               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 505 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Germany and delivering a Council opinion on the 2020 Stability Programme of Germany

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Germany and delivering a Council opinion on the 2020 Stability Programme of Germany

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Germany as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

               (2)The 2020 country report for Germany
                  3
                was published on 26 February 2020. It assessed Germany’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  4
               , the follow-up given to the recommendations adopted in previous years and Germany's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Germany is experiencing macroeconomic imbalances. In particular, the high current account surplus reflects a subdued level of investment relative to savings and has cross-border relevance.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  5
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

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

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  6
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

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

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

               (8)The Union legislator has already amended the relevant legislative frameworks
                  7
                to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Germany is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across sectors and regions due to different specialisation patterns. This entails a risk of widening disparities within Germany. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

               (10)On 20 April 2020, Germany submitted its 2020 National Reform Programme and, on 30 April 2020, its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Germany is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

               (12)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,4% of GDP in 2019 to a deficit of 7¼% of GDP in 2020. After decreasing to 59,8% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 75¼% in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (13)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Germany has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, in 2020 those budgetary measures amount to 7,2% of GDP. The measures include liquidity support for companies, targeted assistance for small companies and self-employed by grants and loans as well as easier access to short-time working schemes to prevent lay-offs. In addition, Germany has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses, which the 2020 Stability Programme estimates at 24,9% of GDP. Those measures consist of loan guarantees mainly provided by the State-owned development bank KfW as well as by the new Economic Stabilisation Fund, created in response to the COVID-19 pandemic. Contrary to the 2020 Stability Programme, the Commission’s estimates do not consider tax deferrals and the budgetary compensations for decreasing tax revenues due to the economic downturn as discretionary measures with a budgetary impact. Overall, the measures taken by Germany are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (14)Based on the Commission 2020 spring forecast under unchanged policies, Germany’s general government balance is forecast at -7,0% of GDP in 2020 and -1,5% in 2021. The general government debt ratio is projected to reach 75,6% of GDP in 2020 and 71,8% in 2021.

               (15)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Germany’s planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is  not fulfilled.

               (16)The first infection in Germany was registered on 27 January 2020 and the number of COVID-19 cases started to increase exponentially in March 2020. The German authorities then responded with confinement measures to contain the spread of the virus, such as closing all non-essential retail shops, restaurants, entertainment and cultural establishments, sports facilities, schools and universities. All public gatherings of more than two persons were forbidden and people were asked to keep all social contacts to a minimum. Manufacturing has not been subject to confinement measures per se. However major factories were closed over a number of weeks due to disrupted foreign trade and squeezed demand. The economic outlook deteriorated strongly, with the spring forecast of the Commission pointing to a GDP decline of 6,5% in 2020. Even if the expansion of short-time work arrangements (Kurzarbeit) helps companies to keep their workers, an increase in unemployment looks impossible to escape. According to the forecast, unemployment is expected to rise to 4% in 2020 and recover to 3,5% in 2021.

               (17)To cushion the economic fallout, the German government has reacted quickly and has adopted far-reaching measures. Up to EUR 50 billion are being offered in immediate assistance (direct grants) to small businesses, the self-employed and freelancers. Through the newly created Economic Stabilisation Fund and the public development bank KfW, the government has, with an allocation of public guarantees of at least EUR 822 billion (24% of GDP), expanded the volume of and access to loans for firms of different sizes covering up to 80-90% of the lending bank’s credit risk (in some special cases, up to 100%). The Economic Stabilisation Fund can also support large companies by providing additional equity capital on a temporary basis. To boost the liquidity of companies, adjustments to tax deferrals, prepayments and penalties have been adopted. Insolvency rules have been modified to avoid technical insolvency procedures. The individual states (Länder) are complementing the federal measures with their own support programmes. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. The COVID-19 crisis is likely to exert further pressure on the already low profitability of the German banking sector. Thus, further reducing costs appears warranted for German banks to ameliorate profitability and free up funds for information technology investment and organic capital creation. Further consolidation would also help in this regard.

               (18)After starting strongly at the beginning of the year, the labour market has deteriorated as a result of the COVID-19 pandemic and related lockdown measures. To cushion both the employment and social impacts of the crisis, the government has provided substantial support through the short-time work arrangement scheme ‘Kurzarbeit’. It eased conditions for accessing it, retroactively extended the scheme to temporary agency workers and increased its generosity. This helps to preserve jobs and protect household incomes. Employers are receiving financial relief by not having to pay the social security contributions, for the lost working time. The facilitated access to minimum income support (based on Book II of the German Social Code ‘Sozialgesetzbuch/SGB’) provides relief against income losses. Low-income families are being supported through easier access to child allowances and the minimum income. In addition, tenants facing a loss of income are temporarily protected against eviction. While Germany performed well on the Social Scoreboard supporting the European Pillar of Social Rights, gaps in coverage, if not closed, may lead to reduced income for vulnerable groups in the context of the current crisis.

