               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 520 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Polandand delivering a Council opinion on the 2017 Convergence Programme of Poland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Poland

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission,
                  2

               Having regard to the resolutions of the European Parliament,
                  3

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

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

               (3)On 28 April 2017, Poland submitted its 2017 National Reform Programme and its 2017 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

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

               (5)Poland is currently in the preventive arm of the Stability and Growth Pact. In its 2017 Convergence Programme, the government plans a gradual improvement of the headline balance from a deficit of 2.4% of GDP in 2016 to 1.2% of GDP in 2020. The medium-term budgetary objective, a deficit of 1% of GDP in structural terms, is not expected to be reached by 2020, i.e. in the programme horizon. According to the Convergence Programme, the general government debt-to-GDP ratio is expected to increase from 54.4% of GDP in 2016 to 55.3% of GDP in 2017 and to decline to 52.1% by 2020. The macroeconomic scenario underpinning these budgetary projections is favourable.

               (6)On 12 July 2016, for 2017, the Council recommended Poland to achieve an annual fiscal adjustment of 0.5% of GDP towards the medium-term budgetary objective. Based on the Commission 2017 spring forecast, there is a risk of some deviation from that requirement in 2017.

               (7)In 2018, in light of its fiscal situation, Poland is expected to further adjust towards its medium-term budgetary objective of a structural deficit of 1% of GDP. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure
                  9
                 that does not exceed 3.7% in 2018. It would correspond to a structural adjustment of 0.5% of GDP. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2018. Overall, the Council is of the opinion that Poland needs to stand ready to take further measures in 2017 and that further measures will be needed in 2018 to comply with the provisions of the Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State’s budgetary balance in light of the cyclical conditions. As recalled in the Commission Communication accompanying these country-specific recommendations, the assessment of 2018 budget outcomes will need to take due account of the goal to achieve a fiscal stance that contributes to both strengthening  the ongoing recovery and ensuring the sustainability of Poland’s public finances. In that context, the Commission intends to make use of the applicable margin of appreciation in light of the cyclical situation of Poland.

               (8)The 2017 country report finds that some progress was made in improving tax collection, as Poland undertook a number of reforms aimed at tightening the tax system. Their full impact on tax collection and the costs of tax compliance should be closely monitored. In contrast, Poland made no progress in limiting the extensive use of reduced VAT rates, which have an adverse impact on VAT revenue and are not an effective social policy instrument.

               (9)Poland faces expenditure pressures in various areas, in particular those related to population ageing. This makes it necessary to put mechanisms in place to assess the efficiency and effectiveness of public spending to enable the re-allocation of resources. With this in mind, the government has announced plans to strengthen the budgetary process, in particular with regard to the medium-term budgetary framework and incorporating spending reviews into the budgetary process. The public finance framework lacks an independent fiscal council.

               (10)A decrease in the working-age population in Poland is expected to limit growth potential in the decades to come. The performance of the Polish labour market has been strong in recent years. Employment rates have continued to increase, but several recent policy measures may reduce labour force participation, especially that of women, low-skilled and older people. Lowering the statutory retirement age in late 2017 is expected to encourage some older workers to exit the labour force. The Polish social protection system provides only limited incentives to take up work. The new child benefit is expected to reduce poverty and inequality, but it may also have a negative effect on the labour market participation of parents, mostly women. The size of the child allowance and limited means-testing offsets work incentives built into other social benefits. The obligation to attend pre-school for five-year-olds was removed as of September 2016 and formal childcare enrolment for children under the age of three remains among the lowest in the EU. Despite measures taken, labour market segmentation continues to be high, with negative effects on productivity and the accumulation of human capital. Obstacles to wider use of permanent contracts remain. The codification committee is preparing new draft individual and collective labour codes. This is an opportunity to address these obstacles.

               (11)The average effective retirement age has increased in recent years, but it remains significantly below the statutory retirement age. A higher effective retirement age is crucial for economic growth, the adequacy of future pensions and the fiscal sustainability of the pension system. However, the recent decision to lower the statutory retirement age to 60 for women and 65 for men goes in the opposite direction. The costly special social insurance system for farmers (KRUS) is another reason for low labour mobility and hidden unemployment in agriculture.

               (12)The education system has significantly improved over the last two decades, with the basic skills of 15-year-olds well above the EU average and one of the lowest early school leaving rates in the EU. Nevertheless, there is still room to improve the way pupils are equipped with skills that are adequate for the rapidly changing labour market. The forthcoming changes concerning primary and secondary education give rise to major organisational challenges and shorten the period of general education, which may have a negative impact on educational equality. Additional changes to adapt vocational education and training to labour market needs have also been announced, but their potential to address existing shortcomings remains to be seen. The government has launched consultations on the higher education reform to improve the performance of the sector and its labour market relevance. Poland features insufficient participation in adult learning and the average level of older adults’ basic skills is low, hampering their employability.

               (13)Weaknesses in spatial planning increase the administrative burden related to the need for construction permits. Land-use plans cover a limited part of Poland’s territory and are often of low quality. In areas without them, construction permits are granted on the basis of one-off administrative decisions on land development, which create risk and uncertainty for investors. The draft construction code aims at consolidating spatial planning processes and easing the administrative burden for investors. The reform offers the chance to improve matters, depending on the final version of the law and its implementation.

               (14)In 2016, investment activity declined significantly due to less use of the EU structural funds, resulting from the transition between programming periods and increased uncertainty among private investors. The business environment is generally favourable. However, business confidence was affected by the increase in the number of regulatory changes and limited public consultations on a number of key laws. Legal certainty, trust in the quality and predictability of regulatory, tax and other policies and institutions are important factors that could allow an increase in the investment rate. The rule of law and an independent judiciary are also essential in this context. The current systemic threat to the rule of law creates legal uncertainty. With the government aiming to increase its role in the economy, ensuring the economic viability of investment decisions will be important. There continues to be a significant regulatory burden in several areas.

               (15)The road network has developed rapidly thanks to EU funding, but the road fatality rate is still among the highest in the EU, resulting in high social costs. Despite the availability of significant EU funds, the railway sector continues to face major bottlenecks in project implementation. There also remains the challenge of ensuring the long lifetime of railway assets, given a missing multi-annual railway infrastructure maintenance programme.

