Important legal notice

|

52009PC0004(01)

Recommendation for a Council decision granting mutual assistance for Latvia  /* COM/2009/0004 final */

	[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |Brussels, 8.1.2009COM(2009) 4 finalRecommendation for aCOUNCIL DECISIONGranting mutual assistance for LatviaandProposal for aCOUNCIL DECISIONProviding EU medium-term financial assistance for LatviaRecommendation for aCOUNCIL DECISIONGranting mutual assistance for LatviaandProposal for aCOUNCIL DECISIONProviding EU medium-term financial assistance for LatviaEXPLANATORY MEMORANDUM1. INTRODUCTIONThe Latvian economy has accumulated major imbalances in recent years as rapid expansion has been fuelled by easy credit conditions and an overly-expansionary fiscal stance, against advice given by the Commission and Council, notably in Opinions on successive Latvian convergence programmes. The situation has been greatly accentuated by the global financial market crisis and the general hardening in sentiment towards emerging market economies, making access to credit increasingly difficult and expensive. Latvian capital and financial markets came under significant pressure from October onwards, reflecting increased concerns about the sustainability of the country's economic and financial situation. Particular worries related to the health of the banking sector, and especially the viability of the country's largest domestically-owned bank (Parex), heavily reliant on external funding, which was consequently taken into state ownership and control. In sum, Latvia has been confronted by an abrupt and severe banking sector and external financing crisis.Against this background, the Latvian authorities approached the EU and the IMF for financial support. The Commission together with the Council Presidency announced on 22 November that the EU was ready to participate with the IMF in a coordinated financing package to underpin Latvia's balance of payments sustainability. However, it was stressed that a financial assistance package would only be provided subject to a strong commitment by the Latvian authorities to implement a rigorous and credible economic adjustment programme. Based on discussions with the Commission and IMF, on 12 December the Latvian Parliament adopted the authorities' proposal for an "Economic Stabilisation and Growth Revival Programme" (hereafter the programme). The key objectives of the programme are to maintain domestic and international confidence in the financial system, to contribute directly and indirectly to arresting and reversing the deteriorating trend in cost competitiveness and inflation by reductions in public sector wage costs as a centrepiece of a much tighter fiscal stance, and to strengthen the economy’s growth potential by a range of structural reforms.2. RECENT MACROECONOMIC DEVELOPMENTSFollowing a sustained period of high growth since the end-1990s, largely based on domestic demand, Latvia's real GDP increased at double-digit rates in 2005-2007. Growth was primarily driven by a powerful credit expansion boosting private consumption and real estate investment, but this ended by mid-2007, as overvalued real estate prices could no longer be sustained. During these years, the structure of the economy shifted from the tradeable sector to the non-tradeables, undermining the external sustainability of the economy and resulting in serious overheating pressures.GDP growth fell sharply during the first three quarters of 2008, a trend expected to continue, driven mainly by a contraction in private consumption and private investment. Private consumption has been hit by high inflation, falling real estate prices, increased debt service payment, reduced loan availability and worsened employment and income expectations. Fixed investment in construction is falling in line with the ending of the boom in the real estate market and investment in equipment given the poor demand outlook both domestically and abroad. The corporate sector is under heavy cost pressure, due to labour cost increases, and financing is increasingly constrained. EU-funded projects and generally public projects will provide some cushion against a sharp drop in other investment. However, GDP is expected to contract for a considerable period with very weak domestic demand insufficiently counterbalanced by an expansion of net exports.Labour market conditions have only recently started to ease, but the reaction on the labour market to the drop in domestic demand will be significant. Unemployment has already increased from 6.3% in Q2 to 7.2% in Q3 2008 and nominal wage growth is moderating, but from very high rates. The Latvian labour market is presumed to be fairly flexible, which should limit the output and employment costs associated with a realigning of wages with productivity.After peaking in May 2008 at 17.7%, HICP inflation fell to 11.8% in November. Core inflation[1] (11.0% in November) and services price inflation are falling steadily, as demand pressure wanes. Prospects for a further strong decrease in inflation are good, given the outlook for sharply weaker domestic demand, lower public sector wages (see Section 6) leading to private sector wage restraint, and decreases in global commodity prices.External imbalances have been very large with an unsustainable build-up of external liabilities, but in 2008, with falling domestic absorption, external borrowing declined substantially. The balance of payments and external investment position is discussed in Section 5 below.3. PUBLIC FINANCESPublic finance has a heightened responsibility in Latvia due to the limited scope of monetary policy under a quasi-fixed exchange rate regime[2]. Nevertheless, Latvia pursued a pro-cyclical fiscal policy during the domestic demand boom years of 2005-2007, in spite of improving headline budgetary outturns and against repeated advice given in Council Opinions on successive updates of Latvia's convergence programme. Windfall revenues were typically spent through the process of intra-year supplementary budgets and no reserves were created for worse times. Public sector wage growth became a driver of private sector wage increases, with comparable wage levels higher in the public sector. In Latvia over 30% of the employed work in the public sector and, given that the service sector is proportionally large, around 75% of GVA, public sector wage-setting plays a large role in influencing private sector wages.During the first ten months of 2008, VAT revenues slowed dramatically (down by 3% y-o-y), driven by a steep fall in private consumption. Revenues from other major tax categories initially held out relatively well on the back of high inflation, but these favourable effects have also started to fade. The Latvian Treasury estimates that the 2008 consolidated state budget deficit, which includes the central government and the social security fund budget, may be around 2½ to 2¾% of GDP[3]. Taking into account the possibility that in current circumstances the local government sector might show a small deficit (despite limits intended to result in the sub-sector maintaining balance or surplus), the 2008 deficit of the general government sector appears to be close to 3% of GDP.The budget for 2009 as passed by Parliament on 14 November targeted a consolidated central government deficit of 1½% of GDP, but based on an unrealistic output contraction of only 1%. It included substantial direct tax reductions and expenditure increases. It was then already clear that output would decline by a significantly larger amount and that in the absence of countervailing measures the deficit risked widening to very large figures. Including a very small deficit of local governments, the general government deficit was projected by the authorities to be 1.8% of GDP with a primary deficit of 1.1% of GDP. In view of tax collection data in the last months of 2008 and deteriorating economic prospects for 2009, the outlook for the general government balance became significantly worse than the Commission services' autumn forecast projection of a 5.6% of GDP deficit. By contrast, the end-2007 general government debt ratio, 9.5%, was one of the lowest in the EU.4. FINANCIAL MARKETSLatvia's financial system is almost exclusively dominated by the banking sector, which has developed very quickly over the last ten years. Two segments can clearly be identified. On the one hand, foreign-owned banks, principally funded directly through loans from parent companies, share about 70% of the market. On the other hand, domestic banks are funded principally through foreign syndicated loans and non-resident deposits. The importance of non-resident deposits, which stood at 43.5% of all deposits other than from monetary and financial institutions (MFIs) at the beginning of November 2008, is a particularly salient feature. Latvia's financial system relies therefore primarily on external financing, whether it comes from parent companies, non-resident deposits, or foreign syndicated loans. The resulting very high and increasing level of foreign liabilities has its counterpart in loans to residents, predominantly in foreign currency (close to 90% of all loans). Domestic credit has risen from 10% of GDP in 1997 to 90% in 2007. It appears, therefore, that the two main risks that affect Latvia's banking system are liquidity and credit risks.Liquidity risk has already materialised through sustained liquidity pressures since October 2008. Expecting repayment difficulties, two foreign syndicates clearly implied that they might request early payment of loans to Parex Bank totalling 0.8bn EUR due in February and June 2009. This prompted the partial nationalisation of the bank on 10 November 2008. However, the public loan guarantees thereby granted were deemed insufficient, leading to the full nationalisation of Parex at the beginning of December and the imposition of limits on deposit withdrawals (50,000 EUR/month for individuals). Despite these measures, Parex and domestic banks with similar business models have since experienced very substantial non-resident deposit withdrawals, of which only a small part has been redeposited with other banks in Latvia. The systemic liquidity pressure prompted