title: Draft RECOMMENDATION No 1/82 OF THE EEC-AUSTRIA AND EEC-SWITZERLAND JOINT COMMITTEES Community transit regarding the amendment of the Agreement between the European Economic Community and Austria and the European Economic Community and Switzerland on the application of the rules on Community transit#Proposal for a COUNCIL REGULATION (EEC) concerning the conclusion of the Agreement in the form of an exchange of letters on the amendment of the Agreement between the European Economic Community and Austria and the European Economic Community and Switzerland on the application of the rules on Community transit (submitted to the Council by the Commission)

text:
ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (82) 46
Vol. 1982/0017
 ---pagebreak--- Disclaimer
Conformément au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983
concernant l'ouverture au public des archives historiques de la Communauté économique
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983,
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit
règlement.
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983
concerning the opening to the public of the historical archives of the European Economic
Community and the European Atomic Energy Community (OJ L 43, 15.2.1983, p. 1), as
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243,
27.9.2003, p. 1), this file is open to the public. Where necessary, classified documents in this
file have been declassified in conformity with Article 5 of the aforementioned regulation.
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom 1.
Februar 1983 über die Freigabe der historischen Archive der Europäischen
Wirtschaftsgemeinschaft und der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983,
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. September 2003
(ABI. L 243 vom 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5
der genannten Verordnung freigegeben.
 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                         COM(82)46 final
                                                         Brussels ^ 11 February 1982
                                        - Draft
                               RECOMMENDATION No ^/82
             OF THE EEC-AUSTRIA AND EEC-SWITZERLAND JOINT COMMITTEES
                                  Community transit
 regarding the amendment of the Agreement between the European Economic
Community and Austria and the European Economic Community and Switzerland
              on the application of the rules on Community transit
                                      f  y
                                   Proposal for a
                              COUNCIL REGULATION ( EEC )
concerning the conclusion of the Agreement in the form of an exchange of
 letters on the amendment of the Agreement between the . European Economic
Community and Austria and the European Economic Community and Switzerland
               on the application of the rules on Community transit
                   ( submitted to the Council by the Commission )
 COM ( 82 ) 46 final
 ---pagebreak---                                            I
                                                                              »
                              EXPLANATORY MEMORANDUM
                                                                           «
 Subject:   Application in the Community of Recommendation No 1 /82 of the EEC-Austria
            and EEC-Switzerland Joint Committees on Community transit to amend the
            agreements on transit.
                                                                     !   I
 1 . A draft amendment to the Agreements between the EEC and Switzerland and between
     the EEC and Austria * is shortly to be submitted to the EEC-Switzerland and EEC-
     Austria Joint Committees on Community transit. The purpose of the amendment is to
     allow Community goods to move under cover of a TIR carnet in application of the
     Agreements under the same conditions as between Member States of the Community.
2. This is the subject of the attached draft Recommendation of the Joint Committees. It
     is proposed that the draft be adopted as the Community's common position within the
     EEC-Austria and EEC-Switzerland Joint Committees on Community transit.
3. Once this Recommendation has ben adopted by the Joint Committees , a Council
     Regulation will be needed to made it applicable in the Community; the draft is
     attached hereto .
1 OJ No L 294, 29.12.1972, pp. 1 and 86.
 ---pagebreak---                                      Draft
                            RECOMMENDATION No 2/81
                                  OF THE EEC -
                                JOINT COMMITTEE
                               Community transit
            regarding the amendment of t he _Ag reement between the
            European Economic Community and           on
            the application of the rules on Community transit
 THE JOINT COKMITTEE .
 Having regard to the Agreement between the European Economic Community and
            on the application of the rules on Community transit , and in
 particular Article l6(?)(a ) thereof ;
 Whereas Article 6(4 ) of the Agreement does not rermit , in principle , the
 issue of T?L documents for goods transported under the TIR procedure ;
 Whereas this provision prevents the issue of the abovementioned documents -
 111 cases where Community goods are dispatched under the TIR procedure from
 Austria/Switzerland , via a third country , to a Member State , or vice-versa ;
 Whereas , however , under the applicable Community rules , trade between two
            Member States via a third country may be effected under the TIR
 procedure and T?L documents may be issued ;
 Whereas , in the interests of equality of treatment , the issue of T2L
 documents should be permitted in cases to which the Agreement applies ; whereas
 Article 6(4 ) of the Agreement should be amended accordingly ;
 RECOMMENDS that the Contracting Parties to the Agreement ;
emended the said Agreement , with effect from 1 July 1983 , as suggested in
 the proposal attached to this Recommendation ;
 inform one another through em exchange of letters that they accent this
 Recommendation ,
 D&re at            • on
 For the Joint Committee
 The President
 ---pagebreak---                                                              ANNEX
                                    Proposal
                    concerning the amendment of the Agreement
                    between the European Economic Community and
                              on the application of the rules on
                    Community transit
Artie lo 6 ( 4 ) of the Agreement between the European Economic Community and
             on the application of the rules of Community transit shall be
replaced by the following :
" A. Customs offices may not issue T2L documents for goods carried under the
procedure for the international transport of goods under cover of TIR
carnetn unless    :
    – ;;oods to be unloaded in the territory of one of the Contracting
      Parties are carried together with goods to be unloaded in the
      territory of a State which is not a Contracting Party to the
      A^eement ,    or
    - goods are carried from one Contracting Party to the other via the
      territory of a non-contracting Party to the Agreements concluded
      by the Community on the application of the rules 011 Community transit .
 ---pagebreak---                                      PROPOSAL FOR A
                                  Council Regulation (EEC)
                               •l                                                    i
                                ?
           concerning the conclusion of the Agreement in the form of an exchange
           of letters on the amendment of the Agreement between the European Economic
           Community and                      on the application of the rules on
           Community transit
                                                    .
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Economic Community, and in
                             ♦                                                ■
particular Article 113 thereof,
Haying regard to the proposal from the Commission,
   «                       !
   <                       i
Whereas the Agreement in the form of an exchange of letters on the amendment of the
Agreement between the European Economic Community and                              on the
application of the rules on Community transit * should be approved; whereas the proposed
amendment is the subject of Recommendation No 1 /82 of the EEC/                     Joint
Committee on Community transit;
Whereas the purpose of the amendment is to permit T2L documents to be issued where
Community goods are dispatched, under cover of a TIR cafrnet, from Austria or
Switzerland via the territory of a third country to a Member State or vice versa; whereas
it is necessary to take the measures which the application in the Community of th
provision requires ,
HAS ADOPTED THIS REGULATION :
1 OJ NoL 294, 29.12.1972, p
 ---pagebreak---                                                                                5
                                           - 2 -
                                         Article 1
The Agreement in the form of an exchange of letters on the amendment of the Agreement
between the European Economic Community and                on the application of the rules
on Community transit is hereby approved on behalf of the Community.
The text of the Agreement is given in the annex.
                                         Article 2
The President of the Council is hereby authorized to designate the person empowered to
sign the Agreement in order to bind the Community.
                                        Article 3
This Regulation shall enter into force on the day following that of its publication
in the Official Journal of the European Communities .
This Regulation shall be binding in its entirety and directly applicable in all Member
States.
Done at                                          For the Council
 ---pagebreak---                                          ANNEX
                                       AGREEMENT
in the form of an exchange of letters on the amendment of the Agreement between the
European Economic Community and                           on the application of the rules on
Community transit
                                                  Brussels,
Your Excellency,
The EEC-                       Joint Committee on Community transit has proposed, in its
Recommendation No 1 /82 of                      an amendment to the Agreement between
the European Economic Community and                       on the application of the rules on
Community transit. The proposed amendment is annexed hereto. I have the honour to
inform you that the Community agrees to this amendment and I would propose that it
enter into force on 1 July 1983. 1 should be grateful if you would confirm the agreement
of                     to the amendment and to the date proposed for its entry into force.
I have the honour to be, Sir ,
Yours faithfully,
                                                                      V
                                                  For   the   Council   of  the   European
                                                  Communities
 ---pagebreak---                                          ANNEX
                                         {
                                                   Brussels,
 Sir ,
 I have the honour to acknowledge receipt of your letter of today, which reads as follows:
                                                                            !
 "The EEC-                   Joint Committee on Community transit has proposed, in its
 Recommendation No 1/82 of                  , an amendment to the Agreement between the
 European Economic Community and                          on the application of the rules on
 Community transit. The proposed amendment is annexed hereto. I have the honour to
 inform you that the Community agrees to this amendment and I would propose that It
enter into force on 1 July 198S I should be grateful if you would confirm the agreement
of                 to the amendment and to the date proposed for its entry into force."
I have the honour to confirm the agreement of                 to the contents of your letter
and to the date proposed for the entry into force of the amendment.
I have the honour to be, Sir,                          .      |
Yours faithfully ,
                                                  For
                                                                                *