               (16)Around 60 % of Poland's installed fossil fuels capacity is older than 30 years. It therefore requires significant investment in the coming years. In 2016, the electricity interconnection level was among the lowest in the EU. Together with a significant amount of capacities to be decommissioned and increasing electricity demand, this contributes to the poor outlook in terms of ensuring power generation adequacy. Achievement of the binding national 2020 target for renewable energy is at risk. Following the launch of the liquefied natural gas terminal, Poland has significantly improved the security of its gas supply. It has also developed its national gas transmission and distribution network. However, the work on regionally important gas interconnectors has not advanced according to schedule.

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

               (18)In the light of this assessment, the Council has examined the Convergence Programme and its opinion
                  10
                is reflected in particular in recommendation 1 below,

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

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. When taking policy action, consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Poland’s public finances. Take steps to improve the efficiency of public spending and limit the use of reduced VAT rates.

               2.Take steps to increase labour market participation, in particular for women, low-qualified and older people, including by fostering adequate skills and removing obstacles to more permanent types of employment. Ensure the sustainability and adequacy of the pension system by taking measures to increase the effective retirement age and by starting to reform the preferential pension arrangements.

               3.Take measures to remove barriers to investment, particularly in the transport sector.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2017) 520 final.

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

                     (4)
                  COM(2016) 725 final.

                     (5)
                  COM(2016) 728 final.

                     (6)
                  SWD(2017) 86 final.

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

                     (8)

                        COM(2014) 494 final.

                     (9)
                  Net government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (10)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 26.11.2015
            COM(2015) 692 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the economic policy of the euro area
            {SWD(2015) 700 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the economic policy of the euro area

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 136 in conjunction with Article 121(2) 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 conclusions of the European Council,

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

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)The economic recovery continues at a moderate pace in the euro area
                  3
               . Sustaining and strengthening growth in the euro area requires continued policy efforts to support a balanced adjustment in the private and public sectors, improve the adjustment capacity and increase the economy's competitiveness and growth potential in the medium to long term. The pace of growth is hampered by legacies of the most recent economic and financial crises, including ongoing external rebalancing, high levels of public and private debt, high unemployment, as well as persistent structural rigidities in national labour and product markets. Investment remains weak on account of these factors but also of other bottlenecks, such as unfavourable business environments, public-administration inefficiencies as well as obstacles to access to finance.

               (2)The implementation of ambitious structural reforms that raise productivity and boost growth potential needs to be bolstered in line with the policy priorities set out in the 2016 Annual Growth Survey for all EU Member States
                  4
               . If carried out jointly across Member States, structural reforms can offer benefits to the euro area as a whole through positive spillover effects, notably through trade and financial channels. Despite some progress with reforms to improve the resilience of labour markets, significant divergence persist across the euro area, especially as regards long-term and youth unemployment rates. Those Member States that pursued comprehensive labour market and social protection reforms prior to the crisis have been able to better support employment and preserve fairness during the economic downturn. Such reforms encompass flexible and reliable contractual arrangements, comprehensive lifelong learning strategies, effective active labour market policies, and modern social protection systems. Also, reducing the tax wedge on labour, in particular for low-income earners, and ensuring equitable tax systems can improve outcomes.

               (3)An appropriate design and swift implementation of reforms can help in addressing existing imbalances in the euro area and to prevent the build-up of new ones. The thematic discussions by the Eurogroup, with increased focus on benchmarking, pursuing best practices and peer pressure, can contribute to promoting convergence towards best performance. The Eurogroup should therefore further strengthen the thematic discussions on reforms in areas that are essential for the functioning of EMU and regularly monitor the implementation of reforms by euro area Member States as well as the progress made with the correction of imbalances in the context of the Macroeconomic Imbalances Procedure.

               (4)Fiscal policies are a matter of vital common interest in the Economic and Monetary Union. Responsible national fiscal policies that respect the common fiscal rules are essential to ensure debt sustainability and allow the fiscal stabilisers to operate and cushion country specific shocks. In addition, in light of the spillovers between euro area Member States, it is essential also to achieve an appropriate fiscal stance at the level of the euro area as a whole and to avoid pro-cyclical fiscal policies. This calls for a reinforcement of the coordination of fiscal policies within the euro area in full respect of the Stability and Growth Pact. In this context, the broadly neutral aggregate fiscal stance in the euro area expected in 2016 appears appropriate in light of the overall macroeconomic conditions and downside risks to growth. As regards 2017, based on the forecast of a gradually closing output gap, fiscal policies should balance the need of avoiding pro-cyclicality and reducing public debt to restore fiscal buffers. This should be reflected in the preparations of the up-dated Stability Programmes in Spring 2016, taking into account the latest economic and fiscal developments. The composition of fiscal strategies is not yet sufficiently growth-friendly. As highlighted in the recommendations to the euro area Member States in summer 2015
                  5
               , Member States should hold thematic discussions on improvements in the quality and sustainability of public finances.

               (5)The Banking Union needs to be fully implemented. First, the Bank Recovery and Resolution Directive must be fully transposed by 30 November 2015 as required for all 28 Member States. Second, as regards bank resolution, appropriate bridge financing arrangements need to be put in place without delay so that the Single Resolution Fund (SRF) will be able to face any potential financing needs as of 1 January 2016. In addition, a fiscally neutral backstop to the SRF should be agreed as soon as possible during the transition period. Finally, as part of the further development of the Banking Union, the Commission has proposed on 24 November 2015 the creation of a European deposit insurance scheme for the euro area Member States
                  6
               .

               (6)Financial market conditions remain overall favourable in the euro area, against the background of an accommodative monetary policy stance. However, the still weak economic fundamentals and high leverage in the private sector continue to weigh on demand for bank lending and thereby economic growth. Banks' balance sheets remain under pressure from high levels of non-performing loans, hampering lending activity. Diverse and sometimes inadequate insolvency regimes in the EU contribute to delaying the reduction of private sector debt, holding back investment.

