title: Council Recommendation of 10 July 2012 on the National Reform Programme 2012 of Sweden and delivering a Council Opinion on the Convergence Programme of Sweden, 2012-15

text:
               24.7.2012

               EN

               Official Journal of the European Union

               C 219/85

         COUNCIL RECOMMENDATION
   of 10 July 2012
   on the National Reform Programme 2012 of Sweden and delivering a Council Opinion on the Convergence Programme of Sweden, 2012-15
   2012/C 219/25
   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 conclusions of the European Council,
   Having regard to the opinion of the Employment Committee,
   After consulting the Economic and Financial Committee,
   Whereas:

               (1)

               On 26 March 2010, the European Council agreed to the European Commission’s proposal to launch a new strategy for jobs and growth, Europe 2020, based on enhanced coordination of economic policies, which focuses on the key areas where action is needed to boost Europe’s potential for sustainable growth and competitiveness.

               (2)

               On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines for the employment policies of the Member States (3), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

               (3)

               On 12 July 2011, the Council adopted a recommendation (4) on Sweden’s National Reform Programme for 2011 and delivered its opinion on Sweden’s updated Convergence Programme for 2011-14.

               (4)

               On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Sweden as one of the Member States for which an in-depth review would be carried out.

               (5)

               On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

               (6)

               The European Parliament has been duly involved in the European Semester, in accordance with Regulation (EC) No 1466/97, and, on 15 February 2012, adopted a resolution on employment and social aspects in the Annual Growth Survey 2012 and a resolution on the contribution to the Annual Growth Survey 2012.

               (7)

               On 2 March 2012, the European Council endorsed the priorities for ensuring financial stability, fiscal consolidation and action to foster growth. It underscored the need to pursue differentiated, growth-friendly fiscal consolidation, to restore normal lending conditions to the economy, to promote growth and competitiveness, to tackle unemployment and the social consequences of the crisis, and to modernise public administration.

               (8)

               On 20 April 2012, Sweden submitted its Convergence Programme covering the period 2012-15 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time. The Commission has also assessed, in an in-depth review under Article 5 of Regulation (EU) No 1176/2011, whether Sweden is affected by macroeconomic imbalances. The Commission concluded in its in-depth review that Sweden is experiencing imbalances, although not excessive ones.

               (9)

               Based on the assessment of the Convergence Programme pursuant to Article 5(1) of Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is plausible for 2012 and optimistic in 2013-15, when GDP growth is expected to average around 3,5 %. The Commission services’ 2012 spring forecast foresees GDP growth of 2,1 % in 2013. The objective of the budgetary strategy outlined in the Convergence Programme is to ensure long-term sustainability by respecting the rules of the Swedish fiscal framework, including the target of having a surplus in general government net lending of 1 % of GDP over the cycle. The strategy also aims at fulfilling the requirements of the Stability and Growth Pact, notably respecting the 3 % of GDP reference value. The Convergence Programme has changed the medium-term budgetary objective (MTO) from a general government surplus of 1,0 % of GDP to a deficit of 1,0 % of GDP. The new MTO adequately reflects the requirements of the Stability and Growth Pact. Due to the change, the MTO is, based on the (recalculated) structural budget balance, likely to be met over the programme period, even taking into account the likelihood of further expansionary discretionary measures in 2013 or 2014. Certain downside risks to budgetary projections from 2013 onwards are linked to the optimistic macroeconomic assumptions. The planned growth rate of government expenditure, taking into account discretionary revenue measures, would comply with the expenditure benchmark of the Stability and Growth Pact. The debt ratio is below 60 % of GDP and, according to the Convergence Programme, is projected to continue to decrease over the programme period.

               (10)

               The Commission’s in-depth review under Article 5 of Regulation (EU) No 1176/2011 has confirmed that Sweden has a rather high level of household debt. While the situation in the housing and mortgage market stabilised in 2011, several structural distortions persist that threaten the stability of these markets in the long term. Relevant measures have been taken to strengthen the resilience of the financial sector. However, there are currently a number of policies in place that may contribute to the volatility of the Swedish housing market and mortgage debt accumulation, which have received less attention: generous tax deductibility of interest payments and low property taxes, little amortisation and stringent rent regulation. On the supply side, a local planning monopoly, lengthy zoning processes, and a lack of competition hinder the flexibility of housing supply.

               (11)

               Despite a general improvement on the labour market during 2011, the unemployment rates for young people and vulnerable groups remain high, in particular for people with a migrant background. Sweden is currently implementing several active labour market policy measures and education reforms to address this situation. Most of these measures seem relevant and credible, although it is too early to assess their impact. However, the relevance and effectiveness of the main measure targeted at youth employment — the VAT reduction for restaurants and catering services — is uncertain and needs to be assessed. In addition, the level of ambition could be increased if the challenges were tackled in a more comprehensive way, by also addressing relatively high wages at the lower end of the wage scale and differences in employment protection between regular and temporary workers.

               (12)

               Sweden has the second highest research and development (R & D) expenditure as a share of GDP in the EU and is considered an innovation leader according to the Innovation Union Scoreboard. However, as regards the commercialisation of innovative products, Sweden performs below the EU average and shows a negative trend. Moreover, Sweden appears to be lagging behind in creating fast-growing innovative enterprises. Furthermore, Sweden’s overall strong position in R & D is vulnerable due to its strong dependence on a few large multinational companies, which are increasingly relocating their R & D activities away from Sweden. These issues should be addressed in the new research and innovation bill due in autumn 2012.

               (13)

               In the context of the European Semester, the Commission has carried out a comprehensive analysis of Sweden’s economic policy. It has assessed the Convergence Programme and National Reform Programme, and presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (4) below.

               (14)

               In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (5) is reflected in particular in recommendation (1) below.

               (15)

               In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in particular in recommendation (2) below,

         HEREBY RECOMMENDS that Sweden take action within the period 2012-13 to:

               1.

               Preserve a sound fiscal position in 2012 and beyond by implementing the budgetary strategy as envisaged and ensuring continued achievement of the MTO.

               2.

               Take further preventive measures to strengthen the stability of the housing and mortgage market in the medium term, including by fostering prudent lending, reducing the debt bias in the financing of housing investments, and tackling constraints in housing supply and rent regulations.

               3.

               Take further measures to improve the labour market participation of youth and vulnerable groups, e.g. by improving the effectiveness of active labour market measures, facilitating the transition from school to work, promoting policies to increase demand for vulnerable groups and improving the functioning of the labour market. Review the effectiveness of the current reduced VAT rate for restaurants and catering services in support of job creation.

               4.

               Take further measures in the upcoming research and innovation bill to continue improving the excellence in research and to focus on improving the commercialisation of innovative products and the development of new technologies.

      Done at Brussels, 10 July 2012.

            For the Council

            The President

         V. SHIARLY

      (1)  OJ L 209, 2.8.1997, p. 1.

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

      (3)  Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

      (4)  OJ C 217, 23.7.2011, p. 9.