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 260 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            On the 2015 National Reform Programme of Franceand delivering a Council opinion on the 2015 Stability Programme of France

               Recommendation for a

               COUNCIL RECOMMENDATION

               On the 2015 National Reform Programme of France

                  and delivering a Council opinion on the 2015 Stability Programme of France

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to 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
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               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 26 March 2010, the European Council agreed to the Commission’s proposal to launch a new strategy for growth and jobs, Europe 2020, based on enhanced coordination of economic policies. The strategy focuses on the key areas where action is needed to boost Europe’s potential for sustainable growth and competitiveness.

               (2)On 13 July 2010, the Council, on the basis of the Commission’s proposals, adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and on 21 October 2010 it adopted a decision on guidelines for the employment policies of the Member States. Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

               (3)On 8 July 2014, the Council adopted a Recommendation on France’s National Reform Programme for 2014 and delivered its opinion on France’s updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013
                  5
               , the Commission presented its opinion on France’s draft budgetary plan for 2015
                  6
               .

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
                  7
               , marking the start of the 2015 European Semester of economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  8
               , in which it identified France as one of the Member States for which an in-depth review would be carried out.

               (5)On 18 December 2014, the European Council endorsed the priorities for boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation.

               (6)On 26 February 2015, the Commission published its 2015 country report for France
                  9
               . This assessed France’s progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude that France is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, in a context of low growth and low inflation, coupled with poor company profitability, and given the insufficient policy response so far, risks stemming from the deterioration in both cost and non-cost competitiveness and from high and rising indebtedness, in particular public debt, have increased significantly. The need for action to reduce the risk of adverse effects on the French economy and, given its size, of negative spillovers to the economic and monetary union, is particularly great.

               (7)On 30 April 2015, France submitted its 2015 National Reform Programme and its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)France is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the government plans to correct the excessive deficit by 2017, in line with the Council recommendation of 10 March 2015 and to reach the medium-term objective – a structural deficit of 0.4 % of GDP – by 2018
                  10
               . While the government plans to respect the headline deficit targets set by the Council, the fiscal effort planned in 2016 and 2017 is below the recommended level. In its 2015 Stability Programme the government expects the public debt-to-GDP ratio to peak at 97% in 2016 before receding to 95.5% of GDP in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, the headline deficit target for 2015 will be 3.8% of GDP thereby respecting the target of 4% of GDP. However, the fiscal effort expected for that year will be lower than the one recommended by the Council.
                  11
                Regarding 2016, under a no-policy-change scenario, the Commission forecasts that the headline deficit will reach 3.5% of GDP, above the recommended target of 3.4% of GDP, and that the fiscal effort will not be delivered. Therefore, further structural measures will be needed for 2016. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that France will not comply with the provisions of the Stability and Growth Pact.

               (9)It will be crucial to intensify spending reviews and identify large areas of expenditure cuts so that they can deliver the expected results. France should make sure that spending reduction targets take account of the close-to-zero rate of inflation. At the same time, the savings resulting from the lowerthanexpected costs of the public debt due to lower interest rates should be channelled to reducing the deficit. In addition, sizeable short-term savings cannot be achieved without curbing significantly the increase in social security spending, which represented 26 % of GDP in 2014, accounting for nearly half of all public sector expenditure. Healthcare expenditure savings of EUR 11 billion are planned for 20152017, but further efforts are needed to limit expenditure increases in this area. In particular, there is scope to implement further cost-containment policies in the area of pharmaceutical prices and hospital spending. The pension system may face increasing deficits in the coming years and previous pension reforms will not suffice to eliminate the system’s deficit. In particular, the deficit arising from schemes for state officials and employees of state-controlled companies continue to weigh on the overall pension deficit. Moreover, the macroeconomic situation has a large impact on the sustainability of the pension system, in particular the situation of complementary pension schemes. Decisive action is needed to restore the financial health of the complementary pension system.

               (10)France has undertaken a reform of local administration aimed at increasing the efficiency of the system. It should continue to implement the planned reduction in grants from central government and strengthen the control of local government expenditure by capping the annual increase in local government tax revenue, taking into account existing ceilings on a number of local taxes. Action is also needed to contain the rise in the administrative costs of local authorities.

