title: Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of Estonia and delivering a Council opinion on the Stability Programme of Estonia, 2014

text:
               29.7.2014

               EN

               Official Journal of the European Union

               C 247/25

         COUNCIL RECOMMENDATION
   of 8 July 2014
   on the National Reform Programme 2014 of Estonia and delivering a Council opinion on the Stability Programme of Estonia, 2014
   2014/C 247/06
   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 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 focuses 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, it adopted a decision on guidelines for the employment policies of the Member States (2), 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 Member States' 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)

               On 9 July 2013, the Council adopted a Recommendation (3) on Estonia's National Reform Programme for 2013 and delivered its opinion on Estonia's updated Stability Programme for 2012‐2017. On 15 November 2013, in line with Regulation (EU) No 473/2013 of the European Parliament and of the Council (4), the Commission presented its opinion on Estonia's draft budgetary plan for 2014.

               (5)

               On 13 November 2013, the Commission adopted the Annual Growth Survey, marking the start of the 2014 European Semester for economic policy coordination. Also, on 13 November 2013, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (5), adopted the Alert Mechanism Report, in which Estonia was not identified 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 8 May 2014, Estonia submitted its 2014 National Reform Programme and on 29 April 2014 its 2014 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)

               The objective of the budgetary strategy outlined in the 2014 Stability Programme is to be at the medium‐term objective maintained throughout the programme and to build sufficient fiscal buffers for difficult economic times. The Stability Programme confirms the previous medium‐term objective of a structural surplus, which is more stringent than what the Stability and Growth Pact requires. Estonia's recalculated structural balance is expected to worsen by 0,1 percentage points of GDP in 2014, thereby deviating from the required adjustment path, before improving by 0,4 percentage points of GDP in 2015, and remaining close to balance in 2016‐2017. Furthermore, the Stability Programme points to a risk of deviation from the expenditure benchmark in 2014 and to a risk of a significant deviation in 2015. Overall, the planned adjustment path towards the medium‐term objective presents risks with respect to compliance with the requirements of the Stability and Growth Pact.

               (9)

               The macroeconomic scenario underpinning the fiscal projections in the Stability Programme, which has not been endorsed by an independent entity, is plausible and broadly in line with the Commission services 2014 Spring Forecast. According to that forecast, the structural deficit is projected to deteriorate by 0,1 % of GDP in 2014, leading to a 0,3 % of GDP gap compared to the required adjustment and a significant deviation when assessed over two years. In 2015, the Commission foresees another 0,2 % of GDP deterioration in the structural balance pointing to significant deviation from the required adjustment toward the medium‐term objective. A significant deviation is expected also with respect to the expenditure benchmark over 2014‐2015. Based on the assessment of the 2014 Stability Programme and the Commission forecast, pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that there is a risk of significant deviation from the medium‐term objective in 2014 and 2015. The structural balance rule to comply with the Treaty on Stability, Coordination and Governance entered into force through Estonia's new State Budget Act on 23 March 2014, but the rule is still to be complemented by a strengthening of the binding nature of the multiannual expenditure targets.

               (10)

               As regards the labour market, substantial progress has been made in reducing youth and long‐term unemployment. Particular attention needs to be paid to measures that provide incentives to work for low income earners. Further efforts are necessary to address growing work‐force shortages, including those caused by ageing and health‐and disability‐related exits from the labour market. The timely adoption and implementation of the Work Capacity Reform, while ensuring the availability of enabling services, is therefore highly relevant. The cost‐effectiveness of the family policy expenditure could be further improved, including by fostering access to childcare. This is expected to foster an early return of women to the labour market and to reduce the persistently high gender pay gap. Efforts to promote entrepreneurship and job creation in regions outside Tallinn and Tartu need to be stepped up to prevent economic development differentials from widening and to reduce unemployment, especially among the low‐skilled.

               (11)

               In the field of education and training, reforms to align education to the requirements of the labour market have recently been adopted. Further efforts will be necessary to facilitate the transition from education to employment. Systematic efforts will be needed, in particular involving social partners, to increase participation in vocational education and training, and in work‐based learning, especially apprenticeships. The implementation of the Lifelong Learning Strategy will require serious efforts to provide the much‐needed up‐skilling, re‐skilling and qualification levels, especially for people in a weak position vis‐à‐vis the labour market. There is a smart specialisation framework that comprises the Entrepreneurship and Growth Strategy and the Research, Development and Innovation Strategy with a focus on shared priorities while further specialising the thematic areas. Efforts should continue towards the internationalisation and prioritisation of the research and development and innovation system, given the small size of the economy.

               (12)

               Estonia's resource intensity continues to be very high. There has been progress in addressing the energy efficiency of public buildings, but efforts need to be sustained and increased, in particular in the residential and industrial sectors. Substantial progress has been made with respect to waste management and landfilling, while the economic viability of recycling needs to be ensured. Measures in the Transport Development Plan need to be implemented, in particular, to enable Estonia to contain CO2 emissions in the non‐ETS sector. The energy efficiency of freight transport can be improved by deploying more sustainable modes of transport. The use of public transport can be further increased through enhancing the complementarity of regional networks and interconnections between coach and passenger rail transport. The use of private cars is increasing, while the average age of the passenger car fleet is almost double the EU average and new passenger cars are among the most pollutant in the Union. Substantial strengthening of environmental incentives, including taxation, is necessary. While promising steps have been taken in cross‐border energy connections, the full linking up of Estonia's energy market to the Union will require time and investment.

               (13)

               Widening regional differences combined with negative demographic trends, inefficiencies and lack of cooperation among local governments hamper Estonia's development potential. This partly reflects the persistent mismatch between fiscal capacity and devolved responsibilities in small municipalities as well as limited economies of scale. A more efficient and accessible delivery of quality public services at local level, based on service areas and minimum service standards, especially in transport, long‐term care, early childhood education and social services, is a prerequisite for activation and labour market measures to be effective.

               (14)

               In the context of the European Semester, the Commission has carried out a comprehensive analysis of Estonia's economic policy. It has assessed the National Reform Programme and the Stability Programme. It has taken into account not only their relevance for sustainable fiscal and socio‐economic policy in Estonia but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU‐level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (5) below.

               (15)

               In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below.

               (16)

               In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On this basis, the Council has issued specific recommendations addressed to the Member States whose currency is the euro (7). As a country whose currency is the euro, Estonia should also ensure the full and timely implementation of those recommendations,

         HEREBY RECOMMENDS that Estonia take action within the period 2014‐2015 to:

               1.

               Reinforce the budgetary measures for 2014 in the light of the emerging gap of 0,3 % of GDP based on the Commission services 2014 spring forecast, pointing to a risk of significant deviation relative to the preventive arm of the Stability and Growth Pact requirements. In 2015, significantly strengthen the budgetary strategy to ensure that the medium‐term objective is reached and, thereafter, maintained. Complement the budget rule with more binding multi‐annual expenditure rules within the medium‐term budgetary framework and continue to enhance the efficiency of public spending.

               2.

               Improve incentives to work through measures targeted at low income earners. Target activation efforts by ensuring the timely adoption and implementation of the work capacity reform. Increase the efficiency and cost‐effectiveness of family policy while improving the availability and accessibility of childcare. Deploy coordinated measures for fostering economic development and entrepreneurship in regions faced with high unemployment.

               3.

