title: Council Recommendation of 12 July 2016 on the 2016 National Reform Programme of Finland and delivering a Council opinion on the 2016 Stability Programme of Finland

text:
               18.8.2016

               EN

               Official Journal of the European Union

               C 299/79

         COUNCIL RECOMMENDATION
   of 12 July 2016
   on the 2016 National Reform Programme of Finland and delivering a Council opinion on the 2016 Stability Programme of Finland
   (2016/C 299/19)
   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 26 November 2015, the Commission adopted the Annual Growth Survey, marking the start of the 2016 European Semester for economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which it identified Finland as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council Recommendation on the economic policy of the euro area. This Recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016 (3). As a country whose currency is the euro and in view of the close interlinkages among the economies in the economic and monetary union, Finland should ensure the full and timely implementation of the Recommendation.

               (2)

               The 2016 country report for Finland was published on 26 February 2016. It assessed Finland's progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015, and Finland's progress towards its national Europe 2020 targets. It also included the in-depth review under Article 5 of Regulation (EU) No 1176/2011. On 8 March 2016, the Commission presented the results of the in-depth review. The Commission's analysis led it to conclude that Finland is experiencing macroeconomic imbalances. In particular, it is essential to tackle the loss of cost-competitiveness accumulated over several years, which is mainly due to wage growth having exceeded that of productivity for a protracted period, leading to a sharp deterioration in the current account between 2008 and 2012. The analysis also pointed to significant medium- and long-term risks to the sustainability of already strained public finances.

               (3)

               On 14 April 2016, Finland submitted its 2016 National Reform Programme and its 2016 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)

               Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (4), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance.

               (5)

               The 2016 Stability Programme indicates that the budgetary impact of the exceptional inflow of refugees is significant and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure amounted to 0,05 % of GDP in 2015 and is currently estimated at 0,2 % of GDP in 2016. The provisions set out in Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of refugees is an exceptional event, its impact on Finland's public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2015 has been reduced to take into account these costs. Regarding 2016, a final assessment, including on the eligible amounts, will be made in spring 2017 on the basis of observed data as provided by Finland's authorities.

               (6)

               Finland is currently in the preventive arm of the Stability and Growth Pact. On 18 May 2016, the Commission issued a report under Article 126(3) of the TFEU, as Finland's general government debt exceeded the 60 % of GDP reference value in 2015. The analysis concluded that the debt criterion should be considered as complied with. In its 2016 Stability Programme, the Government plans an improvement in the headline balance to -2,5 % of GDP in 2016 and further to -1,3 % in 2020. The Government plans to reach its medium-term budgetary objective — a deficit of 0,5 % of GDP in structural terms — by 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak at 67,4 % in 2019 and to decline to 67,2 % in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible. The measures needed to reach the medium-term budgetary objective by 2019 have not been sufficiently specified. Based on the Commission 2016 spring forecast, there is a risk of some deviation from the recommended adjustment in 2016. The conclusion for 2016 would not change in case the budgetary impact of the exceptional inflow of refugees was excluded from the assessment. Under unchanged policies, there is a risk of a significant deviation from the recommended adjustment in 2017. The debt-to-GDP ratio is projected to continue its upward trend, reaching 66,9 % in 2017. Based on its assessment of the Stability Programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that there is a risk that Finland will not comply with the provisions of the Stability and Growth Pact. Therefore, further measures will be needed to ensure compliance in 2016 and 2017.

               (7)

               Due to ageing of the population and a declining workforce, expenditure on pensions, health and long-term care is set to increase from 23,1 % in 2013 to 26,9 % of GDP by 2030. In January 2016, Finland enacted a pension reform that will link the statutory retirement age to changes in life expectancy as of 2027. Social and healthcare services, provided by the municipalities, amount to 10 % of GDP. Without reform of the system, that expenditure is forecast to grow by 2,4 % annually in nominal terms and increase as a share of GDP. The main outline of a far-reaching administrative reform and restructuring of healthcare and social services has been agreed. The reform's main aims include the reduction of the sustainability gap in the long run by EUR 3 billion through better control of the costs. This will be achieved through integration of services, larger arrangers of services and digitalisation. All of the details still need to be worked out and change management plans put in place before the reform can be implemented from 2019 as planned. The Government has announced that measures to implement the reform will be presented at the end of 2016. The magnitude and tight timetable of the reform mean that implementation will be a challenge. Timely adoption of the legislative proposals is therefore important.

               (8)

               To restore Finland's competitiveness, the functioning of the labour market must be improved in several ways. On an aggregate level, wage increases have been moderate since the centrally agreed wage deal was agreed in late 2013. Under the agreement, the year-on-year increase in negotiated wages slowed from 1,3 % in the last quarter of 2013 to 0,5 % in the fourth quarter of 2015. In June 2015, the social partners decided to extend the agreement into 2016. However, labour productivity growth has not yet recovered and therefore nominal unit labour costs are forecast to increase, albeit more slowly. Negotiations have been carried out to restore cost-competitiveness. A Competitiveness Pact was agreed between social partners on 29 February 2016. The agreement needs to be translated into sectoral agreements before it can be implemented. The Competitiveness Pact will be complemented with measures agreed between social partners to ensure more labour market flexibility and a new model for wage growth by anchoring wages of other sectors to those facing external competition. It is important to implement the labour market measures in a way that fully respects the role of social partners.

               (9)

               Due to declining size of the working age population, improving the labour market participation rate is important. This requires continued efforts to integrate older workers, young people, the long-term unemployed and the low-skilled into the labour market. The employment rate has decreased by more than two percentage points, from a pre-crisis peak of 70,6 % in 2008 to 68,5 % in 2015, while unemployment has increased from 6,4 % to 9,4 %. The employment rate of the elderly has been gradually improving, but some early exit pathways remain in the form of extended unemployment benefits for older workers until retirement (the ‘unemployment tunnel’) which, if not reduced, could limit the positive impact of the pension reform enacted in 2016. The effects of the changes to the parameters of the unemployment tunnel in the previous pension reform will be assessed in 2019. Long-term unemployment increased considerably between 2008 and 2014 from 1,2 % to 1,9 % of the total labour force, despite many of the long term unemployed eventually moving out of the labour force. Youth unemployment increased to 22,4 % in 2015. The low-skilled are affected most by the poor performance of the labour market. Cutting the budget for active labour market policies at a time when there is an increasing demand for such measures could harm opportunities for the above-mentioned groups to return to work. In terms of activation, the complex benefits system with its different types of allowances can result in significant inactivity and low wage traps. Addressing these traps and introducing positive incentives to accept work, such as improving the possibility to combine work and benefits, is particularly important in view of the cuts to the budget for active labour market policies. The arrival of a comparatively large number of migrants and refugees in Finland in 2015 could serve to counter the effects of population ageing, but only if they are successfully integrated into the labour market and the education system. There are matching problems in the labour market, partly due to the structural change in the economy, as new jobs are created in geographical areas and industries other than those where jobs have been lost. Measures that increase affordable housing in the Helsinki area and effective policies to help people update their skills and find work are needed.

               (10)

               The business environment in Finland is as good as or better than in other advanced economies. However, lack of competition, in particular in services aimed primarily at the domestic market, such as retail and transport services, affects the overall competitiveness of the Finnish economy. Businesses have identified excessive regulatory requirements as obstacles to entry to and growth in some markets. These excessive requirements need to be addressed to promote entrepreneurship and investment. In the retail sector, the reform of planning regulations will set more flexible rules on the size and location of stores. The tradable sector continues to restructure and would benefit from developing new markets, products and services, particularly those with high value added. Structural change could be facilitated by policies supporting company expansion, internationalisation and innovation. Legislative amendments were passed in autumn 2015, but most are expected to be implemented only between 2016 and 2018. The Government has announced that further structural reforms will be made to increase market competition.

               (11)

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

               (12)

               In the light of this assessment, the Council has examined the Stability Programme, and its opinion (5) is reflected in particular in recommendation (1) below.

               (13)

               In the light of the Commission's in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (2) and (3) below,

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

               1.

