title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Bulgaria and delivering a Council opinion on the 2020 Convergence Programme of Bulgaria 2020/C 282/02

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/8

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Bulgaria and delivering a Council opinion on the 2020 Convergence Programme of Bulgaria
      (2020/C 282/02)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

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

                  (2)

                  The 2020 country report for Bulgaria was published on 26 February 2020. It assessed Bulgaria’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Bulgaria’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Bulgaria is no longer experiencing macroeconomic imbalances. In previous years, vulnerabilities in the financial sector were coupled with high indebtedness and non-performing loans (NPLs) in the corporate sector. Bulgaria has been found to no longer have imbalances because consistent policy action and a favourable macroeconomic environment have reduced risk and vulnerabilities further.

                  (3)

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

                  (4)

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

                  (5)

                  On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

                  (6)

                  Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

                  (7)

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

                  (8)

                  The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds (‘ESI Funds’) so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Bulgaria is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across Bulgarian regions because of different specialisation patterns, in particular in regions markedly relying on face-to-face business to consumers. This entails a substantial risk of widening regional disparities within Bulgaria, aggravating the already observed trend of widening disparities between the capital and the rest of the country and between urban and rural areas. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

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

                  (11)

                  Bulgaria is currently in the preventive arm of the Stability and Growth Pact.

                  (12)

                  In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 2,1 % of gross domestic product (GDP) in 2019 to a deficit of 3,1 % of GDP in 2020. After decreasing to 20,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 28,5 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Bulgaria has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 1,3 % of GDP. The measures include higher spending on healthcare and security services and an employment support scheme for distressed sectors. In addition, Bulgaria has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at 0,6 % of GDP. Those measures include guarantees by the State-owned Bulgarian Development Bank and tax deferrals for corporate income taxes. Overall, the measures taken by Bulgaria are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, Bulgaria’s general government deficit is forecast at 2,8 % of GDP in 2020 and 1,8 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

                  (15)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Bulgaria’s planned breach of the 3 %-of-GDP deficit threshold in 2020. That report concluded, following an assessment of all the relevant factors, that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has been fulfilled.

                  (16)

                  On 13 March 2020, Bulgaria declared a state of emergency from 13 March 2020 to 13 April 2020; this was subsequently extended to 13 May 2020 and then replaced by an extraordinary epidemic situation to 14 June 2020. On 6 April 2020, the Bulgarian parliament adopted a proposal for amendment of the 2020 State budget, presented by the government. The new budget foresees a deficit under the State budget of BGN 3,5 billion (2,9 % of GDP), due to the increased spending for crisis-related measures and the expected reduction in revenues of BGN 2,4 billion. A fivefold increase of the ceiling of new debt the government can issue is foreseen, from BGN 2,2 billion to BGN 10 billion. Overall, Bulgaria mobilised a financial package of over BGN 870 million under several operational programmes financed by the ESI Funds for the period 2014-2020 to support the health system and address the socioeconomic consequences of the pandemic.

                  (17)

                  In response to the COVID-19 crisis, Bulgaria introduced an employment support measure by which the State commits to pay 60 % of the workers’ income and of the associated social security contribution for a period of up to three months, provided that the employer pays the remaining difference and commits to keep the workers in employment. The employer is also obliged to maintain employment for a further period, at least equal to the one covered by the subsidy. Eligible companies include those in the sectors directly affected by restrictions imposed due to the state of emergency. Companies from other sectors, which manage to prove a 20 % decline in revenue over a specific time period in March 2020 compared to March 2019, are also eligible as stipulated in the Decree No 55 of 30 March 2020.

                  (18)

                  The capital of the Bulgarian Development Bank was increased with BGN 700 million to support the liquidity in the economy. BGN 500 million was allocated for portfolio guarantees to banks to provide more flexible business loan conditions to businesses, while BGN 200 million was allocated for guarantees for interest-free loans of up to BGN 4 500 for people placed on unpaid leave by their companies or self-employed. The Bulgarian Development Bank will also implement a EUR 100 million guarantee scheme for loans to small and medium-sized enterprises (‘SMEs’) financed by Operation Programme ‘Innovation and Competitiveness’ under the European Regional Development Fund. The Fund Manager of Financial Instruments in Bulgaria reexamined its portfolio and is tailoring its enterprise support instruments to the current economic reality. The Bulgarian National Bank introduced a package of measures of BGN 9,3 billion, which aim at maintaining the resilience of the banking system and enhancing its flexibility, to reduce the negative effects of the constraints on citizens and businesses.

