title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Slovakia and delivering a Council opinion on the 2020 Stability Programme of Slovakia 2020/C 282/25

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/164

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Slovakia and delivering a Council opinion on the 2020 Stability Programme of Slovakia
      (2020/C 282/25)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 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 Slovakia 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 Slovakia was published on 26 February 2020. It assessed Slovakia’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 Slovakia’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. Slovakia 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 because of different specialisation patterns and infrastructure gaps. This entails a substantial risk of widening regional disparities within Slovakia, in particular between the capital city and Western Slovakia on the one hand, and Eastern and South-Eastern Slovakia on the other. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

                  (10)

                  On 18 May 2020, Slovakia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

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

                  (12)

                  On 13 July 2018, the Council recommended Slovakia to ensure that the nominal growth rate of net primary government expenditure (7) does not exceed 4,1 % in 2019, corresponding to an annual structural adjustment of 0,5 % of gross domestic product (GDP). The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term structural objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Slovakia are not warranted.

                  (13)

                  In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,3 % of GDP in 2019 to a deficit of 8,4 % of GDP in 2020. The deficit is projected to decline to 4,9 % of GDP in 2021, to 3,7 % of GDP in 2022 and to reach 2,9 % of GDP by 2023. After decreasing to 48 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 61,2 % in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (14)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Slovakia 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 2,6 % of GDP. The measures include wage compensation for employees, subsidies for the self-employed, sickness and nursing schemes and purchases of medical goods linked to the COVID-19 pandemic. In addition, Slovakia 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 3 % of GDP. Those measures include tax deferrals for income taxes and social contributions when revenue decreased by more than 40 % (1,4 % of GDP) and loan guarantees (1,6 % of GDP). Overall, the measures taken by Slovakia 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.

                  (15)

                  Based on the Commission 2020 spring forecast under unchanged policies, Slovakia’s general government balance is forecast at -8,5 % of GDP in 2020 and -4,2 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

                  (16)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Slovakia’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.

                  (17)

                  Following the COVID-19 outbreak, Slovakia has taken quick and unprecedented measures to halt and prevent further spread of the virus. After a first case was registered on 6 March 2020, it declared a state of emergency as of 12 March 2020, and introduced strict social distancing, quarantine and sanitary rules, as well as travel restrictions. Shops and production in important economic sectors closed for several weeks, until the government started gradually loosening restrictions from late April 2020. As a consequence, Slovakia’s economy is expected to enter into a deep recession in 2020 as private consumption, investment and trade suffer. It is projected to contract sharply by 6,7 % in 2020 and the unemployment rate is expected to reach 8,8 % in 2020, up from 5,8 % in 2019. Slovakia has responded with several sets of measures to mitigate the adverse effects of the crisis, including by re-allocating EUR 1,2 billion of unused cohesion policy funds. The measures includes short-time work schemes with wage compensation, supporting the income of employees through sickness and nursing benefits, and providing subsidies to the self-employed to compensate for their loss of income. Further measures to support liquidity of companies and the self-employed include bank loans, tax deferrals and the postponement of social security contributions, as well as the provision of bank guarantees and favourable interest schemes. A loan scheme for small and medium-sized enterprises (‘SMEs’) with original allocation of EUR 38 million will be extended by EUR 330 million from unused Union funds and a national scheme amounting to EUR 500 million. Other measures include the interruption of tax audits and obligations for tax advance payments and the deferral of paying rent for companies and individuals.

                  (18)

                  The COVID-19 pandemic has increased the importance for Slovakia to continue addressing structural challenges in its health system. Additional investments are needed to increase its resilience, alleviate health workforce shortages, and to ensure appropriate supply of critical medical products and infrastructure. In parallel with efforts to secure adequate supply of health workers in the future, effective policies could reduce geographic disparities in the availability of doctors and ensure access to care for the entire population. Modernising the hospital network and addressing the structural underfunding of public hospitals are key in increasing the quality and cost-effectiveness of health services. Primary care provision needs to be strengthened to reduce pressure on hospitals and improve chronic disease management, together with increased coordination across different levels and types of care. A particular concern is the insufficient access to quality and affordable long-term care, due to general underfunding of community and home-based care services, fragmented governance, and the lack of systemic coordination of social and healthcare services.

