title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Germany and delivering a Council opinion on the 2020 Stability Programme of Germany 2020/C 282/05

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/27

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Germany and delivering a Council opinion on the 2020 Stability Programme of Germany
      (2020/C 282/05)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

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

                  (2)

                  The 2020 country report for Germany was published on 26 February 2020. It assessed Germany’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Germany’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Germany is experiencing macroeconomic imbalances. In particular, the high current-account surplus reflects a subdued level of investment relative to savings and has cross-border relevance.

                  (3)

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

                  (4)

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

                  (5)

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

                  (6)

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

                  (7)

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

                  (8)

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

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Germany. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

                  Germany submitted its 2020 National Reform Programme on 20 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

                  Germany is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

                  (12)

                  In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,4 % of gross domestic product (GDP) in 2019 to a deficit of 7¼ % of GDP in 2020. After decreasing to 59,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 75¼ % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Germany has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, in 2020 those budgetary measures amount to 7,2 % of GDP. The measures include liquidity support for companies, targeted assistance for small companies and self-employed by grants and loans as well as easier access to short-time working schemes to prevent lay-offs. In addition, Germany has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at 24,9 % of GDP. Those measures consist of loan guarantees mainly provided by the State-owned development bank KfW as well as by the new Economic Stabilisation Fund, created in response to the COVID-19 pandemic. Contrary to the 2020 Stability Programme, the Commission’s estimates do not consider tax deferrals and the budgetary compensations for decreasing tax revenues due to the economic downturn as discretionary measures with a budgetary impact. Overall, the measures taken by Germany are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, Germany’s general government balance is forecast at -7,0 % of GDP in 2020 and -1,5 % of GDP in 2021. The general government debt ratio is projected to reach 75,6 % of GDP in 2020 and 71,8 % in 2021.

                  (15)

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

                  (16)

                  The first infection in Germany was registered on 27 January 2020 and the number of COVID-19 cases started to increase exponentially in March 2020. The German authorities then responded with confinement measures to contain the spread of the virus, such as closing all non-essential retail shops, restaurants, entertainment and cultural establishments, sports facilities, schools and universities. All public gatherings of more than two persons were forbidden and people were asked to keep all social contacts to a minimum. Manufacturing has not been subject to confinement measures per se. However major factories were closed over a number of weeks due to disrupted foreign trade and squeezed demand. The economic outlook deteriorated strongly, with the Commission 2020 spring forecast pointing to a GDP decline of 6,5 % in 2020. Even if the expansion of short-time work arrangements (Kurzarbeit) helps companies to keep their workers, an increase in unemployment looks impossible to escape. According to the Commission 2020 spring forecast, unemployment is expected to rise to 4 % in 2020 and recover to 3,5 % in 2021.

                  (17)

                  To cushion the economic fallout, the German government has reacted quickly and has adopted far-reaching measures. Up to EUR 50 billion are being offered in immediate assistance (direct grants) to small businesses, the self-employed and freelancers. Through the newly created Economic Stabilisation Fund and the public development bank KfW, the government has expanded the volume of and access to loans for firms of different sizes covering up to 80-90 % of the lending bank’s credit risk (in some special cases, up to 100 %). The Economic Stabilisation Fund can also support large companies by providing additional equity capital on a temporary basis. To boost the liquidity of companies, adjustments to tax deferrals, prepayments and penalties have been adopted. Insolvency rules have been modified to avoid technical insolvency procedures. The individual states (Länder) are complementing the federal measures with their own support programmes. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account. The COVID-19 crisis is likely to exert further pressure on the already low profitability of the German banking sector. Thus, further reducing costs appears warranted for German banks to ameliorate profitability and free up funds for information technology investment and organic capital creation. Further consolidation would also help in this regard.