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


				|

		52013DC0383

			Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in Spain /* COM/2013/0383 final */

			   	Recommendation for a
COUNCIL RECOMMENDATION
with a view to bringing an end to the
situation of an excessive government deficit in Spain
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the
Treaty on the Functioning of the European Union and in particular Article
126(7) thereof,
Having regard to the
recommendation from the European Commission,
Whereas:
(1)       According to Article 126 of
the Treaty on the Functioning of the European Union (TFEU) Member States shall
avoid excessive government deficits.
(2)       The Stability and Growth
Pact is based on the objective of sound government finances as a means of
strengthening the conditions for price stability and for strong sustainable
growth conducive to employment creation.
(3)       On 27 April 2009, the
Council decided, in accordance with Article 104(6) of the Treaty establishing
the European Community (TEC), that an excessive deficit existed in Spain and
issued a recommendation to correct the excessive deficit by 2012 at the latest,
in accordance with Article 104(7) TEC and Article 3 of Council Regulation (EC)
No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of
the excessive deficit procedure [1].
(4)       On 2 December 2009, the
Council decided, in accordance with Article 3(5) of Council Regulation (EC) No
1467/97, that effective action had been taken and that unexpected adverse
economic events with major unfavourable consequences for government finances had
occurred after the adoption of that recommendation.[2] Notably, the sharp
deterioration in the growth outlook in the wake of the global economic and
financial crisis had major negative budgetary implications. As a result, the
Council decided to adopted a revised recommendation under Article 126(7) TFEU
to correct the excessive deficit by 2013 at the latest in a credible and
sustainable manner by taking action in a medium-term framework.
(5)       On 15 June 2010, the Commission
concluded that Spain had taken effective action in compliance with the Council
recommendation of 2 December 2009 to bring its government deficit below the 3% of
GDP reference value and considered that no additional step in the excessive
deficit procedure was therefore necessary.
(6)       On 10 July 2012, the
Council decided, in accordance with Article 3(5) of Council Regulation (EC) No
1467/97, that effective action had been taken but that unexpected adverse
economic events with major unfavourable consequences for government finances had
occurred after the adoption of the revised recommendation in 2009. Notably, a
worsening in the growth outlook and the shift to a less tax-rich growth
composition had major negative budgetary implications. The Council therefore
adopted a revised recommendation under Article 126(7) TFEU ("the revised
EDP recommendation") and recommended Spain to correct the excessive
deficit by 2014 at the latest. In order to bring the headline government
deficit below the 3% of GDP reference value by 2014, Spain was recommended to deliver
an improvement of the structural balance of 2.7% of GDP in 2012, 2.5% of GDP in
2013 and 1.9% of GDP in 2014, based on the Commission
services' update of the 2012 Spring Forecast. The headline deficit targets were
set at 6.3% of GDP for 2012, 4.5% of GDP for 2013 and 2.8% of GDP in
2014. Spain was also recommended to implement the measures adopted in the 2012
budget and in the Autonomous Communities’ rebalancing plans and to adopt the
announced multi-annual budget plan for 2013-14 by the end of July 2012,
including a medium-term budgetary strategy, which would fully specify the
structural measures necessary to achieve the correction of the excessive
deficit by 2014.
(7)       On 14 November 2012, the
Commission concluded, based on the Commission services' 2012 Autumn Forecast, that
Spain had taken effective action in compliance with the revised Council
recommendation of 10 July 2012 and that no further steps in the excessive
deficit procedure were required.
(8)       According to Article 3(5)
of Regulation (EC) No 1467/97, the Council may decide, on a recommendation from
the Commission, to adopt a revised recommendation under Article 126(7) TFEU, if
effective action has been taken and unexpected adverse economic events with
major unfavourable consequences for government finances occur after the
adoption of that recommendation. The occurrence of unexpected adverse economic
events with major unfavourable budgetary effects shall be assessed against the
economic forecast underlying the Council recommendation.
(9)       In accordance with Article
126(7) of the TFEU and Article 3 of Council Regulation (EC) No 1467/97, the
Council is required to make recommendations to the Member State concerned with
a view to bringing the situation of excessive deficit to an end within a given
period. The recommendation has to establish a maximum deadline of six months
for effective action to be taken by the Member State concerned to correct the
excessive deficit. Furthermore, in a recommendation to correct an excessive
deficit the Council should request the achievement of annual budgetary targets
which, on the basis of the forecast underpinning the recommendation, are
consistent with a minimum annual improvement in the structural balance, i.e.
the cyclically-adjusted balance excluding one-off and other temporary measures,
of at least 0.5% of GDP as a benchmark.
(10)     After a short-lived
recovery in 2011 the economy has slipped back into recession, recording
negative quarterly real GDP growth since the third quarter of 2011. In annual
terms, GDP fell by 1.4% in 2012. According to the Commission services' 2013 Spring
Forecast, the recession is set to continue in 2013, with positive net exports
still not able to offset the on-going contraction of domestic demand. Output is
expected to stabilise only towards the end of 2013. Real GDP is thus projected
to contract by 1.5% in 2013, before growing by 0.9% in 2014 (under a
no-policy-change assumption). At the time of the last Council recommendation,
real GDP was expected to contract by 1.9% and 0.3% in 2012 and 2013,
respectively, and to grow by 1.1% in 2014. The less negative growth outcome in 2012
was mainly due to somewhat more resilient domestic demand possibly also thanks
to the liquidity injected via the repayment scheme for the commercial debt
accumulated by the regions and local authorities before 1 January 2012 (EUR
27.4 bn, or 2.6% of GDP). Regarding 2013 and 2014, the Commission services'
2013 Spring Forecast envisages a sharper contraction of real GDP in 2013 and a
more subdued recovery in 2014. This includes a sharper drop in domestic demand
in both years and a more protracted slump in employment. The deterioration in
the macroeconomic outlook is partly linked to additional consolidation measures
included in the 2013-14 budget plan and the 2013 budget being taken into
account.
(11)     According to the Commission
services' 2013 Spring Forecast, the general government deficit reached 10.6% of
GDP in 2012, compared with a government and EDP target of 6.3% of GDP and a
9.4% of GDP outcome in 2011. Adjusting for capital transfers to banks (which
are considered as one-off operations), the corresponding deficits were 7.0% and
9.0% of GDP in 2012 and 2011, respectively. The decrease
in the headline balance corresponds to an improvement in the primary balance of
2.4 pps. (net of capital transfers into banks), against the background of a
shrinking economy and a tax-weak growth composition. The Commission
services' 2013 Spring Forecast points to an improvement in the structural
deficit of 1.8 pps. in 2012, compared with a recommended improvement of 2.7
pps. Correcting for the slight downward revision of potential output since the last
Council recommendation, the estimated fiscal effort remains unchanged. However,
the estimated change in the structural balance was severely affected by unexpected
revenue shortfalls, which amounted to around 1.0 pp. Overall, taking these
effects into account, the adjusted fiscal effort would increase to 2.9 pps., above
the recommended effort under the revised EDP recommendation. Apart from
recapitalisation measures, the budgetary deviation in 2012 is linked to a
combination of weaker-than-expected revenues (taking into account the impact of
discretionary measures and the base effect) and higher intermediate consumption
and social transfers. The less tax-rich growth composition and a stronger
deterioration in the labour market implied major revenue shortfalls, notably of
direct and indirect taxes, as well as higher social expenditure. Spain adopted
sizeable consolidation measures during 2012, amounting to around 4% of GDP,
including around 1½% of GDP on the revenue side and 2½% of GDP on the
expenditure side. These measures partly compensated also for an underlying
deterioration in the structural balance due to rising interest payments and
higher social transfers.
(12)     For 2013, according to the
Commission services' 2013 Spring Forecast, the government deficit is projected
to decline to 6.5% of GDP, compared to the EDP target of 4.5% of GDP. The
primary balance is expected to improve by 4.5 pps. (0.9 pps net of capital transfers
into banks). Following the last Council recommendation, the Spanish government
presented in August 2012 a multi-annual budget plan for 2013-14, outlining some
features of the consolidation strategy for the medium-term. In total, the budgetary
impact of discretionary measures in 2013 is estimated to be about 1% of GDP on
the expenditure side and about 1½% of GDP on the revenue side. The expected budgetary
deviation of around 2% of GDP compared with the EDP target is partly explained
by the worse starting position. However, the main factor behind the deviation
is the unfavourable growth composition, with private consumption contracting
more strongly and the labour market performing worse than expected in the revised
EDP recommendation. The Commission services' 2013 Spring Forecast projects the
structural deficit to further narrow by 1.1 pps. in 2013, compared with a
recommended effort of 2.5 pps. Correcting for the change in the estimated
