase in the general government deficit from 6.2% of GDP in 2020 to 8.8% of GDP in 2021, while the debt ratio is planned to increase to 44.8% of GDP in 2021. According to the programme, the change in the primary budget balance in 2021 compared with the pre-crisis level (2019) is set to amount to -9.0% of GDP, reflecting the discretionary budgetary measures of 6.5% of GDP in support of the economy and the operation of automatic stabilisers. These projections are in line with the Commission’s 2021 spring forecast.

               (10)In response to the COVID-19 pandemic and related economic downturn, Czechia has adopted budgetary measures to strengthen the capacity of its health system, contain the pandemic and provide relief to those individuals and sectors that have been particularly affected. This forceful policy response has cushioned the contraction in GDP, which, in turn, curtailed the increase in government deficit and public debt. Fiscal measures should maximise support to the recovery without pre-empting future fiscal trajectories. Therefore, measures should avoid creating a permanent burden on public finances. When Member States introduce permanent measures, they should properly fund them to ensure budgetary neutrality in the medium term. The measures taken by Czechia in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 2% of GDP, mainly consisting of reductions in the revenues from Personal Income Tax with an impact of 1.9% of GDP.

               (11)The 2021 Convergence Programme assumes investment and reforms financed by grants under the Recovery and Resilience Facility amounting to 0.3% of GDP in 2021, 0.7% of GDP in 2022 and 0.7% of GDP in 2023. The Commission’s spring forecast includes these grants in its budgetary projections.

               (12)The established indicators of fiscal adjustment set out in Regulation (EC) No 1466/97 need to be considered in the context of the current circumstances. First, there is significant uncertainty surrounding output gap estimates. Second, there is a need for fiscal policy to stand ready to rapidly adapt to the evolution of the pandemic, shifting from emergency relief to more targeted measures once health risks diminish. Third, the current context is characterised by a significant policy response to support economic activity. In the presence of sizeable transfers from the EU budget (such as those from the Recovery and Resilience Facility), the established indicators do not capture the full impulse provided by fiscal policies to the economy. Against this background, the structural balance does not appear adequate in the current circumstances. The expenditure benchmark, in turn, needs to be adapted
                  9
                and complemented with additional information in order to fully gauge the fiscal policy orientation.

               First, similarly to the approach pursed in the assessment of the 2021 Draft Budgetary Plans, temporary emergency measures have been excluded from the expenditure aggregate. These crisis-related temporary emergency measures support health systems and compensate workers and firms for the losses in income due to lockdowns and supply chain disruptions; their reversal by the public authorities is contingent on the return of the public health and economic situation to normality.

               Second, to assess the overall fiscal stance at the current juncture, the sizeable transfers from the EU budget (such as those from the Recovery and Resilience Facility) should be included in the relevant expenditure aggregate.

               Therefore, the fiscal stance is then measured by the change in primary expenditure (net of discretionary revenue measures and excluding crisis-related temporary emergency measures) including expenditure financed by grants under the Recovery and Resilience Facility and other EU funds.

               Going beyond the overall fiscal stance, the analysis also aims at assessing whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions. For that reason, particular attention is paid to the evolution of nationally financed primary current expenditure and investment.

               (13)In its 2021 Convergence Programme, Czechia’s general government deficit is planned to decrease to 5.9% of GDP in 2022, mainly due to a discontinuation of the temporary support measures adopted in 2020 and 2021 and due to the economic recovery. The general government debt ratio is planned to increase to 48.2% of GDP in 2022. These projections are in line with the Commission’s 2021 spring forecast.

               Based on the Commision’s forecast, the overall fiscal stance as defined above – also including the impact on aggregate demand in 2022 from investment financed by both the national and the EU budgets, notably the Recovery and Resilience Facility – is estimated at – 0.2% of GDP
                  10
               . The positive contribution of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to increase by  0.5 percentage points of GDP. Nationally financed investment is projected to provide a contractionary contribution of 0.3 percentage points of GDP.
                  11
                Nationally financed primary current expenditure (net of discretionary revenue measures) is projected to provide a neutral contribution.

               (14)The quality of Member States’ budgetary measures appears particularly important. Fiscal structural reforms aimed at improving the composition of national budgets can support potential growth, create much-needed fiscal space and help ensuring fiscal sustainability over the longer term, including in view of climate change and health challenges. On the revenue side, the COVID-19 crisis has reinforced the importance of reforms for more efficient and fairer public revenue systems. On the expenditure side, it is even more crucial to increase the level and quality of sustainable and growth-enhancing investments, consistent with serving the objectives of enhancing growth potential, economic and social resilience and the green and digital twin transition. The Recovery and Resilience Plans will allow to improve the composition of national budgets.

               (15)According to the programme’s medium-term budgetary plans, the general government deficit is planned to decrease from 5.4% in 2023, to 5.2% of GDP in 2024. The general government deficit is not planned to return below 3% of GDP over the programme’s horizon.

               Based on the programme, the overall fiscal stance – also including the impact on aggregate demand from investment financed by both the national and the EU budgets, notably the Recovery and Resilience Facility – is estimated at +1.2% of GDP in 2023 and 2024 on average. The positive contribution of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to decrease by 0.3 percentage points of GDP. Nationally financed investment is projected to provide a contractionary contribution of 0.1 percentage points of GDP.
                  12
                Nationally financed primary current expenditure (net of discretionary revenue measures) is projected to provide a contractionary contribution of 0.8 percentage points of GDP.