                  (19)

                  Bulgaria’s economy was hit hard by the COVID-19 crisis, which affected both services and manufacturing sectors. The negative impact was aggravated by declining demand and supply, and disruptions in the global value chains. The measures taken by the government to face the emergency can help mitigate the consequences of the crisis, but their prompt and effective implementation will be key for preserving employment and improving the liquidity of companies, especially SMEs, and of independent workers. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. In line with the guidelines set out in the Commission communication of 13 March 2020, Bulgaria lifted export bans on personal protective equipment and set-up ‘green lanes’ for fast checks at border crossings.

                  (20)

                  The COVID-19 crisis put an additional burden on the Bulgarian health system, already characterised by limited accessibility stemming from low public financing, limited health insurance coverage, a low albeit increasing number of nurses, and an uneven regional distribution of health workers. There is therefore scope for strengthening the overall resilience, accessibility and capacity of the Bulgarian health system. Providing more care (general and specialist) in ambulatory settings, including by means of teleconsultations, would reduce the burden on hospitals, while testing and treatment should be available for all, irrespective of health insurance status. Proper access to health workers and their services should be ensured throughout the whole territory, matching population needs. Integration of primary, long-term and community care is crucial for the elderly and the most vulnerable groups.

                  (21)

                  According to the Commission 2020 spring forecast, unemployment is expected to rise to 7,0 % in 2020 and decrease to 5,8 % in 2021. Since the beginning of the state of emergency, unemployment has rapidly increased in the trade, accommodation and food services, and manufacturing sectors, in large cities and among people with up to secondary education. The government has taken measures to protect employment, in particular short-time work schemes, which should be swiftly implemented and further enhanced. In cooperation with social partners, the current context warrants extensive support to employers and workers, including the self-employed, to prevent further job losses. The capacity and the measures implemented by the Employment Agency will need to be reinforced, to respond to the adverse labour market effects. Further efforts in activation, upskilling and reskilling will be instrumental to bring people back to work, while preparing the labour force for the challenges and opportunities resulting from digitalisation. The COVID-19 crisis might also have a significant impact on workers in informal employment, with limited access to health services and social protection. Targeted policy measures could prevent unprotected workers and the most vulnerable groups falling deeper into poverty and improve their livelihoods during the recovery.

                  (22)

                  The COVID-19 crisis disproportionally affects vulnerable groups and exacerbates existing social challenges. The share of people at risk of poverty or social exclusion was already high before the crisis, especially among children, the elderly, people with disabilities and Roma, while social transfers managed to reduce poverty only to a limited extent. Income inequality was one of the highest in the Union and the tax and benefit systems showed one of the weakest impacts on reducing it. The crisis requires measures to fix the gaps already identified in previous years, and in particular in the minimum income scheme, which is one of the least adequate in the Union for lifting recipients out of poverty. Issues such as ensuring social protection for all, including non-standard workers, self-employed and low-income households, ensuring income support, food and adequate social services, as well as providing emergency housing and support for homeless persons, remain relevant. The reform of social services would help stabilising the system, while a stronger cooperation between health and social services would allow reaching out further to those unable to take care of themselves and people with disabilities. Many Roma households, already in deep poverty prior to the crisis, are in need of mediation services and essential services and support.

                  (23)

                  Enhanced provision of education and training services and a better skilled workforce would also strongly underpin the recovery and promote inclusive and sustainable growth in the medium term. There is still scope for improving the quality, labour market relevance and inclusiveness of education and training in Bulgaria. Bulgaria is among the Member States in which socioeconomic background has the strongest influence on learning outcomes. Roma inclusion in education remains a challenge, with early school leaving being particularly high among Roma and in rural areas. The overall level of digital skills is low among the population (aged 16-74), including also for the young people (aged 16-19). Improving digital skills, for example through more digitally aligned degrees and curricula, could help to adapt to labour market changes produced by digitalisation and to the need for digital remote work. At the same time, there are still 11 % of students who do not have computers and/or internet access and 2 000 teachers without computers. The current remote learning situation risks therefore to worsen the already high inequalities in education and training, despite some recent support measures. Further efforts to improve the digital knowledge of all students and their access to adequate technical infrastructure would have a positive long-lasting impact on their access to education, in particular for vulnerable groups, including Roma, thus helping to reduce their high drop-out rates.

