               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 524 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Slovenia and delivering a Council opinion on the 2020 Stability Programme of Slovenia

               Recommendation for a

               COUNCIL RECOMMENDATION

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

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

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

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

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

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

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

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

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across Slovene regions due to different specialisation and concentration patterns of economic activities. This entails a substantial risk of aggravating the already observed trend of widening disparities between the capital city and the rest of the country. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

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

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

               (12)On 13 July 2018, the Council recommended Slovenia to ensure that the nominal growth rate of net primary government expenditure
                  7
                does not exceed 3,1% in 2019, corresponding to an annual structural adjustment of 0,65% of GDP. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the Significant Deviation Procedure for Slovenia are not warranted.

               (13)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,5% of GDP in 2019 to a deficit of 8,1% of GDP in 2020. After decreasing to 66,1% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 82,4% of GDP in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (14)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Slovenia has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 4,4% of GDP. The measures include short-term work schemes for temporarily laid-off employees and the self-employed (2,3% of GDP), higher healthcare spending (0,5% of GDP), compensations for workers remaining in the workplace (0,4% of GDP), crisis bonus for public sector employees (0,4% of GDP), tax deferrals (0,4% of GDP) and financial aid for vulnerable groups (0,2% of GDP). In addition, Slovenia has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses, which the 2020 Stability Programme estimates at 5,1% of GDP. Those measures include loan guarantees (4,8% of GDP), tax deferrals (0,2% of GDP) and exemption of social security contributions for the self-employed (0,1% of GDP). However, the Commission 2020 spring forecast considers all tax deferrals as liquidity measures without a negative budgetary impact in 2020. Overall, the measures taken by Slovenia are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (15)Based on the Commission 2020 spring forecast under unchanged policies, Slovenia’s general government balance is forecast at -7,2% of GDP in 2020 and -2,1% of GDP in 2021. The general government debt ratio is projected to reach 83,7% of GDP in 2020 and 79,9% of GDP in 2021.

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

               (17)Slovenia declared the COVID-19 epidemic on 12 March 2020 under its Communicable Disease Act and took public health measures to contain the spread of the virus. This included coordinating the respective roles of public health, primary and secondary care and other services, as well as introducing appropriate testing protocol. In parallel, Slovenia introduced strict confinement measures, while leaving food stores, pharmacies, banks, petrol stations and post offices open. The public health and confinement measures helped Slovenia in the first wave (March-May) to prevent the number of severely ill exceeding the capacity of the country's health system. Because of the confinement measures, many companies shut down temporarily or reduced their activities. In an open and export-oriented economy like Slovenia, disruptions in the supply chain and a reduced global demand for products have had a particularly strong impact on growth. Given the uncertainty regarding the economic development, many investment decisions in the private sector are being postponed. As transport and tourism, two of Slovenia’s most important sectors are expected to be the most affected with 70% drop in turnover in 2020, a very sharp fall in GDP is projected for 2020.

               (18)By the end of April 2020, the authorities had adopted two packages of measures to counterbalance the COVID-19 shock
                  8
               . The first mitigation package, worth around EUR 3,1 billion equivalent to around 6,4% of GDP focuses primarily on protecting jobs and socially vulnerable groups. The state covers pay compensation, sick pay and social security contributions for temporary lay-offs as well as the pension insurance contributions for employees who remain in the workplace. To alleviate businesses and households’ liquidity constraints, the servicing of loans can be postponed for up to 12 months. The second package, worth some EUR 2 billion, equivalent to around 4,2% of GDP, mainly provides liquidity aid to companies. The package includes a state guarantee scheme via banks, that enable loans to be granted to large companies guaranteed by the state for up to 70% of the principal and loans to be granted to small and medium-sized enterprises (SMEs) guaranteed for up to 80%. Deferring tax payments and exemption of social contributions, and speeding up contractual payments by public authorities, is to help businesses mitigating their problems with the liquidity and access to finance.

