               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 426 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2018 National Reform Programme of Swedenand delivering a Council opinion on the 2018 Convergence Programme of Sweden

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2018 National Reform Programme of Sweden

                  and delivering a Council opinion on the 2018 Convergence Programme of Sweden

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 9(2) thereof,

               Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Sweden as one of the Member States for which an in-depth review would be carried out.

               (2)The 2018 country report for Sweden
                  5
                was published on 7 March 2018. It assessed Sweden’s progress in addressing the country-specific recommendation adopted by the Council on 11 July 2017, the follow-up given to the recommendations adopted in previous years and Sweden's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 7 March 2018
                  6
               . The Commission’s analysis leads it to conclude that Sweden is experiencing macroeconomic imbalances. In particular, overvalued house price levels coupled with a continued rise in household debt poses risks of a disorderly correction. The already high household debt remains on an upward path. House prices have been growing at fast and virtually uninterrupted pace for about 20 years. Negative growth was recorded in the last quarter of 2017. Still, valuation indicators suggest that house prices remain very high relative to fundamentals. Although banks appear adequately capitalised, a disorderly correction could also affect the financial sector as banks have a growing exposure to household mortgages. In such a case, there could be spill-overs to neighbouring countries given the systemic financial interlinkages. In recent years measures have been taken to rein in mortgage debt growth and increase housing construction. However, policy steps implemented so far have not been sufficient to address overvaluation in the housing sector, and key policy gaps remain, particularly in relation to tax incentives for home ownership as well as the functioning of the housing supply and the rental market.

               (3)On 27 April 2018, Sweden submitted its 2018 National Reform Programme and its 2018 Convergence 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 of the European Parliament and of the Council
                  7
               , 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 that 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)Sweden is currently in the preventive arm of the Stability and Growth Pact. In its 2018 Convergence Programme, the government plans to achieve a surplus of 1.0 % of GDP in 2018 and to continue to meet the medium-term budgetary objective — a structural deficit of 1 % of GDP — throughout the programme period. According to the 2018 Convergence Programme, the general government debt-to-GDP ratio is expected to fall to 37.3 % in 2018 and to continue declining to 29.0 % in 2021. Economic growth and sound public finances are set to be the main drivers behind the declining general government debt-to-GDP ratio. The macroeconomic scenario underpinning those budgetary projections is plausible. Based on the Commission 2018 spring forecast, the structural balance is forecast to show a surplus of 0.7 % of GDP in 2018 and a surplus of 1.0 % of GDP in 2019, above the medium-term budgetary objective. Based on its assessment of the 2018 Convergence Programme and taking into account the Commission 2018 spring forecast, the Council is of the opinion that Sweden is projected to comply with the provisions of the Stability and Growth Pact in 2018 and 2019.

               (6)Household indebtedness has continued to rise from already high levels. Household debt grew by 7.0 % in 2017, reaching about 86 % of GDP and 184 % of disposable income – among the highest levels in the EU. After falling somewhat in 2016, the average debt-to-disposable-income ratio for new mortgage borrowers rose again in 2017 to 411 %, a new high. The growth in household debt is driven mainly by higher mortgage borrowing, linked to high house prices and structural distortions favouring mortgage-financed property investment. Debt levels are unevenly distributed, with lower-income and younger households facing particularly high debt loads relative to their incomes. Sweden has implemented several macroprudential measures in recent years. Steps taken include setting loan-to-value limits, adjusting banks’ risk weight floors, and introducing a formal mortgage amortisation rule in June 2016. A new strengthened amortisation requirement for high-debt-to-income mortgages came into force in March 2018. Sweden has also adopted legislation to strengthen the macroprudential authority’s (Finansinspektionen) legal mandate. The new mandate is operational from February 2018, allowing the authority to respond in a more timely manner with a wider range of potential measures to the risks associated with growing household debt. Macroprudential policy steps taken so far appear to have had limited impact on mortgage lending growth. Gradually limiting the tax deductibility of mortgage interest payments or increasing recurrent property taxes would help curb household debt growth, but the government has made no progress on this.

               (7)In 2017 Sweden’s economy grew strongly by about 2.4 %, fuelled by robust domestic demand. Investment, driven by housing investment, grew by 6.0 % (year-on-year) in the first three quarters, making a particularly strong contribution. Despite a sharp rise in new construction in recent years, there is still an ongoing supply shortage, particularly of affordable homes around major cities. Lack of available and affordable housing can also limit labour market mobility and the effective integration of migrants into the labour market and contribute to intergenerational inequality.

               (8)After two decades of rapidly rising house prices, the housing market experienced a gradual decline in autumn 2017, but prices remain above fundamentals. Key drivers include tax incentives favouring home ownership and mortgage debt, and continued accommodative credit conditions coupled with still relatively low mortgage amortisation rates. In addition, the housing shortage is linked to structural inefficiencies, including limited competition in the construction sector due to barriers to entry for small and foreign firms and the ability of large developers to control land resources. There are also barriers to an efficient usage of the existing housing stock. In the rental market, below-market rents create lock-in and ‘insider/outsider’ effects. In the owner-occupancy market, capital gains taxes reduce homeowner mobility. The Swedish authorities are continuing to gradually implement the 22-point plan to increase residential construction and improve the efficiency of the housing market. However, no significant policy action has been taken to introduce more flexibility in setting rental prices or to revise the design of the capital gains tax.

               (9)The advanced economy needs highly skilled workers and corresponding labour shortages emerge in sectors such as construction, education, health, science, engineering and information and communictaion technologies. In this context, challenges remain, such as integrating the people with a migrant background, especially women, into the labour market. The employment rate of non-EU born women is considerably lower than for the overall population. The educational performance gap between pupils from different socioeconomic backgrounds is widening. The integration of newly arrived migrant pupils into the school system warrants close monitoring, as does the growing shortage of teachers.

               (10)In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Sweden’s economic policy and published it in the 2018 country report. It has also assessed the 2018 Convergence Programme and the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Sweden in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (11)In the light of this assessment, the Council has examined the 2018 Convergence Programme and is of the opinion
                  9
                that Sweden is expected to comply with the Stability and Growth Pact.

               (12)In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation 1 below.

               HEREBY RECOMMENDS that Sweden take action in 2018 and 2019 to:

               1.Address risks related to high household debt by gradually reducing the tax deductibility of mortgage interest payments or increasing recurrent property taxes. Stimulate residential construction where shortages are most pressing, notably by removing structural obstacles to construction, and improve the efficiency of the housing market, including by introducing more flexibility in setting rental prices and revising the design of the capital gains tax.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ L 306, 23.11.2011, p. 25.