               The current estimate of the 10-year average nominal potential growth is 4¼%.
                  13
                However, this estimate does not include the impact of the reforms that are part of the Recovery and Resilience Plan and can boost Czechia’s potential growth.

               (16)The general government debt ratio is planned to increase from 51.5% of GDP in 2023 to 54.6% of GDP in 2024 according to the Convergence Programme. Czechia is considered to face medium fiscal sustainability risks over the medium term, as per the latest debt sustainability analysis.
                  14

               (17)In view of the currently still exceptionally high degree of uncertainty, the fiscal policy guidance should remain predominantly qualitative. More precise quantified guidance for the later years should be provided in 2022, if the degree of uncertainty has sufficiently declined by then.

               The Council has assessed the 2021 Convergence Programme and the follow-up by Czechia to the Council Recommendation of 20 July 2020.

               HEREBY RECOMMENDS CZECHIA TO:

               1.In 2022, maintain a supportive fiscal stance, including the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment.

               2.When economic conditions allow, pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term. At the same time, enhance investment to boost growth potential.

               3.Pay particular attention to the composition of public finances, both on the revenue and expenditure sides of the budget, and to the quality of budgetary measures, to ensure a sustainable and inclusive recovery. Prioritise sustainable and growth-enhancing investment, notably supporting the green and digital transition. Give priority to fiscal structural reforms that will help provide financing for public policy priorities and contribute to the long-term sustainability of public finances, including by strengthening the coverage, adequacy, and sustainability of health and social protection systems for all.

               Done at Brussels, 2.6.2021

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn.

                     (3)

                        Communication from the Commission to the Council on the activation of the general escape clause of   the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final.

                     (4)

                        Communication from the Commission on Annual Sustainable Growth Strategy 2021, Brussels, 17.9.2020, COM(2020) 575 final.

                     (5)

                        Council Recommendation of 20 July 2020 on the National Reform Programme of Czechia and delivering a Council opinion on the 2020 Convergence Programme of Czechia, OJ C 282, 26.8.2020, p. 15.

                     (6)

                     OJ
                      L57, 18.2.2021, p.17.

                     (7)

                        Communication from the Commission to the Council on one year since the outbreak of COVID-19: fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final.

                     (8)

                        Communication from the Commission on Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy, Brussels, 2.6.2021, COM(2021)500 final.

                     (9)

                        In particular, the 4-year smoothing of investment used in the expenditure benchmark does not allow assessing properly the fiscal support to the recovery provided by nationally financed investments.

                     (10)

                        A negative sign of the indicator corresponds to an excess of the primary expenditure growth compared with medium-term economic growth, which indicates an expansionary fiscal policy.

                     (11)

                        Other nationally financed capital expenditure is projected to provide a neutral contribution.

                     (12)

                        Other nationally financed capital expenditure is projected to provide a neutral contribution.

                     (13)

                        Estimated by the Commission, following the commonly agreed methodology.

                     (14)

                        See Commission Staff Working Document – Statistical Annex providing background data relevant for the assessment of the 2021 Stability and Convergence Programmes


               EUROPEAN COMMISSION
            Brussels, 2.6.2021
            COM(2021) 504 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            delivering a Council opinion on the 2021 Convergence Programme of Denmark
            {SWD(2021) 501 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               delivering a Council opinion on the 2021 Convergence Programme of Denmark

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union,

               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,

               After consulting the Economic and Financial Committee,

               Whereas:

               (1)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause
                  2
                of the Stability and Growth Pact.
                  3
                In its Communication, the Commission set out its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the conditions to activate the general escape clause were met. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The general escape clause has granted Member States budgetary flexibility to deal with the crisis. It has facilitated the coordination of budgetary policies in times of severe economic downturn. Its activation allows for a temporary departure from the adjustment path towards the medium-term budgetary objective of each Member State, provided this does not endanger fiscal sustainability in the medium term. On 17 September 2020, in its Annual Sustainable Growth Strategy, the Commission announced that the general escape clause would remain active in 2021.
                  4

               (2)On 20 July 2020, the Council recommended Denmark
                  5
                to take all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended Denmark to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment.

               (3)Next Generation EU, including the Recovery and Resilience Facility, will ensure a sustainable, inclusive and fair recovery. Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility
                  6
                came into force on 19 February 2021. This Facility will provide financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the EU. It will contribute to the economic recovery, to the implementation of sustainable and growth-enhancing reforms and investment, notably to promote the green and digital transitions, and it will strengthen the economies’ resilience and potential growth. In turn, it will also help public finances to return to more favourable positions in the near term and will contribute to strengthening sustainable public finances, growth and job creation in the medium and long term.