               (19)With an increasing demand for health services at the beginning of the COVID-19 outbreak, Slovenia faced challenges to ensure a sufficient healthcare capacity. The outbreak of the virus has revealed structural problems in health system. For instance, the relatively low density of doctors is an additional challenge in fighting the epidemic. It is therefore important to recruit more trained health workers, protect their working conditions and employ them where needs are greatest. Deployment of diagnostics, tests and e-health tools that enable follow-up and telemedicine is crucial. Targeted research and innovative solutions are also important to help the public health services collect and use anonymised data for making informed decisions. The crisis underlines the need to protect the financing capacity of the health and long-term care systems, which are both pending structural reforms. The timely adoption and implementation of a new Health Care and Health Insurance Act, broadening the financial sources of the health system, and developing financial buffers, will mitigate the fluctuation of financial resources during the economic cycle. The lack of a long-term care act has limited Slovenia’s ability to fight the COVID-19 outbreak in the most affected care settings. As the elderly, people with disabilities and people with chronic diseases have an increased risk of severe illness due to the virus, further significant efforts are necessary to ensure quality long-term care services, well integrated with health services.

               (20)The health and economic crisis caused by COVID-19 has put unprecedented pressure on Slovenia’s labour market and social protection system. According to the Commission forecast, unemployment is expected to rise to 7% in 2020 and recover to 5.1% in 2021. To curb the rapid increase in unemployment in the most affected sectors, Slovenia has adopted a comprehensive policy response that combine preventive measures with measures intended to facilitate the fast re-entry of workers in the labour market. Key policy responses, made in consultation with the social partners, should focus on achieving a sustained and equitable recovery by strengthening existing active labour market policies and employment retention schemes, including short-time work schemes, and introducing other time-bound support for businesses, such as wage subsidies and exemptions from social security contributions. These measures would help lessen income losses for all workers, including those in non-standard employment, as well as the self-employed. Flexible working arrangements, including flexibility in working place (e.g. teleworking provisions), flexibility in working time (e.g. flexitime provisions) and flexibility in work organisations (e.g. company in-house services) may significantly sustain employment during lockdowns and when economic activity resumes. Nurturing the entrepreneurial spirit will be crucial for restarting the economy and making the necessary adjustments after the crisis. It is therefore particularly important to support the self-employed by reducing the administrative burden and financial disadvantages compared to employees.

               (21)To mitigate the social impact of this crisis, it is essential that Slovenia continues to provide an adequate package of social benefits. For this, it will be necessary to monitor the effects of the crisis on poverty regularly. Special attention should be payed to the elderly, and in particular women, for whom the at-risk-of-poverty or social exclusion rates were higher than the EU average already before the crisis. The amendment to the pension legislation, adopted by the National Assembly in November 2019, is expected to improve the adequacy of pensions for new pensioners, while current pensioners, including those at or below the poverty line, will not benefit from it. Additional financial assistance offered to the organisations working on the front lines would ensure that the COVID-19 pandemic does not disproportionately affect people at risk of social exclusion and that they have their basic needs met, such as daily meals and health-care.

               (22)Liquidity measures were introduced for businesses in April 2020, but there are still viable businesses such as smaller innovative and high-growth firms whose bank credit ratings are not yet sufficiently well established to entitle them to the aforementioned loan guarantees via banks. Improved access to alternative finance, including equity financial instruments (e.g. venture capital) might be necessary, particularly in countries like Slovenia where equity markets are underdeveloped. Slovenia’s existing equity capital tools could be a means to channel relief funds to those businesses that are successfully exiting from the crisis, such as innovative SMEs, start-ups and scale-ups, as planned by other Member States. Applying the safeguards provided for in EU rules will ensure that these injections will not adversely affect companies’ efficiency or economic competition.

               (23)The COVID-19 crisis has severely affected the capacity of otherwise viable businesses and households to pay their bills. If no action was taken, a large part of the private sector would face insolvency. Among its liquidity measures for businesses, the Slovenian government introduced a 12-month moratorium on the repayment of performing bank loans for the non-financial corporations and households. The efficiency and effectiveness of this and similar measures need to be carefully assessed and monitored. Any adverse effect of the measures should also be remedied quickly, so that financial stability is ensured at all times.