               (7)Notwithstanding the recent achievements in strengthening the EMU architecture, work must continue to complete it. The Five Presidents' Report of June 2015 maps the way ahead to complete EMU by 2025 at the latest
                  7
               . On 21 October 2015, the European Commission adopted a first set of follow-up proposals to the report
                  8
               . The euro area Member States should take collective ownership and move ahead in a timely way with the implementation of the short and medium term initiatives towards the completion of Economic and Monetary Union. With a view to further facilitate convergence across the euro area, the proposals include measures to strengthen the euro area dimension of the European Semester by, inter alia, earlier publication of the euro area recommendations, with a view to identify common challenges early in the process and to inform the formulation of Country Specific Recommendations for the euro area Member States to be adopted later in the European Semester,

               HEREBY RECOMMENDS that euro area Member States take action, individually and collectively, within the Eurogroup in the period 2016-2017 to:

               1.Pursue policies that support the recovery, foster convergence, facilitate the correction of macroeconomic imbalances and improve adjustment capacity. To this end, Member States, particularly those with large stocks of private and foreign debt, should implement reforms that enhance productivity, foster job creation, raise competitiveness and improve the business environment. Member States with large current account surpluses should implement as a priority measures that help channelling excess savings toward the domestic economy and thereby boost domestic investment.

               2.Implement reforms that combine (i) flexible and reliable labour contracts that promote labour market transitions and avoid a two-tier labour market; (ii) comprehensive lifelong learning strategies; (iii) effective policies to help the unemployed re-enter the labour market, (iv) modern social protection systems that support those in need and provide incentives for labour market integration and, (v) open and competitive product and services markets. Reduce the tax wedge on labour, particularly on low-earners, in a budgetary-neutral way to foster job creation.

               3.Maintain the planned broadly neutral fiscal stance in 2016. With a view to 2017, reduce public debt to restore fiscal buffers while avoiding pro-cyclicality, in full respect of the Stability and Growth Pact. Differentiate the fiscal effort by individual Member States taking into account their respective position vis-à-vis the requirements under the SGP and their stabilisation needs, as well as spillovers across euro area countries. To this end, discuss the euro area fiscal stance in time for the preparation and presentation of the Stability Programmes and the Draft Budgetary Plans.

               4.Facilitate the gradual reduction of banks' non-performing loans and improve insolvency proceedings for businesses and households. In Member States with large stocks of private debt, promote an orderly deleveraging, including by facilitating the resolution of unviable private debt.

               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)
                  Commission 2015 Autumn Economic Forecast.

                     (4)
                  Annual Growth Survey 2016.

                     (5)
                  OJ C 272, 18.8.2015, p. 98.

                     (6)
                  COM(2015) 586 final, 24.11.2015.

                     (7)
                  Completing Europe's Economic and Monetary Union, Report by Jean-Claude Juncker in close cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz.

                     (8)
                  http://ec.europa.eu/priorities/economic-monetary-union/docs/single-market-strategy/communication-emu-steps_en.pdf


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 347 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Swedenand delivering a Council opinion on the 2016 convergence programme of Sweden

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Sweden

                  and delivering a Council opinion on the 2016 convergence programme of Sweden

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 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 Sweden as one of the Member States for which an in-depth review would be carried out.

               (2)The 2016 country report for Sweden
                  5
                was published on 26 February 2016. It assessed Sweden’s progress in addressing the country-specific recommendation adopted by the Council on 14 July 2015 and Sweden'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.
                  6
                The Commission’s analysis leads it to conclude that Sweden is experiencing macroeconomic imbalances. In particular, high and increasing household debt associated with high and growing house prices in a context of positive credit flows pose risks of disorderly correction with implications for the real economy and the banking sector. Policy measures have been taken in the macroprudential domain, which may however remain insufficient. Policy gaps remain in the area of housing-related taxation, the amortisation of mortgages, the functioning of housing supply and the rental market.

               (3)On 28 April 2016, Sweden submitted its 2016 national reform programme and its 2016 convergence programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

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

               (5)Sweden is currently in the preventive arm of the Stability and Growth Pact. In its 2016 convergence programme, the government plans to achieve a headline balance of -0.4% of GDP and to continue to meet the medium-term budgetary objective — a structural deficit of 1 % of GDP — throughout the programme period. According to the convergence programme, the government debt-to-GDP ratio is expected to fall to 42.5% in 2016 and to continue declining to 39.1% in 2019. The macroeconomic scenario underpinning these budgetary projections is plausible until 2016 and cautious thereafter. Based on the Commission 2016 spring forecast, the structural balance is forecast to be at -0.5 % in 2016 and -0.9 % of GDP in 2017, above the medium-term budgetary objective. Possible future deviations would be assessed against the requirement to maintain the structural balance at the medium-term budgetary objective. Based on its assessment of the convergence programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that Sweden is expected to comply with the provisions of the Stability and Growth Pact.

               (6)Household debt is at a very high level in Sweden and has been growing at one of the fastest rates in the EU over the past decade. Household debt to annual disposable income was 175% in 2015 according to Riksbank (Sweden's central bank) estimates, and in relation to GDP it was 87%. Sweden has one of the highest tax incentives for home ownership in the EU due to relatively low property taxes and high mortgage interest deductibility. The high level of household indebtedness constitutes a risk for macroeconomic stability. The government has taken some steps to stem household indebtedness, including legislation aimed at imposing mandatory amortisation requirements on new mortgage loans, which the parliament adopted on 23 March 2016. Adoption of this key measure was significantly delayed due to questions being raised about the macroprudential authority's legal mandate to introduce this requirement. There is a risk that further measures that may be needed to address Sweden's rising imbalances may be similarly delayed unless the legal framework concerning the macroprudential authority's remit is revised. Finally, the government has taken no action to adjust fiscal incentives by, for instance, reducing the tax deductibility of mortgage interest or revising property taxation.

               (7)The Swedish housing market remains a potential source of instability. House prices have risen almost constantly over the last 20 years, in particular in the metropolitan areas of Stockholm and Göteborg. House prices keep growing, not only caused by strong fundamentals, such as disposable income growth, but also due to structural inefficiencies in the housing market. Housing supply is hampered by ineffective use of the existing housing stock, a high degree of rent control, weak competition in the construction sector, insufficient availablity of land for new construction and lengthy and complex planning procedures. The existing design of the transaction tax on capital gains from real estate sales limits the potential for more efficient use of the existing housing stock. Structural inefficiencies result in insufficient investment in housing and widespread housing shortage, and contribute to the persistent increase in house prices. Lack of available and affordable housing also limits labour market mobility and is a constraint for the effective integration of migrants into the labour market. The government has taken some measures, including increasing public funding for investments in the housing sector and simplifying some planning procedures. In December 2015, an inquiry into competition in the construction sector came up with a series of possible measures,  such as enhancing transparency in the field of public housing contracts. However, the government made no progress in reforming the rent-setting system.

