               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 527 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of the United Kingdomand delivering a Council opinion on the 2017 Convergence Programme of the United Kingdom

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of the United Kingdom

                  and delivering a Council opinion on the 2017 Convergence Programme of the United Kingdom

               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 16 November 2016, the Commission adopted the Annual Growth Survey,
                  4
                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,
                  5
                in which it did not identify the United Kingdom as one of the Member States for which an in-depth review would be carried out.

               (2)The 2017 country report for the United Kingdom
                  6
                was published on 22 February 2017. It assessed the United Kingdom’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 United Kingdom’s progress towards its national Europe 2020 targets.

               (3)On 21 April 2017, the United Kingdom submitted its 2017 National Reform Programme and on 27 April 2017 the United Kingdom submitted its 2017 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)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,
                  7
                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.
                  8

               (5)The United Kingdom is currently in the corrective arm of the Stability and Growth Pact. Should a timely and durable correction have been achieved in 2016-17, the United Kingdom will become subject to the preventive arm of the Stability and Growth Pact and to the transitional debt rule in 2017-18. In its 2017 Convergence Programme, the government expects to have corrected the excessive deficit by the fiscal year 2016-17, in line with the Council Recommendation of 19 June 2015, with a headline deficit of 2.7% of GDP. The headline deficit is then expected to increase slightly to 2.8% of GDP in 2017-18 before declining to 1.9% of GDP in 2018-19. The Convergence Programme does not include a medium-term budgetary objective. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to broadly stabilise around 87.5% from 2016-17 to 2018-19 before falling to 84.8% of GDP in 2020-21. The macroeconomic scenario underpinning these budgetary projections is favourable. While the measures needed to support the planned deficit targets are overall well specified, downside risks to the macroeconomic outlook pose a risk to the achievement of the planned deficit reduction.

               (6)On 12 July 2016, the Council recommended that the United Kingdom put an end to the excessive deficit situation by 2016-17 and, following the correction of the excessive deficit, achieve a fiscal adjustment of 0.6 % of GDP in 2017-18 towards the minimum medium-term budgetary objective. Based on the Commission 2017 spring forecast, the headline deficit is projected to have reached 2.7% of GDP in 2016-17, in line with the target recommended by the Council. In 2017-18, there is a risk of some deviation from the preventive arm requirement.

               (7)In the light of its fiscal situation and notably of its debt level, the United Kingdom is expected to further adjust towards an appropriate medium-term budgetary objective. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure
                  9
                which does not exceed 1.8%. It would correspond to an annual structural adjustment of 0.6% of GDP. Under unchanged policies, there is a risk of some deviation from that requirement over the period 2017-18 and 2018-19 taken together. At the same time, the United Kingdom is prima facie not projected to comply with the transitional debt rule in 2017-18 but is forecast to comply in 2018-19. Overall, the Council is of the opinion that the United Kingdom needs to stand ready to take further measures as of 2017-18 to comply with the provisions of the Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State’s budgetary balance in the light of the cyclical conditions. As recalled in the Commission Communication accompanying these country-specific recommendations, the future assessment will need to take due account of the goal to achieve a fiscal stance that contributes to both strengthening  the ongoing recovery and ensuring the sustainability of the United Kingdom’s public finances. In that context, the Commission intends to make use of the applicable margin of appreciation in the light of the cyclical situation of the United Kingdom.

               (8)Private investment has been consistently well below the EU average and public investment marginally below. Productivity is significantly below the G7 average and has stagnated since 2008. The government is putting a strong policy emphasis on raising investment to boost productivity growth. A key challenge is addressing significant shortcomings in the capacity and quality of the United Kingdom’s infrastructure networks. Road congestion is high and rail capacity is increasingly inadequate in places in the face of rapidly growing demand. There is also an increasingly urgent need for higher investment in new energy generation and supply capacity. The National Infrastructure Delivery Plan sets out ambitious plans to improve the UK’s economic infrastructure and a number of investment decisions on major transport and energy projects were made in 2016. However, concerns remain over whether adequate public and private investment can be secured to address infrastructure backlogs in a timely and cost-effective way. The United Kingdom has a major challenge to increase housing supply. A chronic shortage of housing contributes to high and rising house prices and has significant economic and social costs, especially around poles of economic growth. The reformed planning system, and a range of complementary housing policies, are together somewhat more supportive of increased residential construction. Nevertheless, a number of constraints on housing supply remain, including very strict and complex regulation of the land market and residential construction, and new housing supply is still not keeping up with the growth in demand.

               (9)Labour market headline figures continue to be positive, with low long term and youth unemployment overall. However the levels of inactivity, part-time and low-wage employment have room for improvement. Earnings growth remains modest, linked to weak productivity growth. Concerns about skills supply, utilisation and progression remain. There have been significant policy developments focusing on skills and progression via reforms to technical education and apprenticeships. Quality in apprenticeships will need focus on both the qualification level undertaken and the subject area in which it is taken. Other, strategically important, funded routes for skills enhancement, particularly for people over 25, would expand the skills offer available to the State, to business and to individuals seeking career progression. There are also challenges related to the supply of childcare and social care, which contribute to the high rate of female part-time employment. Childcare reforms to date have been constant but gradual. A step-change is likely with the full roll-out of some initiatives in the next two years. The participation of children less than three years old in formal childcare is relatively low. While recent measures improve to some extent the availability and affordability of childcare for children aged 3 and 4, they do not address the issue of childcare supply for children under 3 years old. As a result of previously announced reforms and cutbacks, in particular to in-work support, social policy outcomes including child poverty may come under pressure in the near-to-medium term, particularly in a context of higher inflation. The number of children in poverty who live in working households is a particular cause for concern.

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

               (11)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 United Kingdom take action in 2017 and 2018 to:

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. When taking policy action, consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of United Kingdom’s public finances.

               2.Take further steps to boost housing supply, including through reforms to planning rules and their implementation.

               3.Address skills mismatches and provide for skills progression, including by continuing to strengthen the quality of apprenticeships and providing for other funded “Further Education” progression routes.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2017) 527 final.

                     (3)
                  P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040.

                     (4)
                  COM(2016) 725 final.

                     (5)
                  COM(2016) 728 final.

                     (6)
                  SWD(2017) 93 final.

                     (7)
                  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.

                     (8)

                        COM(2014) 494 final.