potential growth and for higher-than expected revenue shortfalls, the estimated
fiscal effort improves by 1.4 pps., bringing the adjusted fiscal effort to 2.5%
of GDP, in line with the recommended effort in the revised EDP recommendation.
In its 2013 Stability Programme, the Spanish government announced a general
government deficit target of 6.3% of GDP for 2013, to be underpinned by
additional consolidation measures of around EUR 3 bn. (0.3% of GDP) still to be
adopted and implemented this year.
(13)     For 2014, the headline
deficit is expected to widen to 7.0% of GDP compared to an EDP target of 2.8%
of GDP. The primary deficit would widen by 0.4% of GDP. Apart from the base
effect, the expected deviation mainly reflects the expiry of temporary measures
taken in previous years and the fact that the planned consolidation measures
for 2014 were not sufficiently specified in the August 2012 multi-annual budget
plan to be included in the Commission services' forecast. Moreover, the
composition of economic growth would continue to be tax-poor, with social
contributions and indirect taxes not rising in full proportion to nominal GDP.
Interest payments would also keep rising due to a higher debt stock. According
to the Commission services' 2013 Spring Forecast, the structural deficit is
projected to deteriorate by 1.1 pps., compared to a recommended improvement of
1.9% of GDP. Correcting for the change in the estimated potential growth and
unexpected revenue shortfalls, the gap increases by a further 0.2 pps.
(14)     As regards fiscal
governance, major progress has been made in the reporting of budgetary
execution at sub-central government levels. However, the provisions of the
Budgetary Stability Law on early warning and corrective mechanisms to limit budgetary
deviations have not been fully effective and the transparency of their
implementation could be enhanced. Despite progress with respect to budgetary
reporting at regional level, achieving higher fiscal transparency would require
more comprehensive, consistent and timely reporting, also of budgetary plans,
on a consolidated general government basis in line with ESA 95. The establishment
of a fiscal council, with full institutional and financial independence, is
still pending.
(15)     General government gross
debt rose to around 84% of GDP in 2012 compared to 80.9% of GDP projected in
the updated Commission services' 2012 Spring Forecast. The increase in the debt
ratio was due to a higher than expected deficit outcome, lower nominal GDP
growth, costs of bank recapitalisation operations and the payment of public
administration arrears. According to the Commission services' 2013 Spring Forecast,
the debt-to-GDP ratio is expected to increase further and to exceed 95% in
2014, based on a no-policy-change scenario, thus exceeding the Treaty reference
value in all years.
(16)     On 10 April 2013, the
Commission concluded, based on its 2013 In-Depth Review on Spain under the
Macroeconomic Imbalances Procedure[3],
that Spain is experiencing excessive macroeconomic imblances. The correction of
these imbalances accumulated during the boom years, and in particular the
absorption of very high private and external debt levels, are having major
negative consequences on economic growth, financial stability and public
finances. A sustainable correction of the excessive deficit in the medium-term
requires simultaneous progress on ensuring the correction of macroeconomic
imbalances, supported by structural reforms to boost growth and employment
creation and to reduce structural rigidities that hamper the adjustment.
(17)     According to the Commission
services' 2013 Spring Forecast, Spain will not meet the nominal budgetary
targets established in the Council Recommendation of 10 July 2012. However,
Spain has implemented a structural effort in 2012 and 2013 which, account taken
of the unexpected adverse economic developments compared to when the Council
recommendation was issued, is in line with the revised EDP recommendation. These
unexpected adverse economic developments have entailed major unfavourable
consequences for government finances. In particular, significant revenue
shortfalls linked to the on-going rebalancing of the economy towards a less
tax-rich growth structure and associated negative effects on revenue
elasticites have led to a substantial deterioration in the budgetary position. Moreover,
the economic recession has affected employment in a very negative way and
unemployment has risen sharply. Considering all these factors, consistent with
the rules of the Stability and Growth Pact and including the need to correct
excessive macroeconomic imbalances with major unfavourable consequences for
public finance, an extension of the deadline for correcting the excessive
deficit in Spain by two years to 2016 appears to be warranted.
(18)     Against the background of
high uncertainties regarding economic and budgetary developments, the budgetary
target recommended for the final year of the correction period should be set at
a level clearly below the reference value, in order to guarantee an effective
and lasting achievement of the correction within the requested deadline.
(19)     The intermediate headline
deficit targets leading to the correction of the excessive deficit by 2016 are
set at 6.5% of GDP for 2013, 5.8% of GDP for 2014, 4.2% of GDP for 2015, and 2.8%
of GDP for 2016. Achieving these targets requires an annual improvement in the
primary balance (net of one-off measures) of 1.3% of GDP on average over the
period 2013-16 and, on the basis of the Commission services' 2013 Spring Forecast
extended to 2016, an improvement in the structural budget balance of 1.1% of
GDP in 2013, 0.8% of GDP in 2014, 0.8% of GDP in 2015, and 1.2% of GDP in 2016.
This more gradual adjustment path takes into account the current difficult
economic environment and the on-going major structural transformation of the
Spanish economy and will have to be supported by ambitious structural reforms.
As such, it is expected to support the unwinding of external and internal
macroeconomic imbalances, mitigate the negative short-term impact of fiscal
consolidation on economic growth, while still stabilising and reversing the
upward trend in general government debt.
(20)     According to the Commission
services' 2013 Spring Forecast extended to 2016, which is based on a no-policy
change assumption, no additional measures appear needed at this stage to
achieve the recommended improvement in the structural balance for 2013 (and the
new 6.5% of GDP deficit target), but the budgetary plans at all levels of
government will have to be strictly implemented. For the period 2014-2016,
bringing the deficit below the Treaty reference value on a sustainable basis
will require considerable structural fiscal measures on top of those already
included in the Commission services' 2013 Spring Forecast. Those measures,
amounting to around 2% of GDP in 2014, 1% of GDP in 2015, and 1½% of GDP in
2016 should take into account the need to compensate for the negative
second-round effects, negative potential output growth, as well as rising
interest and social payments.
(21)     The 2013 Stability Programme
envisages an adjustment path which is broadly consistent with the correction of
the excessive deficit by 2016, targeting headline deficits of 6.3% of GDP in
2013, 5.5% in 2014, 4.1% in 2015, and 2.7% in 2016. For 2013, the target is
based on additional consolidation measures of around EUR 3 bn envisaged in the
programme, which still need to be fully specified.
(22)     Budgetary consolidation
measures should secure a lasting improvement in the general government balance,
while being geared towards enhancing the quality of the public finances and
reinforcing the growth potential of the economy.
(23)     Spain faces high risks to
sustainability in a medium-term perspective and medium risks in the long run.
Returning to a higher structural primary balance, around -0.5% of GDP as it was
on average in the period 1998-2012, would help contain these risks. The 2013
reform of early retirement schemes is expected to contribute to the long-term
sustainability of the social security system. However, further measures to
contain age-related expenditure growth appears necessary, e.g. via the
appropriate regulation of the sustainability factor foreseen by the 2011 reform
of the pension system, including by providing that the retirement age will rise
in line with gains in life expectancy.
(24)     In view of the
decentralised nature of its public finances, Spain's fiscal adjustment path should
be underpinned by a credible medium-term consolidation strategy that includes
(i) a detailed multi-annual budget plan with full specification of measures for
2014-16, (ii) further strengthening the effectiveness of the institutional
framework (by raising further the transparency in implementation of the Budgetary
Stability Law as well as by establishing an independent fiscal council), (iii)
undertaking concrete steps to rein in the mounting structural deficit in the
social security system, and (iv) giving a greater emphasis to the growth
friendliness of the consolidation (including by conducting systematic
expenditure reviews as well as reviews of the tax system).
(25)     In parallel to the regular
reviews of the ESM Financial Assistance for the Recapitalisation of Financial
Institutions in Spain[4]
and as agreed in the Memorandum of Understanding signed on 23 July 2012,
monitoring of progress on implementation of Spain's EDP commitments will be
carried out on a quarterly basis.
(26)     Spain fulfils the
conditions for the extension of the deadline for correcting the excessive general
government deficit as laid out in Article 3(5) of Regulation (EC) No 1467/97 on
speeding up and clarifying the implementation of the excessive deficit
procedure,
HAS ADOPTED THIS RECOMMENDATION:
(1)
Spain should put an end to the present excessive
deficit situation by 2016.
(2)
Spain should reach a
headline deficit target of 6.5% of GDP in 2013, 5.8% of GDP in 2014, 4.2% of
GDP in 2015, and 2.8% of GDP in 2016, which, based on the Commission services'
2013 Spring Forecast extended to 2016, is consistent with an improvement of the
structural balance of 1.1%, 0.8%, 0.8%, and 1.2% of GDP in the years 2013-2016 respectively.

