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Europaudvalget 2005-06
EUU Alm.del Bilag 136
Offentligt

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 24.1.2006 – 21h00.

PART II to COM(2006)

COMMUNICATION FROM THE COMMISSION TO THE SPRING EUROPEAN

COUNCIL

TIME TO MOVE UP A GEAR

Country chapters

PART 2

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TABLE OF CONTENTS

Explanatory note on statistical table and graphs

..................................................................... 7

The table..................................................................................................................................... 8

The charts................................................................................................................................... 8

Data sources............................................................................................................................... 9

Assessment of national reform programmes..........................................................................

Austria......................................................................................................................................

Part I: General Assessment...................................................................................................... 13

Part II: Assessment by policy area........................................................................................... 13

Part III: Conclusions................................................................................................................ 16

Part IV: Statistical graphs and data ........................................................................................ 17

Belgium....................................................................................................................................

Part I: General Assessment...................................................................................................... 19

Part II : Assessment by policy area.......................................................................................... 20

Part III : Conclusions............................................................................................................... 22

Part IV: Statistical graphs and data ........................................................................................ 23

Cyprus

...................................................................................................................................... 25

Part I: General Assessment...................................................................................................... 25

Part II: Assessment by policy area........................................................................................... 25

Part III: Conclusions................................................................................................................ 28

Part IV : Statistical graphs and data ....................................................................................... 28

Czech Republic

........................................................................................................................ 30

Part I: General Assessment...................................................................................................... 30

Part II: Assessment by policy area........................................................................................... 30

Part III: Conclusions................................................................................................................ 33

Part IV: Statistical graphs and data ........................................................................................ 34

Denmark

.................................................................................................................................. 36

Part I: General Assessment...................................................................................................... 36

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Part II: Assessment by policy area........................................................................................... 36

Part III: Conclusions................................................................................................................ 39

Part IV : Statistical graphs and data ....................................................................................... 40

Estonia

..................................................................................................................................... 42

Part I: General Assessment...................................................................................................... 42

Part II: Assessment by Policy Area.......................................................................................... 42

Part III: Conclusions................................................................................................................ 45

Part IV : Statistical graphs and data ....................................................................................... 46

Finland.....................................................................................................................................

Part I: General Assessment...................................................................................................... 48

Part II: Assessment by policy area........................................................................................... 48

Part III: Conclusions................................................................................................................ 51

Part IV: Statistical graphs and data ........................................................................................ 52

France......................................................................................................................................

Partie I - Evaluation globale.................................................................................................... 54

Partie II - Evaluation des politiques ........................................................................................ 55

Partie III - Conclusions............................................................................................................ 58

Part IV : Statistical graphs and data ....................................................................................... 59

Germany...................................................................................................................................

Part I: General Assessment...................................................................................................... 61

Part II: Assessment by policy area........................................................................................... 61

Part III: Conclusions................................................................................................................ 65

Part IV : Statistical graphs and data ....................................................................................... 66

Greece

...................................................................................................................................... 68

Part I: General assessment ...................................................................................................... 68

Part II: Assessment of policies ................................................................................................. 68

Part III: Conclusions................................................................................................................ 71

Part IV : Statistical graphs and data ....................................................................................... 72

Hungary

................................................................................................................................... 74

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Part I: General Assessment...................................................................................................... 74

Part II: Assessment by policy area........................................................................................... 74

Part III: Conclusions................................................................................................................ 77

Part IV : Statistical graphs and data ....................................................................................... 78

Ireland......................................................................................................................................

Part I: General Assessment...................................................................................................... 80

Part II: Assessment by Policy Area.......................................................................................... 80

Part III: Conclusions................................................................................................................ 83

Part IV : Statistical graphs and data ....................................................................................... 84

Italy

.......................................................................................................................................... 86

Part I: General Assessment...................................................................................................... 86

Part II: Assessment by policy area........................................................................................... 87

Part III: Conclusions................................................................................................................ 89

Part IV : Statistical graphs and data ....................................................................................... 90

Latvia

....................................................................................................................................... 92

Part I: General assessment ...................................................................................................... 92

Part II: Assessment by policy area........................................................................................... 92

Part III: Conclusions................................................................................................................ 95

Part IV : Statistical graphs and data ....................................................................................... 96

Lithuania

................................................................................................................................. 98

Part I: General Assessment...................................................................................................... 98

Part II: Assessment by policy area........................................................................................... 98

Part III: Conclusions.............................................................................................................. 101

Part IV : Statistical graphs and data ..................................................................................... 102

Luxembourg...........................................................................................................................