                     (9)
                  Net government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

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


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 502 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Bulgaria and delivering a Council opinion on the 2017 Convergence Programme of Bulgaria

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Bulgaria

                  and delivering a Council opinion on the 2017 Convergence Programme of Bulgaria

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,
                  3

               Having regard to the resolutions of the European Parliament,
                  4

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 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 Bulgaria as one of the Member States for which an in-depth review would be carried out.

               (2)The 2017 country report for Bulgaria
                  7
                was published on 22 February 2017. It assessed Bulgaria’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 Bulgaria’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.
                  8
                The Commission’s analysis leads it to conclude that Bulgaria is experiencing excessive macroeconomic imbalances. In particular, Bulgaria continues to experience imbalances linked to remaining fragilities in the financial sector and high corporate indebtedness in a context of the high long-term unemployment.

               (3)Bulgaria did not submit its 2017 National Reform Programme and its 2017 Convergence Programme by the deadline.

               (4)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,
                  9
                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.
                  10

               (5)Bulgaria is currently in the preventive arm of the Stability and Growth Pact. The government did not submit its 2017 Convergence Programme by the deadline set by Regulation (EC) No 1466/97.

               (6)On 12 July 2016, for 2017 the Council recommended Bulgaria to achieve an annual fiscal adjustment of 0.5% of GDP towards the medium-term budgetary objective. Outturn data indicate that Bulgaria already reached its medium-term budgetary objective in 2016. Based on the Commission 2017 spring forecast, the structural balance is forecast to deteriorate from a surplus of 0.1% of GDP in 2016 to a deficit of 0.4% of GDP in 2017 and of 0.3% of GDP in 2018 on a no-policy-change basis. In spite of this deterioration, the structural balance is projected to remain above the medium-term budgetary objective in both years. Overall, the Council is of the opinion that Bulgaria is projected to comply with the provisions of the Stability and Growth Pact in 2017 and 2018.

               (7)Efforts to improve tax collection are ongoing. Despite improvements, tax compliance remains a challenge. The shadow economy and undeclared work are still high. The tax-related administrative burden is significant. Measures to cut red tape appear to have produced limited results so far and there are no indications of major improvements in voluntary tax compliance. Under these circumstances, enforcing the rules appears to be key not only for implementing controls but also for strengthening the prevention of tax non-compliance. The Action Plan to the 2015-2017 Single National Strategy for improving tax collection, tackling the shadow economy and reducing compliance costs appears to be a useful tool, especially for evaluating and improving the coordination and efficiency of a number of administrative bodies working in the tax field. An ex post analysis of the impacts of the specific measures could contribute to the proper assessment, planning and targeting of future tax compliance measures. These measures will replace the current strategy, which expires at the end of 2017.

               (8)The authorities, in consultation and cooperation with the relevant European bodies, conducted asset quality reviews and stress tests of the banking and insurance sectors, and a review of private pension funds’ assets. While the results confirmed the robustness of the sectors on aggregate, pockets of vulnerabilities were confirmed, including in some systemically-important institutions. As the follow-up measures have not yet been fully implemented, the source of the vulnerability remains. Furthermore, some issues, including valuing illiquid financial instruments and assets as well as related-party exposures, were not fully tackled by the three reviews. The supervisors could take a more conservative approach to address these issues. Outstanding issues in the insurance sector also include the treatment of certain reinsurance contracts, some insurance receivables and group-level supervision.

               (9)To tackle the possibility of similar imbalances re-emerging in the future, the measures to improve banking supervision need to be finalised and further efforts to improve non-banking supervision are required. Tackling hard-to-value assets and unsound business practices, including related-party and connected lending, remain key challenges for the authorities. The Bulgarian National Bank has launched a plan to restructure and develop banking supervision, based also on the findings of the World Bank and the IMF. This plan is now being implemented, but may need to be amended in light of the findings of the Financial Sector Assessment Programme. The shortcomings in supervision evidenced by the insurance and pension fund reviews highlight the need for the Financial Supervision Commission to develop and implement a comprehensive plan to strengthen supervision, including by improving its own internal governance and functioning. To ensure full credibility, such a plan should draw on international best practices in the area and should be prepared and implemented in close cooperation with European bodies, incorporating input from third-party service providers as needed.

               (10)Corporate debt remains high (well above that of peer countries), placing a burden on companies’ balance sheets and potentially constraining credit demand and investment over the medium term. To reduce the still-high level of corporate non-performing loans, the authorities should facilitate the workout process for banks by drawing on a comprehensive set of tools. For instance, speeding up the insolvency framework reform would improve the legal environment for dealing with bad debt and provide opportunities for out-of-court restructuring. Beyond the insolvency framework, the toolkit could include supervisory guidance to banks with particularly high levels of non-performing loans levels. This would make data on asset quality more transparent and help to deepen the secondary market for non-performing loans.

               (11)Recent labour market developments have been positive, but structural problems remain. The labour force continues to shrink because of population ageing combined with emigration. As the economy is undergoing structural changes, it is essential to tap into the unused labour potential. Currently, the labour market is characterised by high long-term unemployment and inactivity, limited inclusion of young people in the labour market and skills shortages and mismatches. While the unemployment rate fell below the EU average in 2016, the share of long-term unemployment and the rate of young people not in employment, education or training and the low employment rate of low-skilled people are still major challenges. In the face of these challenges, active labour market policies are insufficiently targeted towards disadvantaged groups and their needs, which hinders their employability. In addition, the insufficient integration of employment and social services for recipients of social benefits can limit their labour market participation.

               (12)Improving educational outcomes and strengthening the provision of quality inclusive mainstream education remains a challenge, with potential consequences for poverty. While the risk of poverty or social exclusion for children has slightly decreased, it remains one of the highest in the EU and is strongly linked to the educational level of the parents. Achievement in basic skills as measured by PISA 2015 show that the proportion of under-achievers in reading, mathematics and science remains one of highest in the EU. The planned methodology to improve school financing has yet to be developed. This aims to support more equitable outcomes by providing additional support to low-performing schools. Children from families with lower socioeconomic status, particularly Roma families, do not enjoy equal educational opportunities, including in early childhood. Vocational education and training is being reformed, but its quality and the cooperation with business and social partners are insufficient. Dual education continues to be rolled out. In higher education, performance-based funding seeks to improve quality and labour market relevance.

