               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 324 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of the Czech Republicand delivering a Council opinion on the 2016 convergence programme of the Czech Republic

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of the Czech Republic

                  and delivering a Council opinion on the 2016 convergence programme of the Czech Republic

               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 the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it did not identify Czech Republic as one of the Member States for which an in-depth review would be carried out.

               (2)The 2016 country report for the Czech Republic
                  6
                was published on 26 February 2016. It assessed the Czech Republic’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and the Czech Republic’s progress towards its national Europe 2020 targets.

               (3)On 11 May 2016, the Czech Republic submitted its 2016 convergence programme and on 12 May it submitted its 2016 national reform programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance
                  7
               .

               (5)The Czech Republic is currently in the preventive arm of the Stability and Growth Pact. In its 2016 convergence programme, the government plans a slight deterioration in the headline balance to -0.6% of GDP in 2016 and a broad stabilisation at -0.5% of GDP as of 2017. The medium-term budgetary objective — a structural deficit of 1 % of GDP — continues to be met over the programme horizon. According to the convergence programme, the government debt-to-GDP ratio is expected to remain at 41.1% in 2016 and to fall to 39.3% in 2019. The macroeconomic scenario underpinning these budgetary projections is plausible. The measures needed to support the planned deficit targets from 2017 onwards have not been sufficiently specified. Based on the Commission 2016 spring forecast, the structural balance is forecast to be at -0.7 % in 2016 and -0.9 % of GDP in 2017, above the medium-term budgetary objective. Possible future deviations would be assessed against the requirement to maintain the structural balance at the medium-term budgetary objective. Based on its assessment of the convergence programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that the Czech Republic is expected to comply with the provisions of the Stability and Growth Pact.

               (6)In the long term, there are medium fiscal sustainability risks for the Czech Republic. These are derived primarily from the projected impact of age-related public spending, mainly in healthcare but also in pensions. Recently adopted or planned measures to amend the pension system would, if implemented, lead to a deterioration of public finances in the long term. First, in February 2016, the Czech government adopted legislation giving it the power to adjust the pension indexation mechanism more flexibly. Second, proposals are under discussion to cap the statutory retirement age at 65 and establish a regular review mechanism for the pensionable age. There are currently no plans to increase the low statutory retirement age. On healthcare, the projected increase in long-term spending is also a matter of concern. The Czech Republic faces challenges in improving the governance and cost-effectiveness of its healthcare system, although a number of measures are currently at various stages of implementation. Indicators point to a high consumption of goods and services and to a comparatively high reliance on hospital-based care, which is more expensive than outpatient services. Available medical data do not appear to be used effectively for the planning and rationalisation of inpatient care capacities. The reimbursement system for hospital care is being reviewed due to various drawbacks, such as the small sample of hospitals used to calculate the reference rates. Options for strengthening outpatient care coordination, improving the gate-keeping role of practitioners and limiting unnecessary consumption of outpatient services have still not been sufficiently explored.

               (7)The Czech Republic’s fiscal framework ranks among the weakest in the EU. A reform package addressing the main shortcomings in this area was approved by the government in February 2015 but is still awaiting ratification by the parliament. The package aims to transpose Council Directive 2011/85/EU on budgetary frameworks into national legislation. The proposed reform envisages strengthening expenditure limits and directly linking them to the medium-term budgetary objective. Under the reform, the government would be required to adopt a budget that safeguards the long-term sustainability of public finances and an independent fiscal council would be set up to monitor public finances and increase transparency.

               (8)Investment in the Czech Republic remains below the EU average in per capita terms and is highly concentrated in the capital region. Administrative and regulatory barriers continue to weigh on the efficiency of the business environment and act as a barrier to investment. There are specific bottlenecks in the implementation of transport and energy infrastructure projects. Furthermore, absorption of EU funds during the 2007-2013 programming period was slow, mainly due to complex procedures, deficiencies in management and control systems, inefficiencies in public procurement procedures and the weak administrative capacity of the bodies involved in project implementation. On transport infrastructure, administrative barriers to investment include lengthy procedures for issuing land-use permits and delays resulting from complaint procedures at the anti-monopoly office. On energy efficiency, public programmes to reduce energy intensity have been fragmented and cost-inefficient. There are indications that energy savings are not improving in line with the national energy efficiency action plan. On services, there is some evidence of regulatory restrictiveness. This is the case in particular for some of the individual professional service sectors, for which barriers to entry and practice appear higher than the EU average. The low use of quality online public services also impedes the business environment and reflects deficiencies of supply. E-government services do not take full advantage of technological possibilities to improve the user experience and their level of sophistication is among the lowest in the EU. Available evidence points to a relatively high incidence of tax evasion in the Czech Republic. Tackling this problem, particularly for VAT, is high on the policy agenda. On the other hand, no measures are planned to reduce the relatively high costs associated with paying taxes or to simplify the tax system. Pre-filing services offered by the tax authorities are limited. Taxpayers make limited use of systems to e-file tax returns, although some progress has been made on VAT. Additionally, the costs of tax collection are relatively high, according to the most recent international reports. High employer social contributions contribute to an overall high level of taxation on labour and diversification into other areas, such as property taxes, is limited.

               (9)A number of indicators point to significant weaknesses in public administration. Some progress has been made in adopting the legislative and non-legislative measures in the 2015 anti-corruption plan. The Contract Register Act was approved by the parliament in November 2015. Its timely implementation and further development would improve the transparency and cost-effectiveness of public tenders. However, some of the key anti-corruption acts, such as an amendment to the Act on conflict of interest and a new Act on the financing of political parties, are still outstanding. Several adopted measures are difficult to enforce and have limited impact, while a number of planned measures are repeatedly rolled over to the next action plan. Despite some efforts to address its shortcomings, there is scope for further progress in the performance of the Czech public procurement system with regard to competition and thus value for money. This is partly due to a lack of appropriate training of procurement practitioners and insufficient emphasis on quality criteria when awarding contracts. The public sector relies heavily on non-competitive procedures, with limited ability to attract bidders, while aggregated procurement is seldom used. Nevertheless, the implementation of the newly transposed public procurement directives on modernised public procurement procedures is expected to be an opportunity to introduce a strategic and evidence-based approach to public procurement policy, in terms of professionalisation, aggregation of public purchases, increased focus on quality criteria and the integrity of procurement practitioners.

               (10)There has been a significant increase in R&D investment in recent years but outcomes remain weak and there are concerns about the sustainability of R&D infrastructure. The Czech research system is currently in the process of implementing long-delayed but substantial governance reforms, particularly on evaluation and funding. The existing funding mechanism is fragmented, with insufficient coordination between relevant bodies and an unclear division of responsibilities and priorities. A comprehensive evaluation framework for R&D, with links to funding, is being developed but progress is slow. There have been limited efforts to increase links between academia and the business community. These links are weakened by an evaluation framework for public research institutions that does not take into account the level of cooperation with enterprises.

