               4.10.2018

               EN

               Official Journal of the European Union

               C 356/130

      P8_TA(2017)0440
      Eastern Partnership: November 2017 Summit
      European Parliament recommendation of 15 November 2017 to the Council, the Commission and the EEAS on the Eastern Partnership, in the run-up to the November 2017 Summit (2017/2130(INI))
      (2018/C 356/18)

         The European Parliament,

                  —

                  having regard to Articles 2, 3 and 8 and to Title V, notably Articles 21, 22, 36 and 37, of the Treaty on European Union (TEU), as well as to Part Five of the Treaty on the Functioning of the European Union (TFEU),

                  —

                  having regard to the launch of the Eastern Partnership in Prague on 7 May 2009 as a common endeavour of the EU and its eastern partners Armenia, Azerbaijan, Belarus, Georgia, Moldova und Ukraine,

                  —

                  having regard to the Joint Declarations of the Eastern Partnership Summits of 2011 in Warsaw, of 2013 in Vilnius and of 2015 in Riga,

                  —

                  having regard to the Declaration of the leaders of 27 Member States and of the European Council, the European Parliament and the European Commission adopted on 25 March 2017 in Rome,

                  —

                  having regard to the recommendations by and activities of the Euronest Parliamentary Assembly, of the Eastern Partnership Civil Society Forum, and of the Committee of the Regions and the Conference of Regional and Local Authorities for the Eastern Partnership (CORLEAP),

                  —

                  having regard to the European Commission and European External Action Service (EEAS) communications on the European Neighbourhood Policy (ENP), notably the 2017 report on the implementation of the ENP review (JOIN(2017)0018) and the 2017 revised working document entitled ‘Eastern Partnership — 20 Deliverables for 2020: Focusing on key priorities and tangible results’ (SWD(2017)0300), as well as the 2016 communication on the ‘Global Strategy for the European Union’s Foreign And Security Policy’,

                  —

                  having regard to the conclusions of the Foreign Affairs Council on the ENP and Eastern Partnership,

                  —

                  having regard to its recommendation of 5 July 2017 to the Council concerning the 72nd Session of the United Nations General Assembly (1), to its resolutions, notably those of 15 June 2017 (2) on the case of Afgan Mukhtarli and the situation of the media in Azerbaijan, of 6 April 2017 (3) and 24 November 2016 (4) on the situation in Belarus, of 16 March 2017 on EU priorities for the UN Human Rights Council sessions in 2017 (5), of 13 December 2016 on rights of women in the Eastern Partnership States (6), of 21 January 2016 on Association Agreements / Deep and Comprehensive Free Trade Areas with Georgia, Moldova and Ukraine (7) and of 9 July 2015 on the review of the European Neighbourhood Policy (8),

                  —

                  having regard to the Joint Statement of the Parliaments of Georgia, Moldova and Ukraine of 3 July 2017,

                  —

                  having regard to Rule 113 of its Rules of Procedure,

                  —

                  having regard to the report of the Committee on Foreign Affairs (A8-0308/2017),

                  A.

                  whereas the Eastern Partnership is based on a shared commitment between Armenia, Azerbaijan, Belarus, Georgia, Moldova, Ukraine and the European Union to deepening their relations and adhering to international law and fundamental values, including democracy, the rule of law, respect for human rights, fundamental freedoms and gender equality, as well as to the social market economy, sustainable development and good governance;

                  B.

                  whereas the Eastern Partnership pursues the common goals of promoting stability, confidence-building and cooperation, supporting democratic reforms, good neighbourly relations, peaceful conflict resolution and regional cooperation, enhancing people-to-people contacts and boosting trade, in order to increase political dialogue and association as well as economic cooperation and integration;

                  C.

                  whereas, through its Global Strategy and the revised ENP, the EU seeks to bring its partners closer via accelerated political association and economic integration with the EU, while at the same time aiming to promote political stabilisation, societal resilience and economic prosperity in its neighbourhood, and offering opportunities for privileged political and economic relations in line with the degree of ambition of each partner country;

                  D.

                  whereas, given that the EU considers cooperation to be a value in itself and strongly believes that it leads to win-win situations for all parties concerned, there is a commitment on the side of the EU to continue to work with all Eastern Partnership countries as long as core European values are not questioned or undermined;

                  E.

                  whereas the EU and its partners need to match resources and instruments to the commitments made and whereas the partners need to focus more on the implementation of existing agreements;

                  F.

                  whereas the participants in the 2015 Riga Summit called for progress to be made by the time of the next Summit in the areas of (1) strengthening institutions and good governance, (2) mobility and people-to-people contacts, (3) economic development and market opportunities, and (4) connectivity, energy efficiency, the environment and climate change;

                  G.

                  whereas significant progress has been made since the last Summit, notably with the conclusion and entry into force of three Association Agreements (AAs) including a Deep and Comprehensive Free Trade Area (DCFTA) with Georgia, Moldova and Ukraine, as well as visa-free regimes with Georgia and Ukraine since 2017 (and with Moldova since 2014), the conclusion of negotiations on a Comprehensive and Enhanced Partnership Agreement with Armenia (which serves as an example of how membership of the Eurasian Economic Union and participation in the EU’s neighbourhood strategies can coexist), the launching of negotiations on a new comprehensive agreement with Azerbaijan, the adoption of major reforms in a number of these countries with the political, technical and financial support of the European Union, and the continuation of the critical engagement policy towards Belarus;

                  H.

                  whereas since the launch of the Eastern Partnership in Prague, some founding members have experienced an overall deterioration of the human rights situation and a reversal of democratisation trends; whereas one of the main challenges will be to facilitate the ongoing transition towards inclusive, accountable, stable and viable democracies;

                  I.

                  whereas increased mobility and the enhancement of people-to-people contacts between the partner countries and the EU remain an indispensable instrument for the promotion of European values;

                  J.

                  whereas a new strategic work plan proposed by the Commission and the EEAS that combines both bilateral and regional cooperation aims to guide the future work of the EU and the six partner countries by focusing on twenty deliverables by 2020;

                  K.

                  whereas the independence, sovereignty and territorial integrity of the EU’s eastern partners remains under threat from unresolved regional conflicts, including some that were initiated and are still actively sustained by the Russian Federation in contradiction with its international commitments to uphold the international legal order; whereas the EU should play a more active role in the peaceful resolution of all ongoing conflicts in its neighbourhood; whereas Russian aggression towards Ukraine, the annexation of the Crimean peninsula and the continued occupation of two Georgian regions, as well as Russian hybrid threats including destabilisation activities and propaganda, threaten European security as a whole;

                  L.

                  whereas the Eastern Partnership policy is based on the sovereign right of each partner to choose the level of ambition to which it aspires in its relations with the EU; whereas partners seeking closer relations with the EU should be able to count on more support and assistance in achieving mutually set goals if they fulfil existing reform commitments, in line with the ‘more for more’ principle;

                  1.