               (11)Policy measures have been taken to reduce labour costs and improve firms’ profit margins through the EUR 20 billion tax credit for competitiveness and employment and the EUR 10 billion additional cuts in employers’ social security contributions planned under the responsibility and solidarity pact. These two measures account for 1.5 % of GDP and should contribute to reducing the gap between France and the euro area average in terms of labour tax wedge. Implementation of these measures should continue in 2016 but, given their high cost for the public budget, it is important to assess their effectiveness at company level. This evaluation should take particular account of the rigidities affecting the labour and product markets, especially those affecting wages. The cost of labour at the minimum wage remains high compared with other Member States. The minimum wage continues to evolve in a manner that is not conducive to competitiveness and job creation. In addition, in a context of low inflation, its automatic indexation may lead to wage increases beyond what is necessary to preserve purchasing power.

               (12)France should take decisive action to remove the regulatory thresholds in labour law and accounting regulations that limit the growth of French firms, in particular SMEs. Overall, there is scope for increasing competition in the services sector, in particular in professional services, retail trade and network industries. A number of regulations and tariffs for regulated professions constrain economic activity. New measures for improving competition in legal professions have been adopted through the recent law on growth, economic activity and equal opportunities, and their implementation will be crucial to ensure that barriers are removed on the ground. France should also take action to remove barriers in other sectors, in particular the health sector. The numerus clausus principle for access to health professions is still hampering access to services and could be reviewed without jeopardising quality and safety.

               (13)In 2014, the tax-to-GDP ratio stood at 45.8 %, one of the highest in the EU. Corporate tax rates are high and weigh negatively on French companies’ investment. The effective tax rate paid by a company on average stands at 38.3 %, among the highest in the EU. In addition to the announced abolition of the corporate social security contribution and the reduction in the statutory rate to 28 % in 2020, France should increase efforts in the short term to make corporate taxation conducive to growth and investment. Efforts are needed to simplify the tax system by removing inefficient taxes. Over 100 taxes have been identified as yielding little or no revenue and removing these could simplify procedures for companies and households.

               (14)The French unemployment rate remained high in 2014 and long-term unemployment deteriorated, reflecting poor economic growth. The overall unemployment rate stood at 10.2 %, as compared with 10.3 % in 2013 and 7.5 % in 2008, particularly hitting young people, older workers and the low-qualified. France suffers from labour market segmentation, with fixed-term contracts accounting for an increasing proportion of new hires. Targeted efforts to reduce the level of segmentation, in particular through higher social contributions for very short-term contracts, have failed to curb this trend. Reviewing the legal framework governing labour contracts could help to reduce the segmentation. Recent reforms have created only limited scope for employers to depart from branch-level agreements. This limits companies’ ability to modulate the workforce according to their needs. Sectors and companies should be given flexibility to determine case by case and after negotiations with social partners whether working time should depart from 35 hours a week. The law creating the accords de maintien de l’emploi has not brought the expected results. Very few companies have made use of the new arrangements for company-level agreements to increase the flexibility of working conditions. This scheme should be reviewed to give companies more scope to adapt wages and working time to their economic situation.

               (15)The long-lasting deterioration in the labour market has affected the unemployment benefit system, calling into question the sustainability of the model. The new convention on the unemployment benefit system introduced on 1 July 2014 is insufficient to reduce the deficit. The various measures introduced produced EUR 0.3 billion in savings in 2014. They are expected to reduce the deficit by a further EUR 0.8 billion in 2015, from EUR 5.2 to EUR 4.4 billion, leading to a further increase in the system’s debt to EUR 25.9 billion. Structural measures are needed to ensure the viability of the system. In particular, eligibility conditions, the degressive structure of benefits and the replacement rates for workers with the highest wages should be reviewed.

               (16)In the context of the European Semester, the Commission has carried out a comprehensive analysis of France’s economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to France in previous years. It has taken into account not only their relevance for sustainable fiscal and socio-economic policy in France but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the European Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 6 below.

               (17)In the light of this assessment, the Council has examined France’s Stability Programme, and its opinion
                  12
                is reflected in particular in recommendation 1 below.

               (18)In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 6 below.

               (19)In the context of the European Semester the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations for the Member States whose currency is the euro. France should also ensure the full and timely implementation of these recommendations,

               HEREBY RECOMMENDS that France take action in 2015 and 2016 to:

               1.Ensure effective action under the excessive deficit procedure and a durable correction of the excessive deficit by 2017 by reinforcing the budgetary strategy, taking the necessary measures for all years and using all windfall gains for deficit reduction. Specify the expenditure cuts planned for these years and provide an independent evaluation of the impact of key measures.

               2.Step up efforts to make the spending review effective and identify savings opportunities across all sub-sectors of general government, including on social security and local government. Take steps to limit the rise in local authorities’ administrative expenditure. Take additional measures by March 2016 to bring the pension system into balance, in particular ensuring that the financial situation of complementary pension schemes is sustainable over the long term.

               3.Ensure that the labour cost reductions stemming from the tax credit for competitiveness and employment and from the responsibility and solidarity pact are sustained, in particular by implementing them as planned in 2016. Evaluate the effectiveness of these schemes in the light of labour and product market rigidities. Reform, in consultation with the social partners and in accordance with national practices, the wagesetting system to ensure that wages evolve in line with productivity. Ensure that minimum wage developments are consistent with the objectives of promoting employment and competitiveness.

               4.By the end of 2015, reduce regulatory impediments to companies’ growth, in particular by reviewing the size-related criteria in regulations to avoid threshold effects. Remove the restrictions on access to and the exercise of regulated professions, beyond the legal professions, in particular as regards the health professions as from 2015.

               5.Simplify and improve the efficiency of the tax system, in particular by removing inefficient tax expenditure. To promote investment, take action to reduce the taxes on production and the corporate income statutory rate, while broadening the tax base on consumption. Take measures as from 2015 to abolish inefficient taxes that are yielding little or no revenue.

               6.Reform the labour law to provide more incentives for employers to hire on openended contracts. Facilitate take up of derogations at company and branch level from general legal provisions, in particular as regards working time arrangements. Reform the law creating the accords de maintien de l’emploi by the end of 2015 in order to increase their take-up by companies. Take action to reform the unemployment benefit system in order to bring the system back to budgetary sustainability and provide more incentives to return to work.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  OJ L 306, 23.11.2011, p. 25.

                     (3)
                  COM(2015) 260.

                     (4)
                  P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069..

                     (5)
                  OJ L 140, 27.5.2013, p. 11.

                     (6)
                  C(2014) 8805 final.

                     (7)
                  COM(2014) 902.

                     (8)
                  COM(2014) 904.

                     (9)
                  SWD(2015) 29 final.

                     (10)
                  Compared to the previous Stability Programme, the government has revised its medium-term objective from a structural deficit of 0.25% of GDP to 0.4%. The medium-term objective is set to be achieved one year later than foreseen in last year's Stability Programme.

                     (11)
                  The assessment of effective action taken under the Excessive Deficit Procedure will be made after 10 June 2015.