                     (3)

                        COM(2018) 426 final.

                     (4)

                        P8_TA(2018)0077 and P8_TA(2018)0078.

                     (5)

                        SWD(2018) 225 final.

                     (6)

                        COM(2018) 120 final.

                     (7)

                        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)

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


               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 412 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2018 National Reform Programme of Cyprusand delivering a Council opinion on the 2018 Stability Programme of Cyprus

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2018 National Reform Programme of Cyprus

                  and delivering a Council opinion on the 2018 Stability Programme of Cyprus

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

               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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Cyprus 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, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the recommendation on the economic policy of the euro area (‘recommendation for the euro area’).

               (2)As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Cyprus should ensure the full and timely implementation of the recommendation on the economic policy for the euro area, as reflected in recommendations (1), (3) and (5) below.

               (3)The 2018 country report for Cyprus
                  5
                was published on 7 March 2018. It assessed Cyprus’ progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017, the follow-up given to the recommendations adopted in previous years and Cyprus' progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 7 March 2018
                  6
               . The Commission’s analysis leads it to conclude that Cyprus is experiencing excessive macroeconomic imbalances. In particular, it is essential that the country tackles the large stock of imbalances in the form of private, public and external debt overhang, and the high level of non-performing loans.

               (4)Cyprus submitted its 2018 National Reform Programme on 19 April 2018 and its 2018 Stability Programme on 30 April 2018. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)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 of the European Parliament and of the Council
                  7
               , 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 that provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  8
               .

               (6)Cyprus is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2018 Stability Programme, the government plans a budgetary surplus in nominal terms of 1.7 % of GDP in 2018 and slightly below 2.0 % of GDP over the programme period. The medium-term budgetary objective, set at a balanced budgetary position in structural terms, is planned to be reached over 2018-2021. After having decreased to around 97.5 % of GDP in 2017, the general government debt-to-GDP ratio is expected to increase to 105.6 % in 2018 and to steadily decline thereafter, reaching 88 % by 2021, according to the 2018 Stability Programme. The macroeconomic scenario underpinning those budgetary projections is plausible. The risks associated with the macroeconomic assumptions presented in the Stability Programme are to the downside, mainly linked to the high stock of non-performing loans in the financial sector.

               (7)On 11 July 2017, the Council recommended Cyprus to remain at the medium-term budgetary objective in 2018. This is consistent with a maximum nominal growth rate of net primary government expenditure
                  9
                of 1.9 % in 2018, corresponding to an allowed deterioration in the structural balance by 0.4 % of GDP. Based on the Commission 2018 spring forecast, the structural balance is projected to register a surplus of 0.8 % of GDP in 2018 and 0.5 % of GDP in 2019, above the medium-term budgetary objective. Cyprus is forecast to comply with the transitional debt rule in 2018 and the debt rule 2019. Overall, the Council is of the opinion that Cyprus is projected to comply with the provisions of the Stability and Growth Pact in 2018 and 2019. At the same time, expenditure developments should be monitored carefully in the short and the medium term, especially in light of possible future risks to the robustness of revenues.

               (8)Despite recent efforts on e-government services, regulatory quality and staff mobility, inefficiency in the public administration remains a challenge and has an impact on the business environment. Key legislative proposals aiming to address the issue remain pending. These include draft laws on the reform of the public administration and of local governments. Shortcomings in the governance framework for state-owned entities might facilitate the build-up of public contingent liabilities and hinder investment capacity in key utilities, such as telecoms and energy. The containment of the public sector wage bill has been a significant factor in fiscal consolidation in Cyprus. Yet, the current collective agreement limiting the growth of public sector wages expires in 2018 and a more permanent solution is still lacking.

               (9)A national anti-corruption strategy and action plan were adopted in December 2017. The existing anti-corruption body remains inadequately resourced, but the government is considering the establishment of a new independent agency. Various legislative initiatives, such as draft laws on whistle-blower protection, lobbying and asset declarations, are currently under parliamentary scrutiny and, if adopted, would also help to strengthen the national anti-corruption framework.

               (10)As indicated in the 2018 euro area recommendation, the fight against aggressive tax planning strategies is essential to impede distortions of competition between firms, provide fair treatment of taxpayers and safeguard public finances. Spill-over effects of taxpayers' aggressive planning strategies between Member States call for a coordinated action of national policies to complement EU legislation. The high levels of dividend and interest payments (relative to GDP) continue to suggest that Cyprus' tax rules are used by companies that engage in aggressive tax planning. The absence of withholding taxes on outbound (i.e. from EU residents to third country residents) dividend, interest and, in many cases, royalty payments by Cyprus-based companies to third country residents may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. The absence of such taxes, together with the corporate tax residency rules, may continue to facilitate aggressive tax planning. While notional interest deduction regimes help to reduce the debt equity bias, they can also be used for tax avoidance purposes, if there are no effective anti-abuse rules. The Commission takes note of recent positive steps announced or adopted (i.e. the announced review of corporate tax residency rules, planned changes on transfer pricing provisions). Based on recent exchanges, the Commission will continue its constructive dialogue to fight against taxpayers aggressive planning strategies.

               (11)Inefficiencies in the justice system continue to affect contract enforcement and the swift resolution of civil and commercial cases. Cumbersome civil procedures and weak enforcement of court decisions weigh on banks’ incentives to use the insolvency and foreclosure frameworks to reduce their stock of non-performing loans. A series of reforms have started to address the most critical problems in the justice system, in particular low digitalisation of courts and the lack of life-long training for judges.

               (12)Use of the new insolvency and foreclosure frameworks remains limited,   undermining efforts to reduce non-performing loans. A stakeholders' working group was set up to review the implementation and performance of the frameworks. Some administrative measures have been taken to reduce the backlog in the issuance of title deeds. However, backlogs remain high and a structural solution to address the inadequacies of the property transaction system (i.e. the issuance and transfer of title deeds) is still lacking.

               (13)The high level of non-performing loans remains the key vulnerability of the banking sector and affects credit supply. Banks still face impediments in enforcing their claims on defaulted borrowers and weak repayment discipline remains problematic.  In 2017, non-performing loans decreased, albeit unevenly across banks, as a result of debt restructuring through write-offs and debt-to-asset swaps. Uncertainties remain over the sustainability of banks reduction plans, as loan re-defaults and re-restructuring remain high and banks’ direct exposure to the property market increases. These factors point to the need for swift implementation of a more comprehensive strategy to accelerate the clean-up of banks’ balance sheets, having regard to social consequences for vulnerable groups and carefully designed incentives to strengthen repayment discipline. As part of this strategy, legislative amendments to allow for the effective enforcement of claims and to facilitate the sale of loans appear necessary, including on borrower protection and the introduction of electronic auctions. In addition, the governance and administrative capacity of insurance and pension-fund supervision remain weak. The government intends to table legislative proposals to address this issue in the course of 2018.

