title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of France and delivering a Council opinion on the 2020 Stability Programme of France 2020/C 282/10

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/62

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of France and delivering a Council opinion on the 2020 Stability Programme of France
      (2020/C 282/10)
      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,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for 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. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified France as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

                  (2)

                  The 2020 country report for France was published on 26 February 2020. It assessed France’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and France’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 26 February 2020. The Commission’s analysis led it to conclude that France is experiencing macroeconomic imbalances. In particular, these imbalances related to high public debt and weak competitiveness dynamics, in a context of low productivity growth, having cross-border relevance.

                  (3)

                  On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

                  (4)

                  Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

                  (5)

                  On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

                  (6)

                  Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

                  (7)

                  The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

                  (8)

                  The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. France is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns, in particular in regions markedly relying on tourism – like the outermost regions – and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within France, aggravating the already observed trend of slowly widening disparities between the capital region, large cities and the rest of the country, between urban and rural areas and between the metropole and the outermost regions. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

                  France submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

                  France is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. On 13 July 2018, the Council recommended France to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 1,4 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing France’s compliance with the debt criterion in 2019.

                  (12)

                  In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 3,0 % of GDP in 2019 to a deficit of 9,0 % of GDP in 2020. After stabilising at 98,1 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 115,2 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, France has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amount to 1,9 % of GDP. Those measures include the funding of partial unemployment scheme for 1,1 % of GDP; 0,4 % of GDP additional expenditure to strengthen healthcare services, health insurance allowances and compensation of healthcare personnel; creation of a solidarity fund for 0,3 % of GDP to provide direct support to small and very small enterprises as well as self-employed. In addition, France has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 17 % of GDP. Those measures include tax and social charges deferrals for companies; accelerated refund of tax and VAT credit; creation of a dedicated reserve for direct support to strategic companies via equity investment (3,1 % of GDP) and loan guarantees (13,9 % of GDP). Overall, the measures taken by France are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, France’s general government balance is forecast at -9,9 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to reach 116,5 % of GDP in 2020 and 111,9 % in 2021.

                  (15)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of France’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit and debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 have not been fulfilled.

                  (16)

                  The French health system is effective in achieving good outcomes. However, the COVID-19 crisis has highlighted shortcomings in system preparedness to address pandemics. These include: a) difficulties in ensuring that health workers, critical supplies and personal protective equipment are readily available; and b) latent structural problems. With regard to the former, France mobilised its reserve of medical and paramedical staff and equipment, including medical students and retired doctors and nurses. Coordinating the response across all segments of the health system remains a challenge. With regard to the latter, these are the result of a lack of investment in physical infrastructures and human resources, of limited adaptation in the organisation of services and of the need for better coordination between private and public actors. Challenges are aggravated by persisting regional disparities. For instance, despite the share of practising doctors being around the Union average, about 18 % of France’s population lives in areas where access to a general practitioner is limited. Further decisive efforts to digitalise health services, a cornerstone of the government’s strategy for transforming the health system, are required. The COVID-19 crisis is showing that better use of e-health, in particular telemedicine, is important in times of pandemic.

                  (17)

                  The COVID-19 crisis is having a negative impact on French labour market and social conditions. Despite having taken mitigation measures, unemployment is set to rise to 10,1 % in 2020 according to the Commission 2020 spring forecast, to then decrease to 9,7 % in 2021. These measures include amending and extending the short-time work scheme, temporarily extending the rights of jobseekers as well as measures adopted to support firms and workers and ensuring the functioning of public services and the health system. Persistent labour market segmentation remains a source of concern. In 2019, around two thirds of new recruitments were on short-time contracts of less than one month. The transition rate from short-time to open-ended contacts is one of the lowest in the Union. The recent reform of the unemployment benefit system (Unédic) aimed to strengthen the financial sustainability of the system and to address segmentation. However, parts of the reform related to indemnisation rules have been put on hold due to the COVID-19 crisis. In light of the deteriorated context, it is important to ensure that unemployment benefits, as well as active support to employment, are available to all jobseekers, irrespective of previous employment status. To address skills mismatches and improve the resilience of the labour market, efforts should continue to promote the reallocation of the workforce across sectors. Before the COVID-19 pandemic, employers increasingly reported difficulties in finding suitable candidates to recruit, pointing to the need to promote upskilling and reskilling. For instance, while the Information Technology sector is particularly affected by skills shortages, its graduates only represent 3,5 % of the total number of tertiary graduates.