                  Recommends the following to the Council, the Commission and the European External Action Service:

            On the future of the Eastern Partnership

                  (a)

                  to ensure that the November 2017 Summit will be forward looking, injecting new dynamism and setting a clear political vision for the future of the Eastern Partnership as a long-term policy; to ensure that the outcomes of this Summit will, as a first priority, provide the basis for upholding the core values of the European Union, in particular respect for democracy, human rights, fundamental freedoms, the rule of law, good governance, civil rights, non-discrimination and gender equality, on which the Eastern Partnership is based, underlining that these values are at the heart of the AAs and recognising the commitment of the partners concerned to implement and promote these values;

                  (b)

                  to live up to the high expectations of citizens in all the partner countries as regards eradicating corruption, fighting organised crime and bolstering the rule of law and good governance; to therefore seek a renewed commitment by the partners to adopt and fully implement reforms related to the judiciary, public administration and the fight against corruption and organised crime, on the basis of adequate roadmaps with clearly defined objectives and deadlines;

                  (c)

                  to strengthen civil society in the partner countries and its vital role within the Eastern Partnership, both as an indispensable actor in the process of democratic consolidation and as a platform for regional cooperation, by uncompromisingly opposing all legislation and measures that seek to curtail its legitimate activities and by encouraging its deeper involvement in drawing up, scrutinising and monitoring the implementation of reforms related to the Partnership as well as by promoting the transparency and accountability of public institutions;

                  (d)

                  to encourage electoral reforms that ensure that legal frameworks are in line with international standards, recommendations by OSCE-led international observation missions and Venice Commission opinions and that are achieved through a transparent process, and are the subject of broad consultation and, as far as possible, consensus with opposition and civil society, in order to improve electoral frameworks without any bias towards ruling parties; to ensure the strict application by the EU of existing conditionality related to electoral reforms;

                  (e)

                  to ensure that the outcomes of the November 2017 Summit take stock of what has already been achieved, emphasise the need to deliver on all commitments already made and provide a new impetus for the future of the Partnership including the delivery of tangible results for citizens, notably in terms of employment, reducing socioeconomic disparities, transport, connectivity, energy independence, mobility and education, noting that a new European External Investment Plan (EEIP) is an important instrument in this regard;

                  (f)

                  to pursue efforts aimed at tackling unemployment, especially youth unemployment, including through a package of support measures for young people such as the EU4Youth programme, and developing skills adapted to the evolving needs of the labour market, including through vocational education and training, fostering entrepreneurship and local industries, supporting sustainable agriculture, developing tourism and the digital economy, and expanding social infrastructure and the public and private services sector, inter alia in the field of health and care;

                  (g)

                  to promote and actively support the implementation of anti-discrimination policies in all sectors of society; to ensure gender equality in public policies and support for the employability and entrepreneurship of women, with policy continuity being guaranteed beyond the 2020 target date;

                  (h)

                  to commit to working jointly on increased mobility between the EU and partner countries; to support Moldova, Georgia and Ukraine in implementing the visa liberalisation agreement and to ensure that suspension mechanisms are not triggered in the future, notably through close cooperation in the areas of police and customs to safeguard against security threats, criminality and overstays; to open visa dialogues with Armenia, to encourage progress by Azerbaijan in the implementation of Visa Facilitation and Readmission Agreements (VFA/RA) with a view to opening a visa dialogue in the future, and to finalise negotiations on VFA/RA with Belarus for the benefit of its citizens, should these countries make significant progress in the area of fundamental values and meet the precise conditions defined in visa liberalisation action plans;

                  (i)

                  to further increase opportunities for closer cooperation in the fields of education, research and innovation, notably through facilitating participation in programmes such as Erasmus+, Spreading Excellence and Widening Participation and EU4Innovation as well as the provision of loan guarantees by the European Investment Bank Group as part of its InnovFin programme; to provide support in order to reform education and address the research and innovation gap;

                  (j)

                  to ensure that the outcomes of the November 2017 Summit will also provide a renewed impetus to boost sustainable economic growth, the modernisation of existing sectors, trade and investment opportunities, including intra-regional opportunities for cross-border cooperation and with a particular emphasis on entrepreneurship and Small and Medium-sized Enterprises (SMEs);

                  (k)

                  to call for recalibrated EU support to the Association agendas and to the related structural reforms, notably those allowing for improved competitiveness, a more favourable business environment and adequate access to sources of financing, including through the EU4Business initiative; to monitor closely the implementation of DCFTAs in order to avoid social and environmental dumping; to devise targeted assistance for SMEs to help them to fully absorb the potential of DCFTAs; to promote and support a genuine reform of the economic system aimed at phasing out monopolies and circumscribing the role of oligarchs through the introduction of adequate laws, as well as a major reform of the banking and financial sector aimed at combating money laundering and tax evasion;

                  (l)

                  to support the development of the necessary transport and connectivity infrastructure, including through an ambitious investment plan for the TEN-T core network, and to also promote intra-regional trade; to support infrastructure projects that will provide new opportunities for trade and enable more communication and exchanges between the EU and the partner countries as well as among the partners;

                  (m)

                  to improve both energy independence and efficiency through specific investments and the diversification of energy sources, in particular with regard to renewable energy and reducing dependence on fossil fuels, through strengthened cooperation in all priority areas covered by the EU Energy Union and closer integration of the partners’ energy markets with the European energy market, with a particular focus on interconnectivity and infrastructure; to ensure that onshore and offshore sections of new pipeline infrastructure within the region, including the Nord Stream 2 pipeline, are fully in line with EU legislation and the energy union strategy and that they do not undermine regional energy security; to work with the eastern partners to support the households most affected by rising energy prices;

                  (n)

                  to ensure full respect for international nuclear safety and environmental protection agreements and obligations; to increase efforts towards the fulfilment of climate change commitments, including through public awareness-raising and a gradual and sustainable phase-out of obsolete power plants in Armenia and Ukraine; to follow closely the development of new projects such as the nuclear power plant in Ostrovets, Belarus;

                  (o)

                  to ensure that the outcomes of the November 2017 Summit also address the security threats and conflicts that affect the independence, sovereignty, territorial integrity, fundamental human rights, and political, social and economic stability and development of the partners and of the region as a whole;

                  (p)

                  to commit to sustaining the unity of action among EU Member States in maintaining collective pressure on Russia, whose military presence in the region has nevertheless grown over the past years, in particular through strengthened targeted restrictive measures, to solving the conflict in eastern Ukraine through full and genuine implementation of the Minsk agreements and by maintaining the OSCE monitoring mission, to solving the conflict between Russia and Georgia through tangible outcomes of the Geneva International Discussions and full implementation by Russia of the 2008 ceasefire agreement, to re-establishing Ukraine’s full sovereignty in Crimea, and that of Georgia in its occupied territories of Abkhazia and South Ossetia and of Moldova in Transnistria, to paying adequate attention to the dangerous ecological situation in eastern Ukraine, to supporting its partners in strengthening their resilience, and to putting an end to the additional threats of state-sponsored assassinations, cyber warfare, disinformation and other types of destabilisation;

                  (q)

                  to underline that the participation of an eastern partner in military exercises aimed at the EU and/or some of its partners, such as the Russian-led Zapad 2017 exercise in Belarus, is unacceptable; to ensure that a partner does not engage in such exercises again in the future;

                  (r)

                  to call for an immediate end to military hostilities between Armenian and Azerbaijani forces which unnecessarily claim the lives of civilians and soldiers whilst hampering socioeconomic development; to reaffirm support to the OSCE Minsk Group co-Chairs’ efforts to solve the Nagorno-Karabakh conflict and to their 2009 Basic Principles, which include territorial integrity, self-determination and the non-use of force; to call on Armenia and Azerbaijan to re-launch negotiations in good faith with a view to implementing these principles to solve the conflict, which cannot be solved using military force; to call on the Governments of Armenia and Azerbaijan to hold high-level talks and commit to genuine confidence-building measures and dialogue between Armenian and Azerbaijani civil society; to make the ratification of new agreements between the EU and each of the parties conditional on meaningful commitments to and substantial progress towards solving the conflict, such as maintaining the ceasefire and supporting the implementation of the 2009 Basic Principles;

