Important legal notice

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52008PC0716(01)

Recommendation for a Council Decision granting mutual assistance for Hungary  /* COM/2008/0716 final */

	[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |Brussels, 30.10.2008COM(2008) 716 finalRecommendation for aCOUNCIL DECISIONGranting mutual assistance for HungaryProposal for aCOUNCIL DECISIONProviding EU medium-term financial assistance for HungaryRecommendation for aCOUNCIL DECISIONGranting mutual assistance for HungaryandProposal for aCOUNCIL DECISIONProviding EU medium-term financial assistance for HungaryEXPLANATORY MEMORANDUMINTRODUCTIONSince mid-2006, the Hungarian authorities are making significant efforts to correct the country's accumulated external and internal imbalances. Despite the tangible results achieved over the last two years, including the significant reduction in the general government deficit and the gradual decrease in the current account deficit, the Hungarian financial markets came under severe stress from early October 2008. This is linked to the comparatively high financial vulnerabilities due to Hungary's large external debt (close to 100% of GDP), recently fuelled by foreign-currency loans to the private sector and the highest public debt ratio in the region (around 66% of GDP). The authorities rapidly announced a comprehensive policy package designed to restore investor confidence and alleviate the stress experienced in financial markets. Measures include an accelerated deficit reduction both in 2008 and 2009, which would decrease the government's financing need, and a number of targeted steps to unfreeze the government debt market and increase liquidity in the foreign exchange swap market. However, as a rapid deterioration in the capital and financial account could be expected in 2008 and especially 2009 induced by the financial markets turbulences, the country will need substantial financial support in this period, possibly in the order of EUR 20 billion until end 2009.MACROECONOMIC DEVELOPMENT AND OUTLOOKIn mid-2006, a fiscal consolidation programme was launched to correct the high fiscal and external imbalances that have built up in previous years (the general government deficit stood at 9.3% in 2006 and the current account at 7.5%). The measures included, inter alia, expenditure freezes, cuts in public investments, tax increases and reduced price subsides. Consequently, the output of the government sector was reduced considerably, especially in health care, education and administration. In 2007, the private sector showed some resilience in dealing with the downturn supported by access to new credit. Thanks to a strong expansion of exports of some 16%, investment still expanded slightly although corporate profits fell due to a substantial increase in wage-related costs. Consumption also increased moderately by 0.7% despite a drop in real wages as the surge in oil and food prices was accompanied by increases in regulated prices and a value-added tax hike. Overall, annual GDP growth slowed down from 4.1% in 2006 to 1.1% in 2007 while inflation doubled to nearly 8%, well above the official inflation target.With the effects of the fiscal package gradually phasing out, the economy was set to recover starting in 2008 and reach potential growth (somewhat below 3%) in 2-3 years. However, the stronger-than-anticipated slowdown in the EU and the rest of the world substantially weakened the outlook for export performance, the main driving force for the Hungarian economy in the past years. The current financial difficulties and related tightening of credit conditions have added to the downturn, and further worsened growth prospects. Private consumption and household investment suffer most from tighter credit conditions, while corporate investments would still hold, with some support expected from inflows from EU (structural and cohesion) funds. Thus annual GDP growth is expected to remain well below 2% in 2008 and sharply fall in 2009 before it slowly recovers in 2010. Given the high uncertainties in the context of present financial market conditions, there are even some risks that GDP could contract in 2009 followed by a protracted recovery thereafter.PUBLIC FINANCESIn 2007, the general government deficit came out at 5% of GDP, sharply down from 9.3% of GDP in 2006. This was the result of the fiscal consolidation programme started by the re-elected Government in summer 2006, including a series of tax increases as well as cuts in price subsides, expenditure freezes (notably for the public wage bill) and a nominal cut in public investment. In mid-July 2008, based on the better-than-expected central government revenues in the first half, the Government revised its deficit forecast to 3.8% of GDP (from its target of 4% of GDP contained in the most recent Convergence Programme update and endorsed by the Council).As a reaction to the turbulences on the Hungarian financial markets, the Government announced on 10 October a 12-point action plan to foster market confidence. Most notably, the plan included the lowering of the budget deficit targets: to 3.4% of GDP from 3.8% for 2008, and to 2.9% of GDP from 3.2% for 2009, which was subsequently further reduced to 2.6% of GDP. For 2008, the achievement of the more ambitious deficit target of 3.4% of GDP would be backed by the following measures: (i) expenditure savings in some government programmes and lower expected expenditure on co-financing due to slower-than-targeted absorption of EU funds (0.15 of GDP); as well as (ii) a permanent freeze of the unutilised budgetary reserves (0.3% of GDP) if needed. Regarding 2009, the lower deficit target by 0.6% of GDP is foreseen to be achieved through (i) the withdrawal of the planned tax changes which were officially expected to result in a 0.55% of GDP revenue loss in 2009, while the compensatory expenditure measures would remain in place and (ii) additional 0.6% of GDP expenditure cuts (reducing government programmes and operative costs of budgetary institutions as well as postponing the indexation of some social transfers) included in the revised draft budget submitted on 18 October as well as (iii) additional measures of around 1% of GDP namely reducing the 13th month payments of pensions and public salaries, as well as freezing public sector wages.The revitalisation of the fiscal governance reform process is also part of the Government's 12-point action plan. The revised legislative document was submitted to Parliament on 17 October. It integrates some important elements of the alternative proposals of opposition parties (e.g. multiannual expenditure ceilings for the central government subsector and the establishment of a Fiscal Council next to the Legislative Budget Office). The revised plan prescribes that the annual budget would be embedded in a 3-year framework, including medium-term numerical rules. The new legislative proposal is foreseen to be passed by simple majority.FINANCIAL MARKETSWhile for most of 2008 the conditions on Hungarian financial markets had evolved broadly in line with those of its regional peers (though with some episodes of higher volatility[1]), markets came under heavy pressure at the beginning of October, with a freeze on the government primary bond market, a very sharp fall in the stock market and a sharp depreciation of the exchange rate, leading to a significant increase in spreads of government bond yields and of credit default swaps (CDS). This seems to be linked to a liquidity shortage in the financial system, in particular regarding foreign exchange liquidity, which is becoming more costly due to the perception that counterparty risk has increased and heightened risk aversion vis-à-vis the Central and Eastern European Countries.Following the market turmoil in early October, the authorities announced several measures aimed directly at reducing financial stress. On top of the tightening of budgetary plans, which lowers net financing requirements, these included the following elements: (1) an easing of investment rules for pension funds, (2) the opening of a new foreign exchange swap facility the National Bank of Hungary (MNB) on 13 October, aimed at matching buyers and sellers for foreign exchange swaps to overcome counterparty risk, (3) a new stand-by facility for banks offered from 16 October by which the MNB can provide banks overnight euro-forint swaps. This new facility is backed up by an agreement on repurchase transactions with the ECB, by which the ECB will provide MNB with a facility to borrow up to EUR 5 billion. (4) On 16 October, the MNB also announced measures to shore up the domestic bond market in agreement with primary dealers. (5) On 22 October, the NBH raised its interest rate by 300 basis points in order to stem the falling of the local currency (by that time, the Hungarian forint had lost 14% against the euro since the beginning of October).In addition, the Hungarian Parliament adopted on 13 October an increase of the deposit insurance threshold from HUF 6 million to HUF 13 million. Around 90% of eligible deposits are estimated to be covered by this new limit. The legislative action was accompanied by a political commitment to guarantee all deposits in case of need. Moreover, the Hungarian authorities have intensified their co-operation with the country's Financial Stability Committee (created in 2004) and scaled up cross-border contacts among supervisors.Balance of payment and external financing requirementsNet export growth, boosted by brisk growth worldwide, was the main driving force of GDP growth over the past years, and it also largely contributed to the gradual decline in the current-account-deficit-to-GDP ratio, which fell from 7.5% in 2006 to 6.4% in 2007. The other main factor in 2007 proved to be the substantial reduction in the financing need of the government. In the capital account an increasing surplus was registered that reached 