title: DRAFT COUNCIL RECOMMENDATION concerning the registration of recombinant DNA (desoxyribonucleic acid) work (submitted to the Concil by the Commission)

text:
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                    COM(80)467 final
                                                     Brussels . 28 July 1980
                        DRAFT COUNCIL RECOMMENDATION
                       concerning the registration of
           recombinant DNA ( desoxyribonucleic acid ) work
           ( submitted to the Council by the Commission )
               v -7
               c-î - ;         ' *' .\
               ^
               V-          s"'  -
                                       . -y:;7
 C0MC80 ) 467 final
 ---pagebreak---                        DRAFT   COUNCIL RECOMMENDATION
concerning the iregistration of recombinant DNA ( desoxyribonuc Leic acid)
                           work
                       REASONS FOR PROPOSAL
I. INTRODUCTION .
   An analysis of the current situation and of results of work
   accomplished in the course of the last two years , in the United States
   as well as in Europe , to evaluate the importance of the dangers
                                                 .                   !
   resulting from genetic engineering , has shown that the conjectural
   risks associated with the work involving the production or utilization
   of recombinant DMA are probaly non-existent or small .       \;
   It is apparent , moreover , that the voluntary measures of control and
   safety , such as have been recommended to research workers in the
   majority of western countries , function in a satisfactory manner ,
   without excessive bureaucracy and in a way which allows continual
   adaptation in view of the rapid progress in knowledge and techniques
   in the area of fundamental and applied biology .    It has been
   ascertained ultimately that national recommendations for the classi
   fication of work according to risk .categories and safety measures
                                                                           /
   do not radically differ from one Member State to another and indeed tend
   to converge to a certain uniformity .
                                     /                             ■ i
   However , certain questions can be raised concerning effects in the
   long term of possible contamination , which , although unlikely, •
   remains possible . It is therefore highly desirable that a precise
 ---pagebreak--- inventory is at all times and everywhere available to allow the
possible imposition of preventive measures of protection- as well as
to allow the origin of any contamination to be traced . It is nevertheless
advisable in order to do this that each Member State be free to adopt *
adequate legislative regulatory or administrative measures and that
national or regional authorities be entrusted with its execution .
Lastly ,! the adoption of a common definition of work involving
recombinant DNA will help to facilitate a dialogue between Member
         ! '                  •                                     •    •   •
States lin order to pursue gradually a harmonisation of national dispositions .
NATURE AND OBJECT OF THE DRAFT RECOMMENDATION
             t ■
The draft recommendation proposed by the Commission to the Council asks
Member States to adopt a common definition of work involving recombinant DNA
and to act in such a way that no laboratory can undertake this work without
having previously notified the competent regional or national authority and
deposited with them information defining the nature of the activity envi
saged and which allows .evaluation of the planned conditions of safety     .
and protection in the execution of this activity .
The Commission deems , in taking account of present knowledge on the weak
gravity of risk and on its purely conjectural nature , that this
recommendation to Member States is both necessary and sufficient .
It is necessary because no experimental analysis has been able to be made
on Long term effects which work on genetic engineering could have on the
adaptation and gradual evolution of microorganisms , carriers of foreign DNA .
Microorganisms might be able to succeed in . crossing laboratory barriers
and to find a habitat in which to survive .   The risk is small and unlikely
since all the work carried out up to now shows that cells into which
recombinant DNA has been transferred have a tower capacity for survival in
natural conditions and that their infectivity , in the case of transfer
undertaken with pathogenic microorganisms , is generally reduced .      *
Nevertheless , it is desirable in the unlikely case of an unforeseen
contamination that the Member States can have available at all times a
                                                         /'
precise inventory Lc enable the origin of contamination to be traced .
 ---pagebreak--- The draft Commission recommendation is considered sufficient since
all data collected in the course of the last two years showsthat the
safety problem posed by genetic engineering is low and does not justify
the adoption of detailed legislation of which the principal effect would be
to slow down the development of research and prevent the adaptation ^
and the continuous evolution of protection methods and the classification
of work according to risk', categories . In particular three types
of information , gathered in the course of the last two years , justifies
the Commission in taking this position .
- the negative results of analyses undertaken in the USA and in Europe
    to establish the reality of certain risks which could result from
    genetic engineering ;
- the absence , even though a great amount of work in genetic engineering
    has been conducted throughout the world , of a single case of contamination
    or accidental infection;
- the discipline of all european research wdrkers who have immediately
    agreed to follow the safety and protection measures proposed by the
  - consultative committees which have been created in each Member State
    to define and focus a national policy on th ^ matter .                   ,
 It, is on the basis of these observations that the Commission has
 decided, after consultation of national experts nominated by the
 Committee for Research in Medicine and Public Health ( CRM ) and of   ■
 representatives of the European Science Foundation ( ESF) and of the
 European Molecular Biology Organization ( EMBO), to present to the
 Council the present draft recommendation which replaces the draft
 directive submitted to the Council on 4th December 1978 , justified
 at that time by the preoccupations and uncertainties on the gravity
 of risks linked with certain activities in genetic engineering .    .
 ---pagebreak--- III . ANALYSIS , REVISION AND ADAPTATION OF NATIONAL AND COMMUNITY GUIDELINES
      The state of knowledge , research techniques and methods of risk
      evaluation have evolved considerably during the last few years and
      will continue to progress in the future .
                          *
      The Commission will follow closely problems related to work in genetic
      engineering and will take , if circumstances require it , all necessary
      and useful measures to maintain or reinforce arrangements for
      safety and risk evaluation in the Community of Member States .    To this
      end , experts , mandated by Member States , will meet at regular intervals
      and at least once a year , under the aegis of the Commission to :
      - undertake a general analysis of the situation in the Member States
        with regard to the production and utilization of recombinant DNA ,
      - examine all measures as elaborate as required , leading to harmonization ,
      - establish , should the case arise , according to progress in knowledge ,
        the list of work which , in all Member States , should be forbidden
        or subject to compulsory safety measures ,
      - in the case where unforeseen developments require it , modify the
        terms of the present recommendation or prepare the text for a draft
        Council directive .
 ---pagebreak---                         DRAFT COUNCIL RECOMMENDATION
         concerning the registration of work involving recombinant
             . desoxyribonucleic acid ( DNA)
 THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
 Having regard to the Treaty establishing the European Economic Community,
 Having regard to the draft Recommendation submitted by the Commission ,
 Having regard to the opinion of the Economic and Social Committee ,        ■
 Having regard to the opinion of the European Parliament ,
 Whereas the development of fundamental and applied biological research .
 is such as , to contribute to the economic expansion of the
 Member States , and whereas this implies , in several sectors , that recombinant
 DNA work will be performed on certain organisms ;
 Whereas the risks associated with work involving recombinant DNA are of a
 conjectural nature; whereas a permanent inventory within each Member State is
 necessary to allow the possible imposition of protection measures and , in the
'very unlikely event of conjectural hazards proving real , to trade the origin
 of any deleterious effects that may arise;
 Whereas a continual analysis of the situation in each Member State must be
 undertaken in order to promote progressively the harmonization of national
 provisions and, in the case where unforeseen developments require it,'
 to establish lists of work which ought to be banned or subjected to
 compulsory safety measures in all Community countries ; .
 ---pagebreak--- Considering the complexity of the problem posed by the conjectural risks
of certain type of work involving recombinant DNA , the rapid developments
in the understanding of this problem , the extension of the research sector
concerned and the importance that must be attached to the consideration
of local circumstances when assessing the hazards involved in performing
scientific work ;
Whereas it is , necessary , in order to safeguard scientific and industrial
secrecy and to protect intellectual property , to minimize the dissemination
of the terms of experimental protocols prepared for the execution of the
work as well as the dissemination of the substance of research projects based
on the production and utilization of recombinant DNA ;
HEREBY RECOMMENDS TO THE MEMBER STATES      :
that they adopt the laws , regulations and administrative provisions
in order that :
                    1 . Any laboratory wishing to undertake, in the
Notification
                        territory of a Member State , work involving recombinant
by
                        DNA   notifies the competent national or regional
laboratories
                        authority ;
Supplementary       2 . Such notification is accompanied , for each of the
informat ion            research projects envisaged , by the following documents :
 ---pagebreak---                                          - 3 -
                                  the portion of the experimental protocol which is
                                  required for the evaluation of safety at the site
                                 where the proposed activities are to be carried out /
                                  a   list of the protective and supervisory measures
             v'#   I ht ;
                                  to be applied throughout the duration of the
                    • i           experimental work /
                        I
                 • <*". i
                                  a   description of the general education in recombinant
                                  DNA research and of the training received by the
                                 members of the staff who wilt participate in the ,
                                  proposed activities or will be responsible for
                                  supervision / monitoring or safety ;         -
                             Each notification and the accompanying documents are     ■
Classification               classified and stored by the national authorities or regional
of fi les                    authorities for safety and health protection to which they have
                             been submitted ;
           /
Consultation                 Each notification and its accompanying documents may be
of files                I    consulted by authorized national experts ;   -
Definition of           '5 , Work involving recombinant DNA is defined as the formation of
work involving 1             new combinations of heritable material by the insertion of
recombinant DNA ;            nucleic acid molecules produced    by whatever means outside ■
                             the cell , into any virus/ bacterial plasmid or other vector
                             system so as to allow their incorporation into a host
                             organism in which they do not naturally occur but in which
                             they are capable of continued propagation .