               Achieve an annual fiscal adjustment of at least 0,5 % of GDP towards the medium-term budgetary objective in 2016 and 0,6 % in 2017. Use any windfall gains to accelerate the reduction of the general government debt ratio. Ensure timely adoption and implementation of the administrative reform with a view to better cost-effectiveness of social and healthcare services.

               2.

               While respecting the role of social partners, ensure that the wage setting system enhances local wage bargaining and removes rigidities, contributing to competitiveness and a more export industry-led approach. Increase incentives to accept work and ensure targeted and sufficient active labour market measures, including for people with a migrant background. Take measures to reduce regional and skills mismatches.

               3.

               Continue pursuing efforts to increase competition in services, including in retail. Promote entrepreneurship and investment, including by reducing administrative and regulatory burden, to foster growth of high value added production.

      Done at Brussels, 12 July 2016.

            For the Council

            The President

         P. KAŽIMÍR

      (1)  OJ L 209, 2.8.1997, p. 1.

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

      (3)  OJ C 96, 11.3.2016, p. 1.

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

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


Avis juridique important

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31998Y0806(04)

Recommendation of the European Central Bank for a Council Regulation (EC) concerning the collection of statistical information by the European Central Bank

Official Journal C 246 , 06/08/1998 P. 0012 - 0023

Recommendation of the European Central Bank for a Council Regulation (EC) concerning the collection of statistical information by the European Central Bank (98/C 246/08)(Submitted by the European Central Bank on 7 July 1998)THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Statute of the European System of Central Banks and of the European Central Bank (the Statute) and in particular Article 5.4 thereof,Having regard to the recommendation of the European Central Bank (the ECB),Having regard to the opinion of the European Parliament,Having regard to the opinion of the Commission,In accordance with the procedure foreseen in Article 106(6) of the Treaty establishing the European Community (the Treaty) and in Article 42 of the Statute,(1) Whereas Article 5.1 of the Statute requires the ECB, assisted by the national central banks, to collect either from the competent national authorities or directly from economic agents the statistical information which is necessary for the tasks of the European System of Central Banks (the ESCB) to be performed; whereas to facilitate the execution of these tasks, set out in Article 105 of the Treaty, and in particular the conduct of monetary policy, this statistical information is primarily used for the production of aggregated statistical information, for which the identity of individual economic agents is irrelevant, but may also be used at the level of individual economic agents; whereas Article 5.2 of the Statute requires the national central banks to carry out, to the extent possible, the tasks described in Article 5.1 of the Statute; whereas Article 5.4 of the Statute requires the Council to define the natural and legal persons subject to reporting requirements, the confidentiality regime and the appropriate provisions for enforcement; whereas the national central banks may cooperate with other competent authorities including national statistical institutes and market regulators for the purposes of Article 5.1 of the Statute;(2) Whereas for statistical information to be effective as an instrument for the performance of the tasks of the ESCB, definitions and procedures for its collection need to be structured so that the ECB has the ability and flexibility to avail itself in a timely manner of high-quality statistics which reflect changing economic and financial conditions and take account of the burden imposed on reporting agents;(3) Whereas it is therefore desirable to define a reference reporting population in terms of categories of economic units and statistical applications involved, to which the statistical powers of the ECB shall be confined and from which the ECB shall determine the actual reporting population through its regulatory power;(4) Whereas a homogeneous reporting population is necessary for the production of the 'consolidated balance sheet of the monetary financial institutions sector` of the participating Member States, the principal aim of which is to provide the ECB with a comprehensive statistical picture of monetary developments in the participating Member States, seen as one economic territory; whereas the ECB has established and maintains a list of monetary financial institutions for statistical purposes based on a common definition of these institutions;(5) Whereas the said common definition for statistical purposes specifies that monetary financial institutions comprise credit institutions as defined in Community law, and all other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than monetary financial institutions and, for their own account (at least in economic terms), to grand credits and/or to make investments in securities;(6) Whereas those post office giro institutions which may not fulfil the common definition for statistical purposes of monetary financial institutions may nevertheless need to be made subject to the ECB's statistical reporting requirements in the field of money and banking statistics and payment systems statistics because they may, to a significant extent, receive deposits and/or close substitutes for deposits and undertake payment systems business;(7) Whereas in the European System of Accounts 1995 (1) (the ESA 95), the monetary financial institutions therefore comprise the subsectors 'the central bank` and 'other monetary financial institutions` and may be broadened solely through the inclusion of categories of institutions coming from the subsector 'other financial intermediaries, except insurance corporations and pension funds`;(8) Whereas statistics on the balance of payments, the international investment position, securities, electronic money and payment systems are necessary to enable the ESCB to fulfil its tasks in an independent manner;(9) Whereas the use of the terms 'legal and natural persons` in Article 5.4 of the Statute has to be construed in a manner that is consistent with the practices of Member States in the field of money and banking statistics and balance of payments statistics and therefore also encompasses entities that are neither legal persons nor natural persons under their respective national laws but still fall within the relevant subsectors of the ESA 95; whereas reporting requirements can therefore be imposed on entities such as partnerships, branches, undertakings for collective investments in transferable securities (UCITS) and funds that, under their respective laws, do not enjoy the status of a legal person; whereas in these cases the reporting obligation is imposed on those persons who, under the applicable national laws, legally represent the entities concerned;(10) Whereas the statistical balance sheet reports of institutions mentioned in Article 19.1 of the Statute may also be used to calculate the amount of minimum reserves which they may be obliged to hold;(11) Whereas it is the task of the Governing Council of the ECB to specify the division of tasks between the ECB and the national central banks concerning the collection and verification of statistical information and their enforcement, taking into account the principle laid down in Article 5.2 of the Statute, as well as the tasks which will be assumed by national authorities within the limits of their competence, for the purposes of obtaining statistics of a consistently high quality;(12) Whereas in the early years of the single currency area cost-effectiveness may require that the ECB's statistical reporting requirements be satisfied through transitional procedures due to existing constraints on the collection systems; whereas this may imply in particular that, in the case of the financial account of the balance of payments, data on cross-border positions or transactions of the participating Member States seen as one economic territory may in the early years of the single currency area be compiled using all positions or transactions between residents of a participating Member State and residents of other countries;(13) Whereas the limits within and the conditions under which the ECB is entitled to impose sanctions on undertakings for failure to comply with the obligations laid down in regulations and decisions of the ECB have been defined by the Council Regulation (EC) concerning the powers of the European Central Bank to impose sanctions, in accordance with Article 34.3 of the Statute; whereas in the event of a conflict between the provisions of the said Regulation and the present Regulation enabling the ECB to impose sanctions, the provisions of the present Regulation will prevail; whereas the sanctions for non-compliance with the obligations set out in this Regulation are without prejudice to the possibility of the ESCB establishing appropriate enforcement provisions in its relations with counterparties, including the partial or total exclusion of a reporting agent from monetary policy operations in the case of a serious infringement of statistical reporting requirements;(14) Whereas regulations made by the ECB under Article 34.1 of the Statute do not confer any rights or impose any obligations on non-partipating Member States;(15) Whereas Denmark, referring to paragraph 1 of the Protocol (12) on certain provisions relating to Denmark, has given notification, in the context of the Edinburgh Decision of 12 December 1992, that it will not participate in the third stage of economic and monetary union; whereas, therefore, in accordance with paragraph 2 of the said Protocol, all Articles and provisions of the Treaty and the Statute referring to a derogation will be applicable to Denmark;(16) Whereas under Article 8 of the Protocol (11) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, Articles 34.1 and 34.3 of the Statute do not apply to the United Kingdom unless it participates in the third stage of economic and monetary union;(17) Whereas, while it is recognised that the statistical information needed to fulfil the ECB's statistical reporting requirements is not the same for the participating as for the non-participating Member States, Article 5 of the Statute applies to