104

Partie I: Evaluation globale................................................................................................... 104

Partie II : Evaluation des politiques ...................................................................................... 105

Partie III : Conclusions.......................................................................................................... 107

Part IV : Statistical graphs and data ..................................................................................... 108

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Malta

...................................................................................................................................... 110

Part I: General Assessment.................................................................................................... 110

Part II: Assessment by policy area......................................................................................... 110

Part III: Conclusions.............................................................................................................. 113

Part IV : Statistical graphs and data ..................................................................................... 114

the Netherlands......................................................................................................................

116

Part I: General Assessment.................................................................................................... 116

Part II: Assessment by policy area......................................................................................... 117

Part III: Conclusions.............................................................................................................. 120

Part IV : Statistical graphs and data ..................................................................................... 120

Poland

.................................................................................................................................... 122

Part I: General assessment .................................................................................................... 122

Part II: Assessment by policy area......................................................................................... 123

Part III: Conclusions.............................................................................................................. 125

Part IV : Statistical graphs and data ..................................................................................... 126

Portugal

................................................................................................................................. 128

Part I: General Assessment.................................................................................................... 128

Part II: Assessment by policy area......................................................................................... 129

Part III: Conclusions.............................................................................................................. 131

Part IV : Statistical graphs and data ..................................................................................... 132

Slovakia..................................................................................................................................

134

Part I: General Assessment.................................................................................................... 134

Part II: Assessment by Policy Area........................................................................................ 134

Part III: Conclusions.............................................................................................................. 137

Part IV : Statistical graphs and data ..................................................................................... 138

Slovenia..................................................................................................................................

140

Part I: General Assessment.................................................................................................... 140

Part II: Assessment by policy area......................................................................................... 140

Part III: Conclusions.............................................................................................................. 143

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Part IV : Statistical graphs and data ..................................................................................... 144

Spain

...................................................................................................................................... 146

Part I: General Assessment.................................................................................................... 146

Part II: Assessment by policy area......................................................................................... 146

Part III: Conclusions.............................................................................................................. 149

Part IV : Statistical graphs and data ..................................................................................... 150

Sweden

................................................................................................................................... 152

Part I: General Assessment.................................................................................................... 152

Part II: Assessment by policy area......................................................................................... 152

Part III: Conclusions.............................................................................................................. 155

Part IV : Statistical graphs and data ..................................................................................... 156

United Kingdom.....................................................................................................................

158

Part I: General Assessment.................................................................................................... 158

Part II: Assessment by Policy Area........................................................................................ 158

Part III: Conclusions.............................................................................................................. 161

Part IV : Statistical graphs and data ..................................................................................... 162

Euro Area

.............................................................................................................................. 164

Part I: General Assessment.................................................................................................... 164

Part II: Assessment by policy area......................................................................................... 164

Part III : Conclusions............................................................................................................. 167

Part IV : Statistical graphs and data ..................................................................................... 168

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Explanatory note on statistical table and graphs

The statistical annex presents 14 short-listed structural indicators derived from the European

statistical system. The full database of structural indicators, including data and metadata

relating to the EU Member States, the acceding and candidate countries, USA, Japan and

EEA/EFTA countries, is publicly available on the Eurostat structural indicators website:

http://europa.eu.int/comm/eurostat/structuralindicators.

For each EU Member State, all

14 structural indicators are presented in one table and two charts.

The 14 short-listed indicators

GDP per capita in PPS

Gross Domestic Product (GDP) in Purchasing Power

Standards (PPS) (EU-25 = 100)

GDP in Purchasing Power Standards (PPS) per person

employed relative to EU-25 (EU-25 = 100)

Employed persons aged 15-64 as a share of the total

population of the same age group

Employed persons aged 55-64 as a share of the total

population of the same age group

Gross domestic expenditure on R&D as a percentage of GDP

Percentage of the population aged 20 to 24 having completed

at least upper secondary education

Comparative price levels of final consumption by private

households including indirect taxes (EU-25 = 100)

Gross fixed capital formation by the private sector as a

percentage of GDP

Share of persons with a disposable income below the risk-of-

poverty threshold, which is set at 60 % of the national

median disposable income

Coefficient of variation of employment rates across regions

(NUTS 2 level) within countries

Long-term unemployed (12 months and more) as a

percentage of the total active population

Index of greenhouse gas emissions and targets according to

Kyoto Protocol / EU Council Decision for 2008-2012

(Actual base year = 100).