                  (18)

                  After starting strongly at the beginning of the year, the labour market has deteriorated as a result of the COVID-19 pandemic and related lockdown measures. To cushion both the employment and social impacts of the crisis, the government has provided substantial support through the short-time work arrangement scheme ‘Kurzarbeit’. It eased conditions for accessing it, retroactively extended the scheme to temporary agency workers and increased its level of compensation. This helps to preserve jobs and protect household incomes. Employers are receiving financial relief by not having to pay the social security contributions, for the lost working time. The facilitated access to minimum income support (based on Book II of the German Social Code ‘Sozialgesetzbuch/SGB’) provides relief against income losses. In addition, low-income families are being supported through easier access to child supplement. In addition, tenants facing a loss of income are temporarily protected against eviction. While Germany performed well on the Social Scoreboard supporting the European Pillar of Social Rights, gaps in coverage, if not closed, may lead to reduced income for vulnerable groups in the context of the current crisis.

                  (19)

                  In tackling the health consequences, Germany benefitted from its universal health system that provides access to high-quality care and managed to rapidly increase its testing and intensive-care capacity. The ongoing COVID-19 crisis, however, underlines the continuous need to strengthen the resilience of the health system. The availability of nursing staff and the attractiveness of the nursing profession remain an issue. Despite a comparatively high number of practicing nurses per capita, hospitals have increasingly reported unfilled positions for nurses. Coordination between healthcare providers in primary and hospital care, and between health and social care, could also be improved and supported by digital tools. E-health infrastructure is being deployed at an accelerated pace, but the use of online health and care services, e-prescriptions and medical data exchange remains well below the Union average. A new law passed in March 2020 helps mitigate the economic consequences from COVID-19 primarily for hospitals and doctors in private practice. Nevertheless, the long-term financing of healthcare institutions will have to be secured in order to maintain care in all areas, as the postponement of dispensable surgeries and treatments hurt the financial revenues of institutions in the health sector, and available resources are being used to purchase priority tests and equipment. With a strong research base, Germany has the capacity to engage in specific research and innovation measures to respond to the COVID-19 crisis, including the development of vaccines and therapeutics and the development of a research network to bundle and strengthen the research activities of German university medicine and provide support to the Coalition for Epidemic Preparedness Innovations.

                  (20)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment. Public and private investment continued to increase robustly in 2019 but lagged behind investment needs. Public investment is below the replacement rate at municipal level, where the backlog of investments has decreased, but remains high at 4,0 % of GDP but is still held back by capacity and planning constraints. Investments in green technologies and energy that have already been planned can be frontloaded, for instance projects for building renovations and renewables. Despite recent initiatives, meeting short- and medium-term decarbonisation targets and 2050 climate neutrality targets remains a challenge. This is also true for environmental and energy efficiency targets, as price incentives, especially with low oil prices due to the current COVID-19 crisis, discourage climate and environmentally-friendly behaviour. Germany’s transformation to a climate neutral economy will require sizeable private and public investment over a sustained period in renewable energy, electricity infrastructure, energy efficiency, circular economy and sustainable transport, among others. Furthermore, Germany’s Federal Audit Office criticised the cost-effectiveness of measures related to the green energy transition. More efforts and sustained investments in energy networks are needed to reap the benefits of a fully integrated sustainable energy system, with consistent price signals. Clean mobility can be promoted through appropriate regulatory measures and with stronger and faster investment in sustainable transport infrastructure and clean mobility solutions. Additional investment in research and development (R & D) is essential to foster a recovery towards a more sustainable and competitive economy. Spending on education and research increased slightly from 9,2 % in 2017 to 9,31 % of GDP in 2018, falling short of the previous national target of 10 %. Private R & D investment is increasingly concentrated in large firms. The supply of housing remained well below the annual housing target of building 375 000 new flats between 2017 and 2021, in spite of policy measures. Policies encouraging investment into new housing would address this imbalance and improve housing affordability. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Germany to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territories covered by Annex D to the 2020 country report. This would allow Germany to make the best use of that Fund.