               (4)On 3 March 2021, the Commission adopted a Communication providing further policy orientations to facilitate the coordination of fiscal policies and the preparation of Member States’ Stability and Convergence Programmes.
                  7
                The overall fiscal stance, taking into account national budgets and the Recovery and Resilience Facility, should remain supportive in 2021 and 2022. At the same time, given the expectation of economic activity gradually normalising in the second half of 2021, Member States’ fiscal policies should become more differentiated in 2022. Member States’ fiscal policies should take into account the state of the recovery, fiscal sustainability and the need to reduce economic, social and territorial divergences. In view of the need to support a sustainable recovery for the EU, Member States with low sustainability risks should gear their budgets towards maintaining a supportive fiscal policy in 2022, taking into account the impact of the Recovery and Resilience Facility. Member States with high debt levels should pursue prudent fiscal policies, while preserving nationally-financed investment and making use of grants under the Recovery and Resilience Facility to fund additional high-quality investment projects and structural reforms. For the period beyond 2022, fiscal policies should continue to take into account the strength of the recovery, the degree of economic uncertainty and fiscal sustainability considerations. A refocusing of fiscal policies towards achieving prudent medium-term fiscal positions, including by phasing out support measures in due course, will contribute to ensuring fiscal sustainability in the medium term.

               (5)The Communication of 3 March 2021 also announced the Commission’s view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as key quantitative criterion. On the basis of the Commission’s 2021 spring forecast, on 2 June the Commission considered that the conditions to continue to apply the general escape clause in 2022 and to deactivate it as of 2023 were met. Country-specific situations will continue to be taken into account after the deactivation of the general escape clause.
                  8

               (6)On 29 April 2021, Denmark submitted its 2021 Convergence Programme, in line with Article 8 of Regulation (EC) No 1466/97.

               (7)In 2020, based on data validated by Eurostat, Denmark’s general government deficit was 1.1% of GDP, while general government debt increased to 42.2% of GDP. The annual change in the primary budget balance amounted to 5.1% of GDP, including discretionary budgetary measures of 2.8% of GDP in support of the economy and the operation of automatic stabilisers. Denmark also provided liquidity support to companies and households (such as guarantees and tax deferrals, which do not have a direct and immediate budgetary impact), estimated at 28.4% of GDP.

               On 2 June 2021, the Commission issued a report under Article 126(3) TFEU. This report discusses the budgetary situation of Denmark, as its general government deficit is planned to exceed the 3% of GDP Treaty reference value in 2021. The report concluded that the deficit criterion was fulfilled.

               (8)The macroeconomic scenario underpinning the Convergence Programme’s budgetary projections is cautious in 2021 and realistic in 2022. The 2021 Convergence Programme projects real GDP to grow by 2.1% in 2021 and 3.8% in 2022. By comparison, the Commission’s 2021 spring forecast projects real GDP growth of 2.9% in 2021 and 3.5% in 2022. The main differences are linked to assumptions about the development of the COVID-19 pandemic and related restrictions in 2021.

               (9)In its 2021 Convergence Programme, the government plans an increase of the general government deficit from -1.1% of GDP in 2020 to -3.3% of GDP in 2021, while the debt ratio is planned to decrease to 40.7% of GDP in 2021. According to the programme, the change in the primary budget balance in 2021 compared with the pre-crisis level (2019) is set to amount to -3.2% of GDP, reflecting the discretionary budgetary measures of 1.2% of GDP in support of the economy and the operation of automatic stabilisers. The Commission’s 2021 spring forecast projects a lower deficit in 2021 reflecting a stronger macroeconomic scenario and a more optimistic revenue forecast from pension yield tax.

               (10)In response to the COVID-19 pandemic and related economic downturn, Denmark has adopted budgetary measures to strengthen the capacity of its health system, contain the pandemic and provide relief to those individuals and sectors that have been particularly affected. This forceful policy response has cushioned the contraction in GDP, which, in turn, curtailed the increase in government deficit and public debt. Fiscal measures should maximise support to the recovery without pre-empting future fiscal trajectories. Therefore, measures should avoid creating a permanent burden on public finances. When Member States introduce permanent measures, they should properly fund them to ensure budgetary neutrality in the medium term. The measures taken by Denmark in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 were temporary or matched by offsetting measures.

               (11)The 2021 Convergence Programme assumes investment and reforms financed by grants under the Recovery and Resilience Facility amounting to 0.2% of GDP in 2021, 0.2% in 2022, 0.1% in 2023, 0.1% in 2024 and 0.03% in 2025. The Commission’s spring forecast includes these grants in its budgetary projections.

               (12)The established indicators of fiscal adjustment set out in Regulation (EC) No 1466/97 need to be considered in the context of the current circumstances. First, there is significant uncertainty surrounding output gap estimates. Second, there is a need for fiscal policy to stand ready to rapidly adapt to the evolution of the pandemic shifting from emergency relief to more targeted measures once health risks diminish. Third, the current context is characterised by a significant policy response to support economic activity. In the presence of sizeable transfers from the EU budget (such as those from the Recovery and Resilience Facility), the established indicators do not capture the full impulse provided by fiscal policies to the economy. Against this background, the structural balance does not appear adequate in the current circumstances. The expenditure benchmark, in turn, needs to be adapted
                  9
                and complemented with additional information in order to fully gauge the fiscal policy orientation.

               First, similarly to the approach pursed in the assessment of the 2021 Draft Budgetary Plans, temporary emergency measures have been excluded from the expenditure aggregate. These crisis-related temporary emergency measures support health systems and compensate workers and firms for the losses in income due to lockdowns and supply chain disruptions; their reversal by the public authorities is contingent on the return of the public health and economic situation to normality.

