title: Council Recommendation of 9 July 2013 on the National Reform Programme 2013 of Hungary and delivering a Council opinion on the Convergence Programme of Hungary, 2012-2016

text:
               30.7.2013

               EN

               Official Journal of the European Union

               C 217/37

      COUNCIL RECOMMENDATION

   of 9 July 2013
   on the National Reform Programme 2013 of Hungary and delivering a Council opinion on the Convergence Programme of Hungary, 2012-2016
   2013/C 217/10
   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,
   Having regard to the opinion of the Economic and Financial Committee,
   Having regard to the opinion of the Social Protection Committee,
   Having regard to the opinion of the Economic Policy Committee,
   Whereas:

               (1)

               On 26 March 2010, the European Council agreed to the 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, it 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 29 June 2012, the Member States’ Heads of State or Government decided on a Compact for Growth and Jobs, providing a coherent framework for action at national, EU and euro area levels using all possible levers, instruments and policies. They decided on action to be taken at the level of the Member States, in particular expressing full commitment to achieving the objectives of the Europe 2020 strategy and to implementing the country-specific recommendations.

               (4)

               On 10 July 2012, the Council adopted a Recommendation (4) on Hungary’s National Reform Programme for 2012 and delivered its opinion on Hungary’s Convergence Programme for 2012-2015.

               (5)

               On 28 November 2012, the Commission adopted the Annual Growth Survey, marking the start of the 2013 European Semester for economic policy coordination. Also on 28 November 2012, the Commission, on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report, in which it identified Hungary as one of the Member States for which an in-depth review would be carried out.

               (6)

               The European Parliament has been duly involved in the European Semester, in accordance with Regulation (EC) No 1466/97, and, on 7 February 2013, adopted a resolution on employment and social aspects in the Annual Growth Survey 2013 and a resolution on the contribution to the Annual Growth Survey 2013.

               (7)

               On 14 March 2013, 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 10 April 2013, the Commission published the results of its in-depth review for Hungary, under Article 5 of Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude that Hungary is experiencing macroeconomic imbalances, which deserve monitoring and require decisive policy action. In particular, the ongoing adjustment of the highly negative net international investment position, largely driven by private sector deleveraging in a context of high general government debt and a weak business environment continues to deserve very close attention so as to reduce the significant risks of adverse effects on the functioning of the economy.

               (9)

               On 22 April 2013, Hungary submitted its 2013 National Reform Programme and, on 24 April 2013, its Convergence Programme for the period 2012-2016. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

               (10)

               Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is somewhat optimistic. The Hungarian authorities’ growth projections for 2013 and 2014 of 0,7 % and 1,9 % respectively, are higher by around half a percentage point compared to the Commission services 2013 spring forecast. The objective of the budgetary strategy outlined in the Convergence Programme is to ensure the sustainable correction of the excessive deficit by the 2012 deadline set by the Council in line with the Council Recommendation under the excessive deficit procedure of 13 March 2012 and the continued respect of the medium-term objective (MTO). Hungary has undertaken significant fiscal efforts in 2012 and with a budget deficit outcome of 1,9 % of GDP overachieved the deficit target of 2,5 % of GDP recommended by the Council, partly on account of additional one-off revenues of 0,2 % of GDP on top of those which were acknowledged already at the time of that Council Recommendation. However, the corrective measures for 2012 and beyond, in particular those announced in the autumn of 2012 were mainly concentrated on the revenue side, primarily focusing on selected sectors, raising questions about the sustainability of the consolidation efforts. According to the Commission services 2013 spring forecast further efforts are needed for both 2013 and 2014 in order to correct the excessive deficit in a sustainable manner. Following the publication of the Commission services 2013 spring forecast the Government adopted a new corrective package focusing on the expenditure side, and based on the updated assessment of the Commission, the deficit is projected to remain below the 3 % of GDP threshold with the new measures in both 2013 and 2014.
               The Convergence Programme has changed the MTO from a structural balance of –1,5 % to –1,7 % of GDP. The new MTO is in line with the requirements of the Stability and Growth Pact. Hungary recorded a structural balance of –0,7 % of GDP in 2012, namely well above its revised MTO, and the Commission services 2013 spring forecast foresees the structural balance to stay in line with the MTO over the forecast horizon and to stand at –1,1 % in 2013 and –1,8 % in 2014. Based on the measures adopted after the Commission services 2013 spring forecast the structural balance could remain above the MTO in 2014 as well. The growth rate of government expenditure in 2013 and 2014, net of discretionary revenue measures, will be broadly in line with the reference medium-term rate of potential GDP growth, but is expected to significantly exceed it in 2015 and 2016. Thus, the expenditure benchmark of the Stability and Growth Pact will not be met in those two years. According to government plans, the public debt-to-GDP ratio will continuously decrease throughout the programme period from 79,2 % in 2012 to 77,2 % in 2014 and further to 73,4 % in 2016, namely it will remain above the 60 % of GDP reference value. In contrast, the Commission services 2013 spring forecast, taking account of risks to the consolidation plans, expected only a marginal decrease to 78,9 % of GDP in 2014 which should be around 0,5 percentage points lower with the new corrective measures. Hungary will be in a transitional period from 2013 regarding compliance with the debt criterion, and according to the Commission services 2013 spring forecast it is making sufficient progress towards compliance with the debt criterion in 2013 and 2014.

               (11)

               The medium-term budgetary framework is still merely indicative so the horizon of fiscal planning is focusing only on the actual budget year. In addition, despite some recent improvements, the mandatory tasks and the analytical resources of the Fiscal Council are still not commensurate with its unprecedented veto power and the need for the systematic ex post assessment of compliance with numerical fiscal rules. Strengthening the medium-term budgetary framework and widening the mandatory remit of the Fiscal Council would help to improve the solidity and credibility of the recently revamped fiscal governance framework.

               (12)

               The Hungarian financial sector is deleveraging at a very quick pace, partly due to some policy measures that have had a strong negative impact on the profitability of banks and contribute to tight credit conditions. Managing the deteriorating portfolio quality represents one of the biggest challenges for the financial sector, associated with an increasing number of non-performing loans. In the last years, the Government adopted several measures to help foreign currency borrowers, in several cases without a consultation of stakeholders in the banking sector. However, those measures were not always targeted toward distressed borrowers. The adoption of a series of measures in a short time might increase moral hazard among borrowers due to the continuous expectation of further government help. The global financial crisis demonstrated to which extent the existing banking system may force national authorities to act to safeguard financial stability. The first financial assistance programme to Hungary advocated the need for a state-of-the-art supervision including effective emergency powers to the financial supervisor and the establishment of a resolution mechanism. While over the past three years the powers of the Hungarian Financial Supervisory Authority have been substantially increased, the legislator has not equipped it with sufficient monitoring powers.

               (13)

               Hungary has not followed the 2012 recommendation to establish a non-distortive and stable framework for the taxation of corporations and has increased the tax burden on selected corporate sectors by introducing further permanent sectoral surtaxes. While the new small business tax introduced as part of the Job Protection Act has a favourable design, the existence of several different tax rates across corporate sectors hampers effective allocation of resources and affects investment and lending. The introduction of reduced social security contribution rates under the Job Protection Act is a step in the right direction to reduce the tax wedge on labour. However, the tax wedge on low wage earners is still high and a refining of the system to better target this group would be desirable. Hungary also plans to tackle tax non-compliance with several measures, such as the compulsory connection of all cash registers with tax authorities. Regarding energy taxation, measures taken do not provide incentives to reduce energy consumption and have distortionary effects.

               (14)

               In spite of recent improvements, the low employment rate is associated with a very low rate of labour-market participation. Youth unemployment has increased from 11 % in 2001 to 28,1 % in 2012. The Public Work Scheme uses the bulk of budgetary resources to provide the long-term unemployed with work-related income instead of social benefits, while its long-term benefits on employability are yet to be proven. Hungary has strengthened active labour-market policies but certain disadvantaged people should have more access to them. Adult participation in lifelong learning is still one of the lowest in the Union. In the last five years, the employment rate of women remained approximately at the same low level. In order to encourage women to participate in the labour market, the Government expanded childcare facilities and promoted flexible working arrangements. The social situation continues to worsen: 31 % of the population is at risk of poverty or social exclusion and a high percentage of people face severe material deprivation. Poverty continues to disproportionately affect disadvantaged territories and communities, in particular Roma.