                  (s)

                  to call for continued support to the work carried out by the EU and OSCE missions in Georgia, Moldova and eastern Ukraine as essential operations to ensure peace and security first and foremost for the benefit of the citizens on the ground; to ensure effective implementation of these missions’ mandates and urge Russia to guarantee their unimpeded access; to consider supporting the deployment of an armed OSCE police mission in eastern Ukraine; to reflect, jointly with the partner countries, on the prospect of an enhanced role for the EU in solving these conflicts, including by launching ambitious fully-fledged Common Security and Defence Policy (CSDP) missions tasked with enhancing security and stability;

                  (t)

                  to call on the EU’s partners to fully cooperate with the EU in tackling challenges such as illegal migration, terrorism, cybercrime, human trafficking, smuggling and illicit trade;

                  (u)

                  to consider, within the EaP policy, an attractive longer-term ‘EaP+’ model for associated countries that have made substantial progress in implementing AA/DCFTA-related reforms, that could eventually lead to joining the customs union, energy union, digital union and Schengen area, further EU internal market access, integration into EU transport networks, industrial partnerships, increased participation in other EU programmes and agencies, further cooperation in the field of the CSDP, and more immediate measures such as additional unilateral tariff preferences, a concrete timeframe for the abolition of roaming tariffs between the partners and the EU, and the development of high-capacity broadband; to open the ‘EaP+’ model to other Eastern Partnership countries once they are ready for such enhanced commitments and have made significant progress towards implementing mutually agreed reforms;

                  (v)

                  to consider, for non-associated countries, new means of supporting civil society, businesses, the academic and independent media communities and young people, including through additional funding and mobility partnerships;

                  (w)

                  to ensure that, in both cases, the common goals are both medium and long-term when necessary, encouraging some of the partner countries to move beyond the logic of electoral cycles to more strategic visions;

            On the implementation of the Eastern Partnership

                  (x)

                  to reiterate the principle of differentiation and that the scope and depth of cooperation with the EU is determined by its ambitions and those of the partners, as well as by the pace and quality of reforms to be evaluated based on their full and effective implementation, notably as regards respect for democracy, human rights, fundamental freedoms, the rule of law and good governance;

                  (y)

                  to underline that the Eastern Partnership aims to create the necessary conditions for close political association and economic integration, including participation in EU programmes; to reiterate that AAs with Georgia, Moldova and Ukraine do not constitute the final goal in their relations with the EU; to acknowledge once again the European aspirations of these countries; to point out that, pursuant to Article 49 of the TEU and in line with the Rome Declaration of 25 March 2017, any European state may apply to become a member of the EU, provided it adheres to the Copenhagen criteria and the principles of democracy, that it respects fundamental freedoms and human rights including those of minority groups and that it upholds the rule of law; to urge the Member States, in this regard, to agree to an ambitious declaration for the 2017 Summit that sets relevant long-term goals;

                  (z)

                  to invite Georgia, Moldova and Ukraine to focus on the full implementation of the Association agendas in order to unlock all the opportunities available through the AAs, to engage also in the joint discussions on the progress, opportunities and challenges relating to the AA/DCFTA-related reforms; to reiterate the importance of genuine implementation of the abovementioned reforms for the future stability and development of the countries and the wellbeing of their societies; to reaffirm that the deepening of relations within the ‘EaP+’ model as well as any prospect of EU membership requires substantial progress in terms of the implementation of these reforms, notably as regards the rule of law, respect for human rights and good governance;

                  (aa)

                  to ensure that strict conditionality is always attached to current and further levels of cooperation and support for the partners, and that it is also observed; to underline that EU financial support to its partners will be conditional on concrete reform steps and their effective implementation, and that the EU’s incentive-based approach will continue to benefit those partners most engaged in ambitious reforms; to envisage paying out grants in smaller instalments to enable the EU to better respond to unexpected crises or a lack of reforms; to emphasise in particular that no comprehensive agreement will be ratified with a country that does not respect EU values, notably through the non-implementation of decisions by the European Court of Human Rights and the harassment, intimidation and persecution of human rights defenders, NGOs and journalists; to also highlight that clear benchmarks need to be met before any new dialogue on visa-free regimes is launched and concluded; to reiterate that backsliding on prior achievements will systematically lead to the suspension of agreements, including in the area of visa-free regimes and EU funding;

                  (ab)

                  to support the multilateral dimension of the Eastern Partnership as a means of increasing multilateral confidence-building, notably in conflict-affected areas, and creating opportunities for regional cooperation, including through transnational civil society platforms, cooperation between local and regional authorities, and cross-border projects such as people-to-people programmes involving intercultural dialogue and the younger generation as factors for change;

                  (ac)

                  to highlight the importance of communicating policies related to the Eastern Partnership coherently and effectively, internally as well as externally, and of providing communication activities tailored to specific regions, notably so as to bridge the knowledge gap as regards the EU and its relations with its partners; to acknowledge the excellent work done so far by the East StratCom Task Force and to support its activities with additional funding; to address the challenge of better information about the concrete benefits and goals of the Eastern Partnership, to target disinformation through fact-based and accessible quality information in all languages of the partner countries, and to ensure full respect for the freedom of expression;

                  (ad)

                  to maintain that EU support should be tailor-made to match the level of shared ambition regarding cooperation with each partner following the principles of both ‘more for more’ and ‘less for less’; to call in particular for the EU to align budgetary instruments such as the European Neighbourhood Instrument and the European Fund for Sustainable Development with political tasks and implementation strategies, notably within its annual and multiannual budgetary procedures;

                  (ae)

                  to welcome the Commission proposals to provide the partners with macro-financial assistance (MFA) while insisting on strict and effective conditionality attached to the proposals, notably in terms of upholding the rule of law (including an independent judiciary and multi-party parliamentary system), ensuring good governance (including combating corruption effectively), and defending human rights and the freedom of the media; to provide Parliament and the Council with a detailed written report every six months on the progress made in these three areas for partners already benefiting from such assistance; to call on the Commission to draw up new MFA programmes for partner countries that have successfully completed past programmes, to make systematic provision for the abovementioned conditionality in future proposals for such assistance, and to ensure that it is strictly applied, notably in the case of Moldova;

                  (af)

                  to ask the Commission, the European Investment Bank and other multilateral financial institutions to work towards the successful implementation of the Investment Plan for Europe and of a dedicated support mechanism for Eastern Partnership countries committed to implementing the AAs; to request the establishment of a trust fund for Ukraine, Georgia and Moldova based on the best practices of multi-donor instruments, while stressing that this trust fund should focus on private and public investments, in particular those in social and economic infrastructure and aimed at boosting investment absorptive capacity, and on the coordination of international financial institutions and international donor support on the ground; to consider holding a donors’ conference for Ukraine in support of the country’s humanitarian needs induced by the conflict in the East and the annexation of Crimea; to ensure that the use of all these funds is also strictly scrutinised in order to prevent any misuse;

                  (ag)

                  to reiterate its strong support for parliamentary input towards and scrutiny of the Eastern Partnership policy, notably as regards the impact of the policy on citizens’ lives; to enhance, in this respect, the role of the Euronest Parliamentary Assembly within the new multilateral architecture of the Eastern Partnership, as well as of the Parliamentary Association or Cooperation Committees (PAC/PCC) within the Association or Cooperation Councils; to welcome the Comprehensive Democracy Support Approach (CDSA) programmes that are being implemented; to invite parliamentarians from the partner countries to work together to scrutinise implementation and exchange best practices; to step up the involvement of the Eastern Partnership Civil Society Forum in this process;

                  (ah)

                  to take note of Parliament’s resolve to increase its monitoring of the implementation of international agreements with the eastern partners and to increase its scrutiny of EU support provided in this respect; to respond to Parliament’s call on the partners and on the Commission to increase the transparency of all EU funding beneficiaries; to call on the Commission and the EEAS to transmit to Parliament and the Council a detailed written report on the implementation of these agreements every six months;

                  (ai)

                  to take note of Parliament’s resolve to increase its scrutiny of the negotiation of future international agreements with the eastern partners; to call on the Council to provide Parliament without delay with all relevant negotiating directives in line with the relevant Interinstitutional Agreement (9); to welcome the effective cooperation of the Commission and the EEAS with Parliament in providing information on these negotiations, but to call on them to also provide, without delay, the draft negotiating texts and initialled agreements, in line with the relevant Framework Agreement (10);

                  2.