both participating and non-participating Member States; whereas this, together with Article 5 of the Treaty, implies an obligation to design and implement at the national level all the measures that they consider appropriate in order to carry out the collection of the statistical information needed to fulfil the ECB's statistical reporting requirements and the timely preparations in the field of statistics in order for them to become participating Member States;(18) Whereas confidential statistical information which the ECB and the national central banks must obtain for the performance of the tasks of the ESCB must be protected in order to gain and maintain the confidence of the reporting agents; whereas once this Regulation is adopted there will be no further cause to invoke provisions on confidentiality preventing the exchange of confidential statistical information relating to the tasks of the ESCB, subject to the provisions of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data;(19) Whereas Article 38.1 of the Statute provides that members of the governing bodies and the staff of the ECB and the national central banks shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy, and Article 38.2 of the Statute provides that persons having access to data covered by Community legislation imposing an obligation of secrecy shall be subject to such legislation;(20) Whereas any infringement of the rules binding members of the staff of the ECB, whether committed wilfully or through negligence, renders them liable to disciplinary sanctions and, if appropriate, legal penalties for the violation of professional secrecy, subject to the combined provisions of Articles 12 and 18 of the Protocol on the privileges and immunities of the European Communities;(21) Whereas the possible use of statistical information for the execution of the tasks of the ESCB, while reducing the overall reporting burden, implies that the confidentiality regime defined in this Regulation must differ to some extent from the general Community and international principles on statistical confidentiality, and in particular from the provisions on statistical confidentiality in Council Regulation (EC) No 322/97 of 17 February 1997 on Community Statistics (2);(22) Whereas the confidentiality regime defined in this Regulation applies only to confidential statistical information transmitted to the ECB for the performance of the tasks of the ESCB, and whereas it does not affect special national or Community provisions relating to the transmission of other types of information to the ECB; whereas the rules on statistical confidentiality applied by the national statistical institutes on the statistical information they collect on their own behalf must be respected;(23) Whereas, for the purposes of Article 5.1 of the Statute, the ECB is required to cooperate in the field of statistics with the Community institutions or bodies, with the competent authorities of the Member States or non-member countries and with international organisations; whereas the ECB and the Commission will establish appropriate forms of cooperation in the field of statistics in order to carry out their tasks in the most efficient way, trying to minimise the burden on reporting agents;(24) Whereas the provisions of this Regulation can only be effectively applied if participating Member States in their entirety have adopted the necessary measures with a view to ensuring that their authorities have the powers to assist and collaborate fully with the ECB in carrying out the verification and compulsory collection of statistical information as required by Article 6 of this Regulation, in conformity with Article 5 of the Treaty,HAS ADOPTED THIS REGULATION:Article 1 DefinitionsFor the purposes of this Regulation:1. the ECB's statistical reporting requirements: shall mean the statistical information which reporting agents are required to provide and which is necessary for the tasks of the ESCB to be performed;2. reporting agents: shall mean the legal and natural persons and the entities referred to in Article 3 of this Regulation which are subject to the ECB's statistical reporting requirements;3. participating Member State: shall mean a Member State which has adopted the single currency in accordance with the Treaty;4. resident and residing: shall mean having a centre of economic interest in the economic territory of a country as described in Annex A of this Regulation; in this context, cross-border positions and cross-border transactions shall mean respectively positions and transactions in the assets and/or liabilities of residents of participating Member States seen as one economic territory vis-à-vis residents of non-participating Member States and/or residents of non-member countries;5. international investment positions: shall mean the balance sheet of the stock of cross-border financial assets and liabilities;6. electronic money: shall mean an electronic store of monetary value on a technical device, including prepaid cards, that may be widely used for making payments to entities other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument.Article 2 Reference reporting population1. For the fulfilment of the ECB's statistical reporting requirements, the ECB, assisted by the national central banks in accordance with Article 5.2 of the Statute, shall have the right to collect statistical information within the limits of the reference reporting population and of what is necessary to carry out the tasks of the ESCB.2. The reference reporting population shall comprise the following reporting agents:(a) legal and natural persons falling within the subsectors 'central bank`, 'other monetary financial institutions` and 'other financial intermediaries, except insurance corporations and pension funds` as described in Annex B to this Regulation and residing in a Member State, to the extent necessary to fulfil the ECB's statistical reporting requirements in the field of money and banking statistics and payment systems statistics;(b) post office giro institutions, to the extent necessary to fulfil the ECB's statistical reporting requirements in the field of money and banking statistics and payment systems statistics;(c) legal and natural persons residing in a Member State, to the extent that they hold cross-border positions or carry out cross-border transactions and that statistical information relating to such positions or transactions is necessary to fulfil the ECB's statistical reporting requirements in the field of balance of payments statistics or the international investment position;(d) legal and natural persons residing in a Member State, to the extent that statistical information relating to the securities or the electronic money issued by them is necessary to fulfil the ECB's statistical reporting requirements.3. An entity that would otherwise be covered by the definition in the previous paragraph, but which according to the national law of its country of residence is neither a legal person nor a collection of natural persons, while it can be the subject of rights and obligations, shall be a reporting agent. The reporting obligation of such an entity shall be fulfilled by the persons legally representing it. Where a legal person, collection of natural persons or an entity as referred to in the first sentence of this paragraph has a branch resident in another country, the branch shall be a reporting agent in its own right irrespective of where the head office is located in so far as the branch satisfies the conditions defined in paragraph 2, with the exception of the need to possess separate legal personality. Any number of branches set up in the same Member State shall be regarded as a single branch when they belong to the same subsector of the economy. The reporting obligation of a branch shall be fulfilled by the persons legally representing it.Article 3 Modalities for the definition of statistical reporting requirementsIn defining and imposing its statistical reporting requirements the ECB shall specify the actual reporting population within the limits of the reference reporting population as defined in Article 2 of this Regulation. Without prejudice to the fulfilment of its statistical reporting requirements, the ECB:(a) shall minimise the reporting burden involved, including by using existing statistics as far as possible;(b) shall take into account Community and international statistical standards;(c) may fully or partly exempt specific classes of reporting agents from its statistical reporting requirements.Article 4 Obligations of Member StatesMember States shall organise themselves in the field of statistics and shall fully cooperate with the ESCB in order to ensure the fulfilment of the obligations arising out of Article 5 of the Statute.Article 5 Regulatory power of the ECB1. The ECB may adopt regulations for the definition and imposition of its statistical reporting requirements on the actual reporting population of participating Member States.2. To guarantee the coherence necessary to produce statistics meeting their respective information requirements, the ECB shall consult the Commission on draft regulations whenever links with the statistical requirements of the Commission exist. The Committee on Monetary, Financial and Balance of Payments Statistics shall take part, within the limits of its competence, in the process of cooperation between the Commission and the ECB.Article 6 Right of verification and compulsory collection of statistical information1. If a reporting agent residing in a participating Member State is suspected of an infringement, as set out in Article 7(2) of this Regulation, of the ECB's statistical reporting requirements, the ECB and, in accordance with Article 5.2 of the Statute, the national central bank of the participating Member State concerned shall have the right to verify the accuracy and quality of the statistical information and to carry out its compulsory collection. However, in the event that the statistical information concerned is necessary in order to demonstrate compliance with minimum reserve requirements, the verification should be carried out in accordance with Article 6 of the Council Regulation (EC) concerning the application of minimum reserves by the European Central Bank. The right to verify statistical information or to carry out its compulsory collection shall comprise the right to:(a) require submission of documents,(b) examine the books and records of the reporting agents,(c) take copies or extracts from such books and records, and(d) obtain written or oral explanations.2. The ECB or the competent national central bank shall notify the reporting agent in writing of its decision to verify statistical information