title: Recommendation for a Council Regulation amending Regulation (EC) No 2533/98 concerning the collection of statistical information by the European Central Bank (ECB/2014/13) (presented by the European Central Bank )

text:
               20.6.2014

               EN

               Official Journal of the European Union

               C 188/1

         Recommendation for a Council Regulation amending Regulation (EC) No 2533/98 concerning the collection of statistical information by the European Central Bank
   (ECB/2014/13)
   (presented by the European Central Bank)
   (2014/C 188/01)
   EXPLANATORY MEMORANDUM
   I.   INTRODUCTION

   On 23 November 1998, the Council of the European Union adopted Council Regulation (EC) No 2533/98 (1). In line with Article 107(6) of the Treaty establishing the European Community, the ECB previously submitted Recommendation ECB/1998/10 (2) to the Council. Thereafter, the ECB also submitted Recommendation ECB/2008/9 (3) which preceded the adoption of Council Regulation (EC) No 951/2009 (4). It is therefore appropriate to follow the same procedure as currently provided for in Article 129(4) of the Treaty on the Functioning of the European Union, and to introduce the proposed amendments to Regulation (EC) No 2533/98.
   II.   COMMENTS ON THE ARTICLES

      Use of statistical information for the performance of supervision functions

   In order to minimise the reporting burden, and so that data only needs to be collected once, pursuant to Article 8(1)(d) of Regulation (EC) No 2533/98 national central banks (NCBs) are currently authorised to use confidential statistical information for the performance of their functions in the field of supervision. It should be specified that the ECB, on which specific functions in the field of prudential supervision of credit institutions have been conferred by Council Regulation (EU) No 1024/2013 (5), similarly to the NCBs on which specific functions in the field of prudential supervision have been conferred, may use confidential statistical information for the performance of these functions.
   At the same time, it should be clarified that transmission of confidential statistical information between the ESCB members and other authorities of the Member States and the Union responsible for (a) the supervision of financial institutions, markets and infrastructures, and (b) the stability of the financial system, to the European Stability Mechanism (ESM) may take place to support the respective tasks. Authorities may include, inter alia, the competent authorities responsible for supervision and macro-prudential oversight, the European Supervisory Authorities (6), the European Systemic Risk Board, as well as authorities authorised to resolve credit institutions.

      Recommendation for a

         ‘COUNCIL REGULATION
         amending Council Regulation (EC) No 2533/98 concerning the collection of statistical information by the European Central Bank
         THE COUNCIL OF THE EUROPEAN UNION,
         Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular to Article 5.4 thereof,
         Having regard to the Recommendation of the European Central Bank,
         Having regard to the Opinion of the European Parliament,
         Having regard to the Opinion of the Commission,
         Acting in accordance with the procedure laid down in Article 129(4) of the Treaty on the Functioning of the European Union and in Article 41 of the Statute of the European System of Central Banks and of the European Central Bank,
         Whereas:

                     (1)

                     Council Regulation (EC) No 2533/98 (7) is a key component in the legal framework supporting the statistical information collection tasks of the European Central Bank (ECB) assisted by the national central banks. The ECB has consistently relied on this Regulation to carry out and monitor the coordinated collection of statistical information necessary to undertake the tasks of the European System of Central Banks (ESCB), including the task of contributing to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system, as specified in Article 127(5) of the Treaty.

                     (2)

                     Council Regulation (EU) No 1024/2013 (8) confers on the ECB specific tasks concerning policies relating to the prudential supervision of credit institutions and the stability of the financial system within the Union and individual Member States.

                     (3)

                     To minimise the reporting burden on reporting agents and to enable proper performance of supervision of financial institutions, markets and infrastructures conferred on all competent authorities as well as a proper performance of the tasks conferred on authorities responsible for the protection of the stability of the financial system, it is necessary to amend Regulation (EC) No 2533/98 to enable the transmission and use of the statistical information collected by the ESCB between ESCB members and the relevant authorities. These authorities should include the competent authorities responsible for the supervision of financial institutions, markets and infrastructures and macro-prudential oversight, the European Supervisory Authorities (9), the European Systemic Risk Board as well as authorities authorised to resolve credit institutions,

               HAS ADOPTED THIS REGULATION:
         Article 1
         Specific amendments
         Article 8 of Regulation (EC) No 2533/98 is amended as follows:

                     1.

                     In paragraph 1, point (d) is replaced by the following text and the following point (e) is added:

                                 “(d)

                                 as regards the ECB and national central banks, if the said statistical information is used in the field of prudential supervision;

                                 (e)

                                 as regards national central banks in accordance with Article 14.4 of the Statute, for the exercise of functions other than those specified in the Statute.”

                     2.

                     In paragraph 4, point (a) is replaced by the following:

                                 “(a)

                                 to the extent and at the level of detail necessary for the performance of tasks of the ESCB referred to in the Treaty or tasks in the field of prudential supervision conferred on the members of the ESCB; or”

                     3.

                     The following paragraph 4a is added:

                                 “4a

                                 The ESCB may transmit confidential statistical information to authorities or bodies of the Member States and the Union responsible for the supervision of financial institutions, markets and infrastructures or the stability of the financial system in accordance with Union or national law and to the European Stability Mechanism (ESM) to the extent and at the level of detail necessary for the performance of their respective tasks. Any further transmission thereafter must be explicitly authorised by the ESCB member that collected the confidential statistical information.”

               Article 2
         Final provisions
         This Regulation shall enter into force on [date].

            This Regulation shall be binding in its entirety and directly applicable in all Member States.’

      Done at Frankfurt am Main, 21 March 2014.

            The President of the ECB

         Mario DRAGHI

      (1)  Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information by the European Central Bank (OJ L 318, 27.11.1998, p. 8).

      (2)  Recommendation ECB/1998/10 for a Council Regulation (EC) concerning the collection of statistical information by the European Central Bank (OJ C 246, 6.8.1998, p. 12).

      (3)  Recommendation ECB/2008/9 for a Council Regulation amending Regulation (EC) No 2533/98 concerning the collection of statistical information by the European Central Bank (OJ C 251, 3.10.2008, p. 1).

      (4)  Council Regulation (EC) No 951/2009 of 9 October 2009 amending Regulation (EC) No 2533/98 concerning the collection of statistical information by the European Central Bank (OJ L 269, 14.10.2009, p. 1).

      (5)  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).

      (6)  The European Supervisory Authorities are the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.

      (7)  Council Regulation (EC) No 2533/98 of 23 November 1998 concerning the collection of statistical information by the European Central Bank (OJ L 318, 27.11.1998, p. 8).

      (8)  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).

