               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 415 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2018 National Reform Programme of Luxembourgand delivering a Council opinion on the 2018 Stability Programme of Luxembourg

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2018 National Reform Programme of Luxembourg

                  and delivering a Council opinion on the 2018 Stability Programme of Luxembourg

               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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Luxembourg 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, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the recommendation on the economic policy of the euro area (‘recommendation for the euro area’).

               (2)As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Luxembourg should ensure the full and timely implementation of the recommendation on the economic policy for the euro area, as reflected in the recommendations (1) to (2) below.

               (3)The 2018 country report for Luxembourg
                  4
                was published on 7 March 2018. It assessed some progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017, the follow-up given to the recommendations adopted in previous years and Luxembourg's progress towards its national Europe 2020 targets.

               (4)On 30 April 2018, Luxembourg submitted its 2018 National Reform Programme and its 2018 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)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 of the European Parliament and of the Council
                  5
               , where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  6
               .

               (6)Luxembourg is currently in the preventive arm of the Stability and Growth Pact. In its 2018 Stability Programme, the government plans a decrease in the headline surplus from 1.5 % of GDP in 2017 to 1.1 % of GDP in 2018, followed by an almost steady increase thereafter, reaching a surplus of 2.4 % of GDP in 2022. The medium-term budgetary objective — a structural deficit of 0.5 % of GDP — continues to be met with a margin throughout the programme period. According to the 2018 Stability Programme, the government debt-to-GDP ratio is expected to remain well below the 60 %-of-GDP Treaty reference value. The macroeconomic scenario underpinning those budgetary projections is favourable for the period up to 2020 and plausible thereafter. Based on the Commission 2018 spring forecast, the structural balance is forecast to register a surplus of 0.8 % of GDP in 2018 and 0.3 % of GDP in 2019, lower, in particular for 2019, than in the 2018 Stability Programme, but still above the medium-term budgetary objective. Overall, the Council is of the opinion that Luxembourg is projected to comply with the provisions of the Stability and Growth Pact in 2018 and 2019.

               (7)Luxembourg's economy is continuing to grow healthily and has performed better than the euro area average since the 2009 global recession. The financial sector remains the key driver of economic growth and continues to be sound and profitable. This is reflected in strong surpluses in both the services balance and the overall current account balance. The external sector relative contribution to real GDP growth represented 61 % on average in 2013-2016, despite recurrent negative trade balances. Luxembourg is a net creditor to the rest of the world and at the end of 2016, gross external assets and liabilities reached EUR 10.5 trillion. The national authorities have further implemented macro-prudential and oversight measures and concerned financial intermediaries are adjusting to the changing national and EU policy framework.

               (8)As indicated in the 2018 euro area recommendation, the fight against aggressive tax planning strategies is essential to prevent distortions of competition between firms, provide fair treatment of taxpayers and safeguard public finances. Spill-over effects of taxpayers' aggressive planning strategies between Member States call for a coordinated action of national policies to complement EU legislation. Despite the size of its financial sector, the high level of dividend, interest and royalty payments as a percentage of GDP suggest that the country’s tax rules are used by companies that engage in aggressive tax planning. The majority of foreign direct investment is held by 'special purpose entities'. The absence of withholding taxes on outbound (i.e. from EU residents to third country residents) interest and royalty payments and the exemption from withholding taxes on dividend payments under certain circumstances may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. The Commission takes note of the positive step taken by Luxembourg (i.e. adoption of a patent box regime compliant with international rules). Based on recent exchanges, the Commission will continue its constructive dialogue to fight against taxpayers aggressive planning strategies.

               (9)The Luxembourg authorities have for several decades actively sought to diversify the economy, by developing selected sectors, including the ICT industry and the space sector. Given the country’s high labour costs, activities with higher added value offer the potential to unlock alternative sources of growth. The successful diversification of Luxembourg’s economy therefore depends to a large extent on sectors that are less sensitive to labour cost levels. These are largely based on research and innovation, which tend to be technology- and knowledge-intensive. This strategy has been recently strengthened. Large public investment projects, including R&D and market regulations, among other measures, are being implemented to develop these priority sectors. Between 2000 and 2016, Luxembourg has increased its public R&D expenditure fivefold, reaching 0.60 % of GDP. These investments have led the country to rapidly build a well-performing public research system. However, while public R&D investment is above the euro-area average, private investment in R&D and innovation performance, as measured by the European innovation scoreboard, has continued to decline. The structure of the Luxembourg economy partly explains the lower business R&D intensity in an international comparison, as sectors that account for the bulk of the Luxembourg GDP (services and in particular the financial sector) traditionally invest less in R&D. Nevertheless, this trend is more pronounced in Luxembourg as compared to the EU average and business R&D intensity has decreased to 0.64 % of GDP in 2016, from 1.5 % of GDP in 2000. The declining trend of private investment indicates that obstacles remain in this area. This also points to a lack of leverage from public R&D efforts on business investment. Consequently, the building-up of public research capacities needs to be better integrated in a comprehensive approach to the innovation eco-system. In 2017, a new law was adopted to renew the aid schemes for research, development and innovation, broadening the scope of public aid available.

               (10)Luxembourg is expected to miss its 2020 target for reducing greenhouse gas emissions. Air pollution and traffic congestion at peak-hour are major problems for the country, exacerbating nitrogen dioxide concentrations and greenhouse gas emissions. In 2015, more than half of greenhouse gas emissions came from the transport sector. The low transport fuel taxation, the high number of company cars and the high level of house prices are amongst the main factors stimulating the high levels of car use and increased number of cross-border workers. Transport fuel tax rates are among the lowest in the EU and provide an incentive for increased fuel consumption, including cross-border sales. Nevertheless, recent measures have encouraged the development of a more sustainable mobility, notably through the 2016 tax reform, but also through significant investment in public transport. The most urgent challenges are notably to complete and upgrade rail infrastructures.

               (11)Luxembourg remains committed to reduce regulatory restrictions in the business services sector. Recent measures particularly focused on the professions of architects and engineers, and additional reforms to further reduce restrictions in these two professions have been announced. In addition, the so-called omnibus law adopted in March 2017 introduced administrative simplification measures (i.e. allowing for horizontal screening for administrative procedures). However, regulatory barriers remain in the business services sector. The absence of a specific equivalence assessment procedure for professional insurance requirements, allowing equivalent insurance coverage by service providers from other Member States may be a source of restrictions. The profession of lawyer is particularly affected by regulations that are highly restrictive compared to the EU average. The wide scope of the reserved activity impacts the provision of legal consultancy services by lawyers or other service providers, in particular for online services. Other restrictions include legal form and shareholding requirements, incompatibility rules and multidisciplinary restrictions.