                     (12)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 335 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Lithuaniaand delivering a Council opinion on the 2016 stability programme of Lithuania

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Lithuania

                  and delivering a Council opinion on the 2016 stability programme of Lithuania

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               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 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it did not identify Lithuania as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area
                  6
               . Thats recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016. As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Lithuania should ensure the full and timely implementation of those recommendations.

               (2)The country report for Lithuania
                  7
                was published on 26 February 2016. The report assessed Lithuania’s progress in addressing the country-specific recommendations adopted on 14 July 2015 and Lithuania's progress towards its national Europe 2020 targets.

               (3)On 29 April 2016, Lithuania submitted its 2016 national reform programme and its 2016 stability programme. 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 for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, 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 this provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  8
               .

               (5)In its 2016 stability programme, Lithuania has requested a temporary deviation of 0.6% of GDP from the required adjustment path towards the medium-term objective in 2017, to take account of major structural reforms with a positive impact on the long-term sustainability of public finances. However, pending a final agreement, uncertainty on the set of reform measures as well as their implementation remains. Thus, while Lithuania has sufficient fiscal space to benefit from a temporary deviation, it does not appear to fulfil the eligibility criterion related to the implementation of the reform to avail from the structural reform clause. Moreover, it is currently not possible to assess the plausibility of the impact of the reform estimated by the government. Therefore, the impact of these reforms has not yet been reflected in the required adjustment towards the medium-term budgetary objective for 2017.

               (6)Lithuania is currently under the preventive arm of the Stability and Growth Pact. In its 2016 stability programme, the government plans an improvement of the headline balance from a deficit of 0.8% of GDP in 2016 to a surplus of 0.9% of GDP in 2019. The structural balance is set to deteriorate temporarily in 2016 before reaching the medium-term budgetary objective — a deficit of 1 % of GDP in structural terms — by 2017 and staying above it thereafter. The adjustment path incorporates the systemic pension reform in 2016 but does not reflect the planned structural reform in 2017. According to the stability programme, the government debt-to-GDP ratio is expected to fall from 39.9% of GDP in 2016 to 35.7% in 2019. The macroeconomic scenario underpinning these budgetary projections is plausible. The measures needed to support the planned deficit targets from 2018 onwards have not been sufficiently specified yet. Based on the Commission 2016 spring forecast, the structural balance is forecast to be at -1.2 % of GDP in 2016, which can be considered as close to the medium-term budgetary objective, and at -0.8% of GDP in 2017, above the medium-term budgetary objective. Based on its assessment of the stability programme and taking into account the Commission 2016 spring forecast Lithuania is expected to comply with the provisions of the Stability and Growth Pact.

               (7)A fall in the working age population, caused by ageing, poor health outcomes and significant net emigration may harm Lithuania's growth potential and ultimately its future convergence path, while putting at risk the sustainability of its pension and long-term care systems. A cumulative loss of 35 % of the working age population is estimated by 2030. If that trend is not reversed, it will jeopardise the availability of suitable labour resources, the sustainability of long-term economic growth and social security systems, in particular the pension system.

               (8)Ongoing demographic trends underscore the need for a comprehensive pension reform in Lithuania that addresses the medium-term sustainability and adequacy risks of the current pension system. The level of poverty among the elderly in Lithuania is among the highest in the EU. However, at present there is no indexation mechanism in place for publicly provided pensions and spending on social insurance pensions is relatively low. The government has not yet adopted plans to introduce an indexation mechanism, link the retirement age to life expectancy after 2026 and improve the way the basic part of the social insurance pension is financed.

               (9)In Lithuania, health outcomes are among the poorest in the European Union. In particular, the mortality rate of the population aged between 20 to 64 years of age is the highest in the EU, having an important impact on the potential available workforce and labour productivity. Weaknesses in the health system include too much reliance on in-patient care and low expenditure on prevention and public health. There is a need to address the negative demographic trend.

               (10)It is important that Lithuania strengthens investment in human capital to counteract some of the negative effects of its shrinking working age population and support Lithuania's transition towards a higher value-added economy. Although educational attainment has increased, the proportion of pupils with insufficient basic skills is high. Efforts should be pursued to ensure high quality teaching, which is crucial to tackling underachievement and educational shortcomings. Furthermore, there are weaknesses in the quality of teaching in higher education and its ability to foster innovation. The persistently low level of participation in adult learning is undermining efforts to improve the quality of human capital and increase productivity. There are signs of emerging skills shortages in certain sectors of the economy. Those skills shortages are expected to become more acute in the future. Strong wage growth and a slowdown in productivity growth may weaken cost-competitiveness. It is therefore important to improve the labour market relevance of education, streamline the structure and funding of the educational system, develop life-long learning and improve the targeting and effectiveness of active labour market policies. Lithuania has taken steps to improve its active labour market measures and other services to support job seekers, but there is still scope to improve targeting for specific groups, in particular the very long-term unemployed and those lacking necessary skills. Spending on effective labour market policy measures remains limited and social safety nets in Lithuania are weak. Around 27% of Lithuania's population is at risk of poverty or social exclusion and income inequality is among the highest in the EU. The Lithuanian government plans to improve the coverage and adequacy of unemployment and social assistance benefits, but the relevant legislation has still not been adopted.

               (11)A comprehensive revision of the Labour Code and the social model is under discussion in the parliament. The intention is to increase the flexibility of labour market relations and provide more security, but the relevant legislation still needs to be adopted. The involvement of social partners in the implementation of the reform and more extensive social dialogue are important.

               (12)Investment has recovered slowly since the onset of the economic crisis and will be supported by EU structural and investment funds in the coming years. Nevertheless, the adoption and absorption of new technology has not spread across the economy and innovation is low, hampering productivity growth. Private investment in research and innovation has also been low, perhaps due to the insufficiency of incentives for business research and innovation and public-private cooperation. Strengthening private investment could mitigate the risks relating to the dependency of Lithuania's public investment in research and innovation on EU structural and investment funds. The tertiary education system shows weaknesses in quality and innovation outcomes, with limited levels of cooperation with foreign universities and research centres. The research and innovation system is fragmented and characterised by overlaps and duplication. This prevents Lithuania from reaching the critical mass of reseach and development capacity needed to increase innovative knowledge. Incentives for innovation and cooperation between academia and business need to be increased, inter alia by developing and investing in human capital, which could increase the level of technology transfers to the real economy. Improving the limited capacity of Lithuanian companies to absorb external knowledge and apply it to commercial ends would raise the level of innovation.

               (13)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Lithuania’s economic policy and published it in the 2016 country report. It has also assessed the stability programme and the national reform programme and the follow-up given to the recommendations addressed to Lithuania in previous years. It has taken into account not only their relevance for sustainable fiscal and socio-economic policy in Lithuania but also their compliance with EU rules and guidance, given the need to strengthen the the EU's overall economic governance by providing EU level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below.