                  Instructs its President to forward this recommendation to the Council, the European Commission and the European External Action Service, and, for information, to the EU Special Representative for the South Caucasus and the crisis in Georgia, the OSCE Parliamentary Assembly, the Council of Europe Parliamentary Assembly and the governments and parliaments of the Eastern Partnership countries.

         (1)  Texts adopted, P8_TA(2017)0304.

         (2)  Texts adopted, P8_TA(2017)0267.

         (3)  Texts adopted, P8_TA(2017)0126.

         (4)  Texts adopted, P8_TA(2016)0456.

         (5)  Texts adopted, P8_TA(2017)0089.

         (6)  Texts adopted, P8_TA(2016)0487.

         (7)  Texts adopted, P8_TA(2016)0018.

         (8)  OJ C 265, 11.8.2017, p. 110.

         (9)  OJ C 95, 1.4.2014, p. 1.

         (10)  OJ L 304, 20.11.2010, p. 47.


title: Recommendation of the European Central Bank of 28 December 2017 on dividend distribution policies (ECB/2017/44)

text:
               11.1.2018

               EN

               Official Journal of the European Union

               C 8/1

         RECOMMENDATION OF THE EUROPEAN CENTRAL BANK
   of 28 December 2017
   on dividend distribution policies
   (ECB/2017/44)
   (2018/C 8/01)
   THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,
   Having regard to the Treaty on the Functioning of the European Union, and in particular Article 127(6) and Article 132 thereof,
   Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Article 34 thereof,
   Having regard to Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (1), and in particular Article 4(3) thereof,
   Having regard to Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) (2),
   Whereas:
   Credit institutions need to continue preparing for a timely and full application of Regulation (EU) No 575/2013 of the European Parliament and of the Council (3) and Directive 2013/36/EU of the European Parliament and of the Council (4) in a challenging macroeconomic and financial environment, which exerts pressure on credit institutions’ profitability and, as a result, on their capacity to build up their capital bases. Moreover, while credit institutions need to finance the economy, a conservative distribution policy is part of an adequate risk management and sound banking system. The same method that was set out in Recommendation ECB/2016/44 of the European Central Bank (5) should be applied,
   HAS ADOPTED THIS RECOMMENDATION:
   I.

               1.

               Credit institutions should establish dividend policies using conservative and prudent assumptions in order, after any distribution, to satisfy the applicable capital requirements and the outcomes of the supervisory review and evaluation process (SREP).

                           (a)

                           Credit institutions are required to satisfy the applicable minimum capital requirements (‘Pillar 1 requirements’) at all times. This includes a Common Equity Tier 1 capital ratio of 4,5 %, a Tier 1 capital ratio of 6 % and a total capital ratio of 8 % as provided for by Article 92 of Regulation (EU) No 575/2013.

                           (b)

                           Moreover, credit institutions are required to satisfy at all times the capital requirements that are imposed by the decision following the SREP in application of Article 16(2)(a) of Regulation (EU) No 1024/2013 and which go beyond the Pillar 1 requirements (‘Pillar 2 requirements’).

                           (c)

                           Credit institutions are also required to satisfy the combined buffer requirement as defined in Article 128(6) of Directive 2013/36/EU.

                           (d)

                           Credit institutions are also required to satisfy their ‘fully loaded’ (6) Common Equity Tier 1 capital ratio, their Tier 1 capital ratio and their total capital ratio by the applicable full phase-in date. This refers to the full application of the abovementioned ratios after application of the transitional provisions and the combined buffer requirement as defined in Article 128(6) of Directive 2013/36/EU. The transitional provisions are set out in Title XI of Directive 2013/36/EU and in Part 10 of Regulation (EU) No 575/2013.

                     These requirements are to be met both on a consolidated level and on an individual basis unless the application of prudential requirements has been waived on an individual basis, as provided for in Articles 7 and 10 of Regulation (EU) No 575/2013.

               2.

               With regard to credit institutions paying dividends (7) in 2018 for the financial year 2017, the ECB recommends that:

                           (a)

                           Category 1: Credit institutions that (i) satisfy the applicable capital requirements as referred to in paragraph 1(a), (b) and (c); and (ii) have already reached their fully loaded ratios as referred to in paragraph 1(d) as at 31 December 2017 should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all requirements and outcomes of the SREP even in the case of deteriorated economic and financial conditions;

                           (b)

                           Category 2: Credit institutions that satisfy the applicable capital requirements as referred to in paragraph 1(a), (b) and (c) as at 31 December 2017, but have not reached their fully loaded ratios as referred to paragraph 1(d) as at 31 December 2017 should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all requirements and outcomes of the SREP, even in the case of deteriorated economic and financial conditions. In addition, they should in principle only pay out dividends to the extent that, at a minimum, a linear (8) path towards the required fully loaded capital requirements as referred to in paragraph 1(d) and outcomes of the SREP is secured;

                           (c)

                           Category 3: Credit institutions in breach of the requirements referred to in paragraph 1(a), (b) or (c) should in principle not distribute any dividend.

                     Credit institutions that are not able to comply with this Recommendation because they consider themselves legally required to pay out dividends should immediately contact their joint supervisory team.
               Credit institutions in categories 1, 2, and 3 as referred to in paragraph 2(a), (b) and (c) are also expected to meet Pillar 2 guidance. All other things being equal, the capital demand (9) can be expected to remain broadly stable. If a credit institution operates or expects to operate below Pillar 2 guidance, it should immediately contact its joint supervisory team. The ECB will review the reasons why the credit institution’s capital level has fallen, or is expected to fall, and will consider taking appropriate and proportionate institution-specific measures.

         II.
   This Recommendation is addressed to significant supervised entities and significant supervised groups as defined in points (16) and (22) of Article 2 of Regulation (EU) No 468/2014 (ECB/2014/17).
   III.
   This Recommendation is also addressed to the national competent authorities and designated authorities with regard to less significant supervised entities and less significant supervised groups as defined in points (7) and (23) of Article 2 of Regulation (EU) No 468/2014 (ECB/2014/17). The national competent and designated authorities are expected to apply this Recommendation to such entities and groups, as deemed appropriate (10).

      Done at Frankfurt am Main, 28 December 2017.

            The President of the ECB

         Mario DRAGHI

      (1)  OJ L 287, 29.10.2013, p. 63.

      (2)  OJ L 141, 14.5.2014, p. 1.

      (3)  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).

      (4)  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).

      (5)  Recommendation ECB/2016/44 of the European Central Bank of 13 December 2016 on dividend distribution policies (OJ C 481, 23.12.2016, p. 1).

      (6)  All buffers at fully loaded levels.

      (7)  Credit institutions may have various legal forms, e.g. listed companies and non-joint stock companies such as mutuals, cooperatives or savings institutions. The term ‘dividend’ as used in this recommendation refers to any type of cash pay-out that is subject to the approval of the general assembly.