or to collect it compulsorily, specifying the time limit for compliance with the verification request, the sanctions applicable in the case of non-compliance and the right to review. The ECB and the national central bank concerned shall inform each other of such verification requests.3. For the verification and the compulsory collection of statistical information, national procedures shall be followed. The costs of the procedure shall be borne by the reporting agent concerned if it is established that the reporting agent has breached statistical reporting requirements.4. The ECB may adopt regulations specifying the conditions under which the right to verify or to carry out the compulsory collection of statistical information may be exercised.5. Within the limits of their competence, national authorities of participating Member States shall give the necessary assistance to the ECB and national central banks in the exercise of the powers provided for in this Article.6. When a reporting agent opposes or obstructs the verification process or the compulsory collection of the required statistical information, the participating Member State in which the reporting agent's premises are located shall afford the necessary assistance, including ensuring access to the reporting agent's premises by the ECB or the national central bank so that the rights mentioned in paragraph 1 can be exercised.Article 7 Imposition of sanctions1. The ECB shall have the power to impose the sanctions set out in this Article on reporting agents which are subject to reporting requirements and residing in a participating Member State and which fail to comply with the obligations resulting from this Regulation or from ECB regulations or decisions defining and imposing the ECB's statistical reporting requirements.2. The obligation to transmit certain statistical information to the ECB or to the national central banks shall be deemed to have been infringed if:(a) no statistical information is received by the ECB or national central bank by the established deadline, or(b) the statistical information is incorrect, incomplete or in a form not complying with the requirement.3. The obligation to allow the ECB and the national central banks to verify the accuracy and quality of the statistical information submitted by reporting agents to the ECB or national central bank shall be deemed to have been infringed whenever a reporting agent obstructs this activity. Such obstruction includes, but is not limited to, the removal of documents and prevention of physical access by the ECB or the national central bank which is necessary for them to carry out their verification task or compulsory collection.4. The ECB may impose sanctions on a reporting agent as follows:(a) in the event of an infringement as defined in Article 7(2)(a), a daily penalty payment not exceeding EUR 10 000, with the total fine not exceeding EUR 100 000;(b) in the event of an infringement as defined in Article 7(2)(b), a fine not exceeding EUR 200 000;(c) in the event of an infringement as defined in Article 7(3), a fine not exceeding EUR 200 000.5. The sanctions set out in Article 7(4) of this Regulation shall be additional to the obligation on the reporting agent to meet the costs of the verification and compulsory collection procedure as required in Article 6(3) of this Regulation.6. In exercising the powers provided for in this Article the ECB shall act in accordance with the principles and procedures as set out in the Council Regulation (EC) concerning the powers of the European Central Bank to impose sanctions.Article 8 Confidentiality regime1. Within the scope of this Regulation and for the purposes of the confidentiality regime covering the statistical information which is necessary for the tasks of the ESCB to be performed, statistical information shall be confidential when it allows reporting agents or any other legal person, natural person, entity or branch to be identified, either directly from their name, address or from an officially allocated identification code, or indirectly through deduction, thereby disclosing individual information. To determine whether a reporting agent or any other legal person, natural person, entity or branch is identifiable, account shall be taken of all the means that might reasonably be used by a third party to identify the said reporting agent or the other legal person, natural person, entity or branch. Statistical information taken from sources which are available to the public in accordance with national law is not confidential.2. Transmission from the national central banks to the ECB of confidential statistical information shall take place to the extent and at the level of detail necessary for the exercise of the tasks of the ESCB, including the appropriate monitoring of compliance with any reserve requirements in the event that the latter are established on the basis of individual statistical information collected through the ECB's regulatory power.3. Reporting agents shall be informed of the uses to which statistical information provided by them may be put.4. The ECB shall use confidential statistical information transmitted to it exclusively for the exercise of the tasks of the ESCB except:(a) if the reporting agent or the other legal person, natural person, entity or branch which can be identified, has explicitly given its consent to the use of the said statistical information for other purposes, or(b) for the production of specific Community statistics, following an agreement between the Commission and the ECB in accordance with Article 9 of Council Regulation (EC) No 322/97 of 17 February 1997 on Community statistics (3), or(c) for granting specific research bodies access to confidential statistical information which does not allow direct identification, without prejudice to national legislation and with the previous explicit consent of the national authority which provided the information.5. The national central banks shall use the confidential statistical information collected to fulfil the ECB's statistical reporting requirements exclusively for the exercise of the tasks of the ESCB except:(a) if the reporting agent or the other legal person, natural person, entity or branch which can be identified has explicitly given its consent to the use of the said statistical information for other purposes, or(b) if it is used at the national level for statistical purposes following an agreement between the national statistical authorities and the national central bank or for the production of Community statistics in accordance with Article 9 of Council Regulation (EC) No 322/97, or(c) if it is used in the field of prudential supervision or for the exercise in accordance with Article 14.4 of the Statute of functions other than those specified in the Statute, or(d) for granting scientific research bodies access to confidential statistical information which does not allow direct identification.6. This Article shall not prevent confidential statistical information collected for purposes other than, or in addition to, meeting the ECB's statistical reporting requirements from being used to meet those other purposes.7. This Article shall apply to the collection and transmission of confidential statistical information for the fulfilment of the ECB's statistical reporting requirements; it shall not affect special national or Community provisions relating to the transmission of other types of information to the ECB.8. This Regulation shall apply without prejudice to Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data.9. The ECB and the national central banks shall take all the necessary regulatory, administrative, technical and organisational measures to ensure the protection of confidential statistical information. The ECB shall define common rules and minimum standards to prevent unlawful disclosure and unauthorised use. The protection measures shall apply to all confidential statistical information as defined in paragraph 1.10. Member States shall adopt all the necessary measures to ensure the protection of confidential statistical information, including the imposition of the appropriate enforcement measures by the Member States in the event of an infringement.Article 9 Final provisionsThis Regulation shall enter into force on 1 January 1999.This Regulation shall be binding in its entirety and directly applicable in all Member States.(1) OJ L 310, 30.11.1996.(2) OJ L 52, 22.2.1997, p. 1.(3) Following the amendment at the start of stage three to replace 'European Monetary Institute` with 'European Central Bank`.ANNEX A THE LIMITS OF THE NATIONAL ECONOMY 2.04. The units, whether institutional, local kind-of-activity or of homogeneous production, which constitute the economy of a country and whose transactions are recorded in the ESA, are those which have a centre of economic interest on the economic territory of that country. These units, known as resident units, may or may not have the nationality of that country, may or may not be legal entities, and may or may not be present on the economic territory of the country at the time they carry out a transaction. Having thus defined the limits of the national economy in terms of resident units, it is necessary to define the meaning of the terms economic territory and centre of economic interest.2.05. The term economic territory means:(a) the geographic territory adminstred by a government within which persons, goods, services and capital move freely;(b) any free zones, including bonded warehouses and factories under customs control;(c) the national airspace, territorial waters and the continental shelf lying in international waters, over which the country enjoys exclusive rights (1);(d) territorial enclaves i.e. geographic territories situated in the rest of the world and used, under international treaties or agreements between States, by general government agencies of the country (embassies, consulates, military bases, scientific bases, etc.);(e) deposits of oil, natural gas, etc. in international waters outside the continental shelf of the country, worked by units resident in the territory as defined in the preceding subparagraphs.2.06. The economic territory does not include extraterritorial enclaves i.e. the parts of the country's own geographic territory used by general government agencies of other countries, by the institutions of the European Union or by international organisations under international treaties or agreements between States (2).2.07. The term centre of economic interest indicates the fact that there exists some location within the economic territory on, or from, which a unit engages, and intends to continue to engage, in economic activities and transactions