               Second, to assess the overall fiscal stance at the current juncture, the sizeable transfers from the EU budget (such as those from the Recovery and Resilience Facility) should be included in the relevant expenditure aggregate.

               Therefore, the fiscal stance is then measured by the change in primary expenditure (net of discretionary revenue measures and excluding crisis-related temporary emergency measures) including expenditure financed by grants under the Recovery and Resilience Facility and other EU funds.

               Going beyond the overall fiscal stance, the analysis also aims at assessing whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions. For that reason, particular attention is paid to the evolution of nationally financed primary current expenditure and investment.

               (13)In its 2021 Convergence Programme, Denmark’s general government deficit is planned to decrease to 0.9% of GDP in 2022, mainly due to a discontinuation of the temporary support measures adopted in 2020 and 2021. The general government debt ratio is planned to increase to 41.3% of GDP in 2022. These projections are in line with the Commission’s 2021 spring forecast.

               Based on the Commission’s forecast, the overall fiscal stance as defined above – also including the impact on aggregate demand in 2022 from investment financed by both the national and the EU budgets, notably the Recovery and Resilience Facility – is estimated at +1.6 of GDP
                  10
               . The positive contribution of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to remain unchanged. Nationally financed investment is projected to provide a neutral contribution.
                  11
                Nationally financed primary current expenditure (net of discretionary revenue measures) is projected to provide a contractionary contribution of 1.0 percentage points of GDP.

               (14)The quality of Member States’ budgetary measures appears particularly important. Fiscal structural reforms aimed at improving the composition of national budgets can support potential growth, create much-needed fiscal space and help ensuring fiscal sustainability over the longer term, including in view of climate change and health challenges. On the revenue side, the COVID-19 crisis has reinforced the importance of reforms for more efficient and fairer public revenue systems. On the expenditure side, it has made even more crucial to increase the level and quality of sustainable and growth-enhancing investments, consistent with serving the objectives of enhancing growth potential, economic and social resilience and the green and digital twin transition. The Recovery and Resilience Plans will allow to improve the composition of national budgets.

               (15)According to the programme’s medium-term budgetary plans, the general government deficit is planned to decrease from 0.7% of GDP in 2023 to 0.6% of GDP in 2024 and to reach a balance in 2025.

               Based on the programme, the overall fiscal stance – also including the impact on aggregate demand from investment financed by both the national and the EU budgets, notably the Recovery and Resilience Facility – is estimated at 0.2% of GDP in 2023 and 2024 on average. The positive contribution of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to decrease by 0.1 percentage point of GDP. Nationally financed investment is projected to provide a contractionary contribution of 0.1 percentage point of GDP.
                  12
                Nationally financed primary current expenditure (net of discretionary revenue measures) is projected to provide a neutral contribution.

               The current estimate of the 10-year average nominal potential growth is 3 ½ %
                  13
               . However, this estimate does not include the impact of the reforms that are part of the Recovery and Resilience Plan and can boost Denmark’s potential growth.

               (16)The general government debt ratio is planned in the Convergence programme to decrease from 41.6% of GDP in 2023 to 41.3% of GDP in 2024. Denmark is considered to face low fiscal sustainability risks over the medium term, as per the latest debt sustainability analysis.
                  14

               (17)In view of the currently still exceptionally high degree of uncertainty, the fiscal policy guidance should remain predominantly qualitative. More precise quantified guidance for the later years should be provided in 2022, if the degree of uncertainty has sufficiently declined by then.

               The Council has assessed the 2021 Convergence Programme and the follow-up by Denmark to the Council Recommendation of 20 July 2020.

               HEREBY RECOMMENDS DENMARK TO:

               1.In 2022, maintain a supportive fiscal stance, including the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment.

               2.When economic conditions allow, pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term. At the same time, enhance investment to boost growth potential.

               3.Pay particular attention to the composition of public finances, both on the revenue and expenditure sides of the budget, and to the quality of budgetary measures, to ensure a sustainable and inclusive recovery. Prioritise sustainable and growth-enhancing investment, notably supporting the green and digital transition. Give priority to fiscal structural reforms that will help provide financing for public policy priorities and contribute to the long-term sustainability of public finances, including by strengthening the coverage, adequacy, and sustainability of health and social protection systems for all.

               Done at Brussels, 2.6.2021

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn.

                     (3)

                        Communication from the Commission to the Council on the activation of the general escape clause of   the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final.

                     (4)

                        Communication from the Commission on Annual Sustainable Growth Strategy 2021, Brussels, 17.9.2020, COM(2020) 575 final.

                     (5)

                        Council Recommendation of 20 July 2020 on the National Reform Programme of Denmark and delivering a Council opinion on the 2020 Convergence Programme of Denmark, OJ C 282, 26.8.2020, p. 22.

                     (6)

                     OJ
                      L57, 18.2.2021, p.17.

                     (7)

                        Communication from the Commission to the Council on one year since the outbreak of COVID-19: fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final.

                     (8)

                        Communication from the Commission on Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy, Brussels, 2.6.2021, COM(2021)500 final

                     (9)

                        In particular, the 4-year smoothing of investment used in the expenditure benchmark does not allow assessing properly the fiscal support to the recovery provided by nationally financed investments.