                  (24)

                  The COVID-19 crisis highlighted the strategic importance of an efficient public administration and of a well-functioning digital government, including e-health and e-procurement. Reforms in this field have been supported by the Union, but their implementation is progressing too slowly and this negatively affected the effectiveness of the public sector during the lockdown period. Bulgaria is therefore lagging behind in the provision of e-services, and their uptake by citizens and businesses should be encouraged. Issues related to cybersecurity and security of critical infrastructure will also need to be fully addressed. Looking forward, an effective public administration will be key for ensuring the timely and effective implementation of the recovery measures. Cooperation and coordination at all levels of government, including on public contracts and concessions, as well as on market surveillance, remain particularly important. A stronger regulatory predictability and stability, effective control over policy implementation, and a reduction of the administrative burden, would improve the business environment and promote investment, positively affecting the speed of the recovery.

                  (25)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The COVID-19 crisis brought further up the importance of digitalisation and innovation, where Bulgaria, and in particular its SMEs, is performing well below the Union average. One significant instance of this issue is the spectrum planned to be allocated in the 5G pioneer bands, which falls short of what is required to enable timely and effective provision of 5G services. The known issues in the research and higher education system, such as fragmentation, low funding and limited knowledge and technology transfer, still need to be tackled. At the same time, Bulgaria is the most resource-, energy-, and greenhouse-gas-emission-intensive economy in the Union, with important investment needs in the fields of energy and decarbonisation to facilitate the transition to climate neutrality, as described in Bulgaria’s National Energy and Climate Plan.

                  (26)

                  Transformation efforts for tackling Bulgaria’s high energy intensity, significant reliance on fossil fuels, and inefficient use of energy and resources are at a very initial stage. The National Energy and Climate Plan stresses Bulgaria’s commitment to decarbonise its economy by 2050 in the context of the European Green Deal, but also states the intention to keep Bulgaria’s reliance on domestic lignite sources for 2050 and beyond. The coverage and quality of transport infrastructure in Bulgaria remains below the Union average and the Trans-European Transport Network is still incomplete. The multimodal platforms network, some rail and road sections, and the European rail traffic management systems and intelligent transport systems remain underdeveloped. Significant environmental issues need to be tackled, as they affect sustainable growth and have created additional health risks during the COVID-19 crisis. Bulgaria is among the Member States with the largest incidence of pollution-related deaths, and waste management and compliance with urban waste-water collection and treatment obligations continue to be a challenge. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Bulgaria to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Bulgaria to make the best use of that Fund.

                  (27)

                  Having a properly functioning insolvency framework will be important for the recovery of the real economy in the aftermath of the COVID-19 crisis, which might bring a significant increase of bankruptcies. Such framework would also facilitate a more rapid resolution of NPLs, thus limiting their further accumulation. At the same time, the ineffectiveness of the insolvency framework results in slow and costly insolvency proceedings. In June 2019, the insolvency framework roadmap was adopted and identified relevant gaps. Bulgaria has started its implementation and is preparing follow-up steps, including legislative changes and capacity-building activities.

                  (28)

                  Bulgaria adopted several laws in 2019 aiming at transposing Directives (EU) 2015/849 (7) and (EU) 2018/843 (8) of the European Parliament and of the Council (Fourth and Fifth Anti-Money Laundering Directives) whose implementation is pending. The recently completed National Risk Assessment shows weaknesses that need urgent mitigation to prevent money laundering and terrorist financing. The risks linked to citizenship by investment scheme programs and to virtual assets have not been properly assessed yet. Actions need to be designed and implemented to deliver an effective application of the anti-money-laundering framework by obliged entities. The effectiveness of implementation and enforcement of the anti-money-laundering framework have been limited and the use of financial intelligence has been insufficient.

                  (29)

                  While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

                  (30)

                  Bulgarian banks are overall profitable and well-capitalised. Despite some declines in recent years, the ratio of gross NPLs and advances remains at 7,2 % in the third quarter of 2019 among the highest in the Union, in particular by non-financial corporations and for domestically-owned banks, whereby further efforts to promote a functioning secondary NPL market remain important. NPL provisioning has been on a downward path since late 2018, accompanied sometimes by under-provisioning of the existing NPLs with long overdue. The comprehensive assessment conducted by the European Central Bank revealed the need to increase capital in two banks. The recapitalisation is being finalised. Increased provision of liquidity by banks to mitigate the impact of COVID-19 crisis and relaunch the economic growth should be coupled with banks’ application of credit risk assessment and prudent credit standards, sound valuation practices and accurate reporting of any deterioration in asset quality.