               (13)Limited accessibility, low funding, the emigration of professionals and weak health outcomes continue to be key challenges in the healthcare system. Low health insurance coverage, including the low public coverage of outpatient medical services and high out-of-pocket payments, make it difficult for some people to access healthcare. Recent measures, such as selective contracting of hospital services based on the National Health Map, have the potential to improve access to healthcare and equity if implemented fully.

               (14)Bulgaria’s minimum wage level, while still the lowest in the EU, has increased significantly since 2011. Limited progress has been achieved in setting up an objective mechanism, despite employers and trade unions agreeing on the criteria. The absence of a transparent mechanism, which takes into account economic and social criteria, the labour market conditions, and the institutional aspect of their application, may jeopardise a proper balance between the objectives of supporting employment and competitiveness and safeguarding labour income. Despite some tensions among the social partners during the failed negotiations for minimum social security thresholds for 2017, social dialogue in the country remains in place.

               (15)The high share of people living at risk of poverty or social exclusion remains a major economic and social challenge. Bulgaria is still the poorest Member State in the EU, with disadvantaged groups, such as Roma, children, the elderly, and people in rural areas, being disproportionately affected. After several years of sustained improvements, the at-risk-of-poverty rate for the elderly deteriorated substantially. Elderly women are at particularly high risk of poverty or social exclusion given their typically shorter pension contribution period. While the relative poverty situation of children has improved, poverty levels among this group remain very high. The deinstitutionalisation of children is keeping its momentum with the adoption of the new action plan. However, the process is still lagging behind for adults and people with disabilities. Income inequality represents a significant and growing problem. The ratio of the income of the richest 20 % of households to that of the poorest 20 % rose from 6.1 in 2012 to 7.1 in 2015 and is among the highest in the EU. In Bulgaria, the difference between income inequality before and after taxes and social transfers is among the smallest in the EU. The social protection system, including the general minimum income scheme (consisting of monthly social assistance benefits and heating benefits), does not provide adequate levels of support. Coverage of people on social benefits remains low, driven by very restrictive entry requirements. The level of minimum income remains low and has not been updated since 2009 and does not have a transparent adjustment mechanism.

               (16)Measures to improve the public procurement system have been put in place, but their concrete added value still remains to be seen. Appropriate and efficient implementation of the new risk-based ex ante control system needs to be ensured. Enacting the recommendations made in the review of the appeal system remains a challenge since efficient remedies are key to implementing important projects. Once assessed, the administrative capacity of the Public Procurement Agency would have to be adjusted to reflect the Agency’s functions. Furthermore, the administrative capacity of the contracting authorities should be enhanced, including by drawing on support provided by the Public Procurement Agency and the Central Purchasing Bodies for the central administration, the municipalities and the health sector. The work to introduce e-procurement in order to boost the transparency of public procurement still needs to be finalised. Safeguarding the impartiality of public tenders and preventing possible conflicts of interest continue to be important concerns. Despite the recent reforms aimed at modernising the public administration, the effectiveness and efficiency of public institutions remain limited. A number of legal amendments were finalised in 2016 to put in place the appropriate legal framework, but enforcing and implementing them in an efficient and systematic way is challenging.

               (17)In 2016, Bulgaria adopted significant reforms to address continued concerns about the independence and quality of its judicial system. However, as these reforms have been adopted only recently, it is too early to assess their impact. Further steps are needed in a number of areas. Corruption also remains a major challenge in Bulgaria and continues to weigh on investment, both at national and local level. In 2015, the authorities presented an ambitious strategy to fight against corruption, but its implementation is still in its early stages. Bulgaria’s anti-corruption policy continues to be hampered by weak and fragmented institutions, a weak track record in the prosecution of high-level cases, and faltering parliamentary backing for reform. Under the Cooperation and Verification Mechanism, Bulgaria receives recommendations in the areas of judicial reform and the fight against corruption and organised crime. These areas are therefore not covered in the country-specific recommendations for Bulgaria.

               (18)In the context of the European Semester the Commission has carried out a comprehensive analysis of Bulgaria’s economic policy and published it in the 2017 country report. It has also assessed the follow-up given to the recommendations addressed to Bulgaria in previous years.

               (19)In the light of this assessment, the Council is of the opinion that Bulgaria is expected to comply with the Stability and Growth Pact.

               (20)In the light of the Commission’s in-depth review and this assessment, the Council recommendations made under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 2 and 3 below,

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

               1.Further improve tax collection and tax compliance, including through a comprehensive set of measures beyond 2017. Step up enforcement of measures to reduce the extent of the informal economy, in particular undeclared work.

               2.Take follow-up measures on the financial sector reviews, in particular concerning reinsurance contracts, group-level oversight, hard-to-value assets and related-party exposures. Improve banking and non-banking supervision through the implementation of comprehensive action plans, in close cooperation with European bodies. Facilitate the reduction of still high corporate non-performing loans, by drawing on a comprehensive set of tools, including by accelerating the reform of the insolvency framework and by promoting a functioning secondary market for non-performing loans.

               3.Improve the targeting of active labour market policies and the integration between employment and social services for disadvantaged groups. Increase the provision of quality mainstream education, in particular for Roma. Increase health insurance coverage, reduce out-of-pocket payments and address shortages of healthcare professionals. In consultation with social partners, establish a transparent mechanism for setting the minimum wage. Improve the coverage and adequacy of the minimum income.

               4.Ensure efficient implementation of the 2014-2020 National Public Procurement Strategy.

               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) 502 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)
                  SWD(2017) 68 final/3.

                     (8)
                  COM(2017) 90 final.

                     (9)
                  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.

                     (10)
                  COM(2014) 494 final.


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 268 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania
            {SWD(2017) 174 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

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

                  in Romania

               THE COUNCIL OF THE EUROPEAN UNION,

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

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular 10(2), second sub-paragraph, thereof,

               Having regard to the recommendation of the Commission,

               Whereas:

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

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

               (3)On 12 July 2016, the Council recommended Romania to limit the deviation from the medium-term budgetary objective in 2016 and achieve an annual fiscal adjustment of 0.5% of GDP in 2017 unless the medium-term budgetary objective is respected with a lower effort
                  2
               .