1.1% of GDP in 2007, partly due to the growing absorption of EU funds so that overall net external liabilities stabilised, albeit at a high level (at 97% of GDP). At the same time, debt-type instruments gained a larger share in the external deficit. This reflects inter alia persistently high FDI and portfolio outflows by residents which over time should contribute positively to the income balance on the current account. While the share of non debt-creating financing rebounded slightly in the first half of 2008 (to about one-third of the total), the share of short-term debt (with a maturity below 1 year) in overall debt increased to a level of some 23% of GDP, mainly due to rising external liabilities of the financial sector, which now represents 35% of GDP (while the share of the government in external debt is 30%).The current account is expected to continue declining this and especially next year in view of the recent depreciation of the forint and a sharp reduction in import growth in 2009. The capital account is also likely to improve as the absorption of already committed EU funds increases. On the other hand, based on recent developments, in particular since the beginning of October, it can be expected that net portfolio outflows (including financial derivatives) would accelerate, notably as external borrowing by the government and banks contracts sharply, contributing to a substantial deterioration in the capital and financial account in 2008 and especially 2009. Against this background, in order to support the balance of payments and bring international currency reserves to a prudent level, the IMF and the Commission consider that Hungary will need substantial financial assistance in the short and medium term, in the order of EUR 20 billion until end 2009.In light of the above, the Commission is of the opinion that there is a serious threat to the Hungarian balance of payments; the Commission thus recommends to the Council a decision granting mutual assistance.EU SUPPORT UNDER THE BALANCE OF PAYMENTS FACILITY PART OF INTERNATIONAL EFFORTMedium-term financial assistance for Hungary under the balance of payments facility for Member States (in view of Regulation No 332/2002) appears to be appropriate under the current circumstances. It would intervene at a moment when Hungary is seriously threatened with difficulties in its balance of current payments in view of the heightened financial market stress although its policy record has substantially improved since mid 2006. The EU support for Hungary would be part of a bigger financing package for Hungary in which the IMF provides a loan of SDR 10.5 billion (around EUR 12.5 billion) under the Stand-by arrangement expected to be approved on 6 November 2008 and the World Bank a loan of EUR 1 billion. It is crucial that the large financial institutions operating in Hungary continue providing adequate financing of the economy. The EU financial assistance is provided in support of the strong commitment by the Hungarian authorities to implement a comprehensive economic policy programme designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets. This programme will be included in the Convergence Programme update. In particular, the acceleration of the fiscal consolidation, which reduces the financing needs, and the planned progress in fiscal governance reform are in line with previous Council recommendations in the context of opinions on the November 2007 convergence programme and on the October 2007 Implementation Report of the National Reform Programme. The EU assistance and the Commission's involvement would also help ensure full consistency of current policies supported by the whole financing package with EU policy recommendations.Economic policy conditionality would include reform of fiscal governance and support the increased ambition in terms of deficit reduction which would ensure that the planned correction of the excessive deficit (by 2009 at the latest), as recommended in the Council recommendation under the excessive deficit procedure of 10 October 2006, is respected. It would also include structural reform measures supported in the context of the Lisbon strategy, such as the reinforcement of incentives to work with a view to raising employment rates and contributing to the long-term sustainability of public finances. Monetary policy should remain geared towards price stability and the achievement of the MNB inflation target (currently 3%). Moreover, it would include the speedy and forceful implementation of the decisions to shape up the functioning of the financial sector. Finally, the monitoring of conditionality would also take into account progress with the implementation of performance criteria under the IMF programme. They include (i) quarterly ceilings on cumulative cash primary spending of the central government, social security funds and extra-budgetary funds; (ii) no accumulation of external arrears by the public sector; (iii) floor on the flow of net international reserves; and (iv) a consultation band for the 12-month rate of change of the national CPI. In particular, the enhanced monitoring of within-the-year budgetary developments could be a useful additional tool of keeping the budget on track to achieve the official deficit target.To ensure the necessary flexibility in the current market context, it is proposed to allow the option of using interest rate swaps for the borrowing operation which finances the loan. The counterparties of a potential swap would have to be of the highest credit quality in order to safeguard the EU budget.Against this background, following the consultation of the Economic and Financial Committee, the Commission is recommending to the Council the granting of the mutual assistance foreseen by the Article 119 of the Treaty.The Commission, following the consultation of the Economic and Financial Committee, is furthermore proposing that, after adopting the above-mentioned decision of the Council to provide mutual assistance to Hungary on a recommendation from the Commission, the Council adopts a decision providing under the EU facility for Member States (as governed by Council Regulation (EC) No 332/2002 of 18 February 2002) a medium-term financial assistance to Hungary of up to EUR 6.5 billion to underpin its balance of payments sustainability. This support would be provided in conjunction with an IMF arrangement. It would be disbursed in up to 5 instalments and be linked to economic policy conditions. The proposed decision would expire two years after entry into force.Recommendation for aCOUNCIL DECISIONGranting mutual assistance for HungaryTHE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community, and in particular Article 119,Having regard to the recommendation from the Commission made after consulting the Economic and Financial Committee,Whereas:1.  Since mid-2006, the Hungarian authorities have been making significant efforts to correct the country's accumulated external and internal imbalances. Despite the tangible results achieved over the last two years, including the significant reduction in the general government deficit and the gradual decrease in the current account deficit, the Hungarian financial markets have come under severe stress from early October 2008,2.  The authorities of Hungary adopted in October 2008 a comprehensive economic policy programme designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets; it includes measures to secure adequate liquidity and financing for the banking system, actions to ensure adequate capitalization of banks, as well as plans to ensure fiscal sustainability and contain financing needs; in particular, the Government revised its deficit target for 2008 to 3.4% of GDP compared to a budgeted 4% of GDP and for 2009 from 3.2% of GDP to 2.6% of GDP; this economic programme and in particular the fiscal targets will be reflected in the Government budget as well as in the Convergence Programme which also contain other policy measures and structural reforms,3.  The Council is reviewing on a regular basis the economic policies implemented by Hungary, in particular in the context of the annual reviews of Hungary's update of the convergence programme and implementation of the National Reform Programme, the regular review of progress made by Hungary related to the Council recommendation the Excessive Deficit Procedure, as well as in the context of the Convergence Report,4.  Despite the expected improvement in the current account, Hungary faces important financing needs in 2008 and 2009 (estimated at around EUR 20 billion) as the recently experienced financial market developments suggest that the capital and financial account could substantially deteriorate, with the acceleration of net portfolio outflows,5.  The Hungarian authorities have requested substantial financial assistance from the EU and other international financial institutions and countries to support balance of payments sustainability and bring international currency reserves to a prudent level,6.  There is a serious threat to the Hungarian balance of payments which justifies the urgent granting of mutual assistance by the Community.HAS ADOPTED THIS DECISION:Article 1The Community shall grant mutual assistance to Hungary.This Decision is addressed to the Member States.Done at Brussels,For the CouncilThe PresidentProposal for aCOUNCIL DECISIONProviding Community medium-term financial assistance for HungaryTHE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,Having regard to Council Regulation (EC) No 332/2002[2] of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States' balance of payments and in particular Article 3(2),Having regard to the proposal from the Commission made after consulting the Economic and Financial Committee (EFC),Whereas:7.  Council decision [….] has decided to grant mutual assistance to Hungary.8.  