                  (31)

                  The Commission has been monitoring Bulgaria’s progress in the fields of judicial reform and the fight against corruption in the context of the Cooperation and Verification Mechanism (CVM). As a result, these areas have so far not been covered in the country-specific recommendations for Bulgaria, but are relevant for developing a positive socioeconomic environment in the country. The latest CVM report of October 2019 noted that progress made by Bulgaria is sufficient to meet Bulgaria’s commitments made at the time of its accession to the Union. Bulgaria carried out an extensive reform of its anti-corruption legal framework, though a solid track record of final convictions in high-level corruption cases is needed to build public trust. Furthermore, a number of challenges persist, in particular ensuring effective criminal investigations, rebalancing the workload among courts, and streamlining local prosecution service offices. After the end of the CVM, the monitoring of reforms will be ensured at the national level by a post-monitoring council and at the Union level in the framework of the comprehensive rule of law mechanism as well as, where appropriate, the European Semester.

                  (32)

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

                  (33)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Bulgaria’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Bulgaria in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Bulgaria, 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.

                  (34)

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

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

                  1.

                  Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Mobilise adequate financial resources to strengthen the resilience, accessibility and capacity of the health system, and ensure a balanced regional distribution of health workers, matching population needs.

                  2.

                  Ensure adequate social protection and essential services for all and strengthen active labour market policies. Improve access to distance working and promote digital skills and equal access to education. Address the shortcomings in the adequacy of the minimum income scheme.

                  3.

                  Streamline and accelerate the procedures to provide effective support to SMEs and self-employed, also ensuring their continued access to finance and flexible payment arrangements. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy and resources, environmental infrastructure and sustainable transport, contributing to a progressive decarbonisation of the economy, including in the coal regions.

                  4.

                  Minimise administrative burden to companies by improving the effectiveness of public administration and reinforcing digital government. Ensure an effective functioning of the insolvency framework. Step up the efforts to ensure adequate risk assessment, mitigation, effective supervision and enforcement of the anti-money-laundering framework.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

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

         (3)  OJ C 301, 5.9.2019, p. 8.

         (4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

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

         (6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

         (7)  Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141 5.6.2015, p. 73).

         (8)  Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (OJ L 156, 19.6.2018, p. 43).

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Czechia and delivering a Council opinion on the 2020 Convergence Programme of Czechia 2020/C 282/03

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/15

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Czechia and delivering a Council opinion on the 2020 Convergence Programme of Czechia
      (2020/C 282/03)
      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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Czechia as one of the Member States for which an in-depth review would be carried out.

                  (2)

                  The 2020 country report for Czechia was published on 26 February 2020. It assessed Czechia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Czechia’s progress towards its national Europe 2020 targets.

                  (3)

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

                  (4)

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

                  (5)

                  On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

                  (6)

                  Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

                  (7)

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

                  (8)

                  The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Czechia is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. Therefore, the current situation entails a substantial risk of widening regional and territorial disparities within Czechia, or creating new territorial disparities at sub-regional level, aggravating the already observed trend of widening disparities between the Karlovarský and Ústecký regions and the rest of the country. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

                  Czechia submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Convergence Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

                  Czechia is currently in the preventive arm of the Stability and Growth Pact.

                  (12)

                  In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,3 % of gross domestic product (GDP) in 2019 to a deficit of 5,1 % of GDP in 2020. The deficit is projected to decline to 4,1 % of GDP in 2021. After decreasing to 30,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 37 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Czechia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 4 % of GDP. The measures include compensatory tax bonuses and remission of social and health insurance obligations for six months for the self-employed (1 % of GDP), a short-term working scheme (1 % of GDP), remission of personal and corporate income tax advance payments due in June 2020 (0,8 % of GDP) and health-related measures (0,7 % of GDP). In addition, Czechia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. They include mostly guarantee schemes to provide loans to small and medium-sized enterprises and large enterprises. However, the 2020 Convergence Programme does not quantify the contingent liabilities linked to those announced measures. Most of the measures underpinning the 2020 Convergence Programme were also included in the Commission 2020 spring forecast. A few measures which could not be quantified or were extended beyond the cut-off date could not be included. Overall, the measures taken by Czechia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, Czechia’s general government balance is forecast at -6,7 % of GDP in 2020 and -4,0 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

                  (15)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Czechia’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

                  (16)