               (11)The higher education reform was adopted by the parliament in January 2016. The attractiveness of the teaching profession remains a challenge, with relatively low pay being seen as one of the causes, while at the same time the teacher population is ageing. A new career system for teachers and pedagogical staff is being developed to increase the attractiveness of the profession, but its implementation has been postponed. Educational outcomes are generally good, but they are strongly influenced by students’ socioeconomic backgrounds. The low educational outcomes of disadvantaged groups, in particular the Roma community, are a clear concern. It is estimated that a very large proportion of Roma children leave school early. Numerous Roma children receive education outside mainstream schools and as a result face lower learning standards than children from the rest of the population. Training opportunities for teachers to help them deal with this issue are underdeveloped, with a low proportion of teachers taking part in professional development activities related to teaching mixed groups and inclusive education. A significant number of legislative and administrative measures towards inclusive education have been taken and are beginning to be implemented. These are expected to contribute to reducing the gap in educational attainment and achievement between Roma and non-Roma children. The parliament adopted amendments to the Education Act in March 2016, extending compulsory education to the last year of pre-school education and ensuring that younger children are entitled to a place in a kindergarten. Nevertheless, inequalities in the education system represent a barrier to improving the quality of human capital and also hamper labour market outcomes later in life.

               (12)The labour market situation in the Czech Republic has improved but further increases in the employment rate will depend on greater participation by under-represented groups. These include women with young children, low-skilled workers and members of the Roma community. The outreach capacities of public employment services, together with appropriate and well-targeted active labour market policies and individualised services, would contribute to increasing the participation of vulnerable groups. The labour market participation of women with young children is hampered by a persistent lack of affordable and quality childcare services, in particular for children up to three years old, and by the limited use of flexible working-time arrangements. Some measures have been taken in recent years to address this shortage but there is scope for more substantial efforts.

               (13)In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Czech Republic’s economic policy and published it in the 2016 country report. It has also assessed the convergence programme and the national reform programme and the follow-up given to the recommendations addressed to the Czech Republic in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below.

               (14)In the light of this assessment, the Council has examined the convergence programme, and is of the opinion
                  8
                that the Czech Republic is expected to comply with the Stability and Growth Pact.

               HEREBY RECOMMENDS that the Czech Republic take action in 2016 and 2017 to:

               1.Take measures to ensure the long-term sustainability of public finances, in light of future risks in the area of healthcare. Adopt legislation to strengthen the fiscal framework.

               2.Reduce regulatory and administrative barriers to investment, notably in transport and energy, and increase the availability of e-government services. Adopt the outstanding anti-corruption reforms and improve public procurement practices.

               3.Strengthen governance in the R&D system and facilitate the links between academia and enterprises. Raise the attractiveness of the teaching profession and take measures to increase the inclusion of disadvantaged children, including Roma, in mainstream schools and pre-schools. Remove the obstacles to greater labour market participation by under-represented groups, particularly women.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2016) 324 final.

                     (3)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  SWD(2016) 73 final.

                     (7)
                  COM(2014) 494 final.

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


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 522 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Romaniaand delivering a Council opinion on the 2017 Convergence Programme of Romania

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Romania

                  and delivering a Council opinion on the 2017 Convergence Programme of Romania

               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 the recommendation of the European Commission,
                  2

               Having regard to the resolutions of the European Parliament,
                  3

               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 16 November 2016, the Commission adopted the Annual Growth Survey,
                  4
                marking the start of the 2017 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report,
                  5
                in which it did not identify Romania as one of the Member States for which an in-depth review would be carried out.

               (2)The 2017 country report for Romania
                  6
                was published on 22 February 2017. It assessed Romania’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Romania’s progress towards its national Europe 2020 targets.

               (3)On 5 May 2017, Romania submitted its 2017 National Reform Programme and its 2017 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)The relevant country-specific recommendations have been taken into account in the Member States' programmes for the European Structural and Investment Funds (ESI Funds) covering the 2014-2020 period. As foreseen in the legislation governing the ESI Funds,
                  7
                where it is necessary to support the implementation of relevant country-specific recommendations, the Commission may request a Member State to review and amend its relevant ESI Funds programmes. The Commission has provided further guidelines on the application of those rules.
                  8

               (5)Between 2009 and 2015, Romania benefited from three balance of payments assistance programmes jointly run by the Commission and the International Monetary Fund and supported by the World Bank. Disbursements were only made under the first programme in 2009-2011, while those in 2011-13 and 2013-15 were precautionary. Post-programme surveillance on behalf of the Commission to monitor Romania’s capacity to repay the loans granted under the first programme started in October 2015 and will continue until at least 70 % of the loan has been repaid, which is due in spring 2018.

               (6)Romania is currently in the preventive arm of the Stability and Growth Pact. In its 2017 Convergence Programme, the government plans a headline deficit of 2.9% of GDP both in 2017 and 2018, and its gradual reduction thereafter, to 2.0% of GDP by 2020. The medium-term budgetary objective, a structural deficit of 1% of GDP, is not expected to be reached by 2020, which is the programme horizon. The recalculated
                  9
                structural balance is expected to reach -2.6% by 2020. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 37.6% of GDP in 2016 to 38.3% of GDP in 2018 and then decline to 37.6% of GDP in 2020. The macroeconomic scenario underpinning these budgetary projections is favourable. The main downward risk to the macroeconomic outlook stems from a lower impact of fiscal and structural measures on near and medium-term growth prospects. At the same time, the measures needed to support the planned deficit targets have not been sufficiently specified. Moreover, the draft unified wage law poses a significant downward risk to the fiscal forecast.

               (7)On 12 July 2016, the Council recommended Romania to limit the deviation from the medium-term budgetary objective in 2016 and achieve an annual fiscal adjustment of 0.5% of GDP in 2017 unless the medium-term budgetary objective is respected with a lower effort. Based on 2016 outturn data Romania was found to be in significant deviation from the medium-term budgetary objective. In line with Article 121(4) TFEU and Article 10(2) of Council Regulation (EC) No 1466/97, the Commission issued a warning to Romania on 22 May 2017 that a significant deviation from the medium-term budgetary objective was observed in 2016. [On XX, the Council adopted a subsequent recommendation confirming the need for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  10
                does not exceed 3.3% in 2017, corresponding to an annual structural adjustment of 0.5% of GDP.] Based on the Commission 2017 spring forecast, there is a risk of a significant deviation from the recommended adjustment in 2017.

               (8)In 2018, in the light of its fiscal situation, Romania is expected to further adjust towards its medium-term budgetary objective of a structural deficit of 1% of GDP. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure which does not exceed 4.3%. It would correspond to a structural adjustment of 0.5 % of GDP. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2018. In addition, the Commission 2017 spring forecast projected a general government deficit of 3.5% and 3.7% of GDP for 2017 and 2018, above the 3%-of-GDP reference value of the Treaty. Overall, the Council is of the opinion that significant further measures will be needed as of 2017 to comply with the provisions of the Stability and Growth Pact, in light of a strongly deteriorating fiscal outlook[, in line with the recommendation addressed to Romania on XX with a view to correcting the significant deviation from the adjustment path toward the medium-term budgetary objective].

               (9)Romania’s fiscal framework is sound, but is not fully enforced. The 2016 budget substantially departed from the medium-term objective of a structural deficit of 1 % of GDP in breach of the deficit rule in the national fiscal framework. The 2017 budget further deviated from the national fiscal rules. In 2016, as in previous years, the authorities did not send an update of the fiscal strategy to the parliament by the statutory August deadline. As a result, the medium-term fiscal strategy has not been guiding the annual budget process.