      (8)  In practice, this means that over a period of four years starting on 31 December 2014, credit institutions should in principle retain at least 25 % per year of the gap towards their fully loaded Common Equity Tier 1 capital ratio, their Tier 1 capital ratio and their total capital ratio, as referred to in paragraph 1(d).

      (9)  Capital demand means pillar 1 plus pillar 2 requirements, plus the capital conservation buffer, plus pillar 2 guidance. Irrespective of the phasing-in of the capital conservation buffer, credit institutions should also expect to have positive pillar 2 guidance in the future.

      (10)  If this Recommendation is applied to less significant supervised entities and less significant supervised groups that consider themselves unable to comply because they regard themselves legally required to pay out dividends, they should immediately contact their national competent authorities.


title: Council Recommendation of 13 July 2018 on the 2018 National Reform Programme of Romania and delivering a Council opinion on the 2018 Convergence Programme of Romania

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/98

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Romania and delivering a Council opinion on the 2018 Convergence Programme of Romania
      (2018/C 320/22)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,
      Having regard to the recommendation of the European Commission,
      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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of 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. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Romania as one of the Member States for which an in-depth review would be carried out.

                  (2)

                  The 2018 country report for Romania was published on 7 March 2018. It assessed Romania's progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (2), the follow-up given to the country-specific recommendations adopted in previous years and Romania's progress towards its national Europe 2020 targets.

                  (3)

                  Romania submitted its 2018 National Reform Programme on 10 May and its 2018 Convergence Programme on 14 May 2018. To take account of their interlinkages, the two programmes have been assessed at the same time.

                  (4)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (3), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (5)

                  Romania is currently in the preventive arm of the Stability and Growth Pact. In its 2018 Convergence Programme, the Government plans a headline deficit of 2,95 % of GDP in 2018, and its gradual reduction thereafter, to 1,45 % of GDP in 2021. The medium-term budgetary objective, a structural deficit of 1 % of GDP, is not expected to be reached by 2021, which is the end of the programme horizon. The recalculated structural balance is expected to reach -2,1 % in 2021. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to remain below 40 % by 2021. The macroeconomic scenario underpinning those budgetary projections is favourable. Moreover, the measures needed to support the planned deficit targets have not been sufficiently specified.

                  (6)

                  On 16 June 2017, the Council decided in accordance with Article 121(4) of the Treaty on the Functioning of the European Union (‘TFEU’) that a significant observed deviation from the medium-term objective occurred in Romania in 2016. In view of the established significant deviation, on 16 June 2017 the Council recommended Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure (4) does not exceed 3,3 % in 2017, corresponding to an annual structural adjustment of 0,5 % of GDP. On 5 December 2017, the Council found that Romania had not taken effective action in response to the Council recommendation of 16 June 2017 and issued a revised recommendation. In the new recommendation the Council asked Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3,3 % in 2018, corresponding to an annual structural adjustment of 0,8 % of GDP. On 22 June 2018, the Council (5) found that Romania had not taken effective action in response to the Council recommendation of 5 December 2017. Moreover, based on 2017 outturn data Romania was found to be in significant deviation from the recommended adjustment in 2017.
                  In line with Article 121(4) TFEU and Article 10(2) of Regulation (EC) No 1466/97, the Commission issued a warning to Romania on 23 May 2018 that a significant deviation from the adjustment path toward the medium-term budgetary objective was observed in 2017. On 22 June 2018, the Council (6) adopted a subsequent Recommendation confirming the need for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3,3 % in 2018, corresponding to an annual structural adjustment of 0,8 % of GDP. Based on the Commission 2018 spring forecast, there is a risk of a deviation from that recommendation in 2018.

                  (7)

                  For 2019, the Council on 22 June 2018 recommended Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 5,1 %, corresponding to an annual structural adjustment of 0,8 % of GDP. Based on the Commission 2018 spring forecast, there is a risk of a deviation from that requirement in 2019. In addition, the Commission 2018 spring forecast projected a general government deficit of 3,4 % and 3,8 % of GDP for 2018 and 2019, above the 3 %-of-GDP Treaty reference value. Overall, the Council is of the opinion that significant further measures will be needed as of 2018 to comply with the provisions of the Stability and Growth Pact, in light of a strongly deteriorating fiscal outlook, in line with the recommendation addressed to Romania on 22 June 2018 with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective.

                  (8)

                  Romania's budgetary planning regularly ignores the prescriptions of its fiscal framework despite the need for responsible fiscal policy-making. Romania's fiscal responsibility law transposes the Fiscal Compact into national legislation. Its rules are well designed but are recurrently overlooked in practice. In 2016 the structural deficit increased above the medium-term objective, in breach of the deficit rule. Both the 2017 and 2018 budgets targeted a headline deficit of close to 3 % of GDP, implying a deterioration of the structural balance against the rule. The two budget amendments undertaken in 2017 were not compliant with the rules prohibiting increases of the headline and primary deficit ceilings and increases in personnel and total government expenditure during the ongoing fiscal year respectively. Furthermore, as in earlier years, in 2017 the update of the fiscal strategy was provided to Parliament long after the statutory deadline, thus failing to provide a longer-term perspective to budgetary planning.

                  (9)

                  Tax compliance remains low, in particular for the value added tax. In the past year, Romania achieved limited progress in addressing the repeated country-specific recommendation to strengthen tax compliance and collection. As regards the value added tax, the difference between theoretically expected and actually collected revenues remains very high. To improve compliance, the authorities introduced split payments. This is optional except for insolvent companies and taxpayers with significant outstanding value added tax's liabilities. However, the measure has yet to deliver significant results. The introduction of electronic cash registers connected to the tax administration's information technology system is still pending implementation.

                  (10)

                  The health of the financial sector has further improved, but some developments need monitoring. The banking sector is well capitalised and asset quality has improved. However, several ongoing legislative initiatives, which risk adversely affecting non-performing loan disposal and credit and investment, warrant close monitoring. The recent reduction in the contributions to the pre-funded second pillar pension funds eased short-term fiscal concerns but could have negative implications for the development of capital markets.

                  (11)

                  The labour market has been tightening due to employment growth along with a reduction of the labour force due to demographic ageing and emigration. Romania has at the same time substantial unused labour potential, and several groups such as young people, Roma, the long-term unemployed and people with disabilities have difficulties in accessing the labour market. In the past year, Romania made little progress addressing the country-specific recommendation to strengthen targeted activation policies and integrated public services, focusing on those furthest away from the labour market. Despite increased financial incentives for mobility schemes, participation in active labour market policies has remained very low, and the administrative burden has been high. Public work programmes of local interest have done little to provide relevant skills and support transitions into standard employment. There is no case management for the long-term unemployed and recipients of social assistance. Cooperation among public employment services and social and education service providers and external providers respectively has been limited.

                  (12)

                  The risk of poverty or social exclusion has been very high. Families with children, people with disabilities, Roma, and the rural population have been particularly affected. High income inequality persists, also due to the low impact of the tax-benefit system on mitigating market income inequality. The social reference index, which provides a reference when calculating the most important social benefits, has not been updated since 2008. The minimum inclusion law, scheduled for entry into force in 2018, would have increased the coverage and adequacy of social assistance. However, its entry into force was postponed by more than a year. The lower retirement age for women results in lower pension entitlements, aggravating old-age poverty and the gender employment gap.