Gross inland consumption of energy divided by GDP (at

constant prices, 1995=100), measured in kgoe (kilogram of

oil equivalent) per 1000 Euro

Index of inland freight transport volume relative to GDP,

measured in tonne-km / GDP (at constant prices, 1995=100)

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D (GERD)

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

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HE TABLE

The country-specific table presents data from 1999 to 2004 for that country and the EU-25

average. Following the last EU enlargement, the indicators on GDP per capita in PPS, Labour

productivity per person employed and Comparative price levels are now expressed in relation

to the EU-25 average. Therefore data are not comparable with data released in previous years,

which were based on EU-15=100.

The following flags are used in the data tables:

•

b break in series;

•

e estimates;

•

p provisional value;

•

f forecast;

•

: not available;

•

- not relevant.

HE CHARTS

The 14 indicators are presented in two charts and compare the actual value with the EU-25

value

, illustrating in which areas a particular Member State is performing better or worse

than the European average.

The “At risk of poverty” indicator measures relative poverty in a particular country and the

EU-25 average is computed as a population weighted average of individual national values. A

comparison of national values with the EU-25 average can therefore be difficult to interpret,

and may give a different impression than computing risk-of-poverty rates by use of a common

reference threshold. During the transition to data production under the new EU-SILC

regulation by all Member States with effect from 2005, indicators are drawn from national

sources which are not fully harmonised and there can be breaks in the time series of

comparable data. The indicators are computed using an income definition which until 2007

excludes imputed rent revenues and mortgage interest payments.

For the presentation in charts, indicators have been divided into two groups:

•

First chart; those indicators for which increasing values indicate a positive trend,

i.e. where a value of the indicator above 100 when compared to EU-25 is a

relatively good performance;

•

Second chart; those indicators for which decreasing values indicate a positive

trend, i.e. where a value of the indicator below 100 when compared to EU-25 is a

relatively good performance.

The charts also display the two central EU targets of reaching 3 % of expenditure on Research

and Development and an overall employment rate of 70 % by 2010. In the same way as the

Values in the chart = Current national value / Current EU-25 value * 100

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indicators are compared to the EU-value, the targets have been converted to a ratio which

compares the EU target to the real EU-25 value in 2004 (or latest year available).

ATA SOURCES

All indicators were extracted from the Eurostat database on 20 December 2005. The source of

the information is Eurostat in all cases except for Greenhouse gas emissions (European

Environment Agency and European Topic Centre on Air Climate Change) and Gross

Domestic expenditure on R&D (Eurostat and OECD).

The European Council has invited Member States to set up national targets on the

employment rate and on the gross domestic expenditures on R&D as a share of GDP. The

table presents national targets on these indicators in response to the invitation. The targets

have been extracted from the National Reform Programs. Member States may have other

related targets.

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Assessment of national reform programmes

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Austria

Over the last decade, the Austrian economy has grown in real terms by just over 2%

on average annually, slightly better than the euro area. Labour productivity growth as

well has been just above the euro area average. GDP per capita at 123% of the EU

average in 2004 was one of the highest in Europe. The employment rate stood at

67.8% in 2004, well above the EU average. Unemployment increased for the third

consecutive year to reach 4.8% in 2004, hitting young people in particular. The

employment rate for older workers, around 29% in 2004, is one of the lowest in the

EU.

ART

I: G

ENERAL

SSESSMENT

The Austrian National Reform Programme (NRP) identifies seven “strategic priority

areas” namely sustainability of public finances; R&D and innovation; infrastructure;

international competitiveness; environmental sustainability; labour market and

employment; and education and training. The Commission broadly shares this

analysis of the main priorities but also regards the issue of competition in services as

important.

Overall, the NRP focuses on continuity without any radical shift in policy or

providing a new medium-term vision. Most of the measures referred to are either

already in place or planned for 2006. This approach can be considered adequate and

realistic in a short-term perspective. However, a clearer identification of challenges

ahead and a more ambitious approach to tackling them would have been welcome. In

general, the NRP is based on an integrated approach and presents a largely coherent

set of policy measures. However, the degree of precision in the definition of

implementing measures varies widely across the different areas covered. More

information would be required to allow full verification of the consistency of the

financial commitments in the NRP, with the overall aim of reaching budgetary

balance. The NRP announces important targets (for example for the overall tax

burden and for R&D expenditure) but does not set a national target for the overall

employment rate. The NRP has some information on how Structural Funds will

support its implementation.

Consultation and efforts to develop ownership of the document have been fairly

substantial. The Federal Chancellery involved several ministries in the preparation of

the NRP. A wide range of stakeholders was consulted, including social partners,

regions, municipalities and economic research institutes. The Austrian Parliament

adopted a favourable resolution.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The NRP identifies the sustainability of public finances as the key macro-economic

challenge, an analysis shared by the Commission.