               (15)

               The business environment in Hungary has constantly deteriorated in the last three years due to a series of measures including restrictions on investors and an unstable regulatory framework. Recent restrictions which affect disproportionately foreign investors are focussed mainly on the services sector, including retail. The Simple State Programme included 114 measures to reduce the administrative burden on businesses by approximately HUF 500 billion but its implementation has been somewhat delayed. Low levels of competition in public procurement persist, although a new law entered into force on 1 January 2012. The Anti-Corruption Programme is a central element of the Magyary Programme. However, as the Anti-Corruption Programme is focusing on public administration, it does not tackle either the issue of insufficient law-enforcement in this area or the stricter checks on party financing, a key area of concern. Although the implementation of some key actions is already in progress, many of the announced steps have not yet been undertaken. Lack of monitoring of implemented measures also remains problematic. The developments in Hungary in 2012 and 2013 have increased concerns about the judiciary’s independence. The Innovation Union Scoreboard ranks Hungary as a moderate innovator. Business investments in research and development (R&D) are driven primarily by foreign-owned enterprises.

               (16)

               Hungary succeeded in reducing the number of early school leavers. Since there are still major regional differences, the new elements of the centralised public education system, if not implemented carefully, might have a negative impact and increase social inequalities and segregation. Although the number of students entering higher education has grown significantly in recent years, further work is needed to reach the EU average and the national Europe 2020 target. It should be ensured that the ongoing higher education reform improves access for disadvantaged pupils.

               (17)

               Implementation of the measures included in the Szell Kalman Plan, which is aimed at improving the cost-efficiency and performance of public transport, is prone to considerable delays and the lack of a comprehensive transport strategy hinders the financial sustainability of the transport system. While Hungary has adequately increased power grid interconnections with its neighbours as recommended in 2012, the lack of independence of the energy regulator in setting energy tariffs and the high share of regulated energy prices among household consumers and small and medium-sized enterprises (SMEs) still raise concerns.

               (18)

               In the context of the European Semester, the Commission has carried out a comprehensive analysis of Hungary’s economic policy. It has assessed the National Reform Programme and the Convergence Programme and has presented an in-depth review. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Hungary 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 (7) below.

               (19)

               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.

               (20)

               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 recommendations (1), (2), (3), (4), (5), (7) below,

         HEREBY RECOMMENDS that Hungary take action within the period 2013-2014 to:

               1.

               Implement a credible and growth-friendly fiscal strategy by specifying the necessary measures focusing on expenditure savings and preserve a sound fiscal position in compliance with the MTO over the Convergence Programme horizon. Building on the above steps, put the general government debt ratio on a firm downward path, also with a view to mitigating the accumulated macroeconomic imbalances. Enhance the medium-term budgetary framework by making it more binding and by closely linking it to numerical fiscal rules. Broaden the mandatory remit and enhance the transparency of the Fiscal Council, including through systematic ex post monitoring of compliance with numerical fiscal rules as well as the preparation of regular macro-fiscal forecasts and budgetary impact assessments of major policy proposals.

               2.

               Help restore normal lending to the economy primarily by improving the capacity for capital accumulation in the financial sector, inter alia by lowering the extra burden currently imposed on it. Improve portfolio quality by removing bad assets from banks’ balance sheets, closely consult stakeholders on new policy initiatives and make sure that new policy measures do not increase moral hazard among borrowers. Enhance financial regulation and supervision, in particular by giving more effective emergency powers to the Hungarian Financial Supervisory Authority and by establishing a bank resolution regime.

               3.

               Ensure a stable, more balanced and predictable corporate tax system. Streamline corporate taxation and minimise distortions of resource allocation created by sector-specific taxes, so as to foster growth and employment. Continue making taxation of labour more employment-friendly by alleviating the tax burden on low wage earners, inter alia by refining the eligibility criteria for the Job Protection Act, and by shifting taxation away to environmental taxes. Fully implement and step up the already announced measures to improve tax compliance and reduce the cost of tax compliance.

               4.

               Address youth unemployment, for example through a Youth Guarantee (6). Strengthen active labour market policy measures and enhance the client profiling system of the Public Employment Service. Reduce the dominance of the public works scheme within employment measures and strengthen its activation elements. Reinforce training programmes to boost participation in lifelong learning. Continue to expand child-care facilities to encourage women’s participation. Ensure that the objective of the National Social Inclusion Strategy is mainstreamed in all policy fields in order to reduce poverty, particularly among children and Roma.

               5.

               Create a supportive business environment, in particular restore an attractive environment for foreign direct investors, by making the regulatory framework more stable and by fostering market competition. Ensure the full implementation of measures envisaged to reduce the administrative burden, improve competition in public procurement and take further adequate measures to tackle corruption. Strengthen further the judiciary. Remove recently introduced barriers in the services sector, including in retail services. Provide targeted incentives to support innovative enterprises.

               6.

               Implement a national strategy on early school-leaving and ensure that the education system provides all young people with labour-market-relevant skills, competences and qualifications. Improve access to inclusive mainstream education, for those with disadvantages, in particular Roma. Support the transition between different stages of education and towards the labour market. Implement a higher-education reform that enables greater tertiary attainment, in particular by disadvantaged students.

               7.

               Gradually abolish regulated energy prices while ensuring the effective protection of economically vulnerable consumers. Take further steps to ensure the independence of the national regulator. Ensure the financial sustainability of state-owned enterprises in the transport sector by reducing operating costs and increasing revenues.

      Done at Brussels, 9 July 2013.

            For the Council

            The President

         R. ŠADŽIUS

      (1)  OJ L 209, 2.8.1997, p. 1.

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

      (3)  Maintained for 2013 by Council Decision 2013/208/EU of 22 April 2013 on guidelines for the employment policies of the Member States (OJ L 118, 30.4.2013, p. 21).

      (4)  OJ C 219, 24.7.2012, p. 40.

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

      (6)  Established by Council Recommendation of 22 April 2013 (OJ C 120, 26.4.2013, p. 1.).


Avis juridique important

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31996H0431

96/431/EC: Council Recommendation of 8 July 1996 on the broad guidelines of the economic policies of the Member States and of the Community