the Bank of Latvia on 13 November to announce further reductions of its required reserve ratio from 7% to 5% for short-term liabilities and from 5% to 3% for liabilities with a maturity of over 2 years, thereby freeing liquidity (these decisions took effect in two 1pp steps on 24 November and 24 December). However, the drain on reserves has continued, and the net international investment position of the Bank of Latvia deteriorated by 0.9bn EUR in the period from the beginning of October 2008 to the end-year. Resident and non-resident deposits in foreign-owned banks increased over the same period, and, crucially, liquidity support from parent companies seems secured.Credit risk has not yet materialised substantially, but is expected to increase in the coming months. While overdue loans have already increased, non-performing loans so far remain below 1% of total loans, also due to the ongoing restructuring of problem loans. However, the negative impact of the expected prolonged recession on residents' income and therefore on their ability to repay debts will clearly mount. Solvency ratios will decrease, and may approach the regulatory minimum, in which case capital injections may be needed.The current and future position of the banking sector is dependent on objective factors but also on credibility and confidence-related expectations. It is key at the current juncture to ensure confidence so as to stabilise the deposit base and ease liquidity pressures going ahead. Given constrained public finances, restoring confidence in the financial sector through government intervention would only be credible if accompanied by strong international financial support.5. BALANCE OF PAYMENT AND EXTERNAL FINANCING REQUIREMENTSLatvia's economic boom until 2007 was characterized by the emergence of large external imbalances and an unsustainable build-up of external liabilities. Gross external debt exceeded 135% of GDP at the end of 2007 (with net external debt at 52% of GDP). The international investment position at end-2007 widened to net liabilities of 79% of GDP, with net liabilities at the end of the second quarter of 2008 estimated to have widened to 82% of GDP.In 2008, with falling domestic absorption, external borrowing has declined substantially. According to the preliminary estimates of the Bank of Latvia, the current account deficit fell to about 12½% of GDP in the third quarter of 2008 (from a peak of over 27% of GDP in the fourth quarter of 2006). In 2009 the goods trade deficit is expected to remain around 10% of GDP (as in last months of 2008), but, given a positive services balance and improving income account, the current account deficit would be narrower. In order to ensure that the basis of GDP growth switches from shrinking domestic demand to increasing exports, there is a need to realign wages more closely with productivity and to progress with structural reforms that strengthen the economy's supply side.While a correction of the current account deficit from its unsustainable levels of recent years is a critical element in re-establishing a sound balance-of-payments situation, in itself it will not be enough to achieve external sustainability, taking into account the country's large stock of debt, most of it short-term. External financing is expected to remain under significant pressure for some time, with the availability of foreign credit being reduced, potential drains on non-resident as well as resident deposits, and a worsened outlook for inward investment. A further drain on foreign currency reserves (which decreased by around 25% between the beginning of October and early December 2008) would jeopardise the viability of Latvia's exchange rate peg. Against this background, external financial assistance, backed up by a strong policy programme, will be required to ease liquidity constraints in the short term while supporting an orderly external adjustment in the medium term.In light of the above, the Commission is of the opinion that there is a serious threat to the Latvian balance of payments. The Commission thus recommends to the Council a decision granting mutual assistance.6. LATVIA'S "ECONOMIC STABILISATION AND GROWTH REVIVAL PROGRAMME": MACROECONOMIC AND FINANCIAL SYSTEM MEASURESOngoing discussions between the Latvian authorities and potential contributors to a coordinated package of international financial assistance led to the adoption by the authorities of an ambitious policy programme (as noted above, submitted to Parliament and approved by it on 12 December). The programme is based on maintaining the existing peg of the lats, which will remain a key policy anchor going forward. The programme aims to address financial sector vulnerabilities, correct fiscal imbalances and improve competitiveness while maintaining the narrow-band exchange rate. It includes an immediate and sustained fiscal consolidation, a comprehensive bank resolution strategy, a strengthened crisis management capacity of regulatory authorities, comprehensive structural reforms, as well as other important measures. It assumes a macroeconomic scenario of GDP contractions of 5% in 2009 and a further 3% in 2010, giving way to weak recovery of 2% in 2011. The fiscal strategy targets a general government deficit of not more than 3% of GDP by 2011, aiming to meet the Maastricht deficit criterion in that year.The financial assistance negotiations with the EU, IMF and other parties, which highlighted serious future budget deficits, led the government to adopt an amended outline budget for 2009; this was passed by Parliament on 12 December consistently with the emergency economic stabilisation programme. The amended budget, based on the revised GDP forecast of a 5% contraction in 2009, takes into account the recent deterioration in the economic outlook and targets a general government fiscal deficit of below 5% of GDP[4], implying only slight structural adjustment compared with the estimated 2008 outturn (but much higher compared with the budget passed in November). In addition, a fully-fledged supplementary budget law for 2009 consistent with the December budget outline should be adopted by end-March 2009.On the expenditure side, consolidation is centred on a large reduction of public sector wages (by 15% in average compensation relative to the original 14 November 2008 budget - but which only partially reverses the large real increases registered in recent years) and further staff reductions; in addition there is a large planned reduction in non-personnel current costs. A reduction of subsidies (excluding social support) and in expenditure on goods and services and tightening of local governments' spending, are among the other significant measures planned. In this regard, national co-financing for EU-funded projects will be maintained at the planned level and help move the economy towards the tradable sector. On the revenue side, it comprises a 3pp increase in the standard VAT rate to 21%, an increase from 5% to 10% in the reduced VAT rate applicable to a much narrower tax base (principally medicines), increased excise tax on fuel (achieving EU acquis ), and some partial offset by a 2pp reduction in the personal income tax rate.Further fiscal consolidation is planned for 2010, and the medium-term fiscal framework is anchored on the ambition of achieving in 2011 a general government deficit of no more than 3% of GDP, consistent with the Maastricht fiscal convergence criterion. Imposition of further expenditure restraint in 2010, introduction of a capital income tax (10%); increase in real estate and property tax by removing exemptions in order to broaden the tax base will produce further consolidation in that year. Furthermore, measures will be taken to strengthen the design and implementation of budgetary procedures by the adoption of a new fiscal framework and budgetary reform law.In addition to the fiscal package described above, as a pre-condition for any external financial support, a resolution is being sought for Parex Bank under which the existing shareholders no longer hold any ownership interest. Following a first audit, the government has already taken control of over 85% of the equity of the bank. Management has been replaced. The new management is developing a resolution plan, consistent with minimising losses to the state. It will seek a firm commitment in the near future from external parties to renew Parex's syndicated funding.Other measures aim to guarantee wider banking sector stability in the medium to longer term. As a first step, the authorities will aim to restore confidence in the banking system. Targeted examinations will be conducted in the banking system to ensure that all banks are solvent and sufficiently capitalized. Viable banks in need of capital increases will be required to seek private restructuring via outside investors or mergers, or capital support from parent banks.Almost all current external debt is owed by the private sector. In order to bring debt levels in line with sustainable growth in the future, and in addition to prudential, supervisory and monetary policy measures, debt restructuring is an important component of the programme. The appropriate legal basis for maturity and currency restructuring of existing debt will be strengthened. Facilitating insolvency procedures and quick implementation of rehabilitation plans will also be made a priority.The economic policy programme also includes structural reform measures supported in the context of the Lisbon strategy, such as the active labour market and life long learning policies, greater involvement of private sector actors in R&D and innovation activities, export promotion measures and removal of administrative burdens for businesses.7. EU SUPPORT UNDER THE BALANCE OF PAYMENTS FACILITY PART OF INTERNATIONAL EFFORTIn the light of the serious balance of payments difficulties being experienced by Latvia, and conditional on the Latvian authorities' firm commitment to implement a major programme of economic adjustment, the Commission, following consultation with the Economic and Financial Committee on 12 January 2009, recommends to the Council the granting of the mutual assistance foreseen by Article 119 of the Treaty.Furthermore, the