               To ensure the labour‐market relevance of education and training systems, improve skills and qualification levels by expanding lifelong learning measures and systematically increasing participation in vocational education and training, including in apprenticeships. Further intensify prioritisation and specialisation in the research and innovation systems and enhance cooperation between businesses, higher education and research institutions to contribute to international competitiveness.

               4.

               Step up efforts to improve energy efficiency, in particular in residential and industrial buildings. Substantially strengthen environmental incentives for the transport sector to contribute to less resource‐intensive mobility. Continue the development of cross‐border connections to neighbouring Member States to diversify energy sources and promote competition through improved integration of the Baltic energy markets.

               5.

               Better balance local government revenue against devolved responsibilities. Improve the efficiency of local governments and ensure the provision of quality public services at local level, especially social services complementing activation measures.

      Done at Brussels, 8 July 2014.

            For the Council

            The President

         P. C. PADOAN

      (1)  OJ L 209, 2.8.1997, p. 1.

      (2)  Maintained for 2014 by Council Decision 2014/322/EU of 6 May 2014 on guidelines for the employment policies of the Member States for 2014 (OJ L 165, 4.6.2014, p. 49).

      (3)  OJ C 217, 30.7.2013, p. 21.

      (4)  Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, p.11).

      (5)  Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (OJ L 306, 23.11.2011, p. 25).

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

      (7)  See page 141 of the current Official Journal.


title: Commission Recommendation of 27 October 2011 on the digitisation and online accessibility of cultural material and digital preservation

text:
               29.10.2011

               EN

               Official Journal of the European Union

               L 283/39

         COMMISSION RECOMMENDATION
   of 27 October 2011
   on the digitisation and online accessibility of cultural material and digital preservation
   (2011/711/EU)
   THE EUROPEAN COMMISSION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular Article 292 thereof,
   Whereas:

               (1)

               The Digital Agenda for Europe seeks to optimise the benefits of information technologies for economic growth, job creation and the quality of life of European citizens, as part of the Europe 2020 strategy. The digitisation and preservation of Europe’s cultural memory which includes print (books, journals and newspapers), photographs, museum objects, archival documents, sound and audiovisual material, monuments and archaeological sites (hereinafter ‘cultural material’) is one of the key areas tackled by the Digital Agenda.

               (2)

               The EU’s strategy for digitisation and preservation builds on the work done over the last few years in the digital libraries initiative. The European actions in this area, including the development of Europeana, Europe’s digital library archive and museum, were supported by the European Parliament and the Council, most recently in a Parliament resolution of 5 May 2010 and the Council Conclusions of 10 May 2010. The Workplan for Culture 2011-14, established by the Council at its meeting of 18 and 19 November 2010, highlights the need for a coordinated effort in the area of digitisation.

               (3)

               On 28 August 2006, the Commission issued a Recommendation to the Member States with a view to optimising, by means of the Internet, the economic and cultural potential of Europe’s cultural heritage. The Member States’ reports on the implementation of the Recommendation of 2008 and 2010 show that progress has been made. However, progress is not consistent across the Member States and is uneven for the different points of the Recommendation.

               (4)

               Moreover the context for digitisation efforts and for collaboration at European level has changed considerably over the last few years. New elements include the launch of Europeana in November 2008, the publication of the report ‘The New Renaissance’ by the ‘Comité des Sages on bringing Europe’s cultural heritage online’ of 10 January 2011 and the Commission’s proposal for an Orphan Works Directive of 24 May 2011.

               (5)

               Therefore, an updated set of measures for digitising and bringing cultural heritage online and for digital preservation should be recommended to the Member States. In that context, the development of digitised material from libraries, archives and museums should be further encouraged in order to ensure that Europe maintains its place as a leading international player in the field of culture and creative content and uses its wealth of cultural material in the best possible way. As underlined by the ‘Comité des Sages on bringing Europe’s cultural heritage online’, Europe needs to act now to reap the benefits of digitisation and digital preservation. If Member States do not step up their investments in this area, there is a risk that the cultural and economic benefits of the digital shift will materialise in other continents and not in Europe.

               (6)

               The online accessibility of cultural material will make it possible for citizens throughout Europe to access and use it for leisure, studies or work. It will give Europe’s diverse and multilingual heritage a clear profile on the Internet, and the digitisation of their assets will help Europe’s cultural institutions to continue carrying out their mission of giving access to and preserving our heritage in the digital environment.

               (7)

               Moreover, the digitised material can be reused – for both commercial and non-commercial purposes – for uses such as developing learning and educational content, documentaries, tourism applications, games, animations and design tools, provided that this is done with full respect for copyright and related rights. This will give an important input to the creative industries, which account for 3,3 % of EU GDP and 3 % of employment. These industries are faced with a digital transition that is shaking up traditional models, transforming value chains and calling for new business models. Digitising and providing wider access to cultural resources offers enormous economic opportunities and is an essential condition for the further development of Europe’s cultural and creative capacities and of its industrial presence in this field.

               (8)

               Digitisation is an important means for ensuring greater access to and use of cultural material. Concerted action by the Member States to digitise their cultural heritage would lend greater coherence to the selection of material and would avoid overlap in digitisation. It would also lead to a more secure climate for companies investing in digitisation technologies. Overviews of current and planned digitisation activities and quantitative targets for digitisation would contribute to achieving those objectives.

               (9)

               The cost of digitising the whole of Europe’s cultural heritage is high and cannot be covered by public funding alone. Private sector sponsoring of digitisation or partnerships between the public and private sectors can involve private entities in digitisation efforts and should be further encouraged. In order to be fair and balanced, these partnerships should comply with a number of key principles. In particular it is necessary to set time limits for the preferential use of the digitised material. The ‘Comité des Sages on bringing Europe’s cultural heritage online’ indicated that the maximum time for preferential use of the material digitised in public-private partnerships should not be longer than 7 years.

               (10)

               The EU Structural Funds can be and are being used to co-fund digitisation activities as part of projects having an impact on the regional economy. However, such use could be more widespread and systematic. Mass digitisation processes can gain in efficiency due to scale. Therefore, the efficient use of digitisation capacity and, where possible, the sharing of digitisation equipment between cultural institutions and countries should be encouraged.

               (11)

               Only part of the material held by libraries, archives and museums is in the public domain, in the sense that it is not or is no longer covered by intellectual property rights, while the rest is protected by intellectual property rights. Since intellectual property rights are a key tool to stimulate creativity, Europe’s cultural material should be digitised, made available and preserved in full respect of copyright and related rights.

               (12)

               On 24 May 2011 the Commission made a proposal for a Directive for orphan works. In order to have its full effect it should be rapidly adopted and implemented to ensure a harmonised approach to the issue of orphan works throughout the EU. For the large-scale digitisation of out-of-commerce works, legislative backing for licensing solutions voluntarily developed by stakeholders may be needed in the Member States, taking into account the need to ensure a cross-border effect. In this context, the approach followed in the stakeholders’ dialogue, sponsored by the Commission, on out-of-commerce books and learned journals, which resulted in a Memorandum of Understanding signed in Brussels on 20 September 2011, should be seen as a model for further dialogues to facilitate agreements for the digitisation of as much of the out-of-commerce material as possible. Rights information databases connected at European level can bring down transaction costs for rights clearance. Such mechanisms should therefore be encouraged in close cooperation with all stakeholders.

               (13)

               In order to allow wide access to and use of public domain content, it is necessary to ensure that public domain content remains in the public domain once digitised. The use of intrusive watermarks or other visual protection measures on copies of public domain material as a sign of ownership or provenance should be avoided.