Official Journal L 179 , 18/07/1996 P. 0046 - 0050

COUNCIL RECOMMENDATION of 8 July 1996 on the broad guidelines of the economic policies of the Member States and of the Community (96/431/EC)THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community, and in particular Article 103 (2) thereof,Having regard to the recommendation from the Commission,Having regard to the opinion of the Monetary Committee,Having regard to the conclusions of the European Council in Florence of 21 and 22 June 1996,HEREBY RECOMMENDS:1. Main objectives and general guidelines Contrary to expectations prevailing at the time of the adoption of the 1995 Broad Economic Policy Guidelines, the Community's economy experienced a marked slowdown in economic activity over the last twelve months and a renewed rise in unemployment. Whereas inflation declined broadly as anticipated and price convergence strengthened, progress towards sounder public finances proceeded at an insufficient pace and was made more difficult by the economic downturn.As a result, the Community did not succeed in making significant progress towards realizing important economic objectives such as those stipulated in Article 2 of the Treaty, namely the promotion of sustainable, non-inflationary growth and a high level of employment. This failure to reduce the gap between aspirations for, and the realization of, economic and social well-being is the major cause of the present less confident mood in the Community.Nonetheless, the Community enjoys favourable economic fundamentals. Inflation is historically low and still declining, exchange rate tensions have progressively eased, world trade is expanding at a healthy pace, investment profitability has been improving and, in overall terms, is noticeably higher than in the second half of the 1980s. Due to these factors, together with the decline in long-term interest rates and an end to destocking, expectations now centre on a rebound in economic activity in the second half of this year. The opportunities offered by the expected recovery should be fully seized upon to accomplish the necessary degree of convergence in order to ensure a successful transition to Economic and Monetary Union on 1 January 1999.If the economic challenges facing the Community are to be met, there will need to be a continuation of the current macroeconomic policy strategy, especially in the area of budgetary consolidation, as well as a sustained structural reform. Appropriate initiatives in both the goods and services markets and in the area of labour market reform are needed.In essence, therefore, the present guidelines corroborate and augment the policy recommendations outlined in previous exercises. If this strategy does not yet seem to deliver satisfactory results in the Community at large, this is because it has been implemented with insufficient vigour and credibility. All parties are therefore encouraged to conduct their economic policies with a view to contributing to the achievement of the objectives of the Community (Article 102a of the Treaty), to demonstrate with action what has been promised for more than two years and to coordinate better their economic policies. The last mentioned is not only a Treaty obligation (Article 3a) but also a practical obligation made all the more critical by the increased integration of the economies of the Member States.2. Macroeconomic policy mix conducive to growth, employment and convergence The Council reaffirms that the achievement of those objectives will continue to require a stable, investment-enhancing, short- and medium-term macroeconomic framework characterized by:- a stability-oriented monetary policy whose task is not undermined by inappropriate budgetary and wage developments,- sustained efforts to consolidate the public finances in most Member States consistent with the objectives of their convergence programmes,- nominal wage trends consistent with the price stability objective; at the same time, real wage developments should be below the increase in productivity in order to strengthen the profitability of employment-creating investment.The more the stability task of monetary policy is facilitated by appropriate budgetary measures and wage developments, the more monetary conditions, including exchange rates and long-term interest rates, will be favourable to growth and employment.High and sustained non-inflationary economic growth over the medium term is essential:(i) to reduce significantly and durably the Community's unacceptably high level of unemployment and to combat the spread of social exclusion;(ii) to make the necessary improvement in the competitiveness, and in particular the productivity, of the Community economy compatible with the safeguarding, in the context of an open market economy, of the basic social values which characterize the Union; and(iii) to ensure the lasting success of Economic and Monetary Union.To reinforce both the credibility of the macro-economic policy framework and the efficiency of the coordination process within the Community, Member States are invited to present updated convergence programmes reflecting a strong political commitment.The Commission will intensify its dialogue with the social partners on macroeconomic issues. The social dialogue should also be intensified, where possible and according to prevailing traditions, at the national level.3. Price and exchange-rate stability The achievement and maintenance of a stable macroeconomic environment is a precondition for achieving sustained medium-term growth. Inflation in the Community on average is expected to fall to 2>NUM>1>DEN>2 per cent this year. This result should be improved upon next year.At present, 10 of the Member States already respect the objective established in previous guidelines exercises of a rate of inflation (1) of no more than two to three percent as a step towards price stability; in the United Kingdom inflation is close to three per cent. In the seven countries (Belgium, Germany, France, Luxembourg, the Netherlands, Austria and Finland) where inflation is below two per cent, and in Denmark and Ireland, where it is just above two per cent, the anti-inflation credibility of the monetary policy framework is generally firmly established and the task is to consolidate this performance over the medium term. In Sweden, where inflation has recently come down significantly, and in the United Kingdom, policies should aim at consolidating the results achieved.Those countries where inflation is expected to be between three and five per cent in 1996 (Spain, Portugal and Italy) should endeavour to reduce inflation further to below three per cent by 1997. Portugal, where inflation has recently fallen to just above three per cent, and Spain should persevere with their existing policies with a view to achieving the desired inflation objective in the near future. In Italy, the conduct of fiscal policy will in essence dictate the pace of progress with regard to the establishment of exchange rate credibility and in anchoring low inflation expectations.Despite visible progress in Greece over recent years, it is evident that efforts must be continued and enhanced. In this regard, emphasis should be placed in particular on the maintenance of the corrective fiscal policy stance operated over the last two years as well as continuing with the prudent monetary and exchange-rate policies evident since the early 1990s.As stressed in the previous guidelines, all Member States must continue to treat their exchange-rate policies as a matter of common interest within the framework of the European Monetary System. The exchange rate movements in early 1995 pointed to the need for several Member States to put their overall policy framework on a more credible footing. The policies recommended in the present guidelines will contribute to an appropriate alignment of exchange rates within the Community. They will also make the exchange rates within the EMS more resilient to fluctuations stemming from movements in major third currencies. For countries which are not currently participating in the exchange rate mechanism, these policies would also contribute to creating the conditions for such participation.4. Sound public finances Some, but only limited, progress towards fiscal consolidation was made last year in the Community. Slippages relative to announced budgetary targets only partially reflected the adverse impact of the growth slowdown. Insufficient credibility of budgetary policies contributed importantly to the currency turbulence in the Spring of 1995, sapped economic confidence and led to doubts in financial markets regarding the likelihood of a successful realization of the Community's single currency goal.Meanwhile, a large number of countries have taken significant steps to consolidate their public finances in 1996 and, in many cases, also in 1997. Nevertheless, the still unsatisfactory state of the public finances in the Community should lead Member States to review and, where necessary, to strengthen their fiscal consolidation plans. Credible, pre-announced and socially balanced efforts to reduce high budgetary imbalances will allow for a revival in confidence, for the transformation of the expected recovery into a durable, job-creating, medium-term, growth process and for a sound transition to EMU on 1 January 1999.While the economic conditions are at present less favourable than anticipated at the time of the adoption of the 1995 Guidelines, a further delay in the inevitable consolidation process is not a justifiable option. Any postponement risks provoking an adverse financial market reaction and would aggravate the consolidation task in future years. Progress made in reducing structural budget deficits this year must continue and will reinforce consolidation when cyclical conditions improve. Credible and well-designed reductions in budget deficits create confidence. In that way, they enhance growth prospects, so helping to offset - even in the near term - the impact on demand, provided they are implemented in an appropriate overall policy framework.On the basis of the adjustment measures decided up until early May 1996, the net borrowing of general government in the Community as a whole is likely to fall to just below 3>NUM>1>DEN>2 per cent of GDP in 1997, which compares with a deficit of five per cent in 1995. Virtually all Member States should aim at lowering the budget deficit to, at most, three per cent of GDP in 1997, as a step towards the objective of close to balance in the medium term. In this respect, it is encouraging that several countries have recently announced and are implementing substantial measures to redress budgetary imbalances.As regards the individual Member States, three - Denmark, Ireland and Luxembourg - already respect the three per cent government deficit reference value. Denmark and Ireland should now move towards the achievement of more ambitious medium-term targets, which in the case of Denmark are set out in the latest update of its convergence programme.Italy needs to introduce significant measures to achieve and improve upon the planned budgetary consolidation which remains the central policy priority. Action should primarily focus on the fight against tax evasion, on greater budgetary discipline of local authorities and on improved efficiency of the public administration. As regards Greece, sustained efforts on a wide range of fronts, most notably reductions in current expenditure, a continuation of the existing privatization initiatives and an expansion of the tax base are all required.As regards the remaining ten countries, the additional effort needed to respect the three per cent reference value is undoubtedly feasible and should be pursued vigorously. Within this group, several countries (Germany, France, Austria, Finland, Sweden) have this year announced substantial measures or reinforcements with a view to achieving a reduction in their budget deficits to three per cent of GDP or less in 1997. These countries, as with the Netherlands, should resolutely implement their programmes of fiscal consolidation and, if necessary, strengthen them in order to ensure that their objectives are fully met. The Belgian government has made a firm commitment - and already enjoys the necessary support of the Belgian parliament - to specify in its 1997 budget the measures required to bring the budget deficit down to a maximum of three per cent. In the United Kingdom, substantial reductions in the budget deficit are expected to continue over the next two years mainly as a result of planned expenditure restraint. However, to respect the three per cent target for 1997, it is important that action be taken to keep spending to planned levels, both to compensate for the fiscal slippage in 1995 and for an expected less rapid budgetary improvement in the short run which is partly due to lower growth than previously predicted. Finally, in Spain and Portugal, a determined implementation of the budgetary component of the convergence programmes is required.Although the extent, timing and design of consolidation measures need to be tailored to country-specific conditions, some general principles have been identified in previous guidelines exercises. These include:(i) restraining expenditure increases, as opposed to further increases in the overall tax burden, is widely regarded as a more credible and efficient option. Among the issues which should be addressed are the need to place pension provisions on a sustainable footing, to curb the rise in health care costs and to reduce distortionary and costly subsidies;(ii) re-directing, to the greatest extent possible, government spending towards productive activities such as investment in infrastructure, human capital and active labour market measures, while not endangering the necessary reduction in budget deficits;(iii) improving the efficiency of public services through inter alia more flexible management practices, better incentives for public employees, and in some cases increased use of privatization and user-fees to the extent that Member States judge it compatible with their objectives;(iv) ensuring that a reduction in the overall tax burden, which is desirable in most Member States, is conditional upon initially putting the budget deficit on a firm downward path.Just like the Member States, the Community as well is called upon to maintain strict budgetary discipline. Therefore, the Community itself should adopt a cautious stance towards the already established financial perspectives - these perspectives set ceilings and not targets.5. Better functioning of product and service markets To foster growth, and thus employment, whilst maintaining low inflation, it is essential that action on the macro side is added to by measures aimed at ameliorating the functioning of product and service markets in general and at generating higher competition and a more flexible functioning of the price mechanism in particular. This will essentially require a further reinforcement of competition policies and a curbing of State aids in full respect of the objectives of Article 130a of the Treaty concerning economic and social cohesion.It is also crucial to exploit fully the internal market potential in an open and competitive environment through the transposition into national law and effective enforcement of single market legislation. In sectors where transposition is lagging behind, a particular effort is needed to present all necessary proposals to national parliaments before the end of 1996.To enhance the Community's competitiveness, measures aimed at promoting innovation, at favouring the emergence of the information society and at achieving a working environment more conducive to initiative and to the development of SMEs should be swiftly implemented. Of course, in these areas the individual Member States largely hold the key. However, national actions can be reinforced, where this is appropriate and consistent with these guidelines, through actions at the Community level. The Commission should also pursue its policy to improve competition in EU markets. Finally, to increase the efficiency of environmental policies, they should rely on more market-based instruments, including fiscal ones, both at the national level and - if EU-wide action appears necessary - at the level of the Community.6. Fostering employment and labour market reforms More than 2>NUM>1>DEN>2 years after the publication of the Commission's White Paper on Growth, Competitiveness and Employment and with the Essen employment strategy set in place for some time, the Community finds itself with a dismal employment record over the period in question. Although the expected recovery will lead to renewed job creation and will reverse the current upward trend in unemployment, it is likely that more than 17 million people will still be unemployed in 1997 in the Community. Assuring a sustained and significant improvement in employment requires not only durable high, economic growth and efficient product and service markets, but also a broad range of labour market reforms.Eliminating existing rigidities as well as ensuring a more efficient operation of labour markets is at the heart of national efforts to ensure both a tension-free and stronger medium-term expansion and a more employment-creating growth pattern. Member States have been making efforts to reform their labour markets. They are encouraged to intensify their actions while ensuring both equity and efficiency in the social protection system. The implementation of policies aimed at improving the occupational and regional mobility of the labour force and at enhancing the efficiency of employment services should reduce bottlenecks which could lead to an early end to the growth process.Suitable policies should be conducted in order to adapt the whole educational system - including vocational training - both to the needs of markets and to the improvement of human capital, thereby fostering the growth potential of the economy. In this respect, priority should be given to improving the employability of the unemployed, in particular low skilled, inexperienced labour, and to reducing skill mismatches on the labour market by providing training better fitted to the changing needs of the labour market. Attention should also be given to enhancing the employment prospects of young people and women.Higher employment growth should be fostered by the maintenance of appropriate average wage trends and in some cases by wages that better reflect productivity differentials. Where possible, a reduction in non-wage labour costs should be used to encourage employment. Attention should be given to the incentives to the employment of disadvantaged groups, including the long-term unemployed and low-skilled labour, consistent with these guidelines. Adaptations, in the mutual interest of firms and work forces, of working-time and work organization will also act in this direction. Finally, the promotion of local and regional initiatives in the field of new services containing a high labour-intensive dimension, such as those identified in the Communication from the Commission on a European strategy for encouraging local development and employment initiatives, should also be encouraged.All the above elements are featured in the Community's common employment strategy, initiated at the Essen European Council and refined subsequently at both the Cannes and Madrid Councils. In this respect, Member States multiannual employment programmes must be pursued if they are to be effective in the area of labour market policy. Furthermore, the Commission will pursue its initiative to mobilize all parties around the top priority of fighting unemployment.Done at Brussels, 8 July 1996.For the CouncilThe PresidentR. QUINN(1) As measured by the 12-month average of the annual change in the interim indices of consumer prices.