               (24)Struggling firms, and notably smaller ones, require not only liquidity and financing, but also a supportive business environment. This includes the speedy and non-bureaucratic implementation of the COVID-19 relief measures but goes beyond this. The country’s high regulatory and administrative burden create costs that hard-pressed firms can simply not afford in these challenging times. Cutting red tape related for example to permits, reporting obligations and tax procedures is an effective way to provide immediate, noticeable relief to firms, without burdening the national budget and indirectly the taxpayer. Modernising the rules will allow professions to offer more cost-effective and innovative services that firms now need. Slovenia has created tools to reduce administrative burden, including the ‘Single Document’ and ‘SME test’. The use of those tool can now be maximised to provide immediate relief. The crisis will put additional stress on commercial disputes settlement and economic crime prosecution. The insolvency framework will also need a greater focus on avoiding crisis-related insolvencies, on a speedy winding down of non-viable businesses and a second chance for those involved.

               (25)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Advancing the green transition with sustainable projects, such as the transition away from coalmines and coal-powered electricity production, could be one such investment. Investing in the green transition as described in Slovenia’s National Energy and Climate Plan can help bring short- term stimulus to the recovery and the medium-term aftermath of the COVID-19 outbreak. This can involve increasing the current low share of renewables, strengthening the energy infrastructure, reducing air pollution, which is above the EU average in Slovenia’s towns and cities, strengthening the circular economy, supporting social entrepreneurship, and accelerating the efforts to limit the potential impacts on the regions and sectors most affected by the transition. The current drop in emissions would be short-lived if insufficient attention is given to clean energy and climate investments in recovery packages, making Slovenia fall behind on its climate targets. The programming of the Just Transition Fund for the period 2021-2027 could help Slovenia to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report. This would allow Slovenia to make the best use of that fund.

               (26)For an economic recovery that incorporates the principle of sustainability, investment will be needed to further develop sustainable transport, and to support public passenger transport and sustainable connections, particularly for rail. The COVID-19 crisis has led to additional challenges for freight and transit transport and although Slovenia took the necessary action and enabled the flow of goods - in particular critical goods, this will have a negative impact on the country’s economic growth.

               (27)As part of an exit and recovery strategy, it will be important to support investment in research and innovation, which is a critical driver of productivity and economic growth. Even before the crisis, Slovenia was rated only a ‘moderate innovator’, slowing its efforts to catch up with best performers. The business sector is responsible for 75% of spending on R&D. The economic downturn is once again putting business R&D and innovation at risk. Relatively low rates of innovation, especially by SMEs, slow down the development and diffusion of innovative business processes and solutions, which are called for by the COVID-19 crisis. Investment is needed to help innovative SMEs - including startups - whose activities involve emerging technologies and breakthrough innovations, to scale up their production. Cooperation between academia and business is mostly limited to the medium-and high-tech sectors. The effectiveness of knowledge transfer offices set up by research organisations and higher education institutions varies considerably. Links between academia and business are essential for successfully translating knowledge into innovation, improving the country’s research and innovation performance, and driving economic growth. Public spending on R&D was modest, and partly reliant on EU Structural Funds. Recovering from this crisis will require the prioritisation of public investment into research and innovation, including technological and applied research.

               (28)Digital transformation will be key to the post-crisis economic recovery. The country’s potential in this area was illustrated by the fast rollout of teleworking schemes and online commerce solutions by some Slovenian companies at the start of the crisis. Greater digitalisation in business models and production processes would extend these transformations to more sectors of economy. Slovenia can build on existing knowledge and excellent capacities in robotics, artificial intelligence and block chain technology to support the expansion of digitalisation to less advanced, traditional industries. Reusing the broad range of public sector data currently available could support innovation and the big data economy. Improving workers’ digital skills could increase their employability relatively quickly and support the economic recovery. Introducing user-friendly e-government services and digital public services would help further reduce the administrative burden for businesses. While a range of online public services are already available, their up-take by individuals and businesses will require efforts to increase people’s trust in and security of online transactions (e.g. rollout of a national electronic identifier, cyber security and privacy features). Fast and reliable broadband connections (fixed and mobile), including in rural areas, are indispensable for developing key online social and economic services. Roll out of 5G depends on timely 5G spectrum assignment.