               (8)Despite relatively good investment performance, Sweden faces challenges that may have a negative impact on the long-term competitiveness of the country. In particular, structural inefficiencies in the housing market hamper investment in this area. Investment in infrastructure to improve connectivity within and between urban areas is insufficient in view of the constraints caused by the housing shortage.

               (9)Sweden experienced the sharpest decline in the educational performance of 15-year-olds of any OECD country over the past decade in the PISA survey, and is now performing below both the EU and OECD averages. Deteriorating outcomes of school education risk putting pressure on Sweden's competitiveness and innovation capacity in the long run. An important performance gap between students with and without a migrant background adds to the education challenge. This gap deserves particular attention in light of the large number of newly arrived young migrants to be integrated into the education system. Unclear school funding mechanisms paired with unsystematic monitoring of the use of funding at different levels of the school system hinder the efficient use of resources. The government has made additional funding available to improve school outcomes and equity, and it is taking steps to integrate the newly arrived migrants in education.

               (10)The high influx of refugees experienced in the past year has a number of social and economic consequences for Sweden. While in the short run, the inflow of refugees is set to increase public expenditure and to create additional domestic demand, thereby raising GDP, the medium-term effect on employment and growth hinges on refugees’ successful labour market and social integration, including via educational support. This issue is high on the political agenda both at the EU and Member State level and will be monitored and analysed closely, including in the 2017 country report.

               (11)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Sweden’s economic policy and published it in the 2016 country report. It has also assessed the convergence programme and the national reform programme and the follow-up given to the recommendations addressed to Sweden in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Sweden but also their compliance with 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 recommendation 1 below.

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

               (13)In the light of the Commission’s in-depth review and this assessment, the Council has examined the national reform programme and the convergence programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation 1 below.

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

               1.Address the rise in household debt by adjusting fiscal incentives, in particular by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes. Ensure that the macro-prudential authority has the legal mandate to implement measures to safeguard financial stability in a timely manner. Foster investment in housing and improve the efficiency of the housing market, including by introducing more flexibility in setting rental prices and by revising the design of the capital gains tax to facilitate more housing transactions.

               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(2016) 347 final.

                     (4)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (5)
                  SWD(2016) 95 final.

                     (6)
                  COM(2016) 95 final.

                     (7)
                  COM(2014) 494 final.

                     (8)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 259 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2015 National Reform Programme of Spainand delivering a Council opinion on the 2015 Stability Programme of Spain

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2015 National Reform Programme of Spain

                  and delivering a Council opinion on the 2015 Stability Programme of Spain

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 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. The strategy 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. Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

               (3)On 8 July 2014, the Council adopted a recommendation on Spain’s National Reform Programme for 2014 and delivered its opinion on Spain’s updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013
                  5
               , the Commission presented its opinion on Spain’s draft budgetary plan for 2015
                  6
               .

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
                  7
               , marking the start of the 2015 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
                  8
               , in which it identified Spain as one of the Member States for which an in-depth review would be carried out.

               (5)On 18 December 2014, the European Council endorsed the priorities for boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation.

               (6)On 26 February 2015, the Commission published its 2015 country report for Spain
                  9
               . This assessed Spain’s progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude that Spain is experiencing macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, despite some improvement in current account rebalancing, risks related to the high levels of private- and publicsector indebtedness and the highly negative net international investment position continue to merit close attention in a context of very high unemployment. The need for action to reduce the risk of adverse effects on the Spanish economy and, given its size, of negative spillover effects affecting the economic and monetary union, is particularly important.

               (7)On 30 April 2015, Spain submitted its 2015 National Reform Programme and its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)Spain is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Stability Programme, the government plans an improvement in the headline deficit to 4.2 % of GDP in 2015 and gradually to 2.8% of GDP in 2016. The government plans to reach the medium-term objective of a balanced budgetary position in structural terms in 2019. According to the Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015 at 98.9% and to gradually decline to 93.2% in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible for 2015 and favourable thereafter. Based on the Commission's 2015 spring forecast, a deficit of 4.5% and 3.5% of GDP is foreseen for 2015 and 2016, respectively. Hence, there is a risk that the headline deficit targets for 2015 and 2016 may not be reached. Moreover, the projected fiscal effort by Spain over 2013-2016 is expected to be below the recommended level, and further structural measures will be needed in 2015 and 2016. Based on its assessment of the Stability Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Spain will not comply with the provisions of the Stability and Growth Pact. Spain made some progress on eliminating publicsector commercial arrears. In 2014, Spain also made some progress on identifying proposals to rationalise healthcare, education, and social spending at regional level, although these were not finally adopted. However, draft legislation to introduce a spending rule on pharmaceutical and healthcare regional spending is currently before parliament.

               (9)Implementation of the preventive, corrective and enforcement measures contained in the Organic Law on Budget Stability and Financial Sustainability is progressing slowly. Cost-effectiveness in the healthcare sector has improved, but it remains essential to keep the growth of pharmaceutical expenditure under control and, specifically, to monitor pharmaceutical expenditure in hospitals. The deficit in the electricity system has been effectively eliminated as of 2014 and the problem of insolvent toll motorways has been addressed, thus reducing costs for the state. Spain has not, however, put in place a system for conducting independent assessments of major future infrastructure projects.

               (10)Some progress was made in the area of taxation, with a comprehensive tax reform being introduced to make the tax system simpler and more conducive to growth and job creation. A tax reform was adopted on 20 November 2014, to enter into force in January 2015, and covers personal and corporate income taxation. Some progress was also made with regard to the fight against tax evasion, but no progress was seen in the area of environmental taxation. The restructuring of the Spanish banking sector, and in particular of banks having received state aid, is progressing well. At the same time, recent measures to promote access to non-bank financing have — at least to some extent — improved access to finance for firms, especially in view of the high level of dependence of Spanish firms on credit from banks. Full implementation of these reforms is crucial for facilitating the reallocation of resources and supporting the ongoing adjustment. Outstanding problems not addressed by the reforms introduced to date also need to be tackled. Some progress was made in removing the remaining bottlenecks in the system for handling corporate insolvencies and a Royal Decree-Law on personal insolvency was adopted on 27 February 2015. However, further improvements to the administrative and judicial capacity for handling insolvency cases remain necessary.