Despite the expected improvement in the current account, Hungary's external financing needs in 2008 and 2009 are estimated at EUR 20 billion as in view of the recently experienced financial market developments the capital and financial account could substantially deteriorate, with the acceleration of net portfolio outflows,9.  It is appropriate to provide Community support to Hungary of up to EUR 6.5 billion under the Facility providing medium-term financial assistance for Member States' balance of payments established in 2002 by Regulation (EC) No 332/2002. That assistance should be provided in conjunction with a loan from the International Monetary Fund of SDR 10.5 billion (around EUR 12.5 billion) under a Stand-by arrangement expected to be approved on 6 November 2008. The World Bank has also agreed to provide a loan to Hungary of EUR 1 billion,10.  The assistance should be managed by the Commission who would agree with the authorities of Hungary, after consulting the EFC, the specific economic policy conditions attached to the financial assistance. Those conditions should be laid down in a Memorandum of Understanding. The detailed financial terms should be laid down by the Commission in the Loan Agreement,11.  The assistance should be provided with a view to supporting the balance of payments sustainability in Hungary and, in this way, contributing to the successful implementation of the Government's economic policy programme under current economic and financial conditions.HAS DECIDED AS FOLLOWS:Article 112.  The Community shall make available to Hungary a medium-term loan amounting to a maximum of EUR 6.5 billion, with a maximum average maturity of 5 years.13.  The Community financial assistance shall be made available during two years starting from the first day after the entry into force of this Decision. If circumstances so require, the Commission may after consultation of the Economic and Financial Committee, decide to extend that period by a maximum of two years.Article 214.  The assistance will be managed by the Commission in a manner consistent with Hungary's undertakings and recommendations by the Council, in particular in the context of the implementation of the National Reform Programme as well as of the convergence programme and the excessive deficit procedure.15.  The Commission shall agree with the authorities of Hungary, after consulting the EFC, the specific economic policy conditions attached to the financial assistance as laid down in Article 3(4). Those conditions shall be laid down in a Memorandum of Understanding consistent with the undertakings and recommendations referred to in paragraph (1). The detailed financial terms shall be laid down by the Commission in the loan agreement.16.  The Commission shall verify at regular intervals in collaboration with the EFC that the economic policy conditions attached to the assistance are fulfilled. The EFC shall be kept informed by the Commission of possible refinancing of the borrowings or restructuring of the financial conditions.Article 317.  The Community financial assistance shall be made available by the Commission to Hungary in maximum five instalments the size of which would be laid down in the Memorandum of Understanding.18.  The first instalment shall be released subject to the entry into force of the Loan Agreement and Memorandum of Understanding.19.  If required in order to finance the loan, the prudent use of interest rate swaps with counterparties of highest credit quality shall be permitted.20.  The Commission shall decide on the release of further instalments after having obtained the opinion of the EFC. The disbursement of each further instalment shall be made on the basis of a satisfactory implementation of the new economic programme of the Hungarian Government included the Convergence Programme of Hungary and, more particularly, the specific economic policy conditions laid down in the Memorandum of Understanding. These would include, inter alia, progress with fiscal consolidation planned by the Government in line with the Council recommendation under the excessive deficit procedure of 10 October 2006 as well as the Council Opinion on the November 2007 convergence programme update; specific measures to control expenditure underlying the consolidation process, as well as progress with fiscal governance and financial supervision reform; structural reform measures supported in the context of the Lisbon strategy, such as the reinforcement of incentives to work with a view to supporting employment and contributing to the long-term sustainability of public finances.This Decision is addressed to the Republic of Hungary.Done at Brussels,For the CouncilThe PresidentBUDGETARY IMPACT STATEMENT(cf. Article 16 of the Internal Rules)POLICY AREA: TITLE 01 – ECONOMIC AND FINANCIAL AFFAIRSACTIVITY: FINANCIAL OPERATIONS AND INSTRUMENTSTITLE OF ACTION: EU MEDIUM-TERM FINANCIAL ASSISTANCE FOR HUNGARY1. NAME OF THE PROPOSAL: BUDGET HEADING CONCERNED AND TITLE01 04 01 01 EC guarantee for Community loans raised for balance-of-payments support2. LEGAL BASIS:Art. 119 EC and 308 EC; Council Regulation N° 332/2002 of 18 February 2002.The Regulation limits the amount in principal of loans to be granted to Member States under this Facility to EUR 12 billion. No loans have been granted under the Facility since this Regulation came into force.3. OVERALL FIGURES FOR THE FINANCIAL YEAR (IN EUROS)This item constitutes the structure for the guarantee provided by the European Union. It will enable the Commission to service the debt (principal, interest and other costs) should the debtor (Hungary) default.The budget entry ("p.m.") reflecting the budget guarantee will be activated only in the case of an effective call on the guarantee. It is expected that normally the budget guarantee will not be called. Before Hungary was not yet a Member State, the Council, based on decisions 1990/83/EEC of 25 February 1990 and 91/310/EEC of 24 June 1991 provided macro-financial assistance to Hungary totalling ECU 790 million. All macro-financial assistance had been repaid by 1998.3a – Current yearNot applicableCA |Initial appropriation for the financial year (budget) |Transfers |Additional appropriation |Total appropriation |Appropriations already set aside by another work programme |Balance available |Amount for the action proposed |3b – Carry oversNot applicableCA |Carry-overs |Appropriations already set aside by another work programme |Balance available |Amount for the action proposed |3c – Next financial yearNot applicableCA |Initial appropriation for the financial year (budget) | p.m. |Transfers |Additional appropriation |Total appropriation |Appropriations already set aside by another work programme |Balance available |Amount for the action proposed | p.m. |4. DESCRIPTION OF THE ACTIONThe proposed medium-term financial assistance to Hungary consists of a Community loan (to be financed by Community borrowings in the international capital markets) in the amount of EUR 6.5 billion. It will be provided in the context of an international financing package, and in particular by an IMF loan of SDR 10.5 billion (around EUR 12.5 billion) supported by the stand-by facility. The World Bank has also committed a total of EUR 1 billion. The Community medium-term financial support to Hungary is intended to support the balance of payments sustainability of Hungary which is seriously threatened and thereby also to support the new economic programme of the government aiming, among other things, at restoring investor confidence and alleviating the stress recently experienced in financial markets from early October 2008. The assistance reflects the willingness to support a Member State whose policy record has substantially improved since mid- 2006, including through the significant reduction in the general government deficit. At the same time, this assistance makes a contribution to financial stability that goes beyond the beneficiary country in view of the important international (including interbank) links. The new economic package hereby supported includes an accelerated deficit reduction both in 2008 and 2009, which would decrease the government's financing need, as well as a number of targeted steps to unfreeze the government debt market and increase liquidity in the foreign exchange swap market. Finally, the assistance managed by the Commission in consultation with the Economic and Financial Committee is a way to ensure that the EU remains closely involved in the shaping of economic policies in Hungary and that those policies are consistent with Hungary's undertakings in the EU context and recommendations by the Council, in particular as concerns the implementation of the National Reform Programme as well as of the convergence programme and the excessive deficit procedure.The Community borrowings raised on the capital markets or from financial institutions for the purpose of extending the loan to Hungary are covered by the Community guarantee. The loan is raised on the capital markets or from financial institutions. The amount in principal of loans which will be granted to Hungary amounts to EUR 6.5 billion.The structure for the guarantee provided by the European Union will enable the Commission to service the debt should Hungary default.In order to honour its obligations, the Commission may draw on its cash resources to service the debt provisionally. In this case, Article 12 of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 2000/597/EC, Euratom on the system of the Communities’ own resources (OJ L 130, 31.5.2000, p. 1) will apply.5. METHOD OF CALCULATION ADOPTEDNot applicable.6. PAYMENT SCHEDULE (IN EURO)Not applicable.Heading | Appropriations | Payments |Year n | Year n+1 | Year n+2 | Year n+3 | Subsequent financial years |Year n |Year n+1 |Year n |Year n+1 |Total |[1] For example, the government bond market came temporarily under pressure in spring 2008, mainly due to a portfolio shift by domestic pension funds.[2] OJ L53/1 [23 February 2002]