               (19)In tackling the health consequences, Germany benefitted from its universal health system that provides access to high-quality care and managed to rapidly increase its testing and intensive-care capacity. The ongoing COVID-19 crisis, however, underlines the continuous need to strengthen the resilience of the health system. The availability of nursing staff and the attractiveness of the nursing profession remain an issue. Despite a comparatively high number of practicing nurses per capita, hospitals have increasingly reported unfilled positions for nurses. Coordination between healthcare providers in primary and hospital care, and between health and social care, could also be improved and supported by digital tools. E-health infrastructure is being deployed at an accelerated pace, but the use of online health and care services, e-prescriptions and medical data exchange remains well below the EU average. A new law passed in March 2020 helps mitigate the economic consequences from COVID-19 primarily for hospitals and doctors in private practice. Nevertheless, the long-term financing of healthcare institutions will have to be secured in order to maintain care in all areas, as the postponement of dispensable surgeries and treatments hurt the financial revenues of institutions in the health sector, and available resources are being used to purchase priority tests and equipment. With a strong research base, Germany has the capacity to engage in specific research and innovation measures to respond to the COVID-19 crisis, including the development of vaccines and therapeutics and the development of a research network to bundle and strengthen the research activities of German university medicine and provide support to the Coalition for Epidemic Preparedness Innovations.

               (20)To foster the economic recovery, it will be important to frontload mature public investment projects and promote private investment. Public and private investment continued to increase robustly in 2019 but lagged behind investment needs. Public investment is below the replacement rate at municipal level, where the backlog of investments remains high at 4% of GDP and is still held back by capacity and planning constraints. Investments in green technologies and energy that have already been planned can be frontloaded, for instance projects for building renovations and renewables. Despite recent initiatives, meeting short- and medium-term decarbonisation targets and 2050 climate neutrality targets remains a challenge. This is also true for environmental and energy efficiency targets, as price incentives, especially with low oil prices due to the current COVID-19 crisis, discourage climate and environmentally-friendly behaviour. Germany’s transformation to a climate neutral economy will require sizeable private and public investment over a sustained period in renewable energy, electricity infrastructure, energy efficiency, circular economy and sustainable transport, among others. Furthermore, Germany’s Federal Audit Office criticised the cost-effectiveness of measures related to the green energy transition. More efforts and sustained investments in energy networks are needed to reap the benefits of a fully integrated sustainable energy system, with consistent price signals. Clean mobility can be promoted through appropriate regulatory measures and with stronger and faster investment in sustainable transport infrastructure and clean mobility solutions. Additional investment in research and development (R&D) is essential to foster a recovery towards a more sustainable and competitive economy. Spending on education and research remained at 9,1% of GDP in 2018, falling short of the national target of 10%. Private R&D investment is increasingly concentrated in large firms. The supply of housing remained well below the annual housing target of building 375,000 new flats between 2017 and 2021, in spite of policy measures. Policies encouraging investment into new housing, would address this imbalance and improve housing affordability. The programming of the Just Transition Fund for the period 2021-2027 could help Germany to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report. This would allow Germany to make the best use of that fund.

               (21)A modern digital infrastructure and digital services are crucial when mobility is restricted. Investments in digital infrastructure and public services can support the economic recovery and help reduce Germany’s gap with other countries in the coverage of very-high capacity networks, which remains substantial. In Germany, that coverage was 32,7% in 2019, compared to an EU average of 44%, while the fibre to the premises coverage was 10,5%, well below the EU average of 33,5%. The COVID-19 crisis underlined the importance of connected digital services. Connectivity gaps can be a main factor hampering investment in digitalisation, in particular for small- and medium-enterprises (SMEs), which remain slow adopters of digital technologies. Germany still underperforms in digital public services among Member States, despite an improvement in such services for businesses. However, the level of online interaction between the public authorities and the general public is very low. Implementation of the Online Access Act is proceeding slowly, and it will be a challenge to meet the goal of digitalising all 575 services by the end of 2022. The Act should be implemented by all public bodies involved – federal, state and local authorities – in order to generate more significant improvements in digital public administration.

               (22)It is important to keep regulatory and administrative burdens low for the implementation of the support measures and beyond. Keeping the administrative burden at a minimum for access to support measures should ensure that smaller businesses receive the same support from intermediaries as larger ones. Reducing other administrative burdens more broadly, i.e., beyond support measures, for example by applying flexibility for non-essential bureaucratic procedures, can provide additional relief to SMEs.

               (23)Already before the emergence of the COVID-19 crisis, technological progress was transforming the labour market, requiring increased funding of education and training, including /reskilling and upskilling and improving digital skills. The COVID-19 crisis made this need even more pressing, in particular in the case of workers employed in sectors that may be impacted for a longer time by social distancing or those at risk of becoming unemployed. The sudden shift to a more digitalised society and home-based education may pose a particular challenge for vulnerable pupils and students who do not have access to digital solutions and support at home. This includes students with disabilities. Special care is needed to ensure that all pupils and students acquire the key skills set out in the curriculum and that the months of disruption due to COVID-19 do not result in a lifetime of disadvantage. Already existing inequalities in basic skills, linked to socio-economic and migrant backgrounds, risk to be exacerbated. The crisis has highlighted the importance of further developing the educational system to promote a smart and inclusive recovery and to stay on track to pursue the green and digital transition.