      (9)  The European Supervisory Authorities are the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.


				|

		52012DC0302

			Recommendation for a COUNCIL RECOMMENDATION on Bulgaria’s 2012 national reform programme and delivering a Council opinion on Bulgaria’s convergence programme for 2012-2015 /* COM/2012/0302 final */

			   	Recommendation for a
COUNCIL RECOMMENDATION
on Bulgaria’s 2012 national reform
programme
and delivering a Council opinion on Bulgaria’s convergence programme for
2012-2015
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,
Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular Article 5(2)
thereof,
Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2], and in particular Article 6(1)
thereof,
Having regard to the recommendation of the
European Commission[3],
Having regard to the resolutions of the
European Parliament,[4]
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 will focus 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[5],
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 on Bulgaria’s national reform programme for 2011
and delivered its opinion on Bulgaria’s updated convergence programme for 2011-2014.
(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[6], in which it identified Bulgaria
as one of the Member States for which an in-depth review would be carried out.
(5)       On 2 March 2012, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth (in line with the Council’s
conclusions of 9 December 2011 and further to the Commission’s Annual Growth
Survey). 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.
(6)       On
2 March 2012, the European Council also invited the Member States participating
in the Euro Plus Pact to present their commitments in time for inclusion in
their stability or convergence programmes and their national reform programmes.
(7)       On 13 April 2012, Bulgaria
submitted its convergence programme covering the period 2012-2015 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 Bulgaria is affected by macroeconomic imbalances. The
Commission concluded in its in-depth review[7] that Bulgaria
is experiencing an internal macroeconomic imbalance, although not excessive.
(8)       According to the first
2012 notification of deficit and debt figures by Bulgaria for the years
2008-2011 for the application of the excessive deficit procedure (EDP), the
general government deficit in 2011 was below the 3% of GDP reference value of
the Treaty. Moreover, the Commission's 2012 spring forecast projects the
general government deficit to stay below the reference value of the Treaty and
to further decline over the forecast period. As a result, and in line with the
provisions of the Stability and Growth Pact, on 30 May the Commission adopted a
recommendation for a Council decision abrogating the decision on the existence
of an excessive deficit under Article 126(12) of the Treaty.
(9)       Based on the assessment of
the 2012 convergence programme pursuant to Council Regulation (EC) No 1466/97,
the Council is of the opinion that the macroeconomic scenario underpinning the
budgetary projections in the programme is optimistic for the 2012-13 period,
when annual growth is expected to reach 1.4% in 2012 and 2.5% in 2013. The
Commission's 2012 spring forecast foresees a GDP growth of 0.5% in 2012 and
1.9% in 2013. After the correction of the excessive deficit in 2011, the
objective of the budgetary strategy outlined in the programme is to achieve a budgetary
position which is close to balance, both in terms of the structual and headline
budget balances, by the end of the programme period. The medium-term budgetary objective
(MTO), defined in structural terms, has been marginally revised from a deficit
of 0.6% of GDP to a deficit of 0.5% of GDP. The new MTO adequately reflects the
requirements of the Stability and Growth Pact. Based on the (recalculated)
structural deficit[8],
Bulgaria plans to achieve its MTO over the programme period. . In 2012-14, the growth
rate of government expenditure, taking into account discretionary revenue
measures, would respect the expenditure benchmark of the Stability and Growth
Pact, yet breach it in 2015. Panned fiscal consolidation faces important risks
stemming from (i) lower revenue given the optimistic macroeconomic scenario as
well as less tax-rich underlying growth structure of the economy and (ii)
inefficiencies in the public sector, particularly in healthcare and education,
which may lead to considerable expenditure pressures. The debt ratio is below
60% of GDP and, according to the programme, it is expected to peak at close to
20% of GDP in 2012 and then to decrease over the programme period. There is considerable
scope for improvement in tax compliance and advancing in this area would allow
Bulgaria to support higher growth enhancing expenditures. A requirement to keep
the budget deficit below 2 % and limiting government expenditure to 40 %
of GDP was adopted as an amendment to the Organic Budget Law, thus strengthening
the binding nature of the fiscal framework and improving the predictability of
budgetary planning. However, challenges remain with respect to further improving
the contents of the medium-term budgetary framework and strengthening the
reporting on accrual basis.
(10)     The Bulgarian government
has made considerable progress on some of the pension-reform measures including
those on the pensionable age for both men and women and on the length of
service for army and police-sector employees. However, addressing the
shortcomings in the adequacy of pension provision remains a key challenge in
the medium term. The changes do not envisage steps to make the statutory
retirement age the same for men and women. Also, they fall short in reducing
early retirement options for employees. A key challenge remains the inclusion
of people not paying contributions, as well as tightening controls and criteria
for the allocation of invalidity pensions.
(11)     Bulgaria has the highest
rate of people at risk of severe material deprivation in the EU, with the
elderly and children being particularly affected. Comprehensive measures are
needed. Priority should be given to making social transfers more effective. Only
half of the economically active Roma are employed. The recently adopted
National Strategy for Roma Integration targets multiple barriers but still
needs to be underpinned by a detailed Action Plan if it is to be operational
over the period 2015-2020.
(12)     The crisis has had a
particularly strong impact on low-skilled workers (who account for almost 70 %
of the unemployed) and has significantly raised youth unemployment. Moreover, since
2009, the increase in long-term unemployment has been significantly faster than
in the rest of EU and principally reflecting an increase in skills and
geographical mismatches as job cuts were concentrated in the low-skilled
segment. A review of the system setting minimum thresholds for social security
contributions should be undertaken to balance the need to reduce undeclared
work and to ensure that low-skilled workers are not priced out. Measures
undertaken by the government to freeze public sector wage bill in 2010-12 have
been a relevant and adequate response, also contributing to bring labour costs
closer to productivity levels. A national initiative has been launched to
comprehensively address the integration of young people in the labour market. Public
employment services are still of relatively low quality and staff training
should be intensified, in particular "Roma mediators". Further measures
are needed to improve services dealing with activation, job search, matching,
retraining and individualised services for the low-skilled.
(13)     Bulgaria has the highest
share of low achievers in reading and in mathematics and science in the EU
(according to PISA 2009), indicating the existence of considerable structural
obstacles to ensuring quality education. The low educational achievements are
linked to weak access to education of disadvantaged groups, in particular the
Roma population, insufficient autonomy of schools, lack of incentives for
better performance, a poor national assessment system and insufficient
accountability. In higher education, progress remains very limited even though
some promising efforts have been made recently. The planned amendments to the Higher
Education Act need to be implemented as a top priority for growth and
accompanied by adequate governance, investment and political determination.
(14)     Bulgaria has a low level of
research and innovation. Research and innovation (R&I) investment needs to be
raised to reach the 2020 target and an appropriate strategy for innovation must
be established. The R&I administration in Bulgaria is fragmented. Bulgaria
needs to strengthen its universities and develop a strategy to engage higher
education institutions in innovation activities. Frameworks fostering collaboration
between universities and the private sector do not exist, and funding should be
allocated in a competitive, merit-based and transparent way. Bottlenecks remain
for start-up companies and innovative SMEs seeking bank finance. Public
financial instruments and guarantees for young and innovative enterprises are
not effective enough to help SMEs match EU Structural Funds and secure the
required co-financing via bank loans.
(15)     Currently, the
administrative capacity of Bulgaria is insufficient to properly manage and
maintain road, rail and water infrastructures projects. The administrative
reform has focused mainly on reducing public sector staff with limited attempts
to remove other sources of inefficiency. The use of EU funds remains low
despite consistent progress in the last two years. The main reasons are the
existence of complicated administrative procedures and the difficulty
encountered by enterprises in securing co-financing. Significant challenges
also remain in terms of further improving the business and regulatory
environment and achieving progress in increasing the administrative capacity of
the public sector. The implementation of e-government has been delayed many times.
The tax system in Bulgaria is characterised by significant tax evasion and low
administrative efficiency. Administrative costs for tax collection are high, as
are the time costs for businesses of paying taxes.
(16)     The new legislation on
public procurement is an important step towards a better system for the monitoring,
prevention and sanctioning of irregularities. These efforts should be
supplemented on two fronts: (i) the sanctions foreseen need to be effectively
applied and (ii) ex officio powers should be entrusted to the Public
Procurement Agency and the State Financial Inspection Agency.
(17)     Despite initiated reforms,
Bulgaria still maintains some restrictions to entry into network sectors such
as rail transport, telecommunications and energy. The functioning of energy
markets at both wholesale and retail levels remains problematic. Areas of
particular concern in need of improvement include the lack of electricity and
gas exchanges and of a functioning balancing market as well as regulated prices
for consumers. Moreover, Bulgaria should ensure regulatory independence for the
transmission system. Bulgaria is highly dependent on a single energy route and
its domestic energy market functions inadequately, exposing it to risks of
significant supply shocks. Existing measures aimed at tackling energy
dependency need to be improved. So far, the construction of new gas
infrastructure has been too slow. Although some desirable reforms were formally
adopted and the share of renewable energy increased in 2011, their
implementation remains unsatisfactory due to procurement, the capture of public
polices by private interests and poor management of state-owned energy
companies.
(18)     Bulgaria has made a number
of commitments under the Euro Plus Pact. These commitments, and the
implementation of the commitments presented in 2011, relate to improved public
finance sustainability, fostering employment, boosting public-sector competitiveness
and reinforcing financial stability. The Commission has assessed the implementation
of the Euro Plus Pact commitments. The results of this assessment have been taken
into account in the recommendations.
(19)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of Bulgaria’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 socio-economic policy in Bulgaria but also
their compliance with EU rules and guidance, given the need to reinforce the
overall economic governance of the European Union by providing EU-level input
into future national decisions. Its recommendations under the European Semester
are reflected in recommendations (1) to (7) below.
(20)     In the light of this
assessment, the Council has examined Bulgaria’s convergence programme, and its
opinion[9]
is reflected in particular in recommendation (1) below.
(21)     In the light of the
Commission’s in-depth review and this assessment, the Council has examined
Bulgaria’s 2012 national reform programme and Bulgaria’s convergence programme.
Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are
reflected in particular in recommendations (3) and (5) below;
HEREBY RECOMMENDS that Bulgaria should
take action within the period 2012-2013 to:
1.           Continue with sound fiscal
policies to achieve the medium-term budgetary objective by 2012. To this end,
implement the budgetary strategy as envisaged, ensuring compliance with the
expenditure benchmark, and stand ready to take additional measures in case
risks to the budgetary scenario materialise. Strengthen efforts to enhance the
quality of public spending, particularly in the education and health sectors
and implement a comprehensive tax-compliance strategy to improve tax revenue and
address the shadow economy. Further improve the contents of the medium-term
budgetary framework and the quality of the reporting system.
2.           Take steps to reduce risks
to the sustainability and to improve adequacy of the pension system by
restricting access to early retirement and by making the statutory
retirement age the same for men and women with full career contributions.
Introduce tighter criteria and controls for the allocation of invalidity
pensions.
3.           Accelerate
the implementation
of the national Youth Employment Initiative. Ensure
that the minimum thresholds for social security contributions do not discourage
declared work. Step up efforts to improve the Public Employment Service’s performance.
To alleviate poverty, improve the effectiveness of social transfers and the
access to quality social services for children and the elderly and implement
the National Roma Inclusion Strategy.
4.           Speed up the reform of relevant
legal acts on schools and higher education and of accompanying measures by
focusing on modernising curricula, improving teacher training, and ensuring
access to education for disadvantaged groups. Improve the access to finance for
start-ups and SMEs, in particular those involved in innovative activities.
5.           Step up efforts to enhance
administrative capacity and reforms by reducing red tape and the cost of tax
compliance and collection, and further improving the absorption of EU funds, in
particular in road and rail transport and water management. Improve the quality
and independence of the judicial system and speed up the introduction of
e-government. Strengthen public administrative capacity in key transport
sectors and regulatory authorities.
6.           Ensure sound
implementation of public procurement legislation. Strengthen the prevention of
irregularities and effectively apply the sanctions under the Public Procurement
Law and those of the Law on Conflict of Interest.
7.           Take measures to remove market
barriers, guaranteed profit arrangements and price controls. Ensure the independence
of transmission and distribution system operators; complete the market design
in particular for the energy exchanges and balancing markets. Improve electricity
and gas connections, boost energy efficiency and enhance the capacity to cope
with disruptions.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 02.08.1997, p. 1
[2]               OJ L 306, 23.11.2011, p. 25
[3]               COM(2012)302 final
[4]               P7_TA(2012)0048 and P7_TA(2012)0047
[5]               Council Decision 2012/238/EU of 26 April 2012
[6]               COM(2012) 68 final
[7]               SWD(2012)151 final
[8]               Cyclically adjusted balance net of one-off and
temporary measures, recalculated by the Commission services on the basis of the information provided in the programme, using
the commonly agreed methodology.
[9]               Under Article 9(2) of Council Regulation (EC) No
1466/97.