Commission, following consultation with the Economic and Financial Committee, proposes that, after adopting the above-mentioned decision of the Council to provide mutual assistance to Latvia on a recommendation from the Commission, the Council adopts a decision providing under the EU facility for Member States (as governed by Council Regulation (EC) No 332/2002 of 18 February 2002) a medium-term financial assistance to Latvia of up to EUR 3.1 billion to underpin its balance of payments sustainability.Medium-term financial assistance would intervene at a moment when Latvia is seriously threatened with loss of domestic and international confidence in its financial system, has a worsening fiscal situation, and faces substantial financing pressures in the near term. Overall, the assistance is to facilitate necessary external and internal adjustments. Total estimated financing needs in the period up to first quarter of 2011 are 7.5bn EUR. This sum comprises allowance for the expected external (current and capital) account deficit, deposit withdrawals, incomplete rollover of maturing loans, errors and omissions in the balance of payments and international reserve accumulation to a prudential level.The support would be provided in conjunction with the IMF and other multilateral and bilateral support. It would be disbursed in six instalments and linked to economic policy conditions. The proposed decision would expire three years after its entry into force. The economic policy conditionality attached to EU loan disbursements will be set out in a Memorandum of Understanding to be concluded with the Latvian authorities; principal elements of this conditionality are the following:A major fiscal consolidation over the period to 2011 . Relative to the original 14 November 2008 budget, a very large fiscal consolidation is planned for 2009, targeting a budget deficit of no higher than 5% of GDP, with further consolidation in 2010. Underpinning budgetary measures include: notably, (i) adoption of a clearly-set medium-term fiscal programme designed to reduce the general government budget deficit to lower than Treaty reference level of 3% of GDP by 2011; (ii) within medium-term budgetary ceilings, the reduction of average public sector remuneration in nominal terms by approximately 15% in 2009; this should also apply to local governments, government agencies and state-owned companies; (iii) the elimination of bonuses and similar payments; (iv) a reduction of at least 5% in public sector and local government employment; (v) substantial reductions in subsidies (excluding social support) and expenditure on goods and services; (vi) implementation of EU-funded projects at previously planned levels.Financial conditionality measures aiming to guarantee wider banking sector stability in the medium to longer term. As a first step, the authorities will aim to restore confidence in the banking system. Targeted examinations will be conducted in the banking system to ensure that all banks are solvent and sufficiently capitalized. Viable banks in need of capital increases will be required to seek private restructuring via outside investors or mergers, or capital support from parent banks. An important stage in this process was the separate announcements on 18 December 2008 by three major foreign parent bank groups of their commitment to remain in Latvia and support their operations there.Debt restructuring in the private sector in order to reducing vulnerabilities from high debt levels (almost all the external debt is owed by the private sector), and in addition to prudential, supervisory and monetary policy measures. The appropriate legal basis for maturity and currency restructuring of existing debt should be strengthened. Facilitating insolvency procedures and quick implementation of rehabilitation plans must also be made a priority. This includes amending the insolvency law to facilitate workouts between viable enterprises and their creditors and improving the personal bankruptcy framework.Structural measures in the area of incomes policies, fiscal discipline and budget process and management. The Budget and Financial Management law will be amended to strengthen provisions on financial responsibility, transparency and accountability and the medium term budgetary framework will be made operational. A special committee will be established to monitor wage restraint and to issue recommendations to ensure that wages evolve in a way to restore competitiveness.Structural reform measures supported inter alia in the context of the Lisbon strategy , such as the active labour market and lifelong learning policies, greater involvement of the private sector in R&D and innovation activities, export promotion measures and the reduction of administrative burdens for businesses.To ensure the necessary flexibility in the current market context, it is proposed to allow the option of using interest rate swaps for the borrowing operation which finances the loan. In order to safeguard the EU budget, the counterparties of a potential swap would have to be of the highest credit quality.Recommendation for aCOUNCIL DECISIONGranting mutual assistance for LatviaTHE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community, and in particular Article 119,Having regard to the recommendation from the Commission made after consulting the Economic and Financial Committee,Whereas:(1) Against a background of very high external financing needs, Latvian capital and financial markets have recently come under pressure, reflecting a general deterioration in market sentiment, and increasing concerns about the health of the Latvian economy given its large imbalances in terms of wide external deficit and very large external debt, weakening public finances and high rates of cost and price inflation. The Latvian banking sector has experienced serious liquidity and confidence problems. The level of foreign currency reserves has decreased as the central bank intervened to preserve the currency peg.(2) The Council regularly reviews the economic policies implemented by Latvia, in particular in the contexts of Latvia's convergence programme and National Reform Programme, as well as in the context of Convergence Reports.(3) Latvia's total external financing needs up to the first quarter of 2011 are estimated at EUR 7.5 billion.(4) The Latvian authorities have requested substantial financial assistance from the EU and other international financial institutions and countries to support balance of payments sustainability.(5) There is a serious threat to the Latvian balance of payments which justifies the urgent granting of mutual assistance by the Community in conjunction with the IMF and other contributors.(6) The financial assistance package would be provided subject to a strong commitment from the Latvian authorities to implement an ambitious fiscal, financial system and structural reform programme to facilitate the necessary external and internal adjustments, to stabilize the economy and to restore economic policy credibility. The Commission will review regularly and closely, in collaboration with the EFC, that the economic policy conditions attached to the assistance are fully implemented.HAS ADOPTED THIS DECISION:Sole articleThe Community shall grant mutual assistance to Latvia.This Decision is addressed to the Member States.Done at Brussels,For the CouncilThe PresidentProposal for aCOUNCIL DECISIONProviding Community medium-term financial assistance for LatviaTHE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,Having regard to Council Regulation (EC) No 332/2002[5] of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States' balance of payments and in particular Article 3(2),Having regard to the proposal from the Commission made after consulting the Economic and Financial Committee (EFC),Whereas:(1) On [….] the Council decided to grant mutual assistance for Latvia.(2) Against a background of very high external financing needs, Latvian capital and financial markets have recently come under pressure, reflecting a general deterioration in market sentiment, and increasing concerns about the health of the Latvian economy given its large imbalances in terms of wide external deficit, weakening public finances and high rates of cost and price inflation. The Latvian banking sector has experienced serious liquidity and confidence problems. The level of foreign currency reserves has decreased as the central bank intervened to preserve the currency peg.(3) Latvia's total external financing needs up to the first quarter of 2011 are estimated at EUR 7.5 billions.(4) It is appropriate to provide Community support to Latvia of up to EUR 3.1 billion under the Facility providing medium-term financial assistance for Member States' balance of payments established by Regulation (EC) No 332/2002. Community assistance should be provided in conjunction with a loan from the International Monetary Fund of SDR 1.5 billion (1200% of Latvia's IMF quota, around EUR 1.7 billion) under an IMF Stand-by arrangement approved on 23 December 2008. The Nordic countries (Sweden, Denmark, Finland and Norway) are to contribute EUR 1.8 billion together, the World Bank - EUR 0.4 billion, the European Bank of Reconstruction and Development, the Czech Republic, Poland and Estonia - a total of EUR 0.5 billion, bringing the total to EUR 7.5 billion over the period to the first quarter of 2011.(5) The Community assistance should be managed by the Commission. The specific economic policy conditions agreed with the authorities of Latvia after consultation of the EFC should be laid down in a Memorandum of Understanding. They should include inter-alia measures intended to stem immediate liquidity pressures, to restore long-term stability by strengthening the banking sector, to correct fiscal imbalances and to adopt domestic policies that will improve competitiveness. The measures should include an immediate and sustained fiscal consolidation, a comprehensive bank resolution strategy, a strengthened crisis management capacity of regulatory authorities, comprehensive structural reforms, as well as other important measures. The detailed financial terms should be laid down by the Commission in the Loan Agreement.