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 328 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Irelandand delivering a Council opinion on the 2016 stability programme of Ireland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Ireland

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  5
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  6
               , in which it identified Ireland as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission adopted a recommendation for a Council recommendation on the economic policy of the euro area
                  7
               . This recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016. As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Ireland should ensure the full and timely implementation of those recommendations.

               (2)The 2016 country report for Ireland
                  8
                was published on 26 February 2016. It assessed Ireland’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Ireland’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.
                  9
                The Commission’s analysis leads it to conclude that Ireland is experiencing macroeconomic imbalances. In particular, it is essential to tackle the large stocks of net external liabilities and of public and private debt which constitute vulnerabilities, despite improvements.

               (3)On 29 April 2016, Ireland submitted its 2016 national reform programme and its 2016 stability programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  10
               .

               (5)[Following the abrogation of the excessive deficit procedure, Ireland is in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule.] In its 2016 stability programme, which is based on a no-policy-change assumption, the government plans gradual improvements of the headline balance until reaching a surplus of 0.4% of GDP in 2018. The revised medium-term budgetary objective − a structural deficit of 0.5% of GDP – is expected to be reached in 2018. However, the annual change in the recalculated
                  11
                structural balance of 0.1% of GDP in 2016 does not ensure sufficient progress towards the medium-term budgetary objective. According to the stability programme, the government debt-to-GDP ratio is expected to fall to 88.2% in 2016 and to continue declining to 85.5% in 2017. The macroeconomic scenario underpinning these budgetary projections is plausible. However, the measures needed to support the planned deficit targets from 2017 onwards have not been sufficiently specified. Based on the Commission 2016 spring forecast, there is a risk of some deviation from the recommended fiscal adjustment in 2016, while Ireland is projected to be compliant in 2017 under unchanged policies. Ireland is forecast to comply with the transitional debt rule in 2016 and 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 Ireland is expected to broadly comply with the provisions of the Stability and Growth Pact. Nevertheless, further measures will be needed to ensure compliance in 2016.

               (6)Efforts to broaden the tax base have been limited and recent tax measures have focused on cuts and reliefs. Further progress should be made towards making the tax system more efficient and growth-friendly. The Irish authorities conduct a rolling programme of tax expenditure reviews, the results of which are published in an annual report. However, the review process does not cover VAT-related tax expenditures and there is still scope to broaden the tax base through increases in the least distortionary taxes.

               (7)Costeffectiveness, equal access and sustainability remain critical challenges to the healthcare system. Specific strands of reforms are progressing, but spending on pharmaceuticals, in particular owing to the high cost of single-supplier medicines, continues to weigh on cost effectiveness. Financial management and information systems remain weak and unequal access to primary care is still an issue. Approximately 40 % of the population has free access to general practitioners, while the rest bear the full cost. Significant uncertainty surrounds the broad reform of the healthcare system as the universal health insurance model is in a quandary.

