               EUROPEAN COMMISSION
            Brussels, 5.6.2019
            COM(2019) 509 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2019 National Reform Programme of Spain and delivering a Council opinion on the 2019 Stability Programme of Spain

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2019 National Reform Programme of Spain and delivering a Council opinion on the 2019 Stability Programme of Spain

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 21 November 2018, the Commission adopted the Annual Growth Survey, marking the start of the 2019 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 21 March 2019. On 21 November 2018, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Spain as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 21 March 2019. On 9 April 2019, the Council adopted the recommendation on the economic policy of the euro area (‘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, Spain should ensure the full and timely implementation of the Recommendation for the euro area, as reflected in recommendations (1) to (4) below. In particular, measures to improve productivity will help address the first euro area recommendation as regards productivity improvements for euro area rebalancing, using windfall gains to reduce public debt and focusing economic policy related to investment in the specified areas will help address the second euro area recommendation as regards rebuilding buffers and supporting investment, and measures to improve skills and employability will help address the third euro area recommendation as regards the functioning of the labour market.

               (3)The 2019 country report for Spain
                  3
                was published on 27 February 2019. It assessed Spain’s progress in addressing the country-specific recommendations adopted by the Council on 13 July 2018, the follow-up given to the recommendations adopted in previous years and Spain's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 27 February 2019
                  4
               . The Commission’s analysis led it to conclude that Spain is experiencing macroeconomic imbalances. A large stock of internal and external debt, both public and private, and high unemployment, in the context of weak productivity growth, are still vulnerabilities with a cross-border relevance. The reduction of private sector debt is progressing, but deleveraging needs remain sizeable. Despite continued robust GDP growth, the government debt as a share of GDP remains high. The unemployment rate has continued its rapid decline, but remains very high and the high degree of labour market segmentation between temporary and open-ended contracts impedes faster labour productivity growth. After a strong reform momentum between 2012 and 2015, an evolving political context over the past year has contributed to another year of limited progress in implementing recommendations. The present favourable economic situation provides a window of opportunity to address pending reform needs with a view to making the Spanish economy more resilient and raising its productivity growth.

               (4)On 30 April 2019, Spain submitted its 2019 National Reform Programme and its 2019 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)The 2019 Stability Programme reports on actions taken to implement the preventive and corrective tools set out in Spain’s Stability Law. However, it does not set out plans to make the enforcement of these tools automatic and to review the Stability Law’s expenditure rule, with a view to strengthening its contribution to fiscal consolidation, especially during economic upturns. In the area of public procurement, to improve the efficiency of public spending as well as help prevent irregularities, the ambitious implementation of the Law on public sector contracts adopted in 2017 will be instrumental. In particular, it is important that the new governing structure, notably the Independent Office for Regulation and Supervision, can effectively perform the tasks allocated to it, and that the comprehensive National Public Procurement Strategy be swiftly adopted - with the active involvement of contracting authorities and entities at national, regional and local levels. Finally, a number of spending reviews are due in 2019 and the implementation of the recommendations stemming from them should help increase the efficiency of public spending.

               (6)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds ('ESI Funds') for 2014-2020. 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
               .

               (7)Following the timely and durable correction of the excessive deficit and Council Decision (EU) [2019/X] to abrogate the excessive deficit procedure, Spain is in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. It projects the general government balance to increase from -2.5% of GDP in 2018 to -2.0% of GDP in 2019 and to reach a balanced budget in 2022. Based on the recalculated structural balance
                  7
               , the medium-term budgetary objective of a balanced budgetary position in structural terms is not planned to be achieved over the time horizon of the Programme. According to the Stability Programme, the general government debt-to-GDP ratio is expected to decrease from 97.1% in 2018 to 95.8% in 2019, before reaching 88.7% in 2022. The macroeconomic scenario underpinning those budgetary projections is plausible. Risks to the achievement of the fiscal targets set in the 2019 Stability Programme mostly pertain to the revenue side, where uncertainty about the yield or chances of adoption of many of the revenue measures is large.

               (8)On 13 July 2018, the Council recommended Spain to ensure that the nominal growth rate of net primary government expenditure
                  8
                does not exceed 0.6% in 2019, corresponding to an annual structural adjustment of 0.65% of GDP. Based on the Commission 2019 spring forecast, there is a risk of a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019.

               (9)In 2020, in view of Spain's general government debt-to-GDP ratio, which is above the Treaty reference value of 60% of GDP, and projected positive output gap of 2.0% of GDP, nominal net primary government expenditure should not grow in 2020, in line with the structural adjustment of 1.0% of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. At the same time, there are signs that idle capacity in the economy is underestimated, with inflation projected to stay below 2% in 2019 and remaining slack in the labour market (high unemployment rate and a very high share of involuntary part-time work, temporary employees as well as in-work poverty). In addition, the plausibility tool also indicates that there is a high degree of uncertainty surrounding the output gap estimates based on the common methodology. On that basis, an annual structural adjustment of 0.65% of GDP, corresponding to a maximum growth rate of net primary government expenditure of 0.9%, appears appropriate. According to the Commission 2019 spring forecast, under unchanged policies, there is a risk of a significant deviation from the required fiscal adjustment in 2020. In addition, Spain is not projected to comply with the requirements of the transitional debt rule in 2019 and 2020. Overall, the Council is of the opinion that the necessary measures should be taken as of 2019 to comply with the provisions of the Stability and Growth Pact. The use of any windfall gains to further reduce the general government debt ratio would be important.

               (10)Employment growth remains robust in Spain. Unemployment continues to fall but it remains well above the European Union average, especially for young people and for the low-skilled people. Gender gaps in employment and length of working careers remain wide. These represent untapped potential not least given the rapidly ageing population.

               (11)While progressively reduced, the still widespread use of temporary contracts, including in sectors less prone to seasonal or cyclical activity, ranks amongst the highest in Europe and may hinder Spain’s growth potential and social cohesion. Young people, the low-skilled and third-country nationals are those most affected, often suffering from lower entitlements to social benefits and higher poverty risks. Temporary contracts are often very short and provide weak incentives for both workers and employers to invest in training, which in turn hinders productivity growth. Moving from a temporary contract to a permanent one remains difficult and, barriers to mobility of labour reduce opportunities for jobseekers and hamper its efficient allocation across the country.

               (12)Spain has strengthened the support to the long-term unemployed, who still represented 6.4% of the active population in 2018. Recent initiatives seek to make young people employable through counselling and career guidance, but public employment services still handle a low share of job vacancies and further efforts are needed to improve their use in job search and placement. In particular, in some regions, engagement with employers is weak and profiling tools to better match jobseekers with employers’ needs are still in an initial phase. Partnerships between public employment services and social services are progressing, but cooperation is still limited in some regions. Increased investment in modern public employment services together with support to labour mobility could contribute to improve the employability and adaptability of workers and smoothens labour market transitions, thus improving Spain’s productivity and long-term inclusive growth.