(6) The assistance should be provided with a view to stemming immediate liquidity pressures and conditional on policies to restore long-term stability by strengthening the banking sector, correcting fiscal imbalances and adopting domestic policies that will improve competitiveness, while maintaining the narrow-band exchange rate at its existing central rate.HAS ADOPTED THIS DECISION:Article 11. The Community shall make available to Latvia a medium-term loan amounting to a maximum of EUR 3.1 billion, with a maximum average maturity of five years.2. The Community financial assistance shall be made available during three years starting from the first day after the entry into force of this Decision.Article 21. The assistance shall be managed by the Commission in a manner consistent with Latvia's undertakings and recommendations by the Council. Those conditions shall be laid down in a Memorandum of Understanding. The detailed financial terms shall be laid down by the Commission in the Loan Agreement.2. The Commission shall, in collaboration with the EFC, verify at regular intervals that the economic policy conditions attached to the assistance are fulfilled. The Commission shall keep the EFC informed of possible refinancing of the borrowings or restructuring of the financial conditions.3. Latvia shall be ready to adopt and implement additional consolidation measures to stabilize the economy, in case such measures will be necessary during the assistance programme. The Latvian authorities shall consult the Commission in advance of the adoption of any such additional measures.Article 31. The Community financial assistance shall be made available by the Commission to Latvia in a maximum of six instalments, the size of which will be laid down in the Memorandum of Understanding.2. The first instalment shall be released subject to the entry into force of the Loan Agreement and Memorandum of Understanding.3. If required in order to finance the loan, the prudent use of interest rate swaps with counterparties of highest credit quality shall be permitted.4. The Commission shall decide on the release of further instalments after having obtained the opinion of the EFC.5. The disbursement of each further instalment shall be made on the basis of a satisfactory implementation of the new economic programme (Economic Stabilisation and Growth Revival Programme) of the Latvian Government, included in the convergence programme, and, more particularly, of the specific economic policy conditions laid down in the Memorandum of Understanding. These shall include, inter alia:1.  Adoption of a clearly-set medium-term fiscal programme designed to lower by 2011 the general government deficit to not more than the Treaty reference level of 3% of GDP.2.  Execution of the budget for 2009 as amended by the supplementary budget adopted 12 December 2008 (and to be amended in detail during the first quarter of 2009), targeting a general government deficit of no higher than 5% of GDP.3.  Reduction of average public sector remuneration in nominal terms in 2009 by at least 15% relative to the original 14 November 2008 budget and a further 2% in 2010-2011.4.  Reduction during 2009 of at least 5% in public sector and local government employment.5.  Strengthening the design and implementation of budgetary procedures by the adoption of a fiscal framework and budgetary reform law.6.  Introduction of a clear and transparent wage payment system for direct public administration employees and establishment of a single human resource planning and management system for public administration institutions.7.  Mechanisms to ensure wider banking sector stability in the medium to longer term, including a wide range of supervisory, prudential and monetary policy measures. These should limit credit growth to sustainable levels and avoid heavy reliance on unsecured foreign funding. Targeted examinations shall be conducted in the banking system to ensure that all banks are solvent and sufficiently capitalized.8.  Appropriate measures regarding private sector debt restructuring. The appropriate legal basis for maturity and currency restructuring of existing debt shall be strengthened. Facilitating insolvency procedures and quick implementation of rehabilitation plans shall also be made a priority.9.  Ensuring that the remaining minority shareholders of Parex Bank do not benefit from the resolution of the bank and measures to enhance financial stability, by means of fully nationalising Parex Bank.10.  Structural reform measures supported in the context of the Lisbon strategy and implemented in Latvia's National Reform Programme, including active labour market and lifelong learning policies, greater involvement of private sector actors in R&D and innovation activities, export promotion measures and removal of administrative burdens for businesses.11.  Implementation of EU-funded projects at the planned level to help improve the contribution of the tradeable sector to economic growth.12.  Measures to improve access to financing for companies and entrepreneurs, whose applications for Structural Funds have been approved, or who may be planning to apply for Structural Funds.This Decision is addressed to the Republic of Latvia. It shall be published in the Official Journal of the European Union.Done at Brussels,For the CouncilThe President  BUDGETARY IMPACT STATEMENT(cf. Article 16 of the Internal Rules)POLICY AREA: TITLE 01 – ECONOMIC AND FINANCIAL AFFAIRSACTIVITY: FINANCIAL OPERATIONS AND INSTRUMENTSTITLE OF ACTION: EU MEDIUM-TERM FINANCIAL ASSISTANCE FOR LATVIA1. NAME OF THE PROPOSAL: BUDGET HEADING CONCERNED AND TITLE01 04 01 01 EC guarantee for Community loans raised for balance-of-payments support2. LEGAL BASIS:Art. 119; Council Regulation N° 332/2002 of 18 February 2002.3. OVERALL FIGURES FOR THE FINANCIAL YEAR (IN EUROS)This item constitutes the structure for the guarantee provided by the European Union. It will enable the Commission to service the debt (principal, interest and other costs) should the debtor (Latvia) default.The budget entry ("p.m.") reflecting the budget guarantee will be activated only in the case of an effective call on the guarantee. It is expected that normally the budget guarantee will not be called.3a – Current yearNot applicableCA |Initial appropriation for the financial year (budget) |Transfers |Additional appropriation |Total appropriation |Appropriations already set aside by another work programme |Balance available |Amount for the action proposed |3b – Carry oversNot applicableCA |Carry-overs |Appropriations already set aside by another work programme |Balance available |Amount for the action proposed |3c – Next financial yearNot applicableCA |Initial appropriation for the financial year (budget) | p.m. |Transfers |Additional appropriation |Total appropriation |Appropriations already set aside by another work programme |Balance available |Amount for the action proposed | p.m. |4. DESCRIPTION OF THE ACTIONThe proposed medium-term financial assistance to Latvia consists of a Community loan (to be financed by Community borrowings in the international capital markets) in the amount of EUR 3.1 billion. It will be provided in the context of an international financing package, and in particular by an IMF loan of SDR 1.5 billion (around EUR 1.7 billion) supported by the stand-by facility. The Nordic countries contribute with EUR 1.8b. and Estonia, Czech Republic, Poland and EBRD have also committed a total of EUR 0.5 billion.The assistance reflects the willingness to support Latvia, whose capital and financial markets have come under pressure due to general deterioration in market sentiment towards emerging markets. The Community medium-term financial support to Latvia is intended to stem immediate liquidity pressures, to restore long-term stability by strengthening the banking sector, to correct fiscal imbalances and to adopt domestic policies that will improve competitiveness, while maintaining the narrow-band exchange rate. The economic policy package hereby supported includes an immediate and sustained fiscal consolidation, a comprehensive bank resolution strategy, a strengthened crisis management capacity of regulatory authorities, comprehensive structural reforms, as well as other important measures.The assistance managed by the Commission in consultation with the Economic and Financial Committee is a way to ensure that the EU remains closely involved in the shaping of economic policies in Latvia and that those policies are consistent with Latvia's undertakings in the EU and recommendations by the Council, in particular as concerns the implementation of the National Reform Programme, as well as of the convergence programme.The Community borrowings raised on the capital markets or from financial institutions for the purpose of extending the loan to Latvia are covered by the Community guarantee. The loan is raised on the capital markets or from financial institutions. The amount in principal of loans which will be granted to Latvia amounts to EUR 3.1 billion.The structure for the guarantee provided by the European Union will enable the Commission to service the debt should Latvia default.In order to honour its obligations, the Commission may draw on its cash resources to service the debt provisionally. In this case, Article 12 of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 2000/597/EC, Euratom on the system of the Communities’ own resources (OJ L 130, 31.5.2000, p. 1) will apply.5. METHOD OF CALCULATION ADOPTEDNot applicable.6. PAYMENT SCHEDULE (IN EURO)Not applicable.Heading | Appropriations | Payments |Year n | Year n+1 | Year n+2 | Year n+3 | Subsequent financial years |Year n |Year n+1 |Year n |Year n+1 |Total |[1] Defined as the overall index excluding energy and unprocessed food.[2] Latvia has a long tradition of pegging the exchange rate of its currency, the lats, from 1994 to the SDR and from 2005 to the euro. In May 2005, Latvia entered ERM II, unilaterally adopting a +/- 1% fluctuation corridor around the central parity.[3] Figure in national methodology, excluding local governments[4] This assistance programme acknowledges that Latvia will be in EDP in 2009.[5] OJ L 53 23.2.2002, p.1.