on a significant scale, either indefinetely or over a finite but long period of time (a year or more). It follows that a unit which carries out such transactions on the economic territory of several countries is deemed to have a centre of economic interest in each of them. The ownership of land and buildings within the economic territory is deemed to be sufficient in itself for the owner to have a centre of economic interest there.2.08. On the basis of these definitions, units deemed to be residents of a country can be subdivided into:(a) units which are principally engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings;(b) units which are principally engaged in consumption (3), in respect of all their transactions except those relating to ownership of land and buildings;(c) all units in their capacity as owners of land and buildings with the exception of owners of extraterritorial enclaves which are part of the economic territory of other countries or are States sui generis (see paragraph 2.06).2.09. In the case of units which are principally engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings, the following two cases may be distinguished:(a) activity conducted exclusively on the economic territory of the country: units which carry out such activity are resident units of the country;(b) activity conducted for a year or more on the economic territories of several countries; only that part of the unit which has a centre of economic interest on the economic territory of the country is deemed to be a resident unit. It may be:1. either an institutional resident unit, whose activities conducted for a year or more in the rest of the world are excluded and treated separately (4), or2. a notional resident unit, in respect of the activity conducted in the country for a year or more by a unit which is resident in another country (5).2.10. In the case of units which are principally engaged in consumption, except in their capacity as owners of land and buildings, households which have a centre of economic interest in the country are deemed to be resident units, even if they go abroad for short periods (less than a year). They include, in particular, the following:(a) border workers, i.e. people who cross the frontier daily to work in a neighbouring country;(b) seasonal workers, i.e. people who leave the country for several months, but less than a year, to work in another country in sectors in which additional manpower is needed periodically;(c) tourists, patients, students (6), visiting officials, businessmen, salesmen, artists and crew members who travel abroad;(d) locally recruited staff working in the extraterritorial enclaves of foreign governments;(e) the staff of the institutions of the European Union and of civilian or military international organisations which have their headquarters in extraterritorial enclaves;(f) the official, civilian or military representatives of the government of the country (including their households) established in territorial enclaves.2.11. All units in their capacity as owners of land and/or buildings which form part of the economic territory are deemed to be resident units or notional resident units of the country in which the land or buildings in question are located.(1) Fishing boats, other ships, floating platforms and aircraft are treated in the ESA just like any other mobile equipment, whether owned and/or operated by units resident in the country, or owned by non-residents and operated by resident units. Transactions involving the ownership (gross fixed capital formation) and use (renting, insurance, etc.) of this type of equipment are attributed to the economy of the country of which the owner and/or operator respectively are resident. In cases of financial leasing a change of ownership is assumed.(2) The territories used by the institutions of the European Union and international organisations thus constitute the territories of States sui generis. The feature of such States is that the only residents are the institutions themselves (see paragraph 2.10(e)).(3) Consumption is not the only possible activity of households. Households may as entrepreneurs engage in any kind of economic activity.(4) It is only where such activity is carried on for less than a year that it should not be separated from the activities of the producer institutional unit. This may also be done where the activity, though conducted for a year or more, is insignificant, and in all circumstances for the installation of equipment abroad. But a unit which is resident in another country and which is carrying out a construction activity in the country for a duration of less than a year is deemed to have a centre of economic interest on the economic territory of the country if the output of the construction activity constitutes gross fixed capital formation. Such a unit should therefore be treated as a notional resident unit.(5) Students are always treated as residents, however long they study abroad.ANNEX B SUBSECTOR: THE CENTRAL BANK (S. 121)2.45. Definition:The subsector 'the central bank` (S. 121) consists of all financial corporations and quasi-corporations whose principal function is to issue currency, to maintain the internal and external value of the currency and to hold all or part of the international reserves of the country.2.46. The following financial intermediaries are classified in subsector S. 121:(a) the national central bank, also in the case where it is part of a European System of Central Banks;(b) central monetary agencies of essentially public origin (e.g. agencies managing foreign exchange or issuing currency) which keep a complete set of accounts and enjoy autonomy of decision in relation to central government. Mostly these activities are performed either within central government or within the central bank. In these cases no separate institutional units exist.2.47. Subsector S. 121 does not include agencies and bodies, other than the central bank, which regulate or supervise financial corporations or financial markets.SUBSECTOR: OTHER MONETARY FINANCIAL INSTITUTIONS (S. 122)2.48. Definition:The subsector 'other monetary financial institutions` (S. 122) consists of all financial corporations and quasi-corporations, except those classified in the central bank subsector, which are principally engaged in financial intermediation and whose business is to receive deposits and/or close substitutes for deposits from institutional units other than monetary financial institutions, and, for their own account, to grant loans and/or to make investments in securities.2.49. The monetary financial institutions (MFIs) comprise the subsector 'the central bank` (S. 121) and the subsector 'other monetary financial institutions` (S. 122), and coincide with the monetary financial institutions for statistical purposes as defined by the EMI.2.50. MFIs cannot be described simply as 'banks`, because they may possibly include some financial corporations which may not call themselves banks, and some which may not be permitted to do so in some countries, while some other financial corporations describing themselves as banks may not in fact be MFIs. In general, the following financial intermediaries are classified in subsector S. 122:(a) commercial banks, 'universal banks`, 'all-purpose` banks;(b) savings banks (including trustee savings banks and savings banks and loan associations);(c) post office giro institutions, post banks, giro banks;(d) rural credit banks, agricultural credit banks;(e) cooperative credit banks, credit unions;(f) specialised banks (e.g. merchant banks, issuing houses, private banks).2.51. The following financial intermediaries may also be classified in subsector S. 122 where it is their business to receive repayable funds from the public whether in the form of deposits or in other forms such as the continuing issue of bonds and other comparable securities. Otherwise, they should be classified in subsector S. 123:(a) corporations engaged in granting mortgages (including building societies, mortgage banks and mortgage credit institutions);(b) mutual funds (including investment trusts, unit trusts and other collective investment schemes, e.g. undertakings for collective investment in transferable securities-UCITS);(c) municipal credit institutions.2.52. Subsector S. 122 does not include:(a) holding corporations which only control and direct a group consisting predominantly of other monetary financial institutions, but which are not other monetary financial institutions themselves. They are classified in subsector S. 123;(b) non-profit institutions recognised as independent legal entities serving other monetary financial institutions, but not engaged in financial intermediation.SUBSECTOR: OTHER FINANCIAL INTERMEDIARIES, EXCEPT INSURANCE CORPORATIONS AND PENSION FUNDS (S. 123)2.53. Definition:The subsector 'other financial intermediaries except insurance corporations and pension funds` (S. 123) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation by incurring liabilities in forms other than currency, deposits and/or close substitutes for deposits from institutional units other than monetary financial institutions, or insurance technical reserves.2.54. Subsector S. 123 includes various types of financial intermediaries especially those which are predominantly engaged in long-term financing. In most cases this predominant maturity forms the basis of a distinction from the other monetary financial institutions subsector. Based on the non-existence of liabilities in the form of insurance technical reserves, the borderline with the insurance corporations and pension funds subsector can be determined.2.55. In particular, the following financial corporations and quasi-corporations are classified in subsector S. 123 unless they are MFIs:(a) corporations engaged in financial leasing;(b) corporations engaged in hire purchase and the provision of personal or commercial finance;(c) corporations engaged in factoring;(d) security and derivative dealers (on own account);(e) specialised financial corporations such as venture and development capital companies, export/import financing companies;(f) financial vehicle corporations, created to be holders of securitised assets;(g) financial intermediaries which receive deposits and/or close substitutes for deposits from MFIs only;(h) holding corporations which only control and direct a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities, but which are not financial corporations themselves.2.56. Subsector S. 123 does not include non-profit institutions recognised as independent legal entities serving other financial intermediaries except insurance corporations and pension funds, but not engaged in financial intermediation.