               (24)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

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

               (26)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Germany should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

               (27)In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Germany’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the 2020 National Reform Programme and the follow-up given to the recommendations addressed to Germany in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Germany, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

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

               (29)In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The present recommendations take into account the need to tackle the pandemic and facilitate the economic recovery as a first necessary step to permit an adjustment of imbalances. Recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (2),

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

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Mobilise adequate resources and strengthen the resilience of the health system, including by deploying eHealth services.

               2.Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on sustainable transport, clean, efficient and integrated energy systems, digital infrastructure and skills, housing, education and research and innovation. Improve digital public services across all levels and foster the digitalisation in small and medium-sized enterprises. Reduce the regulatory and administrative burden for businesses.

               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)

                        SWD(2020) 504 final.

                     (4)

                        OJ C 301, 5.9.2019, p. 117

                     (5)

                        COM(2020) 112 final.

                     (6)

                        COM(2020) 123 final.

                     (7)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (8)

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


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 509 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Spain and delivering a Council opinion on the 2020 Stability Programme of Spain

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Spain and delivering a Council opinion on the 2020 Stability Programme of Spain

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Spain as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

               (2)The 2020 country report for Spain
                  3
                was published on 26 February 2020. It assessed Spain’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  4
               , the follow-up given to the recommendations adopted in previous years and Spain's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Spain is experiencing macroeconomic imbalances. High external and internal debt, both public and private, continued to constitute vulnerabilities, in a context of still high unemployment and had cross-border relevance.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  5
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

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

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  6
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

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

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

               (8)The Union legislator has already amended the relevant legislative frameworks
                  7
                to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Spain is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across Spanish regions due to different specialisation patterns. This is the case, for example, for the regions that rely the most on tourism, such as those in the Mediterranean coast, Andalusia, or the Balearic Islands and the Canary Islands, where more than one fourth of jobs are linked to that sector. This entails a substantial risk of widening regional disparities within Spain. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

               (10)On 1 May 2020, Spain submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Spain is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule.

               (12)On 13 July 2018, the Council recommended Spain to ensure that the nominal growth rate of net primary government expenditure (3) does not exceed 0,6% in 2019, corresponding to an annual structural adjustment of 0,65% of GDP. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing Spain’s compliance with the debt criterion in 2019.

               (13)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 2,8% of GDP in 2019 to a deficit of 10,3% of GDP in 2020. After decreasing to 95,5% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 115,5% in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (14)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Spain has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 3,2% of GDP. The quantification of the deficit-increasing measures broadly coincides with the Commission’s estimates, once the different treatment of the cost of automatic stabilisers is taken into account. The measures include strengthening health care services and providing income support to workers put on short-time work schemes. In addition, Spain has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses, which the 2020 Stability Programme estimates at 9,2% of GDP. Those measures in particular include loan guarantees (8,8% of GDP). Overall, the measures taken by Spain are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (15)Based on the Commission 2020 spring forecast under unchanged policies, Spain’s general government balance is forecast at -10,1% of GDP in 2020 and -6,7% in 2021. The general government debt ratio is projected to reach 115,6% of GDP in 2020 and 113,7% in 2021.

               (16)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Spain’s non-compliance with the debt rule in 2019 and the planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit and debt criteria as defined in the Treaty and in Regulation (EC) No 1467/1997 are not fulfilled.

               (17)Measures taken to stop the spread of the virus are having an important effect on the economy and could result in a 9,4% loss of GDP this year. The impact on employment, while difficult to calculate at this stage, will also be sizeable. Around one million people have already lost their jobs since the onset of the crisis. The effect on employment is currently mitigated by the close to 3,5 million workers who have been enrolled in short-time work schemes (ERTEs), which have prevented so far immediate losses of employment. The consequences of the pandemic in Spain will be aggravated by the high share of employment in small and medium-sized enterprises (SMEs), the weight of sectors that are being particularly hit and are likely to experience a slower recovery, among which tourism and retail, and the high rate of temporary contracts among employees (26,3% in 2019). All these factors could lead to large employment losses and amplify the shock. According to the Commission’s forecast, the unemployment rate (which was 13,6% in February 2020), is expected to rise to 18,9% in 2020 and recover to 17% in 2021.

               (18)The Spanish authorities have sought to mitigate the impact of the pandemic and of the containment period through various packages of measures that in total amount to EUR 145 billion. In their efforts to tackle the disease, the authorities have increased their expenditure on health and social services. They have also facilitated the use of ERTEs with a view to keep people in employment and support household’s income. Employees affected by an ERTE receive a benefit amounting to 70% of their social security contribution base, with a minimum and maximum limit (EUR 502 and EUR 1,402, respectively). The employment relationship remains intact during the duration of the ERTEs, which have been recently extended until 30 June 2020. Firms implementing ERTEs are exempted from having to pay a very large part of the social security contributions for workers covered by the scheme, provided they maintain their jobs for at least six months after the resumption of activities. These measures go hand in hand with specific aid for SMEs and self-employed workers, who constitute the backbone of the Spanish economy (deferral of tax payments, reductions of social security contributions and state guarantees), and are an attempt to help them avoid bankruptcy and quickly resume activity once the crisis is over. Measures have also been adopted to guarantee income support temporarily to non-standard workers who have no access to social security protection.