               (10)On the back of comfortable capital buffers and increasing profitability, the health of the banking sector continued to improve in 2016. The authorities committed to perform a comprehensive asset quality review and stress test of the banking sector in 2018. The law on debt discharge entered into force in May 2016, but risks to the banking sector have been largely mitigated by a ruling of the constitutional court that courts will have to assess whether borrowers comply with the legal provisions on hardship. The CHF-denominated loan conversion law adopted by the parliament in October 2016 was recently judged non-constitutional. However, recurrent legislative initiatives continue to challenge legal predictability, with possible negative impacts on investor sentiment.

               (11)Tax evasion has been prevalent in Romania, reducing tax revenues and tax fairness and distorting the economy. In addressing a country-specific recommendation to strengthen tax compliance and collection, Romania has made limited progress. In 2016, the procedures for VAT registration and reimbursement were amended, and a nation-wide roll-out of electronic cash registers connected to the tax authority is underway. From 2017, a special scheme applies to sectors such as the hotel, catering and other related industries, where the duty is established irrespective of revenue bracket. In addition, restrictions were also adopted on self-employment and family businesses, to discourage tax avoidance. An improvement in compliance was observed in 2016 for tax declarations and payments, but the joint tax and labour inspections and audits failed to achieve improved results. Furthermore, the turnover threshold for the tax regime on micro enterprises was substantially increased while the rate was cut, enabling tax compliance to the detriment of budgetary revenues. The sectorial and categorical approaches to business taxation risk imposing an administrative burden on both businesses and the tax authority, while they are not conducive to improving tax collection.

               (12)The distribution of disposable household income (accounting for the size of the household) is particularly unequal in Romania, thereby impairing its potential for sustainable and inclusive growth. The richest 20 % of the population have an income over eight times higher than the poorest 20 %. This ratio is significantly higher than the EU average. Inequalities are driven to a large extent by unequal access to health care, education, services and access to labour market. Moreover, the difference between income inequality before and after taxes and social transfers is amongst the smallest in the EU. The social reference index at the basis of the main social benefits has not been updated since its introduction in 2008. Undeclared work including envelope wages remains prevalent and continues to weigh on tax revenue, distort the economy, and undermine the fairness and effectiveness of the tax and benefits system. Joint national inspections by the Fiscal Administration and labour inspectorates were undertaken as part of a pilot project, but this has failed to have a systemic impact so far. Resources are not focused on sectors with the highest risks of tax evasion, limited focus is given on envelope wages, while coercive measures prevail over preventive ones.

               (13)Labour market outcomes improved in 2016, when the unemployment rate reached its pre-crisis low. The labour force continues to shrink, as the population is ageing and emigration remains high. Low unemployment is matched by one of the highest inactivity rates in the EU. Employment and activity rates for young people, women, the low-skilled, people with disabilities and Roma in particular are well below the EU average. The number of young people not in employment, education or training remains very high.

               (14)Although declining, the risk of poverty or social exclusion has been very high, in particular for families with children, people with disabilities, Roma, and the rural population. In 2016, a comprehensive anti-poverty package was adopted in a policy shift toward the enhanced provision of services catered to specific groups of the population. It envisages a pilot project setting up integrated services in marginalised communities. A nation-wide roll-out would significantly improve the currently low provision of integrated services. Addressing successive country-specific recommendations, the law on the minimum inclusion income was adopted, to enter into force in 2018. The minimum inclusion income increases the adequacy and coverage of social assistance. It combines passive support with compulsory active labour market measures and inspections. Its activation potential is modest though, as the target is to reach 25 % of the beneficiaries by active labour market policy measures by 2021.

               (15)Activation policies have been strengthened in the context of reforming the National Employment Agency. Reforms include more tailor-made support and integrated services to jobseekers and employers. The outreach and service offered to young people not in employment, education or training is being improved. However, activation policies offered to groups furthest away from labour market remain limited and recently proposed activation measures no longer focus on these specific groups. Their scale and link to social services is insufficient to significantly improve labour force participation for these groups in particular.

               (16)Pension adequacy and old-age poverty have significant gender dimensions as, all else being equal, lower retirement ages for women result in lower pension entitlements. Romania is among the very few EU countries that do not provide for the convergence of women’s retirement ages to men’s. The law on equalisation of pensionable ages for men and women was submitted to the parliament in 2013. So far it has only been adopted by the Senate.

               (17)Given productivity developments, income convergence and the competitiveness position of Romania, increases in public and private sector wages deserve special attention. Public wage increases have the potential to spill over to the private sector, impacting Romania’s competitiveness. Romania’s minimum wage level, while still among the lowest in the EU, has increased significantly in recent years. Ad hoc minimum wage increases have significantly raised the share of workers earning the minimum wage and led to strong compression at the bottom of the wage distribution recently. Addressing a country-specific recommendation, a tripartite working group to establish a mechanism for minimum wage-setting based on objective economic, labour market and social criteria was established in early 2016 but work suffered significant delays and needs to be adequately taken up. Social dialogue remains characterised by low collective bargaining at sector level and by institutional weaknesses that limit the effectiveness of reforms.

               (18)Sufficient basic skills are key to finding and keeping good and stable jobs and successfully participating in economic and social life. International surveys point to severe deficiencies in basic skills among Romanian teenagers. High early school leaving rates, low higher education attainment, and high emigration result in the under-supply of skilled labour. Access to quality mainstream education is limited in rural areas and for Roma children in particular. The difficulty to attract good teachers in rural areas and Roma-predominant schools, coupled with segregation and often discriminatory attitudes, result in lower educational achievement of Roma children. In response to repeated country-specific recommendations, Romania adopted and started implementing a strategy on early school leaving. Recent measures include integrated interventions, a warm meal pilot programme, improved reimbursement of commuting costs, and social vouchers to encourage poor children’s pre-school education. Project-based measures with EU funding to improve the quality of teaching in disadvantaged schools are planned for autumn 2017, and the modernisation of the curricula, albeit incomplete, is underway. Anti-segregation legislation was improved, including the reinforcement of school inspectorates’ mandate in this area. However, a monitoring methodology is still missing. Further steps are needed for sustained progress in fighting socioeconomic inequalities in education. The Youth Guarantee has only partially reached early school leavers so far and second chance programmes are not readily available. The vocational education and training system is not sufficiently aligned with labour market needs, and participation in adult learning is very low.

               (19)Romania’s population is exposed to poor health outcomes. Accessible quality healthcare is impaired by shortages of health professionals, under-funding and over-reliance on hospitals, and corruption, affecting people with low income and rural areas in particular. Beside informal payments to medical professionals, corruption concerns public procurement in hospitals, insurance fraud, and bribery for certificates giving entitlement to benefits. Addressing a country-specific recommendation and in the context of ex-ante conditionality for the 2014-2020 EU funding period, Romania took some policy action to shift from inpatient to outpatient care. Regional healthcare plans were developed to identify needs for infrastructure and services, and the implementation of the national health strategy is being monitored. In line with the national anti-corruption strategy 2016-2020, legislation was adopted to revamp the feedback system on informal payments, and health professionals’ salaries were improved. The anti-corruption strategy comprises of comprehensive measures in healthcare, including fostering the accountability and transparent recruitment of hospital managers. Nonetheless, the reinforcement of community care, ambulatory care, and referral systems is still in an initial stage, informal payments remain prevalent, transparency in hospital management is yet to be ensured, and a national health workforce strategy is pending adoption.