                  (18)

                  In the context of the COVID-19 crisis, it is particularly important to ensure the functioning of critical infrastructure and the free circulation of goods throughout the single market and to monitor and ensure the correct functioning of supply chains in cooperation with neighbouring countries. To this end, lifting export restrictions for certain medicinal products adopted during the COVID-19 crisis will contribute to address the needs of citizens across the Union coherently and in a spirit of solidarity, avoid the risk of shortages and disruptions of supply chains, and ultimately, pave the way to a successful Union coordinated COVID-19-exit strategy.

                  (19)

                  France has adopted many schemes to support the liquidity of firms, including under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (8). Effective and efficient implementation of such schemes is key to ensure that firms, and in particular small and medium-sized enterprises (SMEs), benefit from them. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account.

                  (20)

                  France’s overall business environment has improved but France needs to continue its efforts to simplify its tax system and reduce the administrative burden for firms, particularly if it is to support an effective economic recovery in the medium term. For instance, according to the Commission’s assessment which was confirmed by the OECD’s 2018 Product Market Regulation indicators, despite progress made and the adoption of several measures in the services sector, regulatory restrictions remain higher in France compared to other Member States, particularly for business services, many of which are regulated professions, and in retail. As one of the most affected sectors, the services sector will play a major role in exiting and recovering from the COVID-19 crisis. Redesigning requirements for the access to and exercise of services activities would stimulate innovation, competition and professional mobility, having a positive overall economic impact. Regulatory flexibility could also boost a rebound of retail activity in the aftermath of the COVID-19 pandemic.

                  (21)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. This could be identified in European Green Deal priorities, in particular in low-carbon transport initiatives, renewable, energy and building renovations. Together with the digital transformation of the economy, this could help bring short-term stimulus to the recovery and the medium-term aftermath of the COVID-19 crisis and put France on a sustainable long-term climate neutral path while promoting technological leadership. Preparatory work for recovery measures could rely on France’s National Energy and Climate Plan, projects of common interest and infrastructure development plans. Further investments in energy infrastructures, including in electricity interconnections, would contribute to improve integration of the internal Union energy market, while introducing more competition and facilitating the deployment of renewable energy. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help France to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow France to make the best use of that Fund.

                  (22)

                  During the lockdown, digitalisation has proven vital in maintaining access to governmental, educational and medical services, and in preserving economic activity, through teleworking and e-commerce. In the medium term, digitalisation provides greater opportunities for firms, in particular SMEs, to recover and grow by bringing them into contact with more potential customers, improving the efficiency of production processes, and providing incentives to innovate. Investments in digitalisation include providing adequate infrastructure, improving the wider populations’ digital skills, in particular the working population. The implementation of France’s plan for very high-speed broadband (Plan France Très Haut Débit) appears to be on track with regards to urban areas. However, very high speed network coverage disparities remain important in other areas.

                  (23)

                  France has a strong research base and potential to engage in specific research and innovation-related measures to respond to the COVID-19 crisis, including the development of vaccines and medicines. The COVID-19 crisis and its aftermath require strengthened cooperation in research and innovation between the public and private sectors. In the medium term, investment in research and innovation could unlock productivity gains, as pointed out by the French National Productivity Board. It is also needed in growth-enhancing sectors to allow firms to seize the opportunities offered by the transformation of the European economy.

                  (24)

                  While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

                  (25)

                  The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, France will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

                  (26)

                  Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, France should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

                  (27)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of France’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to France in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in France, 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.

                  (28)

                  In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (9) reflected in particular in recommendation (1) below.

                  (29)

                  In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (3) and (4),

            HEREBY RECOMMENDS that France take action in 2020 and 2021 to:

                  1.

                  Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system by ensuring adequate supplies of critical medical products and a balanced distribution of health workers, and by investing in e-health.

                  2.

                  Mitigate the employment and social impact of the COVID-19 crisis, including by promoting skills and active support for all jobseekers.

                  3.

                  Ensure the effective implementation of measures supporting the liquidity of firms, in particular for SMEs. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on sustainable transport, clean and efficient production and use of energy, energy and digital infrastructures as well as research and innovation.

                  4.

                  Continue to improve the regulatory environment, reduce administrative burdens for firms and simplify the tax system.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

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

         (3)  OJ C 301, 5.9.2019, p. 55.

         (4)  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).

         (5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

         (6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

         (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 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.

         (8)  OJ C 91I, 20.3.2020, p. 1.