               (14)

               Europeana, Europe’s digital library, archive and museum, was launched on 20 November 2008. The further development of the Europeana platform will depend to a large extent on the way the Member States and their cultural institutions feed it with content, and make it visible to citizens. Measures to achieve this effect should be encouraged.

               (15)

               Currently, Europeana gives direct access to more than 19 million digitised objects. Only 2 % of these objects are sound or audiovisual material. Increasing the content accessible through Europeana, including types of material that are currently underrepresented, will make the site more interesting for the users, and should therefore be encouraged. The overall target of 30 million objects by 2015 is in line with Europeana’s strategic plan, and a stepping stone for getting Europe’s entire cultural heritage digitised by 2025. The availability of all public domain masterpieces (key cultural or historical works and objects, as determined and selected by the Member States) through Europeana will enrich the content of the site, in line with the expectations of the users. Provisions in the Member States ensuring that all material digitised with public funding is made available through Europeana would boost the development of the platform and create a clear framework for the content contribution by cultural institutions, and the introduction of such provisions should therefore be encouraged.

               (16)

               Digital material has to be managed and maintained, otherwise files may be unreadable when the hardware and software used to store them becomes obsolete, material may be lost when storage devices deteriorate over time, and storage devices could be overwhelmed by the sheer volume of new and changing content. In spite of progress made across the EU on the preservation of digital material, in several Member States no clear and comprehensive policies are in place on the preservation of digital content. The absence of such policies poses a threat to the survival of digitised material and may also result in the loss of material produced in digital format (born digital material). The development of effective means of digital preservation has far-reaching implications that go beyond cultural institutions. Questions of digital preservation are relevant for any private or public organisation, which is obliged or which wishes to preserve digital material.

               (17)

               Digital preservation poses challenges of a financial, organisational, and technical nature and sometimes requires an update of legislative provisions. Several Member States have introduced or are considering legal obligations requiring producers of digital material to make one or more copies of their material available to a mandated deposit body. Efficient provisions and practices for legal deposit can minimise the administrative burden on content holders and deposit institutions alike, and should therefore be recommended. Effective collaboration between Member States is necessary to avoid a wide variation in the rules governing the deposit of digital material and should be encouraged. Web-harvesting is a new technique for collecting material from the Internet for preservation purposes. It involves mandated institutions actively collecting material instead of waiting for it to be deposited, thus minimising the administrative burden on producers of digital material, and national legislation should therefore make provision for it.

               (18)

               In as far as cinematographic works are concerned the present Recommendation complements the Parliament and Council Recommendation of 16 November 2005 on film heritage and the competitiveness of related industrial activities (1) on a number of aspects,

         HEREBY RECOMMENDS THAT MEMBER STATES:

      Digitisation: organisation and funding

               1.

               further develop their planning and monitoring of the digitisation of books, journals, newspapers, photographs, museum objects, archival documents, sound and audiovisual material, monuments and archaeological sites (hereinafter ‘cultural material’) by:

                           (a)

                           setting clear quantitative targets for the digitisation of cultural material, in line with the overall targets mentioned under point 7, indicating the expected increase in digitised material which could form part of Europeana, and the budgets allocated by public authorities;

                           (b)

                           creating overviews of digitised cultural material and contributing to collaborative efforts to establish an overview at European level with comparable figures;

               2.

               encourage partnerships between cultural institutions and the private sector in order to create new ways of funding digitisation of cultural material and to stimulate innovative uses of the material, while ensuring that public private partnerships for digitisation are fair and balanced, and in line with the conditions indicated in the Annex;

               3.

               make use of the EU’s Structural Funds, where possible, to co-finance digitisation activities in the framework of regional innovation strategies for smart specialisation;

               4.

               consider ways to optimise the use of digitisation capacity and achieve economies of scale, which may imply the pooling of digitisation efforts by cultural institutions and cross-border collaboration, building on competence centres for digitisation in Europe;

      Digitisation and online accessibility of public domain material

               5.

               improve access to and use of digitised cultural material that is in the public domain by:

                           (a)

                           ensuring that material in the public domain remains in the public domain after digitisation;

                           (b)

                           promoting the widest possible access to digitised public domain material as well as the widest possible reuse of the material for non-commercial and commercial purposes;

                           (c)

                           taking measures to limit the use of intrusive watermarks or other visual protection measures that reduce the usability of the digitised public domain material;

      Digitisation and online accessibility of in-copyright material

               6.

               improve conditions for the digitisation and online accessibility of in-copyright material by:

                           (a)

                           rapid and correct transposition and implementation of the provisions of the Directive on orphan works, once it is adopted, with consultation of interested parties ahead of adoption in order to facilitate a rapid implementation; a close monitoring of the Directive’s application once it is adopted;

                           (b)

                           creating the legal framework conditions to underpin licensing mechanisms identified and agreed by stakeholders for the large-scale digitisation and cross-border accessibility of works that are out-of-commerce;

                           (c)

                           contributing to and promoting the availability of databases with rights information, connected at the European level, such as ARROW;

      Europeana

               7.

               contribute to the further development of Europeana by:

                           (a)

                           encouraging cultural institutions as well as publishers and other rightholders to make their digitised material accessible through Europeana, thus helping the platform to give direct access to 30 million digitised objects by 2015, including two million sound or audiovisual objects;

                           (b)

                           making all public funding for future digitisation projects conditional on the accessibility of the digitised material through Europeana;

                           (c)

                           ensuring that all their public domain masterpieces will be accessible through Europeana by 2015;

                           (d)

                           setting up or reinforcing national aggregators bringing content from different domains into Europeana, and contributing to cross-border aggregators in specific domains or for specific topics, which may bring about economies of scale;

                           (e)

                           ensuring the use of common digitisation standards defined by Europeana in collaboration with the cultural institutions in order to achieve interoperability of the digitised material at European level, as well as the systematic use of permanent identifiers;

                           (f)

                           ensuring the wide and free availability of existing metadata (descriptions of digital objects) produced by cultural institutions, for reuse through services such as Europeana and for innovative applications;

                           (g)

                           establishing a communication plan to raise awareness of Europeana among the general public and notably in schools, in collaboration with the cultural institutions contributing content to the site;

      Digital preservation

               8.

               reinforce national strategies for the long-term preservation of digital material, update action plans implementing the strategies, and exchange information with each other on the strategies and action plans;

               9.

               make explicit and clear provision in their legislation so as to allow multiple copying and migration of digital cultural material by public institutions for preservation purposes, in full respect of European Union and international legislation on intellectual property rights;

               10.

               make the necessary arrangements for the deposit of material created in digital format in order to guarantee its long-term preservation, and improve the efficiency of existing deposit arrangements for material created in digital format by:

                           (a)

                           ensuring that rightholders deliver works to legal deposit libraries without technical protection measures, or that, alternatively, they make available to legal deposit libraries the means to ensure that the technical protection measures do not impede the acts that libraries have to undertake for preservation purposes, in full respect of European Union and international legislation on intellectual property rights;

                           (b)

                           where relevant, making legal provision to allow the transfer of digital legal deposit works from one legal deposit library to other deposit libraries that also have the right to these works;

                           (c)

                           allowing the preservation of web-content by mandated institutions using techniques for collecting material from the Internet such as web-harvesting, in full respect of European Union and international legislation on intellectual property rights;

               11.

               taking into account developments in other Member States, when establishing or updating policies and procedures for the deposit of material originally created in digital format, in order to prevent a wide variation in depositing arrangements;

      Follow-up to this Recommendation

               12.

               inform the Commission 24 months from the publication of this Recommendation in the Official Journal of the European Union, and every 2 years thereafter, of action taken in response to this Recommendation.