               (12)Concerns remain about the long-term sustainability of public finances due to the projected increase in ageing costs. Luxembourg has a high projected increase in the proportion of old-age population that will be dependent by 2070 and, according to the latest projections of the Social Security Ministry, the operational balance of the pension system will be running a deficit by 2023. Nevertheless, past and current surpluses of the pension system have been saved and accumulated reserves would maintain the viability of the system for a further 20 years. According to the 2018 Ageing Report, age-related costs are expected to increase by 13 pps of GDP between 2016 and 2070, exceeding the sustainability thresholds and particularly driven by pensions (8.9 pps of GDP). Expenditure on long-term care as a proportion of GDP is one of the highest among Member States. In spite of the reform adopted in 2017, it is projected to increase by 3 pps from the current level by 2070.

               (13)The employment rate of older people remains particularly low and further measures are needed to improve their employability and labour market opportunities. This is also important to ensure the long-term sustainability of public finances. Early retirement schemes encouraging workers to leave employment remain widespread, with 59.2 % of newly attributed pensions being early old-age pensions. A law suppressing one early retirement scheme was passed in December 2017 but its net impact on the average effective retirement age and on expenditure is uncertain as it eases conditions on other early retirement schemes. This poor labour market outcome can also be partly attributed to financial disincentives to work, which are comparatively high for this group. Encouraging the employment of older workers requires a comprehensive strategy including measures to help workers remain in active employment for longer. The ‘Age Pact’, a draft law submitted to Parliament in April 2014, which aims to encourage firms with more than 150 employees to hire and retain older workers through age management measures, is still pending in Parliament. As regards education, Luxembourg needs to address the strong impact of students' socioeconomic background on their education outcomes. This is also important to respond to the strong demand for highly specialised skills.

               (14)Real estate prices have continued to rise. This may undermine Luxembourg's ability to attract and retain a skilled labour force, a large proportion of which is made up of non-nationals. House price pressures emerge from a fundamental supply and demand mismatch. On the supply side, insufficient land availability and lack of incentives for private owners to sell land or buildings seem to represent a bottleneck to the creation of new housing. Further work is needed to encourage housing investment, by increasing incentives to promote real estate sales, improving administrative procedures to grant building permits and providing affordable social housing. The recently adopted tax reform on capital gains on real estate sales and the update of the social housing programme is unlikely to increase the house supply, given the continuous trend towards higher prices. On the demand side, high population and employment growth push prices up. The housing market situation also exacerbates the problem of traffic congestion and pollution. In addition, the increase in house prices has repercussions on household indebtedness, raising concerns about the sustainability of household debt. Household indebtedness has rapidly increased over the last 10 years to reach an estimated 165 % of disposable income in 2016, reflecting real estate inflation, as around 80 % of household debt stems from mortgage loans. However, Luxembourg's supervisors are introducing relevant macro-prudential measures and recommendations issues by the European Systemic Risk Board to reduce potential vulnerabilities and risks to financial stability. Following the proposals of the national systemic risk committee, the government has also recently presented a set of measures, including borrowing-based limitations, to avoid a build-up of household vulnerability, although this still needs to be approved by Parliament.

               (15)In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Luxembourg’s economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme and the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Luxembourg in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Luxembourg but also the extent to which they comply with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input for future national decisions.

               (16)In the light of this assessment, the Council has examined the 2018 Stability Programme and is of the opinion that Luxembourg is expected to comply with the Stability and Growth Pact.

               HEREBY RECOMMENDS that Luxembourg take action in 2018 and 2019 to:

               1.Increase the employment rate of older people by enhancing their employment opportunities and employability while further limiting early retirement, with a view to also improving the long-term sustainability of the pension system.

               2.Further reduce regulatory restrictions in the business services sector.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        COM(2018) 415 final.

                     (3)

                        P8_TA(2018)0077 and P8_TA(2018)0078.

                     (4)

                        SWD(2018) 214 final.

                     (5)

                        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).

                     (6)

                        COM(2014) 494 final.


               EUROPEAN COMMISSION
            Brussels,23.5.2018
            COM(2018) 430 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania
            {SWD(2018) 366 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective

                  in Romania

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(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 10(2), second sub-paragraph, thereof,

               Having regard to the recommendation of the Commission,

               Whereas:

               (1)According to Article 121 of the Treaty on the Functioning of the European Union, Member States shall promote sound public finances over the medium term through the coordination of economic policies and multilateral surveillance in order to avoid the occurrence of excessive government deficits.

               (2)The Stability and Growth Pact (SGP) is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation.

               (3)On 16 June 2017, the Council recommended Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  2
                does not exceed 3.3% in 2017, corresponding to an annual structural adjustment of 0.5% of GDP, thereby putting the country on an appropriate adjustment path toward the medium-term budgetary objective. On 5 December 2017 the Council concluded that Romania has not taken effective action in response to the Council Recommendation of 16 June 2017. On that basis, on 5 December 2017 the Council issued a revised recommendation for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3% in 2018, corresponding to an annual structural adjustment of 0.8% of GDP.

               (4)In 2017, based on the Commission 2018 spring forecast and the 2017 outturn data validated by Eurostat, the growth of net primary government expenditure was well above the expenditure benchmark, pointing to a significant deviation by a large margin (deviation of 3.3% of GDP). The structural balance deteriorated to -3.3% of GDP from a position of -2.1% of GDP in 2016, also pointing to a significant deviation from the recommended structural adjustment by a large margin (deviation of 1.7% of GDP). The size of the deviation indicated by the structural balance is negatively impacted by a higher point estimate for potential GDP growth compared to the medium-term average underlying the expenditure benchmark, as well as by a drop in public investment, which is smoothed out in the expenditure benchmark. Irrespective of that difference, both indicators confirm a significant deviation from the requirements of the preventive arm of the SGP in 2017.

               (5)On 23 May 2018, following an overall assessment, the Commission considered that a significant observed deviation from the medium-term budgetary objective exists in Romania and issued a warning to Romania in accordance with Article 121(4) TFEU and 10(2), first-sub-paragraph, of Regulation (EC) No 1466/97.

               (6)According to Article 10(2), second sub-paragraph, of Regulation (EC) No 1466/97, within one month of the date of the adoption of the warning, the Council should address a recommendation to the Member State concerned to take the necessary policy measures. The regulation foresees that the recommendation will set a deadline of no more than five months for the Member State to address the deviation. On that basis a deadline of [15 October 2018] for Romania to address the deviation appears appropriate. Within that deadline, Romania should report on action taken in response to this recommendation.