Avis juridique important

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31992H0540

92/540/EEC: Commission Recommendation of 9 November 1992 concerning coordinated programme for the official control of foodstuffs for 1993

Official Journal L 350 , 01/12/1992 P. 0085 - 0092

COMMISSION RECOMMENDATIONof 9 November 1992 concerning a coordinated programme for the official control of foodstuffs for  1993 (92/540/EEC) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Economic Community, and in particular the  second indent of Article 155 thereof, Having regard to Council Directive 89/397/EEC of 14 June 1989 on the official control of foodstuffs   (1), and in particular Article 14 (3) thereof, Whereas it is necessary, with a view to the completion and operation of the internal market, to  arrange for coordinated food inspection programmes at Community level; Whereas such programmes should not only establish compliance with the Community legislation but  also check that the foods is fit for consumption; Whereas simultaneous implementation of national programmes and coordinated programmes can provide  experience which is still widely lacking at present; Whereas the Standing Committee for Foodstuffs has been consulted and has expressed itself in favour  of the coordinated programme of inspections planned for 1993, HEREBY RECOMMENDS THE MEMBER STATES TO TAKE SAMPLES OF THE FOLLOWING PRODUCTS AND TO ANALYSE THE  SPECIFIED PARAMETERS IN 1993: I.  Adulteration of orange juice II.  Nitrates and  nitrites in baby foods containing vegetables III.  Weight inspections for deep-frozen seafood IV.   Microbiological tests on edible ices V.  Microbiological tests on ready-made foods  Explanatory  memorandum on the coordinated programme of inspections for 1993 In 1993 the first coordinated  programme of inspections provided for by Article 14 (3) of Directive 89/397/EEC will be carried  out. The Commission has deliberately recommended a limited, straightforward programme confined to  just a few groups of foodstuffs and easily measured parameters. The analyses proposed are designed  to test compliance with the public health regulations, to guarantee fair trade and to protect  consumer interests. The Commission decided not to set uniform rates for the sampling or the on-the-spot inspections.  The number of samples must take account of both public health and competition aspects, i.e. they  must not only cover the manufacturers playing an important part in intra-Community trade but must  also be extensive enough to provide an overview of the market in the foodstuffs concerned. The Commission has laid down no stipulations with regard to sampling and analysis methods for this  first coordinated programme of control. Each Member State will take the samples in the context of  its own official food control programme and analyse them on the basis of its standard rules. The  methods of analysis used must be mentioned or described briefly on the answer sheets annexed  hereto. If a given Member State has conducted detailed analyses covering every point in the coordinated  programme of controls within the last two years on any of the products or parameters proposed, no  further controls are necessary. The evaluation of the results of the earlier analyses will be made  available to the Commission. In addition to sampling and analyses, on-the-spot inspections of businesses are another useful  means of determining whether a specific product is up to standard. I  Adulteration of orange juice The objective of this analysis is to determine whether too much  water and/or sugar was added in the manufacture of the orange juice and orange juice concentrates  or in the redilution of the orange juice concentrates. The inspection must also ensure that the products are correctly labelled as rediluted or  sweetened. Reference is made to Council Directive 75/726/EEC  (1) and Directive 89/397/EEC. II  Nitrates and nitrites in babyfoods containing vegetables High nitrate and nitrite contents in  babyfoods pose a potential health hazard to infants and small children. Consumers expect a high  level of protection for this particularly vulnerable sector. A Community-wide inspection, is,  therefore, appropriate. To allow fuller assessment in due course, both the aggregate results and  the individual values for each type of vegetable should be recorded. III  Weight inspections for deep-frozen seafood For transport purposes, seafoods are deep-frozen  and, where necessary, wrapped in ice. Often the declared weight bears little relation to the weight  after defrosting. To monitor fair trade and to protect consumers from operators with an unfair  economic advantage, the drain weight after defrosting will be inspected for: -  scallops, -  shrimps, -  lobsters, and -  clams. IV  Microbiological tests on edible ices The inspection reports submitted by the Member States to  date have clearly shown that microbiological contamination is common in edible ices. The objective of the Community-wide inventory is to determine whether substandard hygiene during  the manufacture and distribution of ices poses a health hazard to consumers. For this reason, not  only the Escherischia Coli and germ counts will be determined but also the levels of Staphylococcus  aureus, as an indicator of substandard hygiene, and the readings for the pathogen Salmonella ssp. V  Microbiological tests on ready-made foods The inspection reports submitted by the Member States  to date have revealed microbiological problems with certain ready-made foods, notably: 1.  heat-treated ready-made foods which can become contaminated during reprocessing and which, if  necessary, must be reheated before consumption; 2.  non-heat-treated ready-made foods stabilized in other ways, for example with the aid of  preservatives; 3.  raw ready-made foods requiring no reheating; 4.  raw ready-made foods requiring heating before consumption. For this reason, samples of these ready-made foods should be tested for pathogens, other germs with  signs of substandard hygiene and germs typical of microbial contamination. Ready-made foods in  sterile packaging or sterilized ready-made foods (e.g. tinned foods) are not included in this  programme. Done at Brussels, 9 November 1992. For the Commission Martin  BANGEMANN Vice-President