                     (10)

                        A negative sign of the indicator corresponds to an excess of the primary expenditure growth compared with medium-term economic growth, which indicates an expansionary fiscal policy.

                     (11)

                        Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0.6 percentage points of GDP.

                     (12)

                        Other nationally financed capital expenditure is projected to provide a neutral contribution.

                     (13)

                        Estimated by the Commission, following the commonly agreed methodology.

                     (14)

                        See Commission Staff Working Document – Statistical Annex providing background data relevant for the assessment of the 2021 Stability and Convergence Programmes


               EUROPEAN COMMISSION
            Brussels, 16.3.2021
            COM(2021) 119 final
            Recommendation for a
            COUNCIL DECISION
            authorising the opening of negotiations to amend the International Cocoa Agreement 2010

               EXPLANATORY MEMORANDUM

               The present recommendation concerns a decision authorising the Commission to engage on behalf of the Union in the negotiations to partially review the International Cocoa Agreement (“ICA”)
                  1
                that the International Cocoa Council (“ICC”) decided to launch, under the guidance of the United Nations Conference on Trade and Development (UNCTAD).

               1.CONTEXT OF THE PROPOSAL

               Review of the International Cocoa Agreement 2010

                  The European Union is a party to the ICA
                     2
                  .

                  The ICA aims to ensure enhanced international cooperation in connection with world cocoa matters and related issues, provide a forum for intergovernmental consultations on cocoa and on ways to improve the world cocoa economy, to facilitate trade by collecting and providing information on the world cocoa market and to encourage increased demand for cocoa.

                  The ICA provisionally entered into force on 1 October 2012 for a period of ten years until 30 September 2022.

                  According to Article 7 of the ICA, the ICC is the responsible body for the performance of all functions necessary to carry out the provisions of the ICA. Article 12 of the ICA stipulates that all decisions of the ICC shall be taken in principle by consensus unless stipulated otherwise in the ICA. In the absence of consensus, decisions shall be made by a special vote.

                  According to Article 10 of the ICA, Members to the International Cocoa Organization (ICCO) hold 2000 votes in total. Each Member to the ICCO holds a specified number of votes, which is annually adjusted following predefined criteria in the ICA. The Agreement and especially the distribution of votes among Members also determine a Member's contribution. Currently, the Union is the largest contributor to the ICCO budget by far.

                  The ICC opened negotiations in order to be able to decide on a possible extension of the validity of the ICA before the current deadline. These negotiations will be the right opportunity to review partially the ICA focusing on its modernisation and simplification.

                  The Commission guidelines to recommended changes are set out in the Annex.

                  Bringing reform to the ICA to further align it with the practices the Union fosters in other international commodity boards, as well as with developments in the global cocoa market since 2010, is clearly in the interest of the Union. This has been regularly outlined during the last ICC sessions in 2019-2020 where EU Member States also participated.

                  The overall purpose of the ICA as outlined in Article 1 of the Agreement is not intended to change.

                  Two main changes are to be proposed in the revised ICA:

               ·To make sure that Members make all necessary efforts to accomplish a sustainable cocoa economy, taking into account the sustainable development principles contained, inter alia, in the United Nations 2030 Agenda for Sustainable Development adopted in New York in 2015.

               ·To agree that the revised ICA shall remain in force until terminated by Council.

               2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

               Legal basis

                  Article 218(3) of the Treaty on the Functioning of the European Union (TFEU) provides for authorising the opening of negotiations and, depending on the subject of the agreement envisaged, nominating the Union negotiator or the head of the Union's negotiating team. Article 218(4) TFEU provides for the Council to address directives to the negotiator and designate a special committee in consultation with which the negotiations must be conducted.

               Application to the present case

                  The envisaged negotiating directives should give the negotiator on behalf of the Union the means to achieve the overall objectives as set out under the point 1. They are outlined in the Annex.

                  The procedural legal basis for the proposed decision, therefore, is Article 218(3) and 218(4) TFEU.

               Conclusion

                  The legal basis of the proposed decision should be Article 218(3) and (4) TFEU.

               Subsidiarity (for non-exclusive competence)

                  The Union is a party to the ICA and is represented by the Commission in the ICC. Member States are not a separate party to the ICA. The Union's negotiation of the partial review of the ICA pertains to the exclusive competence of the Union.

               Proportionality

                  Reviewing the ICA in order to achieve an improved treaty leading to the modernisation of the Agreement is in the interest of the Union. Currently, the EU's participation in the ICCO is beneficial both to the Union and to other ICCO Member states. Modernising the Agreement is expected to attract more interest in the ICCO, potentially attracting new Members as well as increasing the relevance of its work.

               3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

               Stakeholder consultations

                  The Union is a Party to the ICA and its Membership is generally supported since 2010 by the cocoa sector in the EU as well as by most EU Member States. It is not deemed necessary to engage in stakeholder consultations regarding a process which merely aims to continue the Union's membership to the ICCO albeit under a set of rules that are in line with those of other international commodity bodies of which the EU is a member.

               Impact assessment

                  A full-fledged impact assessment is not necessary, since the measure is not likely to have significant economic, environmental or social impacts. The successful amendment of the ICA would result in a reformed governance considered as a key starting point for the modernisation of the ICA and should also result in a more active participation in the ICCO by its Members.

               4.BUDGETARY IMPLICATIONS

                  The opening of negotiations is not deemed to have a budgetary impact.