title: Recommendation for a Council opinion on the updated convergence programme of Poland, 2007-2010

text:
   EN
EN    EN
 ---pagebreak---        COMMISSION OF THE EUROPEAN COMMUNITIES
                                      Brussels, 11.6.2008
                                      SEC(2008) 2012 final
                      Recommendation for a
                      COUNCIL OPINION
   On the updated convergence programme of Poland, 2007-2010
                  (presented by the Commission)
EN                                                           EN
 ---pagebreak---                                    EXPLANATORY MEMORANDUM
   1.        GENERAL BACKGROUND
   The Stability and Growth Pact is based on the objective of sound government finances as a
   means of strengthening the conditions for price stability and for strong sustainable growth
   conducive to employment creation. The 2005 reform of the Pact acknowledged its usefulness
   in anchoring fiscal discipline but sought to strengthen its effectiveness and economic
   underpinnings as well as to safeguard the sustainability of the public finances in the long run.
   Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary
   positions and the surveillance and coordination of economic policies1, which is part of the
   Stability and Growth Pact, stipulates that each Member State has to submit, to the Council
   and the Commission, a stability or convergence programme and annual updates thereof.
   Member States that have already adopted the single currency submit (updated) stability
   programmes and Member States that have not yet adopted it submit (updated) convergence
   programmes. The first convergence programme of Poland was submitted in May 2004. In
   accordance with the Regulation, the Council delivered an opinion on it on 5 July 2004 on the
   basis of a recommendation from the Commission and after having consulted the Economic
   and Financial Committee. As regards updated stability and convergence programmes, the
   regulation foresees that these are assessed by the Commission and examined by the
   Committee and if necessary and following the same procedure as set out above, the updated
   programmes may be examined by the Council.
   2.        BACKGROUND FOR THE ASSESSMENT OF THE UPDATED PROGRAMME
   The Commission has examined the most recent update of the convergence programme of
   Poland, submitted on 26 March 2008, and is recommending a Council opinion on it (see box
   for the main points covered by the assessment).
   In order to set the scene against which the budgetary strategy in the updated convergence
   programme is assessed, the following paragraphs summarise:
   (1)     the country’s position under the corrective arm of the Stability and Growth Pact
           (excessive deficit procedure);
   (2)     the most recent assessment of the country’s position under the preventive arm of the
           Stability and Growth Pact (summary of the Council opinion on the previous update of
           the convergence programme);
   (3)     the May 2008 update of the country-specific broad economic policy guidelines in the
           area of budgetary policies;
   (4)     the Commission’s assessment of the October 2007 implementation report of the
           national reform programme.
   1
           OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174,
           7.7.2005, p. 1). The documents referred to in this text are available at:
           http://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm.
EN                                                         2                                          EN
 ---pagebreak---    2.1.     The excessive deficit procedure for Poland
   On 5 July 2004 the Council adopted a decision stating, in accordance with Article 104(6), that
   Poland had an excessive deficit, based on a general government deficit of 4.1% of GDP in
   2003. At the same time, the Council issued recommendations, under Article 104(7), to correct
   the excessive deficit. In particular, Poland was recommended to take action in a medium-term
   framework in order to bring the deficit below 3% of GDP by 2007 in a credible and
   sustainable manner, in line with the Council opinion on the May 2004 convergence
   programme. In November 2006, the Council decided that action taken until then by the Polish
   authorities was inadequate. In February 2007, the Council issued new recommendations
   confirming the 2007 deadline for the correction. The Polish authorities were recommended to
   ensure an improvement of the structural balance by at least 0.5 percentage point of GDP
   between 2006 and 2007. In November 2007, the Commission issued a communication to the
   Council, in which the action taken by Poland in response to the Council recommendation was
   found consistent with the recommendation. However, as far as 2008 and 2009 were
   concerned, the Commission expressed concern about the durability of the correction of the
   excessive deficit without which the excessive deficit procedure cannot be abrogated. Both the
   Commission and the Council invited the Polish authorities to submit as soon as possible an
   updated convergence programme describing their medium-term strategy for the whole
   legislature, consistent with a durable correction of the excessive deficit and further progress
   towards the medium-term objective.
   Together with this recommendation for a Council opinion, the Commission recommends the
   Council to decide to abrogate the excessive deficit procedure for Poland because, from an
   overall assessment, it follows that the excessive deficit situation in Poland has been corrected.
   The 2007 general government deficit outturn is 2.0% of GDP, below the 3% of GDP
   reference value. The Commission services’ spring 2008 forecast indicates that the deficit
   should remain below the 3% of GDP reference value in 2008 and 2009.
   2.2.     The assessment in the Council opinion on the previous update
   In its opinion of 27 February 2007, the Council summarised its assessment of the previous
   update of the convergence programme, covering the period 2006-2009, as follows. “The
   programme envisages a correction of the excessive deficit by 2007, referring to the provision
   of Article 2(7) of Council Regulation (EC) No 1467/97, but the Council recalls that the action
   taken so far does not appear adequate and the planned measures appear insufficient to achieve
   that result. While in subsequent years the programme envisages to make appropriate progress
   towards the MTO in a context of strong growth prospects, there are important risks to the
   achievement of the budgetary targets and the durability of the adjustment.”
   Taking into account a new recommendation addressed to Poland to correct the excessive
   deficit adopted by the Council on 27 February 2007 under Article 104(7) of the Treaty, the
   Council invited Poland to “(i) ensure the correction of the excessive deficit by 2007 in line
   with the new recommendation under Article 104(7); (ii) taking advantage of the good
   economic times, using any extra revenue for deficit reduction, strengthen the pace of
   adjustment towards the MTO after the planned correction of the excessive deficit, by
   specifying and implementing the additional measures, especially on the expenditure side, that
   are necessary to achieve the envisaged adjustment; (iii) safeguard the results of the pension
   reform”.
EN                                                 3                                                 EN
 ---pagebreak---    2.3.     May 2008 update of the country-specific broad economic policy guidelines in the
            area of budgetary policies
   On 14 May 2008, the Council adopted a recommendation on the 2008 update of the broad
   guidelines for the economic policies of the Member States and the Community and on the
   implementation of Member States' employment policies2. In the area of budgetary policies,
   Poland was recommended to “strengthen the fiscal consolidation and supplement the nominal
   state budget deficit ‘anchor’ (deficit ceiling) with further mechanisms to enhance control over
   expenditure”.
   2.4.     The Commission assessment of the October 2007 implementation report of the
            national reform programme
   On 11 December 2007, the Commission adopted its Strategic Report on the renewed Lisbon
   strategy for growth and jobs, which includes an assessment of the October 2007
   implementation report of Poland’s national reform programme3 and is summarised as follows.
   Poland’s national reform programme identified as key challenges the consolidation and better
   management of public finances, development of entrepreneurship, increased innovation by
   companies; upgrading and developing infrastructure, ensuring a competitive environment in
   networks sectors, creating and sustaining jobs and reducing unemployment; and improving
   the adaptability of workers and enterprises.
   The Commission’s assessment was that Poland has made limited progress in implementing its
   National Reform Programme over the 2005-2007 period.
   Against the background of strengths and weaknesses identified and the background of
   progress made, the Commission recommended that Poland was recommended to take action
   in the areas of: fiscal consolidation (mechanisms of expenditure control); competition in
   network industries; public research and support to private R&D; flexicurity, including active
   labour market policy, social benefits, lifelong learning and education.
   In addition, Poland is encouraged to also focus on the areas of: transport infrastructure;
   business registration process; e-government; transposition of internal market legislation; and
   childcare facilities.
   Based on the Commission Strategic Report, the Council adopted recommendations on the
   2008 update of the broad guidelines for the economic policies for the Member States,
   including Poland, on 14 May 2008.
   2
           OJ L 139, 29.5.2008, p. 57.
   3
           Communication from the Commission to the European Council, “Strategic report on the renewed
           Lisbon strategy for growth and jobs: launching the new cycle (2008-2010)” - COM(2007) 803,
           11.12.2007.
EN                                                   4                                                 EN
 ---pagebreak---                                     Box: Main points covered by the assessment
   As required by Article 5(1) (for stability programmes) and Article 9(1) (for convergence programmes)
   of Council Regulation (EC) No 1466/97, the assessment covers the following points:
   • whether the economic assumptions on which the programme is based are plausible;
   • the medium-term budgetary objective (MTO) presented by the Member State and whether the
       adjustment path towards it is appropriate;
   • whether measures being taken and/or proposed to respect that adjustment path are sufficient to
       achieve the MTO over the cycle;
   • when assessing the adjustment path towards the MTO, whether a higher adjustment effort is made
       in economic good times, whereas the effort may be more limited in economic bad times, and, for