(3)
Spain should implement the measures adopted in
the 2013 budget plans at all levels of government and stand ready to take
corrective action in case of deviations from budgetary plans. The authorities
should reinforce the medium-term budgetary strategy with well-specified
structural measures for the years 2014-16 that are necessary to achieve the
correction of the excessive deficit by 2016.
(4)
The Council establishes the deadline of 1
October 2013 for the Spanish government to take effective action and, in
accordance with Article 3(4a) of Council Regulation (EC) No 1467/97, to report in
detail the consolidation strategy that is envisaged to achieve the targets.
Furthermore, the Spanish authorities should
(i) strengthen the effectiveness of the institutional framework by raising further
the transparency in implementation of the Budgetary Stability Law as well as by
establishing an independent fiscal council to provide analysis, advice and
monitor compliance of fiscal policy with national and EU fiscal rules, (ii)
undertake concrete steps to rein in the increasing structural deficit in the
social security system, and (iii) give a greater emphasis to the growth friendliness
of the consolidation, including by conducting systematic reviews of expenditure
and the tax system. In addition, to ensure the
success of the fiscal consolidation strategy, it will be important to back the
fiscal consolidation by comprehensive structural reforms, in line with the
Council recommendations addressed to Spain in the context of the European
Semester and the Macroeconomic Imbalances Procedure.
This
recommendation is addressed to the Kingdom of Spain.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 6.
[2]               All documents related to the excessive deficit
procedure for Spain can be found at:
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/spain_en.htm

[3]               http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/op134_en.htm
[4]               http://ec.europa.eu/economy_finance/assistance_eu_ms/spain/index_en.htm


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Commission Recommendation No 1104/82/ECSC of 6 May 1982 imposing a provisional anti-dumping duty on certain sheets and plates, of iron or steel, originating in Brazil