title: Recommendation of the European Systemic Risk Board of 11 December 2015 on recognising and setting countercyclical buffer rates for exposures to third countries (ESRB/2015/1)

text:
               12.3.2016

               EN

               Official Journal of the European Union

               C 97/1

         RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD
   of 11 December 2015
   on recognising and setting countercyclical buffer rates for exposures to third countries
   (ESRB/2015/1)
   (2016/C 97/01)
   THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,
   Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (1), and in particular Article 3(2)(b), (d) and (f) and Articles 16 to 18 thereof,
   Having regard to Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (2), and in particular Article 138 and 139 thereof,
   Having regard to Decision ESRB/2011/1 of the European Systemic Risk Board of 20 January 2011 adopting the Rules of Procedure of the European Systemic Risk Board (3), and in particular Article 15(3)(e) and Articles 18 to 20 thereof,
   Whereas:

               (1)

               The pro-cyclical amplification of financial shocks to the real economy through the banking system and financial markets has been one of the most destabilising elements of the global financial crisis. An economic downturn following a period of excessive credit growth can lead to large losses in the banking sector and spark a vicious circle. In such a situation, measures taken by credit institutions to strengthen their balance sheets can constrain credit supply to the real economy, exacerbating the economic downturn and further weakening their balance sheets.

               (2)

               The countercyclical capital buffer is designed to work against these pro-cyclical dynamics by increasing the resilience of the banking sector. The rules requiring the maintenance of countercyclical capital buffers form part of the new global regulatory standards on bank capital adequacy (the Basel III framework) issued by the Basel Committee on Banking Supervision (BCBS) in December 2010 and implemented in the Union by Directive 2013/36/EU. By increasing the countercyclical buffer rate, designated public authorities or bodies can require the banking sector to build up additional capital in periods when system-wide risks from excessive credit growth are increasing. When such risks materialise, authorities can set the countercyclical buffer rate at a lower rate and allow this buffer of additional capital to be used to absorb unexpected losses. This enables the banking sector to continue providing credit to the real economy and to comply with regulatory capital requirements.

               (3)

               Cross-border lending brings an international dimension to the countercyclical capital buffer. Losses can arise from exposures of Member States’ domestic banking sectors to third countries. Such losses could be significant if a third country to which a Member State’s domestic banking sector has material exposures entered an economic downturn following a period of excessive credit growth.