               (4)In 2016, based on the Commission 2017 spring forecast and the 2016 outturn data validated by Eurostat, from a position of -0.6% of GDP, i.e. above the medium-term budgetary objective of -1% of GDP, the structural balance has deteriorated to -2.6% of GDP, pointing to a significant deviation from the medium-term budgetary objective (deviation of 1.6% of GDP). The growth of government expenditure, net of discretionary revenue measures and one-offs, was well above the expenditure benchmark, also pointing to a significant deviation (deviation of -2.0% of GDP). The difference in the indicators is mainly explained by different annual nominal potential GDP growth rates used in their computation. Irrespective of that difference, both indicators confirm a significant deviation from the requirements of the preventive arm of the SGP in 2016.

               (5)On 16 May 2017, following an overall assessment, the Commission considered that a significant observed deviation from the medium-term budgetary objective exists in Romania and issued a warning to Romania in accordance with Article 121(4) TFEU and 10(2), first-sub-paragraph, of Regulation (EC) No 1466/97.

               (6)According to Article 10(2), second sub-paragraph, of Regulation (EC) No 1466/97, within one month of the date of the adoption of the warning, the Council should address a recommendation to the Member State concerned to take the necessary policy measures. The regulation foresees that the recommendation will set a deadline of no more than five months for the Member State to address the deviation. On that basis a deadline of 15 October 2017 for Romania to address the deviation appears appropriate. Within that deadline, Romania should report on action taken in response to this recommendation.

               (7)Romania's structural balance in 2016 is estimated to have been 1.6% of GDP away from its medium-term budgetary objective. Based on the output gap projections of the Commission 2017 spring forecast, Romania is in normal economic times in 2017. Romania's general government debt ratio is below the 60% of GDP threshold. The minimum required structural effort prescribed by Regulation (EC) No 1466/97 and the adjustment matrix, which factors in the prevailing economic circumstances and possible sustainability concerns, amounts to 0.5% of GDP. The Commission 2017 spring forecast projects a further deterioration of the structural balance by 1.3% of GDP in 2017. Therefore, a minimum structural improvement of 0.5% of GDP in 2017 translates into a need to adopt measures of a total yield of 1.8% of GDP compared to the current baseline from the Commission spring 2017 forecast. Given the significant size of the required structural consolidation effort resulting from the minimum SGP-required adjustment, it is appropriate not to require any additional required adjustment on top of the minimum 0.5% of GDP requirement.

               (8)The required improvement of the structural balance by 0.5% of GDP in 2017 is consistent with the nominal growth rate of net primary government expenditure not exceeding 3.3% in 2017.

               (9)The Commission 2017 spring forecast projects a general government deficit of 3.5% of GDP in 2017, which is above the 3% of GDP Treaty reference value. The required structural adjustment seems also appropriate to ensure that Romania respects the 3% of GDP general government deficit threshold in 2017.

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

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

               HEREBY RECOMMENDS:

               (1)Romania should take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3% in 2017, corresponding to an annual structural adjustment of 0.5% of GDP, thereby putting the country on an appropriate adjustment path toward the medium-term budgetary objective.

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

               (3)Romania should report to the Council by 15 October 2017 on action taken in response to this recommendation.

               This recommendation is addressed to Romania.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  OJ C 299, 18.8.2016, p. 73.


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 509 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Franceand delivering a Council opinion on the 2017 Stability Programme of France

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of France

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,
                  3

               Having regard to the resolutions of the European Parliament,
                  4

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 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 France 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, France should ensure the full and timely implementation of the Recommendation for the euro area which is reflected in recommendations 1 to 4 below.

               (3)The 2017 country report for France
                  8
                was published on 22 February 2017. It assessed France’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 France’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 22 February 2017.
                  9
                The Commission’s analysis leads it to conclude that France is experiencing excessive macroeconomic imbalances. In particular, France is characterised by weak competitiveness and high and increasing public debt, in a context of low productivity growth. The risk of an adverse effect on the French economy and, given its size, of negative spillovers to the economic and monetary union, is particularly important.

               (4)On 28 April 2017, France submitted its 2017 National Reform Programme and 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)France is currently in the corrective arm of the Stability and Growth Pact. In its 2017 Stability Programme, the government plans to correct the excessive deficit by 2017, in line with the Council Recommendation of 10 March 2015, with a headline deficit of 2.8% of GDP. The headline deficit is planned to decline further to 1.3% of GDP in 2020. The medium-term budgetary objective – a structural deficit of 0.4 % of GDP – is planned to be achieved by 2019. However, the recalculated
                  12
                structural balance is projected to reach -1.2% of GDP in 2020 and therefore the medium-term objective would not be reached over the programme horizon. According to the Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 95.9% of GDP in 2018 to 93.1% of GDP in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible. At the same time, the measures needed to support the planned deficit targets from 2018 onwards have not been sufficiently specified.

               (7)On 10 March 2015, the Council recommended France to put an end to the excessive deficit situation by 2017 and to achieve a general government deficit of 2.8% of GDP, consistent with an improvement in the structural balance of 0.9% of GDP, in 2017. Based on the Commission 2017 spring forecast, the headline deficit is projected to reach 3.0% of GDP in 2017, above the target recommended by the Council. For 2018, under unchanged policies, the headline deficit is projected at 3.2% of GDP, thus exceeding the Treaty reference value and pointing to risks to the durable correction of the excessive deficit. Moreover, the recommended fiscal effort is not projected to be delivered over the period covered by the excessive deficit procedure as the consolidation strategy pursued by France relies primarily on improving cyclical conditions and a continuation of the low interest rate environment, which are outside the control of the authorities.

               (8)For 2018, should a timely and durable correction eventually be achieved, France would become subject to the preventive arm of the Stability and Growth Pact and to the transitional debt rule. In the light of its fiscal situation and notably of its debt level, France is expected to further adjust towards its medium-term budgetary objective of a structural deficit of 0.4 of GDP. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure
                  13
                 which does not exceed 1.2% in 2018. It would correspond to an annual structural adjustment of 0.6% of GDP. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2018. There is also a risk that France will not comply with the transitional debt rule in 2018, as the structural balance is projected to deteriorate by 0.5% of GDP as opposed to the minimum linear structural adjustment of 0.4% of GDP. Overall, the Council is of the opinion that France needs to stand ready to take further measures to ensure compliance in 2017 and that further measures will be needed as of 2018 to comply with the provisions of the Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State's budgetary balance in the light of the cyclical conditions. As recalled in the Commission Communication accompanying these country-specific recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal to achieve a fiscal stance that contributes to both strengthening  the ongoing recovery and ensuring the sustainability of France's public finances. In that context, the Commission intends to make use of the applicable margin of appreciation in the light of the cyclical situation of France.