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		52014DC0412

			Recommendation for a COUNCIL RECOMMENDATION on Croatia's 2014 national reform programme and delivering a Council opinion on Croatia's 2014 convergence programme /* COM/2014/0412 final - 2014/ () */

Recommendation for a
COUNCIL RECOMMENDATION
on Croatia's 2014 national reform
programme
and delivering a Council opinion on Croatia's 2014 convergence programme

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 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus on
the key areas where action is needed to boost Europe’s potential for
sustainable growth and competitiveness.
(2)
On 13 July 2010, the Council, on the basis of
the Commission's proposals, adopted a recommendation on the broad guidelines
for the economic policies of the Member States and the Union (2010 to 2014)
and, on 21 October 2010, adopted a decision on guidelines for the employment
policies of the Member States, which together form the ‘integrated guidelines’.
Member States were invited to take the integrated guidelines into account in
their national economic and employment policies.
(3)
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.
(4)
Croatia participated in the 2013 European
Semester on a voluntary and informal basis by submitting an economic programme;
there were no country-specific recommendations. On 21 June 2013, the Council
adopted conclusions welcoming Croatia's economic programme, emphasising that
Croatia is expected to progress towards meeting the requirements of the
Stability and Growth Pact and that it needs to embark on a credible
consolidation path, whilst safeguarding growth-enhancing expenditure and
ensuring room for co-financing the inflow of EU funds.
(5)
On 13 November 2013, the Commission adopted the
Annual Growth Survey[5],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[6],
in which it identified Croatia as one of the Member States for which an
in-depth review would be carried out.
(6)
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.
(7)
On 5 March 2014, the Commission published the
results of its in-depth review for Croatia[7],
under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads
it to conclude that Croatia is experiencing excessive macroeconomic imbalances,
which require specific monitoring and strong policy action. In particular,
policy action is required in view of the vulnerabilities arising from sizeable
external liabilities, declining export performance, highly leveraged firms and
fast-increasing general government debt, all within a context of low growth and
poor adjustment capacity.
(8)
On 24 April 2014, Croatia submitted its 2014
national reform programme and its 2014 convergence programme. In order to take
account of their interlinkages, the two programmes have been assessed at the
same time.
(9)
The objective of the budgetary strategy outlined
in the 2014 Convergence Programme is to correct the excessive deficit by 2016,
whilst at the same time moving back to a path of sustainable economic growth.
This is projected to be achieved by a continuous reduction in the deficit from
4.9% of GDP in 2013 to below 3% of GDP by 2016, the deadline for the correction
of the excessive deficit. The programme projects that government debt will peak
at around 72% of GDP in 2014, slightly drop in the following year and level off
thereafter. The macroeconomic scenario underpinning the budgetary projections
in the programme is optimistic over the entire programme period. According to
the programme scenario, GDP would stagnate in 2014, whilst moderate growth of
1.2% is projected in 2015; against a decline of 0.6% and growth of 0.7%,
respectively, in the Commission 2014 Spring Forecast. The programme's budgetary
forecast figures deviate from the standards of the European System of National
and Regional Accounts (ESA), giving rise to inconsistency with past data and
the macroeconomic scenario and hindering an appropriate comparison with the
Commission 2014 spring forecast. Moreover, the programme does not provide a
sufficient level of detail on the consolidation measures for 2015 and 2016, in
particular on the expenditure side. According to the Commission 2014 spring forecast,
the headline balance is expected to reach 3.8% and 3.1% of GDP in 2014 and
2015. After the necessary adjustment to make these projections comparable to
the targets set in the context of the Excessive Deficit Procedure (i.e.
excluding the impact of the transfer of second pillar pension assets) the
Commission projection for the deficit in 2014 would be 4.6% of GDP and 3.8% in
2015. As the Convergence Programme constitutes the first report on the action
taken by the authorities following the opening of the Excessive Deficit
Procedure on 28 January 2014, the Commission assessed the action taken by
Croatia in a Communication published on 2 June 2014. In particular, the
headline target is projected to be met in 2014, while the deficit is expected
to be somewhat above target in 2015. The improvement in the structural
government balance falls marginally short of what is required both in 2014 and
2015. Finally, while the change in the adjusted structural balance is below the
recommended effort, the effort measured by the underlying amount of
discretionary measures is estimated to be delivered both in 2014 and 2015. In
order to reduce the negative impact on growth and enhance the sustainability of
the consolidation, greater attention to the quality of the measures and a
transition to expenditure based measures are warranted. Based on its assessment
of the programme and the Commission forecast, pursuant to Council Regulation
(EC) No 1466/97, the Council is of the opinion that, while Croatia has taken
effective action by 30 April 2014 to correct its excessive deficit as
recommended, additional efforts are needed in order to comply with the recommendation
under the Excessive Deficit Procedure to correct the excessive deficit by 2016
and ensure the credibility of the correction.
(10)
Budgetary consolidation measures should be
geared towards enhancing the quality of public finances, with a view to achieving
efficiencies notably in wage, social security and subsidy outlays and to
providing sufficient fiscal space for prioritising growth-enhancing expenditure
and investments, including in projects funded by the Union. Croatia has
implemented significant reforms in its fiscal framework in recent years.
However, weaknesses remain in relation to budgetary planning, effective control
over expenditure and consistent application of budgetary constraints, which
negatively impact on fiscal policy-making. Although recently changed, the
design of the fiscal rules should be further improved. Notably, the
effectiveness of the fiscal framework is undermined by the absence of
preventive mechanisms and weak compliance with the debt rule, and an ambiguous
formulation of the structural balanced-budget rule. While the establishment of
the Fiscal Policy Commission is welcome, additional measures are deemed
necessary to strengthen its position in the budget planning and monitoring, most
notably its independence from all budgetary authorities.
(11)
Croatia faces the challenge of pursuing fiscal
consolidation without harming competitiveness and prospects of economic
recovery. Against such background, the revenue side of public finances is
constrained by a narrow definition of the bases for taxes that offer a stable
tax yield and have little distortionary impact on growth. In this context, the
national reform programme announces a plan to introduce a recurrent property
tax in 2016 but its operational design, including that of the tax base, is yet
to be specified. Croatia is also determined to take measures to improve tax
compliance by reducing the grey economy. Steps have been taken on this front. The
gradual introduction of fiscal cash registries has increased tax receipts by
enhanced oversight of transactions. The reorganisation of the tax
administration is expected to improve the efficiency and effectiveness of tax
collection while lowering compliance burdens for taxpayers. However, in light
of fiscal consolidation needs, and also taking into account data pointing to
significant amounts of uncollected taxes, there seems to be scope to increase
further the efficiency of tax collection and continued efforts are needed to
improve tax compliance by providing more e-services to taxpayers.
(12)
Croatia has taken measures with a view to
improving the sustainability and adequacy of pensions: since November 2010, the
statutory retirement age, the early retirement age and the qualifying period
for women have been gradually increased and are set to be fully harmonised by
2030. The amendments to the Pension Insurance Act adopted in December 2013
raise the statutory retirement age from 65 to 67 and the early retirement age
from 60 to 62. However, this increase will become effectiveonly as of 2031,
which is insufficiently ambitious taking account of  demographic trends. Despite
reforms implemented over recent years, various possibilities for early
retirement still exist. Considering the extent of exemptions, the penalties for
early retirement and the late retirement bonus create little incentive to work to
the statutory retirement age, impacting negatively on labour supply and the
sustainability of the pension system. The Act on the Single Forensic Expertise
Body was adopted in 2013 to help limit the inflow of disability pensioners and
reduce fraud by unifying disability assessments. Together with increased
inspections, this addresses a definite need but the effect on expenditure will
depend on how measures are implemented and the extent to which decisions are enforced.
Pensions under special schemes that were above a certain threshold were cut by
10%, albeit on a temporary basis, while their indexation has been tied to a GDP
trigger. Despite recent attempts to curb expenditure and increase transparency,
the pace and extent of convergence of pensions under special schemes towards
general rules are slow and overall progress is still limited.
(13)
The health sector achieves reasonably good
health outcomes and, with some regional variation, services are accessible, but
the system contributes significantly to pressure on the public finances. The
authorities identified remediable inefficiencies in the hospital network. The
master plan presented in March 2014 for the reorganisation of hospital care
provides for measures that would improve cost-effectiveness, such as
rationalisation of the hospital network, reduced average lengths of hospital
stays, a better allocation of hospital beds, including for long-term care, and
further changes in hospital financing. Strong monitoring and implementation
capacities in both hospitals and central government should be ensured to put
the plan into practice. Long-term care is characterised by dispersed services
between the health and the social welfare systems, low coverage rates and
formal care, high costs of provision and long waiting lists.
(14)
Employment and activity rates are amongst the
lowest in the EU, and are particularly low for young people and older people.
Beyond cyclical developments, these labour market outcomes are partly related
to institutional and policy settings. Croatia has embarked on labour market
reforms to increase flexibility on the labour market. A first phase of the
reform, was completed in 2013, focused on regulation of fixed-term employment
contracts. The government adopted a second legislative proposal in January 2014
which provides for reducing dismissal costs by shortening and simplifying
procedures and increasing working-time flexibility. In addition, more flexible
forms of employment such as part-time contracts would be introduced. These
changes would put Croatia broadly on a par with its peers, as far as the
employment protection index is concerned. Although these reforms are expected
to have a positive effect on overall employment, they also entail an increased risk
of labour market segmentation, including the development of fixed-term
contracts. Meanwhile, no changes are foreseen to the wage-setting institutions
despite Croatia's particular combination of relatively high average wages and
very low employment. Despite further rising unemployment, spending and coverage
of active labour market policy measures to enable improved access to, and
longer stay in, the labour market are still below average, especially as
regards young people, long-term unemployed and older workers. The
administrative capacity of the Croatian public employment service is under
severe pressure, including at regional level. An overall system to monitor and
evaluate developments on the labour market and labour market needs including
skills forecasting does not exist nor is there a regular evaluation of active
labour market policy measures. There is high proportion of undeclared paid
activity.
(15)
The situation on the labour market is of
particular concern for young people as their unemployment increased drastically
and reached almost 50% in 2013, while the proportion of
young people not in education, employment or training
keeps increasing. Important challenges include outreach
to non-registered youth and mobilisation of the private sector to offer more
apprenticeships, in line with the objectives of a youth guarantee. Croatia also
faces serious challenges in education as regards labour-market relevance and
quality of provision across all educational sectors. Work-based
learning and career guidance across secondary and tertiary education are
lacking while employers' engagement with vocational education and training, and
secondary and tertiary education is low. Employment
rates among recent graduates are significantly lower than in the rest of the EU.
The outdated vocational education and training system is undergoing a reform in
the form of piloting new school curricula. The implementation of the Croatian Qualifications Framework and the
Strategy on Education, Science and Technology is pending but should improve
educational outcomes and align them with labour market needs.
(16)
High unemployment and low labour market
participation have led to a deterioration of the social situation in Croatia.
The proportion of persons at risk of poverty and social exclusion has increased