                  Czechia declared a state of emergency between 12 March 2020 and 17 May 2020 to curb the impact of the COVID-19 pandemic, closing schools, restricting events and the operation of shops, and significantly limiting gathering of people. Between 15 March 2020 and 17 May 2020 land borders were also partially closed. This limited the number of outgoing Czech workers and the number of incoming foreign workers, creating local labour bottlenecks, in particular in manufacturing and seasonal works, and impacted essential supply chains. To help households and firms through the crisis, the government announced a stimulus package involving direct support measures and public guarantees. While this may provide temporary relief, the economy is still expected to be badly hit in 2020, as external demand drops and lockdown measures disrupt economic activity. Real GDP is expected to recover gradually in 2021, but it is unlikely to rebound to 2019 values over the 2020-2021 forecast period. The impact on sectors such as transport, hospitality and tourism is expected to be significant. Unemployment will rise but this will be cushioned by a previously tight labour market, the stimulus package, and the low share of temporary contracts. To ensure liquidity support, the authorities launched a number of schemes of State guarantees for enterprises of all sizes. There is also a deferral of consumer loan and mortgage repayments for three or six months for households and firms affected by the crisis. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. The Czech National Bank has also adopted various measures to cushion the impact of the crisis on the financial sector.

                  (17)

                  Early COVID-19 health-related mitigation efforts have helped to slow the spread of the virus in Czechia. Measures have been taken to increase the supply of medical equipment and ensure the necessary infrastructure and thus prepare the health system to cope with the increased demand. The health status of the Czech population had improved significantly in recent years, getting closer to the EU average. However, there are substantial regional differences in life expectancy, partly determined by socioeconomic and behavioural factors. While the overall level of self-reported unmet needs for medical care is among the lowest in the Union, regional disparities persist as regards the distribution of healthcare resources and personnel, who have faced increased strains. A substantial proportion of the health workforce is expected to retire in the coming years. To mitigate the impact of the COVID-19 pandemic, going forward will require improving the resilience and the crisis preparedness of the health system, while supporting equal access to increased provision of primary care and integrated care to reduce avoidable hospitalisations. This may also improve prevention and mitigate other health conditions. E-health solutions are still limited despite the existence of a 2016-2020 national e-health strategy.

                  (18)

                  Throughout 2019 and early 2020, Czechia’s labour market remained robust, with most indicators showing positive outcomes. The employment rate continued to rise and unemployment fell to its lowest rate ever. However, according to the Commission 2020 spring forecast, the latter is expected to rise to 5,0 % in 2020 and slightly decrease to 4,2 % in 2021. The government responded promptly to the COVID-19 pandemic by introducing many measures to protect incomes and employment, with a particular focus on enterprises and the self-employed. However, some vulnerable groups in the labour market (workers in short-term contracts and those hired through temporary work agencies) are not fully protected by the proposed mitigating measures. The closure of childcare and schools during the lockdown may have particularly affected women with significant caring responsibilities. Promoting investment in childcare and long-term care coupled with flexible working arrangements, such as teleworking, should smooth the transition from the crisis. More targeted active labour market policies and skills provision, in consultation with social partners, support both the retention of employees and job transitions. Outreach actions by the public employment services can also facilitate a successful re-entry in the labour market, in particular for vulnerable groups. Easier and faster access to social protection would help avoid poverty traps and housing evictions. Education outcomes continue to be strongly affected by socioeconomic inequalities and low investment. Ensuring equal access to inclusive quality education and training, including in the digital context, can help improve skills levels and expand digital learning. Fostering digital skills, including through support and continuous training for teachers and trainers, is particularly crucial. Public spending per student at all educational levels remains comparatively low. Shortages of qualified teachers indicate the need to raise the attractiveness of the profession, in particular for talented young people.

                  (19)

                  Czechia is among the countries that could be particularly affected by technological change and that need significant investment in this area. Digital transformation will require support, including in industry and service sectors, through targeted investment in smart solutions and skills. The target for full fixed broadband coverage has been reached but mobile broadband remains relatively expensive. Delays to infrastructure development could particularly affect vulnerable groups and structurally weak regions at greater risk of being isolated. This might have also negative consequences in the epidemic monitoring and control. To address connectivity needs, investment is needed in very-high-capacity networks, fixed and mobile networks, and appropriate demand-side measures. The timely assignment of 5G spectrum under predictable conditions conducive to investment will be essential to achieve that. Take-up of ultra-fast broadband services is curbed by low demand resulting from multiple variables such as subscription price as well as population purchasing power, age and education. The authorities are committed to the development and integration of new digital technologies, but this is hampered by persistently low skills levels. The Czech authorities are committed to encouraging solutions based on artificial intelligence, but despite the government’s efforts in this area, Czechia still lags behind frontier Member States in terms of research and patent activities in this area.