               (29)Regular classes for all education levels have been replaced by distance learning during the COVID-19 confinement. Online learning requires adequate digital infrastructure, education materials, and teachers with the necessary skills and support to teach effectively. All learners, in particular vulnerable groups, including those with disabilities and those from rural areas, need to have adequate access to distance learning and decent digital skills to fully benefit from distance learning. Digital skills should feature more prominently in school curricula and programmes, to improve workers’ skills. This would allow a broader use of teleworking and digital services, a better match of digital skills with the requirements of the labour market, as well as the inclusion of vulnerable groups like the elderly or people living in rural areas.

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

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

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

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

               (34)In the light of that assessment, the Council has examined the 2020 Stability Programme and its opinion
                  9
                is reflected in particular in recommendation (1) below,

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

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

               2.Provide adequate income replacement and social protection. Mitigate the employment impact of the crisis, including through enhancing short-time work schemes and through flexible working arrangements. Ensure that these measures provide adequate protection for non-standard workers.

               3.Continue to swiftly implement measures to provide liquidity and financing to businesses and households and reduce administrative burden. Front-load mature public investment projects and promote private investment to support the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, environmental infrastructure, sustainable transport, research and innovation and on the rollout of the 5G network. Promote digital capacities of businesses, and strengthen digital skills, e-Commerce and e-Health.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2020) 523 final.

                     (3)

                        OJ C 301, 5.9.2019, p. 117.

                     (4)

                        COM(2020) 112 final.

                     (5)

                        COM(2020) 123 final.

                     (6)

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

                     (7)

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

                     (8)

                        The Commission has adopted a temporary State aid framework for such aid measures, which inter alia comprises safeguards as to the viability of firms; OJ C 91I , 20.3.2020, p. 1.

                     (9)

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


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 525 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Slovakia and delivering a Council opinion on the 2020 Stability Programme of Slovakia

               Recommendation for a

               COUNCIL RECOMMENDATION

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

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

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

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

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

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

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

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

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

               (9)The socio-economic consequences pandemic are likely to be unevenly distributed across regions due to different specialisation patterns and infrastructure gaps. This entails a substantial risk of widening regional disparities within Slovakia, in particular between the capital city and Western Slovakia on the one hand, and Eastern and South-Eastern Slovakia on the other. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

               (10)On 18 May 2020, Slovakia submitted its 2020 National Reform Programme and its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Slovakia is currently in the preventive arm of the Stability and Growth Pact.

               (12)On 13 July 2018, the Council recommended Slovakia to ensure that the nominal growth rate of net primary government expenditure
                  7
                does not exceed 4,1% in 2019, corresponding to an annual structural adjustment of 0,5% of GDP. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term structural objective in 2019 and over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Slovakia are not warranted.

               (13)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a deficit of 1,3% of GDP in 2019 to a deficit of 8,4% of GDP in 2020. The deficit is projected to decline to 4,9% of GDP in 2021, to 3,7% of GDP in 2022 and to reach 2,9% of GDP by 2023. After decreasing to 48% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 61,2% in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic.

               (14)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Slovakia has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 2,6% of GDP. The measures include wage compensation for employees, subsidies for the self-employed, sickness and nursing schemes and purchases of medical goods linked to the COVID-19 pandemic. In addition, Slovakia has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses, which the 2020 Stability Programme estimates at 3% of GDP. Those measures include tax deferrals for income taxes and social contributions when revenue decreased by more than 40% (1,4% of GDP) and loan guarantees (1,6% of GDP). Overall, the measures taken by Slovakia are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions, when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (15)Based on the Commission 2020 spring forecast under unchanged policies, Slovakia’s general government balance is forecast at -8,5% of GDP in 2020 and -4,2% in 2021. The general government debt ratio is projected to remain below 60% of GDP in 2020 and 2021.