               (19)The Spanish health system has been delivering good health outcomes despite the comparatively low level of investments. The outbreak of the COVID-19 pandemic has, however, put an unprecedented strain on the system and revealed its vulnerability to shocks. Immediate action is focusing on strengthening capacities in terms of health workers, critical medical products and infrastructure in order to save lives and restore health during the pandemic. Persons with disabilities and the elderly in residential care have been particularly exposed during the crisis. Their continued access to medical and social care, including emergency and intensive care services, needs to be ensured. Later on, efforts should concentrate on improving the resilience of the health system so that it can resume its optimal performance as quickly as possible and better cope with new shocks. The pandemic has revealed existing structural problems, some of which derive from certain shortfalls in investment in physical infrastructures and shortcomings in the recruitment and working conditions of health workers. There are regional disparities in terms of spending, physical resources and staff, and the coordination between different levels of government is not always effective. In the medium-term, healthcare delivery could better respond to the challenges of ageing, growing chronical conditions and disability. Primary care and the development of e-health have a central role to play in this regard. In the medium-term, it will be important to ensure that the likely decrease in resources due to the economic downturn does not affect people’s healthcare coverage and result in inequalities in access.

               (20)Despite years of strong job creation, the Spanish labour market still recorded high levels of unemployment and labour market segmentation before the COVID-19 outbreak. Preliminary data point to a very significant increase in the level of unemployment in Spain as a result of the crisis, which will weigh on the already limited capacity of employment services to support workers and employers and on social services. In the medium term, the way to recovery should be paved by measures to support employment taken in consultation with social partners, such as gradually phasing-out short-time work schemes, reviewing the system of hiring incentives to better promote sustainable forms of employment, notably for young workers, as well as through flexibility in working conditions. Raising the share of students in science and digital technologies, making vocational education and training more attractive and ensuring flexible upskilling and reskilling opportunities could help meet the growing demand for the technical skills needed for the green and digital transitions that will accompany the recovery. More generally, improving educational and career guidance and providing adequate support to students with disadvantages and regions lagging behind could contribute to better educational outcomes. The success of measures that may be adopted with a view to achieving these objectives will strongly depend on taking the necessary time to build a broad and long-lasting social and political consensus around the reforms.

               (21)The effects of the pandemic on the labour market have prompted a pressing need to support the income of households hit by the crisis. The facilitation of the use of short-time work schemes has been key in that endeavour. However, temporary workers with very short contracts, who constitute the bulk of the close to one million new unemployed and amongst which there are many young workers, are often not eligible for standard unemployment protection. Ensuring early on that all workers, including temporary workers and the self-employed, have access to adequate social protection and active labour market policies, is needed to support a sustainable recovery and social cohesion.

               (22)The crisis will likely increase the high levels of poverty or social exclusion in Spain, especially among families with children. In 2019, Spain was the Member State with the lowest average of family benefits per child. Families with low-to-medium income are not entitled to the country’s strict child benefits, and tax deductions are of limited advantage to them. Social protection expenditure remains highly oriented towards older people, and the level of expenditure on pensions is set to increase significantly in the medium to long term, should the announced departures from the 2013 pension reform be made permanent and no adequate compensatory measures taken. The difficult economic and social context resulting from the pandemic instead calls for intergenerational solidarity in favour of the younger generations. Unemployment assistance for the long-term unemployed and workers not qualifying for contributory schemes is currently scattered across multiple schemes, resulting in low coverage. Existing regional minimum income schemes only reach 20% of their potential beneficiaries in the country, amid large regional disparities in terms of coverage, duration, access conditions and adequacy. In the current pressing context, a permanent national income guarantee scheme, with an estimated coverage of three million beneficiaries, is planned to be introduced swiftly to complement the existing regional minimum income schemes. Its impact on poverty-reduction and its sustainability in the short and medium-term cannot be assessed at this stage.

               (23)Another aggravating factor for the pandemic crisis in Spain is that the high number of SMEs account for a large share of employment. In order to prevent avoidable bankruptcies, some measures to provide liquidity support to businesses through loans and guarantees have been adopted as a matter of urgency, with a focus on SMEs and on sectors that will be hit harder and longer by the crisis, such as tourism (which accounts for 12% of GDP in Spain in 2019). These measures should be efficiently and swiftly implemented by financial intermediaries if they are to deploy their effects. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities will also help improve the cash flow of SMEs. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. With a view to ensuring the effectiveness of these measures, it is important that efforts to reduce administrative burden and to offer efficient digital public services are maintained. Support to firms in the sectors most damaged by the crisis and safeguarding the competitiveness of export companies is crucial for the successful recovery.

