               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 506 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Estonia and delivering a Council opinion on the 2020 Stability Programme of Estonia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Estonia and delivering a Council opinion on the 2020 Stability Programme of Estonia

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

               (2)The 2020 country report for Estonia
                  2
                was published on 26 February 2020. It assessed Estonia’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  3
               , the follow-up given to the recommendations adopted in previous years and Estonia's progress towards its national Europe 2020 targets.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  4
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

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

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  5
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

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

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

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

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

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

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

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

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

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

               (15)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Estonia’s planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.

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

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

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

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

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

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

               (22)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

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

               (24)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Estonia should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

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

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

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

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

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

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

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

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2020) 505 final.

                     (3)

                        OJ C 301, 5.9.2019, p. 117

                     (4)

                        COM(2020) 112 final.

                     (5)

                        COM(2020) 123 final.

                     (6)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (7)

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

                     (8)

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


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 501 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Belgium and delivering a Council opinion on the 2020 Stability Programme of Belgium

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Belgium and delivering a Council opinion on the 2020 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,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

               (2)The 2020 country report for Belgium
                  2
                was published on 26 February 2020. It assessed Belgium’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  3
               , the follow-up given to the recommendations adopted in previous years and Belgium's progress towards its national Europe 2020 targets.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  4
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

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

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  5
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

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

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

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

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across regions because of different specialisation patterns. This entails a substantial risk of widening inter- and intra-regional disparities within Belgium. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

               (10)On 30 April 2020, Belgium submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

               (12)On 13 July 2018, the Council recommended Belgium to ensure that the nominal growth rate of net primary government expenditure
                  7
                does not exceed 1,8% in 2019, corresponding to an annual structural adjustment of 0,6% of GDP. As Belgium was assessed to qualify for the requested temporary deviation of 0,5% of GDP under the structural reform clause, the required structural adjustment for 2019 was reduced to 0,1% of GDP, corresponding to a nominal growth rate of net primary expenditure that does not exceed 2,8% in 2019. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. This is a relevant factor in the Commission report prepared in accordance with Article 126(3) of the Treaty assessing Belgium’s compliance with the debt criterion in 2019.

               (13)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,9% of GDP in 2019 to a deficit of 7,5% of GDP in 2020. After decreasing to 98,6% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to around 115% in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (14)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Belgium has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 2,3% of GDP. The measures include a federal temporary unemployment benefit scheme, replacement income for self-employed, federal provision for crisis-related expenditure, various regional allowances for companies and sectoral subsidies. The quantification of the deficit-increasing measures broadly coincides with the Commission’s estimates, once the different treatment of the cost of automatic stabilisers is taken into account. In addition, Belgium has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses. Those measures concern both federal and regional loan guarantees for companies and the self-employed, which the 2020 Stability Programme estimates at 11,8% of GDP. Tax deferrals, notably for personal and corporate income taxes and social contributions, have also been implemented but the 2020 Stability Programme does not quantify them. Overall, the measures taken by Belgium are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (15)Based on the Commission 2020 spring forecast under unchanged policies, Belgium’s general government balance is forecast at -8,9% of GDP in 2020 and -4,2% in 2021. The general government debt ratio is projected to reach 113,8% of GDP in 2020.

               (16)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Belgium’s non-compliance with the debt rule in 2019 and the planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit and debt criteria as defined in the Treaty and in Regulation (EC) No 1467/1997 are not fulfilled.

               (17)In response to the outbreak of the COVID-19 pandemic, the Belgian authorities have adopted a comprehensive package of measures to mitigate the social and economic impact of the sharp economic downturn. A EUR 50 billion guarantee scheme is in place for new short-term credit granted to viable businesses. The regions and communities have also introduced guarantees for bridge and regular business loans, liquidity support to businesses in the form of direct loans and measures to financially support businesses most affected by the crisis. The reimbursement of existing mortgages and business loans can be extended. A temporary moratorium on bankruptcy proceedings for hard-hit businesses is available. Different incentives to encourage more workers to stay at work or take up work again to ensure business continuity have been introduced. Social security contributions and tax payments, such as value-added tax, corporate and personal income taxes, may be deferred or are exempted in some cases. The federal government has made the temporary unemployment scheme due to force majeure available for companies affected by the crisis, with increased benefits. A monthly replacement income is available for the self-employed whose activity has been interrupted for at least seven consecutive days. The degressivity of unemployment benefits is temporarily frozen. The federal government is also preparing an additional set of measures to counter insolvency of businesses, such as a corporate and personal income tax exemption for the 2020 fiscal year.