               (7)Based on the output gap projections of the Commission 2017 spring forecast, Romania will remain in normal economic times in 2018 and 2019. Romania's general government debt ratio is below the 60% of GDP threshold. Henceforth, the minimum required structural effort prescribed by Regulation (EC) No 1466/97 and the matrix of requirements, which factors in the prevailing economic circumstances and possible sustainability concerns, amounts to 0.5% of GDP for both 2018 and 2019.

               (8)Romania's structural deficit has increased by 2.1% of GDP in 2016 and by 1.2% of GDP in 2017, to 3.3% of GDP in 2017. An additional and persistent effort necessary to correct for the cumulated deviation and to bring Romania back on an appropriate adustment path following the slippages in 2016 and 2017 should complement the minimum adjustment requirement. An additional effort of 0.3% of GDP seems appropriate given the magnitude of the observed significant deviation from the recommended adjustment path towards the medium-term budgetary objective and it will accelerate the adjustment back towards the medium-term budgetary objective.

               (9)The required improvement of the structural balance by 0.8% of GDP in both 2018 and 2019 is consistent with the nominal growth rate of net primary government expenditure not exceeding 3.3% in 2018 and 5.1% in 2019.

               (10)The Commission 2018 spring forecast projects a further deterioration of the structural balance by 0.5% of GDP in 2018 and by a further 0.4% of GDP in 2019. Therefore, a structural improvement of 0.8% of GDP in both 2018 and 2019 translates into the need to adopt measures of a total structural yield of 1.3% of GDP in 2018 and additonal measures of a structural yield of 1.2% of GDP in 2019 compared to the current baseline in the Commission 2018 spring forecast.

               (11)The Commission 2018 spring forecast projects a general government deficit of 3.4% of GDP in 2018 and 3.8% of GDP in 2019, which is above the 3% of GDP Treaty reference value. The required structural adjustment seems also appropriate to ensure that Romania respects the 3% of GDP Treaty reference value in 2018 and 2019 with a margin.

               (12)The failure to act upon earlier recommendations to correct the observed significant deviation and the risk of exceeding the Treaty reference value call for urgent action to put Romania’s fiscal policy back on a prudent path.

               (13)It is appropriate that this recommendation should be made public.

               (14)In order to achieve the recommended budgetary targets, it is crucial that Romania adopts and strictly implements the necessary measures and monitors the development of current expenditure closely,

               HEREBY RECOMMENDS:

               (1)Romania should take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3% in 2018 and 5.1% in 2019, corresponding to an annual structural adjustment of 0.8% of GDP in each year, thereby putting the country on an appropriate adjustment path toward the medium-term budgetary objective.

               (2)Romania should use any windfall gains for deficit reduction. Budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner.

               (3)Romania should report to the Council by [15 October 2018] on action taken in response to this recommendation. The report should provide sufficiently specified and credibly announced measures, including budgetary impact of each of them, as well as updated and detailed budgetary projections for 2018-2019.

               This recommendation is addressed to Romania.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        Net primary 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 four-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.


               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 431 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Hungary
            {SWD(2018) 368 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective

                  in Hungary

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(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 10(2), second sub-paragraph, thereof,

               Having regard to the recommendation of the Commission,

               Whereas:

               (1)According to Article 121 of the Treaty on the Functioning of the European Union, Member States shall promote sound public finances over the medium term through the coordination of economic policies and multilateral surveillance in order to avoid the occurrence of excessive government deficits.

               (2)The Stability and Growth Pact (SGP) is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation.

               (3)On 12 July 2016, the Council recommended Hungary to achieve a fiscal adjustment of 0.6% of GDP in 2017 unless the medium-term objective was respected with a lower effort.

               (4)Based on the Commission 2018 spring forecast and the 2017 outturn data validated by Eurostat, the growth of government expenditure, net of discretionary revenue measures and one-offs, was well above the applicable expenditure benchmark rate in 2017, pointing to a significant deviation from the required structural adjustment (deviation of 2.4% of GDP). In 2017, from a position of -1.8% of potential GDP in 2016, the structural balance deteriorated to -3.1% of GDP, also pointing to a significant deviation (deviation of 1.4% of GDP). The overall assessment indicated that the expenditure benchmark was negatively affected by three elements, including a too low medium-term potential growth rate and GDP deflator underlying the expenditure benchmark as well as a permanent revenue effect. After correcting for these factors, the expenditure benchmark appears to adequately reflect the fiscal effort and points to a significant deviation. This conclusion is confirmed by the assessment of the structural balance pillar, which after taking into account the impacts of decreasing interest expenditure, investment volatility and a revenue windfall, still points to a significant deviation. The overall assessment therefore leads to the conclusion that the observed deviation from the medium-term budgetary objective in 2017 is significant.

               (5)On [23 May] 2018, following an overall assessment, the Commission considered that a significant observed deviation from the medium-term budgetary objective exists in Hungary and issued a warning to Hungary in accordance with Article 121(4) TFEU and 10(2), first-sub-paragraph, of Regulation (EC) No 1466/97.

               (6)According to Article 10(2), second sub-paragraph, of Regulation (EC) No 1466/97, within one month of the date of the adoption of the warning, the Council should address a recommendation to the Member State concerned to take the necessary policy measures. The regulation foresees that the recommendation will set a deadline of no more than five months for the Member State to address the deviation. On that basis a deadline of 15 October 2018 for Hungary to address the deviation appears appropriate. Within that deadline, Hungary should report on action taken in response to this recommendation.

               (7)Hungary's structural balance in 2017 is estimated to have been 1.6% of GDP away from its medium-term budgetary objective of a structural deficit of -1.5% of GDP. Based on the output gap projections of the Commission 2018 spring forecast, Hungary is in good economic times in 2018. Hungary's general government debt ratio is above the 60% of GDP threshold. The minimum required structural effort prescribed by Regulation (EC) No 1466/97 and the matrix of requirements, which factors in the prevailing economic circumstances and sustainability concerns, amounts to at least 1% of GDP for 2018. The Commission 2018 spring forecast projects a further deterioration of the structural balance by 0.5% of GDP in 2018. Therefore, a minimum structural improvement of 1% of GDP in 2018 translates into a need to adopt measures of a total yield of 1.5% of GDP compared to the current baseline from the Commission spring 2018 forecast. Given the significant size of the required structural consolidation effort resulting from the minimum  adjustment requirement, it is appropriate not to require any additional required adjustment on top of the minimum 1% of GDP requirement.