               (14)In the light of this assessment, the Council has examined the stability programme and its opinion
                  9
                is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Lithuania take action in 2016 and 2017 to:

               1.Ensure that the deviation from the medium-term budgetary objective is limited to the allowance linked to the systemic pension reform in 2016 and in 2017. Reduce the tax burden on low-income earners by shifting the tax burden to other sources less detrimental to growth and improve tax compliance, in particular in the area of VAT.

               2.Strengthen investment in human capital and address skills shortages, by improving the labour market relevance of education, raising the quality of teaching and pursuing more active labour market policies and adult learning. Strengthen the role of social dialogue mechanisms. Improve the performance of the healthcare system by strengthening outpatient care, disease prevention and health promotion. Improve the coverage and adequacy of unemployment benefits and social assistance.

               3.Take measures to strengthen productivity and improve the adoption and absorption of new technology across the economy. Improve the coordination of innovation policies and encourage private investment, inter alia by developing alternative means of financing.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2016) 335 final.

                     (3)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  COM(2015) 692 final.

                     (7)
                  SWD(2016) 83 final.

                     (8)
                  COM(2014) 494 final.

                     (9)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 523 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Sloveniaand delivering a Council opinion on the 2017 Stability Programme of Slovenia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Slovenia

                  and delivering a Council opinion on the 2017 Stability Programme of Slovenia

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to 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
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               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
                  5
               , marking the start of the 2017 European Semester of 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, the Commission adopted the Alert Mechanism Report
                  6
               , in which it identified Slovenia as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council Recommendation on the economic policy of the euro area. That Recommendation was endorsed by the European Council on 9-10 March 2017 and adopted by the Council on 21 March
                  7
               .

               (2)As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Slovenia should ensure the full and timely implementation of the Recommendation for the euro area which is reflected in recommendations 1 to 3 below.

               (3)The 2017 country report for Slovenia
                  8
                was published on 22 February 2017. It assessed Slovenia’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Slovenia's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 22 February 2017.
                  9
                The Commission’s analysis leads it to conclude that Slovenia is experiencing macroeconomic imbalances. In particular, weaknesses in the banking sector, corporate debt, and fiscal risks constitute vulnerabilities. Stock imbalances are gradually unwinding in light of resumed growth. The corporate sector has undergone a substantial debt reduction, and private investment, including in the form of foreign direct investment, has resumed, although stocks from inbound foreign direct investment remain low compared to regional peers. Public debt has peaked in 2015, and a downward adjustment is expected in the coming years. Progress on the front of banking sector restructuring has coincided with a rapidly falling share of non-performing loans, which is expected to continue to decline. Relevant measures have been taken by the government to consolidate and restructure the banking sector, and to improve the governance of State-owned enterprises. However, further policy action is needed to address corporate debt and remaining weaknesses in the financial sector, to ensure the long-term sustainability of public finances, and improve the business environment.

               (4)On 28 April 2017, Slovenia submitted its 2017 Stability Programme and on 3 May 2017 Slovenia submitted its 2017 National Reform Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)The relevant country-specific recommendations have been taken into account in the Member States' programmes for the European Structural and Investment Funds (ESI Funds) covering the 2014-2020 period. As foreseen in the legislation governing the ESI Funds,
                  10
                where it is necessary to support the implementation of relevant country-specific recommendations, the Commission may request a Member State to review and amend its relevant ESI Funds programmes. The Commission has provided further guidelines on the application of those rules.
                  11

               (6)Slovenia is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. In its 2017 Stability Programme, the government expects that the headline deficit will improve to 0.8 % of GDP in 2017 and then reach a surplus of 0.4 % of GDP in 2020. The medium-term budgetary objective — a balanced budget in structural terms, which does not respect the requirements of the Stability and Growth Pact — is planned to be reached by 2020. However, based on the recalculated
                  12
                structural balance , the medium-term budgetary objective would not be met by the programme horizon. According to the Stability Programme, the general government debt-to-GDP ratio is expected to fall to 77.0 % of GDP in 2017 and continue to fall to 67.5 % of GDP in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible. At the same time, the measures needed to support the planned targets from 2017 onwards have not been sufficiently specified.

               (7)The 2017 Stability Programme indicates that the budgetary impact of the exceptional inflow of refugees is significant in 2016 and 2017 and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure for the exceptional inflow of refugees in 2016 amounted to 0.07% of GDP. This amount is unchanged compared to the 2017 draft budgetary plan, which confirmed the projections of the 2016 Stability Programme. For 2017, the Stability Programme included a request for 0.07% of GDP, of which the Commission will consider the incremental impact amounting to 0.01% of GDP. The provisions set out in Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of refugees and security-related measures are related to unusual events, their impact on Slovenia’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 these 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 Slovenia authorities.

               (8)On 12 July 2016, the Council recommended Slovenia to achieve an annual fiscal adjustment of at least 0.6% of GDP towards the medium-term budgetary objective in 2017. Based on the Commission 2017 spring forecast, there is a risk of some deviation from that requirement in 2017.

               (9)In 2018, in the light of its fiscal situation and notably of its debt level, Slovenia is expected to further adjust towards an appropriate medium-term budgetary objective. 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
                  13
                which does not exceed 0.6 %. It would correspond to a structural adjustment of 1% of GDP. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2018. Slovenia is projected to comply with the debt rule in 2017 and 2018. Overall, the Council is of the opinion that Slovenia needs to stand ready to take further measures in 2017 and that further measures will be needed in 2018 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 the light of the cyclical conditions. As recalled in the Commission Communication accompanying these country-specific recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal to achieve a fiscal stance that contributes to both strengthening  the ongoing recovery and ensuring the sustainability of Slovenia’s public finances. In that context, the Commission intends to make use of the applicable margin of appreciation in the light of the cyclical situation of Slovenia. Furthermore, there is significant uncertainty regarding the cyclical position in the specific case of Slovenia because of the particularly large economic contraction in 2008-2013 and the major structural and financial sector reforms being implemented.

               (10)The Fiscal Rules Act adopted in July 2015 introduced a medium-term budgetary framework for the general government. In order to make it operational, certain amendments to the Public Finance Act are necessary. Initially the government committed to having the revised Public Finance Act adopted within six months following the adoption of the Fiscal Rule Act. However, this deadline was repeatedly postponed and the revised act has not yet been submitted to the Parliament for deliberation. The revised Public Finance Act constitutes one of the legal vehicles transposing into the national legislation the EU Directive 2011/85 on requirements for national budgetary frameworks, which Member States were obliged to complete by the end of 2013. The members of the Fiscal Council were appointed on 21 March 2017.