               (8)Infrastructure needs should be addressed in order to promote durable and balanced growth in the future. Following a peak of 5.2 % of GDP in 2008, public investment fell to a low of 1.8 % of GDP in 2013 before slightly recovering in 2014, when it was still well below the EU average. In addition, the crisis appears to have led to a structural shift in the composition of general government expenditure away from investment towards current spending. In 2010-2013, capital expenditure averaged only 4.8 % of the total, less than half the long term average during 1995-2008. Seven years of sharply reduced government investment have had a negative impact on the quality and adequacy of infrastructure and the government support for intangible investments. There are key weaknesses in housing, water, public transport and climate change mitigation capacity. Demand for new housing currently exceeds supply by a wide margin in the country's main urban areas. As a result, residential property prices and rents in urban areas increased sharply in 2014, before growth slowed in 2015. There is currently no evidence of over-valuation, but constraints limiting the construction sector and the supply of housing, including some linked to public infrastructure, could generate risks of imbalances if they are not resolved. The shift in government expenditure has also affected public sector support to R&D and innovation, which was below 2007 levels in 2014. Currently, in terms of public R&D as a percentatge of GDP, Ireland ranks 22nd in the EU. This has a negative impact on the competitiveness of SMEs.

               (9)Unemployment has fallen below the EU average and in March 2016 stood at 8.6%. However, long-term unemployment and the low work intensity of households remain sources of concern. In particular, the proportion of the long-term unemployed in total unemployment remains high at 56.3% in the fourth quarter of 2015, above the EU average of 48.3%. In 2014 (latest comparable data), the percentage of the population living in very low work intensity (VLWI) households was the highest in the EU at 21.1% and was especially prevalent for single-parent households. The proportion of children (aged 0 to 17) at risk of poverty or social exclusion (AROPE) fell to 30.3% in 2014 but remains higher than the EU average of 27.8%. The corresponding AROPE figure for single-parent households (62.5% in 2014) is much higher than the EU average (48.2%).

               (10)Ireland has begun rollout of the JobPath Programme to address the needs of the long-term unemployed and is developing an activation approach to encourage those with the potential and desire to play a more active role in the labour force. The challenge remains to expand job support services to those traditionally excluded from the labour market, including people with a disability and those with caring responsibilities. Overall, the welfare system has worked well to contain the effects of the crisis on poverty and inequality, but barriers to inclusive growth remain. Some progress has been achieved in tapering benefits, but concerns persist about inactivity traps for certain households. As a percentage of wages, net childcare costs in Ireland are among the highest in the EU, the second highest for couples and the highest for single parents. Concerns remain over the quality of childcare provisions. For example, in 2014 the percentage of graduates working in the early childhood education and care sector (15%) remained well below the recommended level. Skills mismatches remain and skills shortages have emerged in certain areas, while upskilling and reskilling opportunities remain insufficient, and the decrease in education expenditure could have a negative impact on educational outcomes in the future.

               (11)The high leverage of the private sector reflects ongoing loan impairment issues. At the end of June 2015, private sector non-consolidated debt stood at 266.3 % of GDP, well above the euro area average. Although the non-performing loans ratio has been declining due to the economic recovery and restructuring activities, at the end of 2015 it remained among the highest in the euro area, at over 16% of all domestic banks' loans. In addition, 14.7 % of the mortgage stock was in arrears at the end of 2015, while accounts in arrears of over two years represented almost 10% of the total mortgage loan balance. Most mortgage restructuring is temporary, highlighting a risk of re-default, especially in the event of macroeconomic deterioration or external shock. Commercial real estate loans held by domestic banks and SME and business loans also remain areas of concern, with non-performing loan ratios of 37.3% and 13.8% respectively. It will take much more time and effort to restructure these accounts sustainably. Personal insolvency procedures, bankruptcy, examinership (court protection under Irish law for companies in difficulty) and other means of partial debt relief intended to restore households and business to viability remain under-utilised. The introduction of the central credit registry has been slow, despite being critical to support prudent lending.

               (12)The Legal Services Regulation Act 2015 has been signed into law, but at a late stage in the process, concessions were made to the legal professions that significantly reduced the initial ambition of the reform. Implementation of the new framework is only just starting and it is too early to be fully confident that it will boost competition and reduce costs. Legal services are an input to all sectors of the economy and their cost has a bearing on Ireland's competitiveness. An actual reduction in costs can be achieved only if the competition-enhancing and cost-reducing provisions of the planned regulatory framework are made into law following public consultation processes or incorporated in regulations to be issued by the Legal Services Regulatory Authority.

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

               (14)In the light of this assessment, the Council has examined the stability programme, and its opinion
                  12
                is reflected in particular in recommendation 1 below.

               (15)In the light of the Commission’s in-depth review and this assessment, the Council has examined the national reform programme and the stability programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 and 3 below.

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

               1.Following the correction of the excessive deficit, achieve an annual fiscal adjustment of 0.6 % of GDP towards the medium-term budgetary objective in 2016 and in 2017. Use windfall gains from strong economic and financial conditions, as well as from asset sales, to accelerate debt reduction. Reduce vulnerability to economic fluctuations and shocks, inter alia by broadening the tax base. Enhance the quality of expenditure, particularly by increasing cost-effectiveness of healthcare and by prioritising government capital expenditure in R&D and in public infrastructure, in particular transport, water services and housing.

               2.Expand and accelerate the implementation of activation policies to increase the work intensity of households and address the poverty risk of children. Pursue measures to incentivise employment by tapering the withdrawal of benefits and supplementary payments. Improve the provision of quality, affordable full-time childcare.

               3.
                     Finalise durable restructuring solutions to lower non-performing loans, to ensure debt sustainability of households and to encourage lenders to reduce the debt of excessively leveraged yet viable businesses. Accelerate the phasing-in of a fully operational central credit registry covering all categories of lenders and debtors.

               Done at Brussels,

                     For the Council

                     The President

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

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

                     (3)
                  COM(2016) 328 final.

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

                     (5)
                  COM(2015) 690 final.

                     (6)
                  COM(2015) 691 final.

                     (7)
                  COM(2015) 692 final.

                     (8)
                  SWD(2016) 77 final.

                     (9)
                  COM(2016) 95 final.

                     (10)
                  COM(2014) 494 final.

                     (11)
                  The structural balance as recalculated by the Commission based on the information in the convergence programme, following the commonly agreed methodology.

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


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 245 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            with a view to bringing an end to the situation of an excessive government deficit in the United Kingdom
            {SWD(2015) 112 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               with a view to bringing an end to the situation of an excessive government deficit in the United Kingdom

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 126(7) thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)According to Article 126 of the Treaty on the Functioning of the European Union (TFEU) Member States shall avoid excessive government deficits.

               (2)Pursuant to paragraph 4 of the Protocol (No. 15) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, the obligation in Article 126(1) of the TFEU to avoid excessive general government deficits does not apply to the UK unless it adopts the euro. Paragraph 5 of the Protocol provides that the UK is to endeavour to avoid an excessive government deficit.