      Done at Brussels, 27 October 2011.

            For the Commission

         Neelie KROES

            Vice-President

      (1)  OJ L 323, 9.12.2005, p. 57.

      ANNEX I

         PUBLIC-PRIVATE PARTNERSHIPS FOR DIGITISATION

      In order to make rapid progress on the digitisation of our cultural heritage, public funding for digitisation needs to be complemented by private investment. Therefore, the Commission encourages public-private partnerships for the digitisation of cultural material.
      It calls on the Member States to stimulate such partnerships, which should comply with the following key principles:
      1.   Respect for intellectual property rights

      Public-private partnerships for the digitisation of collections in cultural institutions should fully respect the European Union and international legislation on intellectual property rights.
      2.   Non-exclusivity

      The agreements for digitising public domain material should be non-exclusive in the sense that any other private partner should have the possibility to digitise the same material under comparable conditions.
      A period of preferential commercial use or preferential commercial exploitation may be necessary in order to give the private partner the possibility to recoup its investment. This period should be limited in time and as short as possible, in order to respect the principle that public domain material should stay in the public domain once it is digitised. The period of preferential use should not be longer than 7 years.
      Agreements should be fully compliant with EU competition rules.
      3.   Transparency of the process

      Agreements for the digitisation of collections held by cultural institutions should be awarded after an open competition between potential private partners.
      4.   Transparency of agreements

      The content of agreements between cultural institutions and private partners for the digitisation of cultural collections should be made public.
      5.   Accessibility through Europeana

      The conclusion of a public-private partnership should be conditional on the accessibility of the digitised material through Europeana.
      6.   Key criteria

      Key criteria for assessing proposals for a public-private partnership are the following:

                  —

                  The total investment to be made by the private partner, taking into account the effort required by the public partner.

                  —

                  The accessibility of the digitised material for the general public, including through Europeana. Partnerships models where the end-user has free access to the digitised material should be encouraged over models where the end-user has to pay for accessing the material.

                  —

                  Cross-border access. Partnership agreements must result in cross-border access for all.

                  —

                  The length of any period of preferential commercial use of the digitised material by the private partner. This period should be as short as possible.

                  —

                  The envisaged digitisation quality, and the quality of the files that will be given to the cultural institutions. The private partner should provide cultural institutions with digitised files of the same quality as the ones it uses itself.

                  —

                  The use that the cultural institutions can make of the digitised material in non-commercial contexts. This use should be as wide as possible, and not limited by technical or contractual restrictions.

                  —

                  The time-scale of the digitisation project.

      ANNEX II

         INDICATIVE TARGETS FOR MINIMUM CONTENT CONTRIBUTION TO EUROPEANA PER MEMBER STATE

                  Number of objects in Europeana per MS (1)

                  Indicative Target 2015 (2)

                  BELGIUM

                  338 098

                  759 000

                  BULGARIA

                  38 263

                  267 000

                  CZECH REPUBLIC

                  35 490

                  492 000

                  DENMARK

                  67 235

                  453 000

                  GERMANY

                  3 160 416

                  5 496 000

                  ESTONIA

                  68 943

                  90 000

                  IRELAND

                  950 554

                  1 236 000

                  GREECE

                  211 532

                  618 000

                  SPAIN

                  1 647 539

                  2 676 000

                  FRANCE

                  2 745 833

                  4 308 000

                  ITALY

                  1 946 040

                  3 705 000

                  CYPRUS

                  53

                  45 000

                  LATVIA

                  30 576

                  90 000

                  LITHUANIA

                  8 824

                  129 000

                  LUXEMBOURG

                  47 965

                  66 000

                  HUNGARY

                  115 621

                  417 000

                  MALTA

                  56 233

                  73 000

                  NETHERLANDS

                  1 208 713

                  1 571 000

                  AUSTRIA

                  282 039

                  600 000

                  POLAND

                  639 099

                  1 575 000

                  PORTUGAL

                  28 808

                  528 000

                  ROMANIA

                  35 852

                  789 000

                  SLOVENIA

                  244 652

                  318 000

                  SLOVAKIA

                  84 858

                  243 000

                  FINLAND

                  795 810

                  1 035 000

                  SWEDEN

                  1 489 488

                  1 936 000

                  UNITED KINGDOM

                  944 234

                  3 939 000

         (1)  October 2011. Further objects are contributed by a number of non-EU countries (in particular Norway and Switzerland), or come from EU-wide projects and are therefore not attributed to a particular Member State.

         (2)  The indicative targets per Member State are calculated on the basis of (a) the size of the population and (b) GDP, in line with the overall target of making 30 million digitised objects available through Europeana by 2015. For Member States which would already have reached or would be close to reaching the indicative target now, the calculation is based on the current number of objects they contribute to Europeana plus 30 %. All Member States are invited to look also at the qualitative aspects, taking into account the need to make all public domain masterpieces available through Europeana by 2015.


title: Council Recommendation of 12 July 2016 on the 2016 National Reform Programme of Italy and delivering a Council opinion on the 2016 Stability Programme of Italy

text:
               18.8.2016

               EN

               Official Journal of the European Union

               C 299/1

         COUNCIL RECOMMENDATION
   of 12 July 2016
   on the 2016 National Reform Programme of Italy and delivering a Council opinion on the 2016 Stability Programme of Italy
   (2016/C 299/01)
   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 26 November 2015, the Commission adopted the Annual Growth Survey, marking the start of the 2016 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report, in which it identified Italy as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area. That recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016 (3). As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Italy should ensure the full and timely implementation of the recommendation.

               (2)

               The 2016 country report for Italy was published on 26 February 2016. It assessed Italy's progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Italy's progress towards its national Europe 2020 targets. It also included the in-depth review under Article 5 of Regulation (EU) No 1176/2011. On 8 March 2016, the Commission presented the results of the in-depth review. The Commission's analysis leads it to conclude that Italy is experiencing excessive macroeconomic imbalances. In particular, the sluggish productivity growth hampers the recovery of competitiveness and makes it more difficult to reduce the high public debt ratio. The need for action to reduce the risk of adverse effects on the Italian economy and, given its size, of negative spillovers to the economic and monetary union is particularly important.

               (3)

               On 28 April 2016, Italy submitted its 2016 National Reform Programme and its 2016 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)

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

               (5)

               Italy is in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule over 2013-2015 and to the debt rule as of 2016. According to the Stability Programme, the government debt-to-GDP ratio is projected to peak in 2015 at 132,7 % and to gradually decline to 123,8 % in 2019. The Commission 2016 spring forecast expects the debt-to-GDP ratio to stabilise in 2016 and start a slight decline only as of 2017. The implementation of the substantial privatisation programme presented by the Italian authorities is a key challenge for Italy, given its expected contribution to the debt-reduction effort. While privatisations were implemented in line with the plans in 2015, the target of 0,5 % privatisation proceeds per year over 2016-2018 and of 0,3 % in 2019 seems very ambitious, also given the delays incurred by some privatisation projects. The macroeconomic scenario underpinning the budgetary projections is plausible.