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52004SC0083

Recommendation for a Council opinion in accordance with the third paragraph of Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated Convergence Programme of the United Kingdom, 2002-03 to 2008-09  /* SEC/2004/0083 final */

Recommendation for a COUNCIL OPINION in accordance with the third paragraph of Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated Convergence Programme of the United Kingdom, 2002-03 to 2008-09(presented by the Commission)EXPLANATORY MEMORANDUMCouncil Regulation (EC) No. 1466/97, on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies [1], stipulated that countries not participating in the single currency were to submit convergence programmes to the Council and the Commission by 1 March 1999. In accordance with Article 9 of this Regulation, the Council had to examine each convergence programme based on the assessments prepared by the Commission and the Committee set up by Article 114 of the Treaty, the Economic and Financial Committee. The Commission adopted a recommendation on each programme. On the basis of this recommendation and after having consulted the Economic and Financial Committee, the Council delivered an opinion, following its examination of the programme. According to the Regulation, the updated convergence programmes, to be presented annually, may also be examined by the Council in accordance with the same procedures.[1]  OJ L 209, 2.8.1997. The documents referred to in this text can be found at the following web siteThe United Kingdom's convergence programme covering the period 1997-98 to 2003-04 was submitted on 22 December 1998 and assessed by the Council on 8 February 1999 [2] and updates were presented every following year.[2]  OJ C 68, 11.3.1999The UK authorities submitted the fifth and most recent updated convergence programme, covering the period 2002-03 to 2008-09 [3] (hereinafter referred to as the update) on 10 December 2003. The Commission services have carried out a technical evaluation of this updated programme, taking into account the information provided in accordance with the Code of Conduct [4], the Autumn forecasts as well as subsequent evaluations, the commonly agreed methodology for the estimation of cyclically-adjusted balances, the recommendations in the Broad Economic Policy Guidelines and the principles laid down in the Communication of the Commission to the Council of 27 November 2002 on strengthening the co-ordination of budgetary policies [5]. This evaluation warrants the following assessment:[3]  The UK financial year runs from April to March.[4]  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.[5]  COM(2002) 668 final, 27.11.2002.The update incorporates the authorities' latest projections for the UK economy and public finances as published in tandem on 10 December 2003 in the 2003 Pre-Budget Report (PBR). The update largely complies with the data requirements of the revised "code of conduct" on the content and format of stability and convergence programmes.The strategy for public finances presented in the update is unchanged from the previous update and continues to be anchored by reference to observance of the UK's own fiscal rules [6], these being designed to ensure sound and sustainable public finances over the medium and long term while supporting monetary policy over the cycle. This strategy is thus located within an overall monetary and fiscal framework designed to deliver high and stable levels of growth and employment.[6]  These are two: the 'golden rule', whereby over the economic cycle the public sector will only borrow to invest, and not to fund current expenditure; and the 'sustainable investment rule', whereby public sector net debt as a proportion of GDP will be held over the cycle at a stable and prudent level.The economy in the recent downturn has proven highly resilient. Real GDP growth in 2003 is expected to be 2.1%, within the April 2003 Budget forecast range of 2-2½%, while unemployment has fallen to and remained around its structural level, employment growth has stayed positive and HICP inflation has been low. The projections reported in the update suggest a closing of a negative output gap, officially estimated to be around 1½% below trend in 2003, by 2006. GDP is expected to grow by 3 to 3½% in both 2004 and 2005, before falling back to an assumed trend rate of around 2¾% by early 2006 as slack in the economy is absorbed. The central estimate of trend growth is projected to decline to around 2½% per annum in the programme's two final years. A comparison with the Commission services autumn forecast, which extends only to 2005, shows broad similarities with the update's projections to this horizon, though growth in the update is higher in 2004 and 2005 with consequently a more rapid closing of the negative output gap than expected by the Commission. There are moreover certain country-specific risks to both the official and Commission projections, particularly the consequences on the household sector of any significant slowing of the rapid increase in recent years in residential property prices or more generally on household indebtedness if interest rates rose strongly, although overall, household net worth is currently strong.The government's assessment announced in June 2003 that its tests for the UK's adoption of the single currency had not all been met implies that its monetary policy framework is unlikely to change in the near term. As part of this framework, an important development in December 2003 was the replacement of the former 2½% inflation target based on the annual increase in RPIX (retail price index excluding mortgage interest payments) by a new 2% target based on the annual increase in the HICP. The adoption of the new policy benchmark represents a move closer to that within the euro area, in terms of the ECB's May 2003 clarification of its definition of price stability of annual increases in the HICP over the medium term of close to but below 2%.Given the monetary policy framework based on inflation targeting, the exchange rate is floating. The update contains no explicit assumptions on exchange rates. Following sterling's depreciation in early 2003, the exchange rate vis-à-vis the euro has stayed within a relatively narrow range, and current levels are now more in line with available estimates of equilibrium rates. Both policy and long-term interest rates have recently risen vis-à-vis those in the euro area, reflecting perceptions of a more advanced recovery cycle in the UK.The update foresees a medium-term increase in the shares relative to GDP of both general government expenditure and revenue, designed to redress perceived under-provision of public services and past under-investment, while continuing to observe the UK's own fiscal rules and, in the opinion of the UK authorities, "a prudent interpretation of the Stability and Growth Pact" (SGP). Planned rates of growth of public expenditure are particularly marked for the targeted priority areas of health, education and public infrastructure. The update includes no major new policy measures to increase the revenue share (following an increase in social contribution rates in 2003) but projects this share to rise, reflecting contributions from a conventional cyclical response to output returning to trend, a partial correction of a particularly sharp recent fall in receipts, increased collection efficiency and normal fiscal drag.For purposes of public finance projections, the UK authorities assume annual trend growth throughout the programme period to be a more cautious quarter-percentage-point lower than their central estimates. The resulting adjusted macro-economic scenario is closer to the Commission's autumn forecast, although projected growth still seems somewhat higher than forecast by the Commission in the short term. The projections for fiscal balances in the programme represent a significant downgrading compared with the previous update. The deterioration is most marked for the current financial year, from an expected deficit of 2.2% of GDP in the previous update to 3.3% in the December 2003 update. The projected deficits in the latest update are around 2½% of GDP in both 2004-05 and 2005-06, 2% in the following two financial years and 1¾% in 2008-09. The worsening of 1.1% points of GDP in 2003-04 compared with the previous update falls to 0.9% in 2004-05, 0.8% in 2005-06 and about ½% for the following two financial years. Almost all of this deterioration is structural, with the cyclically-adjusted deficit, as calculated in the programme, worsening by 0.9% point of GDP in 2003-04 and 0.7% in 2004-05. The deterioration in the public finances compared with the previous update is due, beyond a relatively limited part played by conventional cyclical influences, to a downgrading of expected revenue linked to composition effects of GDP growth and to some discretionary higher expenditure mainly linked to the Iraq war. In the short term these have not been offset, given UK fiscal policy's stabilisation role.Looking ahead, during the programme period, the shortfall in receipts experienced in 2003-04 relative to plans is expected to be partly reversed autonomously. The update thus projects a cyclically adjusted deficit of 2½% of GDP in 2003/4, falling to around 2% of GDP per annum throughout the rest of the programme period. Commission estimates of the cyclically adjusted deficit show a similar downward path (though are slightly higher in the short term.)The update foresees a slight increase in net and gross debt ratios. By the final programme year the primary deficit is virtually eliminated and the gross debt ratio stabilises at around 41½% of GDP. The modest debt ratios throughout the programme period are combined with the achievement of significant rates of government investment, with the general government net investment-to-GDP ratio rising from 1.1% in 2002-03 to 2.2% by 2005-06, compared to an EU average of 1.5% in 2002.The resulting fiscal picture can be assessed both in terms of its value as a central projection and in terms of its conformity with the Community's fiscal framework. On the first, the main risk concerns the expected recovery in tax receipts from their recently depressed level. On the second, there is a clear risk of an excessive deficit, which may have already occurred in 2003. Further, the risk of a worse outcome for the public finances than projected in the programme is the more worrying since, even if the official projections were met, the cyclically adjusted deficits of around 2% of GDP throughout the programme period would not, in the Commission's view, ensure an adequate safety margin against a deficit breaching the 3% of GDP reference level with normal macro-economic fluctuations.Long-term sustainability of public finances is constantly monitored by the UK authorities and represents a key commitment in the UK's fiscal policy. As outlined in the programme, ageing populations are expected to have a limited impact on public spending. The autonomous sharp increase in revenues into the medium term together with a decrease in longer-term non-age related expenditure will, in this view, put the UK on a sustainable path. However, the update itself shows that an inter-temporal budgetary gap cannot be excluded under certain interest rate assumptions. A prudent budgetary position kept in the medium term would help avoid a risk of emerging budget imbalances in the context of ageing populations. However, there are still, in the light of the current and projected deficits, some risks of imbalances in the long term. Quantitative indicators estimated by the Commission show an upward trend in the debt-to-GDP ratio in the long run. An additional element to be considered is that much of the financial sustainability of the pension system depends on the performance of private pension providers. If private provision produces significantly less than the anticipated coverage or level of pensions, the United Kingdom may face increased claims for means-tested benefits in the future. Nevertheless, the low level of debt and the relatively low level of taxation give room for manoeuvre.The economic policies as reflected in the updated programme broadly comply with the 2003 Broad Economic Policy Guidelines, specifically those with budgetary implications. As noted above, the framing of the UK programme is centred on a major upgrade of public services, including a renewal and extension of infrastructure. The success of the programme in terms of the quality of public finances is contingent on being able to deliver the planned improvements and to do so in a cost-effective way. The UK authorities are well aware of the challenges, particularly given the worries that have been expressed that significantly higher levels of expenditure already being achieved are not yet being adequately matched in higher public sector output. Beyond the issues involved in adequately calibrating public sector output, it is difficult at present to assess whether the ambitious planned expenditure profiles sufficiently take into account the short term constraints on the supply side, including the managerial feasibility of rapidly extending and improving public sector provision.Based on this assessment, the Commission has adopted the attached recommendation for a Council opinion on the convergence programme update of the United Kingdom and is forwarding it to the Council.Recommendation for a COUNCIL OPINION in accordance with the third paragraph of Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated Convergence Programme of the United Kingdom, 2002-03 to 2008-09THE 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 co-ordination of economic policies [7], and in particular Article 9 (3) thereof,[7]  OJ L 209, 2.8.1997Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:On [10 February 2004], the Council examined the United Kingdom's updated Convergence Programme, which covers the period financial years 2002-03 to 2008-09. The updated programme largely complies with the data requirements of the revised "code of conduct" on the content and format of stability and convergence programmes.The budgetary strategy underlying the update continues to be the maintenance of sustainable public finances as part of an integrated strategy for achieving high and stable economic growth. The projections set out in the update would increase, over the programme period, both the revenue and the expenditure ratios to GDP with a slight rise in the modest debt-to-GDP ratio. A significant programme of public investment is being implemented.The programme draws a distinction between its central macroeconomic projection and the GDP growth rates used for public finance projections; for caution, the latter are set one quarter percentage point per annum lower. The update centrally projects real GDP growth to accelerate from an estimated 2% in 2003 to 3 to 3½% in 2004 and 2005. In 2006, the final year for which detailed macroeconomic projections are provided, growth falls back to trend at 2½ to 3% and the present negative output gap is expected to close. Underlying trend employment growth is estimated at 0.2% per annum. HICP inflation is forecast to rise gradually from 1½% in 2003 to 2%, the recently recalibrated inflation target, in 2006. The central macro-economic scenario is close to the Commission's evaluation and the slightly lower growth rates used for the public finance projections in the update even closer. However, projected growth in the latter is still somewhat higher than forecast by the Commission in the short term.The update projects a general government deficit of 2.6% of GDP in 2004-05, compared to an expected deficit of 3.3% in 2003-04. For 2005-06, 2006-07, 2007-08 and 2008-09, the projections are for headline deficits of 2.4%, 2.1%, 2.0% and 1.8% of GDP respectively. In cyclically-adjusted terms, the update projects an improvement in the deficit between 2003-04 and 2004-05 of 0.4 percentage points to 2.0% of GDP. In the following years, the deficits amount to 2.2%, 2.1%, 2.0% and 1.8% of GDP. Commission calculations of the cyclically-adjusted changes, according to the commonly-agreed methodology, are similar. The gross debt ratio is projected to rise gradually, from 37.9% of GDP in 2002-03 to stabilise at 41.5% in 2008-09.The budgetary stance in the programme is expected to breach the 3% of GDP deficit threshold on a financial year basis in 2003-04. If confirmed for a calendar year, this could constitute an excessive deficit. Looking ahead, the projection includes a strong increase in the revenue-to-GDP ratio. Despite an expected narrowing of the cyclically-adjusted deficit, in no year of the update period does it seem to provide a sufficient safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations. Similarly, the budgetary projections in the update do not ensure that the Stability and Growth Pact's medium-term objective of a budgetary position of close to balance or in surplus is achieved within the programme period. At the same time, however, it should be noted that the projected balances reflect to a significant extent the implementation of an intensive programme of public investment, bringing the general government net investment-to-GDP ratio up from 1.1% in 2002-03 to 2.2% in 2005-06, compared to an EU-average of 1.5% in 2002. Moreover the gross debt to GDP ratio is well below 60% of GDP over the programme period.Long term sustainability of public finances is constantly monitored and represents a key commitment in the UK's fiscal policy. A prudent budgetary position kept in the medium term would help avoid a risk of emerging budget imbalances in the context of ageing populations. However, there are still, in the light of the current and projected deficits, some risks of imbalances in the long term. Indeed, quantitative indicators estimated by the Commission show an upward trend in the debt-to-GDP ratio in the long run. An additional element to be considered is that much of the financial sustainability of the pension system depends on the performance of private pension providers. If private provision produces significantly less than the anticipated coverage or level of pensions, the United Kingdom may face increased claims for means-tested benefits in the future. Nevertheless, the low level of debt and the relatively low level of taxation give room for manoeuvre.The 2004 Budget and the 2004 Spending Review present opportunities to address the issues identified above.In the 2003 Broad Economic Policy Guidelines, the UK authorities are recommended to 'ensure that the public services associated with the announced increases in public expenditure (including investment in the transport infrastructure) are delivered efficiently and with a view to ensuring cost-effectiveness'. The economic policies as reflected in the updated programme are broadly consistent with the recommendations in the Broad Economic Policy Guidelines, specifically those with budgetary implications.