title: Council Recommendation of 11 July 2017 on the 2017 National Reform Programme of Belgium and delivering a Council opinion on the 2017 Stability Programme of Belgium

text:
               9.8.2017

               EN

               Official Journal of the European Union

               C 261/1

         COUNCIL RECOMMENDATION
   of 11 July 2017
   on the 2017 National Reform Programme of Belgium and delivering a Council opinion on the 2017 Stability Programme of Belgium
   (2017/C 261/01)
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
   Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
   Having regard to the recommendation of the European Commission,
   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 16 November 2016, the Commission adopted the Annual Growth Survey, marking the start of the 2017 European Semester for economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission adopted the Alert Mechanism Report, in which it did not identify Belgium 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 9-10 March 2017. On 21 March 2017, the Council adopted the recommendation on the economic policy of the euro area (‘Recommendation for the euro area’) (3).

               (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, Belgium should ensure the full and timely implementation of the Recommendation for the euro area, as reflected in recommendations (1) to (2) below.

               (3)

               The 2017 country report for Belgium was published on 22 February 2017. It assessed Belgium’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the country-specific recommendations adopted in previous years and Belgium’s progress towards its national Europe 2020 targets.

               (4)

               On 28 April 2017, Belgium submitted its 2017 National Reform Programme and its 2017 Stability Programme. 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 (4), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to 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 effectiveness of the ESI Funds to sound economic governance.

               (6)

               Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2017 Stability Programme, the Government plans a gradual improvement of the headline balance from a deficit of 2,6 % of GDP in 2016 to -0,1 % of GDP in 2020. The medium-term budgetary objective, set at a balanced budgetary position in structural terms, is planned to be reached by 2019. However, the recalculated (5) structural balance still points to a deficit of 0,3 % in 2019. After having peaked at almost 107 % of GDP in 2014 and decreasing to around 106 % of GDP in 2015 and 2016, the general government debt-to-GDP ratio is expected to decline to 99 % by 2020 according to the 2017 Stability Programme. The macroeconomic scenario underpinning those budgetary projections is plausible. At the same time, the measures needed to support the planned deficit targets from 2018 onwards have not been specified, which contributes to the projected deterioration of the structural balance in 2018 under unchanged policies according to the Commission 2017 spring forecast.

               (7)

               On 22 May 2017, the Commission issued a report under Article 126(3) of the TFEU, as Belgium did not make sufficient progress towards compliance with the debt reduction benchmark in 2016. The report concluded, following an assessment of all the relevant factors, that the debt criterion should be considered as currently complied with. At the same time, additional fiscal measures are to be taken in 2017 to ensure broad compliance with the adjustment path towards the medium-term budgetary objective in 2016 and 2017 together.

               (8)

               The 2017 Stability Programme indicates that the budgetary impact of the exceptional inflow of refugees and security-related measures in 2016 and 2017 is significant, and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure in 2016 amounted to 0,08 % of GDP for the exceptional inflow of refugees and to 0,05 % of GDP for security-related measures. In 2017, the additional impact compared to 2016 of the security-related measures is currently estimated at 0,01 % of GDP. The provisions set out in Articles 5(1) and 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of refugees as well as the severity of the terrorist threat are unusual events, their impact on Belgium’s public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2016 has been reduced to take into account additional refugee-related and security-related costs. Regarding 2017, a final assessment, including on the eligible amounts, will be made in spring 2018 on the basis of observed data as provided by the Belgian authorities.