               (20)Romania’s administrative and policy-making capacity has been suffering from opaque processes and decision-making, burdensome administrative procedures, little recourse to quality evidence, weak coordination across sectorial policies, and widespread corruption. Progress in public administration reform has been limited. Organisational structures remain unstable, which affects the independence and effectiveness of public administration. Civil service strategies were launched in 2016, but the legislative framework does not incorporate yet some of their main objectives, especially as regards objective criteria for staff recruitment, assessment and reward of performance. Pay levels are proposed to be harmonised to some extent, but there is no clear link between performance and remuneration, at central and local levels. The capacity and authority of the Civil Service Agency still needs to be strengthened. Some of the transparency measures in policy making, initiated in 2016, have been set for reversion. Strategic planning and regulatory impact assessment are not firmly established in administrative practice.

               (21)Insufficient transport infrastructure in quality and quantity has been among the key bottlenecks to economic development in Romania. To confront the associated deficiencies, in response to a country-specific recommendation, Romania adopted the transport master plan in autumn 2016. To speed up investment in road infrastructure, the management of infrastructure investments was split from the authority in charge of infrastructure administration. A body was established in 2016 to reform the railway system, to be operational by mid-2017.

               (22)Romania has had one of the highest investment ratios in the EU lately. However in 2016, public investment declined, also due to a low implementation of EU funds. High absorption and efficient use of EU funding are critical for Romania to tap its development potential, in key sectors such as transport or waste in particular. The quality of public investment has been impaired by management deficiencies and changing priorities among others. In response to a country-specific recommendation, little progress was made with strengthening project prioritisation and preparation in public investment. Since August 2016, ministries need to consider the investment priorities in their spending plans, but no other steps were taken to enhance the role of the Ministry of Finance in investment prioritisation and to better coordinate the preparation of public investment projects across ministries. The adoption of the national waste management plan and waste prevention programme expected by the  end of 2016 is still pending. The plans are also needed to improve governance and regulatory enforcement to channel national and EU funds to attain EU-level environmental standards.

               (23)Efficient public procurement is key for attaining strategic objectives and addressing key policy challenges to Romania, including efficient public spending, the modernisation of public administration, the fight against corruption, and fostering innovation and sustainable and inclusive growth. It is also instrumental to citizens’ trust in public authorities and democracy. Romania took steps to implement the public procurement strategy and action plan lately. As a follow-up to the public procurement law in force since May 2016, implementing legislation was adopted by the end of 2016, and the national agenda for public procurement provides for corruption prevention and control. However, several key measures in the strategy are still pending, such as reinforced controls and other anti-corruption measures, the implementation of e-procurement, and the training of public procurement officers.

               (24)Over 45 % of Romania’s population live in rural areas, which remain far behind urban areas in terms of employment and education, access to services and infrastructure, and material well-being. In response to a country-specific recommendation to improve access to integrated public services, extend basic infrastructure and foster economic diversification in rural areas in particular, in 2016 Romania adopted a comprehensive set of measures on rural development, on modernising small farms, supporting non-agricultural SMEs, investment in infrastructure, including social services and education, and formalising employment. Their longer-term success will hinge on the capacity to roll-out the pilot actions on a larger scale, and to effectively target and absorb available EU funding.

               (25)State-owned enterprises (SOEs) play a major role in the economy, in particular in key infrastructure sectors. Weaknesses in SOE’s governance translate into their lower profitability relative to private counterparts, with negative impacts on public finance. Addressing a country-specific recommendation, Romania achieved substantial progress to improve SOE corporate governance. The by-laws supporting the main legislation on SOE corporate governance were swiftly adopted in autumn 2016. The legislative framework follows good international practice on transparency in the appointment of board members and the management of SOEs, and provides the Ministry of Finance with specific powers of monitoring and enforcement. Measures were also taken to raise awareness of the new rules among local authorities, and budgetary information on SOEs was made public. However, delays in the appointment of professional managers raise concern on further implementation.

               (26)Romania’s competitiveness has been suffering from weaknesses in non-cost competitiveness and structural barriers to the transition to a higher value added economy, complex administrative procedures being among these. Addressing a country-specific recommendation in 2016, Romania adopted several legislative acts to simplify administrative procedures and facilitate the relation between citizens and public administration, albeit limited to a small number of procedures.

               (27)Corruption persists at all levels and remains an obstacle for doing business. Romania made substantial progress on much of the reform of the judicial system and in tackling high-level corruption. However, key steps remain to address concerns in these areas so that reforms are sustainable and irreversible. Some progress was made on developing further measures to prevent and fight corruption, in particular within local government, but significant challenges remain in the effective implementation of the national anti-corruption strategy adopted in 2016. Efforts are required on the respect for judicial independence in Romania’s public life, finalising reforms of the criminal and civil codes and ensuring efficiency in the implementation of court decisions. Under the Cooperation and Verification Mechanism, Romania receives recommendations in the areas of judicial reform and the fight against corruption. These areas are therefore not covered in the country-specific recommendations for Romania.

               (28)In the context of the European Semester the Commission has carried out a comprehensive analysis of Romania’s economic policy and published it in the 2017 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania, but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions.

               (29)In the light of this assessment, the Council has examined the Convergence Programme and its opinion
                  11
                is reflected in particular in recommendation 1 below,

               HEREBY RECOMMENDS that Romania take action in 2017 and 2018 to:

               1.In 2017, ensure compliance with the Council recommendation of [XX] with a view to correcting the significant deviation from the adjustment path toward the medium-term budgetary objective. In 2018, pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. Ensure the full application of the fiscal framework. Strengthen tax compliance and collection. Fight undeclared work, including by ensuring the systematic use of integrated controls.

               2.Strengthen targeted activation policies and integrated public services, focusing on those furthest away from the labour market. Adopt legislation equalising the pension age for men and women. Establish a transparent mechanism for minimum wage-setting, in consultation with social partners. Improve access to quality mainstream education, in particular for Roma and children in rural areas. In healthcare, shift to outpatient care, and curb informal payments.

               3.Adopt legislation to ensure a professional and independent civil service, applying objective criteria. Strengthen project prioritisation and preparation in public investment. Ensure the timely full and sustainable implementation of the national public procurement strategy.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2017) 522 final.

                     (3)
                  P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040.

                     (4)
                  COM(2016) 725 final.

                     (5)
                  COM(2016) 728 final.

                     (6)
                  SWD(2017) 88 final.

                     (7)
                  Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320.

                     (8)

                        COM(2014) 494 final.

                     (9)
                  Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission using the commonly agreed methodology.

                     (10)
                  Net government expenditure is comprised of 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 4-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.

                     (11)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 322 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Belgiumand delivering a Council opinion on the 2016 stability programme of Belgium

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Belgium

                  and delivering a Council opinion on the 2016 stability programme of Belgium

               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
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which it identified Belgium as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area
                  6
               . This recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016. As a country whose currency is the euro and in view of the close interlinkages between the economies of the economic and monetary union, Belgium should ensure the full and timely implementation of the recommendation.