                  (21)

                  A modern digital infrastructure and digital services are crucial when mobility is restricted. Investments in digital infrastructure and public services can support the economic recovery and help reduce Germany’s gap with other countries in the coverage of very-high capacity networks, which remains substantial. In Germany, that coverage was 32,7 % in 2019, compared to a Union average of 44 %, while the fibre-to-the-premises coverage was 10,5 %, well below the Union average of 33,5 %. The COVID-19 crisis underlined the importance of connected digital services. Connectivity gaps can be a main factor hampering investment in digitalisation, in particular for small and medium-sized enterprises (‘SMEs’), which remain slow adopters of digital technologies. Germany still underperforms in digital public services among Member States, despite an improvement in such services for businesses. However, the level of online interaction between the public authorities and the general public is very low. Implementation of the Online Access Act is proceeding slowly, and it will be a challenge to meet the goal of digitalising all 575 services by the end of 2022. That Act should be implemented by all public bodies involved – federal, state and local authorities – in order to generate more significant improvements in digital public administration.

                  (22)

                  It is important to keep regulatory and administrative burdens low for the implementation of the support measures and beyond. Keeping the administrative burden at a minimum for access to support measures should ensure that smaller businesses receive the same support from intermediaries as larger ones. Reducing other administrative burdens more broadly, i.e., beyond support measures, for example by applying flexibility for non-essential bureaucratic procedures, can provide additional relief to SMEs.

                  (23)

                  Already before the emergence of the COVID-19 crisis, technological progress was transforming the labour market, requiring increased funding of education and training, including reskilling and upskilling and improving digital skills. The COVID-19 crisis made this need even more pressing, in particular in the case of workers employed in sectors that may be impacted for a longer time by social distancing or those at risk of becoming unemployed. The sudden shift to a more digitalised society and home-based education may pose a particular challenge for vulnerable pupils and students who do not have access to digital solutions and support at home. This includes students with disabilities. Special care is needed to ensure that all pupils and students acquire the key skills set out in the curriculum and that the months of disruption due to COVID-19 do not result in a lifetime of disadvantage. Already existing inequalities in basic skills, linked to socioeconomic and migrant backgrounds, risk to be exacerbated. The crisis has highlighted the importance of further developing the educational system to promote a smart and inclusive recovery and to stay on track to pursue the green and digital transition.

                  (24)

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

                  (25)

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

                  (26)

                  Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Germany should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

                  (27)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Germany’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Germany in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Germany, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

                  (28)

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

                  (29)

                  In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (2) below,

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

                  1.

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

                  2.

                  Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on sustainable transport, clean, efficient and integrated energy systems, digital infrastructure and skills, housing, education and research and innovation. Improve digital public services across all levels and foster the digitalisation in SMEs. Reduce the regulatory and administrative burden for businesses.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

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

         (3)  OJ C 301, 5.9.2019, p. 24.

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

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

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

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Estonia and delivering a Council opinion on the 2020 Stability Programme of Estonia 2020/C 282/06

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/33

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Estonia and delivering a Council opinion on the 2020 Stability Programme of Estonia
      (2020/C 282/06)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Estonia as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

                  (2)

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

                  (3)

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

                  (4)

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

                  (5)

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

                  (6)

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

                  (7)

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

                  (8)

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

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across sectors and regions because of different specialisation patterns. This entails a risk of widening disparities within Estonia. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

                  Estonia submitted its 2020 National Reform Programme on 30 April 2020 and its 2020 Stability Programme on 28 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

                  Estonia is currently in the preventive arm of the Stability and Growth Pact. As part of the country-specific recommendations adopted by the Council on 13 July 2018 (7), the Council recommended Estonia to ensure that the nominal growth rate of net primary government expenditure (8) does not exceed 4,1 % in 2019, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure are not warranted.

                  (12)

                  In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 0,3 % of GDP in 2019 to a deficit of 10,1 % of GDP in 2020. The deficit is projected to decline to 3,8 % of GDP in 2021. After decreasing to 8,4 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 21,9 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Estonia has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,3 % of GDP. The measures include strengthening healthcare services, emergency aid for distressed companies, temporary wage subsidies and higher public investments. In addition, Estonia has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. Those measures include loan guarantees and loans to businesses amounting to 8,7 % of GDP. Overall, the measures taken by Estonia are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fical measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, Estonia’s general government balance is forecast at -8,3 % of GDP in 2020 and -3,4 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021, reaching 22,6 % of GDP in 2021. The Commission 2020 spring forecast projects a lower government deficit for 2020 than the 2020 Stability Programme, reflecting differences in the macroeconomic projections.