                  (20)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Czechia’s National Energy and Climate Plan reports important investment needs to tackle successfully the climate and energy transition and move towards climate neutrality. This is particularly the case for the promotion of renewable energy resources, energy efficiency, infrastructure and parts of the transmission system. Climate change effects are already visible in the form of droughts and floods, causing significant economic losses. Air pollution is also a perennial problem. At the same time, pollution taxes are very low. Coal continues to dominate the power sector and it remains an important driver of economic activity in three Czech regions. The constrained development capacity of project promoters and the limited advisory support provided by the Czech authorities remain a significant bottleneck for developing a robust pipeline of projects implementing the twin climate and digital transitions in those regions. Overall, the transition away from coal is expected to have significant socioeconomic consequences and there appear to be little appetite to date for investment in zero- and low- greenhouse gas technologies. The production of renewable energy is below the EU average. The sector lacks financial incentives and an appropriate legal and institutional framework to support its further development. There also seems to be a low awareness about the wider benefits of energy efficiency. The shift to electromobility has been rather slow and road transport is becoming one of the main consumers of energy. Transport taxes are low and not based on the CO2 emissions. The electric vehicle charging infrastructure is still embryonic. Performance in waste management remains moderate in view of more ambitious targets. A comprehensive strategy to develop the circularity potential of the economy is missing. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Czechia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Czechia to make the best use of that Fund.

                  (21)

                  Access to conventional finance is above the EU average, but risk financing is less developed. Funding for high-risk domestic enterprises, especially at seed and later development stage remains scarce. While some successful innovative initiatives have been brought to market, venture and equity capital financing remain very low. Research and innovation in Czechia are hampered by a need for systemic reform. Although the steady growth of private investment in research and development (R & D) continues, large, mostly foreign-owned firms, invest noticeably more into intangible assets like R & D, than small and medium domestic firms. The medium- and high-tech industry suffers from skills shortages due to low numbers of science, technology, engineering and maths (STEM) graduates and inadequate graduate training. At the same time, the promotion of and support for entrepreneurship remains low, hampering productivity growth. A high degree of fragmentation in the research sector results in R & D funding being spread too thinly. Public-private cooperation is hindered by the current researchers’ career assessment practices. Closer cooperation between academia and business, in particular via spin-offs, could accelerate technology transfer and the diffusion of innovation.

                  (22)

                  The COVID-19 lockdown measures have put a strain on supply chains and many businesses have been unable to operate, while also lacking liquidity reserves. The automotive and the services sectors have been affected most. Market surveillance activities are spread over too many authorities and cooperation and coordination are not optimal. Official schemes to provide firms with state guarantees have been quickly oversubscribed. There is scope for better coordination and faster processes to channel support to companies. Some stakeholders see the measures adopted by the Czech authorities to ease the impact of the COVID-19 crisis as bureaucratic and slow to roll out in the real economy. There is scope for a better analysis of data necessary for taking fast, informed and optimal decisions on targeted economic recovery strategies and measures. In general, fast-changing legislation and complex administrative procedures are seen by the business sector as obstacles to investment. Administrative burden is particularly problematic for start-ups in terms of licences and permits. The lengthy and heavy procedures to obtain a construction permit is an important barrier. The proposed new construction legislation is facing criticism. Czechia is among the least advanced Member States in terms of using digital public services. The number of e-government users remains far below the EU average. The country is implementing its e- government plan. As of 2020 the country has a new ‘digital constitution’ that gives right, as of 2025 at the latest, to receive nearly all public services electronically. Nonetheless, only a relatively small share of municipalities offer online solutions. The parliament is currently discussing a change of the Tax Code, which aims at increasing the digitalisation of the tax system as the rate of electronic filing remains rather low for certain taxes.

                  (23)

                  While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

                  (24)

                  Czechia’s public sector performance and government effectiveness rank below the EU average. According to international indicators, it performs relatively well on access to government information in policymaking. It performs less well on the professionalism of the civil service, transparency of government and control of corruption. Better strategic planning and inter-ministerial coordination, and less fragmentation in local government would improve the efficiency of public administration. The procurement framework has improved but may warrant further fine-tuning. Despite slight improvements, corruption remains a concern for businesses and may further hinder economic activity. Adoption of several anti-corruption measures, including bills on lobbying and whistle-blower protection, is still pending.

                  (25)

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

                  (26)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Czechia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Czechia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Czechia, 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.

                  (27)

                  In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below,

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

                  1.

                  Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Ensure the resilience of the health system, strengthen the availability of health workers, primary care and the integration of care, and deployment of e-health services.

                  2.

                  Support employment through active labour market policies, the provision of skills, including digital skills, and access to digital learning.

                  3.