               (2)The 2016 country report for Belgium
                  7
                was published on 26 February 2016. It assessed Belgium’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and included an in-depth review under Article 5 of Regulation (EU) No 1176/2011. On 8 March 2016, the Commission presented the results of the in-depth review.
                  8
                The Commission’s analysis leads it to conclude that Belgium is experiencing no macroeconomic imbalances. Weakened external performance combined with high public indebtedness may pose risks in the future. However, recent developments point to an improvement in competitiveness. Corrective measures – comprising wage moderation and reductions in social security contributions – have led to a slowdown in labour cost growth. Public debt is not falling, but short-term risks appear contained.

               (3)On 29 April 2016, Belgium submitted its 2016 national reform programme and its 2016 stability programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance
                  9
               .

               (5)The 2016 stability programme indicates that the budgetary impact of the exceptional inflow of refugees in 2015 and 2016 and of the exceptional security measures in 2016 is significant, and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure for refugees amounted to 0.03% of GDP in 2015, while the incremental impact in 2016 is estimated at 0.17% of GDP for refugee-related expenditure and at 0.12% of GDP for security measures. The provisions defined in Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97 allow catering for this additional expenditure, in that the inflow of refugees as well as the severity of the terrorist threat are exceptional events, their impact on Belgium`s public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2015 has been reduced to take into account additional refugee-related costs. Regarding 2016, a final assessment, including on the eligible amounts, will be made in spring 2017 on the basis of observed data as provided by Belgian authorities.

               (6)Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. On 18 May 2016, the Commission issued a report under Article 126(3) of the TFEU, as Belgium did not make sufficient progress towards compliance with the debt rule in 2015. The analysis concluded that the debt criterion should be considered as complied with. In its 2016 stability programme, the government plans a gradual improvement of the headline balance from a deficit of 2.6% of GDP in 2015 to -0.2% of GDP in 2019. The revised medium-term budgetary objective, set at a balanced budgetary position in structural terms, is expected to be reached by 2018. However, the recalculated
                  10
                structural balance still points to a structural deficit of 0.4% of GDP in 2018. According to the stability programme, the government debt-to-GDP ratio is expected to peak at 106.2% of GDP in 2016 and to decline to 99.6% by 2019. The macroeconomic scenario underpinning these budgetary projections is plausible. However, the measures needed to support the planned deficit targets from 2017 onwards have not been sufficiently specified. Based on the Commission 2016 spring forecast, there is a risk of a significant deviation from the recommended adjustment in 2016 as well as in 2016 and 2017 taken together, under unchanged policies. In case the budgetary impact of the exceptional inflow of refugees as well as of exceptional security measures was excluded from the assessment, the projected deviation in 2016 is no longer significant. Belgium is not forecast to comply with the transitional debt rule in 2016 and, following the end of the transition period, with the debt reduction benchmark in 2017. Based on its assessment of the stability programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that there is a risk that Belgium will not comply with the provisions of the Stability and Growth Pact. Therefore further measures will be needed to ensure compliance in 2016 and 2017.

               (7)High public indebtedness is coupled with weak export and competitiveness performance. External performance has deteriorated since 2000, as global market share losses show, and has been aggravated by exports being oriented mainly towards less dynamic markets. While the negative trend in market shares has been halted in recent years, the accumulated losses remain substantial. Specialisation in market segments with a higher exposure to price competition also hampers the country’s export capacity. This is particularly difficult to reconcile with the country’s high labour costs. Unit labour costs have risen fast as a result of low productivity growth and, in particular, fast wage growth. The latter can be attributed to certain features of the wage-setting system. On the one hand, margins for real wage growth were repeatedly set too high. On the other hand, inflation repeatedly exceeded expectations and inflation in neighbouring countries. The structural difference in core inflation rates between Belgium and neighbouring countries is caused mainly by higher price growth for services and a suboptimal functioning of the retail market. This inflation was transmitted to wage growth through the general practice of automatic wage indexation. Together, these factors eroded the effectiveness of the highly coordinated wage-setting system. To halt the decline in competitiveness and its negative impact on export performance and employment, the Belgian authorities have intervened in the wage-setting process in recent years. Wage moderation measures have been imposed, including limits on real wage increases and the suspension of wage indexation schemes. In addition, reductions in social security contributions are being enacted. However, to ensure the durability of the correction, structural reforms of the wage-setting framework are needed in line with the Council recommendations in past years. Although the government intends to revise the Loi relative à la promotion de l’emploi et à la sauvegarde préventive de la compétitivité (the ‘Law of 1996’), which provides the basis on which social partners set the ‘wage norm’ every two years, little progress has been made so far. Ensuring a more formal link between wages and productivity would help lock in recent gains and prevent a recurrence of past problems.

               (8)Some progress has been made on the overall functioning of the labour market. Incentives to work have been strengthened by measures to reduce the tax wedge and changes in the unemployment benefit system. However, sizeable employment differentials between specific population groups continue to result in a chronic underutilisation of labour, especially among the low-skilled, young people, older people and people with migrant backgrounds. In addition, marginal tax rates upon entering or re-entering the labour market create inactivity and low wage traps for second income earners and specific household types such as single people and single parents. It is therefore important to fine-tune and implement policies aimed at encouraging moves from inactivity or unemployment to employment. Educational inequalities linked to socio-economic background are amongst the highest in the EU and poor educational outcomes partly explain the observed underperformance of people with a migrant background or low-skilled young people. The education reforms currently being introduced are particularly designed to tackle early school leaving, early childhood care and education. They also seek to improve the quality and relevance of the vocational system. These reforms could facilitate a smoother transition towards a knowledge-intensive and increasingly service-oriented economy and alleviate skills mismatches and persistent labour shortages in certain occupations. In addition, the very low activity and employment rates of older workers call for policies to promote active ageing and to support the labour market demand for older workers. Finally, additional tax measures to facilitate the take-up of work could be warranted.

               (9)There is still considerable scope for improving the non-cost dimension of external competitiveness. To safeguard and enhance current welfare levels, more emphasis should be placed on productivity gains and investment in knowledge-based capital. This requires a sustained push towards products and associated services higher up the value chain, on the basis of stronger performance in innovation and utilising the results of R&D. Despite its high-quality public research system, Belgium has relatively few fast-growing firms in innovative sectors. Furthermore, the business climate is hampered by administrative and regulatory burdens, which inhibit the creation and expansion of companies. Shareholding requirements and restrictions on voting rights, legal form and multidisciplinary activities hold back the market dynamism for business services. Operational restrictions and restrictions on where retailers can establish their premises have the same effect in the retail sector. Moreover, there are shortcomings in the efficiency of the justice system, with low penetration of information and communications technology. Together, these factors constitute significant barriers to private investment. Substandard infrastructure and lengthy bottlenecks also undermine productivity growth and investment. The transport network represents the most pressing investment gap. Belgium’s geographical location, coupled with the presence of international organisations, has enabled the country to attract many distribution centres, logistics bases and the international headquarters of various companies. However, there is a growing problem of peak-hour traffic congestion, which undermines the country’s attractiveness for foreign investors and has major economic and environmental costs. Belgium is also expected to fall short of its 2020 greenhouse gas emission reduction target and suffers from serious air pollution problems. Given the high concentration of economic activity around the capital and the ports, the most urgent challenges are upgrading basic rail and road transport infrastructure and eliminating missing links between the main economic hubs. At the same time, it is important to tackle peak hour congestion by improving public transport services, optimising traffic management and eliminating market distortions and adverse tax incentives, such as favourable treatment for company cars.