                  (19)

                  The COVID-19 crisis has highlighted pre-existing social challenges in Slovakia. It has created an urgent need to provide adequate income replacement for workers, in close cooperation with social partners. In order to mitigate the employment impact of the crisis, short-time work schemes have been activated, with the contribution of Union funds. According to the Commission 2020 spring forecast, unemployment is expected to rise to 8,8 % in 2020 and recover to 7,1 % in 2021. Despite some loosening in 2018, the unemployment benefit system in Slovakia is characterised by strict eligibility requirements, a relatively short duration of benefits (six months as a general rule, with small extensions during the crisis) and low replacement rates for beneficiaries. Some groups are particularly vulnerable to the crisis and may experience limited access to social protection and care services, including marginalised Roma communities, who often also lack access to essential services, the elderly and the low-skilled.

                  (20)

                  The COVID-19 crisis has increased the need to develop the population’s digital skills, including those of teachers, as well as the need to expand broadband connectivity, as many pupils are still without connection to internet or lack other pre-conditions to learn at home, in particular in marginalised Roma communities. Challenges concerning equal access to quality and inclusive education remain, as basic skills levels and general performance of students are strongly affected by their socioeconomic background. There are pronounced performance differences between schools and regions, reflected also in the high rates of early leavers from education and training in some of them, in particular in Eastern Slovakia. The attractiveness of the teaching profession and the quality of initial teacher education remain low. In addition, the national enrolment rate of children in early childhood education and care, in particular of children below three, is the lowest in the Union, which has a further negative impact on educational outcomes, particularly for disadvantaged children.

                  (21)

                  The COVID-19 crisis has made swift deployment of liquidity support to businesses an urgent priority for Slovakia through well-targeted loans and guarantees, with a focus on SMEs, making use of the new flexibility given by the temporary framework on State aid to support the economy and reallocating cohesion policy funds. Adequate risk guarantees combined with low interest rates and long maturities can help ensure the swift provision of loans by intermediaries and uptake by firms. In the process of designing and implementing those measures, the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions can further help alleviate short-term liquidity constraints for SMEs and the self-employed. Fighting against tax evasion and improving tax compliance remain priorities for Slovakia in the medium term, as a means to ensure the sustainability of public finances and promote a fair level playing field, facilitating the economic recovery. To ensure viable cash-flow balances for SMEs, it is important that public authorities at all levels and companies are instructed to speed up payment of invoices to their suppliers.

                  (22)

                  Fostering a favourable business environment and improving the quality of public services are crucial for the recovery and for creating a more supportive investment climate. To ensure the effectiveness of the recovery measures, it is important to reduce unnecessary administrative burden and simplify procedures, including through effective use of ‘one-stop shops’ for businesses. The overall effectiveness of Slovakia’s public institutions and administration remains low. It can be improved by further digitalisation, better coordination and planning of the digital infrastructure and software development. Further reform efforts could improve the coordination of policy-making, drafting regulations, and ensure high performance of the civil service and human resource management. To strengthen the economy’s resilience, Slovakia would benefit from increasing the innovation capacity of businesses, particularly SMEs, by tackling the fragmented governance of the research and innovation ecosystem. Better cooperation between business, research, academia and the public sector can support the sharing of knowledge and skills and help companies innovate and develop new working and production abilities.

                  (23)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Allowing less developed regions to catch up and become more knowledge-based, competitive, and productive will require more strategic investment in Slovakia, particularly to develop infrastructure, including digital and other key services, and to improve transport networks. The COVID-19 outbreak has highlighted pre-existing digital infrastructure gaps. Expanding broadband coverage and speed will allow for more equal and improved access to the internet. Slovakia’s education system and labour market could be improved with efforts to equip the population with better sets of skills for a changing economy and society, including through lifelong learning, stronger cooperation between business and education at all levels, and better linking of training and requalification programmes to the current and future labour market needs.