in recent years and is significantly above the EU average. The design of the
social benefit system makes it possible for recipients to accumulate
overlapping cash transfers. When recipients move into work, they lose the
benefit of some of these social transfers, thereby creating disincentives for them
to enter the labour market. There is scope to make the social protection system
more efficient and transparent: currently, the allocation of income support
schemes and benefits is scattered across many institutions and levels of
government, with inconsistent application of criteria and overlaps. The 2013
Social Welfare Act introduced stricter means-testing and merged four of more
than 70 benefits at national level, including some targeting specific groups, into
the General Minimum Income. A national ‘one-stop shop’, through which all national level cash benefits will be administered, is being implemented gradually until 2016. However, systematic
monitoring and evaluation will be difficult as the income support schemes and
programmes at local and regional levels and the various non-means tested cash
benefits targeting specific categories of the population, have not been
integrated. Despite several legislative reforms since 2011, the design of the
social benefit systems failed to effectively target, people most in need.
(17)
The current regulatory framework for doing
business in Croatia imposes a high burden on businesses, including lack of
legal certainty, untransparent decision-making in particular at local level,
and numerous para-fiscal charges. Moreover, high fragmentation of public
administration responsibilities at regional and local level and a complex split
of competencies between ministries and agencies at central level complicate
business decisions and lengthen administrative procedures. A structured
approach has been put in place at central government level to identify
obstacles for business; however, a consistent methodology for measuring
administrative burden is not applied, which decreases the effectiveness of
measures already taken. The existing one-stop shop for businesses covers
limited functionalities only. There is a need to rationalise and improve
control over public subsidies and guarantees; a central register of supported
companies and individuals would represent a first step in this area. Croatia
has initiated reforms of the public administration to strengthen its
administrative capacities and to improve the client-orientation of public
services for citizens and businesses. However, the quality of public governance
remains low, with weak coordination across different levels of government and
little or overformalistic use of evidence-based policy-making and assessment.
The adoption of the public administration reform strategy is a step in the
right direction; the strategy should be thoroughly implemented at all levels of
government.  The experience of the implementation of the pre-accession funds
points to deficiencies in terms of strategic planning and institutional
capacity and weaknesses in project elaboration and follow-up.
(18)
State-owned or state-controlled companies are
negatively affected by weak governance while the implementation of the new
strategy for the management of public assets and enterprises has encountered
delays. Currently, there is no competitive selection procedure for supervisory
board members and management, and appointments are not published. While
measures have been taken to improve the anti-corruption framework, more efforts
are required in the prevention of corruption, at all layers of government. The
key elements currently missing in the anti-corruption framework include
effective verification mechanisms for conflict of interest and asset disclosure
of public officials, as well as specific safeguards for state-owned and
state-controlled enterprises. The verification powers of the Commission for the
Resolution of Conflict of Interest rely on the competences and pro-activeness
of other authorities. Despite the progress made to increase transparency of
public procurement procedures, risk assessment tools are not being
systematically used and vulnerable sectors appear to be insufficiently
prioritised. The oversight over the effective implementation of public
procurement rules needs to be reinforced, also in view of the allocation of EU
funds in the coming years.
(19)
The wide-spread application of the
pre-bankruptcy procedure in 2013 met with some success in addressing debt-servicing
problems faced by companies in the context of complex, expensive and lengthy
bankruptcy procedures. However,
there is scope to considerably strengthen the instrument by addressing various
shortcomings, such as insufficient clarification of the role of the state in
the process, strengthening the role of commercial courts in validating claims
and sound restructuring plans, extending the scope of the procedure to allow
for effective restructuring before the debtor becomes insolvent, and addressing
deficiencies in implementation of the law. Despite a number of reforms to
improve the effectiveness of the justice system, judicial proceedings in
litigious civil, commercial and administrative cases are unduly long,
particularly in first instance. The backlog of cases increased in 2013 and is
very high, particularly as regards civil and commercial proceedings. Continued
effort to create and enforce the right incentives to resolve proceedings in a
timely manner and to promote out-of-court settlements, especially in the case
of small claims, is needed to address these issues, as they hamper business
activity and reduce Croatia's attractiveness for foreign direct investment.
(20)
 The conservative approach adopted by the
Croatian National Bank to  macro-prudential regulation, notably in relation to
capital levels, has meant that banks have built up a degree of  resilience that
has proven to be useful given the challenges they now face from the weak
economy. However, with the economy entering its sixth year of recession and
increasing non-performing loans, there are risks to banks' asset quality. It is
welcome that certain portfolios of the four largest Croatian banks, which are
foreign-owned, will be covered by the euro area asset quality review/stress
test of the new Single Supervisory Mechanism. Nevertheless, the exercise
excludes some materially important portfolios from a Croatian perspective, as
portfolios are selected based on their relevance at a banking group level. Furthermore,
the exercise does not cover mid-size and smaller banks, which may have lower
capital levels and less robust asset quality, and which are potentially
important for financial stability. Complementing the Single Supervisory
Mechanism exercise by an additional supervisory diagnostic exercise designed
specifically for the Croatian financial system (and which would cover
significant portfolios of Croatian subsidiaries that are not part of the Single
Supervisory Mechanism exercise, as well as key mid-size and smaller banks)
would improve the overall understanding of banks' loan classification and the
adequacy of their loan loss provisions.
(21)
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Croatia’s economic
policy. It has assessed the convergence programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in Croatia but also their compliance with EU
rules and guidance, given the need to reinforce the overall economic governance
of the European Union by providing EU-level input into future national
decisions. Its recommendations under the European Semester are
reflected in recommendations (1) to (8) below.
(22)
In the light of this assessment, the Council has
examined Croatia’s convergence programme, and its opinion[8] is reflected in
particular in recommendation (1) below.
(23)
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 recommendations (1) to (8) below.
HEREBY RECOMMENDS that Croatia take
action within the period 2014-2015 to:
1.
Fully implement the budgetary measures adopted
for 2014. Reinforce the budgetary strategy, further specifying announced
measures for 2015 and 2016, and considering additional permanent,
growth-friendly measures in order to ensure a sustainable correction of the
excessive deficit by 2016. At the same time, ensure that the structural
adjustment effort as specified in the Council recommendation under the Excessive
Deficit Procedure is delivered. Align programme projections with ESA standards
and Stability and Growth Pact requirements. Take measures to reinforce control
over expenditure. By March 2015, carry out a thorough expenditure review. Reinforce
the budgetary planning process, in particular by improving the accuracy of
macroeconomic and budgetary forecasts and strengthening the binding nature of
the annual and medium-term expenditure ceilings and improve the design of
fiscal rules. By October 2014, ground in law the newly established Fiscal
Policy Commission, strengthen its independence from all budgetary authorities,
broaden its mandate, notably with respect to monitoring of all fiscal rules and
the ex-ante and ex-post assessment of forecasts, and ensure adequate resourcing.
Building on plans outlined in the national reform programme, present a concrete
strategy to reform recurrent property taxation. Initiate a process of reporting
and reviewing of tax expenditures. Improve tax compliance, in particular by
further enhancing the efficiency of the tax administration; present an action
plan to this end by the end of 2014.
2.
Adopt legislation by March 2015 to accelerate
the planned harmonisation of statutory retirement ages of women and men and to
advance the planned increase of the statutory retirement age to 67 years. Reduce
access to early retirement. Ensure enforcement of tighter disability pensions
assessments and controls and accelerate the integration of pensions under
special schemes into the general pension system. Strengthen the
cost-effectiveness of the healthcare sector, including in hospitals.
3.
Implement the second phase of the labour law
reform, following consultation with the social partners, notably as regards
conditions for dismissals and working time, and with a view to preventing
further labour market segmentation including for young people, by March 2015.
Review the wage-setting system with a view to better aligning productivity
developments and wage conditions. Present the conclusions of this review by the
end of 2014. Strengthen the effectiveness and reach of active labour market
policies by reinforcing the administrative capacities of the public employment
services, including at regional level, and by increasing the coverage of the young,
long-term unemployed and older workers.  Prioritise outreach to non-registered
youth and mobilise the private sector to offer more apprenticeships, in line
with the objectives of a youth guarantee. Outline plans, by the end of 2014, to
address undeclared work. Implement measures to improve the labour market
relevance and quality of education outcomes by modernising the qualification
systems, by putting in place quality assurance mechanisms and by improving
school-to-work transitions, notably through strengthening vocational education
and work-based learning.
4.
Review tax and benefits systems by the end of
2014, and present an action plan to improve the reactivation of inactive and
unemployed persons. Strengthen the effectiveness and transparency of the social
protection system by further consolidating benefits, unifying eligibility
criteria and linking data from all relevant levels and government entities in
the "one-stop shop". Improve the effectiveness and adequacy of social
assistance benefits through their better targeting.
5.
Take further measures to improve the business
environment. Notably, by March 2015 set a target for considerably lowering
administrative requirements, including para-fiscal charges. Address the high
level of fragmentation and overlapping responsibilities by streamlining
administrative processes and by clarifying the decision-making and
accountability framework across various levels of government and at central
government level between ministries and agencies. Improve administrative
capacity and strategic planning of units entrusted with the management of
European Structural and Investment Funds and provide them with adequate and
stable staffing levels.
6.
Present, by October 2014, a detailed plan for
public property management for 2015. Ensure that companies under state control
are governed in a transparent and accountable manner, in particular, strengthen
the competency requirements for members of management and supervisory boards
nominated by the state and introduce a public register for appointments. Reinforce
prevention of corruption in public administration and state-owned and
state-controlled enterprises, including by increasing the verification powers
of the Conflict of Interest Commission. Strengthen transparency and efficiency
of public procurement at both central and local levels, and the capacity to monitor
implementation and to detect irregularities.
7.
By the end of 2014 reinforce the role of
commercial courts in the monitoring of transparency and legality in the
application of the corporate pre-bankruptcy procedure. Review the compulsory
test of insolvency/illiquidity to access pre-bankruptcy settlement proceedings
and streamline the insolvency/liquidation process to reduce its length. Improve
the quality and efficiency of the judicial system, in particular by providing incentives
to resolve proceedings in litigious civil and commercial cases and in
administrative cases in a timely manner and to resort to out-of-court
settlement especially for smaller claims.
8.
Complement the 2014 European Central Bank's
asset quality reviews and stress test exercises, undertake a comprehensive
portfolio screening exercise designed specifically for the Croatian financial
sector, with a focus on important portfolios that are not covered by the
European Central Bank exercise and including key mid-size and smaller banks.
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(2014) 412 final.
[4]               P7_TA(2014)0128 and P7_TA(2014)0129.
[5]               COM(2013) 800 final.
[6]               COM(2013) 790 final.
[7]               SWD(2014) 82 final.
[8]               Under Article 9(2) of Council Regulation (EC) No
1466/97.