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The strategy to tackle this challenge is based on a three-pronged approach: a

balanced budget over the economic cycle; lowering the tax burden to 40% of GDP

by 2010 and increasing potential growth by fostering investment in research,

education and infrastructure. The NRP takes stock of macro-economic measures

already implemented rather than presenting new ones. It refers in general terms to

expenditure cuts, cost-saving administrative reforms and improvement in the quality

of public finances by shifting expenditure towards areas conducive to growth. The

NRP emphasises the contribution of the latest pension reforms to ensuring financial

and social sustainability. References are made to various growth and employment

packages, as well as to recently introduced measures aimed at enhancing Austria’s

attractiveness as a business location. The programme draws attention to the fact that

the ratio of public expenditure to GDP has fallen from 57% to under 50% over the

last decade but acknowledges that tax reforms in 2004/2005 contributed to a

temporary weakening of the budget.

The macro-economic section is coherent but is not detailed enough to demonstrate

convincingly when a return to a balanced budget – or to the surpluses that a balanced

budget over the economic cycle would require - could reasonably be expected. In this

respect, the Austrian stability programme, submitted after the NRP, provided some

more details on the provisions designed to improve fiscal sustainability.

Micro-economic policies

In relation to micro-economic policies, the NRP focuses on R&D and innovation,

infrastructure investments, international competitiveness and environmental

technologies.

For R&D investment, Austria is committed to meet a target of 3% of GDP in 2010

(2.5% for 2006, 2.35% currently), in line with the overall EU target. To this end,

research funding has been increased in 2005, through both direct support measures

and tax incentives. The planned increase in R&D spending seems sufficient to bring

Austria to 1% of public research investment by 2010 (0.86% currently), but

substantial additional efforts may well be needed to leverage investments from the

private sector. The NRP recognises weaknesses in the innovation system and tackles

them adequately by measures to improve access to finance for innovative ventures

and strengthen the qualifications of the workforce. Although the NRP stresses the

intention to implement the EU’s i2010 initiative to focus ICT developments on

contributing to growth and jobs, the measures specified are not comprehensive, and

ICT related policies could further benefit from support in related policy areas such as

innovation, research and skills.

The programme acknowledges that Austria, as an export oriented economy, has

strongly benefited from the internal market. Measures supporting the export effort of

Austrian companies such as the “Go International” initiative should bring further

benefits. Austria is also taking steps to improve its regulatory environment,

particularly by reducing administrative costs and boosting competitiveness. The NRP

contains a commitment to further strengthen impact assessment procedures.

Austria’s horizontal industrial policy approach is complemented by sector specific

initiatives in life sciences, nano-technology and environmental technologies. The

latter is consistent with the inclusion in the NRP of environmental technologies and

10.

11.

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resource efficiency, including renewable energy. Measures, like the "klima:aktiv"

programme, which provide financial support for the introduction of climate-friendly

technologies in various sectors, are an important contribution to help Austria limit

emissions. Most of the measures to improve the business environment or to

address specific SME needs are built on past experience. Planned initiatives

concerning entrepreneurship are not set out in detail and doubts remain as to their

likely effect in fostering an entrepreneurial culture.

12.

The NRP stresses the need to improve its transport, energy and ICT infrastructure. It

is essential that projects such as the Vienna-Bratislava railway link, or the Brenner-

tunnel, are now realised and the NRP provides grounds for optimism in this respect.

The NRP does not contain a clear commitment to improve Austria’s performance in

implementing internal market legislation or to reduce state regulation of liberal

professions.

The programme addresses all relevant areas of microeconomic policies except

competition in services. Objectives are generally clearly set out, though specific

measures are not always precisely described, which makes it difficult at this stage to

assess their likely effectiveness.

13.

14.

Employment policies

15.

The employment part of the NRP focuses mainly on attracting people into

employment; promoting active ageing; adaptability issues including fighting against

undeclared work and promoting “flexicurity”; and on qualifications and education

reforms.

A number of appropriate measures are proposed to attract and retain more people in

employment, for example increased expenditure on active labour market policy and

the strengthening of the Public Employment Service. In the context of rising youth

unemployment a number of measures have been introduced, in particular to

modernise and reinforce the apprenticeship system. Existing successful programmes

for people with disabilities are to be continued. Although some measures to improve

qualifications for women and work-life balance are mentioned, limited attention is

paid in the NRP to improving availability of childcare facilities. The integration of

migrants into the labour market is also only given relatively limited attention in the

NRP. Previous pension reforms begun in 2003 and continued in 2005 have already

strengthened incentives to work longer. Other initiatives related to qualifications and

quality at work, along with reductions in statutory non-wage costs for older workers,

seem likely to contribute to increasing the very low employment rate of older

workers. In 2006, the government will experiment with wage subsidies to make low-

paid work sufficiently attractive to disadvantaged workers.