       euro-area and ERM II Member States, whether the Member State pursues an annual improvement
       of the cyclically-adjusted balance, net of one-off and other temporary measures, of 0.5% of GDP as
       a benchmark to meet its MTO;
   • when defining the adjustment path to the MTO (for Member States that have not yet reached it) or
       allowing a temporary deviation from the MTO (for Member States that have), the implementation
       of major structural reforms which have direct long-term cost-saving effects (including by raising
       potential growth) and therefore a verifiable impact on the long-term sustainability of public
       finances (subject to the condition that an appropriate safety margin with respect to the 3% of GDP
       reference value is preserved and that the budgetary position is expected to return to the MTO
       within the programme period), with special attention for pension reforms introducing a multi-pillar
       system that includes a mandatory, fully-funded pillar;
   • whether the economic policies of the Member State are consistent with the broad economic policy
       guidelines.
   The plausibility of the programme’s macroeconomic assumptions is assessed by reference to the
   Commission services’ spring 2008 forecast, using also the commonly agreed methodology for the
   estimation of potential output and cyclically-adjusted balances.
   The assessment also examines:
   • the evolution of the debt ratio and the outlook for the long-term sustainability of the public
       finances, which should be given “sufficient attention in the surveillance of budgetary positions”
       according to the Council report of 20 March 2005 on “Improving the implementation of the
       Stability and Growth Pact”. A Commission Communication of 12 October 2006 sets out the
       approach to the assessment of long-term sustainability4;
   • the degree of consistency with the national reform programme, submitted by Member States in the
       context of the Lisbon strategy for growth and jobs, and its October 2007 implementation report. In
       its cover note of 7 June 2005 to the European Council on the broad economic policy guidelines for
       the period 2005-2008, the ECOFIN Council stated that the national reform programmes should be
       consistent with the stability and convergence programmes;
   • compliance with the code of conduct5, which inter alia prescribes a common structure and set of
       data tables for the stability and convergence programmes.
   4
             Communication from the Commission to the Council and the European Parliament, “The long-term
             sustainability of public finances in the EU” - COM(2006) 574, 12.10.2006 - and European Commission,
             Directorate-General for Economic and Financial Affairs (2006), “The long-term sustainability of public
             finances in the European Union”, European Economy No 4/2006.
   5
             “Specifications on the implementation of the Stability and Growth Pact and guidelines on the format
             and content of stability and convergence programmes”, endorsed by the ECOFIN Council of 11
             October 2005.
EN                                                           5                                                      EN
 ---pagebreak---                                             Recommendation for a
                                            COUNCIL OPINION
                    On the updated convergence programme of Poland, 2007-2010
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty establishing the European Community,
   Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of
   the surveillance of budgetary positions and the surveillance and coordination of economic
   policies6, and in particular Article 9(3) thereof,
   Having regard to the recommendation of the Commission,
   After consulting the Economic and Financial Committee,
   HAS DELIVERED THIS OPINION:
   (1)     On [8 July 2008] the Council examined the updated convergence programme of
           Poland, which covers the period 2007 to 20107.
   (2)     Poland made recently progress in closing the gap with average EU income levels as
           real GDP growth picked up from around 4½% on average in 2003-2005 to above 6%
           in 2006-2007. The labour-intensive output growth improved considerably the situation
           in the labour market as unemployment dropped from nearly 20% in 2003 to 9½% in
           2007. However, the fall in unemployment reflects, in addition to an extraordinary
           growth in employment, a shrinking labour force due to migration. Moreover,
           distortions of incentives to work enhanced by significant emigration increase the
           shortage of labour in some sectors. The tightening labour market puts pressure on
           wages impacting negatively on HICP inflation which, after a period of successful
           moderation from 2005 to the first half of 2007, picked up significantly at the end of
           2007. Since peaking at 6¼% of GDP in 2003, the general government deficit declined
           on average by more than 1 percentage point annually to reach 2% of GDP in 2007. In
           recent years, outturns were generally better than the targets thanks to positive growth
           surprises resulting in windfall revenues as well as the incomplete execution of
           expenditure plans. Further budgetary consolidation will hinge crucially on the reform
   6
           OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174,
           7.7.2005, p. 1). The documents referred to in this text can be found at the following website:
           http://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm.
   7
           The update was submitted 16 weeks beyond the 1 December deadline set in the code of conduct in view
           of the formation of a new government in November following the October general elections.
EN                                                         6                                                   EN
 ---pagebreak---        of the social transfer system (mainly early pensions and disability benefits) and the
       increase of labour participation.
   (3) The macroeconomic scenario underlying the programme envisages that real GDP
       growth will gradually decrease from 6.5% in 2007 to 5.2% on average over the rest of
       the programme period. Assessed against currently available information8, this scenario
       appears to be based on plausible growth assumptions. The programme’s projections
       for inflation appear to be on the low side reflecting slightly favourable assumptions on
       import prices and a relatively low increase in nominal compensation per employee.
   (4) The 2007 general government deficit outturn was 2.0% of GDP, compared to 3.4%
       projected in the November 2006 convergence programme. Much higher real and
       nominal GDP growth than assumed in November 2006 was the main reason, but
       expenditure was also restrained. In particular, high profitability of companies allowed
       for growth in subsidies to be contained, while the rapid fall in unemployment and the
       absence of indexation imposed by the Hausner plan9 also curtailed growth in social
       transfers. In addition, compensation of public sector employees was lower than
       planned. Finally, government investment was lower than projected because of a slower
       absorption of EU funds than planned. Overall, the expenditure-to-GDP ratio was 1.5
       percentage point lower than projected in November 2006. On the revenue side,
       revenue from indirect taxes and social contributions turned out better than envisaged
       in November 2006, mainly thanks to a much higher employment and wage growth.
       These positive surprises were offset by a lower performance of other revenue items
       (direct taxes due to an increase in tax brackets). Overall, this led to a revenue ratio
       slightly below the planned one. With an improvement in the structural balance ratio by
       about 1½ percentage point, budgetary implementation in the year 2007 more than
       fulfilled the invitation in the Council opinion of 27 February 2007 on the previous
       update of the convergence programme10.
   (5) The main goal of the budgetary strategy is a durable reduction of the structural general
       government deficit (cyclically-adjusted deficit net of one-off and other temporary
       measures) aimed at achieving the medium-term objective (MTO) for the budgetary
       position, which is a structural deficit of 1% of GDP, in 2011, i.e. one year after the
       programme period. This is consistent with the previous convergence programme,
       which envisaged achieving the MTO “after 2010”. After deteriorating by 0.5
       percentage point to 2.5% of GDP in 2008, the headline deficit is planned to improve to
       1.5% by 2010. The primary balance follows a similar path and is projected to increase
       from −0.2% of GDP in 2008 to 0.8% in 2010. Against the backdrop of moderating
       output growth, the changes in the structural balance calculated according to the
       commonly agreed methodology are foreseen to be larger, with the structural deficit
       narrowing from about 2¾% of GDP in 2008 to slightly above 1% in 2010. The
       budgetary adjustment is expenditure-based and back-loaded to 2009 and 2010. In
       2008, the deficit deterioration is mainly driven by a sharp increase in the investment
   8
       The assessment takes notably into account the Commission services spring 2008 forecast and the
       Commission assessment of the October 2007 implementation report of the national reform programme.
   9
       The most comprehensive and specific attempt at expenditure reform so far, proposed in 2003 and aimed
       at reducing public expenditure on social protection, public administration and state aids. Among other
       things, the Hausner plan replaced annual indexation with an indexation after cumulated inflation
       exceeds 5% or every three years (whatever comes first).
   10
       OJ C 72, 29.3.2007, p. 13.
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 ---pagebreak---        ratio as well as a large cut in social contributions (partly compensated by an increase
       in other revenues). In 2009-2010, the consolidation is to be achieved mainly through
       restraint in compensation of employees, social transfers and intermediate
       consumption. The planned rate of deficit reduction between 2007 and 2009 is lower
       than in the previous update, however the starting point (2007) and each of the new
       deficit targets of the March 2008 update of the convergence programme are better than
       the targets in the November 2006 update.The risks to the budgetary projections in the
       programme appear broadly balanced in 2008, but the outcomes could be worse than
       projected in the programme afterwards. The 2008 deficit target in the programme is
       the same as in the spring 2008 forecast (2.5% of GDP). The 2008Q1 cash data for