               (24)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Spain’s recovery prospects will depend on its capacity to increase productivity and foster innovation, including through the digital and green transition. Spain’s innovation performance is below the EU average in all regions. Spain underperforms on the ability of firms to innovate, invest in tangible and intangible assets and make best use of their population’s skills, which could hamper their competitiveness in a knowledge-based economy. The crisis has highlighted the importance of digitalisation to maintain access to governmental services and education and training, as well as to preserve jobs and economic activity. Before the confinement period, only half of the schools in Spain had adequate digital learning platforms in place, with significant regional disparities. The sudden shift to digital learning was also a particular challenge for vulnerable students who did not have access to digital solutions at home. Spain should ensure that all students benefit from access to digital learning, including those in rural areas and from vulnerable households. Supporting the digitalisation of businesses would also promote the competitiveness of Spanish firms in global value chains and increase their capacity to export, notably SMEs and microenterprises. The digital uptake, including of advanced digital technologies, and the reduction of the digital divide between urban and rural areas, would improve the Spanish economy’s capacity to innovate. In addition, reinforcing research and innovation governance at all levels, increasing the quality of research through systematic evaluations and incentivising research organisations to cooperate with the private sector could make research and innovation policies more effective and accelerate the diffusion of innovation in order to help the recovery.

               (25)Spain’s transformation to a climate neutral economy will require sizeable investment over a sustained period in renewable energy, energy infrastructure, energy efficiency and sustainable transport, among others. Investments should be frontloaded to help the green transition during the recovery, in line with Spain’s National Energy and Climate Plan. Promoting an integrated energy system should facilitate renewables penetration. Reducing energy consumption in private and public buildings through large-scale renovations, and developing smart grids and renewable electricity storage would help better manage demand for energy, while supporting job creation during the recovery. Further investments in energy infrastructures, including in electricity interconnections with the rest of the Union, would help to improve the integration of the internal EU energy market, while introducing more competition and facilitating the deployment of renewable energy. Additional efforts should also promote sustainable transport, including the rollout of alternative fuels infrastructure, in particular for electric vehicles. Investments will also be needed to make a greater use of rail for freight transport possible, including cross-border connections with France and Portugal and connections to ports and logistic hubs. In addition, certain areas of Spain are among those most exposed to climate change in Europe. Water resources are under pressure, and infrastructure for water and waste management is uneven across the country. Green investments can help to cope with the adverse effects of climate change, such as floods and forest fires, improve air quality, as well as water and waste management and develop the potential of the circular economy. The programming of the Just Transition Fund for the period 2021-2027 could help Spain to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report
                  8
               . This would allow Spain to make the best use of that fund.

               (26)Regulatory fragmentation and barriers in Spain prevent firms from benefiting from economies of scale and negatively affect productivity. The Law on Market Unity, which is already being enforced by courts and competition authorities, should be more actively used to promote better regulation and competition during the recovery. In this context, stringent ownership and market restrictions that have sought to ensure the supply of strategic goods and services during the pandemic crisis should be removed as soon as the emergency ceases. More generally, a stronger and sustained coordination between the different levels of government could make policies to facilitate the recovery more effective. It is also essential to ensure that the governance structure that has already been created by the laws implementing the 2014 Public Procurement Directives can work at full speed as soon as possible to warrant an efficient use of the public investment that may support the recovery. Work on the comprehensive national public procurement strategy should be stepped up in close cooperation with the representatives of all government levels (central, regional and local) through the Cooperation Committee.

               (27)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

               (28)The timely resolution of insolvency proceedings will also play a key role in ensuring the liquidity of companies and an effective reallocation of resources, as well as in promoting entrepreneurship and the stability of the financial sector. It is essential to safeguard the justice system’s capacity to handle insolvency proceedings efficiently. This is particularly important, as the current suspension of the activity of the courts and the expected increase in litigation due to the recession caused by the pandemic may further exacerbate already existing challenges with increasingly lengthy proceedings and growing backlogs of cases.

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

               (30)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Spain should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

               (31)In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Spain’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the 2020 National Reform Programme and the follow-up given to the recommendations addressed to Spain in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

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

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

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

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the health system’s resilience and capacity, as regards health workers, critical medical products and infrastructure.

               2.Support employment through arrangements to preserve jobs, effective hiring incentives and skills development. Reinforce unemployment protection, notably for atypical workers. Improve coverage and adequacy of minimum income schemes and family support, as well as access to digital learning.

               3.Ensure the effective implementation of measures to provide liquidity to small and medium-sized enterprises and the self-employed, including by avoiding late payments. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on fostering research and innovation, clean and efficient production and use of energy, energy infrastructure, water and waste management and sustainable transport.

               4.Improve coordination between different levels of government and strengthen the public procurement framework to support recovery in an efficient manner.

               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)

                        SWD(2020) 508 final.

                     (4)

                        OJ C 301, 5.9.2019, p. 117.

                     (5)

                        COM(2020) 112 final.

                     (6)

                        COM(2020) 123 final.

                     (7)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (8)

                        SWD(2020) 508 final.