Initiatives aiming at improving the adaptability of workers and enterprises rely to a

large extent on social partners. Stronger emphasis is given to preventing undeclared

work. An unemployment insurance scheme for self-employed people is yet to be

implemented. Very moderate wage developments have contributed to

competitiveness and real unit labour costs have declined since 1999. The relatively

high gender pay gap is only addressed to some extent by measures to reduce the

segmentation of the labour market. The rapid development of new forms of work

16.

17.

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also calls for special attention to preserve an adequate balance between flexibility

and security.

18.

Austria is performing well against several EU education and training benchmarks.

The NRP focuses strongly on improving education, vocational training for young

people and universities, which should contribute to raising the quality of labour

supply and meeting skill demands. Nevertheless, additional attention to raising

reading standards and to maths and science teaching at all levels would seem

necessary. Although incentives for employers and individuals to invest in training

have increased and this may prove effective, the NRP does not present a fully-

fledged strategy for lifelong learning.

The NRP sets out a comprehensive set of measures, mostly already in place, to

address the employment challenges identified. The measures taken to increase the

low employment rate of older workers are appropriate but given the very low base,

more radical steps and a stronger commitment from all stakeholders are needed.

19.

ART

III: C

ONCLUSIONS

20.

In line with the Integrated Guidelines, the Austrian National Reform Programme

identifies and responds to the main challenges facing Austria, namely sustainability

of public finances; R&D and innovation; infrastructure; international

competitiveness; environmental sustainability; labour market and employment; and

education and training. However competition in services has not been addressed as a

main challenge Overall, the different policy areas are well integrated within the NRP,

which is coherent and for the short-term adequate and realistic. A more ambitious

and longer-term approach would have been welcome.

Implementing measures are not always described with precision. More information

would be required to assess whether the financial commitments in the NRP are fully

consistent with the overall aim of reaching budgetary balance.

The programme’s strengths include:

•

coherent strategies to boost innovation and environmental technology;

•

appropriate measures to attract and retain more people in employment, including

reinforcing active labour market policy and reductions in non-wage costs;

•

initiatives to modernise and promote apprenticeships for young people.

23.

Among the points requiring further attention are:

•

improving competition in services, where there are currently severe regulatory

obstacles;

•

further measures to address the low employment rate of older workers and

investment in the vocational training of adults.

24.

Taking due account of the above, Austria is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

21.

22.

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particular the way Austria has dealt with the issues mentioned in paragraph 23. In

this context, the Commission looks forward to discussions with the Austrian

authorities as part of the new partnership for growth and jobs.

ART

IV: S

TATISTICAL GRAPHS AND DATA

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AUSTRIA

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

125.7 126.4 122.6 120.5 121.4 123.2

104.6 105.9 103.6 102.5 103.5 105.9

68.6

29.7

1.88

84.7

68.5

28.8

1.91

84.7

68.5

28.9

2.04

84.1

68.7

29.1

68.9 67.8b

30.3 28.8b

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

2.12 2.19e 2.26e

85.1 83.4b 86.3b

3.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

104.7 102.0 102.6 105.2 105.7 103.6p

20.4

12.0

2.3

1.2

21.3

12.0

2.5

1.0

20.9

12.0

2.6

0.9

19.4

20.2

19.9

13.0

3.5

1.3b

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

: 13.0b

2.5

1.1

2.9

1.1

102.4 103.2 108.1 110.1 116.6

139.6 134.4 142.8 139.9 150.5

214.9 208.8 209.7 206.5 209.5

109.8 112.3 117.1 119.0 117.8 117.0b

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Belgium

After steady real GDP growth in 1996-2000 averaging 2.7%, Belgium experienced a

sharp downturn. However, since the end of 2002, growth has rebounded somewhat

more strongly than the euro-area average. GDP per capita was at 119% of the EU

average in 2004. Labour productivity growth has been slightly below the EU average

over the last decade, but the level is among the highest of the EU. Since 2000,

Belgium has managed to maintain a balanced budget and to achieve a substantial

reduction of the high debt ratio (97.4% in 2004)

. Employment rate is low (60.3% in

2004), especially for young and older people. The unemployment rate was at 7.9% in

2004.