               (8)The required improvement of the structural balance by 1% of GDP in 2018 is consistent with the nominal growth rate of net primary government expenditure not exceeding 2.8% in 2018.

               (9)It is appropriate that this recommendation should be made public.

               (10)In order to achieve the recommended budgetary targets, it is crucial that Hungary adopts and strictly implements the necessary measures and monitors the development of current expenditure closely,

               HEREBY RECOMMENDS:

               (1)Hungary should take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 2.8% in 2018, corresponding to an annual structural adjustment of 1% of GDP, thereby putting the country on an appropriate adjustment path towards the medium-term budgetary objective.

               (2)Hungary should use any windfall gains for deficit reduction. Budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner.

               (3)Hungary should report to the Council by 15 October 2018 on action taken in response to this recommendation.The report should provide sufficiently specified and credibly announced measures, including budgetary impact of each of them, as well as updated and detailed budgetary projections for 2018.

               This recommendation is addressed to Hungary.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.


               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 422 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2018 National Reform Programme of Romaniaand delivering a Council opinion on the 2018 Convergence Programme of Romania

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2018 National Reform Programme of Romania

                  and delivering a Council opinion on the 2018 Convergence Programme of Romania

               THE COUNCIL OF THE EUROPEAN UNION,

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

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 9(2) thereof,

               Having regard to the recommendation of the European Commission
                  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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Romania as one of the Member States for which an in-depth review would be carried out.

               (2)The 2018 country report for Romania
                  4
                was published on 7 March 2018. It assessed Romania’s progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017, the follow-up given to the recommendations adopted in previous years and Romania's progress towards its national Europe 2020 targets.

               (3)Romania submitted its 2018 National Reform Programme on 10 May and its 2018 Convergence Programme on 14 May 2018. 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 of the European Parliament and of the Council
                  5
               , where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  6
               .

               (5)Romania is currently in the preventive arm of the Stability and Growth Pact. In its 2018 Convergence Programme, the government plans a headline deficit of 2.95 % of GDP in 2018, and its gradual reduction thereafter, to 1.45 % of GDP in 2021. The medium-term budgetary objective, a structural deficit of 1 % of GDP, is not expected to be reached by 2021, which is the end of the programme horizon. The recalculated structural balance is expected to reach -2.1 % in 2021. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to remain below 40 % by 2021. The macroeconomic scenario underpinning those budgetary projections is favourable. Moreover, the measures needed to support the planned deficit targets have not been sufficiently specified.

               (6)On 16 June 2017, the Council decided in accordance with Article 121(4) of the Treaty on the Functioning of the European Union ("TFEU") that a significant observed deviation from the medium-term objective occurred in Romania in 2016. In view of the established significant deviation, on 16 June 2017 the Council recommended Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  7
                does not exceed 3.3 % in 2017, corresponding to an annual structural adjustment of 0.5 % of GDP. On 5 December 2017 the Council found that Romania had not taken effective action in response to the Council recommendation of 16 June 2017 and issued a revised recommendation. In the new recommendation the Council asked Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3 % in 2018, corresponding to an annual structural adjustment of 0.8 % of GDP. On XX June 2018 the Council found that Romania had not taken effective action in response to the Council recommendation of 5 December 2017. Moreover, based on 2017 outturn data Romania was found to be in significant deviation from the recommended adjustment in 2017. In line with Article 121(4) TFEU and Article 10(2) of Council Regulation (EC) No 1466/97, the Commission issued a warning to Romania on 23 May 2018 that a significant deviation from the adjustment path toward the medium-term budgetary objective was observed in 2017. On XX June 2018, the Council adopted a subsequent recommendation confirming the need for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3 % in 2018, corresponding to an annual structural adjustment of 0.8 % of GDP. Based on the Commission 2018 spring forecast, there is a risk of a deviation from that recommendation in 2018.

               (7)For 2019, the Council on XX June 2018 recommended Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 5.1 %, corresponding to an annual structural adjustment of 0.8 % of GDP. Based on the Commission 2018 spring forecast, there is a risk of a deviation from that requirement in 2019. In addition, the Commission 2018 spring forecast projected a general government deficit of 3.4 % and 3.8 % of GDP for 2018 and 2019, above the 3 %-of-GDP Treaty reference value. Overall, the Council is of the opinion that significant further measures will be needed as of 2018 to comply with the provisions of the Stability and Growth Pact, in light of a strongly deteriorating fiscal outlook, in line with the recommendation addressed to Romania on XX June 2018 with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective.

               (8)Romania's budgetary planning regularly ignores the prescriptions of its fiscal framework despite the need for responsible fiscal policy-making. Romania’s fiscal responsibility law transposes the Fiscal Compact into national legislation. Its rules are well designed but are recurrently overlooked in practice. In 2016 the structural deficit increased above the medium-term objective, in breach of the deficit rule. Both the 2017 and 2018 budgets targeted a headline deficit of close to 3 % of GDP, implying a deterioration of the structural balance against the rule. The two budget amendments undertaken in 2017 were not compliant with the rules prohibiting increases of the headline and primary deficit ceilings and increases in personnel and total government expenditure during the ongoing fiscal year respectively. Furthermore, as in earlier years, in 2017 the update of the fiscal strategy was provided to Parliament long after the statutory deadline, thus failing to provide a longer-term perspective to budgetary planning.

               (9)Tax compliance remains low, in particular for the value added tax. In the past year, Romania achieved limited progress in addressing the repeated country-specific recommendation to strengthen tax compliance and collection. As regards the value added tax, the difference between theoretically expected and actually collected revenues remains very high. To improve compliance, the authorities introduced split payments. This is optional except for insolvent companies and taxpayers with significant outstanding value added tax's liabilities. However, the measure has yet to deliver significant results. The introduction of electronic cash registers connected to the tax administration’s information technology system is still pending implementation.

               (10)The health of the financial sector has further improved, but some developments need monitoring. The banking sector is well capitalised and asset quality has improved. However, several ongoing legislative initiatives, which risk adversely affecting non-performing loan disposal and credit and investment, warrant close monitoring. The recent reduction in the contributions to the pre-funded second pillar pension funds eased short term fiscal concerns but could have negative implications for the development of capital markets.