                     (9)

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


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 508 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Greece and delivering a Council opinion on the 2020 Stability Programme of Greece

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Greece and delivering a Council opinion on the 2020 Stability Programme of Greece

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Greece as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

               (2)The 2020 country report for Greece
                  3
                was published on 26 February 2020. It assessed Greece’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  4
               , the follow-up given to the recommendations adopted in previous years and Greece's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Greece is experiencing excessive macroeconomic imbalances. In particular, the imbalances identified relate to the high public debt, the high non-performing loans on banks’ balance sheets and the external sector, in a context of still low potential growth and high unemployment.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  5
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

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

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  6
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

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

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

               (8)The Union legislator has already amended the relevant legislative frameworks
                  7
                to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Greece is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across Greek regions due to different specialisation patterns, in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Greece, aggravating the already observed trend of widening disparities between the capital city and notably the insular and mountainous regions that further intensified during the financial crisis years. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

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

               (11)Greece is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

               (12)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,5% of GDP in 2019 to a deficit of 4,7% of GDP in 2020. The deficit is projected to decline to 0,2% of GDP in 2021. After decreasing to 176,6% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 188,8% in 2020 according to the 2020 Stability Programme. There are country-specific risks underlying the budgetary projections, namely the pending litigation and public service obligations. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (13)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Greece has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 5,4% of GDP. Those measures include a temporary economic support to wage earners, self-employed, individual businesses and certain liberal professions affected by the pandemic, payment of repayable advances to companies with decreased turnover, payment of social security contributions for employees whose labour contracts have been suspended, deferral of taxes and social security contributions including tax instalment schemes for at least three months for all companies, self-employed and wage earners affected by the Coronavirus pandemic, an interest subsidy on loans to small and medium-sized enterprises and higher health care expenditure. In addition, Greece has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses. Those measures include provision of a cash collateral to support bank lending, distributed through the Hellenic Development Bank. However, the Commission 2020 spring forecast considers all tax deferrals also as liquidity measures without a negative budgetary impact in 2020. Overall, the measures taken by Greece are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (14)Based on the Commission 2020 spring forecast under unchanged policies, Greece’s general government deficit is forecast at 6,4% of GDP in 2020 and 2,1% in 2021. The general government debt ratio is projected to reach 196,4% of GDP in 2020 and 182,6% in 2021.

               (15)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Greece’s non-compliance with the debt rule in 2019 and the planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is complied with, while the deficit criterion is not fulfilled.

               (16)Regarding the COVID-19 pandemic, Greece’s timely response and enforcement of restrictions seems to be an efficient course of action, judging from the rather low number of confirmed infections so far. However, the economic impact of the COVID-19 crisis is expected to be severe, as compared with other Member States Greece relies heavily on its tourism and transport sectors. In the tourism sector, Greece could lose a large portion of receipts compared to 2019. Tourism is the most important service export of the Greek economy and accounted for 45% of service exports. Furthermore, the shipping sector, which accounts for 40% of service exports, is also expected to be affected by a drop in demand as global trade slows down due to the pandemic. Because of confinement measures, lower disposable incomes, and increased unemployment, domestic demand is expected to contract significantly.

               (17)Faced with the COVID-19 outbreak, Greece activated its national pandemic plan and rapidly put in place a set of unprecedented measures, including a strict quarantine and social distancing especially for those suspected of having had any contact with people carrying the virus. The authorities adopted a broad range of measures to mitigate the economic and social impact worth up to 10,5% of GDP in 2020. The measures entail 5% GDP of fiscal measures with a budgetary impact of 3,7% of GDP and an additional 1,9% GDP of temporary tax deferrals and cash collateral for commercial banks, which could provide up to 3,6% of GDP of additional fresh loans. The public health-care sector has received a one-off injection of EUR 273 million that will cover, for example, the hiring of 2,000 additional healthcare sector staff, the purchase of health-related equipment and supplies, and reinforced screening.

               (18)To effectively deal with the COVID-19 pandemic, the healthcare system’s capacity, accessibility and resilience needs to be improved. Direct payments for private health services, and informal payments - which are closely linked to inefficient hospital management - are still high. This leads to inequalities. Access is still an issue, and self-reported unmet healthcare needs are among the highest in the EU, with large differences by income groups and employment status. Co-payments have not been sufficiently means-tested to protect vulnerable groups. This is exacerbated by the oversupply and hence the overconsumption of often excessively expensive drugs. To tackle this, Greece is implementing an ambitious primary care reform to provide access to essential quality services in the short term, and a comprehensive gatekeeping-based system for the whole population in the longer term. Early indications suggest that this is proving to be key to protect citizens and limit the spread of the virus, ensuring the full capacity of the system can be employed to treat patients according to their needs. A sustainable solution for health spending is yet to be found, as fiscal sustainability is mostly ensured by a clawback system increasingly under pressure because of insufficient structural measures. Despite some encouraging actions taken recently, centralised procurement is still weak. In 2018, public spending on health was below the EU average, even including the value of the clawback, adding about 1% of GDP. Increased efficiency along with additional financial resources are needed to improve effectiveness, accessibility and overall resilience of the health system.

               (19)Measures are needed to mitigate the impact of the COVID-19 crisis on workers and businesses. According to the Commission forecast, unemployment is expected to rise to 19,9% in 2020 and recover to 16,8% in 2021. Greece has already introduced a temporary scheme alleviating the cost of labour for businesses whose operation has been suspended or severely affected, while protecting employment contracts and providing income support to the affected workers. However, implementation of a comprehensive short-time work scheme would provide a more sustainable and flexible solution and authorities have taken steps in that direction. Such a scheme would allow businesses to apply a reduction of working hours in a modulated manner, corresponding to the degree in which their activities have been restricted, while preserving operation of the industries, and preventing temporary layoffs from becoming structural. Expanding flexible working arrangements, such as teleworking, which have been so far limited in Greece compared to other Member States, would also help preserve economic activity and jobs during confinement and social distancing.