               (13)Efforts to reinforce labour inspectorates in order to fight the abuse of temporary contracts are bearing some fruit and the share of open-ended contracts in net employment growth is increasing. However, employers continue to make an extensive use of short-term contracts. Past evidence shows that the numerous incentives to support job creation are having limited effects in promoting quality employment. Spain launched a new evaluation with the view of simplifying the system, but results are not available yet. Recruitment competitions to reduce the share of fixed-term employment in the public sector at all levels of government need to be sped up to reach the target of 8% by the end of 2019. While the setting-up of tripartite round tables is a good step towards greater involvement by the social partners in policy design, there is room for deeper and more timely consultations.

               (14)Though decreasing, the proportion of people at risk of poverty and social exclusion as well as income inequality remains above the Union average. In-work poverty rates are high amongst temporary or low-skilled workers, or non-EU-born. The child poverty rate, although declining, remains very high. The capacity of social transfers other than pensions to reduce poverty remains among the lowest in the Union, especially for children. Social spending as a share of GDP in Spain for households with children in Spain is one of the lowest in the EU and is poorly targeted. Despite a positive trend, there are still significant gaps in the coverage of people with severe and moderate dependency. National unemployment assistance remains fragmented, with multiple schemes that target different groups of jobseekers. Recent measures improving the coverage and protection of income assistance for older long-term unemployed (aged 52 or above) may, at the same time, weaken incentives to work within this particular group. Meanwhile, regional minimum income schemes present wide disparities in access conditions, coverage and adequacy across regions and their limited portability between regions reduces incentives for labour mobility. As a result, a number of people in need do not receive support. The launch of the Universal Social Card system will make the social benefits system more transparent and thus allow for a better targeting. While the economic recovery continues to curb poverty, the situation calls for investment in social inclusion policies and social infrastructure (e.g. social housing) in order to attain inclusive growth. In addition, Spain faces specific territorial cohesion challenges, such as acute depopulation and ageing in certain rural areas. Actions promoting entrepreneurship, digitalisation and the social economy can help respond to those challenges, as part of integrated territorial development strategies.

               (15)During the crisis, the Spanish pension system played an important role in maintaining the living standards of the elderly, who face a lower risk of poverty. Projections in the 2018 Ageing Report and Pension Adequacy Report indicate that the 2011 and 2013 reforms helped to ensure the sustainability and relative adequacy of pensions in the long term. However, a continuation of the relinking of pension increases to inflation (as decided in 2018 and 2019) and the postponement of the sustainability factor would require compensatory measures to ensure the sustainability of the pension system in the medium to long-term. Moreover, action would be needed to address both the main challenge of the adequacy of future retirees' incomes and the length and completeness of their working careers in a context of high unemployment and widespread use of temporary contracts and part-time employment.

               (16)Spain's innovation performance and productivity growth are hampered by subdued levels of investment in research and development and by skills mismatches. Research and development expenditure in the business sector in Spain is only half the level of the Union average, particularly for large firms, with significant regional disparities. That divergence is reinforced by the low and falling execution rate of the public budget for research and development. Skills shortages and mismatches are another important barrier to the development and use of advanced technologies, in particular by small and medium-sized firms. Employment in high technology sectors and knowledge intensive services is well below the Union average in many Spanish regions. While regional innovation strategies for smart specialisation are being developed and the governance of national research and innovation policy is being streamlined, national-regional coordination in the design, implementation and evaluation of policy remains weak. Improving Spain's innovation performance requires significant investments to foster entrepreneurship and start-ups and help them grow and to promote the competitiveness of all firms and their adaptation – including through digitalisation- to higher added-value activities with the aim of expanding their presence in international markets. It also requires a stronger focus on public-private partnerships, cooperation between academia and business and technology transfer, particularly in favour of small and medium-sized companies, a strengthened governance of research and innovation policy across government levels, and a closer alignment of research and development infrastructure and projects to regional and national innovation strategies.

               (17)Although improving, the early school leaving rate remains very high in Spain, with significant regional disparities. There is scope to improve educational outcomes which vary greatly across regions. Both factors negatively affect the long-term potential for productivity growth. Efforts to reform the education system have stalled. Firms report difficulty in finding the skills needed to embrace innovation, notably as regards specialists in information and communication technologies. Spain approved measures to upgrade the dual vocational education and training system, which could play a key role in providing the skills and qualifications required to absorb innovation, but enrolment in those systems remains moderate. Spain’s rate of tertiary education attainment is above the EU average but tertiary graduates face difficulties in finding adequate jobs. Developing human capital through all levels of education and training, including higher education and vocational training, and greater cooperation between education and business with a view to mitigating existing skills mismatches, could boost labour market access of young graduates. It could also provide firms with the skills and qualifications required to enhance their innovation capacity and to take full advantage of the growth potential offered by digitalisation. Retraining workers in digital skills would also allow Spanish companies to remain competitive in an increasingly digitised economy. All those actions would contribute to the reduction of regional disparities.

               (18)The restrictiveness and fragmentation of regulation within Spain is preventing firms from benefiting from economies of scale and is holding back productivity. The Law on Market Unity remains an important tool to address these issues. Implementing this law more decisively and removing identified restrictions on services in particular for certain professional services such as civil engineers, architects, legal and computer services would improve growth opportunities and competition. As in other fields where regions are key actors for the successful implementation of reforms, a stronger and sustained coordination between national and regional authorities could make policies in this area more effective.

               (19)Incomplete connections for freight transport by rail and limited integration with the Union's electricity and gas markets prevent Spain from fully benefitting from the EU Single Market. For this reason, Spain also needs to invest further in electricity interconnections with the rest of the Union to achieve the target of at least 10% of its installed electricity production capacity by 2020. Investment is also needed to allow for greater use of rail for freight transport, including cross-border connections with France and Portugal and connections to ports and logistic hubs.

               (20)Significant investment gaps also remain in the area of natural resources management to ensure a more sustainable development model. Reducing energy consumption in buildings, and developing smart grids and renewable electricity storage would help to better manage the demand. Additional efforts should promote sustainable transport and the circular economy. Certain areas of Spain are amongst the most exposed in Europe to climate change, with pressure over the existing water resources that require further infrastructure investments to improve water management such as wastewater treatment, leaks in the networks and water supply. In spite of a steady progress in recent years, Spain still needs to fulfil certain requirements of the Union's water legislation. Progress in meeting all these objectives would bring environmental, economic and social benefits to Spain.

               (21)For all identified investment gaps, account should be taken of specific regional disparities in investment needs. Territorial disparities in GDP per head are moderate but they remain wider than before the crisis, mostly due to the asymmetric impact of labour shedding across regions. The widest regional disparities are currently identified in labour and social outcome indicators, where most Spanish regions underperform relative to the Union average. Other socio-economic indicators present wide territorial disparities, such as innovation, entrepreneurship, and competitiveness. Economic policy related to investment should take due account of regional disparities in investment needs.

               (22)The programming of EU funds for the period 2021-2027 could help address some of the gaps identified in the recommendations, in particular in the areas covered by Annex D to the country report
                  9
               . This would allow Spain to make the best use of those funds in respect of the identified sectors, taking into account regional disparities and the special situation of the outermost region of the Canary Islands. Strengthening the country’s administrative capacity for the management of these funds is an important factor for the success of this investment.