                  Support small and medium-sized enterprises by making greater use of financial instruments to ensure liquidity support, reducing the administrative burden and improving e-government. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on high-capacity digital infrastructure and technologies, clean and efficient production and use of energy, and sustainable transport infrastructure, including in the coal regions. Ensure access to finance for innovative firms and improve public-private cooperation in research and development.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

         (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 301, 5.9.2019, p. 15.

         (4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

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

         (6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Denmark and delivering a Council opinion on the 2020 Convergence Programme of Denmark 2020/C 282/04

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/22

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Denmark and delivering a Council opinion on the 2020 Convergence Programme of Denmark
      (2020/C 282/04)
      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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Denmark as one of the Member States for which an in-depth review would be carried out.

                  (2)

                  The 2020 country report for Denmark was published on 26 February 2020. It assessed Denmark’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Denmark’s progress towards its national Europe 2020 targets.

                  (3)

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

                  (4)

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

                  (5)

                  On 20 March 2020, the Commission adopted a communication on the activation of the general escape clause of the Stability and Growth Pact. The general escape clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) No 1466/97 and Articles 3(5) and 5(2) of Council Regulation (EC) No 1467/97 (4), facilitates the coordination of budgetary policies in times of severe economic downturn. In its communication of 20 March 2020, the Commission considered that, given the expected severe economic downturn resulting from the COVID-19 pandemic, the conditions for the activation of the general escape clause had been met and asked the Council to endorse this conclusion. On 23 March 2020, the ministers of finance of the Member States agreed with the assessment of the Commission. They agreed that the severe economic downturn requires a resolute, ambitious and coordinated response. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

                  (6)

                  Continued action is required to limit and control the spread of the COVID-19 pandemic, strengthen the resilience of the national health systems, mitigate the socioeconomic consequences of the pandemic through supportive measures for business and households, and ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to bring about a return to the normal functioning of our societies and economies and to sustainable growth, integrating, inter alia, the green transition and the digital transformation, and drawing lessons from the crisis.

                  (7)

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

                  (8)

                  The Union legislator has already amended the relevant legislative frameworks by means of Regulations (EU) 2020/460 (5) and (EU) 2020/558 (6) of the European Parliament and of the Council to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash-flow pressures, Member States can also benefit from a 100 % co-financing rate from the Union budget in the 2020-2021 accounting year. Denmark is encouraged to make full use of those possibilities to help the individuals and sectors most affected.

                  (9)

                  Denmark submitted its 2020 National Reform Programme on 7 May 2020 and its 2020 Convergence Programme on 5 May 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (10)

                  Denmark is currently in the preventive arm of the Stability and Growth Pact.

                  (11)

                  In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 3,7 % of gross domestic product (GDP) in 2019 to a deficit of 8,0 % of GDP in 2020. The deficit is projected to decline to 2,4 % of GDP in 2021. After decreasing to 33,2 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 40,7 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (12)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Denmark has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 4,9 % of GDP. The measures include strengthening healthcare services, temporary compensation for fixed costs of businesses, temporary wage compensation scheme and emergency aid for distressed sectors. In addition, Denmark has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Convergence Programme estimates at approximately 15 % of GDP. Those measures include tax deferrals for personal and corporate income taxes and loan guarantees (3,7 % of GDP). Compared to the Commission 2020 spring forecast, the main difference is that the 2020 Convergence Programme includes expected future losses stemming from COVID-19-related State guarantees (0,5 % of GDP). Overall, the measures taken by Denmark are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (13)

                  Based on the Commission 2020 spring forecast under unchanged policies, Denmark’s general government balance is forecast at -7,2 % of GDP in 2020 and -2,3 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

                  (14)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Denmark’s planned breach of the 3 %-of-GDP deficit threshold in 2020. Overall, the Commission’s analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/97 has not been fulfilled.

                  (15)

                  The COVID-19 pandemic affected Denmark heavily in the first half of 2020, putting the health system under pressure and markedly reducing economic activity in certain sectors. Denmark implemented timely measures to stem the pandemic and to strengthen the health system, including far-ranging initiatives to mitigate its economic consequences. The resulting economic downturn was addressed by a series of strong economic and financial measures by the government and the Central Bank, including direct support to partly cover businesses’ fixed costs and wage expenditures, tax deferrals and liquidity provision for banks and firms, credit schemes and other monetary policy measures. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. These measures effectively reduced the economic shock of the COVID-19 pandemic, but did not prevent a significant loss of output, a large number of bankruptcies and insolvencies and marked increases in unemployment and persons at risk of poverty, including among those in vulnerable situations (e.g. persons with disabilities). According to the Commission 2020 spring forecast, unemployment is expected to moderately increase to around 6,5 % in 2020 before decreasing to below 6 % in 2021.