               (4)

               The Basel III framework on the countercyclical capital buffer is designed to capture this international dimension. In particular, under the framework, jurisdictions should recognise each other’s countercyclical buffer rates. If an authority in one jurisdiction increases the countercyclical buffer rate to protect its domestic banking sector from excessive credit growth, authorities in other jurisdictions should apply the same countercyclical buffer rate to the exposures of their domestic banks to that country. Under the framework, banks calculate their buffer requirements on the basis of the geographic location of their exposures. The Basel III framework provides for mandatory jurisdictional reciprocity for countercyclical buffer rates of up to 2,5 %, subject to transitional provisions. If applied in a consistent manner across jurisdictions, such jurisdictional reciprocity would help protect the banking sector in a given jurisdiction from risks associated with excessive credit growth in other jurisdictions.

               (5)

               As the BCBS standards are not legally binding, jurisdictions across the world might not implement the countercyclical capital buffer in the same manner. They might delay its implementation or might not implement it at all. In the Union, Article 136 of Directive 2013/36/EU sets out the way in which designated authorities must set countercyclical buffer rates for domestic exposures. Further guidance on setting countercyclical buffer rates for domestic exposures, as required by Article 135 of Directive 2013/36/EU, is provided in Recommendation ESRB/2014/1 of the European Systemic Risk Board (4). In the Union, a common legal framework designed to overcome the bias for inaction is thus in place, and the quarterly setting of countercyclical buffer rates for domestic exposures will be mandatory from 2016. However, there is uncertainty as to whether and to what extent third countries that are not members of the BCBS will implement the countercyclical capital buffer.

               (6)

               Designated authorities have legal powers to protect their banking sectors from risks arising from excessive credit growth in third countries. In particular, Article 139 of Directive 2013/36/EU allows designated authorities in certain circumstances to set a countercyclical buffer rate for exposures to a third country that domestically authorised institutions have to apply to calculate their institution-specific countercyclical capital buffer. A designated authority can act in situations where a countercyclical buffer rate has not been set and published by the relevant third-country authority for that third country, or if it considers that the countercyclical buffer rate set by the relevant third-country authority for that third country is not sufficient to protect the Member States’ domestic banking sectors from potential losses associated with excessive credit growth in the third country in question.

               (7)

               Setting countercyclical buffer rates for exposures to third countries can, if done in an uncoordinated manner, result in different capital requirements within the Union for exposures to the same third country and the same risks. When analysing developments in a third country, designated authorities might reach different conclusions as to whether or not credit growth in that country is excessive and poses a risk to their domestic banking system that needs to be mitigated. Even if designated authorities arrive at the same risk assessment, they might reach different conclusions as to the level of the appropriate countercyclical buffer rate necessary to mitigate that risk.

               (8)

               Recognition of countercyclical buffer rates for exposures to third countries can, if done in an uncoordinated manner, also result in different capital requirements within the Union. Recognition of countercyclical buffer rates set by other designated authorities or by relevant third-country authorities is required by Union law for rates up to 2,5 %, subject to transitional provisions between 2016 and 2019 as set out in Article 160 of Directive 2013/36/EU. While, in accordance with Recommendation ESRB/2014/1, designated authorities should generally recognise countercyclical buffer rates beyond mandatory levels, this applies only to countercyclical buffer rates set by designated authorities in other jurisdictions within the Union, and not to those set by relevant third country authorities for third countries. This means that the way in which countercyclical buffer rates set by relevant third country authorities are recognised might differ across jurisdictions within the Union. In particular, prior to 2019, some designated authorities might opt to apply the transitional provisions, while other designated authorities might opt to deviate from them. In addition, from 2019, some designated authorities might opt to voluntarily recognise countercyclical buffer rates in excess of 2,5 %, while others might opt not to do so.

               (9)

               Different capital requirements within the Union for exposures to the same third country and the same risks would typically be undesirable, as they would undermine a level playing field within the Union and provide an opportunity for regulatory arbitrage. Credit institutions in Union jurisdictions where a lower countercyclical buffer rate applies to the exposures to a given third country than that applicable in other Union jurisdictions would have an incentive to gain market share by increasing their lending to that third country. Such an increase in lending could lead to large, concentrated exposures to a particular third country by credit institutions in a particular jurisdiction. Ultimately, such an uneven playing field and the resulting incentives for regulatory arbitrage could threaten financial stability in the Union.

               (10)

               The European Systemic Risk Board (ESRB) has a role to play in ensuring that, with respect to a particular third country, the same countercyclical buffer rates for exposures to third countries would typically apply across the Union. The ESRB has an explicit mandate to achieve coherence on this under Article 139(3) of Directive 2013/36/EU. The ESRB considers that it can best fulfil this mandate by promoting a coherent approach across the Union for recognising and setting countercyclical buffer rates for exposures to third countries.

               (11)

               This Recommendation is designed to ensure that the same countercyclical buffer rate for exposures to a particular third country would typically apply across the Union. It covers: (a) the recognition by designated authorities of a countercyclical buffer rate set by a relevant third-country authority for that third country; (b) the setting by designated authorities of a countercyclical buffer rate for exposures to a third country; (c) the setting by designated authorities of the countercyclical buffer rate at a lower rate when risks in a particular third country abate or materialise; and (d) the communication by designated authorities of the countercyclical buffer rate for exposures to a third country.

               (12)

               Recommendation A is designed to ensure that designated authorities will typically recognise the same rate of the countercyclical capital buffer set by a particular third-country authority for that third country. To achieve this, it builds on the requirement laid down in Union law to recognise in full countercyclical buffer rates up to 2,5 %, subject to transitional arrangements. It is recommended that designated authorities coordinate their recognition of countercyclical buffer rates set in excess of 2,5 % through the ESRB. Where this occurs, the ESRB will issue a recommendation to provide guidance to designated authorities on whether and to what extent the higher countercyclical buffer rate set by a third country should be recognised. While the setting of countercyclical buffer rates by third countries that are members of the BCBS will be monitored by the ESRB Secretariat, designated authorities should inform the ESRB when a third country that is not a member of the BCBS sets a countercyclical buffer rate in excess of 2,5 %. It is further recommended that designated authorities notify the ESRB when they are unclear as to whether a particular measure adopted by a third country should be recognised under Directive 2013/36/EU as a countercyclical capital buffer. In such cases, the ESRB will issue a recommendation to provide guidance.

               (13)

               Recommendation B is designed to ensure that designated authorities, when exercising their powers to set a countercyclical buffer rate for exposures to a particular third country, set this rate at the same level. Designated authorities are encouraged to exercise their powers under Article 139 of Directive 2013/36/EU. In particular, designated authorities should establish to which third countries the banking system in their jurisdiction has material exposures. Further, they should monitor developments in those third countries for signs of excessive credit growth. If designated authorities discover such signs in one of those third countries they monitor and they consider that setting a countercyclical buffer rate for exposures to that third country is needed, they should inform the ESRB. If the ESRB considers that mitigating actions should be coordinated across the Union, it will issue a recommendation to designated authorities on setting the appropriate countercyclical buffer rate for exposures to the third country in question.