               (23)In the context of the 2019 European Semester, the Commission has carried out a comprehensive analysis of Spain’s economic policy and published it in the 2019 country report. It has also assessed the 2019 Stability Programme and the 2019 National Reform Programme and the follow-up given to the recommendations addressed to Spain in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (24)In the light of this assessment, the Council has examined the 2019 Stability Programme and its opinion
                  10
                is reflected in particular in recommendation (1) below.

               (25)In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2019 National Reform Programme and the 2019 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (4) below.

               HEREBY RECOMMENDS that Spain take action in 2019 and 2020 to:

               1.Ensure that the nominal growth rate of net primary government expenditure does not exceed 0.9% in 2020, corresponding to an annual structural adjustment of 0.65% of GDP. Take measures to strengthen the fiscal and public procurement frameworks at all levels of government. Preserve the sustainability of the pension system. Use windfall gains to accelerate the reduction of the general government debt ratio.

               2.Ensure that employment and social services have the capacity to provide effective support. Foster transitions towards open-ended contracts, including by simplifying the system of hiring incentives. Improve support for families and address coverage gaps in national unemployment assistance and regional minimum income schemes. Reduce early school leaving and improve educational outcomes, taking into account regional disparities. Increase cooperation between education and businesses with a view to improving the provision of labour market relevant skills and qualifications, in particular for information and communication technologies.

               3.Focus investment-related economic policy on fostering innovation, resource and energy efficiency, upgrading rail freight infrastructure and extending energy interconnections with the rest of the Union, taking into account regional disparities. Enhance the effectiveness of policies supporting research and innovation.

               4.Further the implementation of the Law on Market Unity by ensuring that, at all levels of government, rules governing access to and exercise of economic activities, in particular for services, are in line with principles of that Law and by improving cooperation between administrations.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ L 306, 23.11.2011, p. 25.

                     (3)

                        SWD(2019) 1008 final.

                     (4)

                        COM(2019) 150 final.

                     (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)

                        COM(2014) 494 final.

                     (7)

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

                     (8)

                        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 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.

                     (9)

                        SWD(2019) 1008 final.

                     (10)

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


               EUROPEAN COMMISSION
            Brussels, 5.6.2019
            COM(2019) 517 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2019 National Reform Programme of Hungary and delivering a Council opinion on the 2019 Convergence Programme of Hungary

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2019 National Reform Programme of Hungary and delivering a Council opinion on the 2019 Convergence Programme of Hungary

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission,

               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 21 November 2018, the Commission adopted the Annual Growth Survey, marking the start of the 2019 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 21 March 2019. On 21 November 2018, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Hungary as one of the Member States for which an in-depth review would be carried out.

               (2)The 2019 country report for Hungary
                  2
                was published on 27 February 2019. It assessed Hungary’s progress in addressing the country-specific recommendations adopted by the Council on 13 July 2018, the follow-up given to the recommendations adopted in previous years and Hungary's progress towards its national Europe 2020 targets

               (3)On 30 April 2019, Hungary submitted its 2019 National Reform Programme and its 2019 Convergence Programme. In order 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 2014-2020. 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
                  4
               .

               (5)Hungary is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2019 Convergence Programme, the government plans an improvement of the headline deficit to 1.8% of GDP in 2019 from 2.2% in 2018. The deficit is planned to continue gradually improving thereafter to 1.2% in 2021 and to reach a balanced budgetary position in 2023. Based on the recalculated structural balance (
                  5
               ), Hungary would be close to its medium-term budgetary objective – which has been changed from a structural deficit of 1.5% of GDP in 2019 to 1.0% of GDP as of 2020 – in 2022 and would achieve it in the following year. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to decline gradually to below 60% by the end of 2022. The macroeconomic scenario underpinning those budgetary projections is plausible for 2019 and markedly favourable from 2020, which poses risks to the implementation of the deficit targets. At the same time, the measures needed to support the planned deficit targets from 2020 onwards have not been sufficiently specified.

               (6)On 22 June 2018, 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 budgetary objective occurred in Hungary in 2017. In view of the established significant deviation, on 22 June 2018 the Council recommended Hungary to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  6
                does not exceed 2.8% in 2018, corresponding to an annual structural adjustment of 1.0% of GDP. On 4 December 2018, the Council found that Hungary had not taken effective action in response to the Council recommendation of 22 June 2018 and issued a revised recommendation. In the new recommendation, the Council asked Hungary to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3% in 2019, corresponding to an annual structural adjustment of 1.0% of GDP. On XX June 2019, the Council found that Hungary had not taken effective action in response to the Council recommendation of 4 December 2018. Moreover, based on 2018 outturn data Hungary was found to be in significant deviation from the recommended adjustment in 2018.

               (7)In line with Article 121(4) TFEU and Article 10(2) of Regulation (EC) No 1466/97, the Commission issued a warning to Hungary on 5 June 2019 that a significant deviation from the adjustment path toward the medium-term budgetary objective was observed in 2018. On XX June 2019, the Council adopted a subsequent Recommendation confirming the need for Hungary to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3% in 2019, corresponding to an annual structural adjustment of 1.0% of GDP. Based on the Commission 2019 spring forecast, there is a risk of a deviation from that recommendation in 2019.

               (8)For 2020, the Council on XX June 2019 recommended Hungary to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 4.7%, corresponding to an annual structural adjustment of 0.75% of GDP. This would put Hungary on an appropriate adjustment path towards the medium-term budgetary objective. Based on the Commission 2019 spring forecast under unchanged policies, there is a risk of a deviation from that requirement in 2020. Overall, the Council is of the opinion that significant further measures will be needed as of 2019 to comply with the provisions of the Stability and Growth Pact, in line with the recommendation addressed to Hungary on XX June 2019 with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective.

               (9)The overall employment rate has improved significantly amid strong economic expansion but has not benefited all groups equally. The gaps in employment and wages between skills groups and men and women remain wide in comparison with the EU average. The gender employment gap is wide partly due to the limited supply of good quality childcare. Labour market outcomes for various vulnerable groups, including Roma and people with disabilities, are weak. Despite its reduction, the Public Works Scheme, which is not effective in leading participants to the jobs in the primary labour market, remains sizeable. Other policies to help unemployed or inactive people find work or training are insufficiently targeted. Developing digital skills could help improve employability. Recent measures are designed to get more retired workers back into jobs and to increase their number over time. Hungary’s overall poverty situation has been improving since 2013. The duration of unemployment benefits is the shortest in the EU, at a maximum of three months, which is well below the average time needed to find a job.

               (10)The share of people at risk of poverty and social exclusion is falling. There has been a clear shift from social benefits towards work-related family support and in-kind benefits, which are however not sufficiently targeted to the poor. While home-ownership subsidies have expanded, there has been no improvement in the supply of social housing.