                  (13)

                  The involvement of social partners in the design and implementation of economic and social reforms has been very limited. The views of social partners are frequently not taken into account even when they converge. Romania's collective bargaining framework is not conducive to a well-functioning system of industrial relations. Social dialogue is characterised by a low level of collective bargaining, especially at sectoral level and low membership of trade unions and employers' organisations. High representativeness thresholds and the vague definition of sectors are among the key obstacles to more effective social dialogue. Legislative amendments to improve the framework have progressed little so far.

                  (14)

                  In the past few years, the minimum wage has been repeatedly increased in a discretionary manner. Since 2015, the net minimum wage has risen by more than 60 %. In 2017, around 30 % of workers earned the minimum wage, implying a highly compressed wage distribution. A proposal for an objective mechanism for minimum wage increases has been endorsed by social partners but not been applied by the Government.

                  (15)

                  The supply of skills is not keeping up with the needs of the economy. Low attainment levels in basic skills and digital skills have an adverse impact on competitiveness, employment and convergence. Participation in adult learning has been very low. A mechanism to match active labour market policies with the demand for skills is not yet in place, and the capacity to anticipate future skills needs and estimate the expected impact of new technologies is weak. Vocational education and training remains a second choice option and is not sufficiently aligned with labour market needs and regional or sectoral specialisation strategies.

                  (16)

                  The weak performance of the education system contributes to the high inequality of opportunity and weakens Romania's long-run growth prospects. The provision of and access to quality inclusive mainstream education is a challenge, in particular for Roma and children in rural areas. The monitoring methodology to tackle school segregation has yet to be developed. The rate of early leavers from education and training is decreasing but still high. An early-warning mechanism to identify children at risk of dropping out is being developed, but the focus on quality education is weak. Despite some measures having been taken, quality assurance in school and higher education is faced with challenges. Tertiary education attainment is very low. Investment in education is relatively low, and disadvantaged schools in particular are lacking appropriate support.

                  (17)

                  The health status of the population has improved, but remains below Union standards. Access to healthcare remains a challenge, with negative impacts on child development, workforce employability and healthy ageing. Low funding and the inefficient use of resources limit the effectiveness of the healthcare system against the background of a sizeable shortage of doctors and nurses. Access to healthcare is limited by the prevalence of informal payments and distance to health infrastructure. Romania made some progress addressing the country-specific recommendation to curb informal payments, and a monitoring mechanism is being implemented, though its actual impact is still to be assessed. Addressing the country-specific recommendation to shift to outpatient care has seen limited progress so far. The ongoing implementation of the national health strategy is marred by shifting priorities and poor investment planning.

                  (18)

                  Strategic planning, the public consultation process and regulatory impact assessment remain weak in the design, implementation and monitoring of policies. This impairs the quality and predictability of regulation. Furthermore, frequent changes in legislation, such as amendments to the fiscal code, weigh on the business environment. The involvement of stakeholders in the design and implementation of reforms is weak, and genuine dialogue is rarely applied, although relevant institutional structures are available. The mechanism for addressing stakeholders' opinions in public consultations does not ensure their proper follow-up. A specific recent example is the disregard of a proposal endorsed by social partners for an objective mechanism for increasing the minimum wage, which would have addressed a country-specific recommendation. No tangible results were achieved on public administration reforms. The adoption of relevant legislation on human resource management in public administration has been delayed. The general secretariat of the government has a limited role in the quality control of policy design.

                  (19)

                  The poor quality of infrastructure, including in the transport, waste and waste water sectors, limits Romania's growth prospects. Public investment is characterised by low efficiency particularly in project preparation and prioritisation. The general condition and reliability of road, rail and waterways infrastructure remain poor and the reform of the transport sector is progressing very slowly. Progress in waste management reform is slow too, while the solid waste and waste water sectors are facing challenges alike. The transport masterplan and the national waste management plan are intended to provide a stable roadmap for investments and strengthen administrative capacity in the sectors, but the alignment of project preparation with strategic planning has been limited so far. Romania achieved limited progress in addressing a country-specific recommendation to strengthen project prioritisation and preparation in public investment.

                  (20)

                  Efficient and transparent public procurement remains pivotal to addressing key policy challenges to Romania, including efficient public spending, the fight against corruption, and fostering innovation and sustainable and inclusive growth. Romania made some progress in addressing the country-specific recommendation to implement the public procurement strategy, but the plan is not yet fully implemented. At the same time, enhancing the efficiency and strategic use of public procurement, effective audit and fraud control still remain challenges. The sustainability of measures taken and the irreversibility of reforms need continued monitoring. Efficiency and transparency challenges associated with public procurement apply in particular to the large healthcare infrastructure investments in the regional hospitals for Iași, Cluj and Craiova.

                  (21)

                  State-owned enterprises have a key role in critical infrastructure sectors such as energy and rail transport. However, their operational and financial performance is weaker than that of private-sector counterparts. The corporate governance of State-owned enterprises has been substantially weakened lately, reversing progress made on country-specific recommendations from 2015 and 2016. Not only has implementation of the new legislation been hesitant, but there are ongoing attempts to exempt a number of companies from its scope. Furthermore, the publication of financial data on State-owned enterprises has been delayed. As a result, key conditions for promoting the efficient use of public resources are being impaired, and space is allowed for distorted investment decisions. In February 2018 the Constitutional Court called on Parliament to revise the above exemptions.

                  (22)

                  Developments throughout the past year have largely brought into question the irreversibility and sustainability of Romania's substantial progress on reforming its judicial system and tackling high-level corruption. Judicial independence is being challenged and pressure being put on the judicial institutions and on the legal framework for fighting corruption, while progress on remaining challenges is being further held back. The implementation of the 2016-2020 national anti-corruption strategy developing further measures to prevent and fight corruption is progressing at technical level but more tangible political support is needed, as corruption and governance issues in the public sector persist at all levels and are among the top challenges for the business environment.

                  (23)

                  Under the Cooperation and Verification Mechanism, the Commission continues to monitor the judicial reform and the fight against corruption in Romania. These areas are therefore not covered in the country-specific recommendations for Romania but are relevant for the development of a positive socio-economic environment in the country.

                  (24)

                  In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Romania's economic policy and published it in the 2018 country report. It has also assessed the 2018 Convergence Programme, the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania but also the extent to which they comply 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.

                  (25)

                  In the light of this assessment, the Council has examined the 2018 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below,

            HEREBY RECOMMENDS that Romania take action in 2018 and 2019 to:

                  1.

                  Ensure compliance with the Council recommendation of 22 June 2018 with a view to correcting the significant deviation from the adjustment path toward the medium-term budgetary objective. Ensure the full application of the fiscal framework. Strengthen tax compliance and collection.

                  2.

                  Complete the minimum inclusion income reform. Improve the functioning of social dialogue. Ensure minimum wage setting based on objective criteria. Improve upskilling and the provision of quality mainstream education, in particular for Roma and children in rural areas. Improve access to healthcare, including through the shift to outpatient care.

                  3.

                  Increase the predictability of decision-making by enforcing the systematic and effective use of regulatory impact assessment and stakeholder consultation and involvement in the design and implementation of reforms. Improve the preparation and prioritisation of large infrastructure projects and accelerate their implementation, particularly in the transport, waste and waste water sectors. Improve the transparency and efficiency of public procurement. Strengthen the corporate governance of State-owned enterprises.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

         (2)  OJ C 261, 9.8.2017, p. 1.

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

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

         (5)  Council Decision (EU) 2018/923 of 22 June 2018 establishing that no effective action has been taken by Romania in response to the Council Recommendation of 5 December 2017 (OJ L 164, 29.6.2018, p. 42).

         (6)  Council Recommendation of 22 June 2018 with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Romania (OJ C 223, 27.6.2018, p. 3).