               (14)

               Recommendation C is designed to ensure that, where setting the countercyclical buffer rate for exposures to a particular third country at a lower rate is warranted because risks have either abated or materialised, the same lower countercyclical buffer rate applies across the Union. To this end, it is recommended that, when setting the countercyclical buffer rate for exposures to a particular third country at a lower rate, designated authorities should follow the same route they followed when the countercyclical buffer rate was increased. This means that, if designated authorities have recognised or set a countercyclical buffer rate for exposures to a third country in accordance with an ESRB recommendation, they should work with the ESRB to determine the appropriate level of the countercyclical buffer rate for exposures to the third country when the third country in question sets the countercyclical buffer rate at a lower rate. Where this occurs, the ESRB will adopt a recommendation to provide guidance to designated authorities on the appropriate countercyclical buffer rate for exposures to the third country in question. While the setting of countercyclical buffer rates by third countries that are members of the BCBS will be monitored by the ESRB, designated authorities should inform the ESRB when a third country that is not a member of the BCBS sets the countercyclical buffer rate at a lower rate. It is further recommended that, if, following an ESRB recommendation, designated authorities have recognised or set a countercyclical buffer rate for exposures to a third country, they should notify the ESRB if they consider that risks in that third country have abated or are materialising.

               (15)

               Recommendation D is designed to ensure that decisions on countercyclical buffer rates for exposures to third countries are clearly communicated within the Union. This should help manage public expectations, ensure that actions between designated authorities can be coordinated and that the credibility, accountability and effectiveness of macroprudential policy are enhanced. To achieve this, designated authorities should apply the same principle set out in Recommendation ESRB/2014/1 for communicating countercyclical buffer rates for domestic exposures to the process of recognising, setting and reducing countercyclical buffer rates for exposures to third countries.

               (16)

               Under Article 136 of Directive 2013/36/EU, each Member State is required to designate a public authority or body that will be responsible for setting and recognising countercyclical buffer rates. In addition, Council Regulation (EU) No 1024/2013 (5) assigns specific tasks to the European Central Bank (ECB). In particular, the ECB may apply higher requirements for countercyclical capital buffers than those applied by the national designated authorities participating in the Single Supervisory Mechanism, and has all the powers and obligations that designated authorities have under relevant Union law. For this exclusive purpose, the ECB is considered a designated authority.

               (17)

               ESRB recommendations are published after the General Board has informed the Council of its intention to do so and provided the Council with an opportunity to react,

         HAS ADOPTED THIS RECOMMENDATION:
   SECTION 1

      RECOMMENDATIONS

      Recommendation A – Recognition of countercyclical buffer rates set by third-country authorities

               1.

               When a relevant third-country authority sets a countercyclical buffer rate for that third country in excess of 2,5 %, designated authorities are recommended to promptly inform the ESRB with a view to seeking guidance on uniform recognition across the Union, unless the rate applies to a country that is a member of the BCBS or the ESRB has already been informed about the particular countercyclical buffer rate by another designated authority. Designated authorities are recommended to use the template in Annex I to this Recommendation to inform the ESRB.

               2.

               When designated authorities are unclear as to whether a particular measure adopted by a third-country authority should be recognised under Directive 2013/36/EU as a countercyclical buffer rate, designated authorities are recommended to promptly inform the ESRB, unless the ESRB has already been informed by another designated authority. Designated authorities are recommended to use the template in Annex I to this Recommendation to inform the ESRB.

      Recommendation B – Setting of countercyclical buffer rates for exposures to third countries

               1.

               Designated authorities are recommended to identify material third countries on an annual basis. Such identification should be based on, but not necessarily limited to, quantitative information on the exposures of domestically authorised institutions to third countries. Designated authorities are recommended to submit a list of such material third countries to the ESRB in the second quarter of each year using the template in Annex II to this Recommendation.

               2.

               Designated authorities are recommended to monitor risks from excessive credit growth in material third countries identified in accordance with paragraph 1, at a minimum, at annual intervals, except for countries which are already monitored by the ESRB in accordance with Decision ESRB/2015/3 (6). Designated authorities are recommended to notify the ESRB of cases where they decide not to monitor a material third country because that country is already being monitored by the ESRB in accordance with Decision ESRB/2015/3. Designated authorities are recommended to use the template in Annex II to this Recommendation to notify the ESRB of such cases.

               3.

               Designated authorities are recommended to notify the ESRB of situations where they consider that a relevant third-country authority should set and publish a countercyclical buffer rate for that third country, or where the level of the countercyclical buffer rate set and published by a relevant third-country authority for that third country is not considered sufficient to protect domestic financial institutions from the risks of excessive credit growth in the third country in question. Designated authorities are recommended to use the template in Annex I to this Recommendation to notify the ESRB thereof.

      Recommendation C – Setting of countercyclical buffers rates for exposures to third countries at a lower rate

               1.

               If a countercyclical buffer rate set by a relevant third-country authority for that third country is recognised on the basis of an ESRB recommendation, and the relevant third-country authority sets the countercyclical buffer rate at a lower rate, designated authorities are recommended to promptly inform the ESRB with a view to seeking guidance on uniform recognition or setting of the new lower countercyclical buffer rates, unless the rate in question applies to a country that is a member of the BCBS, or the ESRB has already been informed of the new lower countercyclical buffer rate by another designated authority. Designated authorities are recommended to use the template in Annex I to this Recommendation to inform the ESRB thereof.

               2.

               If the relevant third-country authority sets the countercyclical buffer rate at a lower rate and the countercyclical buffer rate applying to exposures to that third country was set on the basis of an ESRB recommendation, designated authorities are recommended to promptly inform the ESRB thereof with a view to seeking guidance as to whether a lower countercyclical buffer rate should be applied to exposures to that third country, unless the rate in question applies to a country that is a member of the BCBS or the ESRB has already been informed of the new lower countercyclical buffer rate by another designated authority. Designated authorities are recommended to use the template in Annex I to this Recommendation to inform the ESRB thereof.

               3.

               If the countercyclical buffer rate applying to exposures to a third country was set on the basis of an ESRB recommendation, and a designated authority considers that the risks are materialising or abating, that designated authority is recommended to promptly notify the ESRB thereof with a view to seeking guidance as to whether a lower countercyclical buffer rate should be applied to exposures to that third country, unless the ESRB has already been informed thereof by another designated authority. Designated authorities are recommended to use the template in Annex I to this Recommendation to notify the ESRB thereof.

      Recommendation D – Communication of decisions on recognition and setting of countercyclical buffer rates for exposures to third countries

   Designated authorities are recommended to amend their strategies and frameworks for communication, developed in accordance with Principle 5 of Recommendation A of Section 1 of Recommendation ESRB/2014/1, to encompass decisions on recognising and setting countercyclical buffer rates for exposures to third countries.
   SECTION 2

      IMPLEMENTATION

   1.   Interpretation

   For the purposes of this Recommendation, the following definitions apply:

               (a)

               ‘countercyclical buffer rate’ has the same meaning as in Article 128(7) of Directive 2013/36/EU;

               (b)

               ‘designated authority’ has the same meaning as in Recommendation ESRB/2014/1;

               (c)

               ‘domestically authorised institution’ means an institution that has been authorised in the Member State for which a particular designated authority is responsible for setting the countercyclical buffer rate;

               (d)

               ‘material exposures’ means exposures which could potentially result in substantial losses to the domestically authorised institutions in a given jurisdiction, negatively affecting financial stability in that jurisdiction;

               (e)

               ‘material third country’ means a third country to which domestically authorised institutions have material exposures;

               (f)

               ‘relevant third-country authority’ means the public authority or body responsible for setting countercyclical buffer rates in a third country;

               (g)

               ‘third country’ means any jurisdiction outside the European Economic Area.