               (9)The level of public expenditure in France is one of the highest in the EU. The expenditure ratio is projected to reach 56.2 % of GDP in 2017, 9.7 percentage points higher than in the EU. France has followed an expenditure-based consolidation strategy that has relied mainly on declining interest rates and cuts in public investment. However it is unlikely that the low interest rate environment will prevail in the medium term and the cut in productive investment could harm future economic potential. In contrast, the spending reviews have identified a number of possible efficiency gains that have not been implemented. The spending reviews identified a fraction - less than 2 % - of the overall planned expenditure savings of EUR 50 billion over the period 2015-2017. However, only part of them have translated into actual measures in the 2016 budget, while the measures in the 2017 budget Act relied on those already identified in the spending review exercise of 2015. Savings derived from spending reviews could significantly increase by widening the expenditure areas under review and by implementing a multi-annual strategy to fully translate the identified savings into concrete budgetary measures.

               (10)High social security contributions combined with high level of taxes weighing on companies can discourage private investment and hamper companies’ growth and new hires. Policy measures to reduce labour costs have continued to be implemented, with the start in April 2016 of the second phase of reductions in employers’ social security contributions planned under the solidarity and responsibility pact. In addition, the government has increased for 2017 the tax credit for competitiveness and employment (CICE) from 6 % to 7 %. These measures to reduce the labour tax wedge have improved France’s competitiveness since 2013 but accumulated past losses have not yet been recovered. At the average wage, in 2015 France had the highest employers’ social security contribution in the EU as a share of total labour costs paid by the employer, even though it is on a declining trend. The recent evaluations of these measures highlighted their positive effect on employment and firms’ profit margins but further evaluations are needed to fully assess their impact on wages, investment, employment and firms’ margins. Recent evaluations also suggest that the consolidation of all labour cost reduction schemes and their transformation in permanent reductions in social contributions would optimise their effects on employment and investment.

               (11)At 38.4 % in 2016, the effective average corporate tax rate was the highest in the EU and other taxes on production are also particularly high. To curb this trend, France has announced steps to reduce the statutory corporate income rate to 28 % in 2020. At the same time, the tax burden continues to fall less on consumption than in other EU Member States. In 2014, France ranked 27th in the EU for tax revenues from consumption as a percentage of total taxation. The VAT system is characterised by a middle-ranking standard rate and low reduced rates applied to a large base. The complexity of the tax system is a barrier to a well-functioning business environment. France has a high tax burden coupled with many tax breaks, reduced rates and a great number of tax schemes resulting in increased compliance costs and uncertainties. Total tax expenditure is sizeable in France at more than 3 % of GDP. The administrative cost to tax authorities of collecting taxes is also high and is above the EU average.

               (12)In 2016, the unemployment rate decreased to 10.1 %. Unemployment is higher among young people, the low-skilled and those not born in the EU. Ongoing governance reforms are key to aligning training opportunities with employment prospects and economic needs. In parallel, jobseekers, less qualified workers and SME employees face persistent difficulties in having access to training. Ensuring their participation and the relevance of training provided may require strengthening existing measures and rebalancing resources. Young people, and among them the least qualified, still face difficulties entering the labour market. In this context, measures taken to support apprenticeships have translated into positive results so far. But the initial vocational education and training offered, specifically when school-based and in some tertiary sectors, is not sufficiently linked to employment opportunities. Moreover, pupils from a disadvantaged background are more often steered towards initial vocational education, which also accounts for the large majority of early drop outs, contributing to high educational inequalities. The impact of socioeconomic status on students’ performance is the highest in the OECD.

               (13)In 2016 only 54.5 % of non-EU born people of working-age were in employment. The female employment rate (45.4 %) was one of the lowest in the EU. The employment gap between non-EU born and French born people increased to 17.5 percentage points in 2016 (23.7 percentage points for women). The poor performance of non-EU born people pulls down the overall employment rate and represents a chronic underutilisation of labour. Second generation immigrants also face adverse employment outcomes that are not explained by differences in age, education and skills. Moreover, gaps in educational outcomes are persistent, as second generation immigrants are only partially catching up. In order to address this challenge, a comprehensive strategy is necessary, including notably targeted measures on language skills, upskilling and training, job counselling and other targeted active labour market policies. Effective access to services is key to promoting labour market participation, as well as action against discriminatory practices affecting the hiring of non-EU born and second generation immigrants.

               (14)Since 2013 the French minimum wage has followed its indexation rules. In a context of weak inflation and slowing wage growth, its growth has been lower than reference wages. While the minimum wage is high compared with the median wage, the cost of labour at the minimum wage has been reduced by exemptions from social contributions. Increases in the minimum wage induce wage increases for most categories of workers and risk creating upward wage compression. While indexation of the minimum wage is important to preserve workers’ purchasing power, the current indexation mechanism might contribute to delaying the necessary overall wage adjustment. Moreover, in the current context of high unemployment, there are risks that the cost of labour at the minimum wage hampers employment opportunities for low skilled people. The group of independent experts annually assesses the minimum wage in France and provides non-binding opinions on its development. Their opinion on ad-hoc hikes has always been respected so far and is playing an important role to control the use of such ad-hoc hikes.

               (15)With the law of July 2016 on labour, social dialogue and professional pathways, France introduced measures aimed at improving firms’ capacity to adjust to economic cycles and at reducing segmentation. The law clarifies rules on individual economic dismissals, extends the scope of majority company-level agreements and increases the effectiveness of collective bargaining. Persistently high levels of unemployment have put a strain on the sustainability of the unemployment benefit system. In that regard social partners reached in March 2017 an agreement on a new unemployment benefit convention, to be endorsed by the French government, which aims at reducing the annual deficit by EUR 1.2 billion.

               (16)Although France has improved its overall regulatory performance, the business environment continues to be middle ranking in comparison to major competitors. In particular, despite continued simplification efforts, businesses are still faced with a high regulatory burden and fast-changing legislation. This is one of the main obstacles to private investment. With the simplification programme, France has taken steps to reduce red tape for businesses but a significant amount of measures adopted before 2016 have not yet been implemented. At the same time, threshold effects continue to affect the development of firms with implications for their economic and market performance. Increased social and fiscal obligations applicable to firms above a certain number of employees may discourage them from expanding to a size that would allow them to export and innovate. These threshold effects can, in turn, affect firms’ productivity, competitiveness and internationalisation. Indeed, according to empirical evidence, the 10 and 50 employee thresholds are particularly costly for employers, while the French economy is characterised by a disproportionally low share of companies above these thresholds implying a link between these two phenomena.