               (6)

               On 18 May 2016, the Commission issued a report under Article 126(3) TFEU, as Italy did not make sufficient progress towards compliance with the debt rule in 2015. The analysis included all the relevant factors and concluded that the debt criterion should be considered as complied with. The Commission will review its assessment in a new report under Article 126(3) of the Treaty based on the Commission 2016 autumn forecast, as further information on the resumption of the adjustment path towards the medium-term budgetary objective for 2017 becomes available.

               (7)

               In spring 2015, Italy was granted a temporary deviation of 0,4 percentage points of GDP from the required adjustment path towards the medium-term budgetary objective in 2016 to take account of major structural reforms with a positive impact on the long-term sustainability of public finances. In its 2016 Draft Budgetary Plan, Italy requested an additional deviation of 0,1 percentage points of GDP from the required adjustment path towards the medium-term budgetary objective in 2016 to take account of other structural reforms with a positive impact on the long-term sustainability of public finances. The details underpinning all these reforms have been set out in Italy's 2016 National Reform Programme, which broadly confirms the reform agenda. The areas of reform put forward in the programme as having an impact on public finance sustainability include: (i) public administration and simplification; (ii) product and service markets; (iii) the labour market; (iv) civil justice; (v) education; (vi) a tax shift; (vii) measures to reduce the stock of non-performing loans and reform insolvency procedures; and (viii) spending review as financing measure. The impact of all these reforms on real GDP is estimated by the authorities at 2,2 percentage points by 2020, which seems to be plausible. If fully implemented in a timely manner, these reforms will have a positive impact on the sustainability of public finances. Italy can currently be assessed as qualifying for the full requested temporary deviation of 0,5 percentage points of GDP in 2016, provided that it adequately implements the agreed reforms, which will be monitored under the European Semester, and subject to the conditions outlined in recital 10.

               (8)

               In its 2016 Draft Budgetary Plan, Italy requested an additional deviation of 0,3 percentage points of GDP from the required adjustment path towards the medium-term budgetary objective in 2016 to take account of national investment expenditure in projects co-financed by the EU. The information provided by the 2016 Stability Programme seems to confirm that Italy's deviation from the adjustment path towards the medium-term budgetary objective in 2016 is being effectively used for the purposes of increasing investments. However, there are still some doubts on the feasibility of the whole projected amount of co-financed investment in the course of 2016. Italy can currently be assessed as qualifying for a temporary deviation of 0,25 percentage points of GDP in 2016, provided that it adequately carries out the intended investments and subject to the conditions outlined in recital 10. The Commission will carry out an ex post assessment in order to verify the actual amount of the national expenditure in co-financed investment projects and of the related allowance to which Italy is eligible under the so-called ‘investment clause’.

               (9)

               The 2016 Stability Programme indicates that the budgetary impact of the exceptional inflow of refugees as well as of exceptional security measures is significant and that these should be considered as an unusual event outside the control of the Government, as defined in Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97. According to the Commission, the additional impact is in line with the estimations provided by the Stability Programme and amounts to 0,03 % of GDP in 2015 and 0,04 % in 2016 for refugee-related expenditure and at 0,06 % of GDP in 2016 for security measures. In relation to this, Italy requested a temporary deviation from the adjustment path towards the medium-term budgetary objective. The provisions defined in Article 5(1) and Article 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of refugees as well as the severity of the terrorist threat are exceptional events, their impact on Italy's public finances is significant and sustainability would not be compromised by allowing for a deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2015 has been reduced to take into account additional refugee-related costs. Regarding 2016, a final assessment, including on the eligible amounts, will be made in spring 2017 on the basis of observed data as provided by Italian authorities.

               (10)

               In its opinion on Italy's 2016 Draft Budgetary Plan, the Commission indicated that, in the context of the ‘overall assessment’ of a possible deviation from the adjustment path towards the medium-term budgetary objective, it would take into account Italy's possible eligibility for flexibility under the Stability and Growth Pact, paying particular attention to whether a deviation from the adjustment path would be effectively used for the purposes of increasing investments; to the existence of credible plans for the resumption of the adjustment path towards the MTO; and to progress with the structural reform agenda, taking into account the Council recommendations. The Commission assesses that Italy is eligible for a further allowance of 0,35 percentage points of GDP for 2016, taking into account the progress with the structural reform agenda, the planned investments, as well as the government commitment to ensure compliance with the adjustment path towards the MTO in 2017, which the Commission will reassess in the autumn.

               (11)

               Based on the Commission 2016 spring forecast, the projected structural deterioration of -0,7 % of GDP in 2016 points to a risk of some deviation from Italy's obligations under the preventive arm of the Stability and Growth Pact, after taking into account the deviation allowed for investments and the implementation of structural reforms. In 2017, under the no-policy-change assumption, the Commission's forecast shows a zero structural effort in 2017, as a result of which there would be a risk of significant deviation from the required 0,6 % of GDP structural adjustment. Italy is forecast not to comply with the debt rule in 2016 and in 2017.

               (12)

               Overall, based on its assessment of the 2016 Stability Programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that Italy is at risk of non-compliance with the provisions of the Stability and Growth Pact. The Commission will reassess Italy's compliance with the required adjustment towards the medium-term budgetary objective based on its 2016 autumn forecast as further information on Italy's resumption of the adjustment path towards the MTO for 2017 becomes available, including the 2017 Draft Budgetary Plan.

               (13)

               Although initiatives to reform the fiscal framework are under way, only limited steps have been taken so far to secure the contribution of the spending review to fiscal consolidation. In particular, the spending review targets have been further reduced and the fact that the spending reviews are not fully integrated into the budgetary process weighs on the overall efficiency of the exercise. The finalisation of the comprehensive reform of the budgetary process in the making since 2009 is expected to address this shortcoming and to endow the budgetary process with a more performance-oriented approach. To improve public debt sustainability, it is also important to accelerate the deployment of the privatisation plan. Italy's taxation system hinders economic efficiency and continues to face several challenges. These are linked to very low tax compliance and an overdue reform of tax expenditures, in particular with respect to the reduced value-added tax rates, and of the old system of cadastral values. These were all aspects of the enabling law for the reform of the tax system that have not been implemented, or have been implemented only partially. In addition, recent developments such as the abolition of the property tax on first residences, appear at odds with the goal of broadening the tax base and shifting the tax burden from productive factors onto property and consumption.

               (14)

               The reform of the public administration is an important step which, if the required legislative decrees are adopted and implemented, would allow Italy to grasp the expected benefits in terms of increased efficiency and quality in the public sector. The legislative decrees proposed by the Government in January 2016 on state-owned enterprises and local public services, as well as the forthcoming decree on public employment, are of particular importance for addressing the root causes of inefficiencies. While recent measures have been taken to step up the fight against corruption, including by raising penalties and prescription terms for specific corruption offences, the long-recommended systematic revision of the statute of limitations is still on hold. Accounting fraud is also an important issue. In the justice system, lengthy court proceedings and a high number of pending civil and commercial cases remain major challenges. Closely monitoring the impact of the measures taken in recent years to address these issues will help the assessment of whether it is necessary to complement them by additional action.