               (3)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.

               (4)On 8 July 2008 the Council decided, in accordance with Article 104(6) of the Treaty establishing the European Community (TEC), that an excessive deficit existed in the United Kingdom and issued recommendations to correct the excessive deficit by financial year 2009-10 at the latest, in accordance with Article 104(7) of the TEC and Article 3 of Council Regulation (EC) No. 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure
                  1
               ,
                  2
               .

               (5)In accordance with the provisions of Article 104(8) of the TEC, the Council decided on 27 April 2009 that the United Kingdom had not taken action in response to the Council recommendation of 8 July 2008. On 2 December 2009, the Council issued revised recommendations under Article 126(7) TFEU recommending that the United Kingdom should put an end to the excessive deficit situation by 2014-15. On 6 July 2010, the Commission concluded that based on the Commission 2010 spring forecast, the United Kingdom had taken effective action in compliance with the Council recommendation of 2 December 2009 and considered that no additional step in the excessive deficit procedure was therefore necessary at that point in time.

               (6)On [X June 2015], the Council established in accordance with Article 126(8) that the United Kingdom had not taken effective action over the period 2010-11 to 2014-15 in response to the Council Recommendation of 2 December 2009.

               (7)In accordance with Article 126(7) of the TFEU and Article 3 of Council Regulation (EC) No. 1467/97, the Council is required to make recommendations to the Member State concerned with a view to bringing the situation of an excessive deficit to an end within a given period. The recommendation has to establish a maximum deadline of six months for effective action to be taken by the Member State concerned to correct the excessive deficit. Furthermore, in a recommendation to correct an excessive deficit, the Council should request the achievement of annual budgetary targets which, on the basis of the forecast underpinning the recommendation, are consistent with a minimum annual improvement in the structural balance, i.e. the cyclically-adjusted balance excluding one-off and other temporary measures, of at least 0.5% of GDP as a benchmark.

               (8)The updated Commission 2015 spring forecast
                  3
                projects an increase in real GDP of 2.4% in 2015-16 and 2.1% in 2016-17, following growth of 2.8% in 2014-15
                  4
               . The main contributions to growth in both years stem from domestic demand. Private consumption is expected to pick up gradually over the forecast horizon as nominal wage growth accelerates and inflation remains low. Inflation has been declining rapidly from its peak of 5.2% in September 2011 to reach 0.1% in the first quarter of 2015. It is expected to increase to 1.1% in the final quarter of 2015 with an annual estimate of 0.4%, and further to 1.6% in 2016. Investment is projected to decline somewhat from 2014 but should remain relatively strong based on favourable credit conditions, healthy corporate profits and strong demand. The external sector is foreseen to continue to contribute negatively to growth but to a lesser degree as the outlook for the euro area, the UK’s largest trading partner, improves. Employment has been strong and the unemployment rate is expected to fall to 5.4% in 2015 and further to 5.3% in 2016.

               (9)The general government deficit has fallen from a peak of 10.9% of GDP in 2009-10 to 5.2% of GDP in 2014-15. The structural balance was reduced from 8.0% of GDP to 4.7% of GDP over the same period. The average annual improvement in the structural effort amounted to 0.7% between 2010-11 and 2014-15. When adjusted for the impact of revisions in potential output growth between the current forecast and that underlying the Council recommendations of 2 December 2009 as well as for the impact of revenue developments as compared to standard elasticities to GDP growth, the average annual adjusted structural effort over the period is estimated at 1.1% of GDP. The vast majority of measures for the consolidation plan were set out in the emergency budget in June 2010 amounting to 2.5% of GDP over the period 2010-11 to 2014-15. Just over one-quarter of these were taxation measures with spending cuts accounting for the remaining three-quarters. The remaining fiscal consolidation, of around 1% of GDP, was implemented via the two fiscal announcements prior to the June 2010 budget and the subsequent budgets and Autumn Statements until November 2014. There were some shifts between current and capital spending and the period of consolidation was extended until 2018-19.

               (10)General government gross debt increased from 42.7% of GDP in 2007-08 to 88.4% in 2014-15; continuously above the Treaty reference value since 2009-10. The dynamics of the primary deficit and financial sector interventions, which effectively nationalised two banks, have contributed to this debt increase. Based on the Commission's 2015 spring forecast, the debt-to-GDP ratio is projected to further increase marginally. At the same time off-balance sheet items related to the financial sector interventions could have a positive effect on the future debt development.

               (11)As the headline deficit in 2014-15 amounted to 5.2% of GDP, the UK did not correct the excessive deficit by the deadline set in the Council recommendation of 2 December 2009. This was due to the lack of sufficient action, together with a much more unfavourable starting growth position where revisions downgraded GDP growth by 1.0 pps in 2008-09 to -2.3%. A revised recommendation for the UK under Article 126(7), setting a new deadline for the correction of the excessive deficit is justified, in line with the rules of the Stability and Growth Pact.

               (12)Against the background of uncertainties regarding economic and budgetary developments, the budgetary target recommended for the final year of the correction period should be set at a level somewhat below the reference value of the Treaty in order to guarantee an effective and lasting achievement of the correction with the requested deadline.

               (13)Granting the UK one additional year, which is the general rule according to Council Regulation (EC) No. 1467/97, would be overly demanding in the case of the UK, as it would imply an adjustment in the headline deficit of 2.2% of GDP. Such an adjustment in 2015-16 could significantly affect the recent pick-up of real wage growth and thereby have negative implications for growth. It would also require the implementation of additional measures over a very tight timetable. On the basis of the updated Commission 2015 spring forecast, such adjustment would have a significantly negative impact on economic growth. Therefore, it appears appropriate to extend the deadline of the UK to bring an end to its excessive deficit situation by two years.

               (14)Granting two additional years for the correction of the excessive deficit would imply intermediate headline deficit targets of 4.1% of GDP in 2015-16 and 2.7% of GDP in 2016-17. The underlying improvement in the structural budget balance implied by these targets is 0.5% of GDP and 1.1% of GDP, respectively. The baseline scenario is the updated Commission 2015 spring forecast, which includes previously announced discretionary measures of 1.4% of GDP in 2015-16 and 2016-17, around three-quarters of which are expenditure cuts. This adjustment path provides a sufficient safety margin against the 3% of GDP deficit benchmark and is assumed to be the least detrimental to growth, while also allowing for the adherence to the minimum required annual structural improvement of 0.5% of GDP. To reach these targets, the UK needs to fully implement, in a timely manner, the measures announced up to and including the 2015 budget, with any modifications in relation to the current plans being fiscally-neutral; in that case, no further measures on top of those already announced will be needed,

               HAS ADOPTED THIS RECOMMENDATION:

               (1)The United Kingdom should put an end to the present excessive deficit situation by 2016-17 at the latest.