title: 2014/135/EU: Commission Recommendation of 12 March 2014 on a new approach to business failure and insolvency  Text with EEA relevance

text:
               14.3.2014

               EN

               Official Journal of the European Union

               L 74/65

      COMMISSION RECOMMENDATION

   of 12 March 2014
   on a new approach to business failure and insolvency
   (Text with EEA relevance)
   (2014/135/EU)
   THE EUROPEAN COMMISSION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular Article 292 thereof,
   Whereas:

               (1)

               The objective of this Recommendation is to ensure that viable enterprises in financial difficulties, wherever they are located in the Union, have access to national insolvency frameworks which enable them to restructure at an early stage with a view to preventing their insolvency, and therefore maximise the total value to creditors, employees, owners and the economy as a whole. The Recommendation also aims at giving honest bankrupt entrepreneurs a second chance across the Union.

               (2)

               National insolvency rules vary greatly in respect of the range of the procedures available to debtors facing financial difficulties in order to restructure their business. Some Member States have a limited range of procedures meaning that businesses are only able to restructure at a relatively late stage, in the context of formal insolvency proceedings. In other Member States, restructuring is possible at an earlier stage but the procedures available are not as effective as they could be or involve varying degrees of formality, in particular in relation to the use of out-of-court processes.

               (3)

               Similarly, national rules giving entrepreneurs a second chance, in particular by granting them discharge from the debts they have incurred in the course of their business vary as regards the length of the discharge period and the conditions under which discharge can be granted.

               (4)

               The discrepancies between the national restructuring frameworks, and between the national rules giving honest entrepreneurs a second chance lead to increased costs and uncertainty in assessing the risks of investing in another Member State, fragment conditions for access to credit and result in different recovery rates for creditors. They make the design and adoption of consistent restructuring plans for cross-border groups of companies more difficult. More generally, the discrepancies may serve as disincentives for businesses wishing to establish themselves in different Member States.

               (5)

               Council Regulation (EC) No 1346/2000 (1) only deals with issues of jurisdiction, recognition and enforcement, applicable law and cooperation in cross-border insolvency proceedings. The Commission proposal for the amendment of that Regulation (2) should extend the scope of the Regulation to preventive procedures which promote the rescue of an economically viable debtor and give a second chance to entrepreneurs. However, the proposed amendment does not tackle the discrepancies between those procedures in national law.

               (6)

               On 15 November 2011, the European Parliament adopted a Resolution (3) on insolvency proceedings. It included recommendations for harmonising specific aspects of national insolvency law, including the conditions for the establishment, effects and content of restructuring plans.