         2.   Criteria for compliance

   Addressees should report on the actions they take in response to this Recommendation, or to adequately justify any inaction. The reports should contain as a minimum:

               (a)

               information on the type of action taken and its timing;

               (b)

               an assessment as to whether the actions taken achieved the objectives of this Recommendation;

               (c)

               detailed justification of any inaction or departure from this Recommendation, including any reasons for delay in reporting.

         3.   Timeframe for the follow-up

               1.

               Addressees are requested to report to the ESRB, the Council and the Commission the actions they have taken in response to this Recommendation, or justify any inaction, in accordance with the deadlines set out below.

               2.

                  Recommendation A – Designated authorities are requested to promptly implement Recommendation A(1) and A(2) in the event that the situation envisaged by the relevant Recommendation occurs, and to submit a report to the ESRB by 31 December 2020 on the implementation of Recommendation A(1) and A(2).

               3.

                  Recommendation B – Designated authorities are requested to:

                           (a)

                           report to the ESRB by 31 December 2016 a list of criteria established for the materiality assessment of the relevant third countries in order to implement Recommendation B(1);

                           (b)

                           promptly implement Recommendation B(1) in the event that the situation envisaged by that Recommendation occurs and, by 31 December 2020, to submit a report to the ESRB on the implementation of Recommendation B(1);

                           (c)

                           report to the ESRB by 31 December 2016 on how they monitor risks from excessive credit growth in material third countries in order to implement Recommendation B(2);

                           (d)

                           promptly implement Recommendation B(3) in the event that the situation envisaged by that Recommendation occurs and, by 31 December 2020, to report to the ESRB on the implementation of Recommendation B(3).

               4.

                  Recommendation C – Designated authorities are requested to promptly implement Recommendation C(1), C(2) and C(3) in the event that the situation envisaged by the relevant Recommendation occurs and, by 31 December 2020, to report to the ESRB on the implementation of Recommendation C(1), C(2) and C(3).

               5.

                  Recommendation D – Designated authorities are requested to report to the ESRB by 31 December 2016 on the implementation of Recommendation D.

               6.

               The General Board will decide when this Recommendation needs to be reviewed or updated in light of experience gained in setting and recognising countercyclical buffer rates for exposures to third countries in accordance with Directive 2013/36/EU or in light of developments in internationally agreed practices.

         4.   Monitoring and assessment

               (a)

               The ESRB Secretariat:

                           (i)

                           assists the addressees, including by facilitating coordinated reporting, providing relevant templates and detailing where necessary the procedure and the timeframe for compliance;

                           (ii)

                           verifies compliance by the addressees, including by assisting them at their request, and submits compliance reports to the General Board.

               (b)

               The General Board assesses the actions and the justifications reported by the addressees and decides whether or not this Recommendation has been complied with, and whether or not the addressees have adequately justified their inaction.

      Done at Frankfurt am Main, 11 December 2015.

            The Chair of the ESRB

         Mario DRAGHI

      (1)  OJ L 331, 15.12.2010, p. 1.

      (2)  OJ L 176, 27.6.2013, p. 338.

      (3)  OJ C 58, 24.2.2011, p. 4.

      (4)  Recommendation ESRB/2014/1 of the European Systemic Risk Board of 18 June 2014 on guidance for setting countercyclical buffer rates (OJ C 293, 2.9.2014, p. 1).

      (5)  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).

      (6)  The English version is available on the ESRB website at www.esrb.europa.eu

      ANNEX I
      ESRB TEMPLATE FOR RECOGNITION OR SETTING OF COUNTERCYCLICAL BUFFER RATES
      [NAME OF THE THIRD COUNTRY]

                     COMMUNICATING AUTHORITY

                  [NAME OF THE DESIGNATED AUTHORITY]

                     DESCRIPTION OF COUNTERCYCLICAL CAPITAL BUFFER MEASURE

                     Please describe the countercyclical capital buffer measure that is the subject matter of this communication as well as the countercyclical buffer rate that was set by the relevant third-country authority.

                     (Example: countercyclical buffer rate set at 0,625 % in THIRD COUNTRY XYZ with an implementation date of DD/MM/YYYY)

                     PURPOSE OF COMMUNICATION

                              ☐

                                 Recognition of a countercyclical buffer rate set by a relevant third-country authority in excess of 2,5 %, as provided in Recommendation A(1)

                              ☐

                                 Recognition of a countercyclical buffer rate set by a relevant third-country authority when it is unclear whether or not it can be recognised under the Union framework, as provided in Recommendation A(2)

                              ☐

                                 Setting of a countercyclical buffer rate for exposures to a third country in the event of inaction/insufficient action by the relevant third-country authority, as provided in Recommendation B(3)

                              ☐

                                 Setting of a countercyclical buffer rate for exposures to a third country that is higher than the countercyclical buffer rate set by the relevant third-country authority, as provided in Recommendation B(3)

                              ☐

                                 Setting or recognition of a countercyclical buffer rate at a lower rate by the relevant third-country authority when an ESRB recommendation had already been issued for recognition of the previous rate, as provided in Recommendation C(1)

                              ☐

                                 Setting or recognition of a countercyclical buffer rate at a lower rate by the relevant third-country authority when an ESRB recommendation had already been issued for setting a rate for exposures to that third country, as provided in Recommendation C(2)

                              ☐

                                 Setting of a countercyclical buffer rate for exposures to a third country at a rate lower than the previous rate already established by an ESRB recommendation and where there are signs of risks from excessive credit growth materialising or abating, as provided in Recommendation C(3).

                     HAS THE DESIGNATED AUTHORITY OF THE THIRD COUNTRY ASKED FOR RECOGNITION?

                              ☐

                                 YES

                              ☐

                                 NO

                              ☐

                                 DO NOT KNOW

                              ☐

                                 N/A

                     DESIRED TIMEFRAME FOR THE ESRB TO REACH A DECISION

                     OTHER RELEVANT INFORMATION

                     CONTACT DETAILS OF THE AUTHORITY

                     Please provide an e-mail address and telephone number for the relevant contact in your institution.

            The designated authority representing a Union jurisdiction should notify/inform the ESRB by sending the completed template to notifications@esrb.europa.eu

      ANNEX II
      ESRB TEMPLATE TO IDENTIFY
      MATERIAL THIRD COUNTRIES FOR
      [NAME OF THE UNION JURISDICTION]

                     NOTIFYING AUTHORITY

                     MATERIAL THIRD COUNTRIES

                     METHODOLOGY USED FOR IDENTIFYING A MATERIAL THIRD COUNTRY

                     Please describe the methodology used pursuant to Articles 3 and 4 of Decision ESRB/2015/3

                     [COUNTRY 1] – ___%

                     […] – ___%

                     [COUNTRY …N] – ___%

                     MATERIAL THIRD COUNTRIES NOT BEING MONITORED

                     Please provide details of cases where the notifying authority decided not to monitor a material third country because the ESRB is already monitoring it pursuant to Decision ESRB/2015/3

                     [COUNTRY 1]

                     OTHER RELEVANT INFORMATION USED TO IDENTIFY A MATERIAL THIRD COUNTRY

                     CONTACT DETAILS AT THE NOTIFYING AUTHORITY

                     Please provide an e-mail address and telephone number for the relevant contact in your institution.