               (11)High long-term unemployment and labour market segmentation continue to hamper productivity growth and have a damaging effect on working conditions in Spain. The social partners are discussing a comprehensive inter-professional agreement for 2015-2017. In this regard, and given the very high unemployment rate, wages for some sectors and companies in the short term may need to grow below productivity in order to create jobs and achieve further gains in competitiveness. It is expected that this may emphasise the importance of establishing, through sectoral and company negotiations, the principle that wages should move in line with inter-firm productivity differentials. Despite regulatory reforms, the proportion of the workforce in temporary employment began to increase once again in 2014, reaching over 24 %, and particularly affecting young people and the lowskilled. Moreover, the new types of contract introduced and the incentives to encourage employers to take on staff on an open-ended basis appear not yet to be being used to full potential. The Spanish authorities announced that an assessment of the subsidies offered to employers for recruiting new staff would be carried out by May 2016. The capacity of the public employment service, and of the agencies to which services have been outsourced, is crucial for ensuring the effectiveness and adequate targeting of active labour market and activation policies, including effective retraining to allow people to move into sectors where more jobs are being created. Spain has made limited progress in accelerating the modernisation of public employment services and addressing regional disparities.

               (12)Youth unemployment in Spain remains very high (over 53 %)and the early school leaving rate is one of the highest in the EU. Spain is implementing the new educational schemes introduced by Law No 8/2013 on the quality of education, designed to increase the quality of primary and secondary education. Limited progress was made in increasing the labour-market relevance of vocational education and training, and the efforts to improve cooperation between higher education institutions and employers are behind schedule. There are plans to extend the dual vocational training scheme in 2015, but there continue to be considerable differences in its implementation across the regions. A dedicated committee has been set up to examine the relevance of education and training curricula to labour market needs.

               (13)Spain made limited progress on improving the effectiveness of its social protection system. It has established a new activation programme for the long-term unemployed, combining income support and assistance in looking for work. Limited coordination between the employment and social services, and the incompatibility of the different minimum income schemes have, however, reduced the effectiveness of the social assistance programmes. Facing high levels of poverty, especially among low-income households with children, Spain made limited progress in improving the targeting of family support schemes and care services.

               (14)Structural reforms need to include removing the obstacles preventing businesses from growing, helping SMEs in expanding their markets and promoting innovation, boosting export capacity, stimulating job creation, and help companies to compete more efficiently — including in internal markets — and improving overall productivity. Spain has begun to examine the reasons behind the high proportion of small and micro enterprises in its economy. Studying the reasons why businesses have remained small will allow the government to remove regulatory obstacles preventing firms from growing. Although some progress was made in implementing Law No 20/2013 on market unity, there are still delays at regional government level. The law on the regulation of environmental permits has not yet been implemented by all regions. No progress has been made with regard to the adoption of the reform of professional services and professional associations. Structural weaknesses in its research and innovation system continue to limit Spain’s growth potential. It therefore remains essential to identify new sources of funding, ensure effective and efficient use of resources, set up the new research agency and promote measures to make the business environment more innovation-friendly.

               (15)Some progress was made in relation to the rail network, with measures being taken to ensure effective competition in freight and passenger rail services. On 4 July 2014, the Council of Ministers adopted Royal Decree-Law 8/2014, creating a fund to improve the land accessibility of seaports.

               (16)Spain made progress in implementing the recommendations of the committee for the reform of public administration at all levels of government. It is, however, mainly at national level that the effects of the reform, in terms of efficiency gains and fiscal savings, have been visible to date. Important steps were taken to improve the transparency of administrative decisions, but no progress was made in strengthening supervisory systems, in particular in public procurement at regional and local level. No measures have been taken to strengthen supervisory powers in public procurement and urban planning. Limited progress was made with regard to the adoption of judicial reforms aimed at improving the effectiveness of the justice system: draft laws on the judiciary and on civil procedure, which include some reforms, were submitted to Parliament on 27 February 2015; draft bills on legal aid and on voluntary jurisdiction are subject to parliamentary procedure. Some progress was made in implementing the reforms that have been adopted, including the Oficina Judicial, the reform introducing the digitisation of justice and improving the interoperability of regions’ electronic case management systems. Efforts need to be continued in this area.

               (17)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Spain’s economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Spain in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the European Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

               (18)In the light of this assessment, the Council has examined Spain’s Stability Programme, and its opinion
                  10
                is reflected in particular in recommendation 1 below.

               (19)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. The recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 4 below.

               (20)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 the basis of this analysis, the Council has issued specific recommendations for the Member States whose currency is the euro. Spain should also ensure the full and timely implementation of these recommendations,

               HEREBY RECOMMENDS that Spain take action in 2015 and 2016 to:

               1.Ensure a durable correction of the excessive deficit by 2016 by taking the necessary structural measures in 2015 and 2016 and using windfall gains to accelerate the deficit and debt reduction. Strengthen transparency and accountability of regional public finances. Improve the cost-effectiveness of the healthcare sector, and rationalise hospital pharmaceutical spending.

               2.Complete the reform of the saving banks’ sector, including by means of legislative measures, and complete the restructuring and privatisation of state owned savings banks.

               3.Promote the alignment of wages and productivity, in consultation with the social partners and in accordance with national practices, taking into account differences in skills and local labour market conditions as well as divergences in economic performance across regions, sectors and companies. Take steps to increase the quality and effectiveness of job search assistance and counselling, including as part of tackling youth unemployment. Streamline minimum income and family support schemes and foster regional mobility.

               4.Remove the barriers preventing businesses from growing, including size-contingent regulations; adopt the planned reform on professional services; accelerate the implementation of the law on market unity.

               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(2015) 259.

                     (4)
                  P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069.

                     (5)
                  OJ L 140, 27.5.2013, p. 11.

                     (6)
                  C(2014) 8804 final

                     (7)
                  COM(2014) 902.

                     (8)
                  COM(2014) 904.

                     (9)
                  C(2014) 8804 final..