               (17)Competition in services has improved in a number of sectors, but some economically important sectors such as accountancy, architecture, homecare services, accommodation and food services, taxi and private hire vehicle services, are still characterised by low competition and/or regulatory obstacles. Barriers remain in place for these services, notably excessive regulatory requirements, and these discourage entry or limit effective competition. Reducing these barriers could allow existing firms or new ones, making use of new technological and digital developments, to increase their competitiveness and/or enter markets, and lead to benefits for consumers through lower prices and better quality service. To this end, as part of a package of measures to tackle barriers in services markets,
                  14
                in January 2017 the Commission has launched a mutual evaluation exercise inviting EU Member States to conduct evaluation of the respective barriers they have in place to limit access to certain professions.

               (18)Innovation in France does not match the performance of Europe’s innovation leaders. A high degree of complexity remains and overall coordination is a challenge. The discrepancy between the amount of public support granted and France’s middling innovation performance raises questions about the efficiency of public support mechanisms. In particular, cooperation between public research and companies is suboptimal and weighs on the economic output of the innovation system.

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

               (20)In the light of this assessment, the Council has examined the Stability Programme and its opinion
                  15
                is reflected in particular in recommendation 1 below.

               (21)In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations made under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 4 below,

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

               1.Ensure compliance with the Council recommendation of 10 March 2015 under the excessive deficit procedure. Thereafter, pursue fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. When taking policy action, consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of France’s public finances. Comprehensively review expenditure items with the aim to make efficiency gains that translate into expenditure savings.

               2.Consolidate the measures reducing the cost of labour to maximise their efficiency in  a budget neutral manner and in order to scale up their effects on employment and investment. Broaden the overall tax base and take further action to implement the planned decrease in the corporate income statutory rate.

               3.Improve the access to the labour market for jobseekers, notably the less qualified workers and people with a migrant background, including by revising the system of vocational education and training. Ensure that minimum wage developments are consistent with job creation and competitiveness.

               4.Further reduce the regulatory burden for firms, including by pursuing the simplification programme. Continue to lift barriers to competition in the services sector, including in business services and regulated professions. Simplify and improve the efficiency of public support schemes for innovation.

               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) 509 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) 75 final.

                     (9)
                  COM(2017) 90 final.

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

                     (11)
                  COM(2014) 494 final.

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

                     (13)
                  Net government expenditure is comprised of total government expenditure excluding interest      expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (14)
                  COM(2016) 820 final, COM(2016) 821 final, COM(2016) 822 final, COM(2016) 823 final, COM(2016) 824 final.

                     (15)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


|

52010DC0131

Draft Commission recommendation of […] authorising the Commission to open negotiations on behalf of the European Union for the renewal of the Protocol to the Fisheries Partnership Agreement with the Democratic Republic of São Tomé and Príncipe  /* COM/2010/0131 final */

	[pic] | EUROPEAN COMMISSION |Brussels, 7.4.2010COM(2010)131 finalDraftCOMMISSION RECOMMENDATIONof […]authorising the Commission to open negotiations on behalf of the European Union for the renewal of the Protocol to the Fisheries Partnership Agreement with the Democratic Republic of São Tomé and Príncipe(presented by the Commission)DraftCOMMISSION RECOMMENDATIONof […]authorising the Commission to open negotiations on behalf of the European Union for the renewal of the Protocol to the Fisheries Partnership Agreement with the Democratic Republic of São Tomé and PríncipeEXPLANATORY MEMORANDUMThe European Union and the Democratic Republic of São Tomé and Príncipe concluded a Fisheries Partnership Agreement[1] on 23 July 2007, the Protocol to which, setting out the fishing opportunities and the financial contribution provided for by the Agreement, entered into force on 1 June 2006 and expires on 31 May 2010.The Commission proposes negotiating a new Protocol which is more in line with the opportunities and recognised requirements of Member States' fleets, in accordance with the Council Conclusions of 2004 on Fisheries Partnership Agreements. Initialling a new Protocol before the date of expiry of the existing Protocol would allow fishing activities to continue without interruption.The Council is accordingly requested to approve the negotiating instructions set out in the Annex hereto.RECOMMENDATIONIn the light of the above, the Commission recommends that:-  the Council authorise the Commission to open and conduct negotiations with a view to renewing the Protocol to the Fisheries Partnership Agreement with the Democratic Republic of São Tomé and Príncipe;-  the Commission be appointed negotiator in the matter;-  the Commission conduct the negotiations in consultation with a special committee in accordance with the Treaty on the Functioning of the European Union;-  the Council approve the negotiating instructions set out in the Annex hereto.ANNEXNegotiating instructions-  The negotiations are aimed at renewing the Protocol to the Fisheries Partnership Agreement between the European Union and the Democratic Republic of São Tomé and Príncipe in light of the Council Conclusions of 15 July 2004 based on the Commission Communication of 23 December 2002.-  With a view to promoting responsible and sustainable fishing through the new Protocol, the Commission is to base those negotiations on the following objectives:-  access to the Exclusive Economic Zone (EEZ) of the Democratic Republic of São Tomé and Príncipe and the requisite authorisations for European Union fleet vessels to fish for tuna in the said EEZ.-  taking account of the best available scientific advice;-  ensuring the level of access to the resource, on the basis of the parameters defined in the current Protocol and trends noted in recent years, in particular as regards the quantities that may be fished, the number of fishing authorisations available, etc.;-  reinforcing the dialogue on sectoral policy in order to encourage the implementation of a responsible fisheries policy, in connection with the country’s development objectives, in particular as regards fisheries control and surveillance, fishery resource management and improvement of the health and hygiene conditions of fishery products.[1] Regulation (EC) No 894/2007 of 23 July 2007, OJ L 205, 7.8.2007, p. 35.


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 526 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Swedenand delivering a Council opinion on the 2017 Convergence Programme of Sweden

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Sweden

                  and delivering a Council opinion on the 2017 Convergence Programme of Sweden

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,
                  3

               Having regard to the resolutions of the European Parliament,
                  4

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 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 Sweden as one of the Member States for which an in-depth review would be carried out.