                  (15)

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

                  (16)

                  Between 12 March 2020 and 17 May 2020, the Estonian government declared an emergency situation due to the COVID-19 pandemic. The government’s immediate response aimed at preventing the further spread of the virus and ensuring the Estonian economy could function as normally as possible. The restrictions to stop the spread of the pandemic had a serious impact on the economy. Since the emergency situation was declared, the number of registered unemployed people has increased by 35 %. The largest number of newly unemployed people has been registered in retail and customer service, construction, catering, accommodation, and event management. The unemployment rate is expected to rise to 9,2 % in 2020 and recover to 6,5 % in 2021. On 15 April 2020, the Estonian parliament approved the 2020 supplementary budget. New measures were introduced aimed at preserving jobs, avoiding massive layoffs and ensuring liquidity of businesses. The budget contains a wide range of measures including support to the healthcare sector, municipalities, some investment programmes, and non-targeted liquidity support for companies (such as guarantee schemes and tax deferrals). Some specific measures are designed for microenterprises and the tourism sector, including some targeted measures for the hardest hit regions. Additional tax measures have been introduced, such as temporarily lowering excise duties on diesel fuel, natural gas and electricity. The package of measures envisages a temporary suspension of the State contributions to the second pillar pension scheme.

                  (17)

                  Estonia has taken notable measures to contain the spread and health impact of COVID-19. Nevertheless, the COVID-19 pandemic revealed some structural weakness in the health system related to the limited financial and human resources available. The resilience of the system has been undermined by the shortages of health workers and by the uneven access to primary care and the availability of critical medical products. Estonia is also facing a challenge of overcoming the backlog of postponed and inaccessible treatments caused by the emergency situation. Moreover, even before the COVID-19 pandemic, the self-reported unmet needs for medical care in Estonia were one of the highest in the Union due to long waiting times for both primary and specialist care. These factors and lifestyle-related risks help explain the poor health status of the population. Improving the accessibility and resilience of the health system are preconditions to ensuring an efficient response to pandemic spreads and addressing the challenges linked to the health status of the population.

                  (18)

                  Improving the adequacy of the social safety net has been a longstanding challenge in Estonia. Even before the most recent crisis, social benefits in Estonia were assessed as less effective than the EU average in reducing the incidence of poverty. Moreover, there are gaps in the coverage of the unemployment benefit system for those in non-standard forms of work and those with short work spells. The negative effect of the COVID-19 pandemic on employment and incomes, combined with the lack of adequate coverage, could increase poverty, in particular for jobless households. Estonia introduced a temporary short-time work scheme as a special subsidy for affected companies to maintain employment. This measure is limited to a period of two months, which may not be sufficient to mitigate the impact of the crisis as the difficulties may last longer and reach some economic sectors with a delay. The COVID-19 pandemic aggravated the difficulties in providing affordable and available social services, including long-term care services, especially for the elderly, people with disabilities and low-income earners. Maintaining the plan to develop an integrated provision of social and health services would help to address those challenges. It is important to ensure the meaningful and timely involvement of social partners in the design of the exit and recovery process while strengthening their capacity to do so.

                  (19)

                  The COVID-19 crisis affected Estonian companies in many sectors, but small and medium-sized enterprises (SMEs) have been affected the most. The negative impact on the economic activities was driven not only by the restrictions, but also by the declining demand in export markets and disruptions to global value chains. The liquidity support measures taken by the government are designed to help mitigate the impact, but their swift and effective implementation will be key to supporting viable firms in all affected sectors while sustaining the resilience of the banking sector. Deferrals of taxes as well as credit holidays can also help improve the cash-flow of SMEs. Moreover, the recovery process will depend on how well the investments will be targeted. The current crisis brought up the importance of digital and innovative solutions in keeping the economy going. While e-government has functioned well, further digitalisation of SMEs would increase their resilience and help speed up the recovery, bringing productivity gains in the medium term. In recent years, the economy as a whole has been increasingly digitalised. However, the take-up of information and communication technologies in manufacturing has so far been slow. While Estonia’s overall innovation performance improved in 2019, the levels of research-based innovation capacity and activity in the business sector remain low. Research-based innovation and the introduction of innovative solutions in companies could improve the country’s competitive position and boost economic growth. To help companies recover from the COVID-19 crisis, it will be important to ensure good access to finance, including to equity financing for start-ups.