            The designated authority representing a Union jurisdiction should notify the ESRB by sending the completed template to notifications@esrb.europa.eu
      This information should be provided annually during the second quarter of the year.


Avis juridique important

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31981H0679

81/679/EEC: Commission Recommendation of 29 July 1981 relating to the Council of Europe Convention for the protection of individuals with regard to automatic processing of personal data

Official Journal L 246 , 29/08/1981 P. 0031 - 0031 Spanish special edition: Chapter 16 Volume 1 P. 0077  Portuguese special edition Chapter 16 Volume 1 P. 0077

COMMISSION RECOMMENDATION of 29 July 1981 relating to the Council of Europe convention for the protection of individuals with regard to automatic processing of personal data (81/679/EEC) I    1. The introduction of electronic data processing and the extension thereof into many departments of life increase the danger that data will be misused. This applies especially to data relating to individuals. Their privacy demands comprehensive protection in this field.       2. Data-protection is a necessary part of the protection of the individual. It is quite fundamental. In the Member States of the European Community it is desirable that an approximated level of data-protection be achieved. This will be an important contribution to the effective establishment of citizens' rights at European level.       3. Divergent data-protection law in the EC Member States creates disparate conditions for data processing. The establishment and functioning of the common market in data processing calls for extensive standardization of the conditions obtaining in relation to data processing and, therefore, to data-protection at European level. Approximation of data-protection is desirable so that there can be free movement of data and information accross frontiers and in order to prevent unequal conditions of competition and the consequent distortion of competition in the common market.       4. Lastly, an approximated and assured level of data-protection in the Member States will help to break down the reserve which exists in regard to data processing and to the data-processing industry.       5. The Commission of the European Communities accordingly welcomes the Council of Europe convention for the protection of individuals with regard to automatic processing of personal data. It is of the opinion that this convention is appropriate for the purpose of creating a uniform level of data-protection in Europe.  If, however, all the Member States do not within a reasonable time sign and ratify the convention, the Commission reserves the right to propose that the Council adopt an instrument on the basis of the EEC Treaty.   II  For the foregoing reasons and having regard to the Treaty establishing the European Economic Community, in particular the second indent of Article 155 thereof, the Commission makes the following recommendation:      1. The Commission recommends those Member States of the Community which have not already done so to sign, during the course of 1981, the Council of Europe convention for the protection of individuals with regard to automatic processing of personal data, and to ratify it before the end of 1982.           2. This recommendation is addressed to the Member States.             Done at Brussels, 29 July 1981.  For the Commission  Karl-Heinz NARJES  Member of the Commission


Avis juridique important

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52004SC0829

Recommendation for a Council opinion in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the convergence programme of the Czech Republic, 2004-2007  /* SEC/2004/0829 final */