               (2)The 2017 country report for Sweden
                  7
                was published on 22 February 2017. It assessed Sweden’s progress in addressing the country-specific recommendation adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Sweden’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.
                  8
                The Commission’s analysis leads it to conclude that Sweden is experiencing macroeconomic imbalances. In particular, persistent house price growth from already overvalued levels coupled with a continued rise in household debt poses risks of a disorderly correction. Although banks appear adequately capitalised, a disorderly correction could also affect the financial sector as banks have a growing exposure to household mortgages. In such a case, there could be spill-overs to neighbouring countries since Swedish banking groups are of systemic importance in the Nordic-Baltic region. Awareness of mounting risks among the Swedish authorities is high, and in recent years measures have been taken to rein in mortgage debt growth and increase housing construction. However, policy steps implemented so far have not been sufficient to address overheating in the housing sector. Overall, policy gaps remain in the area of housing-related taxation, the macroprudential framework, and in addressing bottlenecks for new housing supply as well as barriers to efficient usage of the existing housing stock.

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

               (4)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,
                  9
                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.
                  10

               (5)Sweden is currently in the preventive arm of the Stability and Growth Pact. In its 2017 Convergence Programme, the government plans to achieve a surplus of 0.3% of GDP in 2017 and to continue to meet the medium-term budgetary objective — a structural deficit of 1 % of GDP — throughout the programme period. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to fall to 39.5% in 2017 and to continue declining to 31.4% in 2020. Robust economic growth and sound public finances are set to be the main drivers behind the declining general government debt-to-GDP ratio. The macroeconomic scenario underpinning these budgetary projections is plausible. Based on the Commission 2017 spring forecast, the structural balance is forecast to show a surplus of 0.4% of GDP in 2017 and a surplus of 0.8% of GDP in 2018, above the medium-term budgetary objective. Based on its assessment of the Convergence Programme and taking into account the Commission 2017 spring forecast, the Council is of the opinion that Sweden is projected to comply with the provisions of the Stability and Growth Pact in 2017 and 2018.

               (6)Household debt has continued to rise from already high levels. Household debt grew by 7.1 % in 2016, approaching 86 % of GDP and about 180 % of disposable income, driven mainly by higher mortgage borrowing linked to continued house price rises. The distribution of debt levels has become increasingly uneven, with an elevated fraction of newly mortgaged households (16.4 % in 2016) borrowing as much as 600 % of their disposable income. The government has taken some relevant macroprudential measures — including the introduction of a new mortgage amortisation requirement in 2016 — but it remains unclear whether these will have sufficient impact over the medium term. In February 2017, the government launched a legislative process to enhance the legal mandate of the macroprudential authority, to ensure that in the future the authority can introduce potential macroprudential measures in a timely manner and use a wider range of tools. The legislative amendments are expected to be in force by February 2018. Adjusting fiscal incentives, for example by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes, would help curb household debt growth, but the government has made no progress on this.

               (7)Sweden has experienced rapid and persistent house price growth since the mid-1990s. House prices have continued to grow rapidly and persistently, especially in the main urban areas. Key drivers include generous tax treatment of home ownership and mortgage debt, accommodative credit conditions coupled with relatively low mortgage amortisation rates, and an ongoing housing supply shortage. This shortage is linked to structural inefficiencies in the housing market. Housing construction has continued to increase, but remains well below new construction needs. The government’s 22-point housing market plan addresses some underlying factors for housing shortage, including measures to increase the amount of available land for construction, reduce construction costs and shorten planning process lead times. However, some other structural inefficiencies, including weak competition in the construction sector, do not receive appropriate attention. The housing shortage is exacerbated by barriers hindering the efficient use of the existing housing stock. Sweden’s tightly regulated rental market creates lock-in and ‘insider/outsider’ effects, but no significant policy action has been taken to introduce more flexibility in setting rents. In the owner-occupancy market, relatively high capital gains taxes reduce homeowner mobility. A temporary reform of the deferral rules for capital gains taxes on property transaction was introduced, but this will probably have limited effect. Lack of available and affordable housing can also limit labour market mobility and the effective integration of migrants into the labour market, and contribute to intergenerational inequality.

               (8)In 2016 Sweden had one of the highest employment rates in the EU (81.2 %), while recording one of the lowest long-term unemployment rates. However, challenges remain, such as integrating low-skilled people and non-EU migrants into the labour market and reducing the substantial employment gap for non-EU-born women. Sweden has made considerable efforts in the reception of asylum seekers and in the integration of refugees and other immigrants. Further improvements appear possible as in 2016 only one third of participants to the introduction programme were in work or education 90 days after having completed the programme, and a comprehensive approach and governance on the corresponding recognition of qualifications are still missing.

               (9)Basic skills proficiency of 15 year olds has improved after years of deteriorating performance, according to OECD’s PISA 2015 survey. However, the proportion of low achievers is still around the EU average and the performance gap linked to the socioeconomic background of students has widened. The measures launched by the government to improve school outcomes and equity warrant close monitoring, together with the initiatives aimed at integrating newly-arrived migrant pupils into the school system.

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

               (11)In the light of this assessment, the Council has examined the Convergence Programme and is of the opinion
                  11
                that Sweden is expected to comply with the Stability and Growth Pact.

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

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

               1.Address risks related to household debt, in particular by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes, while constraining lending at excessive debt-to-income levels. Foster investment in housing and improve the efficiency of the housing market, including by introducing more flexibility in setting rental prices and revising the design of the capital gains tax.

               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) 526 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)
                  SWD(2017) 92 final.

                     (8)
                  COM(2017) 90 final.

                     (9)
                  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.

                     (10)

                        COM(2014) 494 final.

                     (11)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 263 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2015 National Reform Programme of Latviaand delivering a Council opinion on the 2015 Stability Programme of Latvia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2015 National Reform Programme of Latvia

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

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

               (3)On 8 July 2014, the Council adopted a recommendation on Latvia's National Reform Programme for 2014 and delivered its opinion on Latvia’s updated Stability Programme for 2014.

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2015 European Semester of economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it did not identify Latvia as one of the Member States for which an in-depth review would be carried out.

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

               (6)On 26 February 2015, the Commission published its 2015 country report for Latvia
                  6
               . The country report assessed progress in addressing the country-specific recommendations adopted on 8 July 2014.