                  (20)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. As notably reflected in its National Energy and Climate Plan, Estonia’s sustainable growth relies on progress towards decarbonisation through lowering carbon intensity in the energy, transport and building sectors, restructuring the oil shale industry and improving resource productivity, including implementing circular economy business models. Estonia’s resource productivity is one of the lowest in the Union, while energy consumption levels are above the EU average. Having an overarching circular economy strategy as a complement to the National Energy and Climate Plan could help the transition towards decarbonisation, reduce the negative environmental impact of the oil shale industry and boost the economy. As a peripheral country with a low population density, a well-functioning and interconnected transport system is key for Estonia’s economic activities and exports. Estonia’s transport infrastructure faces some shortcomings in terms of connectivity and sustainability. Rail and intermodal transport remain underdeveloped. Greenhouse gas emissions from road transport have increased in recent years, and renewable energy in transport remains below the national targets. The Rail Baltica project and the energy interconnection projects are among Estonia’s key investment priorities aimed at improving its safety and integration into the internal market. Promoting investment projects that take into account environmental and climate considerations is key to a sustainable economic recovery and reducing regional disparities. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Estonia to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territory covered by Annex D to the 2020 country report. This would allow Estonia to make the best use of that Fund.

                  (21)

                  The Estonian banking sector is sound overall, but money-laundering risks remain. While measures have been taken to limit exposure to risks by reducing non-resident deposits, the national risk assessment does not cover other products that might present risks, such as custody services for non-resident customers. An update of the national risk assessment would ensure the adequate identification of risks and allow the necessary mitigating measures to be implemented. While supervisory actions have been taken against non-compliant banks and payment institutions, there is room to further enhance the effectiveness of supervision and enforcement. In particular, a set of legislative acts to strengthen the preventive framework and confiscation and to increase administrative sanctions has not yet been adopted. Investigations into money-laundering cases are progressing slowly. The capacity of the Estonian Financial Supervisory Authority has not yet been strengthened enough and the risk-based approach to supervision is not yet fully implemented, in particular when it comes to thematic on-site inspections. The exchange of information between the Financial Intelligence Unit and law enforcement is not sufficiently proactive.

                  (22)

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

                  (23)

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

                  (24)

                  Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Estonia should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, while taking into account political guidance from the Eurogroup.

                  (25)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Estonia’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Estonia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Estonia, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

                  (26)

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

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

                  1.

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

                  2.

                  Strengthen the adequacy of the social safety net, including by broadening the coverage of unemployment benefits.

                  3.

                  Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on digitalisation of companies, research and innovation, clean and efficient production and use of energy, resource efficiency, and sustainable transport, contributing to a progressive decarbonisation of the economy. Support the innovation capacity of small and medium-sized enterprises, and ensure sufficient access to finance.

                  4.

                  Step up the efforts to ensure effective supervision and enforcement of the anti-money-laundering framework.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

         (2)  Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (OJ L 306, 23.11.2011, p. 25).

         (3)  OJ C 301, 5.9.2019, p. 30.

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

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

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

         (7)  OJ C 320, 10.9.2018, p. 24.

         (8)  Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Ireland and delivering a Council opinion on the 2020 Stability Programme of Ireland 2020/C 282/07

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/39

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Ireland and delivering a Council opinion on the 2020 Stability Programme of Ireland
      (2020/C 282/07)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

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

                  (2)

                  The 2020 country report for Ireland was published on 26 February 2020. It assessed Ireland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (3) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and Ireland’s progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Ireland is experiencing macroeconomic imbalances. Those imbalances relate, in particular, to significant stocks of public debt, private debt and net external liabilities.