ART

I: G

ENERAL

SSESSMENT

The Belgian National Reform Programme (NRP) identifies six main priorities in

order to create growth and jobs: the sustainability of public finances; the reduction of

labour costs; the creation of a more dynamic labour market; the stimulation of the

economy through investment and reforms; strengthening the social security system;

and the strengthening of synergies between environmental protection and growth.

The Commission shares the NRP’s analysis of the main priorities.

The NRP provides a fairly coherent national strategy to address the challenges,

setting reasonable and consistent objectives across policy areas and presenting

measures which in most instances appear relevant and adequate. The NRP could

benefit from a more coordinated approach between the federal and regional

governments. For the total proportion of GDP invested in R&D, the NRP sets for

Belgium the target of 3% of GDP by 2010, equal to the EU-wide target. It also sets

the same target as the EU as a whole for employment rate (70%), though without a

precise timeframe. The programme sets out in addition a number of realistic national

targets. Information on budgetary allocations or impact is scarce. In particular, the

programme is not explicit on how the budgetary impact of the new initiatives will be

reconciled with budgetary targets. The NRP refers only in passing to potential

financial support from the EU Structural Funds. Combining measures to raise the

average exit age from the labour force with measures to reduce the tax burden on

labour while also building up budgetary surpluses is a particularly tough challenge.

Consultation and efforts to develop ownership of the document at government and

administrative level have been fairly substantial. The NRP has been adopted by all

Belgium’s federal and regional governments, though the relevant parliaments were

not involved. The drafting of the NRP was coordinated at federal level by the Prime

Minister’s Cabinet. Regional authorities and social partners have contributed

extensively and are expected to play an important role in the implementation of many

of the proposed measures. One region has elaborated a regional reform programme,

attached to the NRP, whilst for other regions and communities reference to other

specific programmes has been made.

For 2005, discussions with Eurostat on the statistical treatment of some operations have not yet been

finalised.

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ART

II : A

SSESSMENT BY POLICY AREA

Macro-economic policies

The main macro-economic challenges identified in the NRP are the sustainability of

public finances, while preserving the social security system, and the improvement of

the competitiveness of Belgian enterprises through strict control of the cost of labour.

The Commission shares this analysis.

Since 2000, Belgium has managed to maintain a balanced budget and achieved a

substantial reduction of its high debt ratio. The NRP sets the aim of reducing the debt

ratio further by maintaining a balanced budget and gradually building up surpluses

from 2007 onwards (0.3% of GDP in 2007 and 0.6% in 2008). It presents a

comprehensive strategy based on fiscal consolidation aiming at financial

sustainability and ensuring adequate pensions, notably through improvements to

minimum pension levels and further steps to strengthen incentives to work longer.

The programme also covers recent measures taken to limit the growth of healthcare

expenditure but it does not fully explain how the authorities plan to achieve the

budgetary surpluses announced. Increasing employment could contribute

significantly to this by widening the tax base while reducing the cost of

unemployment benefits, but the NRP does not assess the anticipated budgetary

impact of its employment policy.

The NRP sets the objective of reducing the current tax burden on labour (currently at

42.6% of the wage cost) to the average of the neighbouring countries (38.4%) by

2010. The Commission supports this objective but the NRP does not

comprehensively set out the measures the government will take to compensate for

the anticipated loss in tax revenues (estimated at 2.2% of GDP), especially in view of

the budgetary targets. The NRP also emphasises the importance of wage moderation

to preserve Belgium’s competitiveness. In this respect, the programme refers to

Belgium’s institutional context, in particular the 1996 competitiveness law and the

existing system of wage negotiations, as instruments facilitating continued wage

moderation. However, this system seems to be vulnerable in a context of increasing

national inflation and wage moderation in the neighbouring countries.

Overall, the NRP sets rather ambitious macro-economic objectives. Only a few

specific measures or new initiatives are presented for the period 2005-2008. The

targets set will help focus policy and implementation efforts but some further

fundamental choices remain to be made regarding alternative sources of revenues

and/or specific measures to restrict expenditure, so as to ensure that budgetary,

competitiveness and employment targets are compatible.

Micro-economic policies

The NRP presents a wide range of priorities, including: the promotion of R&D and

innovation; the improvement of market functioning; support for entrepreneurship;

investments in infrastructure; and the encouragement of sustainable use of natural

resources.

Belgium confirms its objective of reaching investment of 3% of GDP in R&D by

2010, which would involve reversing the downward trend in R&D intensity since

2001 (from 2.2% in 2001 to 1.9% in 2003). The programme intends to intensify

10.