               Recommendation for a

               COUNCIL DECISION

               authorising the opening of negotiations to amend the International Cocoa Agreement 2010

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular

               Article 218(3) and (4) thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)The Union is a Party to the International Cocoa Agreement 2010 (“ICA”)
                  3
                and a member of the International Cocoa Organisation (“ICCO”)
                  4
               .

               (2)Pursuant to Article 7 of the ICA, the International Cocoa Council (“ICC”) performs or arranges for the performance of all such functions as are necessary to carry out the provisions of the ICA. Pursuant to Article 12 of the ICA, all decisions of the ICC are taken in principle by consensus. In the absence of consensus, decisions are made by a special vote.

               (3)Pursuant to Article 10 of the ICA, members of the ICCO hold 2000 votes in total in the ICC. Each member holds a specified number of votes which is adjusted annually in accordance with the criteria set out in Article 10 of the ICA.

               (4)It is in the Union's interests to participate in an international agreement on cocoa, considering the importance of that sector for a number of Member States and for the economy of the European cocoa sector.

               (5)A technical working group composed of ICCO Member States from both producing and exporting countries engaged in substantial work in order to present concrete proposals for the amendment of the ICA. All Members were invited to submit any suggestions to initiate this technical analysis. The EU did its part of this technical work. The ICC needs to open negotiations for a partial review of the ICA well before the deadline of the validity of the ICA, under the guidance of the United Nations Conference on Trade and Development (UNCTAD). Any areas of the ICA to be reviewed need to be the subject of formal negotiations. These negotiations are to be concluded no later than 30 September 2022, the end of the validity of the current ICA.

               (6)Any amendments agreed in these negotiations should be adopted in accordance with the procedure set out in Article 63 of the ICA. Pursuant to that Article, the ICC may, by consensus or if not by special vote, recommend an amendment of the ICA to the Contracting Parties of the ICA. The amendment becomes effective in accordance with Article 63(1) ICA, which requires the notification of acceptance from a certain percentage of Parties. As a member of the ICCO and Contracting Party to ICA, in accordance with Article 4 of the ICA, the Union should be able to participate in negotiations with a view to amending the institutional framework of the ICA.

               (7)It is therefore appropriate that the Commission be authorised to engage in negotiations for the partial review.

               HAS ADOPTED THIS DECISION:

               Article 1

               The Commission is hereby authorised to negotiate, on behalf of the Union, to amend the International Cocoa Agreement 2010.

               Article 2

               The negotiating directives are set out in the Annex.

               Article 3

               The negotiations shall be conducted in consultation with the Working Party on Commodities.

               Article 4

               This Decision is addressed to the Commission.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        United Nations, Treaty Series,
                  vol. 2871
                  , p.3

                     (2)

                        Council Decision of 17 May 2011 on the signing, on behalf of the European Union, and provisional application of the International Cocoa Agreement 2010; OJ L259 of 04/10/2011, p.7.

                     (3)

                        Council Decision of 17 May 2011 on the signing, on behalf of the European Union, and provisional application of the International Cocoa Agreement 2010; OJ L259 of 04/10/2011, p.7.

                     (4)

                        Established by the 1972 Cocoa Agreement: United Nations, Treaty Series , vol. 882, p. 67.

    ---documentbreak---

               EUROPEAN COMMISSION
            Brussels, 16.3.2021
            COM(2021) 119 final
            ANNEX
            to the
            Recommendation for a Council Decision
            authorising the opening of negotiations to amend the International Cocoa Agreement 2010

               ANNEX

               1.General negotiating guidelines

               Proposed amendments

               The recommendations for amendments to the International Cocoa Agreement (ICA 2010) drafted by the Working Group on the Review of the International Cocoa Agreement in 2019/2020 are welcome, as they follow the objectives put forward by the EU in International Commodity Bodies (ICBs).

               Negotiating Guidelines

               In line with the proposed amendments, the following general negotiating guidelines should apply:

               (1)The overall purpose of the ICA as outlined in Article 1 is not subject to change.

               (2)The ICA should be framed in accordance with overarching sustainability principles, to accomplish a sustainable cocoa economy. This includes:

               ·taking into account the sustainable development principles contained, inter alia, in the United Nations 2030 Agenda for Sustainable Development adopted in New York in 2015;

               ·taking into account the Paris Agreement on climate change and the nationally determined contributions (NDCs) of its Parties;

               ·pursuing the objective of ensuring that cocoa production is economically sustainable, by ensuring a living income to cocoa producers, which should provide for a decent income and a decent life;

               ·pursuing the objective of ensuring that cocoa production is environmentally sustainable, by preventing or halting deforestation and natural resource degradation;

               ·pursuing the objective of ensuring that cocoa production is socially sustainable, by ensuring the respect of human rights, and making progress towards zero child labour;

               ·and applying the sustainable development principles along the rest of the value chain.

               (3)The ICA shall remain into force until terminated by Members.

               Detailed negotiating Guidelines

               Preamble: to be possibly amended

               The preamble could include a reference not only to “decent income” but also to “living income”.

               Article 1(j): to be possibly amended

               Instead of “sufficient incomes”, refer to “decent incomes” in order to ensure coherence in the text with the definition of “decent income” in Article 2(21).