               (11)The high public debt at 79.7% of GDP in 2016 represents a source of vulnerability for the public finances in Slovenia. The country's population is ageing faster than that of most Member States. Slovenia faces high risks on the long-term sustainability of public finances and its long-term sustainability gap indicator is the highest of all EU Member States, stemming from the projected increase in pension-related public spending, healthcare and long-term care expenditure.

               (12)The government has presented proposals to reform the healthcare system. The draft Healthcare and Health Insurance Act, which is the central piece of the reform, was put to public consultation in February 2017 and is scheduled to be forwarded to the National Assembly by summer 2017. Respecting the envisaged timing is important and should allow the act to become law still in 2017. In December 2016, the proposals to amend the Health Services Act and the Patient Rights Act were presented and the new Pharmacies Act was adopted. Remaining challenges concern the governance and performance of hospitals, primary care as a gatekeeper for in-patient care, hospital payment systems, health technology assessments, and information systems. In addition, the benefits from centralised public procurement of medical products and services remain largely untapped while a new centralised public procurement for medicines is under preparation that could help procurement to become more transparent and cost-efficient. Advancing in long-term care reform is also a significant challenge. To date, there is no integrated long-term care system in Slovenia. A pilot project to determine the long-term care needs is being prepared.

               (13)The White Paper on pensions was adopted by the government in April 2016 and has opened a public consultation on the future of the pension system. However, concrete legislative proposals are still lacking. Challenges on the way ahead are to ensure the long-term sustainability and adequacy of the pension system by adjusting the statutory pension age to life expectancy gains and promoting later retirement, to boost the coverage of the supplementary pension schemes, to adequately address varying career paths and to reduce old-age poverty risks.

               (14)Labour market and social trends continued to improve. Job creation has picked up and unemployment is decreasing. The rate of people at risk of poverty and social exclusion decreased but remains above the EU average for the elderly. The improving labour market offers an opportunity to provide employment for older workers, but their participation rates remain low. Entering retirement via the unemployment insurance system has become increasingly common in recent years. Long-term unemployment remains above pre-crisis levels and represents more than half of all unemployed. More than 40 % of all long-term unemployed are over 50 and almost half of them are unemployed for two years or more. An analysis and an action plan that aims to increase the employment rate of older workers has been prepared and discussed with social partners. Timely implementation of the action plan can help to improve the activation of older workers. The employment rate of low-skilled workers remains low and well below the pre-crisis level and the EU average. The active labour market policy implementation plan adopted in January 2016 continues the current approach, while expenditure in this field remains low. Older and low-skilled workers continue to be underrepresented in active labour market policy measures. Labour market segmentation remains a challenge despite the reform in 2013.

               (15)The level of non-performing loans, while still high, is on a solid downward path. The Bank of Slovenia has implemented a number of measures that are giving banks incentives to reduce their non-performing loans sustainably. Debt reduction pressures have started to ease but credit flows to firms continue to contract. The progress in debt reduction has been uneven across individual firms. The consolidation and restructuring of the banking sector are progressing with the merger of three banks in 2016. The privatisation of Nova Ljubljanska Banka is planned by December 2017. Revisions to the legislative framework further reinforced the corporate restructuring capacity of the Bank Asset Management Company. Non-performing loans remain high among SMEs. To address the issue, a systematic approach to SME work out of non-performing loans has been prepared with the help of the World Bank. In addition, the government adopted a bill to set up a central credit register to enable more efficient risk management and reduce the risk of indebtedness.

               (16)Access to alternative financing sources for a creditworthy business is very limited. The Slovenian Enterprise Fund and the Slovenska izvozna in razvojna banka (SID bank) have mainly introduced new debt instruments for SMEs including measures such as microcredits. One seed capital scheme was implemented in 2016 by the Slovenian Enterprise Fund with under 50 SME beneficiaries. Other alternative financing instruments, including venture capital and equity with use of the European Structural and Investment Funds, could be a major source of additional financing but remain largely untapped.

               (17)The implementation of the public administration development strategy 2015-2020 is underway, and some progress has been made. However, some specific measures, like the adoption of the Civil Service Act, have been further delayed. The government programme for reducing the administrative burden is estimated to have created total savings of EUR 365 million between 2009 and 2015 and almost 60% of 318 measures to reduce the administrative burden have been achieved. Private investment however continues to be hindered by complex and lengthy administrative procedures, especially in construction and spatial planning. While the efficiency and quality of the justice system have further improved, in commercial cases it still takes a long time to schedule first hearings and claims cannot be submitted by electronic means. Despite the adoption of some key anti-corruption reforms like the zero tolerance to corruption programme, perception of corruption remains negative and appears to influence business decisions. After the initial progress in modernising the regulation of professions, the reforms have slowed down. Lifting restrictive barriers in regulation of professions could support competition in these markets.

               (18)State involvement in the economy remains high despite the privatisation programme initiated in 2013. The state is the largest employer, asset manager and corporate debt holder in Slovenia. Combined with weak corporate governance, high state ownership has had considerable fiscal and economic implications. They are estimated at EUR 13 billion or about one third of GDP in 2007-2014, primarily due to financial sector stabilisation measures and foregone profits of state-owned enterprises compared to their private peers. The performance of state-owned enterprises has started to improve, underpinned by a new corporate governance system, but risks remain. By the end of 2015 results showed an improved profitability of the enterprises under the management of the Slovenian Sovereign Holding, albeit falling short of the intermediate target set in the management strategy. An asset management plan for 2017, quantifying the performance indicators for each separate state-owned enterprise and updating a list of assets for divestment, has been approved by the government in January 2017. At the same time, a revision of the asset management strategy, first approved by the national parliament in 2015, is still pending, with the government having deferred its decision to the second half of 2017. Although a new president of the management board was appointed at the end of February 2017, the full supervisory board is not in place yet.

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

               (20)In the light of this assessment, the Council has examined the Stability Programme and its opinion
                  14
                is reflected in particular in recommendation 1 below.

               (21)In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations made under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 and 3 below,

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

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. When taking policy action, consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Slovenia’s public finances. Adopt and implement the proposed reform of the healthcare system and adopt the planned reform of long-term care, increasing cost-effectiveness, accessibility and quality care. Fully tap the potential of centralised procurement in the health sector. Adopt the necessary measures to ensure the long-term sustainability and adequacy of the pension system.

               2.Intensify efforts to increase the employability of low-skilled and older workers, particularly through targeted lifelong learning and activation measures.

               3.Improve the financing conditions, including by facilitating a durable resolution of non-performing loans and access to alternative sources of financing. Ensure the full implementation of the bank asset management company strategy. Reduce the administrative burden on business deriving from rules on spatial planning and construction permits and ensure good governance of State-owned enterprises.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  OJ L 306, 23.11.2011, p. 25.