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public investment and to stimulate private investment in R&D, through supporting

“competitiveness clusters”, enhanced co-operation between enterprises and strategic

research centres, the promotion of innovation in SMEs, in particular by a better use

of patents and through the protection of intellectual property rights. Measures are

also set out to strengthen human resources in R&D in the private sector. The

stimulation of research and innovation in the services sector and the use of public

procurement receive relatively little attention. As regards co-operation and

networking, it is not wholly clear from the NRP whether there is a strong enough

strategy to encourage international cooperation through participation in cross-border

projects and clusters.

11.

To enhance the economic climate for investments and enterprises, the NRP stresses

the need to improve market functioning. Proposals to reform competition policy

include further removal of barriers to competition in services markets including in

network industries, redirection of state aid towards horizontal objectives such as

R&D, innovation or environment, and the reinforced role of the competition

authorities. A new competition law aims at redesigning the architecture of the

regulatory framework, in particular by amending the role of the Competition Council

towards the sectoral regulators in network industries. It will be important to equip

such regulatory bodies with adequate resources and to ensure their independence.

The programme also presents useful measures to expand investment in infrastructure,

to attract foreign investment, to spread access to ICT through a national plan to

reduce the digital divide, and to improve energy efficiency and the use of renewable

energies. The reinforcement of the drive for better regulation described in the NRP,

including the use of ex-ante impact assessment of new legislative proposals, can

make a significant contribution to improving the business environment by reducing

administrative costs. The NRP makes a commitment to improve the implementation

of internal market law by intensifying efforts to reduce both Belgium’s deficit in

writing EU Directives into national law and the number of infringement cases against

the country.

Overall, the NRP presents a wide range of positive micro-economic initiatives

seeking to raise Belgium's economic growth potential. The coherence of the NRP

would benefit from better coordination of specific measures across the different

levels of government.

12.

13.

Employment

14.

The NRP identifies two main employment priorities: first, raising employment rates,

in particular by tackling youth and long-term unemployment and by promoting active

ageing; and second, further reducing the high tax burden on labour. The Commission

supports this choice.

Given the low employment rates, especially for youth, older people and women,

attracting and retaining more people in employment is central to the Belgian NRP.

To help achieve the employment rate targets, a “Pact Between Generations” has been

agreed by the government. The Pact contains some new measures to strengthen

existing active labour market measures, to tackle youth unemployment and to

promote a more comprehensive active ageing strategy. The eligibility criteria for

early retirement schemes will be gradually tightened, although the impact of these

15.

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measures will depend on the extent to which exceptions and alternative routes

remain. The Pact seems an interesting first step to increase the employment rate of

older workers.

16.

As regards long-term unemployment, recent measures imposing stronger job search

requirements show some early positive results and are entering their second phase

covering 30 to 40 year olds. The reinforced work bonus scheme should further

reduce the marginal effective tax rate for unemployed people taking up a job, which

is currently the highest in the EU. The integration of ethnic minorities is identified as

a priority but no new measures are proposed. Cooperation between public

employment services - for example through a better exchange of vacancies - and

increased language training are included in the NRP and should promote

interregional mobility, which is particularly important for the Brussels region and

surrounding areas. However, no information is provided on budgets or timing.

In order to promote the adaptability of workers and enterprises, the NRP highlights

targeted reductions of non-wage labour costs. The tax wedge has been reduced

substantially over the last five years but is still the highest in the EU. The goal of

bringing the tax burden on labour down to the average in neighbouring countries by

2010 will require additional efforts compared to previous years. The NRP also sets

out measures to better accompany the restructuring of enterprises, with a view to

making early retirement a last resort. The change of legislation intended to involve

temporary work agencies in fighting youth unemployment is interesting.

Increasing investment in human capital is an important element of the NRP. The

commitment to raise private investment in training to 1.9% of the wage bill, set for

2004 but not yet reached, is reconfirmed for 2006. A "Training Agenda 2010" will

include measures aiming at one in two workers receiving training every year by

2010. These plans are likely to lead to significant and necessary improvements to the

results from Belgium’s training policies, which until now have been rather limited.

Measures announced for the recognition of informal qualifications and competencies

are particularly interesting.

Overall, the employment strand of the NRP is based on assessing, implementing and

building on measures already taken. Many initiatives with high potential are

included, although their impact will need to be carefully monitored given the size of

the challenges. The NRP provides a timeframe for most measures, but limited

information on budgetary resources. Addressing important regional labour market

disparities is left to the regional authorities, whereas a more coordinated approach

might provide added value.

17.

18.

19.