               (11)The labour market has been tightening due to employment growth along with a reduction of the labour force due to demographic ageing and emigration. Romania has at the same time substantial unused labour potential, and several groups such as young people, Roma, the long-term unemployed and people with disabilities have difficulties in accessing the labour market. In the past year, Romania made little progress addressing the country-specific recommendation to strengthen targeted activation policies and integrated public services, focusing on those furthest away from the labour market. Despite increased financial incentives for mobility schemes, participation in active labour market policies has remained very low, and the administrative burden has been high. Public work programmes of local interest have done little to provide relevant skills and support transitions into standard employment. There is no case management for the long-term unemployed and recipients of social assistance. Cooperation among public employment services and social and education service providers and external providers respectively has been limited.

               (12)The risk of poverty or social exclusion has been very high. Families with children, people with disabilities, Roma, and the rural population have been particularly affected. High income inequality persists, also due to the low impact of the tax-benefit system on mitigating market income inequality. The social reference index, which provides a reference when calculating the most important social benefits, has not been updated since 2008. The minimum inclusion law, scheduled for entry into force in 2018, would have increased the coverage and adequacy of social assistance. However, its entry into force was postponed by more than a year. The lower retirement age for women results in lower pension entitlements, aggravating old-age poverty and the gender employment gap.

               (13)The involvement of social partners in the design and implementation of economic and social reforms has been very limited. The views of social partners are frequently not taken into account even when they converge. Romania’s collective bargaining framework is not conducive to a well-functioning system of industrial relations. Social dialogue is characterised by a low level of collective bargaining, especially at sectoral level, and low membership of trade unions and employers’ organisations. High representativeness thresholds and the vague definition of sectors are among the key obstacles to more effective social dialogue. Legislative amendments to improve the framework have progressed little so far.

               (14)In the past few years, the minimum wage has been repeatedly increased in a discretionary manner. Since 2015, the net minimum wage has risen by more than 60 %. In 2017, around 30 % of workers earned the minimum wage, implying a highly compressed wage distribution. A proposal for an objective mechanism for minimum wage increases has been endorsed by social partners but not been applied by the government.

               (15)The supply of skills is not keeping up with the needs of the economy. Low attainment levels in basic skills and digital skills have an adverse impact on competitiveness, employment and convergence. Participation in adult learning has been very low. A mechanism to match active labour market policies with the demand for skills is not yet in place, and the capacity to anticipate future skills needs and estimate the expected impact of new technologies is weak. Vocational education and training remains a second choice option and is not sufficiently aligned with labour market needs and regional or sectoral specialisation strategies.

               (16)The weak performance of the education system contributes to the high inequality of opportunity and Romania’s long-run growth prospects. The provision of and access to quality inclusive mainstream education is a challenge, in particular for Roma and children in rural areas. The monitoring methodology to tackle school segregation has yet to be developed. The rate of early leavers from education and training is decreasing but still high. An early-warning mechanism to identify children at risk of dropping out is being developed, but the focus on quality education is weak. Despite some measures having been taken, quality assurance in school and higher education is faced with challenges. Tertiary education attainment is very low. Investment in education is relatively low, and disadvantaged schools in particular are lacking appropriate support.

               (17)The health status of the population has improved, but remains below EU standards. Access to healthcare remains a challenge, with negative impacts on child development, workforce employability and healthy ageing. Low funding and the inefficient use of resources limit the effectiveness of the healthcare system, against the background of a sizeable shortage of doctors and nurses. Access to healthcare is limited by the prevalence of informal payments and distance to health infrastructure. Romania made some progress addressing the country-specific recommendation to curb informal payments, and a monitoring mechanism is being implemented, though its actual impact is still to be assessed. Addressing the country-specific recommendation to shift to outpatient care has seen limited progress so far. The ongoing implementation of the national health strategy is marred by shifting priorities and poor investment planning.

               (18)Strategic planning, the public consultation process and regulatory impact assessment remain weak in the design, implementation and monitoring of policies. This impairs the quality and predictability of regulation. Furthermore, frequent changes in legislation, such as amendments to the fiscal code, weigh on the business environment. The involvement of stakeholders in the design and implementation of reforms is weak, and genuine dialogue is rarely applied, although relevant institutional structures are available. The mechanism for addressing stakeholders’ opinions in public consultations does not ensure their proper follow-up. A specific recent example is the disregard of a proposal endorsed by social partners for an objective mechanism for increasing the minimum wage, which would have addressed a country-specific recommendation. No tangible results were achieved on public administration reforms. The adoption of relevant legislation on human resource management in public administration has been delayed. The general secretariat of the government has a limited role in the quality control of policy design.

               (19)The poor quality of infrastructure, including in the transport, waste and waste water sectors, limits Romania’s growth prospects. Public investment is characterised by low efficiency particularly in project preparation and prioritisation. The general condition and reliability of road, rail and waterways infrastructure remain poor and the reform of the transport sector is progressing very slowly. Progress in waste management reform is slow too, while the solid waste and waste water sectors are facing challenges alike. The transport masterplan and the national waste management plan are intended to provide a stable roadmap for investments and strengthen administrative capacity in the sectors, but the alignment of project preparation with strategic planning has been limited so far. Romania achieved limited progress in addressing a country-specific recommendation to strengthen project prioritisation and preparation in public investment.

               (20)Efficient and transparent public procurement remains pivotal to addressing key policy challenges to Romania, including efficient public spending, the fight against corruption, and fostering innovation and sustainable and inclusive growth. Romania made some progress in addressing the country-specific recommendation to implement the public procurement strategy, but the plan is not yet fully implemented. At the same time, enhancing the efficiency and strategic use of public procurement, effective audit and fraud control still remain challenges. The sustainability of measures taken and the irreversibility of reforms need continued monitoring. Efficiency and transparency challenges associated with public procurement apply in particular to the large healthcare infrastructure investments in the regional hospitals for Iaşi, Cluj and Craiova.

               (21)State-owned enterprises have a key role in critical infrastructure sectors such as energy and rail transport. However, their operational and financial performance is weaker than that of private-sector counterparts. The corporate governance of state-owned enterprises has been substantially weakened lately, reversing progress made on country-specific recommendations from 2015 and 2016. Not only has implementation of the new legislation been hesitant, but there are ongoing attempts to exempt a number of companies from its scope. Furthermore, the publication of financial data on state-owned enterprises has been delayed. As a result, key conditions for promoting the efficient use of public resources are being impaired, and space is allowed for distorted investment decisions. In February 2018 the Constitutional Court called on Parliament to revise the above exemptions.