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Croatia and delivering a Council opinion on the 2020 Convergence Programme of Croatia 2020/C 282/11

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/68

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Croatia and delivering a Council opinion on the 2020 Convergence Programme of Croatia
      (2020/C 282/11)
      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,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for 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. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Croatia as one of the Member States for which an in-depth review would be carried out.

                  (2)

                  The 2020 country report for Croatia was published on 26 February 2020. It assessed Croatia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Croatia’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 26 February 2020. The Commission’s analysis led it to conclude that Croatia is experiencing macroeconomic imbalances linked to high levels of public, private and external debt in a context of low potential growth.

                  (3)

                  On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

                  (4)

                  Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

                  (5)

                  On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

                  (6)

                  Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

                  (7)

                  The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

                  (8)

                  The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds (‘ESI Funds’) so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Croatia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be sizeable and unevenly distributed across Croatian regions because of different specialisation patterns. The coastal regions and the islands which markedly rely on tourism will be particularly affected. The current situation therefore calls for targeted policy responses.

                  (10)

                  On 30 April 2020, Croatia submitted its 2020 National Reform Programme and its 2020 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

                  Croatia is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

                  (12)

                  In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 6,8 % of GDP in 2020 and improve to a deficit of 2,4 % of GDP in 2021. After decreasing to 73,2 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 86,7 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Croatia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and businesses that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amount to 2,8 % of GDP. The two main measures are the subsidy paid out to businesses for retaining employees and tax exemptions granted to hardest-hit businesses. In addition, Croatia has adopted measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 1,3 % of GDP. Those measures include tax deferrals for personal and corporate income taxes and social contributions. Overall, the measures taken by Croatia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, Croatia’s general government balance is forecast at -7,1 % of GDP in 2020 and -2,2 % of GDP in 2021. The general government debt ratio is projected to reach 88,6 % of GDP in 2020 and moderate to 83,4 % in 2021.

                  (15)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Croatia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

                  (16)

                  In response to the COVID-19 pandemic, Croatia swiftly undertook far-reaching measures to protect its citizens and contain the spread of the virus. The pandemic (and associated containment measures) led to serious disruption to business activity, with resulting negative effects on the labour market. Real GDP is estimated to drop by 9,1 % in 2020 and recover by 7,5 % in 2021, while the unemployment rate is forecast to increase to 10,2 % in 2020 and improve to 7,4 % in 2021, according to the Commission 2020 spring forecast. The tourism sector, which represents a very significant share of the Croatian economy, will be heavily impacted. At the same time, Croatia also had to deal with the effects of a major earthquake in Zagreb on 22 March 2020. To mitigate the negative impact on the economy, Croatia undertook a set of ambitious measures including wage support measures, exemptions from and deferrals of taxes and social contributions, support for small and medium-sized enterprises (‘SMEs’), additional guarantees for export insurance and moratoria on loan instalments, and specific measures for tourism and other highly affected sectors.

                  (17)

                  The COVID-19 outbreak is a test of the resilience of the Croatian health system. Although access to healthcare is generally good in Croatia, unmet medical needs due to distance are amongst the highest in the Union. A more balanced geographical distribution of health workers and facilities would allow easier access to health services. The division of responsibility for healthcare facilities in Croatia between the central government and county authorities leaves scope for improvement. The central government has to cover the debts of hospitals owned by counties but has limited means of influencing how they are managed. Closer cooperation between the central government and counties is crucial to ensuring the supply of critical medical products and for being able to take steps to limit the spread of COVID-19. The use of e-health tools enables direct contacts between health workers and patients to be reduced, also lowering the risk of infections. The use of e-prescriptions is widespread, but a very low proportion of referrals and health records is digital.

                  (18)

                  Due to a slowdown in economic activity, employers have difficulty paying wages, which is expected to result in increased unemployment and poverty levels, with even more pronounced territorial disparities. Traditionally, participation in active labour market policy measures has been very low, but under the current circumstances such programmes are gaining more prominence. In order to provide support to employers and minimise the number of dismissals, such measures, but also other time-bound support schemes, in particular short-time work schemes, should be enhanced. In the short term, they preserve jobs, but in the medium term too, there is scope for improving the anticipation of labour market needs during the recovery phase. The Croatian public employment service should step up its efforts to support the workforce in developing appropriate skills (e.g. digital skills), develop outreach strategies towards the inactive population and help fight undeclared work by promoting formal employment. The unemployment benefit does not provide an adequate safety net for dismissed workers, as both the coverage and adequacy are low. The poverty reduction capacity of the minimum income benefit is also evaluated as weak, in a context of high rates of poverty and social exclusion, territorial disparities and risk factors related to age, gender and disability.