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

               (17)Following the COVID-19 outbreak, Slovakia has taken quick and unprecedented measures to halt and prevent further spread of the virus. After a first case was registered on 6 March 2020, it declared a state of emergency as of 12 March 2020, and introduced strict social distancing, quarantine and sanitary rules, as well as travel restrictions. Shops and production in important economic sectors closed for several weeks, until the government started gradually loosening restrictions from late April 2020. As a consequence, Slovakia’s economy is expected to enter into a deep recession in 2020 as private consumption, investment and trade suffer. It is projected to contract sharply by 6,7% in 2020 and the unemployment rate is expected to reach 8,8% in 2020, up from 5,8% in 2019. Slovakia has responded with several sets of measures to mitigate the adverse effects of the crisis, including by re-allocating EUR 1,2 billion of unused cohesion policy funds. The measures includes short-time work schemes with wage compensation, supporting the income of employees through sickness and nursing benefits, and providing subsidies to the self-employed to compensate for their loss of income. Further measures to support liquidity of companies and the self-employed include bank loans, tax deferrals and the postponement of social security contributions, as well as the provision of bank guarantees and favourable interest schemes. A loan scheme for small- and medium-sized enterprises (SMEs) with original allocation of EUR 38 million will be extended by EUR 330 million from unused Union funds and a national scheme amounting to EUR 500 million. Other measures include interrupting tax audits and obligations for tax advance payments, deferral of paying rent for companies and individuals.

               (18)The COVID-19 pandemic has increased the importance for Slovakia to continue addressing structural challenges in its health system. Additional investments are needed to increase its resilience, alleviate health workforce shortages, and to ensure appropriate supply of critical medical products and infrastructure. In parallel with efforts to secure adequate supply of health workers in the future, effective policies could reduce geographic disparities in the availability of doctors and ensure access to care for the entire population. Modernising the hospital network and addressing the structural underfunding of public hospitals are key to increase the quality and cost-effectiveness of health services. Primary care provision needs to be strengthened to reduce pressure on hospitals and improve chronic disease management, together with increased coordination across different levels and types of care. A particular concern is the insufficient access to quality and affordable long-term care, due to general underfunding of community and home-based care services, fragmented governance, and the lack of systemic coordination of social and healthcare services.

               (19)The COVID-19 crisis has highlighted pre-existing social challenges in Slovakia. It has created an urgent need to provide adequate income replacement for workers, in close cooperation with social partners. In order to mitigate the employment impact of the crisis, short-time work schemes have been activated, with the contribution of Union funds. According to the Commission forecast, unemployment is expected to rise to 8,8% in 2020 and recover to 7,1% in 2021. Despite some loosening in 2018, the unemployment benefit system in Slovakia is characterised by strict eligibility requirements, a relatively short duration of benefits (six months as a general rule, with small extensions during the crisis) and low replacement rates for beneficiaries. Some groups are particularly vulnerable to the crisis and may experience limited access to social protection and care services, including marginalised Roma communities, who often also lack access to essential services, the elderly and the low skilled.

               (20)The crisis has increased the need to develop the population’s digital skills, including those of teachers, as well as the need to expand broadband connectivity, as many pupils are still without connection to internet or lack other pre-conditions to learn at home, in particular in marginalised Roma communities. Challenges concerning equal access to quality and inclusive education remain, as basic skills levels and general performance of students are strongly affected by their socio-economic background. There are pronounced performance differences between schools and regions, reflected also in the high rates of early leavers from education and training, in particular in Eastern Slovakia. The attractiveness of the teaching profession and the quality of initial teacher education remain low. In addition, the national enrolment rate of children in early childhood education and care, in particular of children below three, is the lowest in the EU, which has a further negative impact on educational outcomes.

               (21)The COVID-19 crisis has made swift deployment of liquidity support to businesses an urgent priority for Slovakia through well-targeted loans and guarantees, with a focus on SMEs, making use of the new flexibility given by the temporary framework on State aid to support the economy and re-allocating cohesion policy funds. Adequate risk guarantees combined with low interest rates and long maturities can help ensure the swift provision of loans by intermediaries and uptake by firms. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions can further help alleviate short-term liquidity constraints for SMEs and the self-employed. Fighting against tax evasion and improving tax compliance remain priorities for Slovakia in the medium term, as a means to ensure the sustainability of public finances and promote a fair level playing field, facilitating the economic recovery. To ensure viable cash-flow balances for SMEs, it is important that public authorities at all levels and companies are instructed to speed up payment of invoices to their suppliers.