               (22)Developments throughout the past year have largely brought into question the irreversibility and sustainability of Romania’s substantial progress on reforming its judicial system and tackling high-level corruption. Judicial independence is being challenged and pressure being put on the judicial institutions and on the legal framework for fighting corruption, while progress on remaining challenges is being further held back. The implementation of the 2016-2020 national anti-corruption strategy developing further measures to prevent and fight corruption is progressing at technical level but more tangible political support is needed, as corruption and governance issues in the public sector persist at all levels and are among the top challenges for the business environment.

               (23)Under the Cooperation and Verification Mechanism, the Commission continues to monitor the judicial reform and the fight against corruption in Romania. These areas are therefore not covered in the country-specific recommendations for Romania, but are relevant for the development of a positive socio-economic environment in the country.

               (24)In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Romania’s economic policy and published it in the 2018 country report. It has also assessed the 2018 Convergence Programme and the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (25)In the light of this assessment, the Council has examined the 2018 Convergence Programme and its opinion
                  8
                is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Romania take action in 2018 and 2019 to:

               1.Ensure compliance with the Council recommendation of XX June 2018 with a view to correcting the significant deviation from the adjustment path toward the medium-term budgetary objective. Ensure the full application of the fiscal framework. Strengthen tax compliance and collection.

               2.Complete the minimum inclusion income reform. Improve the functioning of social dialogue. Ensure minimum wage setting based on objective criteria. Improve upskilling and the provision of quality mainstream education, in particular for Roma and children in rural areas. Improve access to healthcare, including through the shift to outpatient care.

               3.Increase the predictability of decision-making by enforcing the systematic and effective use of regulatory impact assessment and stakeholder consultation and involvement in the design and implementation of reforms. Improve the preparation and prioritization of large infrastructure projects and accelerate their implementation, particularly in the transport, waste and waste water sectors. Improve the transparency and efficiency of public procurement. Strengthen the corporate governance of state-owned enterprises.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        COM(2018) 422 final.

                     (3)

                        P8_TA(2018)0077 and P8_TA(2018)0078.

                     (4)

                        SWD(2018) 221 final.

                     (5)

                        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).

                     (6)

                        COM(2014) 494 final.

                     (7)

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

                     (8)

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


               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 423 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2018 National Reform Programme of Sloveniaand delivering a Council opinion on the 2018 Stability Programme of Slovenia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2018 National Reform Programme of Slovenia

                  and delivering a Council opinion on the 2018 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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, 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, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the recommendation on the economic policy of the euro area (‘recommendation for the euro area’).

               (2)As a Member State 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 on the economic policy for the euro area, as reflected in the recommendations below, in particular (1).

               (3)The 2018 country report for Slovenia
                  5
                was published on 7 March 2018. It assessed Slovenia’s progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017, 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 7 March 2018
                  6
               . The Commission’s analysis leads it to conclude that Slovenia is not experiencing macroeconomic imbalances.

               (4)On 13 April 2018, Slovenia submitted its 2018 National Reform Programme and its 2018 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)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 of the European Parliament and of the Council
                  7
               , where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  8
               .

               (6)Slovenia is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. The 2018 Stability Programme was submitted by a caretaker government and is based on a no-policy-change assumption. Accordingly, the government expects that the headline surplus will improve to 0.4 % of GDP in 2018 and then reach 0.9 % of GDP in 2021. The medium-term budgetary objective – a surplus of 0.25 % of GDP – is not planned to be achieved by 2021. According to the 2018 Stability Programme, the general government debt-to-GDP ratio is expected to fall to 69.3 % of GDP in 2018 and continue to fall to 58.3 % of GDP in 2021. The macroeconomic scenario underpinning those budgetary projections is plausible.

               (7)On 11 July 2017, the Council recommended Slovenia to ensure that the nominal growth rate of net primary government expenditure
                  9
                does not exceed 0.6 % in 2018, corresponding to an annual structural adjustment of 1.0 % of GDP. At the same time, it was stated that the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of public finances. Following the Commission's assessment of the strength of the recovery in Slovenia while giving due consideration to its sustainability challenges, carried out in the context of its opinion on Slovenia's Draft Budgetary Plan, a fiscal structural effort of at least 0.6 % of GDP is required for 2018, without any additional margin of deviation over one year. This corresponds to a nominal rate of growth of net primary government expenditure not exceeding 1.5 %. Taking that into account in the overall assessment, based on the Commission 2018 spring forecast, there is a risk of a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2018.

               (8)In 2019, in view of Slovenia's general government debt ratio above 60 % of GDP and projected positive output gap of 4.1 % of GDP, the nominal growth rate of net primary government expenditure should not exceed 2.2 %, in line with the structural adjustment of 1.0 % of GDP stemming from the matrix of requirements under the Stability and Growth Pact. At the same time, there are strong signs that the idle capacity in the economy is underestimated, with inflation expected to reach 2 % in 2019, underemployment above the pre-crisis level and investment picking up following a strong contraction over the crisis years. In addition, the plausibility tool also indicates that there is a high degree of uncertainty surrounding the output gap estimates based on the common methodology. On that basis, an annual structural adjustment of 0.65 % of GDP, corresponding to a maximum growth rate of net primary government expenditure of 3.1 %, appears appropriate. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2019 and for 2018 and 2019 taken together. Slovenia is forecast to comply with the transitional debt rule in 2018 and the debt rule in 2019. Overall, the Council is of the opinion that the necessary measures should be taken as of 2018 to comply with the provisions of the Stability and Growth Pact.

               (9)The Slovenian Government has presented proposals to reform the healthcare system. The draft Healthcare and Health Insurance Act, which is the central piece of the reform and will ensure the financing of the health system in the long term, was put to the Economic-Social Council for consultation in December 2017 but was not adopted before the elections, making its prospects for adoption uncertain. A draft Long-Term Care Act is currently being drawn up to make long-term care a new pillar of social security complementary to other social security systems (health care, social care, pension security). It remains uncertain how Slovenia will increase cost-effectiveness, accessibility and quality of care in the future. In 2017, proposals to amend the Medical Practitioners Act, the Health Services Act, the Patient Rights Act and the Act Determining Intervention Measures to Ensure the Financial Stability of Public Healthcare Institutions were adopted and now have to be implemented to ensure accessibility and quality care. Initial steps have been taken to implement the 2016-2025 of the National Health Care Plan. Family medicine outpatient clinics are gradually being introduced, a health technology assessment system is planned to be established by 2020 and eHealth solutions will improve monitoring nationwide. In addition, the benefits from better coordinated public procurement in healthcare are expected to help procurement to become more cost-efficient.