               (14)Implementation of the action plan for growth has led to some progress in the areas of strategic investments, entrepreneurship and better regulation. However, some important reforms have stalled, notably as regards the granting of licences authorising investment projects. Access to finance has improved, thanks to some improvements in collateral requirements, but it remains a key issue, notably for small and medium-sized enterprises. Financial support measures are based mainly on grants. Alternative sources of finance such as venture capital, equity funding and crowdfunding, remain marginal for Cypriot businesses. Privatisation efforts, aimed at attracting productivity-enhancing foreign investments, are in many cases on hold and only a few privatisation projects are gradually advancing (e.g. the Larnaca port).

               (15)Employment is on the rise and unemployment is falling fast, although it remains high among young people and the long-term unemployed. Efforts to improve the administrative capacity of the public employment services continue. However, providing services to employers, securing customer categorisation, personalised guidance and activation, including for recipients of guaranteed minimum income, remain a challenge. The proportion of young people (aged 15-24) not in employment, education, or training is still one of the highest in the EU. Outreach measures and timely, tailor-made assistance for young people are limited, as confirmed by their low numbers in relevant activation schemes.

               (16)The modernisation of the education sector has advanced but important challenges remain. Recent positive developments include a thorough revision of school curricula and the implementation of a new appointment system for teachers. Cyprus’ education spending is above the EU average, demonstrating a strong commitment to education, training and life-long learning. However, educational achievements remain poor and early school leaving, while well below the EU average, has increased significantly. Participation in vocational education and training is low, the reform of the teacher evaluation system is still pending and a high proportion of tertiary graduates continue to work in occupations that do not necessarily require an academic degree.

               (17)Cyprus has made substantial progress on healthcare by adopting legislation to establish the new National Health System. The new system seeks to improve access, introduce universal health coverage, reduce the high level of out-of-pocket payments and increase the efficiency of care delivery in the public sector. Before the system becomes fully functional in 2020, there are major implementation challenges and investment needs. Efforts should continue towards safeguarding against possible cost overruns, modernising and improving the efficiency of healthcare providers, including primary healthcare, introducing e-Health and setting up a National Medicines Organisation. The level of long-term care is low and remains a challenge given the ageing population.

               (18)In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Cyprus’ economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme and the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Cyprus in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Cyprus but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (19)In the light of this assessment, the Council has examined the 2018 Stability Programme and is of the opinion that Cyprus is expected to comply with the Stability and Growth Pact.

               (20)In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 5 below.

               HEREBY RECOMMENDS that Cyprus take action in 2018 and 2019 to:

               1.Adopt key legislative reforms to improve efficiency in the public sector, in particular as regards the functioning of the public administration and the governance of state-owned entities and local governments.

               2.Step up efforts to improve the efficiency of the judicial system by revising civil procedures, increasing the specialisation of courts and setting up a fully operational e-justice system. Take measures to fully operationalise the insolvency and foreclosure frameworks and ensure reliable and swift systems for the issuance of title deeds and the transfer of immovable property rights.

               3.Accelerate the reduction of non-performing loans by implementing a comprehensive strategy, including legislative amendments allowing for the effective enforcement of claims and facilitating the sale of loans. Integrate and strengthen the supervision of insurance companies and pension funds.

               4.Prioritise the implementation of key elements of the action plan for growth, in particular fast-tracking strategic investments, and take additional measures to improve access to finance for small and medium-sized enterprises. Improve the performance of state-owned enterprises including by resuming the implementation of privatisation projects.

               5.Complete reforms aimed at increasing the capacity and effectiveness of the public employment services and reinforce outreach and activation support for young people who are not in employment education or training. Complete the reform of the education and training system, including teacher evaluation and actions to increase the capacity of vocational education and training. Take measures to ensure that the National Health System becomes fully functional in 2020, as planned.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ L 306, 23.11.2011, p. 25.

                     (3)

                        COM (2018) 412 final.

                     (4)

                        P8_TA(2018)0077 and P8_TA(2018)0078.

                     (5)

                        SWD(2018) 211 final.

                     (6)

                        COM(2018) 120 final.

                     (7)

                        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)

                        Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 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.


               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 425 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2018 National Reform Programme of Finlandand delivering a Council opinion on the 2018 Stability Programme of Finland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2018 National Reform Programme of Finland

                  and delivering a Council opinion on the 2018 Stability Programme of Finland

               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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Finland 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, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the recommendation on the economic policy of the euro area (‘recommendation for the euro area’).

               (2)As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Finland should ensure the full and timely implementation of the recommendation on the economic policy for the euro area, as reflected in the recommendations below, in particular (3).

               (3)The 2018 country report for Finland
                  4
                was published on 7 March 2018. It assessed Finland’s progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017, the follow-up given to the recommendations adopted in previous years and Finland’s progress towards its national Europe 2020 targets.

               (4)On 13 April 2018, Finland submitted its 2018 National Reform Programme and its 2018 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)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 of the European Parliament and of the Council
                  5
               , 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 that provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  6
               .

               (6)Finland is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2018 Stability Programme, the government plans a headline balance of -0.6 % of GDP in 2018, unchanged from the previous year. According to the government, the balance is projected to improve in 2019 and, thereafter, reach a small surplus in 2020 and 2021. The medium-term budgetary objective — a deficit of 0.5 % of GDP in structural terms — was achieved in 2017. However, the recalculated structural deficit
                  7
                is projected to be marginally larger, at 0.6 % of GDP, in 2018-2019 and to decrease thereafter. The general government debt-to-GDP ratio peaked at 63.6 % in 2015 and declined to 61.4 % in 2017. According to the 2018 Stability Programme, the debt ratio will continue to decrease and reach 56.7 % of GDP in 2021. The macroeconomic scenario underpinning the budgetary projections appears to be broadly plausible. The main risks to the budgetary projections relate to the possible larger-than-expected upfront costs of the planned social and healthcare services reform.