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


title: Council Recommendation of 13 July 2018 on the 2018 National Reform Programme of Ireland and delivering a Council opinion on the 2018 Stability Programme of Ireland

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/27

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Ireland and delivering a Council opinion on the 2018 Stability Programme of Ireland
      (2018/C 320/07)
      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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 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. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Ireland 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, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘Recommendation for the euro area’).

                  (2)

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

                  (3)

                  The 2018 country report for Ireland was published on 7 March 2018. It assessed Ireland's progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (4), the follow-up given to the country-specific recommendations adopted in previous years and Ireland'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 7 March 2018. The Commission's analysis led it to conclude that Ireland is experiencing macroeconomic imbalances. In particular, large stocks of private and public debt and net external liabilities constitute vulnerabilities. However, the improvements have been substantial. Strong productivity growth in past years led to improved competitiveness and to a positive current account balance entailing a rapid reduction in the high stock of net foreign liabilities. Strong economic growth continues to support private deleveraging. However, the stock of private debt remains high, although the strong influence of the activities of multinational companies needs to be taken into account when evaluating corporate debt, while household debt appears broadly in line with fundamentals. Government debt is projected to remain on a downward trajectory, and the deficit is moving closer to balance. House prices are growing at a rapid pace, albeit from likely undervalued levels, which is also strengthening households' balance sheets. Banks are well recapitalised and their profitability is improving gradually. The stock of non-performing loans, although remaining high, continues to decrease. Policy action addressing these vulnerabilities has been taken, but some measures will take time to generate the expected effects.

                  (4)

                  Ireland submitted its 2018 National Reform Programme on 18 April 2018, and its 2018 Stability Programme on 30 April 2018. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Ireland is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. In its 2018 Stability Programme, the Government expects the headline deficit to decline slightly to 0,2 % of GDP in 2018 and to continue to gradually improve thereafter, turning into a surplus of 0,4 % of GDP in 2021. The medium-term budgetary objective — a structural deficit of 0,5 % of GDP — is expected to be met from 2019 onwards. According to the Stability Programme, the general government debt-to-GDP ratio is expected to fall to 66 % in 2018 and to continue declining to 58,7 % in 2021. The macroeconomic scenario underpinning those budgetary projections is plausible. At the same time, the measures needed to support the planned deficit targets from 2019 onwards have not been sufficiently specified.

                  (7)

                  On 11 July 2017, the Council recommended Ireland to ensure that the nominal growth rate of net primary government expenditure does not exceed 2,4 % in 2018, corresponding to an annual structural adjustment of 0,6 % of GDP. At the same time, the Council stated that consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Ireland's public finances. Based on the Commission 2018 spring forecast, there is a risk of some deviation from the recommended fiscal adjustment in 2018 and over 2017 and 2018 taken together.

                  (8)

                  In 2019, Ireland should achieve its medium-term budgetary objective. This is consistent with a nominal growth rate of net primary government expenditure (6) which does not exceed 5,3 % (7), corresponding to an annual structural adjustment of 0,1 % of GDP. Based on the Commission 2018 spring forecast, the structural balance is forecast to reach a deficit of 0,4 % of GDP in 2019, above the medium-term budgetary objective. Ireland is forecast to comply with the transitional debt rule in 2018 and the debt rule in 2019. Overall, the Council is of the opinion that Ireland needs to stand ready to take further measures to ensure compliance in 2018 and is projected to comply with the provisions of the Stability and Growth Pact in 2019. In view of the difference between measurements of GDP and domestic output in Ireland and the associated impact on the debt-to-GDP ratio, Ireland's current cyclical conditions and the heightened external risks, the use of any windfall gains to further reduce the general government debt ratio would be prudent.

                  (9)

                  Public finances have further improved on the back of robust output growth, yet risks of revenue volatility remain, and there is scope for making revenue more resilient to economic fluctuations and adverse shocks. Limiting the scope and the number of tax expenditures, and broadening the tax base would improve revenue stability in the face of economic volatility. However, some recent tax measures have focused on cuts and reliefs, and seem to have further increased reliance on highly pro-cyclical sources of revenue. Moreover, Ireland has further potential to improve the way its tax system can support environmental objectives.

                  (10)

                  As indicated in the 2018 euro-area recommendation, the fight against taxpayer's aggressive planning strategies is essential to impede distortions of competition between firms, provide fair treatment of taxpayers and safeguard public finances. Spill-over effects of taxpayers' aggressive planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. The high level of royalty and dividend payments as a percentage of GDP suggests that Ireland's tax rules are used by companies that engage in aggressive tax planning. Limited application of withholding taxes on outbound (i.e. from Union residents to third-country residents) royalty and dividend payments made by companies based in Ireland may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. Furthermore, companies may use certain provisions in bilateral tax treaties between Ireland and some other countries to overrule the new tax residence rule put in place in Ireland in 2015 and further analysis of this issue is warranted. The outcome of the consultation undertaken by Ireland following the Independent Review of the Corporation Tax Code will be relevant for the design of the announced tax reforms. The Commission takes note of recent positive steps announced or adopted (i.e. steps taken to tackle aggressive tax planning domestically; possible defensive measures against listed non cooperative jurisdictions). Based on recent exchanges, the Commission will continue its constructive dialogue to fight against taxpayers aggressive planning strategies.

                  (11)

                  Long-term fiscal sustainability risks related to the cost of ageing remain. Ireland has introduced some significant efficiency measures such as a cost-saving agreement with the pharmaceutical industry, a financial management system and activity-based funding. Some measures have also been taken to improve the availability of primary healthcare. However, the Irish healthcare system is costly and faces many challenges, which are compounded by a rapidly ageing population. Moreover, primary and community care services are not yet capable of alleviating the mounting pressure on capacity and costs within hospital care. The planned move towards universal healthcare needs to be supported by multi-year budgeting and better expenditure control. In addition, it has to be informed by the findings from a comprehensive spending review of the effectiveness and efficiency of the health sector. In addition, strengthening the gatekeeper role of primary care for Ireland's overburdened hospitals should be considered. Despite a wide range of reforms to contain public pension expenditure, the overall pension system deficit is expected to grow significantly in the long term. A timely implementation of the presented roadmap for pension reform is key to strengthening the fiscal sustainability of the Irish pension system.

                  (12)

                  Years of low investment following the economic bust are taking their toll on the availability of appropriate infrastructure in the areas of transport, clean energy, water services, housing and telecommunications. Persistent supply shortages, coupled with increasing demand, continue to fuel property price increases. Although prices did not seem overvalued in 2016, affordability is a concern. If not addressed, constraints limiting the supply of housing could contribute to imbalances building up. Combined with spatial planning, improved infrastructure is a critical enabler for an appropriate housing supply response, the enhancement of private investment, productivity growth and a balanced regional economic development. Moreover, infrastructure investment in clean energy, clean and public transport and water as well as intensified efforts in the field of renewable energy and the circular economy will be essential for Ireland to succeed in its transition towards a low-carbon and environmentally resilient economy. The National Development Plan 2018-2027 and the National Planning Framework, which are part of the ‘Ireland 2040 Strategy’, will be strong steps in the right direction once acted upon and implemented in close coordination with stakeholders.