                  (19)

                  The reliability of internet connectivity poses concerns. Households in Croatia do not have widespread high-speed internet access at home. About 70 % of households have fixed broadband take-up, and only 6 % have at least 100Mbps fixed broadband take-up. Especially in rural areas, this might prevent telework and distance learning, particularly amongst vulnerable groups, such as students from disadvantaged families or those with disabilities. These groups risk being excluded from the sudden shift to a more digitalised society. Alternative working arrangements employing digital technology should be stepped up, in close cooperation with social partners, as the share of workers who telework (6 to 7 %) stands at half the Union average.

                  (20)

                  Labour shortages have continually affected some sectors of the economy, mainly because of skills gaps. Promoting the acquisition of adequate skills, including digital skills, during initial education and training and later via reskilling and upskilling could raise productivity and close skills gaps. The quality and inclusiveness of the education and training system need to be improved at all levels, and the curricular reform needs to continue. The introduction of digital education has already proven its value in the COVID-19 crisis; further development of infrastructure and material for digital education and training and of the digital skills of teachers, pupils and adults are needed.

                  (21)

                  Croatia should support the continuous flow of credit and other financing, including non-bank financing, to viable borrowers that are negatively affected by the COVID-19 crisis. Croatia has adopted a number of stimulus and support schemes for SMEs. Efforts should continue to provide swift and continued liquidity support to businesses through loans and guarantees, in particular State guarantees, with a focus on SMEs, to overcome the crisis and smooth the path to recovery. Businesses in Croatia rely heavily on bank loans and cash flow to meet their funding needs. The banking system should be supported with guarantees in order to open up for new SME financing and improve access to finance. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Exempting from and allowing deferred payments of taxes and social contributions has also helped improve businesses’ liquidity.

                  (22)

                  There has been renewed effort to reduce the administrative burden and regulatory restrictions. However, the operation of businesses in general continues to be held back by the still high regulatory and administrative burden, for example as regards permits, reporting requirements, to a certain extent, and tax procedures. Identification of the administrative and financial burdens is progressing through consultations with stakeholders and via a dedicated website, and measures to reduce the most burdensome obligations are being introduced. Ensuring smooth access to and exercise of professions, through streamlining their regulatory frameworks and related administrative procedures, is also of crucial importance, especially for SMEs and microenterprises, including sole practitioners. A review of parafiscal charges has been carried out and a first action plan was adopted by the government in May 2020.

                  (23)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Croatia should promote investment in growth-enhancing sectors, contributing to the green and digital transitions. A modern and robust digital infrastructure is key for the digital transformation of the public administration and businesses. In the context of the digital transition, investments in very-high-capacity networks, including 5G, are a prerequisite. Investment should support Croatia’s decarbonisation and energy transition targets outlined in Croatia’s National Energy and Climate Plan. There is particular scope and opportunity for Croatia to invest in sustainable urban and railway transport, energy efficiency, renewable sources of energy and environmental infrastructure. In addition, as regards water and waste management, Croatia considerably lags behind the Union average and investment is necessary to sustain Croatia’s economic development. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Croatia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Croatia to make the best use of that Fund.

                  (24)

                  The efficiency of the public administration in Croatia ranks below the Union average. Low capacity to design and implement policies and projects hampers effectiveness and speed, including as regards the implementation of ESI Funds, which for Croatia present a major opportunity to alleviate the consequences of the crisis and support the recovery of the economy. The implementation of the new strategic planning system, together with the announced National Development Strategy, is not progressing. Moreover, there is high territorial fragmentation of the public administration and an imbalance between responsibilities and resources at local level. This contributes to uneven quality of public services provided across the country and raises administrative costs.

                  (25)

                  Substantial backlogs and lengthy proceedings in civil and commercial courts continue to affect the business environment and effective resolution of insolvencies, while challenges for the quality and efficiency of criminal justice hamper the fight against economic and financial offences. Progress was achieved in resolving the oldest pending court cases and in using electronic communication in courts, but room for improvement remains.

                  (26)

                  While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

                  (27)

                  Croatia’s financial sector is well capitalised and profitable, while asset quality in the banking sector has improved over the past few years. However, financial institutions are likely to face some stress given their exposures to sectors that are most vulnerable to the COVID-19 outbreak. Measures have been introduced to alleviate the negative impact of the containment measures on businesses. It is crucial that these measures are temporary, strictly linked to the outbreak and adequate in helping businesses facing financial difficulties return to viability. Such an approach will support businesses without undermining the progress that Croatia has made in improving the stability of its financial sector.

