Recommendation for a Council Recommendation on the National Reform Programme 2011 of Romania and delivering a Council opinion on the updated Stability Programme of Romania 2011-2014 - Employment related aspects (Article 148 TFEU)

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COUNCIL OFBrussels, 15 June 2011 THE EUROPEAN UNION

11437/11

SOC 553 ECOFIN 407 UEM 183 COMPET 312 ENV 527 EDUC 193 RECH 228 ENER 228 COVER NOTE

from: The Employment Committee

to: Permanent Representatives Committee (Part I) / Council (EPSCO)

Subject: Recommendation for a Council Recommendation on the National Reform Programme 2011 of Romania and delivering a Council opinion on the updated Stability Programme of Romania 2011-2014

  • - 
    Employment related aspects (Article 148 TFEU)

Delegations will find attached the opinion from the Employment Committee (parts in bold) as

concluded at its meeting on 9-10 June and the joint meeting with the Economic Policy Committee

on 14 June 2011. The parts not in bold were not subject to examination by EMCO. The text

attached contains the whole set of recommendations and recitals as submitted by the Commission in

order to facilitate reading.

The text examined jointly by EMCO and EPC is subject to written consultation of the Economic

and Financial Committee.

__________________

ANNEX

Recommendation for a

COUNCIL RECOMMENDATION

on the National Reform Programme 2011 of Romania

and delivering a Council opinion

on the updated Convergence Programme of Romania 2011-2014

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 , and

in particular Article 9(3) 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 Employment Committee,

After consulting the Economic and Financial Committee,

Whereas:

(1) On 6 May 2009, the Council adopted a Decision (2009/459/EC) to make available to Romania

medium-term financial assistance for a period of three years under the provisions of Article

143 of the Treaty. The accompanying Memorandum of Understanding signed on 23 June

2009 and its successive supplements lay down the economic policy conditions on the basis of

which the financial assistance was disbursed. The Council Decision was amended on 16

March 2010 by Decision 2010/183. Following Romania's successful implementation of the

programme, and given a partial adjustment of the current account because of remaining

structural weaknesses in Romania's product and labour markets which make the country

sensitive to international price shocks, on 12 May 2011 the Council adopted a Decision

(2011/288/EU) to make precautionary medium-term financial assistance available to Romania

for a period of three years under Article 143 of the Treaty. The accompanying Memorandum

of Understanding will be signed in [June 2011].

(2) On 26 March 2010, the European Council agreed to the European Commission's proposal to

launch a new strategy for jobs and growth, Europe 2020, based on enhanced coordination of

economic policies, which will focus on the key areas where action is needed to boost

Europe's potential for sustainable growth and competitiveness.

(3) On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the

economic policies of the Member States and the Union (2010 to 2014) and, on 21 October

2010, adopted a decision on guidelines for the employment policies of the Member States,

which together form the `integrated guidelines'. Member States were invited to take the

integrated guidelines into account in their national economic and employment policies.

(4) On 12 January 2011, the Commission adopted the first Annual Growth Survey, marking the

start of a new cycle of economic governance in the EU and the first European semester of ex-

ante and integrated policy coordination, which is anchored in the Europe 2020 strategy.

(5) On 25 March 2011, the European Council endorsed the priorities for fiscal consolidation and

structural reform (in line with the Council's conclusions of 15 February and 7 March 2011

and further to the Commission's Annual Growth Survey). It underscored the need to give

priority to restoring sound budgets and fiscal sustainability, reducing unemployment through

labour market reforms and making new efforts to enhance growth. It requested Member States

to translate these priorities into concrete measures to be included in their Stability or

Convergence Programmes and National Reform Programmes.

(6) On 25 March 2011, the European Council also invited the Member States participating in the

Euro Plus Pact to present their commitments in time to be included in their Stability or

Convergence Programmes and their National Reform Programmes.

(7) On 2 May 2011, Romania submitted its 2011 Convergence Programme update covering the

period 2011-2014 and its 2011 National Reform Programme. The two programmes have been

assessed at the same time.