               (9)

               On 12 July 2016, the Council recommended Belgium to achieve an annual fiscal adjustment of at least 0,6 % of GDP towards the medium-term budgetary objective in 2017. Based on the Commission 2017 spring forecast, there is a risk of some deviation from that requirement in 2017. However, there is still a risk of a significant deviation from the recommended adjustment path towards the medium-term budgetary objective over 2016 and 2017 taken together. This conclusion would not change in case the budgetary impact of the exceptional inflow of refugees and of security measures were deducted from the requirement.

               (10)

               In 2018, in light of its fiscal situation and in particular of its debt level, Belgium is expected to further adjust towards its medium-term budgetary objective of a balanced budgetary position in structural terms. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure (6) which does not exceed 1,6 % in 2018. It would correspond to an annual structural adjustment of at least 0,6 % of GDP. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2018. Belgium is prima facie not forecast to comply with the debt rule in 2017 and 2018. Overall, the Council is of the opinion that further measures will be needed as of 2017 to comply with the provisions of the Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State’s budgetary balance in light of the cyclical conditions. As recalled in the Commission Communication on the 2017 European Semester accompanying these country-specific recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Belgium’s public finances. In that context, the Council takes note that the Commission intends to carry out an overall assessment in line with Regulation (EC) No 1466/97, in particular in light of the cyclical situation of Belgium.

               (11)

               Effective budget coordination is essential in a federal Member State like Belgium, where a large part of the spending power has been devolved to sub-national governments. In an attempt to improve internal coordination and to transpose the Treaty on Stability, Coordination and Governance in the economic and monetary union (the ‘Fiscal Compact’), the federal government and the regional and community governments concluded a cooperation agreement in 2013, with the aim of defining overall and individual multiannual fiscal paths, to be monitored by the High Council of Finance. However, this process has not succeeded in reaching a formal agreement on fiscal trajectories, nor has it established sufficient safeguards regarding the monitoring role of the High Council of Finance. This lack of coordination on the sharing of effort undermines the viability of the country’s overall trajectory towards its medium-term objective as laid down in the 2017 Stability Programme.

               (12)

               Despite its potential to stimulate growth in the long run, public investment is very low by European standards, particularly in relation to total public spending. Not only is the public capital stock low, the quality of public infrastructure has also been eroded. Given the very tight budgetary constraints for all levels of government, preserving enough room for investment hinges on restructuring the composition of overall public spending by improving the efficiency of public services and policies and curbing the rapid increase for certain expenditure items.

               (13)

               Belgium has made substantial progress in reforming its wage-setting system. The revision of the 1996 law regulating wage bargaining aims at safeguarding the cost competitiveness gains realised as a result of the recent wage moderation efforts. The more conservative baseline projections and the built-in prior adjustments in the calculation of the wage norm mean the reformed framework goes a long way in improving Belgium’s cost competitiveness relative to key trading partners within the euro area. In addition, the reform provides more guarantees that government measures to reduce non-wage labour costs will effectively benefit cost competitiveness, and expands the role of the Government in preventing detrimental cost competitiveness trends as a result of excessive inflation. The collective bargaining framework provides for close monitoring of wage and productivity trends and other cost and non-cost competitiveness determinants by the social partner organisations represented in the Central Council for the Economy. As the practice of linking wage developments to inflation is still widespread in many sectors, and in the context of the widening inflation gap between Belgium and its neighbours, changes in unit labour costs will continue to be closely monitored under the European Semester.

               (14)

               Some progress has been made on the functioning of the labour market. A higher retirement age and further limits on pre-retirement encourage older people to stay in or return to work. Gradual decreases in the tax wedge have helped to boost employment rates. Job creation has been robust, fuelled by economic growth and improved cost competitiveness. This also reflects labour tax cuts and wage moderation that have improved the labour cost competitiveness of Belgian companies. Nevertheless, a number of structural shortcomings remain. Transition rates from unemployment or inactivity to employment are low, and the overall employment rate is still weighed down by the poor performance of specific groups. These include the low-skilled, the young, older workers and people with a migrant background such as non-EU-born workers but also second-generation migrants. The employment outcomes for people with a migrant background, even adjusting for other individual characteristics, are among the worst in the Union. In particular, the employment gap for the non-EU-born is the highest in the Union: their employment rate for the age group 20-64 was 49,1 % in 2016, compared to 70,2 % for native-born people, and was even lower for non-EU-born women (39,1 %). In 2015, the risk of poverty and social exclusion was 50,7 % for non-EU-born residents, compared to 17 % for the native-born. These sizeable employment differentials between specific population groups continue to result in a chronic underutilisation of labour. Although ongoing regional reforms of employment incentive schemes aim to rationalise and tailor the system, the cost-effectiveness of the policy choices made should be monitored on a regular basis. Some design features of the target-group policies may have windfall and displacement effects. Coordination and communication between and within the different policy levels is also key for the effectiveness of targeted policies. Taxes, including social contributions on lower wages and the withdrawal of social benefits upon entering the labour market or increasing hours worked, may create inactivity and low-wage traps.

               (15)

               Some progress has been made in educational and training reforms aiming to improve equity, key competences and the quality of education. However, despite good average performance compared internationally, the share of top performers among the 15-year-old students declined while the percentage of low-achievers increased. In addition, educational inequalities linked to socioeconomic background are above the Union and OECD averages. The gap in performance based on migrant background is also large and the second generation performs only slightly better than the first, even taking socioeconomic background into account. Addressing educational inequality will thus require a broad policy response going beyond the educational system. The strong growth of the school population, in particular among pupils with a migrant background (their proportion rose from 15,1 % in 2012 to 17,7 % in 2015), will exacerbate the equity challenge. Moreover, Belgium faces an emerging shortage of teachers, and the teachers are not always well prepared or supported to cope with an increasingly diverse school population. The main reasons are the difficulty of attracting the most suitable students and candidates to the profession, the high exit rate of starting teachers, and the unavailability of a proportion of teachers for teaching. Also, at 3 years currently, the course length for initial teacher training is relatively short in Belgium. Education and training reforms are key to improving the labour market participation of low-skilled young people and to supporting the transition to a knowledge-intensive economy.

               (16)

               The non-cost dimension of competitiveness still requires improvements. Higher productivity gains and broader investment in knowledge-based capital, in particular for adopting digital technologies, are essential in this respect. Although the public research system is of high quality, stronger performance in innovation would require more knowledge diffusion across less productive sectors. All federated entities acknowledge this need, and in recent years have adopted different strategies and measures to promote innovation. However, to foster such developments, more could be done to improve the framework conditions for innovation. Moreover, there seems to be scope for improving the efficiency and effectiveness of public support for research and innovation in Belgium, in particular in evaluating possible crowding-out effects and further simplifying the overall system.

               (17)

               Limited progress has been made in removing operational and establishment restrictions on retail. Following the Sixth State Reform, which transferred competences on retail establishment to the regions, new regional laws have been put in place simplifying the administrative procedure for authorisation. However, there is a wide margin for interpretation of certain provisions, which risks leading to unjustified market entry barriers. Consumer prices continue to be higher than in neighbouring Member States, beyond the level which could be explained by higher labour costs. A comprehensive strategy to tackle these issues would be necessary to ensure that consumers can benefit from a competitive market and lower prices.