                  (24)

                  Recovering economic growth will require policy efforts and targeted investments in the coming years to allow Slovakia to seize opportunities for creating a more sustainable and higher value added economy. These efforts should take regional disparities into account. Priority areas for additional efforts identified in Slovakia’s National Energy and Climate Plan include reducing the energy intensity of industry, supporting energy efficiency solutions, in particular for households, and investing into renewable energy. A more enabling regulatory environment could help increase the proportion of renewable energy sources in the energy supply. Slovakia would benefit from speeding up the implementation of the action plan for the transformation of Horná Nitra, reorienting funds towards solutions for the entire region, and seizing the opportunity to advance the coal phase-out. Reducing air pollution caused by solid fuel burning and rising transport emissions, improving the waste management system with innovative collection and treatment solutions, completing drinking water and sewage networks to address sanitary problems, supporting smart grids projects, and moving industry towards the climate neutral and circular economy can help put Slovakia on a path to sustainable economic growth. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Slovakia 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 Slovakia to make the best use of that Fund.

                  (25)

                  New trends in international organised crime, including misuse of legal entities for money laundering purposes, are putting pressure on Slovakia to upgrade its anti-money-laundering framework in order to prevent and combat economic crime. The understanding of risk exposure remains low, despite ambitious government plans to strengthen prevention, investigation and prosecution of money laundering. Limited human resources and training hamper effective supervision of professionals involved in company formation. Steps taken under the government action plan have not yet provided the tools to effectively identify and prosecute money laundering offences and to confiscate assets.

                  (26)

                  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.

                  (27)

                  Slovakia should continue working on its commitment to address specific concerns with regard to the overall integrity of its justice system, as they are likely to undermine trust in its effective functioning. Progress in implementing reforms to fight corruption remains limited in Slovakia. A number of prevention-related reforms or their implementation are still pending, including rules on lobbying, gifts, incompatibilities and contacts with third parties in decision-making, and whistleblower protection. Although criminal statistics fluctuate, the number of high-level corruption-related cases under investigation remains low, while efforts to sanction legal persons show some impact.

                  (28)

                  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, Slovakia will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

                  (29)

                  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, Slovakia 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.

                  (30)

                  In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Slovakia’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 Slovakia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia, 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.

                  (31)

                  In the light of this assessment, the Council has examined the 2020 Stability Programme and its opinion (8) is reflected in particular in recommendation (1) below,

            HEREBY RECOMMENDS that Slovakia 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. Strengthen the resilience of the health system in the areas of health workforce, critical medical products and infrastructure. Improve primary care provision and coordination between types of care.

                  2.

                  Provide adequate income replacement, and ensure access to social protection and essential services for all. Strengthen digital skills. Ensure equal access to quality education.

                  3.

                  Effectively implement measures to ensure liquidity for SMEs and self-employed. Close digital infrastructure gaps. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy and resources, sustainable public transport, and waste management.

                  4.

                  Ensure effective supervision and enforcement of the anti-money-laundering framework. Ensure a favourable business environment and quality public services through enhanced coordination and policy-making. Address concerns with regard to the integrity of the justice system.

         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. 148.

         (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)  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.

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of Sweden and delivering a Council opinion on the 2020 Convergence Programme of Sweden 2020/C 282/27

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/177

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of Sweden and delivering a Council opinion on the 2020 Convergence Programme of Sweden
      (2020/C 282/27)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

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

                  (2)

                  The 2020 country report for Sweden was published on 26 February 2020. It assessed Sweden’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 Sweden’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 Sweden is experiencing macroeconomic imbalances. In particular, overvalued house price levels coupled with a continued rise in household debt poses risks of a disorderly correction. This could have an adverse impact on the economy and potentially also on the banking sector. Any negative impact on the banking sector could also cause negative spill-overs in neighbouring countries given the systemic financial interlinkages. Some measures have been taken in recent years to address those imbalances. However, those measures have had limited impact so far. Key policy gaps remain, particularly in relation to tax incentives for debt-financed home ownership, the functioning of the housing supply and, in particular, the rental market.

                  (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. Sweden 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 because of different specialisation patterns – in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Sweden, aggravating the already observed trend of slowly widening disparities between the capital region and the rest of the country or between urban and rural areas. Combined with the risk of a temporary unravelling of the convergenceprocess between Member States, the current situation calls for targeted policy responses.