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31975H0366

75/366/EEC: Council Recommendation of 16 June 1975 concerning nationals of the Grand Duchy of Luxembourg who hold a diploma in medicine conferred in a third country

Official Journal L 167 , 30/06/1975 P. 0020 - 0020 Greek special edition: Chapter 06 Volume 1 P. 0212  Spanish special edition: Chapter 06 Volume 1 P. 0203  Portuguese special edition Chapter 06 Volume 1 P. 0203

COUNCIL RECOMMENDATION  of 16 June 1975  concerning nationals of the Grand Duchy of Luxembourg who hold a diploma in medicine conferred in a third country  (75/366/EEC) THE COUNCIL,  Approving Directive No 75/362/EEC (1) concerning the mutual recognition of diplomas, certificates and other evidence of formal qualifications in medicine, including measures to facilitate the effective exercise of the right of establishment and freedom to provide services;  Noting that this Directive refers only to diplomas, certificates and other evidence of formal qualifications conferred in a Member State;  Anxious, however, to take account of the special position of nationals of the Grand Duchy of Luxembourg who, since there is no complete university training in the Grand Duchy itself, have studied in a third country;  Hereby recommends that the Governments of the Member States should allow nationals of the Grand Duchy of Luxembourg who hold a diploma conferring a degree in medicine awarded in a third country and which has obtained the official recognition of the Minister for Education, in accordance with the law of 18 June 1969 on higher education and the recognition of foreign degrees and diplomas in higher education, to take up and pursue activities as doctors within the Community, by recognizing these diplomas in their territories provided that such diplomas are accompanied by the training certificates endorsed by the Minister for Public Health of the Grand Duchy of Luxembourg.  Done at Luxembourg, 16 June 1975.  For the Council  The President  R. RYAN  (1)See page 1 of this Official Journal.


title: Council Recommendation of 18 February 2014 concerning the discharge to be given to the Commission in respect of the implementation of the operations of the European Development Fund (eighth EDF) for the financial year 2012

text:
               29.8.2014

               EN

               Official Journal of the European Union

               C 289/1

         COUNCIL RECOMMENDATION
   of 18 February 2014
   concerning the discharge to be given to the Commission in respect of the implementation of the operations of the European Development Fund (eighth EDF) for the financial year 2012
   2014/C 289/01
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union,
   Having regard to the fourth ACP-EEC Convention, signed at Lomé on 15 December 1989 (1) and amended by the Agreement signed in Mauritius on 4 November 1995 (2),
   Having regard to the Internal Agreement between the Representatives of the Governments of the Member States, meeting within the Council, on the financing and administration of the Community aid under the Second Financial Protocol to the fourth ACP-EC Convention (3) (the ‘Internal Agreement’) setting up, amongst others, the eighth European Development Fund (eighth EDF), and in particular Article 33(3) thereof,
   Having regard to the Financial Regulation of 16 June 1998 applicable to development finance cooperation under the fourth ACP-EC Convention (4), and in particular Articles 66 to 74 thereof,
   Having examined the revenue and expenditure account and the balance sheet relating to the operations of the eighth EDF as at 31 December 2012, and the Annual Report of the Court of Auditors on the activities funded by the 8th, 9th and 10th European Development Funds (EDFs) (5), concerning the financial year 2012, together with the Commission’s replies contained in that Annual Report,
   Whereas:

               (1)

               Pursuant to Article 33(3) of the Internal Agreement, the discharge for the financial management of the eighth EDF is to be given to the Commission by the European Parliament on the recommendation of the Council.