               (18)The Belgian health system performs well in providing acute care in hospitals. Nonetheless, the COVID-19 outbreak has highlighted a number of shortcomings in the health system’s resilience when faced with a severe public health crisis. It has made apparent that Belgium faces a structural shortage of health workers that needs to be addressed. In the immediate future, ensuring sufficient critical medical products, including protective equipment in particular for health workers and workers in other exposed occupations, will remain key. A public healthcare strategy, which is fully coordinated with prevention and long-term care policies, will remain essential in the short and medium term to ensure that public health crisis such as COVID-19 are effectively managed. The smooth implementation of the Inter Ministerial Conference agreement on public healthcare to make hospital staff and infrastructure (a federal competence) available to long-term care facilities (a community competence) is an important building block in this context.

               (19)After reaching record high levels of employment in 2019 and in the beginning of 2020, the COVID-19 crisis has abruptly halted employment growth in Belgium. Belgium’s existing public income support schemes such as the system of temporary unemployment for employees and the bridging right for self-employed provide partial compensation for income losses due to reduced working time. These short-time working schemes play a major role in reducing the impact of lowered production output on employment levels. Nevertheless, unemployment is expected to rise to 7% in 2020 and to reduce somewhat to 6,6% in 2021. In order to prevent that the increase in unemployment becomes structural, further efforts will be needed to strengthen the effectiveness of the existing active labour market policies, which remain low as a high share of unemployed participating in active labour market measures coexists with a low transition from unemployment to employment. Particular attention should be paid to ensuring a comprehensive approach for those furthest from the labour market that are likely to be the most affected by the negative socio-economic consequences of the crisis. Vulnerable groups include in particular the low-skilled, people with a migrant background and people with disabilities. In addition, the labour tax wedge remains on average high at all wage levels, except for the very low wage earners (50% of the average wage). This is an important driver of the relatively high cost of labour, which may negatively affect labour demand, in particular for low productivity jobs.

               (20)Labour mobility should be fostered towards the sectors where there are major shortages, including health, information and communication technologies (ICT) and technical and professional occupations. This will be accompanied with important needs in terms of re- and up-skilling and will require to increasing the level of adult participation in education and training, including by using periods of reduced working hours. There are concerns that the existing training incentives schemes do not reach those that would benefit the most, such as the low-skilled, older workers and people with a migrant background. Poor language skills are a major barrier, in particular in bilingual Brussels. The communities are taking action to increase the uptake of science, technology, engineering and mathematics studies, but there is scope for more comprehensive strategies to meet future labour market demand. The overall level of digital skills is good, but remains stagnant. Among young people, and in particular among those with low education, the level of digital skills is lower than the EU average and has been worsening over the past years. Availability of adequate equipment and internet connection for all students accompanied by the necessary teacher training and mentoring schemes, is essential to ensure access to distance learning. This is also needed to ensure existing inequalities in the education system are not exacerbated due to the crisis.

               (21)Belgium has adopted many schemes to support the liquidity of firms, including a State guarantee scheme to loans and several regional schemes notified under the temporary framework for State aid measures to support the economy in the current COVID-19 outbreak. An efficient and effective implementation of such schemes, including by intermediaries, is key to ensure that firms, and especially small and medium enterprises and self-employed, benefit from them in order to protect them and to allow for a faster recovery. In the process of designing and implementing these measures the resilience of the banking sector, including the intermediaries, needs to be taken into account

               (22)Despite government efforts, the administrative burden on firms weights some EUR 7 billion per year (1,6% of GDP), most of which comes from complying with tax and labour law. The tax system is complex because of various tax expenditures. The payroll management for a company is complex, in particular for companies that need to manage the various regional systems. Businesses experience increasing delays in payment by public authorities contributing to businesses’ failures and a deteriorating business climate. There are long delays for building permits, electricity and water connections. The process of transferring a property is among the slowest and the most expensive in the EU. There are major regional discrepancies in entry requirements for craft/construction services. Rules on shop opening hours, sales promotions, discounts and distribution channels for non-prescription medicines weight on the operational environment for retailers. The roll-out of 5G is being held back amongst others by strict radiation limits (notably in Brussels) varying in each region, by expensive antennae taxes in Brussels and the long delivery time of permits to deploy antennae. In the area of insolvency, there is no special simplified out-of-court settlement procedure for small and medium enterprises and only debtors can start insolvency procedures. Despite gradual improvements, insufficient digitalisation and a lack of resources remain a challenge for the justice system. Lengthy proceedings in administrative justice cause significant delays for public procurement and building permit cases. Key enforcers in market surveillance, competition and rail transport are understaffed to perform their tasks.