               (11)Education outcomes are below the EU average and show wide territorial disparities. Early school leaving is higher and the tertiary education attainment rate lower than the EU average. The education system hinders social mobility. Pupils are streamed early into different types of schools, with wide gaps in education outcomes and employment paths. The proportion of schools with majority Roma participation increased from 10% in 2008 to 15% in 2017. The impact of recent measures targeting the even distribution of disadvantaged pupils across schools is limited by the exemption of non-state schools from the requirement to take disadvantaged pupils. Disadvantaged children tend to be concentrated in vocational secondary schools where poorer levels of basic skills, higher dropout rates and lower pay and career prospects are more prevalent. The low participation of disadvantaged groups, in particular Roma, in quality education is a missed opportunity to build up human capital. The shortage of teachers also remains a challenge. Teachers’ salaries have risen in recent years but are still relatively low, compared to other tertiary education graduates. The low number of students participating in higher education is not in line with the strong demand for highly skilled workers and the wage premium of tertiary graduates, which is the highest in the EU. Hungarian higher education institutions have the lowest financial autonomy in the EU. In addition, the April 2017 amendment of the Higher Education Act, which set additional requirements for international universities to operate in Hungary, raised further concerns over academic freedom. In 2018, the internationally highest ranked Hungarian university signalled its intention to leave the country because of the regulatory uncertainty created by this amendment.

               (12)Health outcomes lag behind most other EU countries, reflecting both unhealthy lifestyles and the limited effectiveness of healthcare provision. The prevalence of smoking, alcohol use disorder and obesity is one of the highest in the EU. Hungarians are among the most likely in the EU to suffer premature death due to bad air quality. The number of avoidable deaths is one of the highest in the EU partly due to inadequate screening and primary care management. There are significant socio-economic disparities in access to quality care. Public spending on healthcare is below the EU average and citizens rely on out-of-pocket payments to access quality provision, which risks further widening the socio-economic health divide. The system remains strongly hospital-centred, with weaknesses in primary care, in particular early detection and prevention of chronic diseases. A sizeable shortage of healthcare staff thwarts access to care in poorer areas.

               (13)Increasing research and innovation capacities could improve Hungary’s modest innovation performance and increase productivity. The low level of intellectual asset accumulation is reflected in the low number of patent, trademark and design applications, the small number of innovative businesses and the low level of internationalisation by small and medium-sized enterprises. Smaller firms are especially reluctant to innovate, hindering their involvement in global value chains. Business R&D is concentrated in a few large, mainly foreign-owned companies and benefits from generous government support. Supporting science-business cooperation would contribute to better innovation performance and technology transfer. The quality of public science is suffering from inefficient R&D policies and underfunding as public sector R&D expenditure is well below the EU average. Recent policy measures, aiming to cut funding and limiting independency of academic and research fora are creating uncertainty in academic and research forums, which may result in the emigration of top research talent and risk a persistent decline in research quality.

               (14)Weak local public transport connectivity and high commuting costs are contributing to unemployment in disadvantaged areas. The poor condition of the road and rail networks hampers mobility and reduces travel safety, with more than half of the road network in bad condition, especially in disadvantaged regions. Transport networks are centred on Budapest, while local networks and transversal connections through the country are not well developed. Road congestion is a growing challenge and a barrier to productivity in Hungary’s urban areas. Moreover, greenhouse gas emissions from road transport have increased strongly in the last 5 years. Inland navigation on the Danube, suffering from low water conditions, could be improved by less restrictive regulation.

               (15)Energy efficiency in the residential sector remains weak. The electricity generation network needs to be prepared for the growing role of decentralised renewable electricity generation. Half of Hungary’s territory is significantly exposed to climate change risks including drought and floods, which create the need for investment in water management on the main rivers. Air pollution and water quality remain a concern. The main sources of pollution are residential solid fuel combustion, agriculture and transport emissions. The circular economy is still in an initial phase, recycling of municipal waste is underdeveloped and economic instruments are insufficient to address Hungarian environmental challenges.

               (16)Concerns remain over the prevention and prosecution of corruption. Several indicators suggest that Hungary's exposure to corruption has increased in recent years. Corruption risks and favouritism distort the allocation of resources as these are not channelled to the most productive firms. The functioning of the prosecution service is of crucial importance to fighting corruption. While measures to fight low-level corruption appear to have been applied with some success, there are still no signs of determined action to prosecute corruption involving high-level officials or their immediate circle when serious allegations arise. Accountability for decisions to close investigations is a matter of concern, as there are no effective remedies to contest such decisions. The prevention of corruption is further hindered by public institutions applying restrictions, including dissuasive fees on access to information.

               (17)Checks and balances, which are crucial to ensuring judicial independence, have been further weakened within the ordinary courts system. The National Judicial Council faces increasing difficulties in counter-balancing the powers of the President of the National Office for the Judiciary. This gives rise to concerns regarding judicial independence. Concerning the Administrative Courts Law, it is noted that the government tabled a bill withdrawing the Act on the entry into force and transitional rules for the administrative courts on 30 May 2019.

               (18)The public procurement framework has improved in recent years but obstacles to competition remain. These include  the use of procedures with limited publicity, and systemic irregularities in the tendering processes, in particular related to inadequate selection and award criteria and unequal treatment of tenderers. While some indicators show improvements, the number of procedures with a single bidder are still high. The wider use of e-procurement could further increase efficiency and transparency.

               (19)Hungary’s social dialogue structures and processes remain underdeveloped and do not allow for meaningful involvement of the social partners in policy design and implementation. The deficiencies in stakeholder engagement and limited transparency undermine the evidence base for, and the quality of policymaking. This results in frequent and unpredictable changes in regulations and discourages high value added investments.

               (20)Measures have been taken to further improve the tax system but some challenges remain. The tax burden on labour has decreased but remains high for low-income earners. Sector-specific taxes and a large number of small taxes complicate the tax system and raise compliance costs, in particular for smaller firms.

               (21)Regulatory barriers and state involvement in product markets hinder the selection of efficient enterprises and limit competition. The authorities continue to entrust certain services to state-owned firms or private firms specifically created for these purposes. Certain tailor-made legislation and measures and ad hoc exemptions from competition scrutiny, hinder the functioning of the market and hamper investment. The unpredictability of the legal framework is a further problem, especially in the retail sector, which in recent years has faced frequent changes to regulations. Legislation imposing an additional special authorisation for modifications to the use or design of retail premises has been introduced in the past year. Regulation of professions also remains restrictive. The lack of competition in these sectors may become detrimental to innovation and efficiency.

               (22)The fight against aggressive tax planning is essential to make tax systems more efficient and fair. Spillover effects of taxpayers' aggressive tax planning strategies between Member States call for a coordinated action of national policies to complement EU legislation. Hungary has taken measures against aggressive tax planning, but Hungary records relatively high capital inflows and outflows through special purpose entities, which have no or little effect on the real economy. The absence of withholding taxes on outbound (i.e. from EU residents to third country residents) dividend, interest and royalty payments made by companies based in Hungary may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction.

               (23)The programming of EU funds for the period 2021-2027 could help address some of the gaps identified in the recommendations, in particular in the areas covered by Annex D to the country report
                  7
               . This would allow Hungary to make the best use of those funds in respect of the identified sectors, taking into account regional disparities.