               (2)

               The overall implementation by the Commission of the operations of the eighth EDF during the financial year 2012 has been satisfactory,

         HEREBY RECOMMENDS that the European Parliament give the Commission a discharge in respect of the implementation of the operations of the eighth EDF for the financial year 2012.

      Done at Brussels, 18 February 2014.

            For the Council

            The President

         G. STOURNARAS

      (1)  OJ L 229, 17.8.1991, p. 3.

      (2)  OJ L 156, 29.5.1998, p. 3.

      (3)  OJ L 156, 29.5.1998, p. 108.

      (4)  OJ L 191, 7.7.1998, p. 53.

      (5)  OJ C 331, 14.11.2013, p. 261.


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52004SC0010

Recommendation for a Council Opinion in accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated stability programme of Finland, 2003-2007  /* SEC/2004/0010 final */

Recommendation for a COUNCIL OPINION in accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Finland, 2003-2007Recommendation for a COUNCIL OPINION in accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Finland, 2003-2007(presented by the Commission)EXPLANATORY MEMORANDUMCouncil Regulation (EC) No. 1466/97, on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies [1], stipulated that countries participating in the single currency were to submit stability programmes to the Council and the Commission by 1 March 1999. In accordance with Article 5 of this Regulation, the Council had to examine each stability programme based on the assessments prepared by the Commission and the Committee set up by Article 114 of the Treaty, the Economic and Financial Committee. The Commission adopted a recommendation on each programme. On the basis of this recommendation and after having consulted the Economic and Financial Committee, the Council delivered an opinion, following its examination of the programme. According to the Regulation, the updated stability programmes, to be presented annually, may also be examined by the Council in accordance with these same procedures.[1]  OJ L 209, 2.8.1997. The documents referred to in this text can be found at the following web siteFinland's first stability programme covering the period 1998-2002 was submitted on 7 September 1998 and assessed by the Council on 12 October 1998 [2]. Finland submitted the fifth and most recent updated stability programme, covering the period 2003-2007, on 27 November 2003. [2]  OJ C 372, 2.12.1998.The Commission services have carried out a technical evaluation of this updated programme,  taking into account the information provided in accordance with the Code of Conduct [3], the Autumn forecasts as well as subsequent evaluations, the commonly agreed methodology for the estimation of cyclically-adjusted balances, the recommendations in the Broad Economic Policy Guidelines and the principles laid down in the Communication of the Commission to the Council of 27 November 2002 on strengthening the coordination of budgetary policies [4]. This evaluation warrants the following assessment:[3]  Revised Opinion of the Economic and Financial Committee on the content and format of stability and converge programmes, document EFC/ECFIN/404/01 - REV 1 of 27.6.2001 endorsed by the Ecofin Council on 10.7.2001.[4]  COM(2002) 668 final, 27.11.2002.The new update of the Finnish stability programme presents macro-economic and government finance projections for the period 2003-07. The update is broadly in line with the revised "code of conduct on the content and format of stability and convergence programmes"The November 2003 update of the Finnish stability programme foresees a marked acceleration of GDP growth to 2.7% in 2004, almost double the growth rate expected for 2003. Between 2005 and 2007, growth is projected at around 2½% p.a. exceeding the potential output by nearly ½ percentage point. Consequently, the negative output gap is seen to close in the last year of the programme period, from a gap of over 1.3 p.p. in 2003 due to the downturn in economic activity. This fifth update of the stability programme assumes, from 2004 onwards, a broadly similar profile of output as the previous programme. Growth contributions from different demand components have been modified somewhat, as the external contribution appears stronger in the current programme whereas support from domestic demand is slightly weaker. In 2003, employment creation has been relatively resilient to the slowdown in activity. Consequently, unemployment is expected to remain unchanged at a rate of 9.1% in 2003 and with growth accelerating, to decline from 2004 onwards. Inflation is expected to bottom out at 0.7% by 2004 [5] due mainly to tax cuts on alcohol beverages and the absence of external price shocks, and thereafter resumes its earlier trend of around 2% as economy expands and the impact of the tax cuts phases out. Apart from a higher growth estimate for 2004, the programme's short-term projections compare reasonably well with the Commission's own evaluation, notably the Autumn 2003 forecast.[5]  Due to the end of the transition period for free import of alcohol and tobacco from other EU countries and the acceding countries joining the EU amounting to a estimated loss of tax revenue amounting to close to 0.4% of GDP.The updated programme foresees a significant decline in the general government surplus from 4.2% of GDP in 2002 to 1.7% in 2004. This is due partly to cyclical factors, which weaken the financial position of the central government, and partly to increased spending introduced in the new government's programme. In addition, according to the programme, increasing external tax competition will make for some erosion in tax bases. In 2005 and beyond, the surplus is expected to edge up only slightly and stabilise somewhat above 2% of GDP, despite growth exceeding potential. Nevertheless, the projected path of the government balance shows that public finances in Finland will provide necessary safety margin against a breach of the 3% of GDP reference value throughout the programme period. The major contribution to the trend fall in the surplus ratio comes from the deterioration of central government finances which are estimated to slip into deficit as from 2003. As a result, the updated programme suggests that the government's aim of having central government finances in balance at the end of its term in 2007 will not be met. Furthermore, local government finances are foreseen to remain in deficit throughout the programme period. Indeed, according to the programme, the general government financial surplus in 2003-07 rests solely on the surplus of the social security funds and, moreover, on that of the earnings-related pension funds preparing for financial pressures stemming from an ageing population. The cyclically-adjusted balance is projected to decline by over ½ percentage points of GDP in 2003-05. Still, according to the programme, the cyclically-adjusted budgetary surplus should remain higher than 2% of GDP throughout the programme period. This should still leave enough leeway against any normal fluctuations in activity. The cyclically-adjusted surplus is forecast to fall by 0.2 percentage points of GDP between 2005 and 2007. These are broadly in line with the Commission cyclically adjusted balance calculations.The latest programme projects general government debt to fall at a somewhat faster pace (-0.3 p.p.) between 2003 and 2004 than the 2002 programme, although the debt ratio was less favourable than targeted in 2002. However, unlike in the previous programme, a rise in the debt ratio is expected for 2004-06, owing to a slightly lower nominal GDP estimate and deficit in central government finances [6]. In addition, the process of debt reduction is hampered by financial transactions i.e. the ongoing diversification of social security institutions' assets away from central government bonds and to the accumulation of earnings-related pension fund assets of the central government. [6]  There has been a technical change in the classification of central government debt, the repo portfolio i.e. central government debt held by the State Treasury itself has been removed from the Treasury's balance sheet as it was no longer needed for government debt servicing. As a result, the debt ratio to GDP has increased by 3.2 percentage points in 2003 compared with the previous programme.The government programme includes a plan to cut income taxes by at least EUR 1.12 billion or 0.8% of GDP during its term with a view to boosting employment creation. According to the update, the bulk of these tax cuts have been frontloaded into the 2004 budget proposal. This measure can be justified against the background of the cyclical slowdown and the earlier healthy budgetary position and a high overall tax burden on labour. Moreover, the tax cut is accompanied by tight multi-annual spending ceilings in the central government finances in 2004-07. The update foresees general government expenditure to remain at a virtually constant 48¾% of GDP between 2003 and 2007. While rising social transfers and local government financing will exert upward pressure, the multi-annual spending limits implemented by the new government are to keep expenditure under tight control. According to the update, central government expenditure in the 2004 budget proposal, excluding interest payments, is up by 4% in real terms from 2003. Half of the overrun derives from appropriations increases forced by current legislation and decisions made by the previous government, and the other half from the spending increases and compensations included in the new government's programme. The 2004 budget proposal is keeping with that recommendation since central government expenditure is forecast to be below the spending ceilings agreed in May 2003.The recently adopted legislation requires municipalities to maintain a balance in their finances over a three-year planning period. Yet, according to the programme, local government finances are expected to show deficits over the whole period from 2003 to 2007. Therefore, the government needs to strengthen implementation of the legislation through careful monitoring [7] of municipal finances. [7]  Local governments are administratively fairly independent in Finland.The 2003 updated programme contains a detailed section on the sustainability of public finances, supplemented by national budgetary projections for public expenditures and revenues up to 2050. They show that age-related expenditures are projected to increase by some 6 percentage points of GDP between 2005 and 2050, while revenues are projected to increase by some 1 percentage point of GDP over the same period. Nevertheless, public finances in Finland seem relatively well set toward meeting the budgetary consequences on ageing population. This is largely reflected by the sustained running of a budget surplus which is leading to a rather swift pace of debt reduction in the long term. Even though the general government surplus is set to decline somewhat over the programme period, gross debt will continue to fall over the coming two decades, as a result of an explicit policy goal. In addition, the sustainability of public finances is supported by a pension system that is to a large extent pre-funded [8]. The recent reforms [9] of pension and unemployment insurance systems should help to contain the long-term expenditure pressures [10]. Some of the budgetary benefits, however, seem to materialise with a considerable lag. [8]  The market value of statutory earnings-related pension funds assets was some 51% of GDP in 2002.