               (23)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. As expressed in its 2021-2030 National Energy and Climate Plan (NECP), Belgium has significant investment needs in sustainable transport, notably to tackle congestion and electric mobility. Before the crisis, Belgian regions had announced major multi-annual transport infrastructure plans. Major investment is taking place in suburban rail around Brussels, signalling, port and cross-border rail connections. The NECP also identified important investment needs in renewable and flexible power generation, interconnections, smart grids, storage and in energy efficiency to meet European energy targets, to realise Belgium’s commitment to fully phasing out nuclear energy by 2025 and to renovate 80% the building stock which was built before the introduction of energy norms. In contrast to the relatively high private research and development (R&D) intensity, the public R&D intensity remains slightly below that of most Member States with a similar level of economic development. Belgium risks lagging behind in 5G deployment as it is not planning to assign the 5G pioneer bands within the deadlines provided in Union legislation. In March 2020, the Belgian authorities opened a public consultation for temporary national licenses for the 200 MHz of available spectrum in the band 3.6-3.8 GHz as a temporary solution. The programming of the Just Transition Fund for the period 2021-2027 could help Belgium to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report. This would allow Belgium to make the best use of that fund.

               (24)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

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

               (26)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Belgium should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

               (27)In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Belgium’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the 2020 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 Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

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

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

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Reinforce the overall resilience of the health system and ensure the supply of critical medical products.

               2.Mitigate the employment and social impact of the crisis, notably by promoting effective active labour market measures and fostering skills development.

               3.Ensure effective implementation of the measures to provide liquidity to assist small and medium-sized enterprises and the self-employed and improve the business environment. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on infrastructure for sustainable transport, clean and efficient production and use of energy, digital infrastructure, such as 5G and Gigabit Networks, and research and innovation.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2020) 500 final.

                     (3)

                        OJ C 301, 5.9.2019, p. 117.

                     (4)

                        COM(2020) 112 final.

                     (5)

                        COM(2020) 123 final.

                     (6)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (7)

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

                     (8)

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


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 507 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Ireland and delivering a Council opinion on the 2020 Stability Programme of Ireland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Ireland and delivering a Council opinion on the 2020 Stability Programme of Ireland

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

               (2)The 2020 country report for Ireland
                  3
                was published on 26 February 2020. It assessed Ireland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  4
               , the follow-up given to the recommendations adopted in previous years and Ireland's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Ireland is experiencing macroeconomic imbalances. Imbalances relate, in particular, to significant stocks of public debt, private debt and net external liabilities.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  5
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

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

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  6
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

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

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

               (8)The Union legislator has already amended the relevant legislative frameworks
                  7
                to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Ireland is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

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

               (10)On 21 April 2020, Ireland submitted its 2020 National Reform Programme and, on 30 April 2020, its 2020 Stability Programme. To take account of their interlinkages, the two programmes have been assessed together.

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

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

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

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

               (15)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Ireland’s planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.

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

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

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

               (19)The government has implemented various measures to support housing supply, which have contributed to increasing annual housing completions by almost 40% in the two years to September 2019. Combined with effective macro prudential tools, this seems to have helped curb house price inflation. However, housing completions still fall short of demand. Housing affordability is a problem for many households and inflation in the rental sector is persistently high. Improved infrastructure, combined  with spatial planning, could be a critical enabler for improving housing supply. In addition, solving administrative deficiencies in the vacant site levy might ultimately help improve housing affordability in the medium-term. Shortages in social housing supply remain a significant challenge to foster inclusion, also for the most vulnerable. Recent policy measures have accelerated social housing delivery, but there were still approximately 68,700 households on social housing waiting lists in Ireland in December 2019. Further efforts are needed to cover the needs of remaining households on the current waiting list and of potential new applicants. Of the around 10,000 homeless people registered in Ireland, 3,500 are children. This raises concerns about the potential risks of deepening inequalities, entrenched poverty and social exclusion. Single parents with children are among the groups most affected by homelessness. Substantial regional and urban differences persist, with 69% of all homeless adults concentrated in the greater Dublin area.

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

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

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

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

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

               (25)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

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

               (27)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Ireland should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

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

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

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

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

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

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

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

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

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ L 306, 23.11.2011, p. 25.

                     (3)

                        SWD(2020) 506 final.

                     (4)

                        OJ C 301, 5.9.2019, p. 117.

                     (5)

                        COM(2020) 112 final.

                     (6)

                        COM(2020) 123 final.

                     (7)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (8)

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