(8) Between 2002 and 2008 the Romanian economy grew strongly, with real GDP growth

averaging 6.3%, above its level of potential growth. Economic growth was primarily driven

by domestic demand, as strong credit and wage developments boosted private consumption

and investment. This boom was also fuelled by foreign capital inflows, led to overheating and

unsustainable external and fiscal imbalances. The current account deficit peaked at 13.6% of

GDP in 2007 and decreased only marginally to 11.4% of GDP in 2008. The high external

borrowing was driven by a pro-cyclical fiscal policy, with headline deficits increasing from

1.2% of GDP in 2005 to 5.7% of GDP in 2008 as a result of recurrent budgetary slippages,

notably with respect to current spending. The financial crisis and the ensuing global economic

downturn increased risk-aversion amongst investors, leading to a significant tightening of

capital flows to Romania. Labour market participation did not rise despite the favourable

economic conditions; the employment rate changed very little during the boom years.

The employment rate then fell to 63.3% by 2010 while the unemployment rate increased

from 5.8% in 2008 to 7.3% in 2010 as a result of the economic downturn.

Unemployment remains particularly high among vulnerable groups, e.g. the Roma

population. Against this background and facing acute financing needs, the Romanian

authorities requested international and EU financial assistance in May 2009.

(9) Following the successful implementation of the EU-IMF adjustment programme, and in order

to consolidate these positive achievements, a precautionary EU-IMF programme for 2011-

2013 was negotiated with the authorities. The new programme continues the fiscal

consolidation, fiscal governance reforms and preservation of financial stability started under

the 2009-2011 programme. In addition, it puts a strong emphasis on the structural reforms in

product (in the energy and transport sectors) and labour markets necessary to unleash

Romania's growth potential, foster job creation and increase the absorption of EU funds.

Romania remains on track to achieve the cash deficit target of 4.4% of GDP in 2011 (below

5% of GDP in ESA terms). This would also provide an adequate basis for achieving the

deficit target of below 3% of GDP for 2012, although further measures would have to be

taken according to the Commission Services' Spring 2011 Economic Forecast. The authorities

have also taken steps to achieve the structural reform objectives of the new programme and

continue to maintain financial stability.

(10) Based on the assessment of the updated Convergence Programme pursuant to Council

Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic

assumptions underpinning the projections in the programme are plausible. The Convergence

Programme aims to correct the excessive deficit by the 2012 deadline set by the Council in its

recommendation of 16 February 2010. The programme targets headline deficits of 2.6% of

GDP in 2013 and of 2.1% of GDP in 2014, with the envisaged consolidation being mostly

expenditure-based. According to the structural balance recalculated by Commission services,

the medium-term objective (MTO) will not be achieved within the programme period. The

consolidation strategy appears to be frontloaded with the structural improvement being

concentrated in 2011 and 2012. In contrast, there is no improvement in the structural balance

in 2013 and 2014. The deficit path foreseen is appropriate in 2011 and 2012, but not in 2013

and 2014. The main risks to the budgetary targets are implementation risks, the arrears of

state-owned enterprises which represent a serious contingent liability for the budget, and the

reservations expressed by the Commission (Eurostat) about Romania's excessive deficit

procedure notification.

(11) Romania has made its commitments under the Euro Plus Pact in its National Reform

Programme and Convergence Programme, which were submitted on 2 May 2011. Most of

these commitments have been or are being met as part of the medium-term financial

assistance programme and are broadly appropriate to address existing challenges under the

Pact.

(12) The Commission has assessed the Convergence Programme and National Reform

Programme, including the Euro Plus Pact commitments. It has taken into account not only

their relevance to sustainable fiscal and socio-economic policy in Romania but also their

conformity with EU rules and guidance, given the need to reinforce the overall economic

governance of the European Union by providing EU level input into future national decisions.

(13) In light of this assessment, also taking into account the Council Recommendation under

Article 126(7) of the Treaty on the Functioning of the European Union of 16 February 2010,

the Council has examined the 2011 update of the Convergence Programme of Romania and

its opinion is reflected in the recommendation set out below. Taking into account the

European Council conclusions of 25 March 2011, the Council has examined the National

Reform Programme of Romania,

HEREBY RECOMMENDS that Romania should:

Implement the measures laid down in Council Decision 2009/459/EC as amended by Council

Decision 2010/183/EU, together with the measures laid down in Council Decision 2011/288/EU

and further specified in the Memorandum of Understanding of 23 June 2009 and its subsequent

supplements, and in the Memorandum of Understanding of [June 2011] and its subsequent

supplements.

Done at Brussels,

For the Council

The President

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