               (22)Fostering a favourable business environment and improving the quality of public services are crucial for the recovery and for creating a more supportive investment climate. To ensure the effectiveness of the recovery measures, it is important to reduce unnecessary administrative burden and simplify procedures, including through effective use of ‘one-stop shops’ for businesses. The overall effectiveness of Slovakia’s public institutions and administration remains low. It can be improved by further digitalisation, better coordination and planning of the digital infrastructure and software development. Further reform efforts could improve the coordination of policy-making, drafting regulations, and ensure high performance of the civil service and human resource management. To strengthen the economy’s resilience, Slovakia would benefit from increasing the innovation capacity of businesses, particularly SMEs, by tackling the fragmented governance of the research and innovation ecosystem. Better cooperation between business, research, academia and the public sector can support the sharing of knowledge and skills and help companies innovate and develop new working and production abilities.

               (23)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Allowing less developed regions to catch up and becoming more knowledge-based, competitive, and productive will require more strategic investment in Slovakia, particularly to develop infrastructure, including digital and other key services, and to improve transport networks. The COVID-19 outbreak has highlighted pre-existing digital infrastructure gaps. Expanding broadband coverage and speed will allow for more equal and improved access to the internet. Slovakia’s education system and labour market could be improved with efforts to equip the population with better sets of skills for a changing economy and society, including through lifelong learning, stronger cooperation between business and education at all levels, and better linking of training and requalification programmes to the current and future labour market needs.

               (24)Recovering economic growth will require policy efforts and targeted investments in the coming years to allow Slovakia to seize opportunities for creating a more sustainable and higher value added economy. These efforts should take regional disparities into account. Priority areas for additional efforts identified in Slovakia’s National Energy and Climate Plan include reducing the energy intensity of industry, supporting energy efficiency solutions, in particular for households, and investing into renewable energy. A more enabling regulatory environment could help increase the proportion of renewable energy sources in the energy supply. Slovakia would benefit from speeding up the implementation of the action plan for the transformation of Horná Nitra, reorienting funds towards solutions for the entire region, and seizing the opportunity to advance the coal phase out. Reducing air pollution caused by solid fuel burning and rising transport emissions, improving the waste management system with innovative collection and treatment solutions, completing drinking water and sewage networks to address sanitary problems, supporting smart grids projects, and moving industry towards the climate neutral and circular economy can help put Slovakia on a path to sustainable economic growth. The programming of the Just Transition Fund for the period 2021-2027 could help Slovakia to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report
                  8
               . This would allow Slovakia to make the best use of that fund.

               (25)New trends in international organised crime, including misuse of legal entities for money laundering purposes, are putting pressure on Slovakia to upgrade its anti-money laundering framework in order to prevent and combat economic crime. The understanding of risk exposure remains low, despite ambitious government plans to strengthen prevention, investigation and prosecution of money laundering. Limited human resources and training hamper effective supervision of professionals involved in company formation. Steps taken under the government action plan have not yet provided the tools to effectively identify and prosecute money laundering offences and to confiscate assets.

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

               (27)Slovakia should continue working on its commitment to address specific concerns on the overall integrity of its justice system, as they are likely to undermine trust in its effective functioning. Progress in implementing reforms to fight corruption remains limited in Slovakia. A number of prevention-related reforms or their implementation are still pending, including rules on lobbying, gifts, incompatibilities and contacts with third parties in decision-making, and whistle-blower protection. Although criminal statistics fluctuate, the number of high-level corruption-related cases under investigation remains low, while efforts to sanction legal persons show some impact.

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

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

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

               (31)In the light of that assessment, the Council has examined the 2020 Stability Programme and its opinion
                  9
                is reflected in particular in recommendation (1) below,

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

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system in the areas of health workforce, critical medical products and infrastructure. Improve primary care provision and coordination between types of care.

               2.Provide adequate income replacement, and ensure access to social protection and essential services for all. Strengthen digital skills. Ensure equal access to quality education.

               3.Effectively implement measures to ensure liquidity for small and medium-sized enterprises and self-employed. Close digital infrastructure gaps. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy and resources, sustainable public transport, and waste management.

               4.Ensure effective supervision and enforcement of the anti-money laundering framework. Ensure a favourable business environment and quality public services through enhanced coordination and policy-making. Address the integrity concerns in the justice system.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2020) 524 final.

                     (3)

                        OJ C 301, 5.9.2019, p. 117

                     (4)

                        COM(2020) 112 final.

                     (5)

                        COM(2020) 123 final.