               (7)On 17 April 2015, Latvia submitted its 2015 National Reform Programme and its 2015 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)Latvia is currently in the preventive arm of the Stability and Growth Pact and benefits from the implementation of the systemic pension reform clause as confirmed by Eurostat. In its Stability Programme, Latvia has requested a temporary deviation from the required adjustment path towards the medium-term objective, because it continues to implement a major structural reform in the health sector. The budgetary costs of the health sector reform amount to 0.2% of GDP in 2016. The reform is estimated to increase employment by 0.6% and the GDP level by 2.2% by 2023. The positive impact on growth and the long-term sustainability of public finances is assessed to be plausible. However, based on the Commission's 2015 spring forecast, the projected structural deficit of 2.2% of GDP in 2016 exceeds the appropriate safety margin with respect to the 3% of GDP reference value of the Treaty which should be respected in order to be eligible for the structural reform clause. Therefore, and while recognising that the ongoing health sector reform is warranted, the Council is of the opinion that Latvia does not fulfil the requirements to benefit from the requested temporary deviation in 2016.

               (9)In its 2015 Stability Programme, the government plans a broadly stable headline deficit at 1.4% of GDP in 2016 and 1.3% in 2017, rising to 1.7% in 2018. To achieve these targets, the government intends to reach a structural deficit of 1.8% of GDP in 2016, and of 1.4% of GDP as from 2017. The path in the Stability Programme incorporates a deviation based on the structural reform clause for which Latvia does not appear to be eligible, and classifies planned additional defence spending over 2016-2019 as one-off operations. According to the Stability Programme, the government debt ratio is expected to decline from 37% of GDP in 2015 to 34% of GDP by 2018, with some annual fluctuations in between due to accumulation of liquid assets for debt management purposes. The macroeconomic scenario underpinning these budgetary projections is plausible. Measures for 2015 have largely been implemented as budgeted. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, Latvia complies with the requirement in 2015, taking into account the application of the pension reform clause. For 2016, there is a risk of a significant deviation. The structural balance is required to improve by 0.3% of GDP taking into account the allowance for the pension reform. Based on the Commission forecast, it deteriorates by 0.3% of GDP, which is also linked to the fact that the defence spending cannot be classified as one-off measures. Based on its assessment of the Stability Programme and taking into account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Latvia will not comply with the provisions of the Stability and Growth Pact.

               (10)A national independent accreditation agency is being set up and a new quality-targeting financing model is being developed for Latvia's higher education. Despite some progress in reforming the research and innovation system, in line with the Smart Specialisation Framework, inadequate public funding in a fragmented research and innovation system is leading to poor scientific outcomes. Latvia invested only around 0.6% of GDP in R&D in 2013 - the third lowest level in the EU. Public R&D intensity reached only 0.43% of GDP in 2013. Lack of innovation and private investment in higher value added and knowledge intensive sectors hampers competitiveness.

               (11)Notwithstanding the progress made to tackle unemployment, further action is needed to prevent youth unemployment and its negative long-term consequences, giving the shrinking labour force. Latvia has made some progress to reform the vocational education and training and its apprenticeship component; however, its attractiveness remains a challenge, due to the limited engagement of SMEs.

               (12)Even if a significant amount of analytical and planning work has been carried out, the social assistance reforms have not advanced and are not backed by sufficient budgetary plans. Low coverage and adequacy of unemployment and social assistance benefits prevents effective action on reducing poverty, social exclusion and the high degree of inequality.  Under these conditions, social expenditure has little impact on poverty reduction. In 2014, around 32.7% of Latvia's population were at risk of poverty or social exclusion and income inequality remains among the highest in the EU. The financing and coverage of active labour market policies remains low in comparison with other EU countries. The high tax wedge for low- income earners remains a disincentive for formal employment and reduces demand for low-skilled workers; whereas environmental and effective property taxation have significant unexploited potential. Low public healthcare financing and high out-of-pocket payments, inadequate focus on performance incentives and efficiency, lack of care coordination result in reduced access of large proportion of the population. There is significant room to increase the cost-effectiveness and quality of the system and to link hospital financing to performance based mechanisms.

               (13)Latvia has made significant progress in reforming the judicial system. However, the rate of resolving civil and commercial cases remains low creating additional burden to business and the role of the Judicial Council and court chairpersons in implementing judicial reforms should be strengthened. Fight against tax evasion and appropriate tax collection is insufficient and the level of tax avoidance is still high. While the insolvency law has been adopted, challenges remain on proper insolvency policy and on an effective insolvency administrators' supervision system. The business climate and the quality of public services would benefit from stronger measures against conflict of interest and corruption, especially in vulnerable sectors such as public procurement, construction and healthcare. There has been no progress on the Competition Council's proposals for amendments to the Competition Law to give it greater institutional and financial independence to take effective action against public bodies. The Public Service Law has not been adopted by the Parliament. It will be important that the local government will be included.

               (14)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Latvia’s economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Latvia in previous years. It has taken into account not only their relevance for sustainable fiscal and socio-economic policy in Latvia but also their compliance with EU rules and guidance, given the need to reinforce 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 (4) below.

               (15)In the light of this assessment, the Council has examined Latvia’s Stability Programme, and its opinion
                  7
                is reflected in particular in recommendation (1) below,

               HEREBY RECOMMENDS that Latvia take action within the period 2015-2016 to:

               1.Ensure that the deviation from the medium-term objective in 2015 and 2016 is limited to the allowance linked to the systemic pension reform.

               2.Improve vocational education and training, speed up the curricula reform and increase the offer of apprenticeships. Ensure that the new financing model of the higher education system rewards quality. Better target research financing and incentivise private investment in innovation on the basis on of the Smart Specialisation Framework.

               3.Take concrete steps to reform social assistance, ensuring adequacy of benefits, and take measures to increase employability. Reduce the high tax wedge for low-income earners by shifting tax burden to other sources less detrimental to growth. Take action to improve accessibility, cost-effectiveness and quality of the healthcare system and link hospital financing to performance mechanisms.

               4.Improve efficiency of the judicial system, by increasing accountability of all parties (including insolvency administrators), by providing adequate means to fight tax evasion and by strengthening the role of the Judicial Council. Improve the public service legislation to strengthen the conflict of interest regime and link remuneration to responsibilities.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2015) 263

                     (3)
                  P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069

                     (4)
                  COM (2014) 902

                     (5)
                  COM(2014) 904

                     (6)
                  SWD(2015) 33 final

                     (7)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.