                  (16)

                  The ongoing COVID-19 crisis underlines the need for Denmark to continuously work to strengthen the resilience of its health system. One issue of particular concern is the shortage of health workers, and the lack of specialised doctors and nurses in e.g. intensive care (in particular nurse anaesthetists). Continuous efforts to address these labour shortages is key. In the short term, Denmark should work to ensure the availability of critical medical products, including personal protective equipment for health workers. Research is ongoing to find not only an antiviral treatment and a vaccine, but also better and faster testing.

                  (17)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Denmark is performing well in the field of digitisation, as evidenced by the European Commission’s Digital Scoreboard. However, to maintain this strong position in the long term and to ensure its competitiveness and benefit from the digital transformation, Denmark would need investment in digital infrastructure as well in education, training and upskilling. Denmark’s National Energy and Climate Plan reports important investment needs to tackle successfully the climate and energy transition. The largest investments are required for the installation of new renewable energy capacity, while significant investment needs are also identified in households (energy efficiency and conversion of heat supply), sustainable transport, industry as well as biogas and district heating. Denmark’s climate policy objectives aim to reduce greenhouse gas emissions by 70 % by 2030, compared with 1990, and achieve climate neutrality by 2050 at the latest. To reflect this, energy consumption would need to be put on a downward trend, requiring investments that follow a comprehensive approach and focus on sectors where energy savings are particularly promising. The economic recovery from the COVID-19 crisis could be fostered by front-loading planned green investments and advancing ambitious environmental, climate, energy and infrastructure investment projects, such as in housing, offshore wind, energy connectivity and railway electrification. Transport is Denmark’s largest source of greenhouse gas emission, making further policy action in this area particularly pertinent. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Denmark to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Denmark to make the best use of that Fund.

                  (18)

                  Overall research and development (R & D) spending has not translated into higher productivity growth in Denmark. An integrated innovation strategy, which clearly spells out what Denmark wants to achieve within the global innovation landscape, is missing. Research and innovation activity remains concentrated in a small number of large firms and foundations and mostly in the pharmaceutical and biotechnology sectors. The eight largest companies account for almost 40 % of total private R & D expenditure (versus worldwide average of 19 %). Overall R & D spending remains high, but the absolute number of companies active in R & D has declined since 2009, largely because smaller firms are not engaging in R & D. Only 33 % of SMEs introduced product or process innovations. Therefore further policy efforts could be needed to broaden the innovation base with the objective to include more companies. Responding to changing skill needs after the COVID-19 pandemic, also in light of future technological changes, requires sustained investment in upskilling and reskilling schemes, including through adult learning.

                  (19)

                  Denmark has taken steps to strengthen its anti-money laundering (AML) framework. In 2019, new legislation was adopted and national authorities and regulators started to implement a range of measures to strengthen Denmark’s preventive AML framework. The Financial Supervisory Authority has been granted sanctioning powers and a higher budget to enhance its AML supervisory capacity. The Financial Intelligence Unit has also received additional staffing and funding. It is crucial that the enhanced AML framework is translated into effective supervision and enforcement. In particular, the AML supervisor will need to fully implement the risk-based approach. The enhanced capacity of the Financial Intelligence Unit will need to show that weaknesses, highlighted by the Danish Court of Auditors report, have been adequately addressed.

                  (20)

                  While the country-specific recommendations set out in this Recommendation (‘the 2020 country-specific recommendations’) focus on tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, the 2019 country-specific recommendations also covered reforms that are essential to address medium- to long-term structural challenges. The 2019 country-specific recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester. That includes the 2019 country-specific recommendations regarding investment-related economic policies. All of the 2019 country-specific recommendations should be taken into account for the strategic programming of post-2020 cohesion policy funding, including for mitigating measures and exit strategies with regard to the current crisis.

                  (21)

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

                  (22)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Denmark’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Denmark in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Denmark, 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.

                  (23)

                  In the light of this assessment, the Council has examined the 2020 Convergence Programme and its opinion (7) is reflected in particular in recommendation (1) below,

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

                  1.

                  Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Enhance the resilience of the health system, including by ensuring sufficient critical medical products and addressing the shortage of health workers.

                  2.

                  Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, sustainable transport as well as research and innovation. Support an integrated innovation strategy with a broader investment base.

                  3.

                  Improve the effectiveness of anti-money laundering supervision and effectively enforce the anti-money laundering framework.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

         (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 301, 5.9.2019, p. 20.

         (4)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

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

         (6)  Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

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