               (7)

               In the Communication on the Single Market Act II (4) of 3 October 2012, the Commission undertook as a key action to modernise the Union insolvency rules in order to facilitate the survival of businesses and present a second chance to entrepreneurs. To this end, the Commission announced that it would analyse how the efficiency of national insolvency laws could be further improved with a view to creating a level playing field for companies, entrepreneurs and private persons within the internal market.

               (8)

               The Commission Communication on a new European approach to business failure and insolvency (5) of 12 December 2012 highlights certain areas where differences between domestic insolvency laws may hamper the establishment of an efficient internal market. It noted that the creation of a level playing field in these areas would lead to greater confidence in the systems of other Member States for companies, entrepreneurs and private individuals, and improve access to credit and encourage investment.

               (9)

               On 9 January 2013 the Commission adopted the Entrepreneurship 2020 Action Plan (6) where the Member States are invited, among other things, to reduce when possible, the discharge time and debt settlement for honest entrepreneurs after bankruptcy to a maximum of 3 years by 2013 and to offer support services to businesses for early restructuring, advice to prevent bankruptcies and support for small and medium enterprises to restructure and re-launch.

               (10)

               Several Member States are currently undertaking reviews of their national insolvency laws with a view to improving the corporate rescue framework and the second chance for entrepreneurs. Therefore it is opportune to encourage coherence in these and any future such national initiatives in order to strengthen the functioning of the internal market.

               (11)

               It is necessary to encourage greater coherence between the national insolvency frameworks in order to reduce divergences and inefficiencies which hamper the early restructuring of viable companies in financial difficulties and the possibility of a second chance for honest entrepreneurs, and thereby to lower the cost of restructuring for both debtors and creditors. Greater coherence and increased efficiency in those national insolvency rules would maximise the returns to all types of creditors and investors and encourage cross-border investment. Greater coherence would also facilitate the restructuring of groups of companies irrespective of where the members of the group are located in the Union.

               (12)

               Furthermore, removing the barriers to effective restructuring of viable companies in financial difficulties contributes to saving jobs and also benefits the wider economy. Making it easier for entrepreneurs to have a second chance would also lead to higher self-employment rates in the Member States. Moreover, efficient insolvency frameworks would provide a better assessment of the risks involved in lending and borrowing decisions and smooth the adjustment for over-indebted firms, minimising the economic and social costs involved in their deleveraging process.

               (13)

               Small and medium sized enterprises would benefit from a more coherent approach at Union level, since they do not have the necessary resources to cope with high restructuring costs and take advantage of the more efficient restructuring procedures in some Member States.

               (14)

               Tax authorities also have an interest in an efficient restructuring framework for viable enterprises. In implementing this Recommendation, Member States should be able to take appropriate measures to ensure the collection and recovery of tax revenues respecting the general principles of tax fairness and to take efficient measures in cases of fraud, evasion or abuse.

               (15)

               It is appropriate to exclude from the scope of this Recommendation insurance undertakings, credit institutions, investment firms and collective investment undertakings, central counter parties, central securities depositories and other financial institutions which are subject to special recovery and resolution frameworks where national supervisory authorities have wide-ranging powers of intervention. Although consumer over-indebtedness and consumer bankruptcy are also not covered by the scope of this Recommendation, Member States are invited to explore the possibility of applying these recommendations also to consumers, since some of the principles followed in this Recommendation may also be relevant for them.

               (16)

               A restructuring framework should enable debtors to address their financial difficulties at an early stage, when their insolvency could be prevented and the continuation of their business assured. However, in order to avoid any potential risks of the procedure being misused, the financial difficulties of the debtor must be likely to lead to its insolvency and the restructuring plan must be capable of preventing the insolvency of the debtor and ensuring the viability of the business.

               (17)

               To promote efficiency and reduce delays and costs, national preventive restructuring frameworks should include flexible procedures limiting court formalities to where they are necessary and proportionate in order to safeguard the interests of creditors and other interested parties likely to be affected. For example, to avoid unnecessary costs and reflect the early nature of the procedure, debtors should in principle be left in control of their assets and the appointment of a mediator or a supervisor should not be compulsory, but made on a case-by-case basis.

               (18)

               A debtor should be able to request the court for a stay of individual enforcement actions and suspension of insolvency proceedings whose opening has been requested by creditors where such actions may adversely affect negotiations and hamper the prospects of a restructuring of the debtor’s business. However, in order to provide for a fair balance between the rights of the debtor and of creditors, and taking into account the experience of recent reforms in the Member States, the stay should be initially granted for a period of no more than 4 months.

               (19)

               Court confirmation of a restructuring plan is necessary to ensure that the reduction of the rights of creditors is proportionate to the benefits of the restructuring and that creditors have access to an effective remedy, in full compliance with the freedom to conduct a business and the right to property as enshrined in the Charter of Fundamental Rights of the European Union. The court should therefore reject a plan where it is likely that the attempted restructuring reduces the rights of dissenting creditors below what they could reasonably expect to receive in the absence of a restructuring of the debtor’s business.

               (20)

               The effects of bankruptcy, in particular the social stigma, legal consequences and the ongoing inability to pay off debts constitute important disincentives for entrepreneurs seeking to set up a business or have a second chance, even if evidence shows that entrepreneurs who have gone bankrupt have more chance to be successful the second time. Steps should therefore be taken to reduce the negative effects of bankruptcy on entrepreneurs, by making provisions for a full discharge of debts after a maximum period of time,

         HAS ADOPTED THIS RECOMMENDATION:
   I.   OBJECTIVE AND SUBJECT MATTER

               1.

               The objective of this Recommendation is to encourage Member States to put in place a framework that enables the efficient restructuring of viable enterprises in financial difficulty and give honest entrepreneurs a second chance, thereby promoting entrepreneurship, investment and employment and contributing to reducing the obstacles to the smooth functioning of the internal market.

               2.

               By reducing those obstacles, the Recommendation aims in particular to:

                           (a)

                           lower the costs of assessing the risks of investing in another Member State;

                           (b)

                           increase recovery rates for creditors; and

                           (c)

                           remove the difficulties in restructuring cross-border groups of companies.

               3.

               This Recommendation provides for minimum standards on:

                           (a)

                           preventive restructuring frameworks; and

                           (b)

                           discharge of debts of bankrupt entrepreneurs.

               4.

               When implementing this Recommendation, Member States should be able to take appropriate and efficient measures to ensure the enforcement of taxes, in particular in cases of fraud, evasion or abuse.

         II.   DEFINITIONS

               5.

               For the purposes of this Recommendation:

                           (a)

                           ‘debtor’ means any natural or legal person in financial difficulties when there is a likelihood of insolvency;

                           (b)

                           ‘restructuring’ means changing the composition, conditions, or structure of assets and liabilities of debtors, or a combination of those elements, with the objective of enabling the continuation, in whole or in part, of the debtors’ activity;

                           (c)

                           ‘stay of individual enforcement actions’ means a court ordered suspension of the right to enforce a claim by a creditor against a debtor;

                           (d)

                           ‘courts’ includes any other body with competence in matters relating to preventive procedures to which the Member States have entrusted the role of the courts, and whose decisions may be subject to an appeal or review by a judicial authority.

         III.   PREVENTIVE RESTRUCTURING FRAMEWORK

   A.   Availability of a preventive restructuring framework

               6.

               Debtors should have access to a framework which allows them to restructure their business with the objective of preventing insolvency. The framework should contain the following elements:

                           (a)

                           the debtor should be able to restructure at an early stage, as soon as it is apparent that there is a likelihood of insolvency;

                           (b)

                           the debtor should keep control over the day-to-day operation of its business;

                           (c)

                           the debtor should be able to request a temporary stay of individual enforcement actions;

                           (d)

                           a restructuring plan adopted by the majority prescribed by national law should be binding on all creditors provided that the plan is confirmed by a court;

                           (e)

                           new financing which is necessary for the implementation of a restructuring plan should not be declared void, voidable or unenforceable as an act detrimental to the general body of creditors.

               7.

               The restructuring procedure should not be lengthy and costly and it should be flexible so that more steps can be taken out-of-court. The involvement of the court should be limited to where it is necessary and proportionate with a view to safeguarding the rights of creditors and other interested parties affected by the restructuring plan.

         B.   Facilitating negotiations on restructuring plans

      Appointment of a mediator or a supervisor

               8.

               Debtors should be able to enter a process for restructuring their business without the need to formally open court proceedings.

               9.