                     (10)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 334 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Latvia and delivering a Council opinion on the 2016 stability programme of Latvia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Latvia

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission
                  2
               ,

               Having regard to the resolutions of the European Parliament
                  3
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

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

               (3)On 14 April 2016, Latvia submitted its 2016 national reform programme and its 2016 stability programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

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

               (5)In its 2016 stability programme, Latvia has requested a temporary deviation of 0.5 % of GDP from the required adjustment path towards the medium-term budgetary objective in 2017 to take account of major structural reforms with a positive impact on the long-term sustainability of public finances, notably for the ongoing health sector reform based on the Health Strategy for 2014-2020. The details of the reform are summarised in the stability programme. The objective is to increase public financing for the health sector to 4% of GDP by 2020 relative to 3% of GDP in 2015. The full implementation of the reform is estimated to increase employment by 0.6% and the GDP level by 2.2% by 2023, which will have a positive impact on the sustainability of public finances in the long run. The positive impact on growth and the long-term sustainability of public finances is assessed to be plausible.  Latvia can currently be assessed as qualifying for the requested temporary deviation in 2017, provided that it adequately implements the agreed reforms, which will be monitored under the European Semester. However, the amount of the allowed temporary deviation is conditional on the respect of the minimum benchmark (i.e. a structural deficit of 1.7% of GDP). As a result, the Commission 2016 spring forecast indicates scope for an additional temporary deviation of 0.1% of GDP in 2017.

               (6)Latvia is currently in the preventive arm of the Stability and Growth Pact. In its 2016 stability programme, the government plans a gradual improvement in the headline balance to reach 0.5% of GDP in 2019. The planned adjustment path towards the medium-term budgetary objective – a deficit of 1% of GDP in structural terms – takes into account the requested deviations related to the systemic pension reform in 2017 and 2018 and for the major structural reform in the healthcare sector in the period 2017-2019. According to the stability programme, the government debt-to-GDP ratio is expected to rise to 40% in 2016 before declining to 38% in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, the measures needed to support the planned deficit targets from 2017 onwards have not been sufficiently specified. Based on the Commission 2016 spring forecast, the overall assessment points to a risk of some deviation in 2016 and, under unchanged policies, in 2016 and 2017 taken together. Based on its assessment of the stability programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that Latvia is expected to broadly comply with the provisions of the Stability and Growth Pact. Nevertheless, further measures will be needed to ensure compliance in 2016.

               (7)The labour supply is constrained by a declining working age population and wage  growth exceeds productivity, threatening cost-competitiveness. Measures to increase employability and improve human capital are therefore necessary to support competitiveness.

               (8)Latvia's at risk-of-poverty and social exclusion rate is among the highest in the EU. Preparatory work is on-going to introduce a minimum income level, but its implementation is uncertain and its universal application is being diluted, due to fiscal costs. Furthermore, the adequacy of social assistance benefits has not been improved since 2009, preventing effective poverty reduction. The minimum income level reform is expected to reduce the current fragmentation of social assistance and provide an incentive for employment.

               (9)The coverage of activation measures remains low, particularly for the long-term unemployed.  In combination with poor health and insufficient social services, this hampers effective reintegration in the labour market. Increasing the take-up of activation measures would boost employment.

               (10)The low public financing of healthcare, inherent structural weaknesses, high out-of-pocket payments and suboptimal cost-effectiveness leave much of the population with unmet healthcare needs. While access to healthcare for critical medical cases has been given priority, financial constraints limit the supply of services in general.

               (11)While Latvia has made progress in reforming the higher education system, namely by providing incentives that reward quality and establishing an independent accreditation system, improvements of vocational education and training are necessary, particularly with respect to reforming  curricula and setting up a regulatory framework for apprenticeship-type schemes, in order to improve their quality and availability. Social partners can play a role in the development of apprenticeship-type schemes, as outlined in the Vocational Education Law.

               (12)Investments are being held back by innovation issues, shortcomings in the business environment and the shrinking size of the labour force. Poor innovation drive and a fragmented research base hamper Latvia's rapid and efficient transition towards higher value-added and more knowledge-intensive activities. Low protection for investors in the application of the insolvency system, coupled with inefficiencies in public administration, further inhibit investments.

               (13)The government has taken steps to reduce the current fragmentation of the public research base, improve its quality and enhance the business sector's innovation capacity. Despite progress, both public and business investments in research and innovation remain very low compared with the EU average. The consolidation of the research base needs to be continued, along with increasing the number of reserchers and the quality of research. Full implementation of reforms based on the Smart Specialisation Strategy and the full use of all existing policy tools would incentivese private investments in innovation.

               (14)The insolvency regime is perceived by business as an obstacle to investment, given that assets recovery rates are low and insolvency administrators are subject to little supervision.

               (15)Latvia has introduced several successful initiatives to improve the efficiency and quality of the justice system. However, although it is comprehensive, the conflict of interest prevention regime for public officials is complex and rigid, prioritising formal compliance over the merits of individual cases. Moreover, the Corruption Prevention Office has been weakened by internal tensions, destabilising it and reducing public trust in its operations and its willingness to prioritise high profile cases.

               (16)General inefficiencies in public administration, due largely to high staff turnover, delays in the public service reform and weak project management, are not conducive to a favourable investment environment. Public sector remuneration is not properly linked to responsibilities.

               (17)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Latvia’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 Latvia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Latvia but also their compliance with EU rules and guidance, given the need to strengthen the EU's overall economic governance by providing EU level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 3 below.

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

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

               1.Ensure that the deviation from the adjustment path towards the medium-term budgetary objective in 2016 and 2017 is limited to the allowance linked to the systemic pension reform and the major structural reform in the healthcare sector. Reduce the tax wedge for low-income earners by exploiting a growth-friendly tax shift towards environmental and property taxes and improving tax compliance.

               2.Improve the adequacy of social assistance benefits and step up measures supporting recipients in finding and retaining work, including through increased coverage of activation measures. Speed up the curricula reform in vocational education, establish with the involvement of social partners a regulatory framework for apprenticeship-type schemes and increase their offer. Improve the accessibility, quality and cost-effectiveness of the healthcare system.

               3.Pursue the consolidation of research institutions and provide incentives for private investment in innovation. Strengthen the conflict of interest prevention regime and set up a common legal framework for all public employees. Increase the accountability and public oversight of insolvency administrators.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2016) 334 final.

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

                     (4)
                  COM(2015) 690 final.

                     (5)
                  COM(2015) 691 final.

                     (6)
                  COM(2015) 692 final.

                     (7)
                  SWD(2016) 82 final.

                     (8)
                  COM(2014) 494 final.

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


               EUROPEAN COMMISSION
            Brussels, 18.5.2016
            COM(2016) 329 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2016 national reform programme of Spainand delivering a Council opinion on the 2016 stability programme of Spain

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2016 national reform programme of Spain

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

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

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 26 November 2015, the Commission adopted the Annual Growth Survey
                  5
               , 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
                  6
               , in which it identified Spain 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
                  7
               . This recommendation was endorsed by the European Council on 18-19 February 2016 and adopted by the Council on 8 March 2016. As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Spain should ensure the full and timely implementation of the recommendation.