               (7)The 2018 Stability Programme recalls that the costs related to the exceptional inflow of refugees increased and that this budgetary impact was significant in 2015-2016. According to the 2017 Stability Programme, the costs were projected to decrease by 0.15 % of GDP in 2017. This figure was not confirmed in the 2018 Stability Programme and has therefore not been taken into account by the Commission. In addition, in 2017, Finland was granted a temporary deviation of 0.5 % of GDP from the required adjustment path towards the medium-term budgetary objective to take account of major structural reforms, in particular, the 2017 pension reform and the Competitiveness Pact, with a positive impact on the long-term sustainability of public finances. In 2017, Finland was also granted a temporary deviation of 0.1 % of GDP to take account of national investment expenditure in projects co-financed by the Union. As regards the latter deviation, one of the eligibility criteria is that total public investment does not decrease. Outturn data for 2017 showed a decline in public investment in 2017 compared to the previous year, while investment linked to Union funds is estimated to have remained stable. Thereby, Finland is no longer considered eligible for a temporary deviation of 0.1 % of GDP in relation to national investment expenditure in projects co-financed by the Union in 2017. The remaining temporary deviations from the adjustment path towards the medium-term budgetary objective are carried forward so that they cover a period of three years. Therefore, the temporary deviations under the unusual events and structural reform clauses amount to 0.67 % of GDP in 2018 and 0.5 % of GDP in 2019.

               (8)On 11 July 2017, the Council recommended Finland to ensure that the deviation from the medium-term budgetary objective in 2018 is limited to the allowance linked to the budgetary impact of unusual events (granted in 2016) as well as the allowances related to the implementation of structural reforms and investments (granted in 2017). This is consistent with a maximum nominal growth rate of net primary government expenditure of 1.9 % in 2018, corresponding to an allowed deterioration in the structural balance by 0.1 % of GDP. Based on the Commission 2018 spring forecast, there is a risk of some deviation from the recommended fiscal adjustment in 2018. However, as a result of the better-than-expected outcome for 2017, the distance from the medium-term objective is currently forecast to be less than the granted allowances linked to the unusual events and the structural reform clauses. If confirmed, this shall be taken into account in the ex post assessment for 2018.

               (9)In 2019, based on the Commission 2018 spring forecast, Finland should ensure that the deviation from the medium-term budgetary objective in 2019 is limited to the allowance linked to the budgetary impact in relation to the implementation of the structural reforms for which a temporary deviation was granted in 2017. This is consistent with a maximum nominal growth rate of net primary government expenditure of 2.9 %, corresponding to an allowed deterioration in the structural balance by 0.2 % of GDP. Under unchanged policies, Finland is forecast to comply with the requirement for 2019. Finland is also forecast to comply with the debt reduction benchmark in 2018 and 2019. Overall, the Council is of the opinion that Finland needs to stand ready to take further measures to ensure compliance in 2018 and is projected to comply with the provisions of the Stability and Growth Pact in 2019.

               (10)Due to an ageing population and a declining workforce, expenditure on pensions, health and long-term care is projected to increase from 24 % of GDP in 2017 to 27 % of GDP by 2030. The administrative reform and the reform of the social and healthcare services, currently under discussion in the Finnish Parliament, aim at reducing expenditure growth in this area. Other objectives would be to ensure equal access to healthcare and reduce waiting times for patients, especially in less favoured or remote areas. The ratio of self-declared unmet medical needs is above the EU average. In particular, people outside the workforce are experiencing difficulties getting the necessary medical care. A new level of regional public administration, i.e. counties, will take care of Finland's social and healthcare services from 2020. The reform will pool resources to allow their more effective use at county level. Higher use of digital and electronic services should also increase productivity. Finally, social and primary healthcare services would be available from both public and private social and health centres. This would give patients more freedom of choice, while competition between service providers is expected to yield cost savings. Achieving these ambitious objectives will also depend on the choices made during the implementation phase of the reform.

               (11)At 74 % of the total 20-64 working-age population in 2017, the employment rate was relatively low in Finland compared with its Nordic peers. Participation in the labour market was also lower, especially for women, low-skilled men and persons with a migrant background. At around 7.5 % of the total labour force in 2017, the structural unemployment rate was high. For employment growth, and despite recent measures adopted by the Finnish authorities, challenges remain in adopting more incentives to accept work and more active labour market policies.

               (12)Inactivity and unemployment traps remain an obstacle to a more extensive use of the labour force. A significant inactivity trap results from the benefits system and the combination of its different types of allowances. The social assistance and housing allowance form a substantial component of this trap. These and other benefits are phased out very rapidly as income increases, which creates the risk that taking up work might not be sufficiently financially rewarding. The complexity of benefit rules combined with administrative practices is deemed to result in sizeable unemployment traps or 'bureaucratic traps'. Uncertainty surrounding the level of benefits and the time to reinstate them reduces the attractiveness of short-term or part-time work. Finally, despite a recent pick-up in new home construction, the lack of affordable housing in growth centres could be an additional impediment to labour mobility. The ongoing basic income experiment, whose first results are expected in 2019, is likely to provide some information for revising the social security system. A reform of the parental leave system has been explored to increase the employment rate of women of child-bearing age and to promote gender equality. A real-time income register is currently under preparation and could provide an opportunity to improve the efficiency of public services and level the benefits effectively.

               (13)Wage setting practices are changing and moving towards sectoral and local level bargaining. Since firms often face very different constraints, this should allow more wage differentiation between firms, ensuring that real wage increases are in line with productivity growth while supporting better employment outcomes. Under the most recent wage agreements concluded in late 2017 and early 2018, organised employers have more opportunities to carry out local bargaining. For non-organised employers some obstacles persist. Some first positive results have been observed, as the current status of the recent wage negotiations points to an outcome with a broadly neutral impact on cost competitiveness. In practice, despite the absence of formal coordination on wage agreements, a Finnish model seems to be emerging, linking pay rises in the non-tradable sector with the increases agreed in the tradable sector.

               (14)As activity and employment gradually return to pre-crisis levels, the lower employability of the unemployed and the inactive is likely to become a major concern that could slow down recovery of the labour market, thereby undermining the long-term sustainability of Finland's welfare society. The situation requires adequate and integrated activation and rehabilitation services to the unemployed and the inactive. At the same time, the resources devoted to public employment services, in particular to counselling activities, are below the EU average. Services for the unemployed, especially for those with lower employment prospects, are dispersed among a number of separate providers. Integration or better coordination would help produce a seamless services chain (a one-stop-shop for the unemployed/inactive). Continued efforts are needed to ensure the re-entry of the inactive into the labour market, especially those in the 25-49 age group and persons with a migrant background. The migrant population could partly offset the existing decline in the working-age population, provided that they are well integrated into the labour market and in Finnish society. Finally, labour shortages are increasing, likely reflecting ongoing structural changes in the economy, such as population ageing. This suggests a need for continued investment in adult learning and vocational training to enable occupational mobility and reduce skills mismatches.