               (24)In the context of the 2019 European Semester, the Commission has carried out a comprehensive analysis of Hungary’s economic policy and published it in the 2019 country report. It has also assessed the 2019 Convergence Programme and the 2019 National Reform Programme and the follow-up given to the recommendations addressed to Hungary in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary, 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.

               (25)In the light of this assessment, the Council has examined the 2019 Convergence Programme and its opinion
                  8
                is reflected in particular in recommendation (1) below,

               HEREBY RECOMMENDS that Hungary take action in 2019 and 2020 to:

               1.Ensure compliance with the Council recommendation of XX June 2019 with a view to correcting the significant deviation from the adjustment path toward the medium-term budgetary objective.

               2.Continue the labour market integration of the most vulnerable groups in particular by upskilling, and improve the adequacy of social assistance and unemployment benefits. Improve education outcomes and increase the participation of disadvantaged groups, in particular Roma in quality mainstream education. Improve health outcomes by supporting preventive health measures and strengthening primary health care.

               3.Focus investment-related economic policy on research and innovation, low carbon energy and transport, waste infrastructure and energy and resource efficiency, taking into account regional disparities. Improve competition in public procurement.

               4.Reinforce the anti-corruption framework, including by improving prosecutorial efforts and access to public information, and strengthen judicial independence. Improve the quality and transparency of the decision-making process through effective social dialogue and engagement with other stakeholders and through regular, appropriate impact assessments. Continue simplifying the tax system, while strengthening it against a risk of aggressive tax planning. Improve competition and regulatory predictability in services sector.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2019) 1016 final.

                     (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)

                        COM(2014) 494 final.

                     (5)

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

                     (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 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)

                        SWD(2019) 1016 final.

                     (8)

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


               EUROPEAN COMMISSION
            Brussels, 27.9.2019
            COM(2019) 420 final
            Recommendation for a
            COUNCIL DECISION
            to authorise the opening of negotiations for an Agreement between the European Union and Japan for the transfer and use of Passenger Name Record (PNR) data to prevent and combat terrorism and other serious transnational crime

               EXPLANATORY MEMORANDUM

               1.PURPOSE

                  The EU should open negotiations with Japan with the purpose of signing a bilateral Agreement laying down the framework and conditions under which air carriers will be authorised to transfer to Japan the Passenger Name Record (PNR) data of passengers flying between the EU and Japan in a manner that is compliant with the requirements of EU law.

               2. CONTEXT OF THE PROPOSAL

                  PNR is a record of each passenger's travel requirements, which contains all information necessary to enable reservations to be processed by air carriers. As far as the present Recommendation is concerned, PNR data covers data collected and contained in the air carrier's automated reservation and departure control systems.

                  Within the EU, processing of PNR data constitutes an essential instrument in the common response to terrorism and serious crime and a building block of the Security Union. Identifying and tracing suspicious travel patterns by processing PNR to gather evidence and, where relevant, find perpetrators of serious crime and their associates and unravel criminal networks is proving essential to prevent, detect, investigate and prosecute terrorist and serious crime offences.

                  On 27 April 2016, the European Parliament and the Council adopted Directive (EU) 2016/681 on the use of PNR data for the prevention, detection, investigation and prosecution of terrorist offences and serious crime (‘PNR Directive’)
                     1
                  . This Directive enables EU national authorities to gain direct access to crucial information held by airlines, in full regard of data protection rights. It provides all Member States with an important tool for preventing, detecting and investigating terrorism and serious crimes, including drugs and human trafficking and child sexual exploitation. The deadline for the Member States to transpose the PNR Directive into national law was 25 May 2018
                     2
                  .

               At a global level, the United Nations Security Council Resolution 2396 adopted on 21 December 2017 requires UN Member States to “develop the capability to collect, process and analyse, in furtherance of ICAO standards and recommended practices, passenger name record (PNR) data and to ensure PNR data is used by and shared with all their competent national authorities, with full respect for human rights and fundamental freedoms”. The Resolution also urges ICAO ‘to work with its Member States to establish a standard for the collection, use, processing and protection of PNR data’
                  3
               . In March 2019, the ICAO Air Transport Committee (ATC) set up a Facilitation Panel Task Force to consider proposals for Standards and Recommended Practices (SARPs) on the collection, use, processing and protection of PNR data in line with United Nations Security Council resolution 2396 (2017). The Task Force is mandated to: a) review the existing PNR SARPs found in Chapter 9 of Annex 9 to the Chicago Convention; b) determine whether they need to be complemented by additional SARPs and/or guidance material, taking into account the Security Council’s decision and considerations; and c) as required, develop new provisions (Standards, Recommended Practices, and/or guidance materials) for the collection, use, processing and protection of PNR data.

                  The transfer of relevant personal data from the EU to a third country may take place only in compliance with the provisions on international transfers laid down in Chapter V of Regulation (EU) 2016/679 (‘the GDPR’)
                     4
                  .

                  There are currently two international agreements in force between the EU and third countries (namely Australia
                     5
                   and the United States
                     6
                  ) on the processing and transfer of PNR data. On 26 July 2017, the Court of Justice of the EU adopted an Opinion on the envisaged Agreement between the EU and Canada signed on 25 June 2014
                     7
                  . The Court decided that the agreement could not be concluded in its intended form because some of its provisions were incompatible with the fundamental rights to privacy and to personal data protection recognised by the EU. In particular, the Court laid down further legal requirements with regard to oversight by an independent authority, sensitive data, automated processing of PNR data, purposes for which PNR data may be processed, and the retention, use, disclosure and further transfer of PNR data. Further to the authorization received by the European Commission from the Council in December 2017, new PNR negotiations with Canada were launched in June 2018. At the 17th EU-Canada Summit in Montreal on 17-18 July 2019, the EU and Canada welcomed that they had concluded these negotiations. While Canada noted its requirement for legal review, the parties committed, subject to that review, to finalise the Agreement as soon as possible, acknowledging the vital role of this Agreement in enhancing security while ensuring privacy and the protection of personal data.

               3.OBJECTIVES OF THE PROPOSAL

                  Japan is a close and strategic partner of the European Union in the fight against terrorism and other serious transnational crime. At the United Nations, the G20, the G7 and other multilateral fora, the European Union and Japan work closely together to improve the global security frameworks and to enhance the security of their citizens.

                  The EU-Japan Strategic Partnership Agreement signed in July 2018 strengthens the overall partnership and states that ‘Parties shall endeavour to use, to the extent consistent with their respective laws and regulations, available tools, such as passenger name records, to prevent and combat acts of terrorism and serious crimes, while respecting the right to privacy and the protection of personal data’. An EU-Japan PNR agreement would contribute to strengthening the proposed Partnership on Sustainable Connectivity and Quality Infrastructure between the European Union and Japan, notably by enhancing the security of air transport.

                  On 23 January 2019, the European Commission adopted an adequacy decision in relation to the transfer of personal data from the EU to Japan between commercial operators.
                     8
                   In this context, the European Commission also assessed the conditions and safeguards under which Japanese public authorities, including law enforcement, can access data held by those operators.