                  (3)

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

                  (4)

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

                  (5)

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

                  (6)

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

                  (7)

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

                  (8)

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

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. This entails a substantial risk of widening regional disparities within Ireland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

                  Ireland submitted its 2020 National Reform Programme on 21 April 2020 and its 2020 Stability Programme on 30 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

                  Ireland is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

                  (12)

                  In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 7,4 % of GDP in 2020. The deficit is projected to decline to 4,1 % of GDP in 2021. After decreasing to 58,8 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 69,1 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Ireland has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to around 2,0 % of GDP. The measures include employment and unemployment support for a twelve-week period (around 1,4 % of GDP) and additional expenditure to increase the capacity and accessibility of the healthcare system (around 0,6 % of GDP). In addition, Ireland has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses, which the 2020 Stability Programme estimates at around 0,3 % of GDP. Those measures include credit guarantees and various loan schemes, the suspension of interest and penalties for certain late payments by employers, the suspension of debt enforcement activity and payment breaks of up to three months on business loans. On 2 May 2020, the government announced a new package of debt and equity support measures for businesses, amounting to around 2 % of GDP, which were not incorporated into the 2020 Stability Programme or in the Commission forecast. Overall, the measures taken by Ireland are in line with the guidelines set out in the Commission communication of 13 March 2020. The full implementation of the emergency measures and of supportive fiscal measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

                  (14)

                  Based on the Commission 2020 spring forecast under unchanged policies, Ireland’s general government balance is forecast at -5,6 % of GDP in 2020 and -2,9 % of GDP in 2021. The general government debt ratio is projected to reach 66,4 % of GDP in 2020 and 66,7 % of GDP in 2021.

                  (15)

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

                  (16)

                  The COVID-19 pandemic affected Ireland heavily in the first half of 2020, putting the health system under extreme pressure. Ireland introduced urgent measures to strengthen the health system, as well as containment measures, to abate the pandemic, which have severely curtailed economic activity in certain sectors. In addition, the government introduced a broad range of economic measures to mitigate the consequences of the COVID-19 crisis as far as possible. These included wage subsidy schemes to protect jobs, welfare payments, temporary bans on rent increases and evictions, as well as liquidity and credit support measures for firms. Although these measures aim to abate the economic shock of the pandemic, the risk of significant output loss, bankruptcies and insolvencies, and an increase in unemployment and people at risk of poverty, remain high.

                  (17)

                  Before the COVID-19 pandemic, hospitals were already working at near full capacity, with the occupancy rate for acute-care beds being among the highest in OECD countries. This was mainly due to the lack of universal access to primary care and a significant reliance on hospital care. Challenges regarding recruitment and retention had led to shortages in nursing workforce in certain regions and hospitals. Long-term home care was under-provided and has lacked statutory entitlement, with policies incentivising the use of institutional care. COVID-19 has placed an unprecedented pressure on the healthcare system. Timely emergency measures have been put in place to increase hospital capacity and provide temporary universal healthcare services. However in the medium term, Ireland still needs to address the structural limited efficiency, flexibility, resilience and accessibility of its healthcare system. The ambitious Sláintecare reform plans to deliver on a universally accessible and sustainable health system. However, plans for its implementation need to be improved, in terms of milestones, explaining progress in access to public primary care over the implementation period, until universal coverage is achieved. Defining clear milestones and deadlines and a solid monitoring framework may contribute to the timely implementation of universal coverage. The implementation of long-term care reforms, including new ways of working in the community through support for home care and reorganisation of nursing resources, could require a stocktaking of existing facilities, projections for future growth in demand, and a commensurate gap analysis, followed by a plan for delivery.