               (20)The COVID-19 crisis risks exacerbating once again the social situation of large parts of the population and increasing income inequality. Before the pandemic outbreak, the share of the Greek population at risk of poverty or social exclusion was still one of the highest in the EU, with children and working-age people at greater risk than older people. In-work poverty, access to affordable housing and energy poverty have also been significant concerns. To mitigate the impact of the crisis, the provision of adequate income replacement to all affected workers and the self-employed, including those facing gaps in access to social protection, will be crucial. It will also be important to support the most vulnerable people, including those inactive and undeclared workers, by strengthening social safety nets. With more people likely to fall back on the basic safety nets, it will be important to improve the adequacy of the minimum income support. Comprehensive access to social services is necessary for the most deprived and vulnerable groups, including people with disabilities, refugees and asylum seekers. In addition, long-term care services are not sufficiently developed. Greece should also further promote access to affordable housing, especially for households at risk of poverty, for example by introducing a scheme to assist vulnerable homeowners with a mortgage.

               (21)The COVID-19 crisis has halted the positive labour market developments observed in the past years, and unemployment is once again set to rise. To support a robust recovery of employment in the post-crisis period, Greece needs to complete reforms to increase the effectiveness of policies to get people into work, in particular training programmes. Increasing the public employment service’s capacity to provide continuous and individualised support to jobseekers will be key. Greece needs to pay particular attention to young people and women, who are more affected by a lack of employment opportunities. There is also scope for improving social dialogue, by supporting social partners’ active and meaningful involvement in policy-making, including in the design and implementation of measures to address the impacts of the COVID-19 crisis. The government should focus its efforts on improving basic skills for all. Addressing poor educational outcomes, upgrading vocational education and training, and scaling up adult learning will be essential. To reduce skills mismatches and speed up labour market recovery, it is vital to increase quality and labour market relevance of education and training.

               (22)Providing sustainable liquidity support, including working capital, to affected businesses – particularly small- and medium-sized enterprises (SMEs) and micro firms, notably through loans and guarantees, has rightly been a government priority since the start of its response to the COVID-19 outbreak. Under the State aid temporary framework, Greece has introduced three schemes to increase capital liquidity of businesses, namely: (i) scheme covering repayable advance payments; (ii) a cash collateral scheme to cover bank loans; and (iii) an interest subsidy scheme for current loans. It is important that in this process, the banking sector fulfils - with the support of the authorities –its intermediary role to maintain the necessary flow of credit, on the basis of appropriate credit risk assessment and prudent credit standards, while accurately reporting any deterioration in asset quality. Supporting the banking sector’s capacity to offer sustainable debt restructuring solutions to viable borrowers affected by the crisis will be crucial to safeguard asset quality while bolstering economic recovery.

               (23)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Increasing growth-enhancing investment in priority sectors will be instrumental in underpinning longer-term growth and reducing regional disparities. In 2019, public investment fell short of plans by more than 1% of GDP, following a similar underperformance in previous years. The authorities started to address the persistent under-execution through establishing a “national development plan” to strengthen the rules governing the development, management, financing, and implementation of supported projects, and an action plan to improve forecasting and monitoring of public investments. Given the important role that public investment will play in kick-starting the economic recovery after the COVID-19 crisis, it is crucial to address any remaining administrative obstacles and establish a pipeline of new projects. Setting up a dedicated project preparation facility could further improve and accelerate public investments. A more efficient implementation of public investment would further stimulate growth due to the multiplier effect. Greece could also benefit from more efficient and sustainable public procurement as an integral part of its efforts to improve and rationalize public spending, as well as guarantee a competitive business environment. This would require addressing identified deficiencies, such as the persistent phenomenon of unjustified excessively low tenders, through appropriate legislative and administrative measures.

               (24)Rekindling Greece’s economy will also require tackling some long-term weaknesses and tapping into potential future opportunities. Sectors with significant investment needs include transport and logistics, where support is notably needed for rail, road safety and upgrading intermodal hubs, as well as solid waste and urban wastewater management where environmentally sustainable investments are needed. Greece’s transformation to a climate neutral economy will also require sizeable private and public investment over a sustained period. Planned investments, for instance small scale projects in the area of energy efficiency, building renovations and renewable energy projects, could be front-loaded and contribute to the post-COVID-19 economic recovery. Preparatory work for medium-term recovery measures can benefit from investments planned under Member States’ National Energy and Climate Plans, projects of common interest lists, and infrastructure development plans. Related investments could include cross-border connections for importing and exporting power between neighbouring Member States to ensure the sustainable supply of power to people and business in Greece, and measures to ensure the just transition of the regions most affected by Greece’s ambitious plan to move away from lignite-based power generation. The programming of the Just Transition Fund for the period 2021-2027 could help Greece to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report
                  8
               . This would allow Greece to make the best use of that fund.