                  Japan has been clear in expressing its interest to the European Commission to enter into negotiations with the aim of concluding a PNR Agreement with the European Union. In particular, more recently, Japan indicated a pressing need to acquire PNR data from EU carriers in view of the 2020 Olympics in their country in order to address an anticipated increase of security risks.

                  According to the legislation of Japan (Customs Act and Immigration Control and Refugee Recognition Act), airlines are required to transmit Passenger Name Record (PNR) data to the Japan Customs and Tariff Bureau and Immigration Bureau. This legislation aims at enhancing the security of Japan by obtaining PNR data prior to a passenger’s arrival or departure and therefore significantly enhances the ability to conduct efficient and effective advance travel risk assessment of passengers.

                  Air carriers and their associations have also on several occasions requested the European Commission to ensure legal certainty for air carriers operating flights between the EU and Japan, considering their obligation to provide Japan with PNR data to the extent it is collected and contained in their automated reservation and departure control systems.

                  A solution is required that will provide a legal basis at EU level for the transfer of PNR data from the EU to Japan as a recognition of the necessity of PNR data in the fight against terrorism and other forms of serious transnational crime. At the same time, a future agreement should provide appropriate data protection safeguards within the meaning of Article 46(2)(a) of the General Data Protection Regulation, including a system of independent oversight. A future agreement should respect fundamental rights and observe the principles recognised by the Charter of Fundamental Rights of the Union, in particular the right to private and family life recognised in Article 7 of the Charter, the right to the protection of personal data recognised in Article 8 of the Charter and the right to effective remedy and fair trial recognised in Article 47 of the Charter.

                  The transfer of PNR data to Japan would be a means to further foster international law enforcement cooperation with the European Union, including through the provision by Japan of analytical information stemming from PNR data to the competent Member States authorities as well as Europol and/or to Eurojust within their respective mandates.

               4.LEGAL ASPECTS OF THE PROPOSAL

                  This recommendation to open negotiations with Japan on a PNR Agreement takes into consideration the applicable EU legal framework on data protection and PNR, namely Regulation (EU) 2016/679, Directive (EU) 2016/680
                     9
                   and Directive (EU) 2016/681, as well as the Treaty and Charter of Fundamental Rights as interpreted in the relevant case law of the Court of Justice of the EU, in particular Opinion 1/15 of the Court.

                  The recommendation also takes into account the authorization received by the European Commission from the Council in December 2017 for the opening of negotiations of an Agreement between the EU and Canada for the transfers and use of PNR data.

                  This recommendation is in line with the legal requirements laid down in the Court’s Opinion 1/15. It is based on Article 218 of the Treaty of the Functioning of the EU. In line with Article 218 of the Treaty on the Functioning of the EU, the European Commission shall be nominated as the Union negotiator.

               Recommendation for a

               COUNCIL DECISION

               to authorise the opening of negotiations for an Agreement between the European Union and Japan for the transfer and use of Passenger Name Record (PNR) data to prevent and combat terrorism and other serious transnational crime

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 218(3) and (4) thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)Negotiations should be opened with a view to concluding an Agreement between the Union and Japan for the transfer and use of Passenger Name Record (PNR) data to prevent and combat terrorism and other serious transnational crime.

               (2)The Agreement should respect fundamental rights and observe the principles recognised by the Charter of Fundamental Rights of the Union, in particular the right to private and family life recognised in Article 7 of the Charter, the right to the protection of personal data recognised in Article 8 of the Charter and the right to effective remedy and fair trial recognised in Article 47 of the Charter. The Agreement should be applied in accordance with those rights and principles.

               HAS ADOPTED THIS DECISION:

               Article 1

               The European Commission is hereby authorised to negotiate, on behalf of the Union, an Agreement between the Union and Japan on the transfer and use of Passenger Name Record (PNR) data to prevent and combat terrorism and other serious transnational crime.

               Article 2

               The negotiating directives are set out in the Annex.

               Article 3

               The negotiations shall be conducted in consultation with a special committee to be appointed by the Council.

               Article 4

               This Decision is addressed to the European Commission.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        Directive (EU) 2016/681 of the European Parliament and of the Council of 27 April 2016 on the use of passenger name record (PNR) data for the prevention, detection, investigation and prosecution of terrorist offences and serious crime, OJ L 119, 4.5.2016, p. 132–149.

                     (2)

                        See the Nineteenth Progress Report towards an effective and genuine Security Union (COM(2019) 353 final, 24.7.2019) for the state of implementation of the PNR Directive.

                     (3)

                        Security Council resolution 2396 (2017) on threats to international peace and security caused by returning foreign terrorist fighters.

                     (4)

                        Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1).

                     (5)

                        OJ L 186, 14.7.2012, p. 4–16.

                     (6)

                        OJ L 215, 11.8.2012, p. 5–14.

                     (7)

                        Opinion 1/15 of the Court (grand chamber), 26 July 2017, ECLI:EU:C:2017:592.

                     (8)

                        Commission Implementing Decision (EU) 2019/419 of 23.1.2019 pursuant to Regulation (EU) 2016/679 of the European Parliament and Council on the adequate protection of personal data by Japan under the Act on the Protection of Personal Information (notified under document C(2019) 304) (OJ L 76, 19.3.2019, p. 1-58).

                     (9)

                        Directive (EU) 2016/680 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data, and repealing Council Framework Decision 2008/977/JHA (OJ L 119, 4.5.2016, p. 89).

    ---documentbreak---

               EUROPEAN COMMISSION
            Brussels, 27.9.2019
            COM(2019) 420 final
            ANNEX
            to the
            Recommendation for a COUNCIL DECISION
            to authorise the opening of negotiations for an Agreement between the European Union and Japan for the transfer and use of Passenger Name Record (PNR) data to prevent and combat terrorism and other serious transnational crime

               ANNEX

               Directives for the negotiation of an Agreement between the European Union and Japan for the transfer and use of Passenger Name Record (PNR) data to prevent and combat terrorism and other serious transnational crime

               In the course of the negotiations the European Commission should aim to achieve the objectives set in detail below:

               (1)The objective of the Agreement should be to provide the legal basis, conditions and safeguards for the transfer of PNR data to Japan.

               (2)The Agreement should duly reflect the necessity and importance of the use of PNR data in preventing and combating terrorism and other serious transnational crime.

               (3)To this end, the objective of this Agreement should be to regulate the transfer and use of PNR data for the sole purpose of preventing and combating terrorism and other serious transnational crime, with full respect of the protection of privacy, personal data and fundamental rights and freedoms of individuals under the conditions to be set out in the Agreement.

               (4)The Agreement should also acknowledge the transfer of PNR data to Japan as fostering police and judicial cooperation which will be achieved through the transfer of analytical information flowing from PNR data. Therefore, the Agreement should ensure the transfer of analytical information flowing from competent authorities of Japan to police and judicial authorities of the Member States, as well as to Europol and Eurojust within their respective competences.