               (10)Another challenge relates to the adequacy of domestic power generation and the security of supply in general. Hampered by repeated interruptions, Belgium’s ageing nuclear installations have become unreliable sources, while the repeatedly revised timetable for phasing out the nuclear park has created a climate that is not conducive to long-term investment decisions. This is reflected in higher imports and increasingly impaired security of supply. Although short-term supply risks have abated, longer-term investment needs are still considerable. In addition to substantial new domestic production capacity and a further increase in interconnections, smart grids are needed to develop demand-side management. Given the considerable lead time for large projects in the energy sector and the high need for replacement capacity over the next decade, swift action will be required, in particular in the form of a suitable legal framework that promotes the increase in generation capacity.

               (11)Belgium has made some progress in reforming the tax system, notably by shifting taxes from labour to other tax bases, which will gradually reduce the tax wedge on labour. Reductions in personal income taxation and employers’ social security contributions will also help narrow the gap. Nevertheless, the tax system remains complex, with tax bases eroded by specific exemptions, deductions and reduced rates. Some of these involve revenue losses, economic distortions, and a heavy administrative burden. In addition, the tax shift does not seem to be neutral from a budgetary point of view. There is still considerable scope for improving the design of the tax system by further broadening tax bases, allowing for both lower statutory rates and fewer distortions. There is also considerable potential for a ‘green’ tax shift which stems from, among other things, the favourable tax treatment of company cars and fuel cards, which contribute to pollution, congestion and greenhouse gas emissions.

               (12)In recent years, Belgium has made important progress in reforming its pension system. The law of 10 August 2015 on the rise in pensionable age, the conditions for early pensions and the minimum age for survivors' pensions establishes a new minimum age and career length criteria for ordinary pensions. However, even after the recent reforms, the projected increase in the pension expenditure ratio remains substantial. An automatic link to changes in life expectancy, as recommended in the past, would reduce medium and long term sustainability risks. In this respect, the governement has announced its intention to introduce a credit-based pension system, which could allow for automatic adjustment mechanisms in response to demographic developments. These issues will continue to be monitored closely under the European Semester.

               (13)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Belgium’s economic policy and published it in the 2016 country report. It has also assessed the stability programme and the national reform programme and the follow-up given to the recommendations addressed to Belgium in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Belgium but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance of by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below.

               (14)In the light of this assessment, the Council has examined the stability programme, and its opinion
                  11
                is reflected in particular in recommendation (1) below.

               HEREBY RECOMMENDS that Belgium take action in 2016 and 2017 to:

               1.Achieve an annual fiscal adjustment of at least 0.6% of GDP towards the medium-term budgetary objective in 2016 and in 2017. Use windfall gains to accelerate the reduction of the general government debt ratio. Agree on an enforceable distribution of fiscal targets among all government levels. Simplify the tax system and remove distortive tax expenditures.

               2.Carry out the intended review of the 'Law of 1996' on competitiveness and employment in consultation with the social partners. Ensure that wages can evolve in line with productivity. Ensure the effectiveness of labour market activation policies. Move forward with education and vocational training reforms and provide training support, notably for people from a migrant background.

               3.Boost the capacity to innovate, notably by fostering investment in knowledge-based capital. Increase competition in the business services sector and the retail sector by removing unwarranted operational and establishment restrictions. Address shortfalls in investment in transport infrastructure and energy generation capacity.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2016) 322 final.

                     (3)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  COM(2015) 692 final.

                     (7)
                  SWD(2016) 71 final.

                     (8)
                  COM(2016) 95 final.

                     (9)
                  COM(2014) 494 final.

                     (10)
                  The structural balance as recalculated by the Commission based on the information in the stability programme, following the commonly agreed methodology.

                     (11)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 336 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Luxembourgand delivering a Council opinion on the 2016 stability programme of Luxembourg

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Luxembourg

                  and delivering a Council opinion on the 2016 stability programme of Luxembourg

               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
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  5
               , in which Luxembourg was not identified as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission adopted a recommendation for a Council recommendation on the economic policy of the euro area
                  6
               . That recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016. As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Luxembourg should ensure the full and timely implementation of those recommendations.

               (2)The country report for Luxembourg
                  7
                was published on 26 February 2016. It assessed Luxembourg’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Luxembourg's progress towards its national Europe 2020 targets.

               (3)On 29 April 2016, Luxembourg submitted its 2016 national reform programme and its 2016 stability programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  8
               .

               (5)Luxembourg is currently in the preventive arm of the Stability and Growth Pact. In its 2016 stability programme, the government plans to achieve a balanced budget in 2017 and small surpluses thereafter, reaching 0.4 % of GDP by 2020. The medium-term budgetary objective will continue to be met throughout the programme period. However, in its stability programme, Luxembourg announces that the medium-term budgetary objective will change from a structural surplus of 0.5% of GDP until 2016 to a structural deficit of 0.5% of GDP as from 2017. According to the stability programme, the government debt-to-GDP ratio is expected to gradually increase to 23.5% of GDP in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible, with the exception of 2017 and 2018 when it is favourable. Based on the Commission 2016 spring forecast, the structural surplus is projected to decrease to 1.4 % of GDP in 2016 and further to 0.3% of GDP in 2017, thereby remaining above the medium-term budgetary objective. Possible future deviations would be assessed against the requirement to maintain the structural balance at the medium-term budgetary objective, bearing in mind the need to ensure the long-term sustainability of public finances, notably in the area of pensions. Based on its assessment of the stability programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that Luxembourg is expected to comply with the provisions of the Stability and Growth Pact.

               (6)The Luxembourg authorities have announced the main lines of a comprehensive tax reform that should enter into force in 2017. The reform foresees amendments mostly in the area of direct taxation, both for individuals and corporations. It aims at a gradual reduction in the corporate income tax rate (with the aim of increasing competitiveness) and increased progressivity of personal income tax (with the aim of increasing fairness). At the same time, the increase of certain tax expenditures, in particular with regard to housing, risks narrowing the tax base. Some international developments may also affect the design of the Luxembourg tax system and highlight the fragility of at least a share of the fiscal revenues. To ensure their predictability, there is scope for further broadening of the tax base, in particular by revisiting the currently low taxation on housing property and making greater use of alternative sources, including environmental taxation. In that respect, the repeal of the intellectual property box allows some broadening of the corporate tax base. The adoption and implementation of the tax reforms will continue to be monitored closely under the European Semester.

               (7)The Luxembourg authorities have sought to diversify the economy, acknowledging the risks associated with heavy dependence on the financial sector. Given the high level of labour costs in the country, activities with higher added value offer the potential to unlock alternative sources of growth. The successful diversification of Luxembourg’s economy therefore depends to a large extent on those sectors that are less sensitive to labour cost levels. They are largely based on research and innovation, which tend to be technology- and knowledge-intensive. Further expansion of the already successful non-financial service sector could also help diversify the economy. Reducing or removing existing barriers to investment and innovation that limit economic development would unleash the potential for innovation and help diversification. While public investment is above the euro area average, private investment is underperforming. Sustaining a high level of investment is essential to maintaining growth prospects. The analysis in the country report shows that Luxembourg is the country with the most restrictive regulation in the EU for business services and retail establishment. The main restrictions concern shareholding requirements, voting rights and multidisciplinary limitations in the business services sector as well as operational and establishment requirements in the retail sector.