                  (28)

                  Continuing efforts to strengthen the framework to prevent and sanction corruption are key to ensuring recovery in the aftermath of the COVID-19 crisis and achieving an efficient, accountable and transparent allocation and distribution of funds and resources. Despite the partial implementation of several Action Plans, issues of corruption and conflicts of interest remain widespread for businesses. Further efforts to strengthen the framework to prevent and sanction corruption are needed to ensure the transparent and efficient use of public funds. More effective tools to prevent and sanction corruption are needed, particularly at the local level. The need to enhance oversight mechanisms for local officials and appointees to local public companies remains, as does the need to ensure the Conflicts of Interest Commission can fulfil its essential preventive role. Initiatives to increase transparency, such as the publication of assets of judges and prosecutors, are expected to start in 2020.

                  (29)

                  The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. In their 2020 National Reform Programmes, Member States have taken stock of progress made in the implementation of the United Nations’ Sustainable Development Goals (SDGs). By ensuring the full implementation of the 2020 country-specific recommendations, Croatia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

                  (30)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Croatia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Croatia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Croatia, 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.

                  (31)

                  In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below.

                  (32)

                  In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4) below,

            HEREBY RECOMMENDS that Croatia take action in 2020 and 2021 to:

                  1.

                  Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Enhance the resilience of the health system. Promote balanced geographical distribution of health workers and facilities, closer cooperation between all levels of administration and investments in e-health.

                  2.

                  Strengthen labour market measures and institutions and improve the adequacy of unemployment benefits and minimum income schemes. Increase access to digital infrastructure and services. Promote the acquisition of skills.

                  3.

                  Maintain measures to provide liquidity to SMEs and the self-employed. Further reduce parafiscal charges and restrictions in goods and services market regulation. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on environmental infrastructure, sustainable urban and rail transport, clean and efficient production and use of energy and high-speed broadband.

                  4.

                  Reinforce the capacity and efficiency of the public administration to design and implement public projects and policies at central and local levels. Improve the efficiency of the judicial system.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

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

         (3)  OJ C 301, 5.9.2019, p. 64.

         (4)  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).

         (5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

         (6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Italy and delivering a Council opinion on the 2020 Stability Programme of Italy 2020/C 282/12

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/74

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Italy and delivering a Council opinion on the 2020 Stability Programme of Italy
      (2020/C 282/12)
      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,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for 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. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Italy as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

                  (2)

                  The 2020 country report for Italy was published on 26 February 2020. It assessed Italy’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Italy’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 26 February 2020. The Commission’s analysis led it to conclude that Italy is experiencing excessive macroeconomic imbalances. In particular, high government debt and protracted weak productivity dynamics imply risks with cross-border relevance, in a context of high unemployment and a still high level of non-performing loans (NPLs).

                  (3)

                  On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs and incomes as well as companies’ business. It has delivered a major economic shock that is already having serious repercussions in the Union. On 13 March 2020, the Commission adopted a communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

                  (4)

                  Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

                  (5)

                  On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

                  (6)

                  Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

                  (7)

                  The COVID-19 crisis has highlighted the flexibility that the internal market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the internal market from functioning normally should be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector. Improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies are among the key elements for developing broader crisis preparedness plans.

                  (8)

                  The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Italy is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Italian regions and territories due to longstanding economic and social disparities, diverging competitiveness potential and the degree of reliance on tourism. This entails a risk of widening regional and territorial disparities within Italy, aggravating diverging trends between less developed regions and more developed ones, between social peripheries and the rest of urban areas as well as between some urban areas and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

                  On 30 April 2020, Italy submitted its 2020 Stability Programme.

                  (11)

                  Italy is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

                  (12)

                  In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,6 % of gross domestic product (GDP) in 2019 to a deficit of 10,4 % of GDP in 2020. The deficit is projected to decline to 5,7 % of GDP in 2021. After having stabilised at 134,8 % in 2019, the general government debt-to-GDP ratio is expected to increase to 155,7 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic. There are risks underlying the budgetary projections, namely the considerable size of public guarantees and the volatility of sovereign yields.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Italy has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amount to 4,5 % of GDP in 2020. The measures include strengthened healthcare and civil protection, extended wage supplementation schemes and financial support to self-employed persons and firms. In addition, Italy has introduced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, including tax deferrals and loan guarantees. Overall, the measures taken by Italy are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium-term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, Italy’s general government balance is forecast at -11,1 % of GDP in 2020 and -5,6 % of GDP in 2021. The general government debt ratio is projected to reach 158,9 % of GDP in 2020 and 153,6 % in 2021.