Recommendation for a COUNCIL OPINION in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the convergence programme of the Czech Republic, 2004-2007(presented by the Commission)EXPLANATORY MEMORANDUMCouncil Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies [1] stipulates that non-participating Member States, that is, those which have not adopted the single currency, have to submit convergence programmes to the Council and the Commission for the purpose of multilateral surveillance at regular intervals under Article 99 of the Treaty.[1]  OJ L 209, 2.8.1997. All the documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/ about/activities/sgp/main_en.htm.In accordance with Article 9 of this Regulation, the Council has to examine each convergence programme based on assessments prepared by the Commission and the Committee set up by Article 114 of the Treaty (the Economic and Financial Committee). On the basis of a recommendation from the Commission and after consulting the Economic and Financial Committee, the Council is required to deliver an opinion, following its examination of the programme. According to the Regulation, Member States need to submit annual updates of their convergence programmes, which may also be examined by the Council in accordance with these same procedures.The ten countries that joined the EU on 1 May 2004 have a derogation and thus do not yet participate in the single currency. They committed themselves to submitting their convergence programmes by 15 May 2004 and a first update thereof towards the end of 2004.The Czech Republic's convergence programme covering the period 2004-2007 was submitted on 13 May 2004. The Commission services have carried out a technical evaluation of this programme, taking into account the results of the Spring 2004 forecasts and having regard to the Code of Conduct [2] and the principles laid down in the Communication from the Commission to the Council and the European Parliament of 27 November 2002 on strengthening the co-ordination of budgetary policies [3]. This evaluation warrants the following assessment:[2]  Revised Opinion of the Economic and Financial Committee on the content and format of stability and convergence programmes, endorsed by the ECOFIN Council on 10.7.2001.[3]  COM(2002) 668 final, 27.11.2002.The first Czech convergence programme covering the period 2004-2007 was submitted on 13 May 2004. The convergence programme spells out the intention to join the euro area around 2009-2010 provided that the Maastricht criteria are met and a sufficient level of real convergence is achieved. The authorities plan to limit the period of participation in ERM II to two years.The Czech programme complies only partly with "the code of conduct on the content and format of stability and convergence programmes" [4]. In particular, the ESA95 statistical standards are not entirely met and the quality of ESA95 data on revenues and expenditures of both the functional sub-components and the sub-sectors of the general government needs to be further improved.[4]  For nominal GDP levels, the convergence programme did not use the most recent data as contained in the fiscal notification of March 2004, reflecting a lack of coordination between the Ministry of Finance and the Czech Statistical Office. Updated tables with new GDP data were sent on 2 June 2004 and the assessment of the programme is based on the updated data.The general government deficit increased to 12.9% of GDP in 2003 (5.9% of GDP excluding a major one-off operation related to imputed state guarantees), above the 3% of GDP Treaty reference value. The Commission initiated the excessive deficit procedure for the Czech Republic on 12 May 2004, with the adoption of a report in accordance with Article 104(3) of the Treaty. The Economic and Financial Committee issued its opinion on this report on 24 May. On [5 July] 2004, the Council is expected, on the basis of two Commission recommendations, to decide that an excessive deficit exists in the Czech Republic and to make recommendations to the Czech Republic to bring this situation to an end.The macroeconomic scenario presented in the programme expects real GDP growth to reach 2.8% in 2004 and to accelerate slightly later on, reaching 3.5% in 2007, which is slightly above potential output growth estimated by the Czech authorities. This is below the Commission Spring 2004 forecasts for the years 2004-2005 and below the forecast for the years 2004-2007 by a panel of independent forecasters set up by the Ministry of Finance. The macroeconomic scenario underlying the programme can thus be considered as cautious. Growth is projected to be driven mainly by investment and private consumption. The programme also presents two alternative scenarios which assume different developments of three key exogenous variables: foreign demand, the exchange rate, and oil prices. The baseline scenario is considered as the reference scenario for assessing budgetary projections because it reflects cautious growth assumptions.Inflation fell from above 10% in January 1998 - when inflation targeting was introduced - to levels approaching zero in mid-2002. Prices were falling for most of 2003 and started to rise again in 2004. Recent VAT changes and increases in regulated prices are expected to contribute to a rise in HICP inflation which is expected to reach 2.8% for the year as a whole. Between January 1999 and mid-2002, the koruna was appreciating against the euro. This trend was temporarily reversed between mid 2002 and beginning of 2004. In line with the drop in inflation, money market interest rates and bond yields fell substantially between 1998 and 2003. Long-term bond yields even temporarily dropped below EU levels in 2002 and 2003. The Czech monetary policy combines inflation targeting with a managed float of the exchange rate. The Czech National Bank announced a change of the inflation target as of 1 January 2006 - from a gradually decreasing band towards a target of 3% ± 1 percentage point.The programme targets a gradual reduction of the general government deficit from 5.9% of GDP in 2003 (without the major one-off operation) to 3.3% of GDP in 2007. It further mentions that the proposed path of deficit reduction indicates that the elimination of the excessive deficit would be completed by 2008. The fiscal consolidation is planned to be achieved by a cut in the expenditure ratio (by about 3.5 percentage points) which more than compensates the decline in the revenue ratio (of about 0.8 percentage points). Central government will contribute most to the deficit reduction. To be put into practice in 2004 some of the measures required legal action. The Parliament passed gradually the necessary laws in the second half of 2003 and in April 2004, for instance the law on changes in the VAT and in the excise duties, the laws introducing savings in pension and sickness expenditures. The measures were applied in the 2004 budget. Other measures, particularly those to stimulate growth are being prepared by the government to be adopted as of January 2005. No concrete decisions have been taken on other envisaged measures, in particular those that aim at combating tax evasion and at improving the long-term sustainability of public finances, such as a reform of the pension and healthcare system.Within the outlined macroeconomic framework, the budgetary adjustment appears to be credible. The risks to the budgetary projections appear broadly balanced. On the one hand, the cautious macroeconomic scenario suggests that revenues could be better than expected and that expenditures could be less than budgeted. On the other hand, the impact of the numerous coinciding tax changes in 2004 on the behaviour of economic agents remains uncertain. In addition, important savings measures, particularly regarding government consumption, still need to be agreed upon. The adjustment path is not very ambitious in the absence of fundamental reforms in social expenditures and taking account of the projected recovery.Reforms of expenditures and revenues are accompanied by the creation of a new institutional framework for budgetary planning. The new rules are expected to be adopted in summer 2004 and the government plans to prepare already the 2005 budget according to these new budgetary rules. The major institutional innovation is the introduction of fiscal targeting based on medium-term expenditure frameworks for central government. With each annual budget for year n, the Parliament will approve nominal expenditure ceilings for years n+1 and n+2. Any later review of the ceilings is allowed only in situations explicitly mentioned in the law on Budgetary Rules (for instance the limits can be increased by the amount of expenditure co-financed by the EU).The programme projects the debt-to-GDP ratio to increase from 37.6% of GDP in 2003 to 41.7% of GDP in 2007. The main driving force of the growing debt ratio will be the primary deficit, but its contribution is expected to decrease from 4.1% in 2004 to 1.7% in 2007 as a result of the budgetary consolidation. Between 2003 and 2005, the debt ratio is expected to increase by 2 percentage points. This is 2.8 percentage points below the Commission forecasts which project higher primary deficits and a more moderate impact of the stock-flow adjustment due to a less optimistic view on future privatisation proceeds.The programme reviews the government's structural reform programme which focuses on the improvement of business and investment environment and on increasing labour market flexibility and employment. It also outlines measures which largely reflect the Broad Economic Policy Guidelines recommendations in those fields.The Czech Republic faces serious risks of budgetary imbalances in meeting the cost of an ageing population. In particular, unfavourable demographic developments will result in high increases of pension and healthcare expenditures. Policy measures outlined in the programme aiming at containing these risks include mainly parametric changes of the pension and healthcare systems, which may be insufficient to secure the long-term sustainability of public finances. In a situation of rapidly increasing government debt, achieving and maintaining primary surplus is essential to ensure long-term sustainability. Furthermore, the budgetary strategy based on a gradual consolidation over the programme period needs to be complemented by measures that address directly the expected surge in age-related expenditures, including a comprehensive reform of pension and healthcare systems.Table: Comparison of key macroeconomic and budgetary projections>TABLE POSITION>Based on this assessment, the Commission has adopted the attached recommendation for a Council Opinion on the convergence programme of the Czech Republic and is forwarding it to the Council.Recommendation for a COUNCIL OPINION in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the convergence programme of the Czech Republic, 2004-2007THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,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 [5], and in particular Article 9(3) thereof,[5]  OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website: http://europa.eu.int/comm/economy_finance/ about/activities/sgp/main_en.htm.Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:On [5 July] 2004, the Council examined the convergence programme of the Czech Republic, which covers the period 2004 to 2007. The programme complies only partly with the data requirements of the revised "code of conduct on the content and format of stability and convergence programmes". In particular, the quality of ESA95 data on revenues and expenditures of both the functional sub-components and the sub-sectors of the general government needs to be further improved.The budgetary strategy underlying the programme aims at gradual reduction of the general government deficit to 3.3% of GDP in 2007 from 12.9% in 2003 (5.9% of GDP excluding a major one-off operation related to imputed state guarantees). The programme further mentions that the proposed path of deficit reduction indicates that the elimination of the excessive deficit would be completed by 2008. This goal is set to be achieved by fiscal consolidation measures adopted to a large extent in 2003 and 2004. The programme envisages that the fall in the general government revenue-to-GDP ratio is more than offset by the cut in the general government expenditure ratio. On the revenue side, the programme constitutes a shift from direct to indirect taxation. On the expenditure side, the programme foresees a decrease in transfers and subsidies and in government consumption. The programme envisages a slight increase in public investment expenditures as a share of GDP.The macro-economic scenario underlying the programme reflects cautious growth assumptions, i.e. growth of 2.8% in 2004 and an acceleration thereafter, reaching 3.5% in 2007. This scenario is taken as the reference scenario for assessing budgetary projections. The projection for inflation appears realistic.The programme foresees the deficit to be reduced to 3.3% of GDP in 2007 and to fall further thereafter, with the following intermediate targets: 5.3% of GDP in 2004, 4.7% of GDP in 2005, and 3.8% of GDP in 2006. The risks to the budgetary projections appear broadly balanced. On the one hand, the cautious macroeconomic scenario suggests that revenues could be better than expected and that expenditures could be less than budgeted. On the other hand, the impact of the numerous coinciding tax changes in 2004 on the behaviour of economic agents remains uncertain. In addition, important savings measures, particularly regarding government consumption, still need to be agreed upon. The budgetary stance in the programme seems sufficient to reduce the deficit to the 3% of GDP deficit threshold by 2008.The debt ratio increases by 4.1 percentage points over the programme period, reaching 41.7% of GDP in 2007. The evolution of the debt ratio may be less favourable than projected, given possible developments affecting the stock-flow adjustment, in particular lower future privatisation proceeds.The Czech Republic faces serious risks of budgetary imbalances in meeting the cost of an ageing population. Making progress towards securing an adequate primary surplus is essential to ensure that the public finances are on a sustainable footing. Furthermore, the budgetary strategy based on a gradual consolidation over the programme period needs to be complemented by measures that address directly the expected surge in age-related expenditures, including a comprehensive reform of pension and healthcare systems.* * *On [5 July] 2004, on the basis of recommendations from the Commission, the Council decided that an excessive deficit existed in the Czech Republic in accordance with Article 104(6) of the Treaty and made recommendations under Article 104(7) to the Czech Republic with a view to bringing that situation to an end, in which the Council expresses its policy advice.Key projections from the convergence programme of the Czech Republic>TABLE POSITION>


Recommendation for a Council opinion in accordance with the third paragraph of Art. 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated stability programme of Greece, 2005-2008