               (18)

               High regulation in the network industries and some professional services is restricting competition in Belgium, in particular for real estate agents, architects and accountants. Barriers include shareholding and company form restrictions for architects, in addition to the other requirements; the incompatibility rules prohibiting the simultaneous exercise of any other economic activity for all types of accountancy professions; limitations on real estate agents’ access to the profession; and shareholding and voting rights restrictions. Reducing such barriers could generate more intensive competition, resulting in more firms entering the market and benefits for consumers in terms of lower prices. The Commission presented a package of measures to tackle barriers in services markets in January 2017. This package includes various reform recommendations addressed to Belgium to tackle these challenges.

               (19)

               The transport network represents one of the most pressing investment gaps. There is a growing problem of peak-hour traffic congestion, which undermines the country’s attractiveness for foreign investors and has major economic and environmental costs. Belgium also suffers from serious air pollution problems and is not expected to reach its target of reducing non-ETS emissions by 15 % in 2020 compared to 2005, although it will most probably meet its commitments under the Union climate legislation by making use of the existing flexibility provisions. The most urgent challenges are upgrading basic rail and road transport infrastructure and eliminating missing links between the main economic hubs. At the same time, it is important to tackle peak-hour congestion by improving public transport services, optimising traffic management and eliminating market distortions and adverse tax incentives, such as favourable treatment for company cars. Another challenge relates to the adequacy of domestic power generation and the security of supply in general. Unplanned outages of several nuclear installations had raised concerns about the way to balance electricity demand and supply, while the repeatedly revised timetable for phasing out the nuclear park continues to create a climate that is not conducive to taking long-term investment decisions. Although short-term supply risks have been abated, in particular by the increase of the strategic reserve, and some progress was made in increasing the interconnections, longer-term investment needs are still considerable. In addition to further increases in interconnections, smart grids are needed to develop demand-side management. Given the considerable lead time for projects in the energy sector and the high need for replacement capacity over the next decade, swift action will be required, in particular in the form of a suitable legal framework that also promotes the development of flexible capacities (i.e. generation, storage and demand-side management).

               (20)

               Belgium has made some progress in reforming the tax system, in particular by shifting taxes from labour to other tax bases, which will gradually reduce the tax wedge on labour. Taxes on labour, including social contributions, are being reduced in several steps between 2016 and 2020. The effects of the ongoing tax reform are beginning to materialise. Nevertheless, the tax system remains complex, with tax bases eroded by specific exemptions, deductions and reduced rates. Some of these involve revenue losses, economic distortions and a heavy administrative burden. The tax shift does not seem to be neutral from a budgetary point of view since labour tax cuts have only been partially compensated by increases in other taxes, including consumption taxes. There is still considerable scope for improving the design of the tax system by further broadening tax bases, allowing for both lower statutory rates and fewer distortions. There is also considerable potential for a ‘green’ tax shift stemming from, among other things, the favourable tax treatment of company cars and fuel cards which impedes further progress in tackling congestion, air pollution and greenhouse gas emissions. The Government envisages changes to the company car system, but the environmental benefit of this reform is likely to be limited.

               (21)

               In the context of the 2017 European Semester, the Commission has carried out a comprehensive analysis of Belgium’s economic policy and published it in the 2017 country report. It has also assessed the 2017 Stability Programme, the 2017 National Reform Programme and the follow-up given to the recommendations addressed to Belgium in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Belgium, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (22)

               In the light of this assessment, the Council has examined the 2017 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

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

               1.

               Pursue a substantial fiscal effort in 2018 in line with the requirements of the preventive arm of the Stability and Growth Pact, taking into account the need to strengthen the ongoing recovery and to ensure the sustainability of Belgium’s public finances. Use windfall gains, such as proceeds from asset sales, to accelerate the reduction of the general government debt ratio. Agree on an enforceable distribution of fiscal targets among government levels and ensure independent fiscal monitoring. Remove distortive tax expenditures. Improve the composition of public spending in order to create room for infrastructure investment, including on transport infrastructure.

               2.

               Ensure that the most disadvantaged groups, including people with a migrant background, have equal opportunities to participate in quality education, vocational training, and the labour market.

               3.

               Foster investment in knowledge-based capital, in particular with measures to increase digital technologies adoption, and innovation diffusion. Increase competition in professional services markets and retail, and enhance market mechanisms in network industries.

      Done at Brussels, 11 July 2017.

            For the Council

            The President

         T. TÕNISTE

      (1)  OJ L 209, 2.8.1997, p. 1.

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

      (3)  OJ C 92, 24.3.2017, p. 1.

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

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

      (6)  Net 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 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

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


Avis juridique important

|

31964K0001

ECSC High Authority: Recommendation No 1-64 of 15 January 1964 to the Governments of the Member States concerning an increase in the protective duty on iron and steel products at the external frontiers of the Community

Official Journal 008 , 22/01/1964 P. 0099 - 0106 Finnish special edition: Chapter 13 Volume 1 P. 0035  Swedish special edition: Chapter 13 Volume 1 P. 0035  Danish special edition: Series I Chapter 1963-1964 P. 0084  English special edition: Series I Chapter 1963-1964 P. 0091  Greek special edition: Chapter 11 Volume 1 P. 0038  Spanish special edition: Chapter 11 Volume 1 P. 0010  Portuguese special edition Chapter 11 Volume 1 P. 0010