               (25)Despite some progress made in the previous years, Greece needs to accelerate its efforts to improve its digital performance, including through the deployment of digital tools and services in the public administration, the justice system and businesses. Maintaining the momentum and locking in the gains achieved by the launch of a number of digital services since the COVID-19 outbreak will be especially pertinent for the public administration and the recovery phase. A strategic approach to accelerating the use of digital technologies across all economic sectors, including in the public administration, and the interoperability of various information systems, particularly the market surveillance database would help bridge the productivity gap with euro area countries and ease up on administrative burden. Improving availability of very high capacity networks and uptake of very high-speed internet is also a priority. As concerns digital skills, Greece remains below the EU average, as in 2019 only 51% of people aged 16-74 appeared to have at least basic digital skills, compared to an EU average of 58%. Digital upskilling will allow everyone in Greece to enjoy equal access to e-services, help businesses make effective use of teleworking, and e-tools, and enable all learners be they at school, university or in adult learning to fully participate in distance learning. People from disadvantaged backgrounds, including refugees and asylum seekers, and those living in remote and rural areas should receive particular attention.

               (26)Following its successful completion of the financial assistance programme under the European Stability Mechanism in 2018, Greece is subject to enhanced surveillance in accordance with Regulation (EU) No 472/2013.The activation of enhanced surveillance for Greece
                  9
                acknowledges the fact that over the medium term, Greece needs to continue adopting measures to address the potential sources of macroeconomic imbalances, while implementing structural reforms to support robust and sustainable economic growth. Greece made a commitment in the Eurogroup of 22 June 2018 to continue all key reforms adopted under the programme until they are fully completed. Greece also committed to implementing specific measures related to fiscal and fiscal-structural policies, social welfare, financial stability, labour and product markets, privatisation, functioning of the justice system, public administration and anti-corruption. These structural reforms are increasingly important to Greece’s efforts to restart its economy. The successful implementation and completion of these reforms should significantly help support Greece’s growth in the medium- and long-term. Greece is subject to quarterly reporting on its progress in implementing its commitments under enhanced surveillance, where a favourable report can, on semi-annual basis, pave the way for the release of debt relief measures worth 0,7% of GDP per year. The release of the first two instalments of policy-contingent debt measures worth EUR 970 million and EUR 767 million was agreed by the Eurogroup in April 2019 and December 2019, respectively. The sixth enhanced surveillance report assessing Greece’s progress in implementing its commitments was published on 20 May 2020.

               (27)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

               (28)In particular, it is crucial in the current situation to maintain the focus on bank restructuring to preserve financial stability and free up capacity in the banking sector to enable financing the economic recovery. The banking sector has become more resilient, resulting in the abolition of capital controls in September 2019, but legacy risks and challenges remain high. These include a still large stock of non-performing loans, a capital position in line with capital requirements but faced with an increasing capital demand in the short term, as well as a low profitability dependent on lending growth. As a result, Greek banks are particularly exposed to the risk of increases in funding costs and renewed deterioration of asset quality due to the COVID-19 pandemic. Fostering the continuous functioning of the secondary market for non-performing loans, in parallel with new lending and viable long term loan restructurings in accordance with prudent credit standards, can play a key role in meeting the dual goal of mitigating the impact of the outbreak on asset quality while tackling the legacy of non-performing loans. The implementation of a reform of the legal framework that allows unconstrained collateral enforcement from defaulted borrowers, can be an essential step in that direction.

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

               (30)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Greece should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

               (31)In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Greece’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the 2020 National Reform Programme and the follow-up given to the recommendations addressed to Greece in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Greece, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

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

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

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

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system and ensure adequate and equal access to healthcare.

               2.Mitigate the employment and social impacts of the crisis, including by implementing measures such as short-time work schemes and ensuring effective activation support.

               3.Swiftly deploy measures to provide liquidity and continued flow of credit and other financing to the economy, focusing in particular on small and medium-sized enterprises most affected by crisis. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on safe and sustainable transport and logistics, clean and efficient production and use of energy, environmental infrastructure and very-high capacity digital infrastructure and skills. Improve the effectiveness and digitalisation of the public administration and promote digital transformation of businesses.

               4.Continue and complete reforms in line with the post-programme commitments given at the Eurogroup of 22 June 2018 to restart a sustainable economic recovery, following the gradual easing up of constraints imposed due to the COVID-19 outbreak.

               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)

                        SWD(2020) 507 final 2.

                     (4)

                        OJ C 301, 5.9.2019, p. 117.

                     (5)

                        COM(2020) 112 final.

                     (6)

                        COM(2020) 123 final.

                     (7)

                         Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (8)

                        SWD(2020)507 final 2.

                     (9)

                        Commission Implementing Decision (EU) 2018/1192 of 11 July 2018 on the activation of enhanced surveillance for Greece, OJ L 211, 22.8.2018, p. 1, and Commission Implementing Decision (EU) 2019/338 of 20 February 2019 on the prolongation of enhanced surveillance for Greece, OJ L 60, 28.2.2019, p. 17.

                     (10)

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