                  (15)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Italy’s non-compliance with the debt rule in 2019 and the planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that there is no sufficient evidence to conclude that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has or has not been complied with, while the deficit criterion has not been fulfilled.

                  (16)

                  The COVID-19 pandemic has put the national health system under unprecedented strain, evidencing structural weaknesses and the need to increase preparedness in response to crisis events. Despite below Union average spending on health, Italy’s health system is characterised by highly specialised as well as good quality universal services and it has generally succeeded in providing accessible care. Nevertheless, especially at the onset of the COVID-19 pandemic, the health system governance fragmentation, and coordination between central and regional authorities slowed down the implementation of some containment measures. The response of regional health systems to the crisis was based primarily on an extraordinary mobilisation, in particular of the health workforce and local social services. This compensated for the limits of the physical infrastructure, the limited number of health workers and the limited amount of investment directed towards improving structures and services in previous years. The government made great efforts to mitigate the spread of the virus responsible for COVID-19, relieve pressure on hospitals and generate additional care capacity. A longer-term containment strategy is now being developed to ensure a safe return to productive activity. In addition to improving governance processes and crisis preparedness plans, post-COVID-19 policies should aim at alleviating the public investment gap in health care. In the medium to long term, developing a strategic investment plan will be key to improve the resilience of the health system, and to guarantee the continued provision of accessible care. In the face of current health workforce projections, priority should be given to developing policies to resolve bottlenecks in the training, recruitment and retention of the health workforce.

                  (17)

                  The containment measures adopted in response to the COVID-19 crisis are having a strong negative impact on the labour market and social conditions. Prior to the crisis, the social situation was slowly improving, even if the risk of poverty or social exclusion, in-work poverty and income inequality remained high and with major regional differences. Given the impact of the COVID-19 pandemic and its aftermath, social safety nets should be strengthened to ensure adequate income replacement, irrespective of employment status, including for those facing gaps in access to social protection. Strengthening income replacement and support is particularly relevant for atypical workers and people in vulnerable situations. Provision of services aimed at social and labour market inclusion is also key. The new minimum income scheme, which provided over the past year benefits to more than one million households (EUR 513, on average), may mitigate the effects of the COVID-19 crisis. However, its reach out to vulnerable groups could be improved. On a temporary basis, the government introduced an additional “emergency income” to support households not eligible for the minimum income so far. People employed in the shadow economy, in particular in sectors such as agriculture, food industry and housing, also risk facing gaps in access to social protection and income support. To respond to this challenge, the government recently eased the rules for legalising the employment status of undeclared workers and for obtaining or extending residence permits for working migrants. Negative demographic trends and brain drain also risk hindering growth prospects. In addition to more difficult labour market conditions, lack of quality services is a driver of depopulation in southern regions and rural areas. Enhancing access to e-services is key, especially in a context of limited mobility.

                  (18)

                  Since the outbreak of the COVID-19 crisis, Italy is taking steps to mitigate the employment impact. Short-time work schemes (Cassa integrazione) have played a major role and are expected to do so in the future. Eligibility has been extended to include small enterprises and microenterprises as well as all economic sectors and employees. In addition, a separate (temporary) scheme has been created for the self-employed. Prior to the COVID-19 crisis, labour market conditions had continued to improve. In 2019, the employment rate reached 64 %, the highest rate ever recorded. However, this was still significantly below the Union average. The unemployment rate was persistently high, as were other indicators of labour market slack, and is expected to rise further to 11,8 % in 2020 and decrease to 10,7 % in 2021, according to the Commission 2020 spring forecast. The share of temporary contracts was also high, even if since mid-2018 job creation had been driven by permanent jobs. For the future, in order to promote a sustainable and inclusive recovery, the labour market integration of inactive young people and women is key. Some steps were taken to strengthen public employment services and better integrate them with social services, adult learning and vocational training. However, their placement capacity remains weak and varies widely across regions. The involvement of employers also remains marginal. As containment measures are progressively lifted, flexible working arrangements and teleworking can support firms and workers. In response to the COVID-19 crisis, the government adopted temporary measures aiming at conciliating private and working life, such as fostering smart working and special leaves and providing vouchers for baby-sitting. Despite recent efforts, measures to promote equal opportunities and work-life balance policies, as well as the supply of affordable early childhood education and care and long-term care services, remain weak and poorly integrated.