Official Journal L 128 , 11/05/1982 P. 0009 - 0011

*****COMMISSION  RECOMMENDATION No 1104/82/ECSC  of 6 May 1982  imposing a provisional anti-dumping duty on certain sheets and plates, of iron or steel, originating in Brazil  THE COMMISSION OF THE EUROPEAN  COMMUNITIES,  Having regard to the Treaty establishing the European Coal and Steel Community, and in particular Articles 74 and 86 thereof,  Having regard to Commission recommendation No 3018/79/ECSC of 21 December 1979 on protection against dumped or subsidized imports from countries not members of the European Coal and Steel Community (1), and in particular Article 11 thereof,  After consultations within the Advisory Committee provided for by recommendation No 3018/79/ECSC,  Whereas in March 1982 the Commission received a complaint, lodged by the Walzstahl-Vereinigung, Duesseldorf, on behalf of almost all Community producers of sheets and plates, of iron or steel, hot-rolled or cold-rolled, of a thickness of less than 3 mm;  Whereas, since the complaint provided sufficient evidence of dumping in respect of the like product originating in Brazil and of the threat of material injury resulting therefrom, the Commission accordingly announced, by a notice published in the Official Journal of the European Communities (2), the initiation of a proceeding concerning imports of sheets and plates, of iron or steel, originating in Brazil and commenced an investigation of the matter at Community level;  Whereas the Commission officially so advised the exporters and importers known to be concerned, as well as the representatives of the exporting country and the complainants;  Whereas the Commission has given all parties directly concerned the opportunity to make known their views in writing and to be heard orally; whereas all exporting and several of the importing parties known to be concerned have taken the opportunity to make known their views in writing; whereas the exporting parties concerned also availed themselves of the opportunity to present their views orally;  Whereas the Commission has published basic prices (3) based on the lowest normal prices or costs of production in the supplying countries where normal conditions of competition prevail, including the costs of transport, insurance and customs duties; whereas the Brazilian exporters did not submit any evidence which would lead the Commission to doubt the appropriateness of these basic prices; whereas, moreover, the allegations made by the Brazilian exporters that export prices of the product concerned to the Community are above domestic prices in Brazil and that these prices cover all costs of production were not supported by any evidence;  Whereas, therefore, for its preliminary determination of dumping the Commission compared the prices of imports into the Community of the products under consideration with the basic prices;  Whereas this comparison shows that between December 1981 and March 1982 most of these products, originating in Brazil, have been offered for importation within the Community at prices lower than the basic prices and that dumping has taken place the margin of which is constituted by this undercutting; whereas the margin has varied, reaching more than 22 % in some instances; whereas this undercutting has occurred despite the arrangement on trade in iron and steel products concluded between Brazil and the Community by which the Brazilian Government has undertaken to ensure that in respect of the products in question Community basic prices would be respected by Brazilian exporters;  Whereas, with regard to injury to the Community industry concerned, the evidence available to the Commission shows that in 1980 imports into the Community of the products concerned originating in Brazil amounted to approximately 30 000 tonnes;  Whereas from December 1981 to March 1982 import licence applications for 98 058 tonnes of the products in question originating in Brazil have been received by the German authorities and applications for more than 20 000 tonnes by the British authorities; whereas  during the period December 1981 to February 1982, 34 644 tonnes of these products were already actually imported into the Federal Republic of Germany;  Whereas the average monthly quantity of the products concerned originating in Brazil, for which import licences were issued between December 1981 and March 1982, represents 3 % of average monthly consumption in the Community in 1980; whereas the average monthly quantity for which import licences were issued during the same period solely by the German authorities represents 13;2 % of average monthly consumption in Germany in the first 10 months of 1981;  Whereas the information obtained from certain importers shows that the prices at which considerable quantities of these imports are resold within the Community are significantly below the abovementioned basic prices and below the price level which would permit the Community producers to cover their costs; whereas these prices are forcing the Community industry either to lose sales or to align its prices downwards;  Whereas the Community industry manufacturing the products concerned is in a crisis situation characterized by a fall in production of 11 % between 1977 and 1980, a very low capacity utilization estimated at below 50 % in some instances and reduced profits or increased losses; whereas, in addition, the numbers employed in the Community steel industry fell by 244 780 or 30;8 % between 1974 and 1981; whereas the importation of the quantities licensed and their resale at low prices seriously jeopardizes the attempt being made at present by the Community authorities and producers to reduce output and increase prices to profitable levels;  Whereas the Commission has also considered the injury caused by other factors which, individually or in combination are also affecting the Community industry; whereas it has found in this context that the level of consumption in the Community has declined; whereas the volume of imports from other sources has fallen at a much greater rate, however from 1 430 000 tonnes in 1977 to 753 000 tonnes in 1981; whereas the influence of the dumped imports has been isolated from the other factors adversely affecting the industry; whereas taking into account the restructuring efforts being undertaken at present by the Community steel industry the Commission has reached the preliminary conclusion that the dumped imports are causing or threatening to cause material injury to a Community industry;  Whereas since December 1981 a number of consultations have been held in the context of the abovementioned arrangement between the Community and Brazil regarding the imports under consideration; whereas these consultations did not result in a suitable solution;  Whereas, in these circumstances and in order to prevent further injury being caused during the proceeding, the interests of the Community call for immediate intervention consisting in the imposition of a provisional anti-dumping duty; whereas the evidence at present available to the Commission indicates that dumping has only occurred in respect of imports of cold-rolled sheets and plates; whereas it is appropriate, therefore, to limit the provisional duty to imports of these products; whereas having regard to the extent of injury caused the rate of this duty should be equal to the difference between the basic prices published by the Commission for these products and their price on importation into the Community;  Whereas, in order to prevent evasion of the anti-dumping duty, it is necessary to establish another basis for calculating such duty where the products in question are not put into free circulation by the first purchaser in the Community; whereas the method used should take account of the average margin between import prices and resale prices charged by Community importers for these products originating in Brazil, such margin having been provisionally determined in the course of the preliminary investigation carried out by the Commission;  Whereas a time limit should be fixed within which the parties concerned may, following the imposition of the provisional duty, make their views known and apply to be heard orally by the Commission,  MAKES THE FOLLOWING RECOMMENDATION:  Article 1  1. A provisional anti-dumping duty is hereby imposed on sheets and plates, of iron or steel, not further worked than cold-rolled, of a thickness of less than 3 mm falling within Common Customs Tariff subheadings 73.13 B II b) and c) and corresponding to NIMEXE codes 73.13-43, 45, 47 and 49, originating in Brazil.  2. The amount of this duty shall be equal to the amount by which the effective price (basic price plus extras) established by contract, free-at-frontier, duty-paid, is lower than the most recent effective price (basic price plus extras) published by the Commission for these products. 3. (a) Where the products defined in paragraph 1 are not put into free circulation on the basis of the price to the first purchaser in the Community, the amount of duty shall be equal the amount by which the effective price (basic price plus extras) established by contract, free-at-frontier duty-paid, is lower than the most recent effective price (basic price plus extras), published by the Commission for these products, increased by 15 %.  (b) However, where the declarant is able to give proof to the satisfaction of the customs authorities of the price paid by the first purchaser, paragraph 2 shall apply.  4. The provisions in force concerning customs duties shall apply for the application of this duty.  5. The release for free circulation in the Community of the products referred to in paragraph 1 shall be subject to the provision of a security equivalent to the amount of the provisional duty.  Article 2  1. Without prejudice to Article 7 (4) (b) and (c) of recommendation No 3018/79/ECSC, the parties concerned may make known their views and apply to be heard orally by the Commission within a month of the entry into force of this recommendation.  2. Subject to Articles 11, 12 and 14 of recommendation No 3018/79/ECSC, this recommendation shall be applicable for four months or until the adoption by the Commission of definitive measures.  Article 3  This recommendation shall enter into force on the day following its publication in the Official Journal of the European Communities.  Done at Brussels, 6 May 1982.  For the Commission  Wilhelm HAFERKAMP  Vice-President  (1) OJ No L 339, 31. 12. 1979, p. 15.  (2) OJ No C 70, 19. 3. 1982, p. 3.  (3) OJ No L 372, 29. 12. 1981, p. 1, OJ No L 290, 31. 10. 1980, p. 1, as amended by OJ No L 184, 4. 7. 1981, p. 19 and OJ No L 216, 1. 8. 1981, p. 1.


               EN

                        EUROPEAN COMMISSION

               Brussels, 20.7.2010

               COM(2010) 913 final

               RECOMMENDATION FROM THE COMMISSION TO THE COUNCIL

               to authorise the Commission to open negotiations on behalf of the European Union for the renewal of the protocol to the Fisheries Partnership Agreement with Cape Verde

               RECOMMENDATION FROM THE COMMISSION TO THE COUNCIL

               to authorise the Commission to open negotiations on behalf of the European Union for the renewal of the protocol to the Fisheries Partnership Agreement with Cape Verde

               A.EXPLANATORY MEMORANDUM

               The European Union and the Republic of Cape Verde have concluded a protocol to the fisheries agreement
                  1
                which was initialled by the two parties on 16 December 2005 and entered into force on 30 March 2007. The protocol, which grants fishing opportunities for the EU vessels and fixes the financial counterpart, will expire on 31 August 2011.

               The Commission proposes to negotiate a new protocol that meets the actual possibilities and needs of the Member States fleet and is in line with the July 2004 Council guidelines on fisheries partnership agreements.

               The Council is asked to adopt the negotiation guidelines attached to this recommendation.

               B.RECOMMENDATION

               In the light of the above, the Commission recommends that:

               –The Council authorises the Commission to open and conduct negotiations for the renewal of the protocol in the framework of the fisheries partnership agreement with the Republic of Cape Verde;

               –The Commission is nominated as the Union negotiator for this subject;

               –The Commission shall conduct such negotiations in consultation with the special committee pursuant to the provisions laid down in the Treaty on the functioning of the European Union;

               –The Council approves the negotiation guidelines attached to this recommendation.

               ANNEX

               Negotiations guidelines

               –The objective of the negotiations is the renewal of the protocol in the framework of the Fisheries Partnership Agreement between the European Union and the Republic of Cape Verde, in line with the 15 July 2004 Council conclusions on fisheries partnership agreements based on the Commission's communication of 23 December 2002, and giving consideration to the human rights situation in the country.