               (5)To guarantee compliance with the purpose limitation principle, the Agreement should limit the processing of PNR data exclusively to the prevention, detection, investigation or prosecution of terrorism and other serious transnational crime as based on definitions laid down in relevant EU instruments.

               (6)The Agreement should ensure full respect for fundamental rights and freedoms as enshrined in Article 6 of the Treaty on the EU, in particular the right to the protection of personal data as stipulated in Article 16 of the Treaty of the Functioning of the EU and Article 8 of the Charter of Fundamental Rights of the EU. It should also ensure full respect for the principles of necessity and proportionality regarding the right for private and family life and the protection of personal data as set out Article 7 and Article 8 of the Charter of Fundamental Rights of the EU as interpreted by the Court of Justice in its Opinion 1/15 on the envisaged EU-Canada PNR Agreement.

               (7)The Agreement should provide for legal certainty, notably for air carriers, by providing a legal basis for them to transfer PNR data contained in their automated reservation and departure control systems.

               (8)The Agreement should spell out clearly and precisely the necessary safeguards and controls with respect to the protection of personal data, fundamental rights and freedoms of individuals, irrespective of nationality and place of residence, in the context of the transfer of PNR data to Japan. These safeguards should ensure the following:

               (a)The categories of PNR data to be transferred should be specified exhaustively and in a clear and precise manner, in line with international standards. Data transfers should be kept to the minimum necessary and should be proportionate to the specified purpose of the Agreement.

               (b)Sensitive data within the meaning of EU law, including personal data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, trade-union membership or concerning a person’s health or sexual life or orientation, should not be processed.

               (c)The Agreement should include provisions on data security, especially allowing only a limited number of specially authorised individuals to have access to PNR data and providing for an obligation to notify without delay the European data protection supervisory authorities of breaches of data security affecting PNR data unless the breach is unlikely to result in a risk to the rights and freedoms of natural persons as well as referring to effective and deterrent sanctions.

               (d)The Agreement should contain provisions for the adequate and transparent information to passengers in relation to the processing of their PNR data, as well as the right of individual notification in case of use after arrival, access, and where appropriate, rectification and deletion.

               (e)The Agreement should ensure the rights of effective administrative and judicial redress on a non-discriminatory basis regardless of nationality or place of residence for any person whose data are processed pursuant to the Agreement, in line with Article 47 of the Charter of Fundamental Rights of the EU.

               (f)The Agreement should ensure that automated processing should be based on specific, objective, non-discriminatory and reliable, pre-established criteria and should not be used as the sole basis for any decisions with adverse legal effects or seriously affecting an individual. The databases against which PNR data are compared should be only those relevant for purposes covered by the Agreement and should be reliable and up to date.

               (g)The use of PNR data by the Japanese competent authority beyond security and border control checks should be based on new circumstances and subject to substantive and procedural conditions based on objective criteria. In particular, such use should be subject to a prior review carried out either by a court or by an independent administrative body, except in cases of validly established urgency.

               (h)The period of retention of the PNR data should be restricted and not be longer than necessary for the original objective pursued. The retention of PNR data after the air passengers’ departure from Japan should be in line with the requirements set in the case law of the Court of Justice. The Agreement should require that the data are deleted upon expiry of the retention period or rendered anonymous in such a manner that the individual concerned is no longer identifiable.

               (i)The Agreement should ensure that further disclosure of PNR data to other government authorities within the same country or to other countries may only take place on a case-by-case basis and under certain conditions and safeguards. In particular, such disclosure may only take place if the recipient authority exercises functions related to the fight against terrorism or serious transnational crime and ensures the same protections as those set out in the Agreement. Onward transfers to competent authorities of other third countries should be limited to those countries with which the EU has an equivalent PNR Agreement or for which the EU has adopted an adequacy decision under EU data protection law covering the relevant authorities to which PNR data is intended to be transferred.

               (9)The Agreement should ensure a system of oversight by an independent public authority responsible for data protection with effective powers of investigation, intervention and enforcement to exercise oversight over those public authorities that use PNR data. That authority should have powers to hear complaints from individuals, in particular concerning the processing of their PNR data. Public authorities that use PNR data should be accountable for complying with the rules on protection of personal data under this Agreement.

               (10)The Agreement should require that the data be transferred exclusively on the basis of a 'push' system.

               (11)The Agreement should ensure that the frequency and the timing of PNR data transmissions should not create an unreasonable burden on carriers and should be limited to that strictly necessary.

               (12)The Agreement should ensure that air carriers are not required to collect additional data compared to what they already do or to collect certain types of data, but only to transmit what they already collect as part of their business.

               (13)The Agreement should include provisions for regular joint review on all aspects of the implementation of the Agreement, including the reliability and topicality of pre-established models and criteria and databases and comprising a proportionality assessment of the retained data based on their value for the prevention and combat of terrorism and other serious transnational crime.

               (14)The Agreement should provide for a dispute settlement mechanism with respect to its interpretation, application and implementation.

               (15)The Agreement should be concluded for a period of 7 years and should include a provision whereby the Agreement maybe renewed for a similar period unless a Party terminates it.

               (16)The Agreement should include a clause addressing its territorial application.

               (17)The Agreement should be authentic in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages and should include a language clause to that effect.


               EUROPEAN COMMISSION
            Brussels, 21.11.2018
            COM(2018) 803 final
            Recommendation for a
            COUNCIL DECISION
            establishing that no effective action has been taken by Romania in response to the Council Recommendation of 22 June 2018
            {SWD(2018) 503 final}

               Recommendation for a

               COUNCIL DECISION

               establishing that no effective action has been taken by Romania in response to the Council Recommendation of 22 June 2018

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union,

               Having regard to Council Regulation (EC) No 1466/97
                  1
               , and in particular Article 10(2), fourth subparagraph, thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)On 22 June 2018, 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 adjustment path toward the medium-term budgetary objective of -1% of GDP existed in Romania.

               (2)In view of the established significant deviation, the Council on 22 June 2018 issued a recommendation
                  2
                for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  3
                does not exceed 3.3% in 2018 and 5.1% in 2019, corresponding to an annual structural adjustment of 0.8% of GDP in each year. It also recommended that Romania use any windfall gains for deficit reduction, while budgetary consolidation measures should ensure a lasting improvement in the general government structural balance in a growth-friendly manner. The Council established a deadline of 15 October 2018 for Romania to report on the action taken in response to the recommendation.

               (3)On 27 and 28 September 2018, the Commission undertook an enhanced surveillance mission in Romania for the purpose of on-site monitoring under Article -11(2) of Council Regulation (EC) No 1466/97. After having transmitted its provisional findings to the Romanian authorities for comments, the Commission reported its findings to the Council on 21 November 2018. Those findings were subsequently made public. The Commission report finds that the Romanian authorities maintain the 2018 headline deficit target of just below 3% of GDP and thus do not intend to act upon the Council recommendation of 22 June 2018. In 2019, the government plans to lower the headline deficit to 2.38% of GDP, but the measures remain to be specified.