                  (18)

                  According to the Commission 2020 spring forecast, unemployment is expected to rise to 7,4 % in 2020 and slightly decrease to 7 % in 2021. The government has made significant use of income and employment support policy to respond to the pandemic, in particular short-time work schemes, which should continue to be swiftly implemented. The schemes need to be reviewed and should be extended if needed to help retain people in employment or maintain incomes. The relatively high number of people living in households with low work intensity calls for further efforts to foster individualised activation strategies. The challenges facing Ireland with regard to poverty and employment quality and support, including for people with disabilities, remain and are likely to be exacerbated by the pandemic. In cooperation with social partners, the current context calls to continue upskilling and reskilling efforts in order to meet the changing needs of the labour market and prepare the workforce for the climate, energy and circular economy transition. Skill shortages have been identified in the housing sector, but others are expected to arise as the transition progresses. In the context of the COVID-19 pandemic, it is essential to ensure that the digitalisation of education and work does not increase educational and social inequalities.

                  (19)

                  The government has implemented various measures to support housing supply, which have contributed to increasing annual housing completions by almost 57 % in the two years up to September 2019. Combined with effective macroprudential tools, this seems to have helped curb house-price inflation. However, housing completions still fall short of demand. Housing affordability is a problem for many households and inflation in the rental sector is persistently high. Improved infrastructure, combined with spatial planning, could be a critical enabler for improving housing supply. In addition, solving administrative deficiencies in the vacant site levy might ultimately help improve housing affordability in the medium term. Shortages in social housing supply remain a significant challenge with regard to fostering inclusion, including for the most vulnerable. Recent policy measures have accelerated social housing delivery, but there were still approximately 68 700 households on social housing waiting lists in Ireland in June 2019. Further efforts are needed to cover the needs of remaining households on the current waiting list and of potential new applicants. Of the around 10 000 homeless people registered in Ireland, 3 500 are children. This raises concerns about the potential risks of deepening inequalities, entrenched poverty and social exclusion. Single parents with children are among the groups most affected by homelessness. Substantial regional and urban differences persist, with 69 % of all homeless adults concentrated in the greater Dublin area.

                  (20)

                  The domestic banking system is an important source of liquidity for Irish firms. Timely access to loans can prove challenging for small and medium-sized enterprises (SMEs) and those without collateral or an existing relationship with a lender. The Irish authorities and banks have introduced a number of measures to alleviate the financial difficulties faced by businesses and households. It is important that these measures provide the necessary liquidity and foster sustainable restructuring solutions for borrowers whose financial difficulties are strictly linked to the outbreak, and who are therefore expected to return to viability following a transition period. Only such a balanced approach can help businesses and households overcome the temporary challenges without undermining the profitability (already weak) and the nascent progress that Ireland has made in recent years in improving the financial stability of its banking sector. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account.

                  (21)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. The restart of the economy requires that Ireland make progress with regard to its ambitious environmental, climate, energy and infrastructure investments. Ireland has lagged behind so far in tackling decarbonisation. Greenhouse gas emissions in transport and buildings are high and have remained on a rising trend. Ireland will fall short of the 2020 energy efficiency and renewable energy targets. Ireland is dependant on energy imports and is among the Member States with the highest prices for electricity, which could negatively impact both the environment and business competitiveness. Ireland’s transformation into a climate-neutral economy will require sizeable private and public investment, over a sustained period, in, inter alia, renewable energy, electricity infrastructure, energy efficiency and sustainable transport. The Climate Action Plan constitutes a credible initiative to reverse the emissions trajectory. An effective and sustained implementation of its policies and measures will be required to translate ambition into concrete results. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Ireland to address some of the challenges posed by the transition to a climate-neutral economy, in particular in the territory covered by Annex D to the 2020 country report. This would allow Ireland to make the best use of that Fund.

                  (22)