               (15)The government has implemented measures to promote entrepreneurship and start-ups and it has also improved the availability of loans and export guarantees for small and medium-sized enterprises. Also, the unemployed are now allowed to receive unemployment benefits during the first months when starting a business. This scheme is most likely to be successful if combined with training and coaching, while its short duration can limit its impact. Also, some weaknesses remain in the social protection of entrepreneurs and the self-employed and the relative risk of poverty for the self-employed in Finland is high.

               (16)Household debt remains at a historically high level (67 % of GDP in 2016). The debt is predominantly at a variable rate, which constitutes a risk should interest rates rise in the medium term. Consumer credit is increasing rapidly and a rising share of this lending is granted by foreign banks, other financial institutions (than credit institutions), small-loan companies and peer-to-peer lending. The Finnish Financial Supervisory Authority has adopted a number of measures to contain the increase in the indebtedness of households. However, no active deleveraging is expected soon, especially as interest rates remain low and consumer confidence is strong.  The lack of a credit registry can prevent banks from having a clear overview of households’ overall indebtedness.

               (17)In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Finland’s economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme and the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Finland in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Finland but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (18)In the light of this assessment, the Council has examined the 2018 Stability Programme and its opinion
                  8
                is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Finland takes action in 2018 and 2019 to:

               1.Achieve the medium-term budgetary objective in 2019, taking into account the allowances linked to the implementation of the structural reforms for which a temporary deviation is granted. Ensure the adoption and implementation of the administrative reform to improve cost-effectiveness and equal access to social and healthcare services.

               2.Improve incentives to accept work and ensure adequate and well-integrated services for the unemployed and the inactive.

               3.Strengthen the monitoring of household debt including by setting up a credit registry system.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        COM(2018) 425 final.

                     (3)

                        P8_TA(2018)0077 and P8_TA(2018)0078.

                     (4)

                        SWD(2018) 224 final.

                     (5)

                        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).

                     (6)

                        COM(2014) 494 final.

                     (7)

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

                     (8)

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


               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 420 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2018 National Reform Programme of Polandand delivering a Council opinion on the 2018 Convergence Programme of Poland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2018 National Reform Programme of Poland

                  and delivering a Council opinion on the 2018 Convergence Programme of Poland

               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)/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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Poland as one of the Member States for which an in-depth review would be carried out.

               (2)The 2018 country report for Poland
                  4
                was published on 7 March 2018. It assessed Poland’s progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017, the follow-up given to the recommendations adopted in previous years and Poland's progress towards its national Europe 2020 targets.

               (3)On 26 April 2018, Poland submitted its 2018 National Reform Programme and its 2018 Convergence 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 of the European Parliament and of the Council
                  5
               , 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 that provision in guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds to sound economic governance
                  6
               .

               (5)Poland is currently in the preventive arm of the Stability and Growth Pact. In its 2018 Convergence Programme, the government plans a gradual improvement of the headline balance from a deficit of 1.7 % of GDP in 2017 to 0.7 % of GDP in 2021. The medium-term budgetary objective, a deficit of 1.0 % of GDP in structural terms, is not expected to be reached by 2021, i.e. in the Convergence Programme horizon. The recalculated structural balance
                  7
                points to a deficit of 1.3 % of GDP in 2021. According to the 2018 Convergence Programme, the general government debt-to-GDP ratio is expected to decrease from 50.6 % of GDP in 2017 to 50.4 % of GDP in 2018 and to 46.0 % by 2021. The macroeconomic scenario underpinning those budgetary projections is cautious in 2018 and plausible thereafter.

               (6)On 11 July 2017, the Council recommended Poland to ensure that the nominal growth rate of net primary government expenditure
                  8
                does not exceed 3.7 % in 2018, corresponding to an annual structural adjustment of 0.5 % of GDP. At the same time, it was stated that the assessment of the budgetary plans and outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of public finances. The Commission has carried out a qualitative assessment of the strength of the economic conditions in Poland while giving due consideration to its sustainability challenges. On that basis, it is concluded that no additional elements need to be taken into account. Based on the Commission 2018 spring forecast, there is a risk of a significant deviation from that recommended adjustment in 2018.

               (7)In 2019, in view of Poland's projected output gap of 1.5 %, the nominal growth rate of net primary government expenditure should not exceed 4.2 %, in line with the structural adjustment of 0.6 % of GDP stemming from the matrix of requirements under the Stability and Growth Pact. Based on the Commission 2018 spring forecast, there is a risk of a significant deviation from that requirement in 2019. Overall, the Council is of the opinion that the necessary measures should be taken as of 2018 to comply with the provisions of the Stability and Growth Pact.

               (8)In the medium and long term, Poland will face expenditure pressures in several areas, notably related to population ageing, which necessitate new mechanisms to assess the efficiency and effectiveness of public spending and to facilitate a reallocation of resources. To this end, the government has started work on reforming the budgetary process, in particular to strengthen the medium-term budgetary framework, and incorporate spending reviews into the budgetary process. Poland is the only Member State without a fully-fledged independent fiscal council and with no known plans to create one, even though existing independent institutions cover some of the functions typically fulfilled by fiscal councils. The 2018 country report finds that Poland made no progress in limiting the extensive use of reduced rates for the value added tax. However, the Polish Ministry of Finance is working on to simplify how applicable rates are assigned to goods and services.

               (9)The performance of the Polish labour market has been strong in recent years and employment rates have continued to increase. However, the participation of some groups in the labour force, especially women, the low-skilled and older people, has remained low in comparison to other Member States. Several recent policy measures have tended to lower the incentive to work, especially for women and older people. The Polish social protection system provides insufficient incentives to take up work. While the child benefit has reduced poverty and inequality, it has already had a negative effect on the participation of parents, mostly women, in the labour market as its size and limited means-testing offset work incentives built into other social benefits. Further hampering women’s participation in the labour market, the formal childcare enrolment rate for children under the age of three remains among the lowest in the EU. The limited support made available to people providing long-term care prevents them from entering the labour market. Lowering the statutory retirement age has encouraged some older workers to exit the labour force. Migration from non-EU countries is helping to meet the increase in demand for labour.