               (2)The United Kingdom should reach a headline deficit of 4.1% of GDP in 2015-16 and 2.7% of GDP in 2016-17, which should be consistent with delivering an improvement in the structural balance of 0.5% of GDP in 2015-16 and 1.1% of GDP in 2016-17, based on the updated Commission 2015 spring forecast.

               (3)The United Kingdom should fully implement the consolidation measures incorporated into all budgets and Autumn Statements up to and including the 2015 budget to achieve the recommended structural effort, with any modifications being fiscally-neutral in relation to the current plans. The United Kingdom should further detail the expenditure cuts in the upcoming Spending Review. These are necessary to ensure the correction of the excessive deficit by 2016-17.

               (4)The United Kingdom should accelerate the reduction of the headline deficit in 2015-16 and 2016-17 if economic, financial or budgetary conditions turn out better than currently expected. Budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner. In particular, further cuts in capital expenditure should be avoided.

               (5)The Council establishes the deadline of [15 October] 2015 for the United Kingdom to take effective action and, in accordance with Article 3(4a) of Council Regulation (EC) No. 1467/97, to report in detail the consolidation strategy that is envisaged to achieve the targets.

               Furthermore, the UK authorities should (i) comply with the obligation to set out a medium term objective (MTO) as laid down in the Stability and Growth Pact and (ii) implement the planned reforms of increasing the state pension age in order to contribute towards strengthening the long-term sustainability of the public finances.

               Finally, to ensure the success of the fiscal consolidation strategy, it will also be important to back the fiscal consolidation by comprehensive structural reforms, in line with the Council recommendations addressed to the United Kingdom in the context of the European Semester and in particular those related to the preventive arm of the Macroeconomic Imbalances Procedure.

               This Recommendation is addressed to the United Kingdom of Great Britain and Northern Ireland.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 6.

                     (2)
                  All documents related to the excessive deficit procedure of the United Kingdom can be found at:

                     http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/uk_en.htm

                     (3)
                  GDP growth for the first quarter of 2015 was published after the finalisation of the Commission 2015 spring forecast, hence the current assessment of the effective action is based on an updated forecast.

                     (4)
                  The published spring forecast presents only calendar-year figures. The values for financial years are calculated from the quarterly profile of the published forecast.


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 508 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Spainand delivering a Council opinion on the 2017 Stability Programme of Spain

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Spain

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances,
                  2
                and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission,
                  3

               Having regard to the resolutions of the European Parliament,
                  4

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 16 November 2016, the Commission adopted the Annual Growth Survey,
                  5
                marking the start of the 2017 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report,
                  6
                in which it identified Spain as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council Recommendation on the economic policy of the euro area. That Recommendation was endorsed by the European Council on 9-10 March 2017 and adopted by the Council on 21 March 2017.
                  7

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

               (3)The 2017 country report for Spain
                  8
                was published on 22 February 2017. It assessed Spain’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Spain’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 22 February 2017.
                  9
                The Commission’s analysis leads it to conclude that Spain is experiencing macroeconomic imbalances which have cross-border relevance. In particular, the current account surpluses are translating into a reduction of Spain’s net external liabilities, which nonetheless remain sizeable and expose the country to shifts in market sentiment. Private sector debt has decreased significantly, especially for corporations, but household debt remains high. Economic growth has become the main driver of debt reduction, but fiscal sustainability risks remain high in the medium term.  The need for action to reduce the risk of adverse effects of imbalances on the Spanish economy and, given its size and crossborder relevance, on the economic and monetary union, is particularly important. The financial sector has continued to show a high degree of stability, supported by its ongoing restructuring, low funding costs and the economic recovery. Job creation has been strong in recent years and unemployment has decreased rapidly, but remains very high. Labour market reforms and wage moderation have been important drivers of strong job creation and competitiveness gains in recent years.

               (4)On 28 April 2017, Spain submitted its 2017 National Reform Programme and on 29 April 2017 Spain submitted its 2017 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

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

               (6)Spain is currently in the corrective arm of the Stability and Growth Pact. In its 2017 Stability Programme, Spain plans to correct the excessive deficit by 2018, in line with the Council notice of 8 August 2016. The headline deficit is planned to continue declining to 0.5% of GDP in 2020. The expenditure projections in the programme incorporate the materialisation of contingent liabilities related to the motorways and the financial sector, amounting to close to 0.4% and 0.2% of GDP in 2017 and 2018, respectively. The medium-term budgetary objective of a balanced budgetary position in structural terms is not planned to be reached within the time horizon of the Stability Programme. The recalculated structural balance
                  12
                is projected to reach          -1.9% of GDP in 2020. The Stability Programme projects the government debt-to-GDP ratio to decline to 98.8% in 2017, 97.6% in 2018, and 92.5% in 2020. The programme's macroeconomic assumptions are plausible until 2018 and turn somewhat favourable thereafter. Overall, the planned achievement of the targets continues to rely on the strong economic outlook, which is nevertheless subject to risks. Other risks to the achievement of the fiscal targets relate to uncertainty regarding the impact of the recent tax measures. Moreover, taking into account the assumed materialisation of contingent liabilities (which are not included in the Commission forecast), the programme relies on considerably higher expenditure restraint than projected in the Commission forecast in 2017 and 2018. Finally, the measures needed to support the planned deficit targets for 2018 have not yet been specified.