RECOMMENDATION No 1-64 of 15 January 1964 to the Governments of the Member States concerning an increase in the protective duty on iron and steel products at the external frontiers of the Community  THE HIGH AUTHORITY,  Having regard to Articles 2 to 5, 8, 14, 57, 71, 74, 81, 86 of, and Annex I to, the Treaty;  Having regard to the Agreement of 19 November 1957 made between the Representatives of the Governments of the Member States meeting in the Council of Ministers on harmonisation of customs duties on steel applied at the external frontiers of the Community;  Having regard to the Agreement of 21 December 1954 concerning the relations between the United Kingdom of Great Britain and Northern Ireland and the European Coal and Steel Community, and to the Agreement of 25 November 1957 between the same High Contracting Parties concerning commercial relations;  Having regard to the provisions of the General Agreement on Tariffs and Trade (GATT);  Whereas the situation on the common market in steel has for some months shown a growing imbalance between supply and demand ; whereas increased production capacity both in Community countries and in the other steel-producing countries of the world has intensified competition on the world market ; whereas this has led not only to a fall in exports of steel from the Community, but also, and in particular, to a constant rise in imports of iron and steel products from third countries into the Community, creating an over-supply of iron and steel products on the common market;  Whereas imports of iron and steel products (steel, cast iron and pig iron) into the Community and the Community's internal production have, during the years 1960 to 1963, developed as follows: >PIC FILE= "T0019373">   Whereas these tables show that, in particular over the past year in the case of steel and over the past two years in the case of pig iron and cast iron, there has been a relative increase in the tonnage imported into the Community from third countries, while internal Community production of crude steel and pig iron and cast iron has remained at the same level;  Whereas these increased tonnages, a result of the world surplus, have been imported at the low prices applied by marginal producers ; whereas the combined effect of the relative increase in imports and the low prices applied is to exert constant and increasing pressure on the prices applied within the Community by its iron and steel undertakings, which in order to meet this competition have been obliged, in respect of a large part of their production, to align their prices as provided for in Article 60 of the Treaty and to market their products at the low prices applied by marginal producers;   Whereas consequently such imports taken as a whole have caused serious injury to production within the common market of like or directly competing products ; whereas this injury consists in particular in a severe reduction in revenue, which has led to a cutback in the investment projects necessary for the expansion and improvement of production capacity and seriously endangers the stability of employment in certain regions of the Community ; whereas these damaging consequences constitute obstacles to the pursuit of the aims laid down in Article 3 (c), (d), (e) and (g) and are as a whole liable to hinder the normal functioning of the common market;  Whereas, in order to remedy this situation, the High Authority has already taken measures as regards the internal market ; whereas it has in particular improved and amplified the rules implementing Article 60 ; whereas these measures alone are not sufficient to deal with the present situation in the common market ; whereas before the High Authority can consider intervening directly in regard to the production of Community undertakings it must, in accordance with the rules as to intervention laid down in the Treaty, in particular in Articles 5 and 57 thereof, give preference to indirect measures, which include not only measures concerning price but also measures in the field of commercial policy, in particular those provided for in Article 74 of the Treaty;  Whereas the customs rules now in force for Community iron and steel products are based on a level of harmonised duties fixed by the Governments of the Member States by an Agreement made at the end of the transitional period ; whereas this harmonised level is well below that of other major steel-producing countries, whose undertakings are in direct competition with Community undertakings, both within the common market and on external markets;  Whereas within this system of harmonised customs protection the Italian duties are at a level which if applied by the other countries of the Community would considerably reduce for those countries also the damaging consequences of imports from third countries ; whereas the Governments of the Member States have not been able to agree unanimously to fix their minimum rates of duty at the level of present Italian duties ; whereas the High Authority, acting in exercise of its general responsibility under Article 8 of the Treaty for the attainment of the objectives set out in the Treaty, considers it necessary to recommend to those Governments that they effect an appropriate increase in their external protective duties;  Whereas, moreover, such an increase is not at variance with the statements made by the Governments of the Member States and the High Authority when, on 10 November 1952, the Contracting Parties to the GATT granted a waiver under Article XXV;  Whereas the action which the High Authority finds itself obliged to take to deal with the situation described above is not such as to hinder constructive participation by the Community in the general tariff negotiations within GATT;  Whereas the Circumstances set out above justify recourse to protective measures as provided for in Article 74 (3) of the Treaty ; whereas this Recommendation should be inspired by the following considerations:    1. The increase in external protective duty which is the aim of this Recommendation is not by its very nature such as can be merely recommended in principle ; it requires rather, if the uniformity and co-ordination necessary for its implementation in the six Member States is to be ensured, that a minimum level should be fixed. The choice of suitable means to achieve this aim, whether by raising customs duties or by the introduction of some other kind of charge on imports, is left to the Governments of the Member States;  However, in view of the fact that protection at the Community's external frontiers at present takes the form of a system of harmonised customs duties, which system is readily intelligible in itself, the High Authority, without formally so recommending, is of the opinion that an increase in these protective duties would be particularly apt to achieve the speed, effectiveness and uniformity which this Recommendation requires;       2. This Recommendation must relate to all the headings in the Tariff Nomenclature, since not only do the circumstances justifying the introduction of higher external protective duties affect all the products concerned, but also the level of protective duty for each product must continue to take account of the interdependence of the various iron and steel products in question. However, differences in circumstances may arise which might justify certain relaxations. This eventuality must therefore be provided for;       3. Even though the difficulties experienced at present in the steel market do not affect all parts of the Community equally, the High Authority must consider the common market as a whole;       4. The recommendation concerning an increase in protective duty at the external frontiers of the Community is addressed to the Government of the Italian Republic only in so far as it may be necessary to require the latter to maintain as minimum rates the Italian rates in force on 1 January 1964;        5. This Recommendation must respect the bindings for certain tariff headings which have been agreed upon by certain Member States within GATT. These headings will therefore show different rates of protective duty at the external frontiers of the Community. It is therefore necessary, in order to prevent any deflection of trade or economic difficulties in one or more Member States, to recommend that the Governments, where this concerns them, seek appropriate solutions in co-operation with the High Authority;       6. In order to remedy difficulties arising in special cases, for example where considerations of commercial policy or of customs procedure are involved, a special procedure should be provided for whereby derogations from the recommended minimum rates of protective duty may be made;       7. In order to deter speculation of any kind pending effective implementation of this Recommendation it is necessary to request the Governments to take such provisional measures as may be appropriate;       8. The increase in protective duty at the external frontiers consequential upon this Recommendation should be regarded as a temporary measure intended to remedy present difficulties;         HAS MADE THE FOLLOWING RECOMMENDATION:      Article 1 The Governments of the Member States are recommended to introduce, with effect from 15 February 1964, the legislative or administrative measures required to adopt or maintain, as the minimum external protective duty on iron and steel products imported into their respective customs territories, a duty in respect of each tariff heading in the Common Customs Nomenclature of the Community corresponding to the lowest rate applicable on 1 January 1964 in the Italian Republic. The rates applicable are shown in the table annexed to this Recommendation.   Article 2 1. The Recommendation shall not apply where, in respect of specific tariff headings of individual Member States, it would entail disregard of bound tariff concessions granted to Contracting Parties to the GATT.  2. Where, pursuant to the preceding paragraph, protective rates differing from those recommended in Article 1 remain applicable, the Governments concerned are recommended, in co-operation with the High Authority, to adopt provisions with a view to preventing deflection of trade within the common market or the occurrence of economic difficulties in one or Member States.   Article 3 In special cases, such as where commercial policy or customs procedure so requires, the High Authority shall, after consulting the Governments of the Member States, be empowered to authorise derogation from obligations arising under Article 1.   Article 4 Pending practical implementation of the obligations under this Recommendation the Governments of the Member States are requested to take such provisional measures as may be appropriate.   Article 5 Iron and steel products within the meaning of this Recommendation are those listed in Annex I to the Treaty under Code Nos 4200 to 4500.   Article 6 1. This Recommendation shall be notified to the Governments of the Member States and published in the Official Journal of the European Communities.  It shall enter into force as regards each Government by virtue of its notification.  2. The High Authority shall amend or repeal this Recommendation if it finds that the circumstances on which it was based have changed fundamentally or no longer exist.       This Recommendation was considered and adopted by the High Authority at its meeting on 15 January 1964.  For the High Authority  The President  Dino DEL BO       ANNEX Minimum duties applied by the Italian Republic on 1 January 1964 to steel products of the European Coal and Steel Community >PIC FILE= "T0019374">   >PIC FILE= "T0019375">    >PIC FILE= "T0019376">    >PIC FILE= "T0019377">    >PIC FILE= "T0019378">