                  Ireland’s efforts to reduce the productivity gap between its foreign and domestic sectors remain sluggish. Direct support through the Disruptive Technologies Innovation Fund for cooperation between firms and public research centres, for example through collaborative projects between industry – including SMEs – and research bodies, is welcome. Although Ireland provides a relatively high amount of public support to companies, this support is mainly implemented through a tax credit scheme for research and development. While recent changes in the 2020 budget make the tax credit more attractive for SMEs, it tends to benefit larger multinational firms. The Future Jobs Ireland framework identifies key measures that could help address the weaknesses of the domestic economy, especially initiatives to strengthen the productivity of domestic firms, in particular SMEs. It is important that these measures be effectively implemented. The crisis also highlighted the digitalisation needs of SMEs, related in particular to remote work solutions, the training of workers and cyber security. Digital infrastructure is essential for boosting the productivity of SMEs and promoting entrepreneurship. Ultrafast broadband is only available to 5 % of rural premises, well below the Union average of 29 %, and Ireland is also one of the most expensive Member States for fixed broadband. With the contract having been signed for a major public investment under the National Broadband Plan to address infrastructure gaps, it is therefore important to closely monitor and ensure the timely implementation of the rollout of the publicly supported ultra-fast broadband network, especially in rural areas.

                  (23)

                  Tackling aggressive tax planning is key to improving the efficiency and fairness of tax systems, as acknowledged in the 2020 Recommendation on the economic policy of the euro area. Spillover effects of taxpayers’ aggressive tax-planning strategies between Member States call for coordinated action of national policies to complement Union legislation. Ireland has taken steps to address aggressive tax-planning practices by implementing international and European agreed initiatives and taking some additional measures at national level. However, the high level of royalty and dividend payments as a percentage of GDP suggests that Ireland’s tax rules are used by companies that engage in aggressive tax planning, and the effectiveness of the national measures will have to be assessed. Broadening the tax base would make revenue more resilient to economic fluctuations and idiosyncratic shocks and strengthen the functioning of automatic stabilisers. The high concentration of corporate taxes, with the top ten firms accounting for 45 % of corporate taxes, their volatility and potentially transitory nature, along with their rising share in total tax proceeds (record of 18,7 % in 2018) underline the risks of relying excessively on these receipts for the financing of permanent current expenditure.

                  (24)

                  Despite efforts to strengthen its anti-money-laundering (AML) framework, Ireland still faces risks due to its internationally oriented economy, involving significant inflow of foreign direct investments, and the presence of complex legal structures with foreign sponsors. The national risk assessment has been reviewed to better reflect the actual risk exposure of professionals involved in the provisions of services to companies and trusts. Inadequate understanding of risk exposure by these professionals results in a low reporting of suspicious transactions. The intensity of supervision is inadequate to remedy these issues and does not rest on a risk-based approach, which hampers the effectiveness of the AML framework. A national register of beneficial owners has been set up for companies, to limit secrecy and identify beneficial owners. The quality of the information provided and the effectiveness of the register needs to be monitored over time.

                  (25)

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

                  (26)

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

                  (27)

                  Close coordination between economies in the economic and monetary union is key in achieving a swift recovery from the economic impact of the COVID-19 pandemic. As a Member State whose currency is the euro, Ireland should ensure that its policies remain consistent with the 2020 euro-area recommendations and coordinated with those of the other Member States whose currency is the euro, taking into account political guidance from the Eurogroup.

                  (28)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Ireland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme, the 2020 National Reform Programme and the follow-up given to the country-specific recommendations addressed to Ireland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Ireland, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

                  (29)

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

                  (30)

                  In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Stability Programme. The 2020 country-specific recommendations take into account the need to tackle the COVID-19 pandemic and facilitate the economic recovery as a necessary first step to allow for an adjustment of imbalances. The 2020 country-specific recommendations directly addressing the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1), (2) and (4),

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

                  1.

                  Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve accessibility of the health system and strengthen its resilience, including by responding to the health workforce’s needs and ensuring universal coverage for primary care.

                  2.

                  Support employment through developing skills. Address the risk of digital divide, including in the education sector. Increase the provision of social and affordable housing.

                  3.

                  Continue to provide support to companies, in particular SMEs, especially through measures ensuring their liquidity. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, sustainable public transport, water supply and treatment, research and innovation and digital infrastructure.

                  4.

                  Broaden the tax base. Step up action to address features of the tax system that facilitate aggressive tax planning, including on outbound payments. Ensure effective supervision and enforcement of the anti-money-laundering framework as regards professionals providing trust and company services.

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

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

         (3)  OJ C 301, 5.9.2019, p. 35.

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

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

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

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