               (10)A complementary route to support both participation in the labour force and the innovative capacity of the economy is to equip pupils and adults with adequate skills and competences that support employment in a rapidly changing labour market. The rate of adult’s participation in education and training is much lower than the EU average. This, combined with certain weaknesses in digital skills, as well as in literacy and numeracy skills, particularly among adults with below-tertiary education, is hampering their employability. To what extent recently introduced and still planned policy measures, such as changes in the organisation of general education, vocational education and higher education, will have an impact on skill levels is not yet known.

               (11)Poland has continued taking measures to tackle labour market segmentation by limiting the possibility to abuse temporary employment, increasing social security contributions on some non-standard labour contracts and introducing a minimum hourly wage for some of these contracts. The number and share of permanent contracts has been rising since the end of 2016, however the share of temporary contracts still remains among the highest in the EU. Some further legislative changes relevant for labour market duality might be included in the reformed labour code. Social protection coverage of workers who are self-employed and have certain non-standard contracts emerges as a potential issue, especially from the perspective of adequacy of their future pensions. Several measures have been introduced since 2015 to improve social protection coverage of the self-employed and those employed with atypical contracts.

               (12)The average age of retirement has increased in recent years, reflecting past reforms, such as withdrawing early retirement options and a gradual increase of the statutory retirement age. A continuation of an increase in the average retirement age is crucial for medium-term economic growth, and to ensure the adequacy and fiscal sustainability of the pension system. However, the recent lowering of the statutory retirement age to 60 for women and to 65 for men goes in the opposite direction. In contrast, the retirement age of male and female judges of ordinary courts was aligned at 65, which is in line with the request by the Commission. The special social insurance system for farmers, being subsidised to a cost close to 1 % of GDP, is among the reasons for low labour mobility and hidden unemployment in agriculture.

               (13)Better access to healthcare and an increase in its effectiveness are needed in order to improve health outcomes in Poland. Self-reported unmet needs for medical care rank among the highest in the EU, and waiting times for certain interventions are particularly long. The number of hospital beds is relatively high and not optimally distributed geographically. Outpatient and primary healthcare are generally underdeveloped, with doctors having incentives to refer investigations and treatment to specialist providers. Tackling these issues is particularly challenging, given that the level of public funding and the number of doctors and nurses in certain specialisations in Poland are well below the EU average. In 2017, some efforts were made to distribute healthcare resources more efficiently, but the effects of these measures are yet to be seen.

               (14)Increasing the economy’s capacity to innovate is crucial for enabling Poland to move up in the global value chain, thus sustaining the potential to improve living standards. This requires policy action on many fronts in a gradual process of several years. The key relevant policy areas include building trust in the regulatory environment, providing incentives for business expenditure on research and development, strengthening the science base including through reforms of tertiary education and encouraging a strong flow of knowledge and close co-operation between business and research institutions. The latter also involves ensuring favourable conditions for the commercialisation of research, developed and supported by public funding. Several policy measures have already been implemented in these areas, and further ones are planned by the government.

               (15)The fast pace of regulatory change and the limited use of public and social consultations on a number of key laws are weighing on the quality of legislation and increasing uncertainty for business. Guaranteeing the rule of law and the independence of the judiciary are also essential in this context. The Commission concluded that the adopted changes to the justice system pose a clear risk of a serious breach of the rule of law. Legal certainty and trust in the quality and predictability of regulatory, tax and other policies and institutions are important factors that could allow an increase in the investment rate. Solid ex ante and ex post impact assessments and well designed and exercised social and public consultations could help improve the quality of legislation, limit the need for subsequent amendments and in this way increase the predictability of the regulatory environment. This could also help to limit possible negative side effects of new laws in the short term, such as for instance the temporary increase in administrative burdens resulting from a change in tax regulations.

               (16)The road network has developed rapidly thanks to EU funding, but the road fatality rate is still among the highest in the EU. Moreover, cities face growing mobility challenges, such as congestion and air pollution created by the increasing passenger car fleet and the large share of old cars. The current incentives to use collective, low emission and active transport modes are insufficient to tackle these challenges. The implementation of EU co-financed railway projects continues to face major bottlenecks mainly due to the limited capacity of the construction sector and the institutional weaknesses of the railway infrastructure manager. There is still a lack of a strategic reflection on the long-term development of the transport networks in all modes beyond 2023, where their respective roles would be clearly identified and attributed.

               (17)In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Poland’s economic policy and published it in the 2018 country report. It has also assessed the 2018 Convergence Programme and the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Poland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Poland but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (18)In the light of this assessment, the Council has examined the 2018 Convergence Programme and its opinion
                  9
                is reflected in particular in recommendation 1 below.

               HEREBY RECOMMENDS that Poland take action in 2018 and 2019 to:

               1.Ensure that the nominal growth rate of net primary government expenditure does not exceed 4.2 % in 2019, corresponding to an annual structural adjustment of 0.6 % of GDP. Take steps to improve the efficiency of public spending, including by improving the budgetary process.

               2.Take steps to increase labour market participation, including by improving access to childcare and by fostering labour market relevant skills, especially through adult learning, and remove remaining obstacles to more permanent types of employment. Ensure the sustainability and adequacy of the pension system by taking measures to increase the effective retirement age and by reforming the preferential pension schemes.

               3.Strengthen the innovative capacity of the economy, including by supporting closer collaboration between business and research institutions. Improve the regulatory environment, in particular by ensuring effective public and social consultations in the legislative process.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        COM(2018) 420 final.

                     (3)

                        P8_TA(2018)0077 and P8_TA(2018)0078.

                     (4)

                        SWD(2018) 219 final.

                     (5)

                        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).

                     (6)

                        COM(2014) 494 final.

                     (7)

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

                     (8)

                        Net primary government expenditure comprises total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 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.

                     (9)

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


               EUROPEAN COMMISSION
            Brussels, 23.5.2018
            COM(2018) 432 final
            Recommendation for a
            COUNCIL DECISION
            establishing that no effective action has been taken by Romania in response to the Council Recommendation of 5 December 2017
            {SWD(2018) 366 final}

               Recommendation for a

               COUNCIL DECISION

               establishing that no effective action has been taken by Romania in response to the Council Recommendation of 5 December 2017

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union,

               Having regard to Council Regulation (EC) No 1466/97
                  1
               , and in particular Article 10(2), fourth subparagraph, thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)On 16 June 2017, the Council decided in accordance with Article 121(4) of the Treaty on the Functioning of the European Union ("TFEU") that a significant observed deviation from the adjustment path toward the medium-term budgetary objective existed in Romania. In view of the established significant deviation, the Council on 16 June 2017 issued a recommendation
                  2
                for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure
                  3
                does not exceed 3.3% in 2017, corresponding to an annual structural adjustment of 0.5% of GDP.