               –This protocol shall include a clause about consequences in cases of violation of human rights and democratic principles.

               –With a view to ensuring through this new protocol, the promotion of sustainable and responsible fisheries, the Commission's negotiation objectives will be based on the following:

               Ensuring access to the exclusive economic zone (EEZ) of the Republic of Cape Verde and the necessary authorisations for the vessels of the European fleet to carry out fishing activities of tuna species in the aforesaid EEZ;

               Duly taking into account the best available scientific advice;

               Ensuring that access to fisheries resources is based on the same criteria that apply to the current protocol and on the evolutions observed during the past few years;

               Strengthening dialogue on sector policy with a view to encouraging the implementation of a responsible fisheries policy, consistent with the development objectives of the country, in particular with regards monitoring control and surveillance of fishing activities, fisheries resource management, and improved hygiene standards of fisheries products.

                     (1)
                  Council Regulation (EC) n°2027/2006 of 19 December 2006 – OJ L 414 of 30 December 2006


title: Recommendation for a Council recommendation to Poland with a view to bringing an end to the situation of an excessive government deficit Application of Article 104(7) of the Treaty

text:
Important legal notice

|

52007SC0142

Recommendation for a Council recommendation to Poland with a view to bringing An end to the situation of An excessive government deficit Application of Article 104(7) of the Treaty  /* SEC/2007/0142 final */