[9]  E.g. termination of certain early-retirement schemes, incentives to encourage older workers to remain in the labour force and mechanisms to adjust pension entitlements in line with changes in life expectancy.[10]  Still, further steps are planned, inter alia dealing with pension systems in the public sector.A long-term challenge may result from the fact that the projected sustainability of public finances is based on the assumption of a tax ratio of close to 44% of GDP in coming decades. An overall tax burden of that level would be relatively high when compared with other industrialised countries. Apart from the current concerns about the disincentives of high labour costs for job creation, the desirability of maintaining such high tax ratios over the very long run may also be contested by the increasing mobility of production factors (and consequently tax bases) in the context of globalisation.The updated programme largely adheres to the recommendations by the Council in the Broad Economic Policy Guidelines (BEPGs) of 2003-05, as the government has introduced the multi-annual spending limits to control budgetary expenditures and put forward measures to reduce structural employment and enhance competition. In addition measures have been taken to improve the efficiency of the public sector.Based on this assessment, the Commission has adopted the attached recommendation for a Council opinion on the Stability Programme update of Finland and is forwarding it to the Council.Recommendation for a COUNCIL OPINION in accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Finland, 2003-2007THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,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 co-ordination of economic policies [11], and in particular Article 5 (3) thereof, [11]  OJ L 209, 2.8.1997. The documents referred to in this text can be found at the following web siteHaving regard to the recommendation of the Commission,After consulting the Economic and Financial Committee, HAS DELIVERED THIS OPINION: On [20 January 2004] the Council examined Finland's updated stability programme, which covers the period 2003-2007. The updated programme broadly complies with the data requirements of the revised "code of conduct" on the content and format of stability and convergence programmes.The budgetary strategy underlying the update is based on keeping the expenditure-to-GDP ratio unchanged throughout the programme period, while the revenue ratio, after a temporary decline in 2004 is to resume a gradual upward trend towards the end of the programme period. The government's budgetary strategy objective is to have central government finances in balance by 2007,however, according the programme this target will not achieved under the current medium-term projections. The macroeconomic scenario presented in the 2003 updated stability programme projects a strengthening of economic activity from 1.4% in 2003 to 2.7% in 2004, which appears warranted on the light of most recent data. Subsequently, GDP growth is expected to reach its trend rate, averaging 2.5% between 2005 and 2007. Employment falling by 0.2% in 2003, is expected go up by 0.3% on average in 2004-2007. Inflation is forecast to rise gradually from 1.0% in 2003 towards 1.8% by 2007. The near-term projections are closely in line with Commission Autumn 2003 forecast. Given the assumption of a favourable external environment, the projected stabilisation of GDP growth in the later years of the programme represents a rather cautious view. The programme projects a substantial decline in the general government surplus from 4.2% of GDP in 2002 to 2.3% in 2003 and below 2% in 2004 [12] [11 [10 [9 [8 [7 [6 [5 [4 [3 [2 [1 [12 [11 [10 [9 [8 [7 [6 [5 [4 [3 [2 [1]. For the later years of the programme a surplus of 2% or above is to be restored, in line with the newly defined expenditure ceilings. Both the central government and to a smaller degree local governments, account for the trend weakening of the financial position between 2003-07, while the social security funds will be upholding the surplus at the general government level. The projected decline in the cyclically adjusted surplus by 0.6 percentage points of GDP between 2003-05, is partly due to direct (income) and indirect (alcohol) tax cuts and lower receipts from corporate taxes. The cyclically adjusted surplus is seen to fall from 4.3% of GDP in 2002 to 3.0% in 2003 and further in 2004 to 2.4%. In 2005 and beyond the cyclically adjusted surplus will stabilise over 2% of GDP. These are broadly in line with the Commission cyclically adjusted balance calculations. In spite of the higher than expected outcome in 2002, the general government debt to GDP ratio is projected to continue to decline modestly, from 45.1% of GDP in 2003 to 44.6% of GDP in 2007.[12]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[2]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[3]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[4]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[5]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[6]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[7]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[8]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[9]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[10]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[11]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[12]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[1]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[2]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[3]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[4]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[5]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[6]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[7]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[8]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[9]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[10]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[11]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.[12]  With the exception of 2002, the general government surpluses have been revised downwards for the whole programme period.In spite of the expected persistent small deficits in central and local government finances, the budgetary stance in the programme of running a comfortable general government surplus should provide sufficient safety margin against a breach of the 3% of GDP reference value for the government deficit in normal cyclical fluctuations.The decline in the government surplus is mainly due to higher-than-planned income tax cuts in 2000-04 and higher-than-planned discretionary spending at central government level in 2001-03. The previous high surpluses have created some additional fiscal room for manoeuvre, such that under plausible macro-economic and budgetary assumptions, the medium-term objective of a budgetary position of close-to-balance or in surplus should be maintained over the programme period. However, a systematic tendency of exceeding the medium-term spending guidelines, as observed in the past, constitutes a risk to the government's budgetary strategy. Therefore, the multi-annual spending limits introduced by the new government should be considered more binding in order to keep expenditure under control. The stability programme pays due attention to the sustainability of public finances. On the basis of current policies, public finances appear to be on a sustainable footing to meet the budgetary costs of ageing populations, benefiting from the sustained running of budget surpluses, and a reformed pension system that is to large extent pre-funded. Sustainability should also be underpinned by reforms, both planned and underway, which aim at raising the employment rate, and the Finnish authorities should proceed with their implementation according to the time frame indicated in the stability programme.The overall tax burden in Finland is high compared with other industrialised countries. The recent tax cuts and some further measures planned are intended not only to boost employment and job creation, but also to stem the erosion of tax bases as a consequence of the increasing international mobility of production factors (labour and capital). In order to safeguard the achievements of the past decade of placing public finances on a sustainable path, strict compliance with the newly defined expenditure ceilings will be all the more crucial.The economic policies as presented in the updated programme are broadly consistent with the Broad Economic Policy Guidelines, which recommended for Finland, inter alia, the introduction of multi-annual spending limits and the reduction of the high level of structural unemployment.