       central budget point to a revenue performance above the budgetary projections, but the
       programme assumes slightly higher growth in 2008 than in the spring 2008
       commission forecast and still mounting wage pressure in the public sector poses a risk
       for public finances. On the other hand, higher inflation than assumed in the
       programme will reduce the expenditure ratio in 2008, as expenditure is predominantly
       fixed in nominal terms. However, in 2009, the higher 2008 inflation could stimulate
       wage growth in the public sector and lead to higher pensions and social benefits than
       assumed in the programme, further exacerbated by a reform of the indexation
       mechanism which links, as from 2008, social benefits not only to consumer prices but
       also partially to wages. While deficit-increasing measures have already been adopted
       by parliament (personal income tax rate reductions), offsetting measures are vague and
       their budgetary impact is uncertain (except for excise duty hikes related to EU
       harmonisation, which will not completely offset the personal income tax cut). If
       further high employment growth assumed by the government is not maintained, the
       continuation of the 2006-2007 job-rich-growth-based budgetary consolidation after
       2008 may be difficult. On the other hand, the track record for the development of the
       general government balance is good: revenues have turned out frequently higher than
       projected while expenditure plans have been under-executed.
   (6) In view of this risk assessment, the budgetary stance in the programme seems
       consistent with a durable correction of the excessive deficit by 2007 as recommended
       by the Council. However, the safety margin against breaching the 3% of GDP deficit
       limit could not be ensured within the programme period. In addition, the budgetary
       stance in the programme may not be sufficient to ensure that the MTO is achieved by
       2011, as envisaged in the programme. As the economy enjoys favourable growth
       conditions, the pace of adjustment towards the MTO implied by the programme is
       insufficient and needs to be strengthened in 2008 to be in line with the Stability and
       Growth Pact. Thereafter, it should be backed up with measures. In addition, should
       inflationary and wage pressures materialise, a tighter fiscal stance than foreseen in the
       programme would be required to avoid overheating.
   (7) Poland appears to be at low risk as regards the sustainability of public finances.
       According to the projections made in 2005 and based on the common methodology,
       the long-term budgetary impact of ageing is among the lowest in the EU. However, as
       from 2008, social benefits will be indexed not only to consumer prices but also
       partially to wages, which will raise expenditure in the long-term. The budgetary
       position in 2007 with a small structural primary deficit, despite being better than the
       starting position of the previous programme, constitutes a risk to sustainable public
       finances before considering the long-term budgetary impact of an ageing population.
       Further consolidation of public finances, including the reform of the early retirement
EN                                              8                                                EN
 ---pagebreak---            (introduction of “bridge pensions” which limit early retirement to certain difficult
           professions) as intended in the convergence programme, would therefore contribute to
           both stimulating labour activity and employment and limiting risks to the
           sustainability of public finances.
   (8)     The convergence programme seems to be consistent with the October 2007
           implementation report of the national reform programme. In particular, both
           programmes envisage the reform of early retirement and disability benefits, the reform
           of the farmers’ social fund, the healthcare reform, the reorganisation and
           decentralisation of public finances, the multiannual task budgeting. The convergence
           programme does, however, not contain a qualitative assessment of the overall impact
           of the October 2007 implementation report of the national reform programme within
           the medium-term fiscal strategy (discussing, e.g., the impact on potential growth and
           employment). Though, the programme provides systematic information on the direct
           budgetary costs of the main reforms envisaged in the national reform programme.
   (9)     The budgetary strategy in the convergence programme is partly consistent with the
           country-specific broad economic policy guidelines, included in the integrated
           guidelines, in the area of budgetary policies issued in the context of the Lisbon
           strategy. While the programme envisages continued fiscal consolidation, further
           mechanisms to enhance control expenditure are not mentioned.
   (10)    As regards the data requirements specified in the code of conduct for stability and
           convergence programmes, the programme has some gaps in the optional data.
   The overall conclusion is that, following the correction of the general government deficit in
   2007 and while the deficit and the debt will remain below the reference values of respectively
   3% and 60% of GDP, the programme envisages a deterioration of the general government
   balance by 0.5 percentage point of GDP in 2008 and a back-loaded progress towards the
   MTO in the following years in a context of favourable growth prospects. In 2008, the
   projected structural deterioration by almost ½ percentage point of GDP is not in line with the
   Stability and Growth Pact. Given the risks to the budgetary targets from 2009, mainly due to a
   lack of specified measures, the MTO may not be achieved by 2011 as planned in the
   programme. Moreover, should inflationary pressures emerge, a tighter fiscal stance than
   foreseen in the programme would be required. As regards the long-term sustainability of
   public finances, Poland appears to be at low risk, but the early retirement system is in need of
   reform.
   In view of the above assessment and the need to ensure sustainable public finances, Poland is
   invited to exploit the favourable growth conditions to strengthen the pace of structural
   adjustment towards the MTO, in particular in order to contain possible inflationary pressures,
   by using any extra revenue and unspent resources for deficit reduction in 2008 and by
   specifying and implementing measures, especially on the expenditure side, in the following
   years.
EN                                                 9                                                EN
 ---pagebreak---                 Comparison of key macroeconomic and budgetary projections
                                                               2006       2007      2008        2009       2010
                                           CP Mar 2008           6.2       6.5         5.5        5.0         5.0
                Real GDP
                                          COM Apr 2008           6.2       6.5         5.3        5.0        n.a.
               (% change)
                                           CP Nov 2006           5.4       5.1         5.1        5.6        n.a.
                                           CP Mar 2008           1.3       2.6         3.5        2.9         2.5
            HICP inflation
                                          COM Apr 2008           1.3       2.6         4.3        3.4        n.a.
                   (%)
                                           CP Nov 2006           1.4       2.1         2.5        2.5        n.a.
                                           CP Mar 2008           0.5       1.1         0.7      −0.2       −0.9
              Output gap1
                                          COM Apr 20082          0.6       1.2         0.5      −0.7         n.a.
        (% of potential GDP)
                                           CP Nov 2006           0.5       0.5         0.3        0.4        n.a.
     Net lending/borrowing vis-à-          CP Mar 2008          −2.6      −2.6       −3.5       −4.2       −4.6
       vis the rest of the world          COM Apr 2008          −2.5      −2.6       −2.3       −3.6         n.a.
              (% of GDP)                   CP Nov 2006          −1.6      −1.8       −2.2       −2.7         n.a.
                                           CP Mar 2008          −3.8      −2.0       −2.5       −2.0       −1.5
     General government balance
                                          COM Apr 2008          −3.8      −2.0       −2.5       −2.6         n.a.
              (% of GDP)
                                           CP Nov 2006          −3.9      −3.4       −3.1       −2.9         n.a.
                                           CP Mar 2008          −1.1       0.2       −0.2         0.3         0.8
           Primary balance
                                          COM Apr 2008          −1.1       0.6         0.2        0.1        n.a.
              (% of GDP)
                                           CP Nov 2006          −1.5      −1.0       −0.7       −0.6         n.a.
                                           CP Mar 2008          −4.0      −2.4       −2.8       −1.9       −1.1
     Cyclically-adjusted balance1
              (% of GDP)                  COM Apr 2008          −4.0      −2.5       −2.7       −2.3         n.a.
                                           CP Nov 2006          −4.1      −3.6       −3.2       −3.0         n.a.
                                           CP Mar 2008          −4.0      −2.4       −2.8       −1.9       −1.1
          Structural balance3
                                          COM Apr 2008          −4.0      −2.5       −2.7       −2.3         n.a.
              (% of GDP)
                                           CP Nov 2006          −4.1      −3.6       −3.2       −3.0         n.a.
                                           CP Mar 2008          47.6      44.9       44.2        43.3       42.3
       Government gross debt
                                          COM Apr 2008          47.6      45.2       44.5        44.1        n.a.
              (% of GDP)
                                           CP Nov 2006          48.9      50.0       50.3        50.2        n.a.
   Notes:
   1
     Output gaps and cyclically-adjusted balances according to the programmes as recalculated by Commission
   services on the basis of the information in the programmes.
   2
     Based on estimated potential growth of 5.2%, 5.9%, 6.0% and 6.2% respectively in the period 2006-2009.
   3
     Cyclically-adjusted balance excluding one-off and other temporary measures. There are no one-off and other
   temporary measures in the most recent programme and Commission services’ autumn forecast.
   Source:
   Convergence programme (CP); Commission services’ spring 2008 economic forecasts (COM); Commission
   services’ calculations.
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