               Article 16(3): to be deleted

               “The position of the Executive Director shall rotate between candidate from an exporting Member and candidate from an importing Member.”

               Article 36: to be possibly amended

               “In the event of a predicted imbalance, the Council may suggest recommendations on how to mitigate the negative effects of the imbalance on primary producers. The measures must however not put competition out of play.”

               Article 42: to be possibly amended

               The commitment to improve living standards and working conditions is welcome. A more specific commitment to the fight against child labour could be added.

               Article 43: to be possibly amended

               A more specific commitment to the fight against deforestation, forest degradation and climate change could be added.


               EUROPEAN COMMISSION
            Brussels, 30.4.2021
            COM(2021) 220 final
            Recommendation for a
            COUNCIL DECISION
            authorising the opening of negotiations on behalf of the European Union for the conclusion of an Agreement between the European Union and the Faroe Islands on the general principles for the participation of the Faroe Islands in Union programmes and the association of the Faroe Islands to Horizon Europe – the Framework Programme for Research and Innovation (2021-2027)

               EXPLANATORY MEMORANDUM

               1.CONTEXT OF THE RECOMMENDATION

                  With this recommendation, the European Commission recommends that the Council of the European Union authorises the opening of negotiations between the European Union and the Faroe Islands on an agreement covering the participation of the Faroe Islands to any Union programme and on associating the Faroe Islands to Horizon Europe – the Union’s Framework Programme for Research and Innovation for the period 2021-2027.

               2.RELATIONS WITH THE FAROE ISLANDS

                  Formal relations between the EU and the Faroe Islands are currently based on separate bilateral agreements dealing with fisheries (1980), the trade in goods (1997), and Faroese participation in the Union framework programme for research and innovation (of 2010 and 2014, both agreements limited in duration to the duration of the respective Union FP). The Faroe Islands became formally associated to the Seventh Framework Programme (FP7) in 2010, and a range of European projects attest to the active involvement of Faroese researchers and institutes in areas such as environment, oceanology, climate change, ecosystems and fisheries management. Faroese association to the Eight Framework Programme - Horizon 2020  - as of 2014 gave researchers, research institutes and enterprises in the Faroe Islands full access to Union funding and collaborative activities for research and innovation on an equal footing with entities from Member States and other third countries that are also associated to Horizon 2020. This participation has become very important for the research community of the Faroe Islands, and represents an important new and successful pillar of the Faroese-EU relations. With the agreements on the association to the Union FP being limited in time to the duration of each subsequent EU programme, there is currently no international agreement in place regulating participation of Faroese entities in Horizon Europe or fostering the scientific, research and innovation cooperation between the EU and Faroese research communities.

               3.BACKGROUND - THE AGREEMENT COVERING THE PARTICIPATION OF THE FAROE ISLANDS TO ANY UNION PROGRAMME AND THE PROGRAMME-SPECIFIC PROVISIONS

                  On 14 May 2020, by a Letter of Intent, the Faroe Islands has expressed its formal interest to associate to Horizon Europe. Paragraph (1)(d) of Article [16] of the Horizon Europe Regulation concerning the association of third countries to the programme provides that third countries and other territories participate in the programme on the basis of an agreement covering the participation of the third country to any Union programme. The Faroe Islands fulfils the criteria for association of third countries to the Horizon Europe Framework Programme, as set forth by the Horizon Europe Regulation, notably, since it has a good capacity in science, technology and innovation; is committed to a rules-based open market economy, including fair and equitable dealing with intellectual property rights, respect of human rights, and backed by democratic institutions; and actively promotes policies to improve the economic and social well-being of their citizens.

                  In order to ensure the uninterrupted association of the Faroe Islands with the EU’s R&I Framework Programmes and to establish the general framework for its participation in any Union programme, it is recommended to authorise the opening of negotiations on an agreement with the following content:

               ·The general principles relevant for participation, to any Union programme, including financial contributions of the third country;

               ·Programme-specific terms and conditions regarding the association of the Faroe Islands to the Horizon Europe Framework Programme, subject to the terms and conditions therein.

                  The proposed agreement will set out the general conditions applicable for any eventual participation, to other the Union programmes, to be complemented with programme-specific terms and conditions, in the form of protocols to the agreement, which may be negotiated in the future should the two parties find it in their mutual interest.

                  Regarding the programme-specific terms and conditions providing for the association of the Faroe Islands to the Horizon Europe Framework Programme, they should provide for association to all parts of the Programme, except for the specific programme on defence research established by [Regulation …/…/EU Regulation of the European Parliament and of the Council establishing the European Defence Fund]. This will ensure the continuity of the previous full association to Horizon 2020, and its predecessor FP7 (the Faroe Islands have been fully associated to the Framework Programme in Research and Innovation since 2010). Whilst the structure and the dimension of the Faroese R&I system have resulted in a limited participation in Pillar I and III mono-beneficiary instruments (mainly SME instrument), a significant part of the EU contribution was going to collaborative actions under the previous Framework Programme. This participation has been assessed as beneficial to both parties, with a particular value-added in thematic areas such as environment, health and food, as well as ocean research. The Faroe Islands have been a net contributor to the last Framework Programmes by a significant margin. The proposed agreement will set out fair and balanced conditions concerning the financial contribution of the Faroe Islands. The agreement will also build on the Horizon 2020 experience and, as in the previous association agreement, include a reciprocity clause, ensuring that researchers and legal entities established in the Union have as far as possible access to participate to the Faroese research and innovation programmes that are equivalent to the Horizon Europe Framework Programme, in accordance with the conditions laid down in the domestic legislation of the Faroe Islands.