                     (6)

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

                     (7)

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

                     (8)

                        SWD(2020) 524 final.

                     (9)

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


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 527 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Sweden and delivering a Council opinion on the 2020 Convergence Programme of Sweden

               Recommendation for a

               COUNCIL RECOMMENDATION

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

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

               (2)The 2020 country report for Sweden
                  3
                was published on 26 February 2020. It assessed Sweden’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  4
               , the follow-up given to the recommendations adopted in previous years and Sweden's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that Sweden is experiencing macroeconomic imbalances. In particular, overvalued house price levels coupled with a continued rise in household debt poses risks of a disorderly correction. This could have an adverse impact on the economy and potentially also for the banking sector. Any negative impact on the banking sector could also cause negative spill-overs in neighbouring countries given the systemic financial interlinkages. Some measures have been taken in recent years to address these imbalances. However, these measures have had limited impact so far. Key policy gaps remain, particularly in relation to tax incentives for debt-financed home ownership, the functioning of the housing supply and, in particular, the rental market.

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

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

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

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

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

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

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across regions due to different specialisation patterns - in particular in regions markedly relying on tourism and more generally on face-to-face business to consumers. This entails a substantial risk of widening regional and territorial disparities within Sweden, aggravating the already observed trend of slowly widening disparities between capital cities and the rest of the country or between urban and rural areas. Combined with the risk of a temporary unravelling of the convergenceprocess between Member States, the current situation calls for targeted policy responses.

               (10)On 27 April 2020, Sweden submitted its 2020 National Reform Programme and, on 28 April 2020, its 2020 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Sweden is currently in the preventive arm of the Stability and Growth Pact.

               (12)In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a surplus of 0,4% of GDP in 2019 to a deficit of 3,8% of GDP in 2020. The deficit is projected to decline to 1,4% of GDP in 2021 and reach a surplus of 1,5% by 2023. After decreasing to 35% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 40% in 2020 according to the 2020 Convergence Programme. The macroeconomic and fiscal outlook are affected by high uncertainty related to the COVID-19 pandemic.

               (13)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Sweden has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amounted to 2,4% of GDP. The measures include: strengthening health care services (0,1% of GDP), emergency aid for distressed sectors (1,6% of GDP) and labour market and social policy measures (0,2% of GDP). In addition, Sweden has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses. According to the Convergence Programme, those measures include in particular tax deferrals of up to 6,9% of GDP, as well as different kinds of loan guarantees and expanded credit facilities amounting to roughly 4,7% of GDP. Overall, the measures taken by Sweden are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (14)Based on the Commission 2020 spring forecast under unchanged policies, Sweden’s general government balance is forecast at -5,6% of GDP in 2020 and -2,2% in 2021. The general government debt ratio is projected to remain below 60% of GDP in 2020 and 2021.

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

               (16)Sweden’s economy has slowed down in an unprecedented way following the outbreak of the COVID-19 pandemic. According to the Commission forecast, unemployment is expected to rise to 9,7% in 2020 and recover to 9,3% in 2021. Private consumption is expected to decline strongly, in particular in the most exposed consumption categories like transport, restaurants and accommodation. Gross fixed capital formation is projected to see an even sharper drop than consumption, driven largely by uncertainty over the pace of the recovery. The Swedish authorities started taking measures early on and have successively scaled up policy measures as the pandemic spread. The measures covered healthcare and addressed the economic fall-out. Healthcare-related measures include economic support from the central government for all extra costs of the COVID-19 outbreak to the regions and local authorities responsible for the healthcare system. On the economic front, the government has taken a broad range of steps to relieve the costs of the corporate sector (short-term layoffs, sick pay costs, waving employer’s social contributions, credit guarantees and rent reductions) as well as to ensure corporate liquidity (postponing tax payments, including VAT payments). Further, the Riksbank has decided to extend loans to companies via banks, to purchase government and municipal bonds, as well as covered mortgage bonds and bonds and commercial papers issued by Swedish non-financial corporations. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. The Riksbank has also concluded currency swap agreements, with other central banks, to ensure the availability of major currencies for the financial sector. Social and labour market policy has been expanded by increasing unemployment and sickness benefits, lowering requirements for accessing the unemployment scheme and through active labour market and education policies (green jobs, new start jobs extended, summer courses, more students in higher education).