               (15)

               Some progress has been made towards improving asset quality in the banking sector. Although the inflow of new non-performing loans has slowed down in recent months, their stock remains at a very high level and continues to put pressure on profitability and banks' resources. In addition, Italy's insolvency system and debt collection frameworks are insufficiently conducive to a swift work-out of impaired loans. Since mid-2015, several laws were adopted to simplify and accelerate insolvency and foreclosure procedures, and a draft enabling law for an organic reform of the bankruptcy framework has been proposed. However, the effects of these reforms on the length of procedures and recovery values are still to be seen. Since the beginning of 2015, Italy has adopted several measures to tackle weaknesses in the corporate governance of its banks, particularly regarding larger cooperative banks, banks with foundations as shareholders and small mutual banks. Fully implementing these reforms would help to make the sector more resilient and ensure a more efficient allocation of credit to the real economy. Whereas low cost efficiency in the banking sector hinders profitability and internal capital generation, the low-growth low-interest rate environment constitutes an additional challenge. The new EU bank resolution framework (5) has changed the risk profile of bonds issued by banks, of which significant amounts are held by Italian retail clients, underlining the importance of financial literacy among the general public.

               (16)

               In 2015, Italy deeply reformed its labour market rules and institutions through the so-called ‘Jobs act’ reform. Implementing the reform of active labour market policies is key to activating those further away from the labour market, in particular the long-term unemployed and young people. There is currently a range of administrative, political and resource-related challenges. In particular, this requires a strengthening of public employment services and close monitoring of service delivery. The apprenticeships system has been reformed to also include adults made redundant and to broaden opportunities for young people, but implementation is still under way. Second-level bargaining is not sufficiently developed in Italy, hampering the adoption of innovative solutions at firm level that could improve productivity and make wages more responsive to labour market conditions. Action in this area needs to be taken in consultation with social partners and in accordance with national practices. Social partners have not yet reached an agreement on the reform of collective bargaining. A reform is expected by the end of 2016, according to the National Reform Programme. The labour participation rate of women is one of the lowest in the EU. Women are predominant in atypical and precarious jobs, constitute the majority of non-standard workers and risk being particularly affected by the informal economy. The tax and benefit system discourages second earners from working and the Jobs Act did not address this issue effectively. The limited availability of affordable care services also hampers participation in the labour market by women with children and elderly relatives. Poverty levels are high — more than a quarter of Italians are at risk of poverty or social exclusion — and the provision of social assistance remains weak and fragmented. Adopting and implementing the national antipoverty strategy and rationalising social spending could be first steps towards a gradual roll-out of an adequate social assistance scheme based on the principle of active inclusion, at the national level in an overall budgetary neutral way. Substantial progress has been made on the reform of education. The school reform was adopted in July 2015 and implementing decrees are to be adopted by January 2017.

               (17)

               Limited progress has been made towards fostering competition in services. The 2015 annual competition law is currently still under discussion in the Parliament. A number of provisions, for instance on legal professions, have been weakened during the parliamentary process. A number of areas are still over-protected or regulated, in particular the regulated professions, the health sector, local public transport and taxis, ports and airports. The retail sector is hampered by a number of inefficiencies caused by the strictness of market regulation. The public process of granting rights on public domain for economic activities does not promote competition, in particular due to the awarding of permit schemes without competitive and transparent procedures. Market-opening measures need to be supported by a business-friendly environment. Some progress has been made on simplification under the 2015-2017 simplification agenda, which allows for easier and more streamlined cooperation between central and regional governments. However, the Italian business environment is still not sufficiently conducive to growth and investment and suffers from a fragmented and stratified system of laws and regulations emanating from different levels of government. The administrative and regulatory burden still weighs on economic operators. Strengths in terms of starting a company or insolvency resolution are offset by weaknesses in terms of dealing with construction permits, contract enforcement, tax payment or getting credit. The implementation of the national public procurement strategy adopted in early 2016 could also help to tackle some systemic and widespread weaknesses.

               (18)

               In the context of the European Semester, the Commission has carried out a comprehensive analysis of Italy's economic policy and published it in the 2016 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Italy in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Italy but also their compliance with EU rules and guidance, given the need to strengthen the EU's overall economic governance by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations (1) to (5) below.

               (19)

               In the light of this assessment, the Council has examined the Stability Programme and its opinion (6) is reflected in particular in recommendation (1) below.

               (20)

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

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

               1.

               In 2016, limit the temporary deviation from the required 0,5 % of GDP adjustment towards the medium-term budgetary objective to the amount of 0,75 % of GDP allowed for investments and the implementation of structural reforms, subject to the condition of resuming the adjustment path towards the medium-term budgetary objective in 2017. Achieve an annual fiscal adjustment of 0,6 % or more of GDP towards the medium-term budgetary objective in 2017. Finalise the reform of the budgetary process in the course of 2016 and ensure that the spending review is an integral part of it. Ensure the timely implementation of the privatisation programme and use the windfall gains to accelerate the reduction of the general government debt ratio. Shift the tax burden from productive factors onto consumption and property. Reduce the number and scope of tax expenditures and complete the reform of the cadastral system by mid-2017. Take measures to improve tax compliance, including through electronic invoicing and payments.

               2.

               Implement the reform of the public administration by adopting and implementing all necessary legislative decrees, in particular those reforming publicly-owned enterprises, local public services and the management of human resources. Step up the fight against corruption including by revising the statute of limitations by the end of 2016. Reduce the length of civil justice proceedings by enforcing reforms and through effective case-management.

               3.

               Accelerate the reduction in the stock of non-performing loans, including by further improving the framework for insolvency and debt collection. Swiftly complete the implementation of ongoing corporate governance reforms in the banking sector.

               4.

               Implement the reform of active labour market policies, in particular by strengthening the effectiveness of employment services. Facilitate the take-up of work for second earners. Adopt and implement the national antipoverty strategy and review and rationalise social spending.

               5.

               Swiftly adopt and implement the pending law on competition. Take further action to increase competition in regulated professions, the transport, health and retail sectors and the system of concessions.

      Done at Brussels, 12 July 2016.

            For the Council

            The President

         P. KAŽIMÍR

      (1)  OJ L 209, 2.8.1997, p. 1.

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

      (3)  OJ C 96, 11.3.2016, p. 1.

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

      (5)  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).

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


title: Recommendation for a Council opinion in accordance with the third paragraph of Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated convergence programme of Cyprus, 2006-2010

text:
Important legal notice

|

52007SC0070

Recommendation for a Council opinion in accordance with the third paragraph of Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Cyprus, 2006-2010  /* SEC/2007/0070 final */