               (2)The 2016 country report for Spain
                  8
                was published on 26 February 2016. It assessed Spain’s progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Spain’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.
                  9
                The Commission analysis leads it to conclude that Spain is experiencing macroeconomic imbalances. In particular,  high external and internal debt, both public and private, continue to constitute vulnerabilities in a context of high unemployment. The need for action so as to reduce the risk of adverse effects on the Spanish economy and, given its size, of negative spillovers to the economic and monetary union, is particularly great. Despite improvement in the current account balance, net external liabilities are not projected to reach prudent levels in the short term. Private sector deleveraging is on track, supported partly by favourable growth conditions, but deleveraging needs are large and public debt remains high. Measures have been taken in the financial sector and in corporate and personal insolvency frameworks, but further action is needed  on innovation and skills and on compliance with the Stability and Growth Pact.

               (3)On 29 April 2016, Spain submitted its 2016 national reform programme and on 30 April 2016 it submitted its 2016 stability programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013, where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance
                  10
               .

               (5)Spain is currently in the corrective arm of the Stability and Growth Pact. In its 2016 stability programme, Spain plans to achieve headline deficit targets of 3.6% of GDP in 2016 and 2.9% of GDP in 2017. The excessive deficit is thus planned to be corrected one year later than currently recommended by the Council, the fiscal effort and headline targets having been missed in 2014 and 2015. These targets assume the full implementation of 0.4% of GDP in permanent savings at central and regional government level announced in response to the Autonomous Commission recommendation of 9 March 2016. The deficit is planned to continue declining thereafter, to 1.6% of GDP in 2019. However, the medium-term objective of a balanced budgetary position in structural terms is not planned to be reached within the time horizon of the stability programme. In particular, the recalculated  structural balance is projected to improve only marginally in 2016 and 2017 to around -2½% of GDP, and decline slowly to reach -2¾% of GDP in 2019. The government debt-to-GDP ratio declined only marginally in 2015 to 99.2% of GDP and is expected to decline slightly in 2016 and 2017 and more decisively in the two following years, to 96% of GDP in 2019, as the primary balance turns into a surplus. The macroeconomic scenario underpinning these budgetary projections is plausible for 2016 and 2017 and somewhat optimistic thereafter;  it has been endorsed by Spain's Independent Fiscal Institution (AIReF). The Commission 2016 spring forecast projects the deficit at 3.9% of GDP in 2016 and 3.1% of GDP in 2017, above the headline targets in the stability programme. Spain is thus not projected to correct the excessive deficit by 2016 as recommended by the Council. Risks to the deficit targets in the programme largely stem from uncertainties surrounding the implementation of the savings from the March/April 2016 measures. As the structural deficit is projected to slightly increase in both years, the fiscal effort is not in line with the requirements of the Stability and Growth Pact. Based on its assessment of the stability programme and taking into account the Commission's 2016 spring forecast, the Council is of the opinion that there is a risk that Spain will not comply with the provisions of the Stability and Growth Pact. Therefore, further measures are needed to ensure compliance in 2016 and 2017.

               (6)Pursuant to Article 10(1) of Regulation (EC) N° 1467/97, the Commission will regularly monitor the implementation of action taken by Spain in response to the last recommendation made by the Council under Article 126(7) TFEU: the Commission will therefore recommend to the Council the appropriate steps to be taken in the framework of the excessive deficit procedure.

               (7)Since 2012, Spain's fiscal framework has been strengthened in order to, among other things, prevent deviations and ensure compliance by all government levels with their respective deficit, debt and expenditure targets. In addition, a rule for application (on a voluntary basis) at regional level was approved in mid-2015 to limit growth in expenditure on healthcare and pharmaceutical products and an agreement between the government and the pharmaceutical industry was signed in November 2015 to help rationalise spending on pharmaceuticals. Despite this, in 2015, most regions as well as the social security sector fell significantly short of meeting their domestic fiscal targets. The stability law's expenditure rule was not observed by the central, regional and local government subsectors and growth in expenditure of pharmaceutical products, namely in hospitals, strengthened further, even excluding the impact of new anti-hepatitis C treatments.

               (8)In the field of public procurement, Spain performs well concerning the quality of the legislation and the availability of review procedures. Efforts have been made to rationalise public purchasing, in particular via joint procurement mechanisms. However, there are disparities in the implementation of public procurement across administrations and insufficient control mechanisms hinder the correct application of public procurement rules. The number of presumed breaches of EU public procurement legislation brought to the Commission’s attention in recent years has been relatively high. Furthermore, the Spanish Court of Auditors has pointed to some weaknesses such as the frequent use of the negotiated procedure without publication, the repeated modification of contracts, the splitting of contracts into smaller ones and the insufficient precision and clarity of some tender documents and administrative decisions.

               (9)Spain has made substantial progress in restructuring the financial sector. The law on savings banks to strengthen their governance and reduce controlling stakes held by banking foundations has been implemented. The implementation of plans for restructuring state-aided banks is well advanced. The Bank of Spain has amended the existing accounting regime for credit institutions and adopted a new framework for SAREB, the Spanish asset management company. The new framework will allow SAREB a proper treatment of impairments and help in adapting its deleveraging policies to credible market assumptions.

               (10)Labour market reforms undertaken in recent years have made employment more responsive to growth and job creation has resumed, supported by increased flexibility and continued wage moderation. Collective agreements have been supportive of this trend, also owing to the inter-professional agreement signed in June 2015. The recent increase in overall employment has been driven mainly by temporary contracts, although the number of newly signed open-ended contracts is slowly rising. However, the take up of incentives for new permanent hiring remains limited, and the proportion of temporary workers remains one of the highest in the EU, while the opportunities for temporary workers to move to a permanent contract remain low. The short duration of temporary contracts limits incentives to invest in human capital, hampering productivity growth. Although decreasing rapidly, unemployment remains very high, in particular among young people, and its average duration is rising. Persistently high long-term unemployment implies that unemployment risks becoming entrenched, negatively affecting working and social conditions. Nearly 60% of the long-term unemployed are low-skilled, which calls for appropriate active and passive labour market and training policies to tackle pervasive skills mismatches and prevent skills depreciation among this group. Interaction with  employers in the design of training programmes is still weak.