               (8)The continuous increase in house prices in recent decades, together with projected strong population and employment dynamics over the coming years, could become an obstacle to the envisaged increase in population and labour force. That prospect is all the more likely as the economy depends largely on the input of high-skilled workers from the neighbouring countries, who represent around one-third of overall employment. The dynamism of residential real estate prices is driven by a mismatch between demand and supply, in particular the lack of available and affordable housing. Insufficient availability of land for new construction and suboptimal administrative performance regarding procedures to grant building permits hinder the flexibility of housing supply. An important part of the tax subsidies available under current policies are also likely to be capitalised into house prices, given the rigid housing supply. Efforts aimed at providing social housing at affordable prices could also be stepped up. The current housing market not only deters households from establishing their residence in Luxembourg but also exacerbates the problem of traffic congestion and pollution. The new demographic projections in the 2015 ageing report also add pressure to remove bottlenecks to investment in the fields of transport and housing and should be reflected in the four forthcoming sectoral plans on housing, transport, economic activity zones and green landscapes.

               (9)Achievement of economic diversification may be constrained by the fact that wage developments in some sectors may not be in line with productivity developments. This further limits the sectors that can be targeted, mainly to those with high added value. Over the last decade, unit labour costs in Luxembourg have grown faster than in most euro area Member States. Economy-wide automatic wage indexation plays a role in limiting wage variation across sectors and may prevent labour productivity differentials from being taken into account. However, the protracted low inflation environment has delayed the triggering of the automatic wage adjustment and contributed to moderate wage developments. In parallel with weak wage developments and the surge in output, cost-competitiveness losses have abated. In that context, monitoring of wage developments is warranted.

               (10)Age-related liabilities remain a risk in the long term, in particular as regards pension costs. Luxembourg has made limited progress in relation to closing the gap between the statutory and effective retirement age, by limiting early retirement. In July 2015, a draft law modifying early retirement schemes was presented to the parliament. However, while one scheme has been abolished, accessibility conditions for other pre-retirement schemes have been eased. A law on the reclassification of workers with working disabilities was adopted in July 2015 and has been implemented since 1 January 2016. The law increased the possibilities for workers with working disabilities to remain in the labour market and consequently implies a reduction in the number of people entering an early retirement scheme. Early retirement remains widespread and incentives to work longer are limited. A real strategy on age policy to keep older workers longer in employment and provide incentives and skills to get them back to work is still missing. The 'age pact', aiming at fostering retention of older workers by firms with more than 150 employees, is still being discussed in the parliament.

               (11)According to the 2012 pension reform, an exercise to monitor and evaluate the sustainability of the pension system should be carried out every five years from the adoption of the reform. The government confirmed its intention to advance the evaluation to 2016, rather than 2017 as originally planned, and created a Pension Working Group tasked with carrying out the evaluation. There has been no progress in linking statutory retirement age to life expectancy, as previously recommended by the Council. Luxembourg stands out as the only Member State where no further raising of the statutory and early retirement ages has been laid down for the period between 2013-2060. In the 2015 Ageing Report, the projected increase in age-related expenditure is revised downward, but the revision is almost exclusively explained by more favourable demographic projections, in a context where no new reforms have been adopted. Even after the revision, the projected increase in pension expenditure remains the highest in the EU. Moreover, Luxembourg faces risks related to the expected increase of long-term care expenditure, one of the highest as a share of GDP of all Member States. This, in turn, seems to be driven by the highest projected increase in the share of dependant population by 2060 in the EU. Preparatory work on a reform to ensure the long-term sustainability of the long-term care insurance has been carried out.

               (12)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Luxembourg's economic policy and published it in the 2016 country report. It has also assessed the stability programme and the national reform programme and the follow-up given to the recommendations addressed to Luxembourg in previous years. It has taken into account not only their relevance for sustainable fiscal and socio-economic policy in Luxembourg but also their compliance with EU rules and guidance, given the need to strengthen the EU's overall economic governance by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 and 2 below.

               (13)In the light of this assessment, the Council has examined the stability programme and is of the opinion
                  9
                that Luxembourg is expected to comply with the Stability and Growth Pact.

               HEREBY RECOMMENDS that Luxembourg take action in 2016 and 2017 to:

               1.Ensure the long-term sustainability of public pensions by further limiting early retirement, by linking the statutory retirement age to life expectancy and by increasing incentives to work longer.

               2.Remove barriers to investment and innovation that limit economic development in the business services sector. Address bottlenecks that hamper housing investment.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2016) 336 final.

                     (3)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  COM(2015) 692 final.

                     (7)
                  SWD(2016) 84 final.

                     (8)
                  COM(2014) 494 final.

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


title: Draft COUNCIL RECOMMANDATION on banning smoking in public places (presented by the Commission)