	[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |Brussels, 7.2.2007SEC(2007) 142 finalRecommendation for aCOUNCIL RECOMMENDATION TO POLANDwith a view to bringing an end to the situation of an excessive government deficitApplication of Article 104(7) of the Treaty(presented by the Commission)EXPLANATORY MEMORANDUM1. Background: Article 104 and the excessive deficit procedureArticle 104 of the Treaty establishes the requirement to maintain sound public finances and avoid excessive deficit as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. The Stability and Growth Pact, namely its corrective part laid down in Council Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure[1], implements Article 104 of the Treaty. In 2005, the Pact was amended to anchor fiscal discipline, strengthen its effectiveness and economic underpinnings as well as to safeguard the sustainability of the public finances in the long run.2. The excessive deficit procedure for PolandOn the basis of the Commission services’ spring 2004 economic forecasts[2], which revealed a deficit of 4.1% of GDP for 2003[3], the Commission initiated the excessive deficit procedure for Poland on 12 May 2004, in accordance with Article 104(3) of the Treaty. In May 2004, Poland submitted its first convergence programme and the Council adopted an opinion on it on 5 July 2004[4]. At the same time, the Council decided, on the basis of a Commission recommendation in conformity with Article 104(6) that Poland had an excessive deficit[5] and consequently, pursuant to Article 104(7), issued a recommendation to the Polish authorities for its correction[6]. In this recommendation, the Council invited the Polish authorities “ to put an end to the present excessive deficit situation as rapidly as possible ” and to “ take action in a medium-term framework in order to achieve their objective of bringing the deficit below 3% of GDP in 2007 in a credible and sustainable manner, in accordance with the path for deficit reduction specified in the Council Opinion of 5 July 2004 on the convergence programme submitted in May 2004 ” with the following annual targets: “ 5.7% of GDP in 2004, 4.2% of GDP in 2005, 3.3% in 2006 and 1.5% of GDP in 2007 ”. The Council established the deadline of 5 November 2004 to take effective action “ regarding the measures envisaged to achieve the 2005 deficit target ”. Poland was also recommended to “ allocate possible extra revenues to decrease the general government deficit ”. In addition, the Council invited the Polish authorities “ to ensure the rise in the debt ratio is brought to a halt ”.3. The general government data in the excessive deficit procedure and systemic pension reformsThe Eurostat decision of 2 March 2004 on the sectoral classification of pension schemes established that defined-contribution funded schemes cannot be classified as social security and thus cannot be considered as part of general government[7].Poland currently avails itself of this transitory period for the pension reform which will expire with the first fiscal notification of 2007 (of the actual deficit and debt data for 2006 and preceding years), due by 1 April 2007[8]. Therefore, social contributions and other revenue collected (and expenditure incurred) by funded defined-contribution schemes have been recorded as government revenue (and expenditure), which result in deficit and debt figures being somewhat smaller than otherwise. At the expiry of the transition period, only the definitions that include the budgetary cost of the pension reform will be valid.4. Recent developments and prospects for 2007Based on the assessment of the 2007 draft budget and the Commission services' autumn 2006 forecast the Council adopted, on the basis of a Commission recommendation, on 28 November 2006 a decision establishing, in accordance with Article 104(8), that the action taken by Poland in response to the recommendation of the Council in accordance with Article 104(7) is proving to be inadequate[9]. According to the Treaty and the Stability and Growth Pact, this can only be followed by another Council recommendation under Article 104(7) given that Poland is not participating in the single currency and is therefore not subject to the next steps of the procedure (Article 104(9) and Article 104(11)).In the latest update of the convergence programme, submitted on 30 November 2006, Poland revised downwards the estimated deficit outcome for 2006 and the deficit targets for 2007-2009 compared to the draft 2007 budget. The new deficit target for 2007 is 1.4% of GDP (3.4% if the pension reform cost is included). The downward revision of the 2007 deficit target is not based on additional measures but reflects the better-than-expected outturn for 2006 (from a deficit of 2.1% of GDP expected in the budget for 2007 to an estimated outturn of 1.9% in the convergence programme) and better growth prospects for 2007. In structural terms (i.e. in cyclically-adjusted terms net of one-off and other temporary measures), the deficit would improve by ½% of GDP in 2007, after ¼% in 2006.Taking into account the most recent economic and budgetary developments, the outturn for 2006 is likely to be around 1.9% of GDP, i.e. closer to the figure in the programme than to the 2.2% of GDP projected in the Commission services’ autumn 2006 forecast, with a potential favourable base effect on 2007. However, the deficit target for 2007, based mainly (i) on the assumption of an incomplete execution of expenditure plans of local authorities and (ii) on some revenue measures, seems subject to risks stemming from (i) a possible acceleration of co-financing resulting from rising absorption of EU funds and (ii) from the strong reliance on positive macroeconomic developments. According to the Commission services’ autumn 2006 forecast, the impact of the 2007 budget would be to bring about a structural improvement of only ¼% of GDP. In nominal terms, taking into account the latest information, the deficit projection for 2007 would be around 1.7% of GDP.The most recent update of the convergence programme envisages the correction of the excessive deficit by 2007 counting on the possibility to consider part of the pension reform costs according to Article 2(7) of Council Regulation (EC) No 1467/97 and the implementing provisions in the code of conduct[10]. In particular, Article 2(7) of the Regulation specifies that “ in the case of Member States where the deficit exceeds the reference value, while remaining close to it, and where this excess reflects the implementation of a pension reform introducing a multi-pillar system that includes a mandatory, fully-funded pillar, the Commission and Council shall also consider the cost of the reform to the publicly managed pillar when assessing developments in EDP deficit figures. For that purpose, consideration shall be given to the net cost of the reform on a linear degressive basis for a transitory period of five years. This net cost shall be taken into account also for the decision of the Council under Article 104(12) (…) [i.e. to abrogate previous decisions under the excessive deficit procedure] if the deficit has declined substantially and continuously and has reached a level that comes close to the reference value ” [of 3% of GDP]. Taking into account the implementing provisions in the code of conduct, the applicable share of pension reform cost is 60%. As pension costs are estimated at 2% of GDP in 2007, the part of costs to be considered would correspond to around 1.2% of GDP.For Poland to benefit from this provision, the deficit should be shown to (i) have declined substantially and continuously and (ii) have reached a level that comes close to the reference value. The table below supports that the deficit (whether including or excluding the pension reform cost) has declined substantially and continuously over the period 2004-2006; however, the deficit (including pension reform costs) was not yet close to the reference value in 2006. The outcome for the 2007 deficit will thus determine whether this provision of the Pact can be applied to Poland; in the absence of corrective measures to bring the deficit clearly closer to the reference value, this provision cannot be applied.General government balance targets and outcomes and pension reform cost (% of GDP)The most recent update of the convergence programme plans a further reduction of the deficit in 2008 and 2009, to 3.1% of GDP and 2.9% respectively (pension reform cost included). In structural terms, the planned improvement is around ½% of GDP in each year.In its assessment of the programme, which forms the basis for a recommendation for a Council opinion on the programme, the Commission highlights risks to the achievement of these budgetary targets, stemming from the possibility of lower-than-expected growth and the non-specification of the measures underlying the adjustment.Comparison of key macroeconomic and budgetary projections 12005 | 2006 | 2007 | 2008 | 2009 |Real GDP (% change) | CP Nov 2006 | 3.5 | 5.4 | 5.1 | 5.1 | 5.6 |COM Nov 2006 | 3.5 | 5.2 | 4.7 | 4.8 | n.a. |Output gap (% of potential GDP) | CP Nov 20062 | -0.4 | 0.5 | 0.5 | 0.3 | 0.4 |COM Nov 20066 | -0.3 | 0.4 | 0.3 | 0.1 | n.a. |General government balance (% of GDP) | CP Nov 2006 | -2.5 | -1.9 | -1.4 | -1.0 | -0.6 |COM Nov 2006 | -2.5 | -2.2 | -2.0 | -1.8 | n.a. |Primary balance (% of GDP) | CP Nov 2006 | 0.1 | 0.5 | 1.0 | 1.4 | 1.7 |COM Nov 2006 | 0.1 | 0.2 | 0.4 | 0.6 | n.a. |Cyclically-adjusted balance (% of GDP) | CP Nov 20062 | -2.4 | -2.1 | -1.6 | -1.1 | -0.7 |COM Nov 2006 | -2.3 | -2.3 | -2.1 | -1.8 | n.a. |Structural balance3 (% of GDP) | CP Nov 20064 | -2.4 | -2.1 | -1.6 | -1.1 | -0.7 |COM Nov 20065 | -2.3 | -2.3 | -2.1 | -1.8 | n.a. |Notes: 1 The budgetary projections exclude the impact of the Eurostat decision of 2 March 2004 on the classification of funded pension schemes, which needs to be implemented by the time of the spring 2007 notification. Including this impact, the general government balance according to the updated programme would be -4.3% of GDP in 2005, -3.9% in 2006, -3.4% in 2007, -3.1% in 2008 and -2.9% in 2009. 2 Commission services calculations on the basis of the information in the programme. 3 Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures. 4 There are no one-off and other temporary measures in the programme. 5 There are no one-off and other temporary measures in the Commission services’ autumn 2006 forecast. 6 Based on estimated potential growth of 4.1%, 4.4%, 4.8% and 5.0% respectively in the period 2005-2008. Source: Convergence programme (CP); Commission services’ autumn 2006 economic forecasts (COM); Commission services’ calculations |5. ConclusionsThe following conclusions can be drawn:-  The most recent deficit target for 2007 (1.4% of GDP excluding pension reform costs), set in the November 2006 update of the convergence programme, is just below the one endorsed by the Council in July 2004 (1.5% of GDP) in a context of much better-than-expected budgetary outcomes in the years 2004-2006. The deficit target reflects a growth assumption that is broadly as expected in July 2004. There is no reason to extend the deadline for the correction of the excessive deficit beyond 2007.-  In spring 2007, the transitional period for implementing the Eurostat decision of 2 March 2004 on the classification of pension schemes will expire and funded defined-contribution pension schemes will need to be classified outside general government. This will entail an upward revision of the Polish deficit series since 1999 by the amount of the pension reform costs. For 2007, the deficit target of 1.4% of GDP (excluding pension reform cost) translates into around 3.4% of GDP (including pension reform cost).