               (10)In July 2017, the Economic and Social Council unanimously adopted a document called ‘Starting points for the modernisation of the Pension and Disability Insurance System in the Republic of Slovenia. It outlines various measures how adequate pensions and a sustainable and transparent pension system could be achieved.  However, a concrete action plan to adopt it is still missing and despite an agreement between social partners and the government to adopt the reform by 2020, the phase-in period for the reform has not yet been outlined. Challenges remain in: ensuring the long-term sustainability and adequacy of the pension system by adjusting the statutory pension age and promoting later retirement; boosting the coverage of the supplementary pension schemes; appropriately addressing changing career paths and reducing old-age poverty risks.

               (11)Economic growth continued and labour market and social trends improved further. The rate of people at risk of poverty or social exclusion decreased but remains above the EU average for the elderly. Employment continued to rise and unemployment further decreased. However, there are signs of labour shortages in a number of vocational occupations. Long-term unemployment remains above pre-crisis levels and still represents almost half of all unemployment. Challenges persist in particular for older workers as their activity and employment rates remain among the lowest in the EU. Slovenia's society is ageing rapidly which means the working-age population and labour supply are shrinking. In response to this trend, the government has prepared an ‘Active Ageing Strategy’, but concrete action plans are still lacking.

               (12)The ageing population emphasises the need to increase participation in adult learning which has been falling since 2010 and is especially low among low-skilled and older workers. Improving skills through lifelong learning would increase the chances of employment, especially for low-skilled and older workers. The employment rate of low-skilled workers improved, but remains below pre-crisis levels and the EU average. Evaluation of active labour market policies shows that most programmes are performing well, however expenditure in this field and the participation rate of unemployed people in the programmes both remain limited. While the 2013 labour market reform clearly helped certain vulnerable groups enter employment, temporary employment remains an issue.

               (13)Measures have been adopted measures to improve funding options for firms in Slovenia and to provide them with alternatives to bank credits. However, reliance on bank credit presents a continued funding challenge, notably for small and medium-sized enterprises, for which access to finance remains a growth barrier. Current measures have not yet resulted in improved finance, particularly for innovative firms. There are only a small number of high-growth enterprises in Slovenia and these lack sufficient support to scale up. Venture capital, as one form of equity financing, is growing but from a very low level. Innovative companies would also benefit from more efficient public research which is currently hindered by difficulties in attracting domestic and foreign talent and a lack of performance-based funding. The level of private investment in Slovenia remains relatively low compared to peer countries meriting focussed efforts to further improve the framework conditions for investment, particularly in areas yielding strong potential to increase productivity.

               (14)Businesses are held back by the still high regulatory and administrative burden. Red tape is considered to be one of the most problematic factors in terms of doing business in Slovenia. This mainly relates to uncertainty and complexity of tax procedures but is not limited to this area as it still takes about a year for commercial cases to be heard before a court. Slovenia has created a tool to help reduce administrative burden and is progressing with implementing this. A significant part of this implementation has not yet been carried out.

               (15)Equally, Slovenia has only started to tackle its high level of restrictive regulation in certain service sectors. Reforms have been carried out to liberalise the professional requirements for architects and civil engineers, but other issues identified by Commission's services remain unaddressed
                  10
               . Reforms would also benefit Slovenian manufacturing firms which depend on competitive services inputs.

               (16)Efficient public procurement is key to cost control and quality improvements in Slovenia’s health sector. Expanding centralised procurement as well a other forms of procurement aggregation such as joint procurement between hospitals, is crucial to ensuring good quality supplies of innovative products at competitive prices.

               (17)Slovenia struggles with inefficiency and lack of transparency in public procurement. Competition between bidders is comparatively low, as indicated by the low number of bids received per tender and by the high ratio of negotiated procedures without prior call. Professionalisation of those involved in procurement is low and there are few safeguards against corruption and collusion among bidders. In particular the independence of the National Review Commission is limited, as a result of the procedure for appointing its members. While economic crime and corruption are estimated by the authorities to have caused significant damage in the past years, some anti-corruption reforms are still pending.

               (18)Slovenia still has high state involvement in the economy, notably in the financial sector. The previously published plans for privatisation have been implemented slowly. Proceeding with privatisations would increase the viability of the companies in the long run and would lower the risks for public finances.

               (19)In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Slovenia’s economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme and the 2018 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 Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (20)In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2018 Stability Programme and its opinion
                  11
                is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Slovenia take action in 2018 and 2019 to:

               1.Ensure that the nominal growth rate of net primary government expenditure does not exceed 3.1 % in 2019, corresponding to an annual structural adjustment of 0.65 % of GDP. Adopt and implement the healthcare and health insurance act and the planned reform of long-term care. Ensure the long-term sustainability and adequacy of the pension system, including by increasing the statutory retirement age and by restricting early retirement. Increase the employability of low-skilled and older workers through lifelong learning and activation measures.

               2.Develop alternative sources of financing for fast-growing companies. Lower the barriers for market entry through the revision of product market regulation and limiting administrative burden. Enhance competition, professionalisation and independent oversight in public procurement. Carry out the privatisations according to the existing plans.

               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(2018) 423 final.

                     (4)

                        P8_TA(2018)0077 and P8_TA(2018)0078.

                     (5)

                        SWD(2018) 222 final.

                     (6)

                        COM(2018) 120 final.

                     (7)

                        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).

                     (8)

                        Guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance, COM(2014) 494 final.

                     (9)

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

                     (10)

                        SWD(2016)820 final.

                     (11)