                     (3)
                  COM(2017) 523 final.

                     (4)
                  P8_TA(2017)0038, P8_TA(2017)0039, and P8_TA(2017)0040.

                     (5)
                  COM(2016) 725 final.

                     (6)
                  COM(2016) 728 final.

                     (7)
                  2017/C92/01

                     (8)
                  SWD(2017) 89 final.

                     (9)
                  COM(2017) 90 final.

                     (10)
                  Article 23 of 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.

                     (11)

                        COM(2014) 494 final.

                     (12)
                  Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission using the commonly agreed methodology.

                     (13)
                  Net government expenditure is comprised of 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.

                     (14)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 331 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Croatiaand delivering a Council opinion on the 2016 convergence programme of Croatia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Croatia

                  and delivering a Council opinion on the 2016 convergence programme of Croatia

               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 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
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               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 26 November 2015, the Commission adopted the Annual Growth Survey
                  5
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  6
                , in which it identified Croatia as one of the Member States for which an in-depth review would be carried out.

               (2)The 2016 country report for Croatia
                  7
                was published on 26 February 2016. It assessed Croatia’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Croatiaʼs progress towards its national Europe 2020 targets. It also included the in-depth review under Article 5 of Regulation (EU) No 1176/2011. On 8 March 2016, the Commission presented the results of the in-depth review.
                  8
                The Commission’s analysis leads it to conclude that Croatia is experiencing excessive macroeconomic imbalances. In particular, it is essential to address vulnerabilities linked to high public, corporate and external debt in the context of high unemployment. Further weaknesses requiring specific policy action include fiscal governance, the governance of state-owned enterprises, the efficiency of public administration, and the resolution of non-performing loans.

               (3)On 28 April 2016, Croatia submitted its 2016 national reform programme and its 2016 convergence programme. To take account of their interlinkages, the two programmes have been assessed at the same time. The National Reform Programme presents a fairly ambitious reform agenda, which, if fully implemented within the indicated timelines, would help address its macroeconomic imbalances. It outlines relevant measures to improve the management of public finances, the health sector and the business environment and commits to ambitious reforms in the public administration, the pension system, social protection and the improvement of governance in state-owned enterprises. Based on the assessment of Croatia's policy commitments, there is no need at this stage for a stepping-up of the macro-economic imbalances procedure

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, 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 this provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  9
               .

               (5)Croatia is currently in the corrective arm of the Stability and Growth Pact. In its 2016 convergence programme, the government expects that the headline deficit will be below 3% of GDP, at 2.6% of GDP, in 2016 and will fall further thereafter, reaching 1.0% of GDP by 2019. Moreover, the government expects to reach its medium-term budgetary objective — a deficit of 1.75 % of GDP in structural terms – throughout the programme period. The government debt-to-GDP ratio peaked at 86.7% in 2015 but, according to the convergence programme, is projected to gradually decline to 80.0% in 2019. Taken at face value, the debt-to-GDP projections in the programme comply with the debt reduction benchmark. However, while the macroeconomic scenario underpinning these budgetary projections is plausible in real terms, nominal GDP growth is higher than projected in the Commission forecast, especially for 2016. The projected reduction in the debt ratio therefore relies on favourable nominal growth projections; in addition, it factors in significant debt-reducing stock-flow adjustments from the sale of financial assets, which are not sufficiently specified. Furthermore, the measures needed to support the planned deficit targets from 2017 onwards are mostly unspecified. Based on the Commission 2016 spring forecast, the general government deficit is projected to reach 2.7% of GDP in 2016, in line with the headline deficit target included in the Council recommendation under Article 126(7) TFEU. The recommended fiscal effort under the excessive deficit procedure is projected to be achieved. By contrast, the Commission forecast does not point to compliance with the forward-looking debt reduction benchmark. Whereas a structural adjustment of 0.2% of GDP in 2017 would be sufficient to reach the medium-term budgetary objective, a higher structural adjustment would be needed to ensure compliance with the debt reduction benchmark. In particular, an adjustment above the 0.5% of GDP benchmark would seem appropriate given the high debt and current cyclical conditions in Croatia. Currently, the structural balance is projected to deteriorate by 0.2% of GDP in 2017. Based on its assessment of the convergence programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that there is a risk that Croatia will not comply with the provisions of the Stability and Growth Pact. Therefore, further measures will be needed to ensure compliance in 2017.

               (6)Croatiaʼs budgetary planning continues to suffer from major weaknesses despite some improvements made by the 2015 amendment of the Budget Act. Linkages between the multiannual budgetary framework and annual budgets remain weak, and there are no clear rules on changing budgetary plans within the year. The strategic planning of individual budgetary units is not subject to systematic scrutiny and does not sufficiently support the alignment of policy priorities with medium-term fiscal targets. The budgetary process gives little consideration to the sizeable off-budget transactions and accounting adjustments impacting general government deficit and debt. Numerical fiscal rules are currently being revised. One of the main challenges is to make them more operational and better aligned with the Stability and Growth Pact. Efforts are also needed to improve the statistical basis of budgetary planning.

               (7)The Fiscal Policy Commission, which is in charge of monitoring compliance with fiscal rules at the national level, is closely linked with national fiscal authorities and is understaffed. Under these conditions, its political and functional independence is not ensured. A revision of the institutional setup and the mandate of the Fiscal Policy Commission has been announced for the third quarter of 2016.

               (8)Croatia has started to reform the system of communal charges, presented as a step in a broader reform of immovable property taxation. Combined revenue from recurrent taxes on immovable property and communal charges is relatively low as a proportion of GDP.

               (9)A high level of tax arrears, VAT fraud and the shadow economy are key challenges. Measures are being taken to improve tax compliance, including the development of a compliance risk management system. Yet, evidence on the effectiveness of the measures taken is still limited.

               (10)The stock of public debt is high and still increasing, making it indispensable to adopt a forward-looking proactive approach to public debt management. A debt management strategy for 2016-2018 is planned to be adopted soon. However, Croatia is still lacking a more comprehensive approach to debt management comprising inter alia annual revisions that take account of market developments, an appropriate risk management strategy, and the strengthening of the function to carry out the associated tasks.

               (11)A large proportion of the working age population does not participate in the labour market. One of the main reasons for this is early retirement, also among prime-aged men. Early retirement is possible a full five years before the statutory retirement age and financial incentives to work until (and beyond) that age are weak. In addition, the pension system is characterised by a number of special provisions for specific categories of workers and generous early retirement options for certain occupations. Statutory retirement ages for men and women are being brought into line and increased to 67, but only slowly. Both the current and future adequacy of pensions is low and creates high risks of poverty in old age, especially for those with short working lives.