               (2)On 5 December 2017 the Council concluded
                  4
                that Romania has not taken effective action in response to the Council Recommendation of 16 June 2017. On that basis, on 5 December 2017 the Council issued a revised recommendation
                  5
                for Romania to take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 3.3% in 2018, corresponding to an annual structural adjustment of 0.8% of GDP. It also recommended that Romania uses any windfall gains for reduction of its deficit and that budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner. The Council established a deadline of 15 April 2018 for Romania to report on the action taken in response to this recommendation.

               (3)On 10 and 11 April 2018, the Commission undertook an enhanced surveillance mission in Romania for the purpose of on-site monitoring under Article -11(2) of Council Regulation (EC) No 1466/97. After having transmitted its provisional findings to the Romanian authorities for comments, the Commission reported its findings to the Council on [23] May 2018. These findings were subsequently made public. The Commission report finds that the Romanian authorities do not intend to act upon the Council Recommendation of 5 December 2017. The authorities confirmed to the mission that their target for 2018 remains the headline deficit of just below 3% of GDP. Given a positive and increasing output gap, this indicates a further deterioration of the underlying structural deficit, contrary to the Council recommendation and reflects a clearly expansionary fical policy.

               (4)On 20 April 2018, after the deadline established by the Council, the Romanian authorities submitted a report on action taken in response to the Council Recommendation of 5 December 2017. In the report, the authorities reiterated that their target for 2018 remains a headline deficit of just below 3% of GDP. The fiscal impact of the reported measures falls significantly short of the requirement stated in the Council Recommendation.

               (5)Based on the Commission spring 2018 forecast, the growth of net primary government expenditure is set to amount to 10.8%, well above the expenditure benchmark of 3.3%. The structural balance is set to deteriorate by 0.5 % of GDP in 2018, reaching a deficit of 3.8% of GDP. This is the opposite of the recommended structural improvement of 0.8% of GDP relative to 2017. Therefore, both pillars point to a deviation from the recommended adjustment by a wide margin. The expenditure benchmark points to a deviation of 2.4% of GDP. The structural balance confirms this reading, indicating a somewhat smaller deviation of 1.8% of GDP. The size of the deviation indicated by the structural balance is negatively impacted by the higher underlying estimate of potential GDP growth as compared to the medium-term average underlying the expenditure benchmark. Taking this into account, the overall assessment confirms a deviation from the recommended adjustment by a wide margin.

               (6)The deterioration compared to 2017 is largely driven by increases in expenditure on the compensation of public employees, enacted in summer 2017 and which entered into force in January 2018. Since the Commission autumn 2017 forecast, which was the basis for the Council Recommendation of 5 December 2017, the authorities have partially reversed the past systemic pension reform by lowering the proportion of social contributions transferred to the second pension pillar from 2018. This cut is set to have a positive short-term effect on government revenues and thus on the general government balance. However, that fiscal gain is set to dissipate in the long term as the social contributions diverted from the second pillar are be accompanied by an obligation to pay old-age pensions in the future.

               (7)This leads to the conclusion that Romania's response to the Council Recommendation of 5 December 2017 has been insufficient. The fiscal effort falls short of the annual structural adjustment of 0.8% of GDP for 2018, corresponding to a nominal growth rate of net primary government expenditure that does not exceed 3.3% in 2018,

               HAS ADOPTED THIS DECISION:

               Article 1

               Romania has not taken effective action in response to the Council Recommendation of 5 December 2017.

               Article 2

               This Decision is addressed to Romania.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ C 216, 6.7.2017, p. 1.

                     (3)

                        Net primary 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 four-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (4)

                        OJ L 340, 20.12.2017, p. 49

                     (5)

                        OJ C 439, 20.12.2017, p. 1


               EUROPEAN COMMISSION
            Brussels, 6.6.2018
            COM(2018) 332 final
            Recommendation for a
            COUNCIL DECISION
            authorising the opening of negotiations on an agreement with the United States of America Regarding the Importation of High Quality Beef from animals not treated with certain growth-promoting hormones

               EXPLANATORY MEMORANDUM

               1.CONTEXT OF THE PROPOSAL

               •Reasons for and objectives of the proposal

               This initiative is intended to modify the current arrangements with the US regarding the importation of hormone-free beef. It is not meant to affect in any way the EU ban on hormones-treated beef as such.

               In December 2016 the United States took steps to reinstate increased duties on certain EU products following concerns raised by the US beef industry claiming that the European Union may be violating the Revised Memorandum of Understanding with the United States of America Regarding the Importation of Beef from Animals Not Treated with Certain Growth-Promoting Hormones and Increased Duties applied by the United States to Certain Products of the European Union of 21 October 2013
                  1
                (the "revised MOU"). The revised MOU was concluded between the European Union and United States of America following a WTO dispute settlement proceeding in DS26 EC – Measures concerning Meat and Meat Products (Hormones) and notified to the WTO Dispute Settlement Body on 14 April 2014 as a mutually agreed solution to implement the report in the dispute settlement proceedings.

               Pursuant to the original MOU and its revised version the EU opened an annual tariff rate quota for High Quality Beef.
                  2

               Following the opening of the procedure by the United States to reinstate increased duties on certain EU products in December 2016 the parties conducted consultations regarding the operation of the revised MOU, as referred to in its Article IV.

               The recommendation seeks an authorisation to negotiate an agreement with the United States of America, following the mentioned consultations, as regards the operation the tariff rate quota for High Quality Beef and possibly its country allocation.

               Negotiations with other supplying countries may be needed to ensure that any agreed country allocation of the said tariff rate quota with the United States respects their existing rights under the WTO/GATT Agreements.

               •Consistency with existing policy provisions in the policy area

               Not applicable.

               •Consistency with other Union policies

               Not applicable.

               2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

               •Legal basis

               Article 207 of the TFEU (common commercial policy) together with Article 218(3) and (4).

               •Subsidiarity (for non-exclusive competence)

               Not applicable, as the Union competence in the area of common commercial policy is exclusive (Article 3(1)(e) of TFEU).

               •Proportionality

               Not applicable.

               •Choice of the instrument

               The conclusion of an International agreement is the only method that ensures that its signatories will not question what was agreed at a later stage.

               3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

               •Ex-post evaluations/fitness checks of existing legislation

               Not applicable.