               (11)The effectiveness of activation and active labour market measures depends heavily on the capacity of employment services to design and offer individualised support to beneficiaries. The implementation of recent reforms of active labour market policies is progressing slowly and the capacity of the public employment services to provide effective, individualised counselling and job search assistance is still limited. Cooperation between the regional public employment services and private placement agencies remains limited. Moreover, cooperation between employment and social services is uneven across regions, hampering the provision of coordinated assistance for those further away from the labour market, in particular minimum income beneficiaries. There are significant disparities across regions as regards income support schemes, for example in delivery arrangements, eligibility requirements, coverage and adequacy, while difficulties in transferring social benefits hamper inter-regional job mobility. In addition, information about the transition to employment from minimum income schemes is quite limited. Spain is currently preparing a map of national and regional income support schemes in the country, covering national and regional levels. While some measures have been introduced, the effectiveness of family and housing benefits in reducing poverty remains limited, and the lack of adequate and affordable child care and long-term care provision discourages women, in particular, from taking up a job.

               (12)The increasingly rapid change in the sectoral composition of employment that Spain has been witnessing since 2008 has been accompanied by an increase in skills mismatches. The low overall skills level constrains the transition towards higher value-added activities and hampers productivity growth. Despite a high level of tertiary education attainment, skills supply is not sufficiently aligned with labour market needs and employability rates for recent tertiary graduates are among the lowest in Europe, with a significant proportion employed in jobs that do not require a university degree. Furthermore, despite a slight improvement over the past five years, partly supported by initiatives to increase business representation on university governing boards, cooperation between universities and businesses remains weak. The reduced mobility of academics, the rigidity of the university governance system and the administrative barriers faced by the Offices for the Transfer of Research outcomes (Oficinas de transferencia de resultados de investigación) compound obstacles to closer cooperation.

               (13)Research and innovation policy in Spain faces several challenges. Interaction between public and private research is weak. Spain’s R&D intensity (spending on R&D relative to GDP) and innovation performance keeps declining, against the backdrop of a relatively low number of innovative firms and limited incentives for collaboration between public research and business. Spain underperforms in respect of most business innovation indicators. The gap on spending on R&D intensity compared to the EU as a whole is especially significant as regards investment in R&D by the private sector (0.6% in Spain compared to 1.3% in the EU as a whole). Venture capital is still not widely used in Spain, notably at seed stage. Weak coordination of R&I policies in Spain has led to a fragmented regional landscape of bodies and programmes to promote innovation activities and foster science-business cooperation, which creates significant challenges for businesses, especially for smaller firms. Low business involvement in innovation activities could point to a lack of innovation-friendly framework conditions and incentives. As highlighted in the 2014 ERAC (European Research Area Committee) Peer Review of the Spanish Research and Innovation System, most successful public research systems are driven by higher degrees of evaluation and accountability than are found in Spain. In this context, the allocation of public funding for R&D activities in universities and public research bodies is usually not based on performance, thus reducing the incentives to improve the quality and relevance of scientific outputs.

               (14)The small average size of Spanish firms helps explain the economy's  persistent low productivity. Firm growth, combined with improvements in human capital, innovation, technology, access to finance and efficient justice could spur aggregate productivity. In 2015, business investment strengthened, underpinned by dynamic demand conditions, low borrowing costs and ongoing balance sheet repair by the corporate sector and households. Spain has taken various measures to ease business growth. For example, a recent law on business financing is expected to facilitate access to finance for small and medium-sized enterprises (SMEs). Furthermore, prior assessment of the potential impact of new legislation on SMEs has now become compulsory. However, the time and number of permits required for starting up a business and launching certain economic activities remains relatively high.

               (15)Spain's considerable differences across regions in regulatory practices, including on business licencing, may limit firms' capacity to grow. The law on market unity aims to reduce barriers to access to and exercise of economic activities across Spanish regions and to improve regulation. It could potentially have a significant impact on removing barriers to investment and facilitate business licensing, business operations and company growth. However, in its third year of application, it is being implemented slowly by regional governments. Likewise, the benefits of the retail sector reform of 2014 depend on regional governments adopting the necessary implementing acts. Furthermore, tackling obstacles to access to the professional services sector is likely to improve productivity in other sectors that use those inputs. Apart from the transposition of the Services Directive into Spanish law, there has been no progress on a horizontal reform of the regulatory framework for regulated professions and professional associations, other than in the area of professional board certification of projects. The reform planned in successive National Reform Programmes was not adopted. This reform aimed at defining the professions requiring registration in a professional organisation, increasing transparency and accountability of professional bodies, opening up unjustified reserved activities and safeguarding market unity in the access to and exercise of professional services in Spain.

               (16)In the context of the European Semester, the Commission has carried out an analysis of Spain’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 Spain in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain 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 4 below.

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

               (18)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 4 below.

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

               (1)Ensure a durable correction of the excessive deficit by 2017, reducing the general government deficit to 3.7% of GDP in 2016 and to 2.5% of GDP in 2017, by taking the necessary structural measures and by using all windfall gains for deficit and debt reduction. This is consistent with an improvement in the structural balance of 0.25% of GDP in 2016 and of 0.5% of GDP in 2017. Implement at all government levels the tools set out in the fiscal framework law. Enhance control mechanisms for public procurement and coordination of procurement policies across government levels.

               (2)Take further measures to improve labour market integration, by focusing on individualised support and strengthening the effectiveness of training measures. Enhance the capacity of regional employment services and reinforce their coordination with social services. Address gaps and disparities in minimum income schemes and improve family support schemes, including access to quality child-care and long-term care.

               (3)Take further measures to improve the labour market relevance of tertiary education, including by providing incentives for cooperation between universities, firms and research. Increase performance-based funding of public research bodies and universities and foster R&I investment by the private sector.

               (4)Accelerate the implementation of the law on market unity at regional level. Ensure  implementation by the autonomous regions of the reform measures adopted for the retail sector. Adopt the planned reform on professional services and associations.

               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(2016) 329 final.

                     (4)
                  P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060.

                     (5)
                  COM(2015) 690 final.

                     (6)
                  COM(2015) 691 final.

                     (7)
                  COM(2015) 692 final.

                     (8)
                  SWD(2016) 78 final.

                     (9)
                  COM(2016) 95 final.

                     (10)
                  COM(2014) 494 final.

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