               (4)On 16 October 2018 the Romanian authorities submitted a report on action taken in response to the Council Recommendation of 22 June 2018
                  4
               . In the report, the authorities reiterated that their target for 2018 remains a headline deficit of 2.96% of GDP. For 2019, the authorities target a deficit of 2.38% of GDP. The report does not mention new measures for 2018. For 2019, the report relies on containing expenditures on compensation of employees and goods and services, without backing it by sufficiently detailed and adopted or at least credibly announced measures. On the revenue side the report mentions a prolongation of already existing measures and some actions aimed at increasing tax compliance. Overall, the fiscal impact of the reported measures falls short of the requirement stated in the Council Recommendation of 22 June 2018.

               (5)In 2018, based on the Commission 2018 autumn forecast, the growth of net primary government expenditure is set to amount to 11.3%, well above the expenditure benchmark of 3.3%. The structural balance is set to remain broadly stable in 2018, at 3.3% of GDP. Therefore, both pillars point to a risk of a deviation from the recommended adjustment. The expenditure benchmark points to a deviation of 2.3% of GDP. The structural balance confirms this reading, indicating a smaller deviation of 0.8% of GDP. The structural balance is positively impacted by a significantly higher GDP deflator and by a higher point estimate for potential GDP growth compared to the medium-term average underlying the expenditure benchmark. This impact is partially offset by the impact of an increase of public investment, which is smoothed out in the expenditure benchmark. Therefore, the overall assessment confirms the deviation by a wide margin from the adjustment recommended by the Council.

               (6)In 2019, based on the Commission 2018 autumn forecast, the growth of nominal government expenditure, net of discretionary revenue measures and one-offs is set to amount to 7.5%, well above the expenditure benchmark of 5.1% (deviation of 0.7% of GDP from the recommended adjustment). The structural balance is set to increase by 0.1 % of GDP, reaching a deficit of 3.4% (deviation of 0.9% of GDP). Therefore, as both pillars point to a deviation from the required adjustment by a similar margin in 2019, the overall assessment confirms the deviation from the adjustment recommended by the Council.

               (7)Moreover, the Commission 2018 autumn forecast projects a general government deficit of 3.3% in 2018 and 3.4% in 2019, which is above the 3% of GDP Treaty reference value.

               (8)The above findings lead to the conclusion that Romania's response to the Council Recommendation of 22 June 2018 has been insufficient. The fiscal effort falls short of ensuring that the nominal growth rate of net primary government expenditure  does not exceed 3.3% in 2018 and 5.1% in 2019, which corresponds to an annual structural adjustment of 0.8% of GDP in each year,

               HAS ADOPTED THIS DECISION:

               Article 1

               Romania has not taken effective action in response to the Council Recommendation of 22 June 2018.

               Article 2

               This Decision is addressed to Romania.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ C 223, 27.6.2018, p. 3.

                     (3)

                        Net primary government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 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.

                     (4)

                        Available at http://data.consilium.europa.eu/doc/document/ST-13279-2018-INIT/en/pdf


               EUROPEAN COMMISSION
            Brussels, 21.11.2018
            COM(2018) 806 final
            Recommendation for a
            COUNCIL DECISION
            establishing that no effective action has been taken by Hungary in response to the Council Recommendation of 22 June 2018
            {SWD(2018) 504 final}

               Recommendation for a

               COUNCIL DECISION

               establishing that no effective action has been taken by Hungary in response to the Council Recommendation of 22 June 2018

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union,

               Having regard to Council Regulation (EC) No 1466/97
                  1
               , and in particular Article 10(2), fourth subparagraph, thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)On 22 June 2018, 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 adjustment path toward the medium-term budgetary objective of -1,5 % of GDP existed in Hungary.

               (2)In view of the established significant deviation, the Council on 22 June 2018 issued a recommendation
                  2
                for Hungary to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  3
                does not exceed 2,8% in 2018, corresponding to an annual structural adjustment of 1,0% of GDP. It recommended that Hungary uses any windfall gains for deficit reduction, while budgetary consolidation measures should ensure a lasting improvement in the general government structural balance in a growth-friendly manner. The Council established a deadline of 15 October 2018 for Hungary to report on the action taken in response to that recommendation.

               (3)On 18 and 19 September 2018, the Commission undertook an enhanced surveillance mission in Hungary for the purpose of on-site monitoring under Article -11(2) of Regulation (EC) No 1466/97. After having transmitted its provisional findings to the Hungarian authorities for comments, the Commission reported its findings to the Council on 21 November 2018. Those findings were subsequently made public. The Commission report finds that the Hungarian authorities intend to maintain the 2018 headline deficit target of 2,4% of GDP as set in the 2018 Convergence Programme and thus do not plan to act upon the Council Recommendation of 22 June 2018.

               (4)On 15 October 2018 the Hungarian authorities submitted a report on action taken in response to the Council Recommendation of 22 June 2018.
                  4
                In the report, the authorities reiterated that their target for 2018 remains a headline deficit of 2,4% of GDP. Compared to the budgetary projection in the 2018 Convergence Programme, the authorities expect significantly higher tax revenues and savings due to decreased co-financing costs of projects funded from the Union budget. However, they plan additional expenditure that fully offsets the deficit-reducing effect of those developments. The reported new discretionary measures have no significant net fiscal impact on the budget outcome in 2018, thus falling short of the requirement stated in the Council Recommendation of 22 June 2018.

               (5)In 2018, based on the Commission 2018 autumn forecast, the growth of government expenditure, net of discretionary revenue measures and one-offs, is projected at 7,0 %, well above the recommended reference rate of growth of 2,8 % (deviation of 1,6 % of GDP). The structural balance is set to deteriorate by 0,4 % of GDP against the recommended improvement of 1,0 % of GDP (deviation of 1,4 % of GDP). Therefore, both pillars point to a deviation from the recommended adjustment by a wide margin. The reading of the expenditure benchmark is negatively affected by three elements, namely a  lower-than-currently-estimated medium-term potential growth rate and GDP deflator underlying the expenditure benchmark as well as an indirect revenue effect of certain measures. After adjusting for these factors, the expenditure benchmark appears to adequately reflect the fiscal effort and still points to a deviation. The assessment of the structural balance leads to a similar result. The structural balance is negatively impacted by a revenue shortfall, but it is partly offset by the effect of a higher point estimate for potential GDP growth compared to the medium-term average underlying the expenditure benchmark. Therefore the overall assessment confirms a deviation from the recommended adjustment by a wide margin.

               (6)The above findings lead to the conclusion that Hungary's response to the Council Recommendation of 22 June 2018 has been insufficient. The fiscal effort falls short of ensuring that the nominal growth rate of net primary government expenditure does not exceed 2,8 % in 2018, which would correspond to an annual structural adjustment of 1,0 % of GDP,

               HAS ADOPTED THIS DECISION:

               Article 1

               Hungary has not taken effective action in response to the Council Recommendation of 22 June 2018.

               Article 2

               This Decision is addressed to Hungary.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ C 223, 27.6.2018, p. 1.

                     (3)

                        Net primary government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 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.

                     (4)

                        https://ec.europa.eu/info/files/hungary-report-council-recommendations-under-significant-deviation-procedure_en