                  (10)

                  Sweden submitted its 2020 National Reform Programme on 27 April 2020 and its 2020 Convergence Programme on 28 April 2020. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (11)

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

                  (12)

                  In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,4 % of gross domestic product (GDP) in 2019 to a deficit of 3,8 % of GDP in 2020. The deficit is projected to decline to 1,4 % of GDP in 2021 and reach a surplus of 1,5 % of GDP by 2023. After decreasing to 35 % of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 40 % in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Sweden has adopted timely budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 2,4 % of GDP. The measures include strengthening healthcare services (0,1 % of GDP), emergency aid for distressed sectors (1,6 % of GDP) and labour market and social policy measures (0,2 % of GDP). In addition, Sweden has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. According to the 2020 Convergence Programme, those measures include in particular tax deferrals of up to 6,9 % of GDP, as well as different kinds of loan guarantees and expanded credit facilities amounting to roughly 4,7 % of GDP. Overall, the measures taken by Sweden 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, Sweden’s general government balance is forecast at -5,6 % of GDP in 2020 and -2,2 % of GDP in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

                  (15)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of Sweden’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)

                  Sweden’s economy has slowed down in an unprecedented way following the outbreak of the COVID-19 pandemic. According to the Commission 2020 spring forecast, unemployment is expected to rise to 9,7 % in 2020 and recover to 9,3 % in 2021. Private consumption is expected to decline strongly, in particular in the most exposed consumption categories like transport, restaurants and accommodation. Gross fixed capital formation is projected to see an even sharper drop than consumption, driven largely by uncertainty over the pace of the recovery. The Swedish authorities started taking measures early on and have successively scaled up policy measures as the COVID-19 pandemic spread. The measures covered healthcare and addressed the economic fall-out. Healthcare-related measures include economic support from the central government for extra costs of the COVID-19 pandemic to the regions and local authorities responsible for the healthcare system. On the economic front, the government has taken a broad range of steps to relieve the costs of the corporate sector (short-term layoffs, sick pay costs, waving employer’s social contributions, credit guarantees and rent reductions) as well as to ensure corporate liquidity (postponing tax payments, including value added tax (VAT) payments). Furthermore, Sweden’s central bank, Sveriges Riksbank, has decided to extend loans to companies via banks, to purchase government and municipal bonds, as well as covered mortgage bonds and bonds and commercial papers issued by Swedish non-financial corporations. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. The Riksbank has also concluded currency swap agreements, with other central banks, to ensure the availability of major currencies for the financial sector. Social and labour market policy has been expanded, for example by making temporarily changes to sickness benefits, increasing unemployment benefits, lowering requirements for accessing the unemployment scheme and through active labour market and education policies (e.g. green jobs, the extension of new start jobs, summer courses, more students in higher education).

                  (17)

                  Sweden’s short-term policy response to COVID-19 pandemic relies on securing appropriate resources and capacity buffers and adapting the roles and responsibilities of health workers. In the medium term, this should also lead to timely and geographically balanced healthcare, the appropriate deployment of health workers in various settings (for example in outpatient and inpatient care), and help avoid structural shortages of medical staff. Making use of Sweden’s strong research and innovation (R&I) sector for science-driven actions can contribute to progress on vaccines development, treatments and diagnostics and on translating research findings into public health policy.

                  (18)

                  Supporting the availability of skills, and digital skills in particular, can sustain higher productivity growth through R&I in high-tech sectors, and help achieve Sweden’s ambitious climate and energy objectives contained in its National Energy and Climate Plan. Investments are also needed to reduce educational outcomes gaps between learners with a migrant and native background. The high quality of labour was a major contributor to labour productivity growth but had all but stopped contributing before the COVID-19 crisis. Labour market integration of groups whose potential was not fully used before the crisis, such as non-EU migrants and people with disabilities, will also be necessary. Skills shortages has been particularly pronounced in education, healthcare, social work, information and communication technology, industry and construction.