                  (19)

                  The current emergency also shows the need to improve digital learning and skills, including for working age adults and distance learning. Investing in education and skills is key to promoting a smart and inclusive recovery and to staying on track to pursue the green and digital transition. In that regard, education and training outcomes continue to represent a major challenge for Italy. There are large regional gaps in basic skills attainment and the rate of early school leaving is well above the Union average (13,5 % versus 10,3 % in 2019), in particular for non-Union born pupils (33 %). In a context of limitations to mobility, regional and territorial disparities risk being exacerbated. In that light, investing in distance learning, as well as in the digital infrastructure and skills of educators and learners, is particularly important. Italy also has a lower share of graduates in science and engineering compared to the Union average, and tertiary attainment remains very low (27,6 % in 2019). Moreover, Italian enterprises invest less in training regarding information and communication technologies for their employees, compared to peer countries. The low participation rate of low-qualified adults in training is also a matter of concern, given the declining number of jobs requiring low qualifications. Upskilling and reskilling remain as crucial as ever to equip workers with labour market relevant skills and to promote a fair transition towards a more digital and sustainable economy.

                  (20)

                  The COVID-19 crisis has reinforced the need to support the access to finance for firms. Italy has adopted several schemes to support the flow of liquidity to firms, including under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (7). Effective implementation of such schemes, including through guarantees channelled by the banking system, is key to ensure that all firms, and in particular small and medium-sized enterprises (SMEs) and those in the most affected sectors and geographic areas as well as innovative firms, benefit from them. In the process of designing and implementing those measures the resilience of the banking sector needs to be taken into account. Direct grants and incentives to market-based finance can also support the liquidity of SMEs and innovative firms. Innovative firms (often without collateral) have more difficulties to access credit, and the current crisis could worsen the situation. Deferral of tax and social contributions to the State has helped improve the cash flows of firms. However, delays in approved payments, whether by administrations-to-businesses or by business-to-business, should be prevented, as they are a drag on the liquidity of all firms, particularly of smaller ones.

                  (21)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Investment in support of the green transition will be particularly important to support recovery and increase future resilience. Italy is highly vulnerable to extreme weather and hydrogeological disasters, including droughts and forest fires. Italy’s transformation to a climate-neutral economy will require sizeable private and public investment, over a sustained period of time, in particular on new renewable energy production, electricity infrastructure and energy efficiency. Green deal investments to tackle climate change are laid out in in Italy’s National Energy and Climate Plan. They are essential to address the threat represented by climate change, while playing a fundamental role in Italy’s recovery and to strengthen its resilience. Green deal investments are also key for reducing the impact on human health from air pollution in Italian cities, especially in the Po Basin. For instance, implementing sustainable mobility initiatives, such as renewal of local public buses, represents an example to address both congestion and air pollution. Infrastructure deficits for water and waste management, in particular in southern regions, lead to environmental and health impacts with considerable costs and lost revenues for the economy. More generally, resilience to climate change is relevant for all infrastructure, including health infrastructure. This requires adaptation strategies. Addressing environmental and climate change challenges, such as hydrological risks, sustainable urban mobility, energy efficiency, circular economy and industrial transformation, represent an opportunity to improve productivity while avoiding unsustainable practices. At the same time, investing into such projects can contribute to creating jobs and sustaining the post-crisis recovery. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Italy to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Italy to make the best use of that Fund.

                  (22)

                  The COVID-19 outbreak containment has underlined the importance of investing in the economy’s digitalisation and shown the relevance of digital infrastructures. Low levels of digital intensity and digital knowledge of firms in Italy, especially SMEs and micro-enterprises, have prevented them from offering e-commerce and teleworking arrangements and providing and using digital tools during the containment. Investing in digitalisation and skills through a continued and timely implementation of targeted national policies is essential to enhance e-business models and help firms adapt, as well as to boost productivity and competitiveness. Access to fast and reliable digital infrastructure has shown to be key to ensuring essential services are provided in government, education, health and medicine, and key to monitoring and controlling the epidemic. Italy is still lagging behind in fiber-to-the-premises coverage in rural areas. Specific measures should be adopted to address that gap, as well as to further encourage take-up.