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


                         EUROPEAN
                         COMMISSION
                                                Brussels, 23.5.2018
                                                COM(2018) 433 final
                                                Limited to Cabinets -
                                                Embargo until adoption
                                Recommendation for a
                               COUNCIL DECISION
   abrogating Decision 2009/414/EC on the existence of an excessive deficit in France
EN                                                                                EN
 ---pagebreak---                                               Recommendation for a
                                            COUNCIL DECISION
       abrogating Decision 2009/414/EC on the existence of an excessive deficit in France
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular
   Article 126(12) thereof,
   Having regard to the recommendation from the Commission,
   Whereas:
   (1)     On 27 April 2009, following a recommendation from the Commission, the Council
           decided, by Decision 2009/414/EC1, in accordance with Article 126(6) of the Treaty,
           that an excessive deficit existed in France. The Council noted that the general
           government deficit notified for 2008 was 3.2% of GDP, thus above the 3%-of-GDP
           Treaty reference value. The general government gross debt (which had been above the
           60%-of-GDP Treaty reference value since 2003) was planned to reach 66.7% of GDP
           in 2008.
   (2)     On the same date, in accordance with Article 126(7) of the Treaty and Article 3(4) of
           Regulation (EC) No 1467/972, the Council, based on a recommendation from the
           Commission, issued a recommendation to France with a view to bringing the
           excessive deficit situation to an end by 2012 at the latest3. The Council also set a
           deadline of 27 October 2009 for effective action to be taken.
   (3)     Thereafter the Council addressed a new recommendation to France on 2 December
           2009 on the basis of Article 126(7) of the Treaty, which extended the deadline for
           correcting the excessive deficit to 2013. The Council considered that France had taken
           effective action, but unexpected adverse economic events with major unfavourable
           consequences for government finances had occurred.
   (4)     On 21 June 2013, on the basis of Article 126(7) of the Treaty, the Council addressed a
           new recommendation to France, which extended the deadline for correcting the
           excessive deficit to 2015. The Council considered that the available evidence did not
           allow to conclude on no effective action, but unexpected adverse economic events
           with major unfavourable consequences for government finances had occurred.
   1
           Council Decision 2009/414/EC of 27 April 2009 on the existence of an excessive deficit in France (OJ
           L 135, 30.5.2009, p. 19).
   2
           Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation
           of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).
   3
           All documents related to the excessive deficit procedure of France can be found at:
           https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-
           economic-governance-monitoring-prevention-correction/stability-and-growth-pact/corrective-arm-
           excessive-deficit-procedure/ongoing-excessive-deficit-procedures/france_en#ongoing-procedure.
EN                                                        1                                                     EN
 ---pagebreak---    (5) Thereafter, on 10 March 2015 the Council under Article 126(7) of the Treaty issued a
       new recommendation to France with a view to bringing an end to the excessive deficit
       situation by 2017. The Council established the deadline of 10 June 2015 for France to
       report in detail on action taken.
   (6) On 1 July 2015, the Commission concluded that the headline deficit targets for France
       were expected to be met both in 2015 and 2016, while the projected fiscal effort,
       according to all metrics, was projected to fall short of the recommended ones in 2015
       and 2016. Therefore, according to the methodology for assessing effective action, the
       Commission considered that the procedure was to be held in abeyance.
   (7) In accordance with Article 4 of the Protocol on the excessive deficit procedure
       annexed to the Treaties, the Commission provides the data for the implementation of
       the procedure. As part of the application of that Protocol, Member States are to notify
       data on government deficits and debt and other associated variables twice a year,
       namely before 1 April and before 1 October, in accordance with Article 3 of
       Regulation (EC) No 479/20094.
   (8) The Council should take a decision to abrogate a decision on the existence of an
       excessive deficit on the basis of notified data. Moreover, a decision on the existence of
       an excessive deficit should be abrogated only if the Commission forecasts indicate that
       the deficit will not exceed the 3%-of-GDP Treaty reference value over the forecast
       horizon5.
   (9) Based on data provided by the Commission (Eurostat) in accordance with Article 14
       of Regulation (EC) No 479/2009, following the April 2018 notification 6 by France,
       the 2018 Stability Programme and the Commission 2018 spring forecast, the following
       conclusions are warranted:
         –       After reaching 3.4% of GDP in 2016, the general government deficit was
                 reduced to 2.6% of GDP in 2017. As compared to the 2017 budget targets, the
                 deficit reduction in that year was mainly driven by the buoyancy of tax
                 revenues (0.7% of GDP), especially VAT and corporate taxes.
         –       The Stability Programme for 2018-2022, submitted by the French government
                 on 25 April 2018, plans the general government deficit to decline to 2.3% of
                 GDP in 2018 and to slightly increase to 2.4% of GDP in 2019. The
                 Commission 2018 spring forecast projects a deficit of 2.3% of GDP in 2018
                 and 2.8% of GDP in 2019, thus remaining below the 3%-of-GDP Treaty
                 reference value over the forecast horizon.
         –       The structural balance, which is the general government balance adjusted for
                 the economic cycle and net of one-off and other temporary measures, improved
   4
       Council Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the
       excessive deficit procedure annexed to the Treaty establishing the European Community (OJ L 145,
       10.6.2009, p. 1).
   5
       In line with the “Specifications on the implementation of the Stability and Growth Pact and guidelines
       on the format and content of stability and convergence programmes”, adopted by the Economic and
       Financial Committee on 15 May 2017, available at:
       http://data.consilium.europa.eu/doc/document/ST-9344-2017-INIT/en/pdf
   6
       Eurostat has expressed a reservation on the quality of the data reported by France. Firstly, Eurostat
       considers that the Agence Française de Développement should be classified inside the general
       government sector, which would result in an increase in government debt. Secondly, Eurostat considers
       that the capital injection by the State into AREVA (0.1% of GDP) in 2017 should be treated as a capital
       transfer, with an impact on the deficit.
EN                                                     2                                                       EN
 ---pagebreak---                   by 0.5% of GDP in 2017. The accumulated improvement in the structural
                  balance since 2015 amounted to 0.7% of GDP.
            –     The gross government debt-to-GDP increased to 97.0% in 2017, from 96.6% in
                  2016, mainly due to the debt-increasing stock-flow adjustments as the primary
                  deficit and interest payments were broadly offset by the debt-reducing impact
                  of real growth and inflation. The Commission 2018 spring forecast projects the
                  debt ratio to decrease to 96.4% in 2018 and 96.0% in 2019 mainly due to high
                  nominal growth that outweighs the primary deficits and interest payments.
   (10)   In accordance with Article 126(12) of the Treaty, a Council Decision on the existence
          of an excessive deficit is to be abrogated when the excessive deficit in the Member
          State concerned has, in the view of the Council, been corrected.
   (11)   In the view of the Council, the excessive deficit in France has been corrected and
          Decision 2009/414/EC should therefore be abrogated.
   (12)   As from 2018, the year following the correction of the excessive deficit, France is
          subject to the preventive arm of the Stability and Growth Pact and should progress
          towards its medium-term budgetary objective at an appropriate pace, including
          respecting the expenditure benchmark, and comply with the debt criterion in
          accordance with Article 2(1a) of Regulation (EC) No 1467/97,
   HAS ADOPTED THIS DECISION:
                                               Article 1
   From an overall assessment it follows that the excessive deficit situation in France has been
   corrected.
                                               Article 2
   Decision 2009/414/EC is hereby abrogated.
                                               Article 3
   This Decision is addressed to the French Republic.
   Done at Brussels,
                                                For the Council
                                                The President
EN                                                 3                                             EN