                  (19)

                  To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. In the digital and microelectronics sectors, more than 50 % of employers report skills shortages affecting growth. Sustaining the high share of public spending in research is a necessary condition to improve the productivity performance. Capital deepening and higher investments in high-tech and innovative sectors are also needed to restore labour productivity growth. The diffusion of new digital technologies among small and medium-sized enterprises will help boost productivity. The crisis has shown how important the digital infrastructure is and that fast and stable connectivity needs to be available in all places where people live or work. The expansion of mobile broadband in the 700 MHz band will play an important role, as does the possibility of financial support for the development of fixed broadband. The upcoming 5G auction will provide additional impulse to the digitalisation of the Swedish economy. The objective of achieving a climate neutral society in 2045 will also require investments in R&I enabling the development and implementation of novel, competitive solutions for decarbonisation and coordinated social and policy actions. Transport is the prime target for reducing Sweden’s greenhouse gas emissions. A comprehensive and relatively fast transformation of the fleet to low-emission vehicles is on the political agenda. Planned investment in rail infrastructure is important to facilitate a modal split and to deliver on Sweden’s ambitious climate objective. The electrification of transport and industry will require significant investments in power production and distribution. The programming of the Just Transition Fund, which is the subject of a Commission proposal, for the period 2021-2027 could help Sweden 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 Sweden to make the best use of that Fund.

                  (20)

                  Persistent allegations of suspected money laundering have affected the reputation of Swedish banks, and preventing money laundering remains a priority for Sweden. Effective supervision requires increased resources and appropriate procedures to apply the risk-based approach. Sweden has recognised that more resources are needed to exercise suitable supervision and investigations, and has strengthened the capacity of its Financial Supervisory Authority. However, the Authority’s capacity is still low compared to the size of the Swedish financial sector. Challenges remain and the risk-based approach still needs to be fully implemented.

                  (21)

                  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.

                  (22)

                  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, Sweden will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

                  (23)

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

                  (24)

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

                  (25)

                  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 Convergence 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. As the 2020 country-specific recommendations have been refocused on the objective of tackling the socioeconomic impacts of the COVID-19 pandemic and facilitating the economic recovery, none of them directly addresses the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011,

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

                  1.

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

                  2.

                  Foster innovation and support education and skills development. 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, high-tech and innovative sectors, 5G networks and sustainable transport.

                  3.

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

         Done at Brussels, 20 July 2020.

               For the Council

               The President

            J. KLOECKNER

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

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

         (3)  OJ C 301, 5.9.2019, p. 159.

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

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

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

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


title: Council Recommendation of 20 July 2020 on the 2020 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2020 Convergence Programme of the United Kingdom 2020/C 282/28

text:
               26.8.2020

               EN

               Official Journal of the European Union

               C 282/183

      COUNCIL RECOMMENDATION
      of 20 July 2020
      on the 2020 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2020 Convergence Programme of the United Kingdom
      (2020/C 282/28)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

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

                  (2)

                  Following the withdrawal of the United Kingdom from the Union on 31 January 2020 and the entry into force of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (3) (‘the Withdrawal Agreement’), the United Kingdom entered a transition period, lasting until 31 December 2020. A single decision taken before 1 July 2020 by the Union and the United Kingdom in the Joint Committee provided for in the Withdrawal Agreement may extend this period for up to one or two years. During this period, Union law – including that related to the European Semester – continues to apply to and within the United Kingdom.

                  (3)

                  The 2020 country report for the United Kingdom was published on 26 February 2020. It assessed the United Kingdom’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019 (4) (‘the 2019 country-specific recommendations’), the follow-up given to the country-specific recommendations adopted in previous years and the United Kingdom’s progress towards its national Europe 2020 targets.

                  (4)

                  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.

                  (5)

                  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.

                  (6)

                  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 (5), 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.

                  (7)

                  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.

                  (8)

                  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.

                  (9)

                  The socioeconomic consequences of the COVID-19 pandemic are likely to be unevenly distributed across regions in the United Kingdom because of different specialisation patterns. This poses a substantial risk of further widening the regional disparities within the United Kingdom. The current situation calls for targeted policy responses.