               (12)The problem of high inactivity is compounded by high unemployment; the low utilisation of the labour potential holds back growth. Youth unemployment remains a key concern, pointing to weaknesses in the education system, and there is still room to improve the effectiveness, monitoring and evaluation of the Youth Guarantee. Long-term unemployment rates have fallen recently but are still about twice the EU average. Participation in lifelong learning remains very low, due to an underdeveloped adult education system.

               (13)There are regional differences in per capita spending on social protection, and inconsistencies as regards the eligibility criteria for general social protection schemes and those targeting special categories. Moreover, only a small share of the overall social protection budget is spent on the nation-wide minimum income scheme. This results in inefficiencies and provides insufficient protection to the poorest. The reform of the social protection system suffered delays in terms of consolidating various benefits and establishing one-stop shops as single administrative points for the delivery of social protection services.

               (14)The functional distribution of competences of public administration between central and local levels is complex, and the system is fragmented. The allocation of decentralised administrative functions is not in line with the fiscal capacity of the local units in charge. This makes the local units strongly reliant on central government transfers while leaving considerable regional disparities in the provision of public services. The fragmentation of public administration weighs on service delivery, the business environment and the efficiency of public expenditure. The reform of public administration has not been taken forward in substance. A legal framework was introduced for the voluntary merger of local government units, but incentives to take up this option were not provided. The rationalisation of the system of state agencies is proceeding slowly.

               (15)Public sector wages are regulated by inconsistent provisions across public institutions in the definition of job complexity, fringe benefits and wage supplements. This limits the government's control over the wage bill and weighs on the efficiency of the public sector. Due to the relatively high proportion of total employment accounted for by the public sector, public wage developments are also relevant to the wider economy.

               (16)State ownership of companies is highly present in the economy. Weaknesses in governance, including the lack of appropriate performance monitoring, continue to result in significantly lower profitability of state-owned enterprises relative to comparable private corporations, with negative impacts on public finance. Listing shares of state-owned enterprises on the stock exchange can help improve their corporate governance, notably by fostering reporting and internal control mechanisms. In the past year, steps to open up state-owned enterprises to private ownership advanced slowly.

               (17)The national promotional bank "Croatian Bank for Reconstruction and Development (HBOR)", a state-owned entity, could play a crucial role in Croatia's recovery. Its lending activity could have a substantial impact on promoting investment while addressing market failures. An appropriate regulatory framework and sound corporate governance are needed to contain the risk associated with its activity, especially since HBOR is increasingly engaging in direct lending.

               (18)The independent asset quality review of HBOR's credit portfolio that the authorities are planning to carry out in 2017 is one step in addressing these challenges. In the meantime, it is necessary to strengthen the monitoring and accountability mechanisms applying to HBOR.

               (19)The absorption rate of European Structural and Investment Funds has so far been low due to factors such as insufficient administrative capacity, burdensome procedures and the limited number of ready-to-implement projects.

               (20)Croatiaʼs business environment continues to suffer from major shortcomings that weigh on the investment climate. Many parafiscal charges levied on firms still hamper the business environment. The regulatory environment for service providers and regulated professions remains restrictive. There are restrictions on access to and the conduct of certain regulated professions, including legal professions and tax advisors. Croatia has been reviewing the need for and the proportionality of these restrictions, but the delivery of action has been delayed. Furthermore, regulated professions and businesses suffer from high administrative burdens.

               (21)Regulatory instability and a perceived low quality of legislation also weigh on the business environment. With lengthy proceedings, significant backlogs and inconsistent case law, the quality and efficiency of the judicial system and of commercial courts in particular are facing challenges. ICT systems are under-developed notably in the communication with parties in court proceedings and electronic delivery of court documents.

               (22)The resolution of non-performing loans is critical in addressing the debt overhang in the economy. In this regard, important steps have been made by reinforcing the pre-insolvency and insolvency frameworks for businesses and adopting a personal insolvency procedure. The impact of the new frameworks requires detailed monitoring. However, legal uncertainty in the tax treatment of write-offs still constitutes a barrier to the swift unwinding of banks’ stocks of non-performing loans.

               (23)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Croatia's economic policy and published it in the 2016 country report. It has also assessed the convergence programme and the national reform programme and the follow-up given to the recommendations addressed to Croatia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Croatia but also their compliance with EU rules and guidance, given the need to strengthen the EU's overall economic governance by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 5 below.

               (24)In the light of this assessment, the Council has examined the convergence programme, and its opinion
                  10
                is reflected in particular in recommendation 1 below.

               (25)In the light of the Commission’s in-depth review and this assessment, the Council has examined the national reform programme and the convergence programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 5 below,

               HEREBY RECOMMENDS that Croatia take action in 2016 and 2017 to:

               1.Ensure a durable correction of the excessive deficit by 2016. Thereafter, achieve an annual fiscal adjustment of at least 0.6% of GDP in 2017. Use any windfall gains to accelerate the reduction of the general government debt ratio. By September 2016, reinforce numerical fiscal rules and strengthen the independence and the mandate of the Fiscal Policy Commission. By the end of 2016, improve budgetary planning and strengthen the multi-annual budgetary framework. By the end of 2016, start a reform of recurrent taxation of immovable property. Reinforce the framework for public debt management. Adopt and start implementing a debt management strategy for 2016-2018.

               2.By the end of 2016, take measures to discourage early retirement, accelerate the transition to the higher statutory retirement age and align pension provisions for specific categories with the rules of the general scheme. Provide appropriate up- and re-skilling measures to enhance the employability of the working-age population, with a focus on the low-skilled and the long-term unemployed. Consolidate social protection benefits by reducing special schemes, aligning eligibility criteria, integrating their administration, and focus support on those most in need.

               3.By the end of 2016, start reducing fragmentation and improving the functional distribution of competencies in public administration to improve efficiency and reduce territorial disparities in the delivery of public services. In consultation with social partners, harmonise the wage-setting frameworks across the public administration and public services. Reinforce the monitoring of state-owned enterprises’ performance and boards’ accountability. Advance the listing of shares of state-owned companies and the divestment process of state assets.

               4.Significantly reduce parafiscal charges. Remove unjustified regulatory restrictions hampering access to and the practice of regulated professions. Reduce the administrative burden on businesses.

               5.Take measures to improve the quality and efficiency of the judicial system in commercial and administrative courts. Facilitate the resolution of non-performing loans, in particular by improving the tax treatment of the resolution of non-performing loans.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  OJ L 306, 23.11.2011, p. 25.

                     (3)
                  COM(2016) 331 final.

                     (4)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (5)
                  COM(2015) 690 final.

                     (6)
                  COM(2015) 691 final.

                     (7)
                  SWD(2016) 80 final/2.

                     (8)
                  COM(2016) 95 final.

                     (9)
                  COM(2014) 494 final.

                     (10)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.