	[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |Brussels, 23.1.2007SEC(2007) 70 finalRecommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Cyprus, 2006-2010(presented by the Commission)EXPLANATORY MEMORANDUM1. GENERAL BACKGROUNDThe Stability and Growth Pact, which entered into force on 1 July 1998, is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. The 2005 reform of the Pact acknowledged its usefulness in anchoring fiscal discipline but sought to strengthen its effectiveness and economic underpinnings as well as to safeguard the sustainability of the public finances in the long run.Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[1], which is part of the Stability and Growth Pact, stipulates that Member States have to submit, to the Council and the Commission, stability or convergence programmes and annual updates thereof (Member States that have already adopted the single currency submit (updated) stability programmes and Member States that have not yet adopted it submit (updated) convergence programmes). The first convergence programme of Cyprus was submitted in May 2004. In accordance with the Regulation, the Council delivered an opinion on it on 5 July 2004 on the basis of a recommendation from the Commission and after having consulted the Economic and Financial Committee. In accordance with the same procedure, updated stability and convergence programmes are assessed by the Commission and examined by the Committee mentioned above, while the Council may examine them.2. BACKGROUND FOR THE ASSESSMENT OF THE UPDATED PROGRAMMEThe Commission has examined the most recent update of the convergence programme of Cyprus, submitted on 6 December 2006, and has adopted a recommendation for a Council opinion on it (see box for the main points covered by the assessment).In order to set the scene against which the budgetary strategy in the new convergence programme is assessed, the following paragraphs summarise:1.  the economic and budgetary performance over the last ten years2.  the most recent assessment of the country’s position under the preventive arm of the Stability and Growth Pact (summary of the Council opinion on the previous update of the convergence programme) and3.  the Commission’s assessment of the October 2006 national reform programme.2.1. Recent economic and budgetary performanceCyprus is a small open economy, thus highly exposed to external shocks. It is experiencing a successful process of nominal and real convergence with the EU. Averaging 3.5% p.a. over the last ten years, GDP growth is robust, while inflation is low. HICP inflation hovered at levels below 3% for most of the decade. The Cypriot economy has enjoyed almost full employment conditions. Long-term unemployment is at very low levels, while productivity growth is high by international standards. However, nominal wage growth and unit labour costs (ULC) tended to increase relatively faster than in its trade partners. Nonetheless, export-oriented services sectors, which account for the bulk of total exports, are performing well, although large surpluses of the trade in services have not fully offset the deficit in trade of goods. Thus, Cyprus’s current account balance has been negative over the last ten years. Nonetheless, its financing has remained unproblematic via portfolio and direct investment inflows and non-resident deposits with resident financial institutions. The fiscal consolidation programme currently implemented has reduced the deficit to 2% of GDP in 2006 and the government debt is on a declining path.2.2. The assessment in the Council opinion on the previous programmeOn 14 March 2006, the Council adopted its opinion on the previous update of the convergence programme, covering the period 2005-2009. The Council welcomed "the structural adjustment planned over the programme period after bringing the deficit below 3% of GDP in 2005". The Council invited Cyprus to "ensure through measures of a permanent nature that budgetary consolidation towards the programme’s medium-term objective is sustained after the excessive deficit has been corrected". The Council also invited Cyprus to "control public pension expenditure and implement further reforms in the areas of pensions and health care in order to improve the long-term sustainability of the public finances".2.3. The Commission assessment of the October 2006 national reform programmeThe Implementation Report of the National Reform Programme of Cyprus, provided in the context of the renewed Lisbon strategy for growth and jobs, was submitted on 17 October 2006. The Cypriot National Reform Programme identifies as key challenges/priorities: fiscal sustainability; quality of public finances; R&D, innovation and ICT; increasing the diversification of the economy; competition and business environment; environmental sustainability; infrastructure; human capital; and social cohesion.The Commission’s assessment of this programme (adopted as part of its December 2006 Annual Progress Report[2]) showed that Cyprus is making good progress in the implementation of its National Reform Programme. Overall, the implementation of the majority of measures seems to be proceeding as planned.Against the background of strengths and weaknesses identified, Cyprus was recommended to take action in the areas of reforms of the pension and healthcare systems; and employment and training opportunities for young persons.Box: Main points of covered by the assessment As required by Article 5(1) (for stability programmes) and Article 9(1) (for convergence programmes) of Council Regulation (EC) No 1466/97, the assessment covers the following points: whether the economic assumptions on which the programme is based are plausible; the medium-term budgetary objective (MTO) presented by the Member State and whether the adjustment path towards it is appropriate; whether measures being taken and/or proposed to respect that adjustment path are sufficient to achieve the MTO over the cycle; when assessing the adjustment path towards the MTO, whether a higher adjustment effort is made in economic good times, whereas the effort may be more limited in economic bad times, and, for euro-area and ERM II Member States, whether the Member State pursues an annual improvement of the cyclically-adjusted balance, net of one-off and other temporary measures, of 0.5% of GDP as a benchmark to meet its MTO; when defining the adjustment path to the MTO (for Member States that have not yet reached it) or allowing a temporary deviation from the MTO (for Member States that have), the implementation of major structural reforms which have direct long-term cost-saving effects (including by raising potential growth) and therefore a verifiable impact on the long-term sustainability of public finances (subject to the condition that an appropriate safety margin with respect to the 3% of GDP reference value is preserved and that the budgetary position is expected to return to the MTO within the programme period), with special attention for pension reforms introducing a multi-pillar system that includes a mandatory, fully-funded pillar; whether the economic policies of the Member State are consistent with the broad economic policy guidelines. The plausibility of the programme’s macroeconomic assumptions is assessed by reference to the Commission services’ autumn 2006 forecast, using also the commonly agreed methodology for the estimation of potential output and cyclically-adjusted balances. The assessment of consistency with the broad economic policy guidelines is made against the broad economic policy guidelines in the area of public finances as included in the integrated guidelines for the period 2005-2008. The assessment also examines: the evolution of the debt ratio and the outlook for the long-term sustainability of the public finances, which should be given “sufficient attention in the surveillance of budgetary positions” according to the Council report of 20 March 2005 on “Improving the implementation of the Stability and Growth Pact”. A Commission Communication of 12 October 2006 sets out the approach to the assessment of long-term sustainability[3]; the degree of integration with the national reform programme, submitted by Member States in the context of the Lisbon strategy for growth and jobs. In its cover note of 7 June 2005 to the European Council on the broad economic policy guidelines for the period 2005-2008, the ECOFIN Council stated that the national reform programmes should be consistent with the stability and convergence programmes; compliance with the code of conduct[4], which inter alia prescribes a common structure and set of data tables for the stability and convergence programmes. |-  Recommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Article 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Cyprus, 2006-2010THE 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 coordination of economic policies[5], and in particular Article 9(3) thereof,Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:4.  On [27 February 2007] the Council examined the updated convergence programme of Cyprus, which covers the period 2006 to 2010.5.  The macroeconomic scenario underlying the programme envisages that real GDP growth will pick up from 3.7% in 2006 to 4.1% on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions. The programme’s projections for inflation also appear realistic.6.  For 2006, the general government deficit is estimated at just below 2% of GDP in the Commission services’ autumn 2006 forecast, as targeted in the previous update of the convergence programme. With real GDP growth lower than projected in the previous update (3.7% instead of 4.2%), total expenditure is estimated to be higher than planned but this is estimated to be offset by higher total revenues.7.  