                  (23)

                  A well-performing research and innovation system is the result of continuous, coherent and evidence-based policy support, together with investments and adequate human capital. The current COVID-19 crisis has clearly shown that the rapid exchange of data between researchers, including access to results and evidence at no charge to the user and Open Science, need further strengthening. The latter, together with science/business cooperation are clearly instrumental to bring research results, including those needed on vaccines and therapies, on the market, building on the strength of Italy in the medical industrial and research sector.

                  (24)

                  An effective public administration is crucial to ensure that measures adopted to address the emergency and support the economic recovery are not slowed down in their implementation. The disbursement of social benefits, liquidity measures, and the front-loading of investments, etc. may not be effective if hampered by public sector bottlenecks. Weaknesses include lengthy procedures, including civil justice ones, the low level of digitalisation and weak administrative capacity. Procedures and checks need to be dealt with swiftly, in a context where public resources are being significantly increased to support economic activity. Digitalisation across public administrations was uneven prior to the COVID-19 crisis. Online interaction between authorities and the general public was low. The share of administrative procedures managed by regions and municipalities that can be started and completed entirely digitally remains low. The COVID-19 crisis has also exposed the lack of interoperability of public digital services. To facilitate the business responsiveness of the public administration, sectoral regulations need to be improved and simplified, while remaining barriers to competition need to be removed. Finally, an effective justice system is key for an attractive investment and business-friendly economy and will be crucial in the recovery process, also by enabling effective rescue and recovery frameworks.

                  (25)

                  While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

                  (26)

                  The measures adopted by the government to support households and corporates are also beneficial for preserving banking sector capitalisation and resilience in the current difficult operating environment. Despite the adopted mitigating measures, including the prudential flexibility granted by banking supervisors, the COVID-19 pandemic is also straining bank asset quality across the Union, and is expected to continue to do so in the coming weeks and months, including in Italy. As a result, NPL reduction efforts are being impacted, also due to the slowdown in the court and impaired asset workout activities. In that regard, fostering sustainable solutions for the viable borrowers affected by the COVID-19 crisis, including by avoiding legal automaticities, is an important pre-requisite for safeguarding asset quality. Meanwhile, ensuring accurate reporting of asset quality deterioration and prudent credit standards can also help support the functioning of the secondary market for NPLs and contain adverse effects on existing NPLs disposal initiatives.

                  (27)

                  Effective prevention and sanctioning of corruption can play an important role in ensuring Italy’s recovery after the COVID-19 crisis. Transparency in the public sector and reinforced checks against corruption, in particular, can avoid attempts by organised crime to infiltrate economic and financial life, distort public procurement procedures and, more broadly, divert public resources needed for investment. At the same time, public procurement procedures should remain efficient, balancing the need for scrupulous monitoring with the need for timeliness. Disposition time at criminal appeal courts still raises concerns but comprehensive reforms to streamline criminal procedures are being discussed in Parliament. Italy’s anti-corruption framework has recently been reinforced but needs to be completed, also by sanctioning elected public officials in case of conflicts of interest.

                  (28)

                  The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. By ensuring the full implementation of the 2020 country-specific recommendations, Italy will contribute to the progress towards the United Nations Sustainable Development Goals and to the common effort of ensuring competitive sustainability in the Union.

                  (29)

                  Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Italy should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

                  (30)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Italy’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the follow-up given to the country-specific recommendations addressed to Italy in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Italy, 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.

                  (31)

                  In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below.

                  (32)

                  In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2), (3) and (4),

            HEREBY RECOMMENDS that Italy take action in 2020 and 2021 to:

                  1.

                  Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience and capacity of the health system, in the areas of health workers, critical medical products and infrastructure. Enhance coordination between national and regional authorities.

                  2.

                  Provide adequate income replacement and access to social protection, in particular for atypical workers. Mitigate the employment impact of the COVID-19 crisis, including through flexible working arrangements and active support to employment. Strengthen distance learning and skills, including digital ones.

                  3.

                  Ensure effective implementation of measures to provide liquidity to the real economy, including to SMEs, innovative firms and the self-employed, and avoid late payments. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, research and innovation, sustainable public transport, waste and water management as well as reinforced digital infrastructure to ensure the provision of essential services.

                  4.

                  Improve the efficiency of the judicial system and the effectiveness of public administration.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

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

         (3)  OJ C 301, 5.9.2019, p. 69.

         (4)  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).

         (5)  Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5).

         (6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

         (7)  OJ C 91I, 20.3.2020, p. 1.

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