               (7)On 8 August 2016, the Council requested Spain to put an end to the excessive deficit situation by 2018 and, in particular, to reduce the general government deficit to 4.6% of GDP in 2016, 3.1% of GDP in 2017 and 2.2% of GDP in 2018. This improvement in the general government balance was deemed consistent with a deterioration of the structural balance by 0.4% of GDP in 2016, and a 0.5% of GDP improvement in both 2017 and 2018, based on the updated Commission 2016 spring forecast. Spain reached a headline deficit of 4.5% of GDP in 2016, slightly below the target set by the Council. The Commission 2017 spring forecast projects the headline deficit to decline to 3.2% of GDP in 2017 and further to 2.6% of GDP in 2018 on a no-policy-change basis, 0.1% and 0.4% of GDP above the headline deficit targets in the Stability Programme and those set by the Council. Unlike the Stability Programme, the forecast does not assume the materialisation of the above-mentioned contingent liabilities. The cumulative fiscal effort over 2016-2017 is expected to be narrowly ensured, while in 2018, on a no-policy-change basis, the fiscal effort is forecast to fall short of what was requested by the Council. In addition, in August 2016, the Council requested Spain to take measures to improve its fiscal framework, but the Stability Programme does not report plans to strengthen the contribution of the Stability Law's spending rule to the sustainability of public finance. Overall, the Council is of the opinion that further measures will be needed, notably in 2018, to comply with the provisions of the Stability and Growth Pact and in particular with the terms of the Council notice of 8 August 2016.

               (8)Spain still lacks a clear and consistent public procurement policy framework that ensures legal compliance, a high level of competition and economic efficiency, namely through effective ex ante and ex post control mechanisms, enhanced transparency and coordination across contracting authorities and entities at all government levels. The government has put forward some measures in 2017 that would improve the procurement supervision system and are currently awaiting parliamentary approval.

               (9)Spain has made progress in the fight against corruption, in particular regarding transparency of administrative decision-making, and more concretely on enacting legislation on transparency of party financing, asset disclosure and conflicts of interest. The focus now shifts to the implementation of these measures. However, despite a surge in corruption investigations involving cases at the local and regional levels, no tailor-made preventive strategies to mitigate corruption risks have been developed at those government levels nor is there a shared preventive strategy across government levels. Other shortcomings such as the lack of legislation to protect whistle-blowers, the degree of independence of the recently established Office of Conflicts of Interest and the lack of regulation of lobbying have not been the object of a specific follow up yet. Another issue concerns the protracted judicial procedure for corruption cases. While the Criminal Procedure law was amended in 2015 to limit the time allocated to investigations and reduce undue delays in criminal procedures, this measure could result in impunity in complex corruption cases for which the time limits would not be sufficient for building cases.

               (10)Despite a standard VAT rate in line with the EU average, Spain has relatively low VAT revenues. This is mainly due to Spain extensively applying exemptions or reduced rates on various products and services. As a result, Spain recorded the largest policy gap in the EU in 2014 (59 % compared to the EU average of about 44 %). Similarly, Spain’s revenues from environmentally related taxes are among the lowest in the EU, despite some measures taken in recent years, mainly in the energy sector. Taxing pollution and resource use can generate increased revenue and bring important social and environmental benefits. There is also normative dispersion resulting in a heterogeneous approach to certain environmental taxes at the regional level. Regarding expenditure, the government has commissioned AIReF, Spain's independent fiscal institution, to carry out a spending review covering all levels of general government. The review can help identify areas where spending needs can be met with a more efficient use of resources.

               (11)Job creation has been strong in recent years, supported by labour market reforms and wage moderation. Unemployment has decreased rapidly, but remains among the highest in the EU, in particular among young and low skilled people, entailing risks of disengagement from the labour market. Almost half of the unemployed have been without a job for more than a year. Spain is taking measures to support young people, notably by extending the Youth Guarantee eligibility criteria, and to strengthen individual support to the long-term unemployed. Their effectiveness depends also on the performance of the regional public employment services. There is scope to enhance their cooperation with social services, so as to improve the provision of extended services to jobseekers, in particular the long-term unemployed and beneficiaries of income guarantee schemes. At the same time, cooperation of public employment services with employers could be enhanced, notably by increasing the share of vacancies handled by the employment services.

               (12)Spain has one of the highest shares of temporary employment in the EU, and many temporary contracts are of very short duration. Transition rates from temporary to permanent contracts are very low in comparison to the EU average. The widespread use of temporary contracts is associated with lower productivity growth (including through lower on-the-job training opportunities), poorer working conditions and higher poverty risks. The recent labour market reforms seem to have had a mildly positive effect in reducing segmentation between permanent and temporary contracts, and the ongoing reinforcement of labour inspections is showing positive results in addressing the abuse of temporary contracts. However, some features of the Spanish labour market may still discourage hiring on permanent contracts, including uncertainty in case of legal dispute following a dismissal, along with comparatively high severance payments for workers on permanent contracts. Moreover, the system of hiring incentives remains scattered and not effectively targeted at the promotion of open-ended employment. Although it has recently established a working group on the quality of employment, Spain has not yet developed a comprehensive plan for fighting labour market segmentation, following the 2014 agreement between the government and social partners.

               (13)Disparities persist in the eligibility conditions of income guarantee schemes and in the link between activation and protection across regions and schemes. Certain categories of vulnerable households are left out of the income guarantee arrangements. The limited effectiveness of the schemes is partly explained by large disparities in adequacy and access conditions of the regional minimum income schemes and by the fragmentation of the national benefit system into multiple schemes addressing various categories of jobseekers and managed by different administrations. Fragmentation introduces discontinuity in the support given to those in need of it and hampers the delivery of integrated pathways. In response to the multiple challenges, an ongoing study aims at assessing the effectiveness of the national and regional income support schemes. Family benefits are poorly targeted. Moreover, when taking into account the impact of tax credits, the tax-benefit system is overall slightly regressive. In addition, childcare use strongly increases with family income, suggesting barriers to access for low-income parents. The provision of long-term care services is improving, but it differs across regions and current needs are still not met.

               (14)Weak education outcomes negatively affect the longer-term potential for productivity growth in Spain. Despite significant improvements over the past years, the early school leaving rate remains among the highest in the EU. There are wide regional disparities in early school leaving and students’ performance, in particular regarding basic skills. Teachers’ training and individual students’ support are among the drivers of successful school education in well performing regions. Spain has the second highest grade repetition rate in the EU, which increases the risk of school drop-out, lowers attainment expectations and weighs on education costs. Employability of tertiary graduates remains comparatively low. The reduced mobility of students and academic staff, limited traineeships' opportunities, lack of incentives and the rigidity of university governance remain obstacles to cooperation with business on education or research.