                  (10)

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

                  (11)

                  The United Kingdom is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. On 13 July 2018, the Council recommended the United Kingdom to ensure that the nominal growth rate of net primary government expenditure (6) would not exceed 1,6 % in 2019-2020, corresponding to an annual structural adjustment of 0,6 % of gross domestic product (GDP). The Commission’s overall assessment confirms a risk of significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019-2020 and over 2018-2019 and 2019-2020 taken together. Outturn data for 2019-2020 will be available in autumn 2020.

                  (12)

                  In its 2019-2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 2,2 % of GDP in 2019-2020 to a deficit of 2,5 % of GDP in 2020-21. The deficit is projected to increase to 3,1 % of GDP in 2021-22 and to fall to 2,4 % of GDP by 2024-2025. After decreasing to an estimated 83,2 % of GDP in 2019-2020, the general government debt-to-GDP ratio is expected to decrease to 82,9 % in 2020-2021 according to the 2019-2020 Convergence Programme. However, the macroeconomic scenario underpinning those budgetary projections no longer appears realistic as it does not take into account the economic impact of the COVID-19 pandemic. The projections in the Programme also do not take into account the measures announced by the United Kingdom in response to the COVID-19 pandemic. The macroeconomic and fiscal outlook is affected by high uncertainty because of the COVID-19 pandemic.

                  (13)

                  In response to the COVID-19 pandemic, the United Kingdom 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. The projections in the Convergence Programme do not include these measures, but they are taken into account in the Commission 2020 spring forecast. The budgetary measures amount to about 5,5 % of GDP and include support for employees, the self-employed and businesses, as well as welfare measures. In addition, the United Kingdom has announced measures that, while not having a direct budgetary impact, will contribute to providing liquidity support to businesses. These measures include loan guarantees of about 16 % of GDP. 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, the United Kingdom’s general government balance is forecast at -10,7 % of GDP in 2020-2021 and -6,2 % of GDP in 2021-2022. The general government debt ratio is projected to reach 102,5 % of GDP in 2020-2021 and 100,2 % of GDP in 2022. The macroeconomic scenario underlying the Convergence Programme does not take into account the impact of the COVID-19 pandemic, and the debt and deficit projections in it therefore differ substantially from those of the Commission.

                  (15)

                  On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty because of the United Kingdom’s projected breach of the 3 %-of-GDP deficit threshold in 2020-21.Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 has not been fulfilled.

                  (16)

                  The ongoing COVID-19 crisis has created economic and social policy challenges that are unprecedented over the past decades. Unemployment is expected to rise by almost 3 percentage points to 6,7 % in 2020 and recover slightly to 6 % in 2021, from 3,8 % in 2019. The government of the United Kingdom has adopted emergency measures to alleviate the negative effects of the shock. The cost of the direct fiscal support will depend on demand, but it may amount to around GBP 110 billion (5,5 % of GDP), complemented by GBP 330 billion (16 % of GDP) of credit guarantees for bank loans. Short-time work schemes have been rolled out to protect employment and measures to support the self-employed have also been put in place. The coverage and eligibility to access advance payments of Universal Credit have been temporarily improved and the basic entitlement under Universal Credit temporarily increased for 12 months. Local authorities are also to receive additional one-off funding to support economically vulnerable people and households. The government also announced a three-month moratorium on mortgage payments for homeowners in difficulty due to the COVID-19 pandemic.

                  (17)

                  To support the financial position of businesses, the Bank of England has reduced the bank rate twice, in total from 0,75 % to 0,1 %, reduced the United Kingdom countercyclical capital buffer rate to 0 % from a pre-existing path towards 2 % by December 2020, increased its bond-buying programme to GBP 645 billion, and enhanced its support for commercial bank lending to the real economy alongside government loan guarantees. The government offered sectors a year-long moratorium on paying business rates, a deferral of value-added tax (VAT) payments as well as cash grants for smaller firms. Liquidity support has also been made available in the form of guarantees and combined grants under the Coronavirus Business Interruption Loan Scheme to small and medium-sized enterprises (SMEs) below a given turnover threshold, using a wide range of business finance products, such as revolving credit facilities and other products, including term loans. In addition, a general scheme to provide liquidity to SMEs, but also to larger businesses that could include investment support, has been made available to all sectors of activity. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account.