               •Stakeholder consultations

               The Roadmap on the initiative on authorising the opening of negotiations on an agreement with the United States of America regarding the importation of high quality beef from animals not treated with certain growth-promoting hormones was open for public consultation from 27 March to 24 April 2018. In total 37 contributions were submitted, 24 from EU citizens or enterprises or professional organisations, 13 from non-EU companies and governments.

               Twelve submissions were from EU citizens (Belgium, Germany, Greece, Italy, Spain and Sweden), expressing support for an agriculture respectful of the environment, for animal welfare and healthy products, and highlighting the importance of producing meat without hormones and antibiotics. Some argued that meat consumption should be reduced.

               Four submissions were from EU small and medium size companies (Greece, Italy and the UK), either in favour of the EU initiative, or requesting that the management system be revisited too, while another called for a wait-and-see approach. One suggests consulting companies active in trade of beef meat and giving them time to adapt to the outcome. One expressed satisfaction with the current supply of beef under the quota.

               The last eight contributions from inside the EU were from professional organisations: EU-level, France, Germany, Italy and the UK. They recalled that in the EU hormones are banned as growth promoters in animal husbandry, that standards of food safety and health that apply in the EU must be maintained. Two stressed that negotiations should not increase the volume authorised to import under the quota. One flagged also that antibiotics are being used in substitution as growth promoters. One stressed that any agreement must be in line with WTO law. Two argued for EU authorities to support the EU bovine meat sector, and two underlined the importance of finding a solution with the US to avoid any damageable trade war.

               Thirteen non-EU contributions came mostly from Argentinian companies and professional organisations that advocate for Argentina being recognised as a party in the negotiations. A New Zealander meat organisation supported by its government stressed that while being a small supplier within the quota these exports are important for New Zealand economy and requested that New Zealand be consulted. The last two submissions are from the Australian and Uruguayan governments arguing for participating to the negotiations according to WTO law.

               •Collection and use of expertise

               Not applicable.

               •Impact assessment

               Not applicable.

               •Regulatory fitness and simplification

               Not applicable

               •Fundamental rights

               Not applicable.

               4.BUDGETARY IMPLICATIONS

               None.

               Recommendation for a

               COUNCIL DECISION

               authorising the opening of negotiations on an agreement with the United States of America Regarding the Importation of High Quality Beef from animals not treated with certain growth-promoting hormones

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 207 and 218(3) and (4) thereof,

               Having regard to the recommendation from the European Commission,

               Whereas,

               (1)On 21 October 2013 the European Union concluded the Revised Memorandum of Understanding with the United States of America Regarding the Importation of Beef from Animals Not Treated with Certain Growth-Promoting Hormones and Increased Duties applied by the United States to Certain Products of the European Union
                  3
                (the revised MOU).

               (2)The revised MOU was concluded following a WTO dispute settlement proceeding in DS26 EC – Measures concerning Meat and Meat Products (Hormones) and was notified to the WTO Dispute Settlement Body on 14 April 2014.

               (3)Pursuant to the original MOU and its revised version the EU opened an annual tariff rate quota for High Quality Beef.
                  4

               (4)The European Union and the United States of America conducted consultations regarding the operation of the revised MOU, as foreseen in Article IV thereof.

               (5)The Commission should therefore be authorised to open negotiation with the United States of America regarding the operation, including the country-allocation, of the tariff rate quota opened pursuant to the revised MOU. The Commission should also seek to obtain the accord of other substantial supplying countries with regard to the country-allocation of the said tariff rate quota, in line with the applicable WTO rules, to the extent necessary.

               HAS ADOPTED THIS DECISION:

               Article 1

               The Commission is hereby authorised to open negotiation on behalf of the European Union with the United States of America concerning the operation of the tariff rate quota opened pursuant to the Revised Memorandum of Understanding with the United States of America Regarding the Importation of Beef from Animals Not Treated with Certain Growth-Promoting Hormones and Increased Duties applied by the United States to Certain Products of the European Union of 21 October 2013, including the country-allocation of the same tariff rate quota. The Commission is hereby also authorised to open negotiation on behalf of the European Union with other substantial supplying countries, to seek to obtain their accord as regards the country-allocation of the same tariff rate quota, in line with the applicable WTO rules, to the extent necessary.

               Article 2

               The negotiations shall be conducted on the basis of the negotiating directives of the Council set out in the Annex.

               Article 3

               The Commission shall conduct negotiations in accordance with WTO rules and in consultation with [name of the special committee to be inserted by the Council].

               Article 4

               This Decision is addressed to the Commission.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 27, 30.1.2014 p. 2.

                     (2)

                        OJ L 148, 8.6.2012 p. 9.

                     (3)

                        OJ L 27, 30.1.2014 p. 2.

                     (4)

                        OJ L 148, 8.6.2012 p. 9.

    ---documentbreak---

               EUROPEAN COMMISSION
            Brussels, 6.6.2018
            COM(2018) 332 final
            ANNEX
            to the
            Recommendation for aCOUNCIL DECISION
            authorising the opening of negotiations on an agreement with the United States of America Regarding the Importation of High Quality Beef from animals not treated with certain growth-promoting hormones

               ANNEX

               Negotiating Directives

               (1)The Commission should open negotiations with the United States of America on an agreement regarding the importation of High Quality Beef from animals not treated with certain growth-promoting hormones, in particular concerning the operation of the tariff rate quota for High Quality Beef set out in Article II of the Revised Memorandum of Understanding of 21 October 2013.

               (2)To this end, the Commission may in particular offer the United States of America a country-specific allocation of a certain proportion of the annual tariff rate quota for High Quality Beef, referred to in Article II(4) of the Revised Memorandum of Understanding of 21 October 2013. The Commission is not authorised to negotiate an increase of the annual quantity of the tariff rate quota for High Quality Beef (45 000 tons, product weight), set out in Article II(4) of the Revised Memorandum of Understanding of 21 October 2013.

               (3)An agreement with the United States of America and in particular any country-specific allocation of quantities within the tariff rate quota for High Quality Beef referred to in Article II(4) of the Revised Memorandum of Understanding should respect the relevant WTO rules on the matter, including those relating to the WTO/GATT rights of other supplying countries using that tariff rate quota.

               (4)The Commission should seek to obtain the accord of the other substantial supplying countries with regard to the country-allocation of the said tariff rate quota, in line with the applicable WTO rules, to the extent necessary.

               (5)The Commission should report to the Council on the outcome of the negotiations and, where appropriate, on any problem that may arise during the negotiations.