               (15)To strengthen productivity and competitiveness, Spain would benefit from further promoting research and innovation. Yet, innovation performance has been declining and is now at a lower level than in 2007, while the country’s gap to the EU average has increased over time. Low innovation performance coincides with declining private R&D expenditure and points to weaknesses in the research and innovation governance framework. The State Agency for Research responsible for managing central government research and innovation funding has become operational in early 2017. Until now, there is no systematic multiannual planning of support programme budgets. Also, the effectiveness of support programmes is not systematically evaluated to enhance their design and implementation. Due to a lack of incentives and the rigidity of university governance, public-private cooperation also remains weak and the mobility of researchers between public and private sector is low. Coordination across government levels is not optimal, and as a result national and regional policies do not operate in full synergy.

               (16)Spanish small firms tend to have significantly lower productivity than their peers in other large EU Member States. Given the prevalence of small firms in Spain, this has a significant impact on productivity in the economy as a whole. Easing the barriers for businesses to be created, operate and grow, would therefore result in increased investment and productivity. The Spanish government adopted several measures in recent years aimed at facilitating business creation and growth. The consolidation and full implementation of these reforms is essential to fully reap their benefits. The law on market unity adopted in 2013 has contributed to tackling the additional costs for entrepreneurs caused by the substantial differences and overlaps in business regulations across regions. The increasing use by businesses of the complaint mechanism foreseen in this law to seek redress on market access barriers hint at a possible need to further simplify licensing procedures. Coordination between relevant public administrations, including at sectoral conference level, requires more efforts. This is essential to ensure that existing and forthcoming legislation at all levels effectively tackles unnecessary market entry barriers, including for new business models in the collaborative economy. In the retail sector, dual authorisations for retail establishment continue to unnecessarily restrict market entry. Market access requirements foreseen in the vehicle-with-drivers services sector legislation and the short-term rental accommodation services legislation at regional level may unnecessarily hamper the balanced development of the collaborative economy. Spain has taken steps in the first months of 2017 to leverage the market unity law, an example being the recently adopted guide on its implementation and the published catalogue of good and bad practices in applying it.

               (17)Regulation of professional services remains comparatively restrictive. Protectionist rights (‘reserved activities’) are granted selectively to some service providers, excluding others with relevant similar qualifications. In a large number of professions there is a mandatory membership requirement in a professional association. The level of restrictiveness is higher in Spain than the EU-weighted average for civil engineers, architects and tourist guides. It is lower than the EU average for patent agents and lawyers, although access to the latter profession is more tightly restricted than for any other profession in Spain.
                  13
                The draft professional services law envisaging, among other things, rationalisation of professional association membership has still not been adopted. This reform also defines increased transparency and accountability of professional bodies, opening up unjustified reserved activities and safeguarding market unity in the access to and exercise of professional services in Spain.

               (18)In the context of the European Semester the Commission has carried out a comprehensive analysis of Spain’s economic policy and published it in the 2017 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Spain in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain, 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.

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

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

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

               1.Ensure compliance with the Council decision of 8 August 2016 giving notice under the excessive deficit procedure, including also measures to strengthen the fiscal and public procurement frameworks. Undertake a comprehensive expenditure review in order to identify possible areas for improving spending efficiency.

               2.Reinforce the coordination between regional employment services, social services and employers, to better respond to jobseekers’ and employers’ needs. Take measures to promote hiring on open-ended contracts. Address regional disparities and fragmentation in income guarantee schemes and improve family support, including access to quality childcare. Increase labour market relevance of tertiary education. Address regional disparities in educational outcomes, notably by strengthening teachers’ training and individual students’ support.

               3.Ensure adequate and sustained investment in research and innovation and strengthen its governance across government levels. Ensure a thorough and timely implementation of the law on market unity for existing and forthcoming legislation.

               Done at Brussels,

                     For the Council

                     The President

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

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

                     (3)
                  COM(2017) 508 final.

                     (4)
                  P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040.

                     (5)
                  COM(2016) 725 final.

                     (6)
                  COM(2016) 728 final.

                     (7)
                  OJ C92/01, 24.3.2017, p. 1.

                     (8)
                  SWD(2017) 74 final.

                     (9)
                  COM(2017) 90 final.

                     (10)
                  Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320.

                     (11)
                  COM(2014) 494 final.

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

                     (13)
                  COM(2016) 436 final.

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


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 337 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Hungaryand delivering a Council opinion on the 2016 convergence programme of Hungary

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Hungary

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it identified Hungary as one of the Member States for which an in-depth review would be carried out.

               (2)The 2016 country report for Hungary
                  6
                was published on 26 February 2016. It assessed Hungary’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Hungary'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
                  7
               . The Commission’s analysis leads it to conclude that Hungary is experiencing no macroeconomic imbalances. In particular, although high external debt rollover needs and the share of non-performing loans remain a concern, risks linked to external and internal liabilities have been reduced.

               (3)On 29 April 2016, Hungary submitted its 2016 national reform programme and its 2016 convergence programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  8
               .

               (5)The convergence programme indicates that the budgetary impact of the exceptional inflow of refugees is significant and an addendum of 6 May provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission's assessment, the eligible additional expenditure amounted to 0.04% of GDP in 2015 and currently no further incremental costs are expected in 2016. The provisions defined in Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97 allow catering for this additional expenditure, in that the inflow of refugees is an exceptional event, its impact on Hungary`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 Hungary's authorities.

               (6)Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2016 convergence programme, the government plans the headline deficit to increase to 2.4% of GDP by 2017 and then to decrease gradually to 1.2% by 2020. The government plans a gradual improvement of the structural balance in order to reach its revised medium-term budgetary objective – a deficit of 1.5% of GDP in structural terms – by 2019. However, the recalculated
                  9
                structural deficit would remain higher than the medium-term budgetary objective. According to the convergence programme, the government debt-to-GDP ratio is expected to decline gradually from 75.3% in 2015 and to below 67% in 2020. The macroeconomic scenario underpinning these budgetary projections is broadly plausible until 2017 and becomes increasingly favourable thereafter. The measures needed to support the planned deficit targets from 2017 onwards have not been sufficiently specified, in particular after 2017. Based on the Commission 2016 spring forecast, there is a high risk of a significant deviation from the required adjustment in 2016 as well as, under unchanged policies, in 2016 and 2017 taken together. At the same time, Hungary is forecast to comply with the debt reduction benchmark in 2016 and in 2017. Based on its assessment of the convergence programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that there is a risk that Hungary will not comply with the provisions of the Stability and Growth Pact. Therefore further measures will be needed in both years to ensure compliance.