After the correction of the excessive deficit in 2005, the programme aims at further consolidating public finances. The general government balance is projected to improve from a deficit of 1.9% of GDP in 2006 to a balanced position in 2010 entirely through expenditure retrenchment as the revenue ratio remains constant over the programme period. While total expenditure is projected to fall by 1¾ percentage point of GDP over the programme period, of which 1 percentage point of GDP corresponds to declining interest payments, social transfers are planned to increase by 1¼ percentage point. The primary surplus is planned to rise from 1½% of GDP in 2006-07 to just above 2% of GDP in 2008 and to remain constant thereafter. The planned consolidation is slightly faster than in the previous update of the convergence programme, against a broadly similar macroeconomic scenario.8.  The structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve from a deficit of around 1½% of GDP in 2006 to a surplus of some ¼% of GDP at the end of the programme period. As in the previous update of the convergence programme, the medium-term objective (MTO) for the budgetary position presented in the programme is a structural deficit of 0.5% of GDP, which the programme aims to achieve by 2008, one year earlier than in the previous update. As the MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1¾% of GDP), achieving it should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The MTO lies within the range indicated for euro-area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term.9.  The risks to the budgetary projections in the programme appear broadly balanced. The target for 2007 seems plausible when compared with the Commission services’ autumn 2006 forecast and, for the year 2008, when the primary surplus is planned to improve, there is relatively detailed information in the programme about the measures that support the adjustment. However, there is a risk of spending slippages given the high degree of expenditure restraint envisaged and the lack of information on the spending ceilings and their enforcement. On the other hand, the overall track record with respect to the achievement of the budgetary targets is good.10.  In view of this risk assessment, the budgetary stance in the programme seems sufficient to ensure that the MTO is achieved by 2008, as envisaged in the programme. In addition, it seems to provide a sufficient safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations throughout the programme period. The pace of adjustment towards the MTO implied by the programme is in line with the Stability and Growth Pact, which specifies that, for euro-area and ERM II Member States, the annual improvement in the structural balance should be 0.5% of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times. After the achievement of the MTO, the fiscal policy stance implied by the programme is also in line with the Pact.11.  Government gross debt is estimated to have reached 64¾% in 2006, above the 60% of GDP Treaty reference value. The programme projects that the debt ratio would fall below the 60% of GDP reference value in 2008 and would attain just above 46% of GDP by the end of the programme period. The risks to the projected evolution of the debt ratio appear to be broadly balanced. In view of the risk assessment, the debt ratio is sufficiently diminishing towards the reference value in the early part of the programme period and is planned to approach it by 2007.12.  The long-term budgetary impact of ageing in Cyprus is among the highest in the EU, influenced notably by a very large increase in pension expenditure as a share of GDP. The initial budgetary position contributes to easing part of the projected considerable long-term budgetary impact of an ageing population, but it is not sufficient to cover it. Moreover, the current level of gross debt is above the Treaty reference value. Continuing the consolidation of the public finances simultaneously with adopting pension reform measures aimed at containing the significant increase in age-related expenditures would contribute, as recognised by the authorities, to reducing risks to the sustainability of public finances. Overall, Cyprus appears to be at high risk with regard to the sustainability of public finances.13.  The convergence programme contains a qualitative assessment of the overall impact of the October 2006 implementation report of the national reform programme within the medium-term fiscal strategy. In addition, it provides systematic information on the direct budgetary costs or savings of the main reforms envisaged in the national reform programme and its budgetary projections seem to take into account the public finance implications of the actions outlined in the national reform programme. The measures in the area of public finances envisaged in the convergence programme seem consistent with those foreseen in the national reform programme. In particular, both programmes envisage the gradual implementation of pension and healthcare reforms in order to address the impact of ageing populations, but there is limited clarity as to the content and the timeframes for the finalisation and full implementation of a comprehensive life-long strategy.14.  The budgetary strategy in the programme is broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008.15.  As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data[6].The overall conclusion is that, after the correction of the excessive deficit in 2005, the programme is making good progress towards the MTO over the programme period, owing to expenditure restraint and in a context of strong growth prospects. The general government gross debt is foreseen to approach the 60% of GDP reference value by 2007 and to continue declining in the subsequent years.In view of the above assessment, in particular the level of debt and the projected increase in age-related spending, Cyprus is invited to control public pension expenditure and implement further reforms in the areas of pensions and health care in order to improve the long-term sustainability of the public finances.Comparison of key macroeconomic and budgetary projections2005 | 2006 | 2007 | 2008 | 2009 | 2010 |Real GDP (% change) | CP December 2006 | 3.9 | 3.7 | 3.9 | 4.1 | 4.1 | 4.1 |COM Nov 2006 | 3.8 | 3.8 | 3.8 | 3.9 | n.a. | n.a. |CP December 2005 | 4.1 | 4.2 | 4.2 | 4.2 | 4.3 | n.a. |HICP inflation (%) | CP December 2006 | 2.0 | 2.4 | 2.5 | 2.4 | 2.0 | 2.0 |COM Nov 2006 | 2.0 | 2.4 | 2.0 | 2.4 | n.a. | n.a. |CP December 2005 | 2.1 | 2.0 | 2.0 | 2.0 | 2.0 | n.a. |Output gap (% of potential GDP) | CP December 20061 | -0.9 | -1.0 | -1.1 | -1.1 | -1.1 | -1.1 |COM Nov 20065 | -1.3 | -1.3 | -1.3 | -1.3 | n.a. | n.a. |CP December 20051 | -0.8 | -0.3 | 0.1 | 0.0 | 0.1 | n.a. |General government balance (% of GDP) | CP December 2006 | -2.3 | -1.9 | -1.6 | -0.7 | -0.4 | -0.1 |COM Nov 2006 | -2.3 | -1.9 | -1.7 | -1.7 | n.a. | n.a. |CP December 2005 | -2.5 | -1.9 | -1.8 | -1.2 | -0.6 | n.a. |Primary balance (% of GDP) | CP December 2006 | 1.1 | 1.4 | 1.4 | 2.1 | 2.1 | 2.2 |COM Nov 2006 | 1.1 | 1.4 | 1.4 | 1.4 | n.a. | n.a. |CP December 2005 | 0.7 | 1.2 | 1.2 | 1.4 | 1.7 | n.a. |Cyclically-adjusted balance (% of GDP) | CP December 20061 | -2.0 | -1.5 | -1.2 | -0.3 | 0.0 | 0.3 |COM Nov 2006 | -1.8 | -1.4 | -1.2 | -1.2 | n.a. | n.a. |CP December 20051 | -2.2 | -1.8 | -1.8 | -1.2 | -0.6 | n.a. |Structural balance2 (% of GDP) | CP December 20063 | -3.3 | -1.9 | -1.0 | -0.3 | -0.1 | -0.1 |COM Nov 20064 | -2.7 | -1.4 | -1.2 | -1.2 | n.a. | n.a. |CP December 2005 | -3.1 | -2.1 | -2.1 | -1.5 | -0.6 | n.a. |Government gross debt (% of GDP) | CP December 2006 | 69.2 | 64.7 | 60.5 | 52.5 | 49.0 | 46.1 |COM Nov 2006 | 69.2 | 64.8 | 62.2 | 59.6 | n.a. | n.a. |CP December 2005 | 70.5 | 67.0 | 64.0 | 56.9 | 53.5 | n.a. |Notes: 1 Commission services calculations on the basis of the information in the programme. 2 Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures. 3 One-off and other temporary measures taken from the programme (1.3% of GDP in 2005 and 0.4% in 2006, deficit-reducing,). They include 0.4% of GDP in 2005 and 2006 accounting for the EU funds-related transactions. 4 One-off and other temporary measures taken from the Commission services’ autumn 2006 forecast (0.9% of GDP in 2005; deficit-reducing) as compared to the programme (see note 3) the Commission services did not treat any EU fund-related transactions as one-off. 5 Based on estimated potential growth of 3.9%, 3.7%, 3.9% and 4.0% respectively in the period 2005-2008. Source: Convergence programme (CP); Commission services’ autumn 2006 economic forecasts (COM); Commission services’ calculations |[1] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). All the documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[2] Communication from the Commission to the Spring European Council, “Implementing the renewed Lisbon strategy for growth and jobs - A year of delivery” - COM(2006) 816, 12.12.2006.[3] Communication from the Commission to the Council and the European Parliament, “The long-term sustainability of public finances in the EU” - COM(2006) 574, 12.10.2006 - and European Commission, Directorate-General for Economic and Financial Affairs (2006), “The long-term sustainability of public finances in the European Union”, European Economy No 4/2006.[4] “Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes”, endorsed by the ECOFIN Council of 11 October 2005.[5] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[6] In particular, the data on “Cyclical Developments” (Table 5), the contributions to Potential GDP Growth (item 4) are not provided.