               The appointment of a mediator or a supervisor by the court should not be compulsory, but rather be made on a case-by-case basis where it considers such appointment necessary:

                           (a)

                           in the case of a mediator, in order to assist the debtor and creditors in the successful running of negotiations on a restructuring plan;

                           (b)

                           in the case of a supervisor, in order to oversee the activity of the debtor and creditors and take the necessary measures to safeguard the legitimate interests of one or more creditors or another interested party.

      Stay of individual enforcement actions and suspension of insolvency proceedings

               10.

               The debtors should have the right to request a court to grant a temporary stay of individual enforcement actions (hereafter ‘stay’) lodged by creditors, including secured and preferential creditors, who may otherwise hamper the prospects of a restructuring plan. The stay should not interfere with the performance of ongoing contracts.

               11.

               In Member States which make the granting of the stay subject to certain conditions, debtors should be able to be granted a stay in all circumstances where:

                           (a)

                           creditors representing a significant amount of the claims likely to be affected by the restructuring plan support the negotiations on the adoption of a restructuring plan; and

                           (b)

                           a restructuring plan has a reasonable prospect of being implemented and preventing the insolvency of the debtor.

               12.

               Where provided for in the laws of the Member States, the obligation of the debtor to file for insolvency, as well as applications by creditors requesting the opening of insolvency proceedings against the debtor lodged after the stay has been granted should also be suspended for the duration of the stay.

               13.

               The duration of the stay should strike a fair balance between the interests of the debtor and of creditors, and in particular secured creditors. The duration of the stay should therefore be determined on the basis of the complexity of the anticipated restructuring, and should not exceed 4 months. Member States may provide that the period can be renewed upon evidence of progress in the negotiations on a restructuring plan. The total duration of the stay should not exceed 12 months.

               14.

               When the stay is no longer necessary with a view to facilitating the adoption of a restructuring plan, the stay should be lifted.

         C.   Restructuring plans

      Contents of restructuring plans

               15.

               Member States should ensure that courts can confirm plans with expediency and in principle in written procedure. They should lay down clear and specific provisions on the content of restructuring plans. Restructuring plans should contain a detailed description of the following elements:

                           (a)

                           clear and complete identification of the creditors who would be affected by the plan;

                           (b)

                           the effects of the proposed restructuring on individual debts or categories of debts;

                           (c)

                           the position taken by affected creditors on the restructuring plan;

                           (d)

                           where applicable, the conditions for new financing; and

                           (e)

                           the potential of the plan to prevent the insolvency of the debtor and ensure the viability of the business.

      Adoption of restructuring plans by creditors

               16.

               To increase the prospects of restructuring and therefore the number of viable businesses being rescued, it should be possible to adopt a restructuring plan by the affected creditors, including secured and unsecured creditors.

               17.

               Creditors with different interests should be treated in separate classes which reflect those interests. As a minimum, there should be separate classes for secured and unsecured creditors.

               18.

               A restructuring plan should be adopted by the majority in the amount of creditors’ claims in each class, as prescribed by national law. Where there are more than two classes of creditors, Member States should be able to maintain or introduce provisions which empower courts to confirm restructuring plans which are supported by a majority of those classes of creditors, taking into account in particular the weight of the claims of the respective classes of creditors.

               19.

               Creditors should enjoy a level playing field irrespective of where they are located. Therefore, where the laws of the Member States require a formal voting process, creditors should in principle be allowed to vote by distance means of communication such as registered letter or secure electronic technologies.

               20.

               To make the adoption of restructuring plans more effective, Member States should also ensure that it is possible for restructuring plans to be adopted by certain creditors or certain types or classes of creditors only, provided that other creditors are not affected.

      Court confirmation of the restructuring plan

               21.

               To ensure that the rights of creditors are not unduly affected by a restructuring plan and in the interest of legal certainty, restructuring plans which affect the interests of dissenting creditors or make provision for new financing should be confirmed by a court in order to become binding.

               22.

               The conditions under which a restructuring plan can be confirmed by a court should be clearly specified in the laws of the Member States and should include at least the following:

                           (a)

                           the restructuring plan has been adopted in conditions which ensure the protection of the legitimate interests of creditors;

                           (b)

                           the restructuring plan has been notified to all creditors likely to be affected by it;

                           (c)

                           the restructuring plan does not reduce the rights of dissenting creditors below what they would reasonably be expected to receive in the absence of the restructuring, if the debtor’s business was liquidated or sold as a going concern, as the case may be;

                           (d)

                           any new financing foreseen in the restructuring plan is necessary to implement the plan and does not unfairly prejudice the interests of dissenting creditors.

               23.

               Member States should ensure that courts can reject restructuring plans which clearly do not have any prospect of preventing the insolvency of the debtor and ensuring the viability of the business, for example because new financing needed to continue its activity is not foreseen.

      Rights of creditors

               24.

               All creditors likely to be affected by the restructuring plan should be notified of the content of the plan and given the right to formulate objections and to appeal against the restructuring plan. Nevertheless, in the interest of the creditors supporting the plan, the appeal should not in principle suspend the implementation of the restructuring plan.

      Effects of a restructuring plan

               25.

               The restructuring plans which are adopted by the unanimity of affected creditors should be binding on all those affected creditors.

               26.

               The restructuring plans which are confirmed by a court should be binding upon each creditor affected by and identified in the plan.

         D.   Protection for new financing

               27.

               New financing, including new loans, selling of certain assets by the debtor and debt-equity swaps, agreed upon in the restructuring plan and confirmed by a court should not be declared void, voidable or unenforceable as an act detrimental to the general body of creditors.

               28.

               Providers of new financing as part of a restructuring plan which is confirmed by a court should be exempted from civil and criminal liability relating to the restructuring process.

               29.

               Exceptions to the rules on protection of new financing should be made where fraud is subsequently established in relation to the new financing.

         IV.   SECOND CHANCE FOR ENTREPRENEURS

      Discharge periods

               30.

               The negative effects of bankruptcy on entrepreneurs should be limited in order to give them a second chance. Entrepreneurs should be fully discharged of their debts which were subject of a bankruptcy after no later than 3 years starting from:

                           (a)

                           in the case of a procedure ending with the liquidation of the debtor’s assets, the date on which the court decided on the application to open bankruptcy proceedings;

                           (b)

                           in the case of a procedure which includes a repayment plan, the date on which implementation of the repayment plan started.

               31.

               On expiry of the discharge period, entrepreneurs should be discharged of their debts without the need in principle to re-apply to a court.

               32.

               A full discharge after a short period of time is not appropriate in all circumstances. Member States should therefore be able to maintain or introduce more stringent provisions which are necessary to:

                           (a)

                           discourage entrepreneurs who have acted dishonestly or in bad faith, either before or after the bankruptcy proceedings were opened;

                           (b)

                           discourage entrepreneurs who do not adhere to a repayment plan or to any other legal obligation aimed at safeguarding the interests of creditors; or

                           (c)

                           safeguard the livelihood of the entrepreneur and his family by allowing the entrepreneur to keep certain assets.

               33.

               Member States may exclude specific categories of debt, such as those rising out of tortious liability, from the rule of full discharge.

         V.   SUPERVISION AND REPORTING

               34.

               The Member States are invited to implement the principles set out in this Recommendation by 14 March 2015.

               35.

               The Member States are invited to collect reliable annual statistics on the number of preventive restructuring procedures opened, the length of procedures and information about the size of the debtors involved and the outcome of the procedures opened, and to communicate that information to the Commission on an annual basis and for the first time by 14 March 2015.

               36.

               The Commission will assess the implementation of this Recommendation in the Member States by 14 September 2015. In this context, the Commission will evaluate its impact on rescuing companies in financial difficulties and giving honest entrepreneurs a second chance, its interplay with other insolvency procedures in other areas such as discharge periods for natural persons not exercising a trade, business, craft or professional activity, its impact on the functioning of the internal market and on small and medium enterprises and the competitiveness of the economy of the Union. The Commission will assess also whether additional measures to consolidate and strengthen the approach reflected in this Recommendation should be proposed.

      Done at Brussels, 12 March 2014.

            For the Commission

         Viviane REDING

            Vice-President

      (1)  Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (OJ L 160, 30.6.2000, p. 1).

      (2)  COM(2012) 744 final.

      (3)  European Parliament Resolution of 15 November 2011 with recommendations to the Commission on insolvency proceedings in the context of EU company law, P7_TA (2011) 0484.

      (4)  COM(2012) 573 final.

      (5)  COM(2012) 742 final.

      (6)  COM(2012) 795 final.