               (7)Internal financial imbalances have been reduced and the banking system has become less vulnerable, but challenges remain. Considerable progress has been made in reducing private sector debt, previously mostly denominated in foreign currencies. Lending to households showed signs of recovery but a turnaround in corporate lending has yet to take place. The profitability of the banking sector has started to recover, helped by the improving economic environment and by a moderation in the previous policies towards taxes on banks. Nevertheless, banks remain cautious in their lending, even though they are well capitalised and highly liquid. The main remaining challenge for banks is to reduce the still high share of non-performing loans that hinder new lending and put pressure on profits. The contingent liability risks linked to the increased ownership of the state in the banking sector are still high.

               (8)Despite considerable recent improvements in tax policies and the tax administration, Hungary’s reliance on sector-specific taxes remains a potential barrier to investment. The selective design of these taxes causes distortions across sectors. While several other sector-specfic taxes remain in place, the levy on credit institutions has been reduced significantly and the progressive rates in the food inspection fee have been repealed. The labour tax wedge for low-income earners is still high, especially for those without children. This can have a negative impact on their employability and can also hamper investment. Steps have been taken to reduce the tax wedge (including a one percentage point cut in the uniform tax rate of the personal income tax and an increase of the family tax allowance for earners with two children). However, measures are not sufficiently well targeted to have a significant effect for low-income earners. There is a potential for shifting tax away from labour to areas less distortive to growth. Several measures have been taken to improve compliance and reduce compliance costs, although tax compliance costs remain high. Despite improvements in recent years, Hungary still faces challenges regarding the efficiency of tax collection. The Hungarian government announced a major institutional reform, to be launched in 2016, targeting efficiency in the tax administration.

               (9)Limited progress has been made as regards promoting competition and transparency in public procurement (for example by adopting the new Public Procurement Act, the compliance of which with EU law has still to be assessed), while unpredictable regulatory changes and administrative burden hamper private business and investment. The high number of negotiated procedures without publication and contract awards with a single bid show that a low level of competition in procurement persists. A comprehensive e-procurement strategy aiming at improving efficiency and transparency has not yet been developed and the risk of corruption remains high. Changes would be needed to make the new National Anti-Corruption Action Programme (NAP) 2015-2018 more effective in preventing corruption in public institutions and applying dissuasive sanctions. The government has not renewed its earlier commitment to revise the 2013 whistle-blower law, which lacks provisions that adequately protect whistle-blowers from retaliation. The NAP's plans to revise the asset declaration system lack ambition and new legislative amendments passed in 2015 introduced some further restrictions to public access to information. The government has taken steps to reduce the administrative burden, but Hungary’s restrictive regulations in service sectors and a volatile regulatory environment remain concerns for businesses and thus create uncertainty for investors. Establishment and operational restrictions on the retail sector constitute significant barriers to entry and expansion. Mark-ups in the Hungarian retail sector are the third highest in the EU and have been increasing continuously for the last decade while the allocative efficiency indicator is among the lowest in the EU.

               (10)Recent labour market developments are favourable in Hungary, with unemployment having fallen to pre-crisis levels. Employment creation in the private sector is picking up, but the public works scheme has also contributed to reducing unemployment. The scheme is the main active labour market policy in Hungary. Its budgetary cost more than quadrupled over the last five years. However, the scheme does not seem sufficiently to improve the reintegration of participants into the open labour market. In the first half of 2015, the rate of successful exit from the scheme to regular employment was 13.1 %, but around 60 % of the participants who left it in that period returned to the scheme within 180 days. This significantly risks locking participants into the scheme, particularly low-skilled workers and people in disadvantaged regions. Although the scheme targets the long-term unemployed, the low-skilled and unemployed people living in disadvantaged areas, 47 % of participants in 2015 had secondary or tertiary education. The proportion of unemployed people involved in public works is also significant in counties with well-performing labour markets. The recent reform of the public employment service is likely to make it less effective. The administrative complexity of the management arrangements – currently the responsibility over the public employment service is spread between four ministries – may significantly compromise effective steering and an increased result orientation. The maximum duration of unemployment benefits (three months) is the lowest in the EU and is significantly shorter than the average time necessary to find a job. Poverty indicators are improving, but they remain high, especially among the most disadvantaged, in particular Roma and children. The adequacy and coverage of social assistance remains a challenge and recent reforms could further restrict the conditions for access to a number of benefits.

               (11)The average performance of Hungarian students in basic skills was below the EU average in the 2012 OECD Programme for International Student Assessment (PISA) and the proportion of low-achievers increased between 2009 and 2012. The influence of the socioeconomic background and school location on educational performance is among the strongest in the EU. The selectivity of the education system deepens performance gaps among students in different school types and these gaps widen over time. The lack of equal access to quality mainstream education is particularly acute for Roma. With the exception of early childhood education, where there has been significant improvement in recent years, gaps remain wide between completion rates of Roma and non-Roma on all other educational levels, i.e. primary, secondary and tertiary education. Early school leaving remains high among Roma. Hungary has introduced a number of measures that aim to address low-achievement more effectively. However, important details on the implementation of these measures are not available, making it difficult to assess their potential impact. A systemic approach to promoting inclusive mainstream education has yet to be developed. The announced implementation plan for the early school leaving strategy has yet to be published. The transition between different forms and stages of education remains difficult and recent reforms in vocational education might further hinder transitions.

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

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

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

               1.In view of the high risk of a significant deviation, achieve an annual fiscal adjustment of 0.3 % of GDP towards the medium-term budgetary objective in 2016 and of 0.6 % of GDP in 2017, unless the medium-term budgetary objective is respected with a lower effort, by taking the necessary structural measures.

               2.Further reduce sector-specific taxes and reduce the tax wedge for low-income earners. Strengthen transparency and competition in public procurement through e-procurement, increased publication of tenders and further improvement of the anti-corruption framework. Improve the regulatory environment in the services sector and in the retail sector by addressing restrictive regulations and ensuring predictability.

               3.Facilitate the transition from the public works scheme to the primary labour market and reinforce other active labour market policies. Improve the adequacy and coverage of social assistance and unemployment benefits. Take measures to improve educational outcomes and to increase the participation of disadvantaged groups, in particular Roma, in inclusive mainstream education.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2016) 337 final.

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

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  SWD(2016) 85 final.

                     (7)
                  COM(2016) 95 final.

                     (8)
                  COM(2014) 494 final.

                     (9)
                  The structural balance as recalculated by the Commission based on the information in the convergence programme, following the commonly agreed methodology.

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