               4.LEGAL BASIS

                  The procedural legal basis for the recommended  decision is paragraph (3) and (4) of Article 218 TFEU.

               Recommendation for a

               COUNCIL DECISION

               authorising the opening of negotiations on behalf of the European Union for the conclusion of an Agreement between the European Union and the Faroe Islands on the general principles for the participation of the Faroe Islands in Union programmes and the association of the Faroe Islands to Horizon Europe – the Framework Programme for Research and Innovation (2021-2027)

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 218(3) and (4) thereof,

               Having regard to the recommendation from the European Commission,

               Whereas the negotiations should be opened with a view to concluding an agreement on the general principles  for the participation of the Faroe Islands in Union programmes and the association of the Faroe Islands to Horizon Europe – the Framework Programme for Research and Innovation (2021-2027),

               HAS ADOPTED THIS DECISION:

               Article 1

               The European Commission is hereby authorised to negotiate, on behalf of the Union, an agreement on the general principles for the participation of the Faroe Islands in Union programmes and the association of the Faroe Islands to Horizon Europe – the Framework Programme for Research and Innovation (2021-2027).

               Article 2

               The negotiating directives are set out in the annex to this Decision.

               Article 3

               The negotiations shall be conducted in consultation with the [Special Committee provided for in Article 218 (4) TFEU].

               Article 4

               This Decision is addressed to the European Commission.

               Done at Brussels,

                     For the Council

                     The President

    ---documentbreak---

               EUROPEAN COMMISSION
            Brussels, 30.4.2021
            COM(2021) 220 final
            ANNEX
            to the
            Recommendation for aCOUNCIL DECISION
            authorising the opening of negotiations on behalf of the European Union for the conclusion of an Agreement between the European Union and the Faroe Islands on the general principles for the participation of the Faroe Islands in Union programmes and the association of the Faroe Islands to Horizon Europe – the Framework Programme for Research and Innovation (2021-2027)

               ANNEX

               DIRECTIVES FOR THE NEGOTIATION OF AN AGREEMENT BETWEEN the European Union and the Faroe Islands on the general principles for the participation of the Faroe Islands in Union programmes and the association of the Faroe Islands to Horizon Europe – the Framework Programme for Research and Innovation (2021-2027)

               1.The agreement should provide for the terms and conditions of the participation of the Faroe Islands to any Union programme. It shall:

               (a)ensure a fair balance as regards the contributions and benefits of the third country participating in the Union programmes;

               (b)lay down the conditions of participation in the programmes, including the calculation of financial contributions to individual programmes and their administrative costs. These contributions shall constitute assigned revenues in accordance with Article 21 (5) of the Financial Regulation;

               (c)not confer to the third country any decision-making power in respect of the Union programme;

               (d)guarantee the rights of the Union to ensure sound financial management and to protect its financial interests.

               2.The general principles relevant for participation in any Union programme should be set by this agreement. The agreement should foresee that possible future associations of the Faroe Islands in further Union programmes should take the form of protocols to this agreement. Such protocols should be adopted by a body established under the agreement.

               3.Subject to the entry into force of [Regulation of the European Parliament and of the Council establishing Horizon Europe – the Framework Programme for Research and Innovation], the agreement should provide for the terms and conditions of the participation of the Faroe Islands to all parts of Horizon Europe – the Framework Programme for Research and Innovation (2021-2027) implemented through the specific programme established by [Decision …/… on establishing the specific programme implementing Horizon Europe – the Framework Programme for Research and Innovation] and through a financial contribution to the European Institute of Innovation and Technology (EIT). Those terms and conditions should be in line with [Regulation of the European Parliament and of the Council establishing Horizon Europe – the Framework Programme for Research and Innovation, laying down its rules for participation and dissemination, Decision XXX of [date] of the European Parliament and of the Council on establishing the specific programme implementing Horizon Europe – the Framework Programme for Research and Innovation] and any other rules pertaining to the implementation of the Programme.

               4.The agreement should determine the level of financial contribution payable by the Faroe Islands to the general budget of the Union.

               5.The agreement should provide for an observer status of the Faroe Islands to the Horizon Europe Programme Committee.

               6.The agreement should provide for a reciprocity clause ensuring reciprocal participation of legal entities established in the Union in equivalent programme(s) of the Faroe Islands, as far as possible.

               7.The agreement should set forth rules concerning sound financial management in relation to Union funding. In particular, the agreement should provide for the adequate protection of the financial interest of the Union, including the prevention, detection, correction and investigation of irregularities, including fraud, the recovery of funds lost, wrongly paid or incorrectly used, and, where appropriate, the imposition of administrative penalties and the recovery of money. The European Commission (OLAF) may carry out administrative investigations, including on-the-spot checks and inspections, the European Public Prosecutor's Office may investigate and prosecute offences against the financial interests of the Union.

               8.The Commission should, during negotiations, assess the possibility to include a clause on provisional application.

               9.The agreement should be in coherence with related EU policies and objectives.