text:
ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (88) 674
Vol. 1988/0223
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In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom 1. Februar
1983 über die Freigabe der historischen Archive der Europäischen Wirtschaftsgemeinschaft und
der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983, S. 1), zuletzt geändert durch die
Verordnung (EU) Nr. 2015/496 vom 17. März 2015 (ABI. L 79 vom 25.3.2015, S. 1), ist dieser Akt
der Öffentlichkeit zugänglich. Soweit erforderlich, wurden die Verschlusssachen in diesem Akt in
Übereinstimmung mit Artikel 5 der genannten Verordnung freigegeben; beziehungsweise werden
sie auf Grundlage von Artikel 26(3) und 59(2) der Entscheidung der Kommission (EU, Euratom)
2015/444    vom   13.   März   2015   über die   Sicherheitsvorschriften für den Schutz von  EU-
Verschlusssachen als herabgestuft angesehen.
 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                        COM ( 88 ) 674 final
                                        Brussels , 21 December 1988
                          Draft
                 COUNCIL RECOMMANDATION
         on banning smoking in public places
             ( presented by the Commission )
 ---pagebreak---                          EXPLANATORY MEMORANDUM
This Draft Council Recommandation should be seen as one of the
measures to " limit and reduce the use of tobacco " deemed to be a
priority by the Council and the representatives of the Governments
of the Member States , meeting within the Council in its resolution
of 7 July 1986 ( OJ C184 of 23.07.1986 , p. 19 ).
1.  BACKGROUND
    In most Member States of the European Economic Community there
   are regulations banning or restricting smoking in public places .
   In the Federal Republic of Germany . where public health
   questions are also within the field of competence of the Lander ,
   provisions on banning smoking in public places are not uniform .
   However , smoking is generally banned in schools and other
   educational establishments and non-smoking areas are provided in
   certain forms of transport .
   In Belgium . France and Spain . the law sets out in detailed form
   the places where smoking is banned .         This ban covers most
   premises accessible to the public , with particular stress on
   establishments for young people or where health care is given .
   However , Belgian and Spanish legislation provides that in some
   areas where the ban applies an area may be set aside for
   smokers . Smoking areas are also authorized on certain forms of
   transport . It should be noted that in the event of a dispute ,
   Spanish legislation provides that the right to health of
   non-smokers prevails over the rights of smokers in all places
   where the right to health of non-smokers might be affected .
   In Denmark a Government decision establishes that , within its
   area of competence , the Government should adopt measures to ban
   or restrict smoking in some public places and some public
   transport before 1 July 1988 .
   In   Ireland  an   Order  of July   1988  allows  the adoption of
   legislative measures to ban or restrict smoking in some public
   places .
   In Greece . Italy and Portugal . there are restrictions on the use
   of tobacco in some public places and forms of transport .
   In the Netherlands . restrictions are generally confined to
   hospitals and places of entertainment .
   In Luxembourg restrictions are limited to public transport and
   places of entertainment .
   In the United Kingdom the law covers only the right to smoke on
   public transport .
 ---pagebreak---                                       2
    It should also be stated that in Greece , Luxembourg , Italy , the
   Netherlands , Portugal and the United Kingdom , draft laws have
   been tabled in order to improve existing legislation .
2.  BASIS FOR COMMUNITY ACTION
    It has now been established that involuntary exposure to smoke
    from tobacco products entails some risk of cancer . Moreover , it
   affects the elderly ,      people with cardiac diseases ,     asthma or
   allergies , and can provoke- respiratory diseases .         In pregnant
   women it can endanger the development of the foetus . Account
   should also be taken of the many fires and other accidents
   caused by cigarette smoking .
   To protect the right to health of non-smokers and for safety
   reasons it is essential to lay down rules on smoking in places
   open to the public .
   This    is the   aim  of  this  Draft Recommandation    which  seeks to
   improve the standard of living in the Member States , this being
   one of the chief objectives of the European Economic Community .
   It is one of a series of measures to combat smoking ( 1 ) and
   corresponds to proposed Action 11 in the Europe against cancer
   programme ( 2 ) . It should be noted that the survey of Europeans
   and cancer prevention made in 1987 revealed that 77 % of
   Europeans would approve a European measure to ban smoking in
   public places ( see table ) .
   The underlying principle is to ban smoking in enclosed areas for
   the use of the public which are part of certain public or
   private establishments .
   The Commission has already proposed measures for the protection
   of workers banning smoking in places where they are or might be
   exposed to carcinogens ( 3 ).
   Finally , in view of the extent to which tobacco addiction
   affects part of the population , it is appropriate to make
   provision wherever possible for clearly defined areas where
   smoking is permitted .
   ( 1 ) See proposals for a Directive concerning the labelling of
         tobacco products ( C0M(87)719 final ) and concerning the
         maximum tar yield of cigarettes ( COM(87)720 final ).
   ( 2 ) OJ C50 , 26.02.1987
   ( 3 ) For example , see proposal for a Council Directive on the
         protection of workers from risks related to exposure to
         carcinogens at work ( OJ C34 , 08.02.1988 , p. 9 )
 ---pagebreak---                                      3
Extract from table n * 12 of the survey of Europeans        and cancer
prevention made in April and May 1987
                                     Ban on smoking
                                    m public places
                                +            -
                                                        ?
     EEC AS A WHOLE ( 1 )      77 %         19 %        4 %
     BELGIUM                   74           20          6
     DENMARK                   67           26          7
    GERMANY                    56           36          8
    GREECE                     78           18          4
     SPAIN                     78           16          6
     FRANCE                    91            8          1
     IRELAND                   69           26          5
     ITALY                     93            5          2
     LUXEMBOURG                65           28          7
    NETHERLANDS                69           24          7
     PORTUGAL                  82           10          8
    UNITED KINGDOM             72           26          2
 ( 1 ) Weighted average . The symbols + , - and ? correspond to the
       percentage of people questioned who "would approve ", " would
       disapprove " and " did not know", respectively .
 ---pagebreak---                      DRAFT COUNCIL RECOMMANDATION ON
                    BANNING SMOKING IN PUBLIC PLACES
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Economic
Community , and in particular Article 235 thereof ,
Having regard to the Draft Recommandation from the Commission ( 1 ) ,
Having regard to the opinion of the European Parliament ( 2 ),
Having regard to the opinion of the Economic and Social Committee
(3) ,
Whereas the European Council held in Milan on 28 and 29 June 1985
stressed the importance of launching a European action programme
against cancer ;
Whereas the Council and the representatives of the Governments of
the Member States meeting within the Council in their Resolution of
7 July 1986 ( 4 )       set for this programme the objective of
contributing to an improvement in the health and quality of life of
citizens within the Community by reducing the number of illnesses
due to cancer and under this heading gave first priority to
measures against smoking ;
Whereas there is an increased risk of lung cancer for non-smokers
involuntarily exposed to the smoke of tobacco products and ,
consequently , it is appropriate to protect the right to health of
non-smokers against involuntary smoking ;
Whereas to ensure respect of the right to health of non-smokers it
is essential to ban smoking in public places in certain
establishments and forms of transport ;
Whereas , however , in view of the extent of tobacco addiction
affecting part of the population , it is appropriate to make
provision to permit smoking in part of these establishments and
forms of transport ;
Whereas it is necessary to extend to the citizens of all the Member
States of the European Community the protection they are given in
some Member States against the damage caused by involuntary
smoking ;
(1)
(2)
(3)
( 4 ) OJ C184 , 23.07.1986 , p. 19
 ---pagebreak---                                    5
RECOMMANDS TO THE MEMBER STATES :
to take the following measures by legislation according to national
practice and conditions :
1 . Ban smoking in public places which are part of a public or
    private establishment intended for one of the uses listed in
    Annex 1 to this Directive .
    However , in these establishments , clearly defined areas must be
    reserved for smokers .
    The Member States are free to add to the establishments listed
    in Annex 1 .
2 . In case of conflict between the right of the non-smoker to
    health and the right of the smoker to smoke , the right of the
    non-smoker prevails in these establishments and at all
    work-places .
3 . Ban smoking in ail public transport .
4 . Inform the Commission every two years about the implementation
    of this recommandation .
         Done at Brussels ,                For the Council ,
 ---pagebreak---                                  глкпр.'':
1 . establishments   where  services       sro provided to the public ,
    whether for a charge or free of charge ;
2 . establishments where sick or elderly persons arc received or
    treated ;
3 . establishments where health care is given for prevention or
    cure ;
4 . establishments where children or young people of school age arc
    received , housed or treated ;
5 . establishments where education and vocational training is given ;
6 . establishments where entertainment takes place ;
7 . establishments where exhibition are held ;
8 . establishments where sports are practised ;
9 . underground and railway stations , ports and airports .
 ---pagebreak---   DRAFT COUNCIL RECOMMANDATION ON BANNING SMOKING IN PUBLIC PLACES
             IMPACT SHEET ON COMPETITIVENESS AND EMPTOVMFNT
1.   What is the main objective of the measure ?
     Health protection
2.   Characteristics of the enterprises concerned .   In particular :
     most of the establishments concerned do not have a commercial
     character .
     Are they concentrated in regions ?
     - eligible for regional aid by Member States ?    No
     - eligible for EFRD ?    No
3.   What are the obligations imposed directly on the enterprises ?
     The recommandation to post a sign prohibiting smoking in public
     places of certain establishments .
4.   What obligations might be imposed indirectly on enterprises by
     the local authorities ?
     None
5.   Are there special measures for SME ?
     No
6.   What is the predictable effect ?
     a . on the competitiveness of enterprises ?
         None
     b . on employment ?
         At short term positive because of the recommandation to set
         up separable spaces for non-smokers and to produce special
         no-smoking signs .
         At long term no significant effect .
7.   Have the two sides of industry been consulted ?
     What are their opinions ?
     Yes