-  According to the Commission services’ autumn 2006 forecast, the general government deficit was projected to reach 4% of GDP (including pension reform cost). However, taking into account more recent information that has become available since the cut-off date of the forecasts, notably on the strength of the economy in 2006 and the better-than-previously-expected deficit outturn for 2006 (now estimated at 1.9% of GDP), the deficit projection for 2007 would be lower, to around 3.7% of GDP (including the pension reform costs). The difference with the most recent deficit target is due to higher-than-expected GDP growth and the operation of the automatic stabilisers, namely higher tax revenues (predominantly value-added tax) and dividends as well as lower social expenditure (thanks to lower unemployment). On the basis of currently available information, a structural adjustment of 0.5% of GDP in 2007 should ensure that the most recent official target of 3.4% of GDP is achieved.-  The November 2006 update of the convergence programme confirms that Polish authorities envisage the correction of the excessive deficit by 2007. With a deficit target for 2007 including the pension reform cost at 3.4% of GDP, i.e. above the reference value, the programme assumes that Poland will be able to benefit from the provision in the Stability and Growth Pact allowing for a degressive consideration of the pension reform costs (60% in 2007, or 1.2% of GDP) in a possible decision to abrogate the decision on the existence of an excessive deficit. Given that the deficit has declined continuously and substantially over the period 2004-2006, the deficit outcome for 2007 and its closeness to the 3% of GDP reference value will determine whether Poland can benefit from this provision.The November 2006 update of the convergence programme envisages a further reduction of the deficit, to 2.9% of GDP in 2009 (including the pension reform cost). Budgetary outcomes may be worse than targeted in the programme because the growth outlook for 2008-2009 is favourable and the non-specification of the measures that support the adjustment. Addressing these risks will be necessary to ensure a durable correction of the excessive deficit.Recommendation for aCOUNCIL RECOMMENDATION TO POLANDwith a view to bringing an end to the situation of an excessive government deficitApplication of Article 104(7) of the TreatyTHE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community, and in particular Article 104(7) thereof,Having regard to the recommendation from the Commission,Whereas:1.  According to Article 104 of the Treaty, Member States are to avoid excessive government deficits.2.  The Stability and Growth Pact is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation.3.  On 5 July 2004, the Council decided, in accordance with Article 104(6), that an excessive deficit exists in Poland[11].4.  Having decided on the existence of an excessive deficit in Poland, the Council recommended on 5 July 2004, in accordance with Article 104(7) of the Treaty and Article 3 of Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure[12], that the Polish authorities take action in a medium-term framework in order to bring the deficit below 3% of GDP by 2007 in a credible and sustainable manner, in accordance with the path for deficit reduction as specified in the Council opinion of the same day on the convergence programme submitted in May 2004[13].5.  The Council recommendation under Article 104(7) referred to figures that did not include the deficit-increasing impact of the Eurostat decision of 2 March 2004 on the classification of defined-contribution pension schemes outside general government. However, the recommendation under Article 104(7) and the Council opinions on the May 2004 convergence programmes and its subsequent updates (of November 2004 and January 2006) took explicitly into account the risks for the correction of the excessive deficit from the implementation of this Eurostat decision, which, as was decided by Eurostat in September 2004, has to be implemented by 1 April 2007 (deadline for the first notification of actual debt and deficit data for the year 2006 and preceding years). At the time of the Council recommendation under Article 104(7), the deficit-increasing impact of implementing the Eurostat decision (i.e. the annual cost of the 1999 Polish pension reform) was estimated at around 1½% of GDP.6.  On 28 November 2006, the Council adopted a decision in accordance with Article 104(8) stating that the action taken by Poland in response to the Council recommendation of 5 July 2004 under Article 104(7) was proving to be inadequate to correct the excessive deficit by 2007[14]. The decision was based on (i) the upward revision of the deficit target for 2007 in the budget for 2007 compared to the recommendation (in spite of much better-than-expected budgetary outturns for the period 2004-2006); (ii) risks of a higher-than-targeted deficit for 2007 as identified in the Commission services’ autumn 2006 forecast; and (iii) the implementation of the above-mentioned Eurostat decision as of spring 2007, estimated to result in an increase in the 2007 deficit by around 2% of GDP.7.  Poland is currently a Member State with a derogation within the meaning of Article 122(1) of the Treaty, which means that it is to avoid excessive deficits but that Article 104(9) and Article 104(11) of the Treaty do not apply to it; further recommendations can be addressed to Poland only on the basis of Article 104(7).8.  According to Article 3(4) of Regulation (EC) No 1467/97, a recommendation made in accordance with Article 104(7) has to specify that effective action is to be taken by the Member State concerned within six months at most and that the correction of the excessive deficit should be completed in the year following its identification unless there are special circumstances. Article 3(4) also specifies that in a recommendation to a Member State to correct an excessive deficit the Council should request the achievement of a minimum annual improvement in the structural balance of at least 0.5% of GDP as a benchmark.9.  Special circumstances – namely, the size of the deficit and the ongoing structural shift in the economy – were considered to exist when the Council issued its recommendation to Poland under Article 104(7), which allowed for a correction in a medium-term framework, namely by 2007. Given that the deficit outturns in the period 2004-2006 were well below the targets underlying the Council recommendation under Article 104(7) and economic growth expected for 2007 is broadly confirmed, there is no reason to extend the deadline for the correction of the excessive deficit.10.  The November 2006 update of the convergence programme, covering the period 2006-2009, also envisages the correction of the excessive deficit by 2007, the same as in the previous programmes. Building on a better-than-expected outturn for 2006 as estimated in the programme (1.9% of GDP), the deficit target for 2007 is set at 1.4% of GDP. Thereafter, the deficit is planned to be reduced to 1.0% of GDP in 2008 and 0.6% in 2009. These targets do not include the impact on the deficit of the above-mentioned Eurostat decision. Including this impact, the deficit series becomes: 3.9% in 2006, 3.4% in 2007, 3.1% in 2008 and 2.9% in 2009. In structural terms (i.e. in cyclically-adjusted terms net of one-off and other temporary measures), the deficit is planned to improve by around ½ % of GDP annually in 2007-2009.11.  The 2007 deficit of 3.4% of GDP would exceed the 3% of GDP reference value. The programme assumes that, for the purpose of abrogating the decision on the existence of an excessive deficit under Article 104(12), the Commission and the Council could, as foreseen in Article 2(7) of Council Regulation (EC) No 1467/97, consider the cost to the budget of the 1999 pension reform according to a linear degressive scale amounting to 60% in 2007, or around 1.2% of GDP. For Poland to benefit from this provision, the deficit should have declined substantially and continuously and have reached a level that comes close to the reference value. As the deficit has declined substantially and continuously over the period 2004-2006, the outcome for the 2007 deficit will crucially determine whether this provision can be applied to Poland.12.  The Commission services’ autumn 2006 forecast showed that there are risks attached to the deficit target for 2007. Taking into account more recent information that has become available since the completion of the autumn forecast, especially the better-than-expected outturn for 2006 (now estimated at 1.9% of GDP), the 2007 deficit is likely to be around 3.7% of GDP (including the cost of pension reform), that is, somewhat better than projected in the autumn forecast (around 4% of GDP) but worse than the most recent official target (3.4% of GDP).13.  In its opinion of [27 February 2007] on the November 2006 update of the convergence programme, the Council reviews the medium-term budgetary plans of the Polish authorities. The overall conclusion is that the programme envisages the correction of the excessive deficit by 2007 but that the action taken so far does not appear adequate and the planned measures appear insufficient to achieve that result. While in subsequent years the programme envisages to make appropriate progress towards the MTO in a context of strong growth prospects, there are important risks to the achievement of the budgetary targets, and the durability of the adjustment. The risks to the budgetary targets stem notably from (i) a favourable macroeconomic scenario for the period 2008-2009; (ii) significant uncertainties about the effective implementation of planned reforms; and (iii) a lack of information on the measures supporting the envisaged expenditure restraint, which appear to be in an early conceptual phase.14.  In general, budgetary consolidation measures should secure a lasting improvement in the general government balance, while being geared towards enhancing the quality of the public finances and reinforcing the growth potential of the economy.HEREBY RECOMMENDS:1. The Polish authorities should put an end to the present excessive deficit situation by 2007 at the latest.2. The Polish authorities should reduce the general government deficit in a credible and sustainable manner and to this end ensure an improvement of the structural balance by 0.5 percentage point of GDP between 2006 and 2007.The Council establishes the deadline of [27 August 2007] for the Polish authorities to take effective action to this end.In addition, the Council invites the Poland to ensure that budgetary consolidation towards its medium-term objective of a structural deficit of 1% of GDP is sustained after the excessive deficit has been corrected.This recommendation is addressed to the Republic of Poland.Done at Brussels, [27 February 2007].For the CouncilThe President [1] OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5).[2] European Economy No 2/2004. The Commission services’ spring 2004 economic forecast took into consideration data reported by Poland in March 2004 and published by Eurostat (Eurostat News Release 38/2004 of 16.3.2004).[3] In the meantime, the deficit figure for 2003 has been revised, according to the usual procedures. It now stands at 4.7% of GDP.[4] OJ C 320, 24.12.2004, p. 15.[5] OJ L 62, 9.3.2005, p. 18.[6] See http://register.consilium.eu.int/pdf/en/04/st11/st11220.en04.pdf[7] See Eurostat News Release No 30/2004 of 2 March 2004 and Chapter I.1.3 – Classification of funded pension schemes and impact on government finance of the Eurostat’s Manual on government deficit and debt, available for download at: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE-04-002/EN/KS-BE-04-002-EN.PDF.[8] See Eurostat News Release No 117/2004 of 23 September 2004.[9] OJ L 414, 30.12.2006, p. 81.[10] Opinion of the Economic and Financial Committee on the “Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes”, endorsed by the ECOFIN Council of 11 October 2005. See in particular paragraph 5 of section I B of the code of conduct.[11] OJ L 62, 9.3.2005, p. 18.[12] OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5).[13] OJ C 320, 24.12.2004, p. 15.[14] OJ L 414, 30.12.2006, p. 81.