                  (13)

                  Existing climate change mitigation efforts will not enable Ireland to achieve its Europe 2020 climate goals domestically. Only limited progress has been achieved in decarbonising key parts of the economy, mainly in agriculture, road transport and the residential sector. This will make it necessary for Ireland to use available flexibilities to comply with the Effort Sharing Decision, such as buying allocations from other Member States. National projections, published in 2017, highlight the scale of additional efforts needed: emissions under the Effort Sharing Decision (setting binding annual greenhouse gas emission targets for Member States for 2013-2020) are expected to increase up to 2025, before stabilising at a level slightly below 2005 emissions, on the basis of existing policies. Ireland recently adopted a National Mitigation Plan laying out a roadmap towards a low-carbon economy and a coherent framework to tackle persisting challenges in the energy sector. As it stands, however, the plan offers few specific new mitigation measures. The National Planning Framework also has a climate component, in recognition of the fact that adequate spatial planning will be a critical enabler of climate change mitigation given that the population is so widely dispersed and Ireland only has a small number of large urban areas, all of which face serious congestion and public transport issues. Finally, the National Development Plan 2018-2027 and its effective implementation will play a crucial role in decarbonising the economy. The plan will in fact determine the extent to which additional means are mobilised for the decarbonisation of the power sector, the deployment of renewable energy sources and the improvement of public transport and energy efficiency.

                  (14)

                  Ensuring inclusive growth remains a challenge in Ireland. Unemployment fell to 6,7 % in 2017 but certain groups are still largely detached from the labour market and socially excluded. The social protection and taxation systems are very effective in curtailing poverty and inequality, and Ireland has taken measures to incentivise employment by tapering the withdrawal of benefits and supplementary payments. Ireland's persistent high at-risk-of-poverty-or-social-exclusion rate is linked to the high proportion of people living in households with low work intensity (almost twice the Union average and highest in the Union — 18,2 % versus 10,5 % in 2016). This is particularly prevalent for single-parent households. Almost three quarters of people who are not working in Ireland are inactive. Both the overall and child at-risk-of-poverty-or-social-exclusion rates fell slightly in 2016 but remain higher than the Union average. As a result, Ireland needs to complete the implementation of its Action Plan for Jobless Households, including by improving the integrated support to people furthest from the labour market. The supply of social housing requires continued attention to meet ambitious targets and high demand.

                  (15)

                  Access to affordable, full-time and quality childcare remains a challenge. According to the Organisation for Economic Co-operation and Development, childcare costs in Ireland — relative to wages — were in 2015 the highest in the Union for lone parents and the second highest in the Union for couples. The high costs of childcare can act as a barrier to accessing paid employment, particularly in low-income households, including single-parent households. This has a negative effect on women's employment rate, which stood in 2016 at 65,4 %, close to the Union average. A law on the Single Affordable Childcare Scheme is nearing finalisation in Parliament. Implementation delays are already becoming apparent. The quality of childcare provision has also been promoted in particular through initiatives to ensure robust staff qualifications.

                  (16)

                  The differences between the employment rates of low, medium and highly skilled workers were among the highest in the Union in 2016 and the employment rate of low-skilled labour is 10 percentage points lower than before the economic crisis. As a consequence and linked to the change in economic activity, skills mismatches and skills shortages are becoming more evident in several areas. This accentuates the need to accelerate upskilling and reskilling policies and measures. Ireland has in particular a low level of participation in lifelong learning among low-skilled people in employment, which makes them vulnerable to changes in labour demand. Ireland has overall one of the lowest levels of digital skills in the Union, which is in stark contrast to the high proportion of science, technology, engineering and mathematics graduates leaving the Irish higher education system. Ireland also has one of the lowest employment rates of people with disabilities in the Union.

                  (17)

                  Productivity growth in Ireland is mainly driven by multinational companies. The productivity performance gap between these firms and Irish indigenous firms —mostly small and medium-sized enterprises — is increasing. The high international mobility of some of the multinationals and current uncertainties may put the sustainability and resilience of the Irish economy at risk in the longer term. Recent research has revealed that Irish-owned firms draw limited spill-overs and benefits in terms of productivity growth, innovation and export performance from the activities of multinationals in Ireland. However, Irish firms that carry out R&D efforts do benefit from spill-overs from multinationals. Public-sector incentives to carry out R&D and increasing the availability of skilled workers to Irish small and medium-sized enterprises would foster the diffusion of new technologies in those firms. In addition and as repeatedly indicated by the Irish National Competitiveness Council, ensuring the competitiveness of Irish firms requires limiting the growth of certain inputs and of legal costs in particular. Barriers in the market for legal services continue to represent a challenge, hampering competition and raising costs for service recipients. These affect mostly small businesses as they increase litigation costs. No implementing regulations are as yet in place for the new Legal Services Regulation Act. Public consultations, which are a pre-requisite to implementing legislation, are experiencing significant delays.

                  (18)

                  Even if Ireland's financial sector is on the way to a sustained recovery, legacy issues still create constraints. Although Ireland continued to make progress in reducing non-performing loans, their ratio to total gross loans (11,2 % in September 2017) remains among the highest in the Union. Debt overhang, market concentration and heightened uncertainty in some exporting sectors weigh on the demand for credit by small and medium-sized enterprises which remains subdued. It is crucial to reduce the long-term arrears, of which those overdue for more than two years account for around 60 % of total mortgages in arrears in 2017. Reducing long-term arrears could also help address the problem of debt overhang, which reduces the incentives for corporations, and small and medium-sized enterprises in particular, to put credit into more productive uses. Although its 2017Q4 Report on Residential Mortgage Arrears and Repossessions noted that approximately 87 % of restructured mortgages are meeting the arrangements, the Central Bank of Ireland has highlighted that restructures involving a temporary payment reduction are particularly prone to re-defaults. The viability of repossessions and write-offs as last resort options could be improved and complemented by a strong consumer protection framework safeguarding the positive developments in secondary market loan sales and the durability of loan restructuring solutions.

                  (19)

                  In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Ireland's economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme, the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Ireland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Ireland but also the extent to which they comply 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.

                  (20)

                  In the light of this assessment, the Council has examined the 2018 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below.

                  (21)

                  In the light of the Commission's in-depth review and this assessment, the Council has examined the 2018 National Reform Programme and the 2018 Stability Programme. Its recommendations made under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (3) below,

            HEREBY RECOMMENDS that Ireland take action in 2018 and 2019 to:

                  1.

                  Achieve the medium-term budgetary objective in 2019. Use windfall gains to accelerate the reduction of the general government debt ratio. Limit the scope and the number of tax expenditures, and broaden the tax base. Address the expected increase in age-related expenditure by increasing the cost-effectiveness of the healthcare system and by pursuing the envisaged pension reforms.

                  2.

                  Ensure the timely and effective implementation of the National Development Plan, including in terms of clean energy, transport, housing, water services and affordable quality childcare. Prioritise the upskilling of the adult working-age population, with a focus on digital skills.

                  3.

                  Foster the productivity growth of Irish firms, and of small and medium enterprises in particular, by stimulating research and innovation with targeted policies, more direct forms of funding and more strategic cooperation with foreign multinationals, public research centres and universities. Promote faster and durable reductions in long-term arrears by the use of secondary markets, building on initiatives for vulnerable households and, where necessary, using write-offs of non-recoverable exposures.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

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

         (3)  OJ C 179, 25.5.2018, p. 1.

         (4)  OJ C 261, 9.8.2017, p. 1.

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

         (6)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out. The expenditure benchmark for Ireland reflects an adjustment to correct for a distortion to the 10-year reference rate of potential growth caused by the exceptionally high surge in real GDP growth in 2015. Following the approach taken by the Irish authorities in their Budget 2017 calculations, the Commission has taken the average of potential growth rates in 2014 and 2016.

         (7)  As in 2018, the expenditure benchmark reflects an adjustment to correct for a distortion to the 10-year reference rate of potential growth caused by the exceptionally high surge in real GDP growth in 2015.

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