                  (18)

                  The COVID-19 pandemic has revealed weaknesses in the preparedness and capacity of the health systems in the United Kingdom to respond to such outbreaks, notably in terms of facilities, staff and supplies. This has resulted in the emergency setting-up of temporary field hospitals for COVID-19 patients across the United Kingdom. The country’s manufacturing industry was urged to modify its production lines to urgently produce additional medical equipment, such as ventilators, in order to cover the expected level of demand. The COVID-19 crisis has further accentuated existing health workforce shortages. Managing similar crises in the future calls for investments into the health systems across the United Kingdom, including effective and well-resourced public health measures. These investments should aim at providing the necessary equipment and facilities and the required skilled labour, as well as, overall, the capacity to deliver all expected regular healthcare services alongside care for patients with COVID-19 or similar infectious diseases.

                  (19)

                  The current crisis is likely to have a bigger impact on the most vulnerable, exacerbating poverty. The risk of poverty or social exclusion was already increasing before the crisis, despite record low unemployment. In-work poverty and child poverty are also high. Welfare cuts and reforms risk undermining the strong poverty-reducing effect of the United Kingdom tax-benefit system. There is scope to strengthen support to the most vulnerable, including children in poverty, especially given that the crisis is expected to further increase income inequality.

                  (20)

                  Improving labour productivity performance remains a major challenge for the United Kingdom. Output per hour is significantly lower in the United Kingdom than in most other developed economies, and is barely higher than it was before the financial crisis. GDP growth has been driven by employment growth, with practically no increases in productivity in the recent past. Despite a tight labour market, United Kingdom labour productivity has been essentially flat since early 2018. Real wage growth has also remained slow. Many parts of the United Kingdom are relatively poor, with comparatively low levels of investment in skills and infrastructure. Limited career progression prospects for people in low-wage jobs negatively affect both productivity and poverty. This is set to continue and may even be exacerbated in the light of the COVID-19 crisis. The recent pandemic also poses significant challenges for the education and training systems in the United Kingdom, in particular with regard to distance learning and varying access to structured learning. Consequently, there is scope to increase productivity by addressing broad-based problems such as low investment in equipment, infrastructure and research and development, and skills gaps, especially in basic and technical skills. The United Kingdom aims to invest more in research and innovation and improve the use of existing technologies across the economy.

                  (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 United Kingdom has a persistent housing shortage. Capacity constraints are emerging, while residential construction remains below what is required to meet estimated demand. The amount and location of land available for new housing is limited by tight regulation of the land market, particularly around big towns and cities. The building sector remains key for housing as well as meeting future energy-efficiency and climate targets, although reducing the amount of energy used for home heating is complicated by the age of the housing stock and its slow replacement. After decades of public under-investment, the government has started to deal with the infrastructure deficit. There has been encouraging progress on investment in renewables, and significant emission reduction has been achieved in the power sector. However, the move towards climate neutrality still faces challenges across the whole of the economy. Use of the United Kingdom’s road, rail and aviation networks is reaching capacity and this contributes to congestion and air pollution. The United Kingdom has an ambition to be at the forefront of zero-emission vehicles, but most of the rail network is not yet electrified. Although the coverage of full-fibre networks in the United Kingdom is still modest, network competition in the full-fibre market is growing as the government is significantly increasing public support towards fibre network rollout. Such investment in digital infrastructure, however, needs to be accompanied by improved digital skills, as the United Kingdom suffers from a structural deficit of IT specialist skills.

                  (22)

                  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 as part of the European Semester until the end of the transition period.

                  (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, the United Kingdom will contribute to the progress towards the SDGs.

                  (24)

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

                  (25)

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

            HEREBY RECOMMENDS that the United Kingdom 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. Strengthen the resilience of the health system.

                  2.

                  Ensure the adequacy and coverage of the social protection system to provide support for all and in particular those most affected by the crisis.

                  3.

                  Foster innovation and support human capital development. 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 housing, clean and efficient production and use of energy, sustainable transport infrastructures and high-speed broadband networks.

         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 L 29, 31.1.2020, p. 7.

         (4)  OJ C 301, 5.9.2019, p. 163.

         (5)  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).

         (6)  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.

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