               (17)Sweden’s short-term policy response to COVID-19 outbreak relies on securing appropriate resources and capacity buffers and adapting the roles and responsibilities of health workers. In the medium term, this should also lead to timely and geographically balanced healthcare, the appropriate deployment of the health workers in the various settings (for example in out-patient and in-patient care), and help avoid structural shortages of medical staff. Making use of Sweden’s strong Research & Innovation sector for science-driven actions can contribute to progress on vaccines development, treatments and diagnostics and on translating research findings into public health policy.

               (18)Supporting the availability of skills, and digital skills in particular, can sustain higher productivity growth through research and innovation in high-tech sectors, and help achieve Sweden’s ambitious climate and energy objectives contained in its National Energy and Climate Plan. Investments are also needed to reduce educational outcomes gaps between learners with a migrant and native background. The high quality of labour was a major contributor to labour productivity growth but had all but stopped contributing before the COVID-19 crisis. Labour market integration of groups whose potential was not fully used before the crisis, such as non-EU migrants and people with disabilities, will also be necessary. Skills shortages are particularly pronounced in education, health care, social work, information and communication technology, industry and construction.

               (19)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. In the digital and microelectronics sectors, more than 50% of employers report skills shortages affecting growth. Sustaining the high share of public spending in research is a necessary condition to improve the productivity performance. Capital deepening and higher investments in high-tech and innovative sectors are also needed to restore labour productivity growth. The diffusion of new digital technologies among small and medium-sized enterprises will help boost productivity. The crisis has shown how important the digital infrastructure is and that fast and stable connectivity needs to be available in all places where people live or work. The expansion of mobile broadband in the 700 MHz band will play an important role, as does the possibility of financial support for the development of fixed broadband. The upcoming auction of the 5G will provide additional impulse to the digitalisation of the Swedish economy. The objective of achieving a climate neutral society in 2045 will also require investments in research and innovation enabling the development and implementation of novel, competitive solutions for decarbonisation and coordinated social and policy actions. Transport is the prime target for reducing Sweden’s greenhouse gas emissions. A comprehensive and relatively fast transformation of the fleet to low emissions vehicles is on the political agenda. Planned investment in rail infrastructure  is important to facilitate a modal split and to deliver on Sweden’s ambitious climate objective. The electrification of transport and industry will require significant investments in power production and distribution. The programming of the Just Transition Fund for the period 2021-2027 could help Sweden to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report
                  8
               . This would allow Sweden to make the best use of that fund.

               (20)Persistent allegations of suspected money laundering have affected the reputation of Swedish banks, and preventing money laundering remains a priority for Sweden. Effective supervision requires increased resources and appropriate procedures to apply the risk-based approach. Sweden has recognised that more resources are needed to exercise suitable supervision and investigations, and has strengthened the capacity of its Financial Supervisory Authority. However, the Authority’s capacity is still low compared to the size of the Swedish financial sector. Challenges remain and the risk-based approach still needs to be fully implemented.

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

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

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

               (24)In the light of that assessment, the Council has examined the 2020 Convergence Programme and its opinion
                  9
                is reflected in particular in recommendation (1) below.

               (25)In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2020 National Reform Programme and the 2020 Convergence Programme. The present recommendations take into account the need to tackle the pandemic and facilitate the economic recovery as a first necessary step to permit an adjustment of imbalances. After refocusing recommendations on the objective of tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, none of the present recommendations directly addresses the macroeconomic imbalances identified by the Commission under Article 6 of Regulation (EU) No 1176/2011,

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

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

               2.Foster innovation and support education and skills development. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on clean and efficient production and use of energy, high-tech and innovative sectors, 5G networks and sustainable transport.

               3.Improve the effectiveness of anti-money laundering supervision and effectively enforce the anti-money laundering framework.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ L 306, 23.11.2011, p. 25.

                     (3)

                        SWD(2020) 526 final.

                     (4)

                        OJ C 301, 5.9.2019, p. 117.

                     (5)

                        COM(2020) 112 final.

                     (6)

                        COM(2020) 123 final.

                     (7)

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

                     (8)

                        SWD(2020) 526 final.

                     (9)

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