ART

III : C

ONCLUSIONS

20.

In line with the Integrated Guidelines, the Belgian National Reform Programme

identifies and responds to the main challenges facing Belgium, namely the

sustainability of public finances; the reduction of labour costs; the creation of a more

dynamic labour market; the stimulation of the economy through investment and

reforms; strengthening the social security system; and the strengthening of synergies

between environmental protection and growth. Overall, the NRP provides an

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integrated national strategy to address the challenges, with clear analysis, a number

of realistic targets and relevant measures.

21.

In some policy fields, the programme would benefit from a more coordinated

approach between the federal and regional governments. It is not explicit on the

financial impact of the new initiatives or on reconciling that impact with budgetary

targets, particularly in so far as combining a reduction of the tax burden on labour

with increasing budgetary surpluses is concerned. Effective implementation and

monitoring of measures to raise the effective exit age from the labour market will be

needed.

The programme’s strengths include:

•

measures to expand investment in infrastructure, increase access to ICT and

improve energy efficiency;

•

good first steps towards the development of a comprehensive active ageing

strategy.

23.

Among the points requiring further attention are:

•

additional efforts to bring down the tax burden on labour, to meet the target of

matching the average in neighbouring countries by 2010 in the context of

sustained budgetary consolidation;

•

tackling regional employment disparities.

24.

Taking due account of the above, Belgium is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Belgium has dealt with the issues mentioned in paragraph 23. In

this context, the Commission looks forward to discussions with the Belgian

authorities as part of the new partnership for growth and jobs.

22.

ART

IV: S

TATISTICAL GRAPHS AND DATA

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BELGIUM

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

* National target: 70% as soon as possible

2000

2001

2002

2003

2004

1999

2000

2001

2002

2003

2004

116.0 117.3 117.7 118.1 118.6 118.9

125.5 126.7 127.1 128.3 129.3 129.6

59.3

24.6

1.96

76.2

60.5

26.3

2.04

80.9

59.9

25.1

2.17

79.4

59.9

26.6

1.99

81.1

59.6

28.1

1.92

81.3

60.3

30.0

1.93f

82.1

3.0

70.0*

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

108.6 105.8 102.8 102.3 104.0 104.2p

18.7

13.0

8.0

4.9

19.0

13.0

7.9

3.7

18.8

13.0

8.0

3.2

99.9

17.6

17.2

17.3

15.0

8.7

3.9

89.7

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

: 15.0b

8.0

3.6

7.7

3.6

99.7 100.6

99.0 100.6

244.0 236.1 228.1 213.6 223.9

78.9

98.1 100.0

99.1

95.0

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Cyprus

In 2004, Cyprus’s GDP per capita stood at 84% of the EU average, the highest of the

ten new Member States. With an average annual GDP growth rate of 4.1% in 1995-

2004, Cyprus was among the best performers in Europe. Since the mid-1990s real

wage growth has outpaced productivity increases, even though productivity growth

has been slightly above the EU average, leading to some loss of price

competitiveness. Nevertheless, unemployment is low at 5.2% in 2004. The total

employment rate at 69.1% is close to the Lisbon target.

ART

I: G

ENERAL

SSESSMENT

The Cypriot National Reform Programme (NRP) emphasises the objective of

increasing the growth potential of the economy and living standards for citizens,

aiming at real convergence with the EU. It identifies challenges in the following

areas: fiscal sustainability; quality of public finances; R&D, innovation and ICT;

increasing the diversification of the economy; competition and business

environment; environmental sustainability; infrastructure; human capital; and social

cohesion. The Commission shares this analysis, though in the employment field it

would give particular emphasis to lifelong learning and skills.

The NRP provides a clear and comprehensive overview of numerous specific

measures and links them well to final objectives. It includes an ambitious and

challenging target for investment in R&D, 0.65% of GDP for 2008 and an ambitious

but realistic target for an employment rate of 71% by 2010. Most measures are

described in detail, with an implementation schedule, and with the annual budgetary

impact indicated where relevant. At the same time, the links between the overall

strategy and some objectives could be explained more clearly. The role of EU

Structural Funds is highlighted, but not elaborated upon, despite the importance of

this funding for realising certain aspects of the Cypriot NRP.

Consultation and efforts to develop ownership of the document have been

substantial. The NRP was formally adopted by government and discussed at

parliament. It has gone through extensive consultations with social partners and will

be subject to continuous dialogue in the implementation period. A monitoring and

follow-up mechanism will be established under the Ministry of Finance.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The main macro-economic focus in the NRP is on fiscal consolidation through

expenditure restraint and increased revenues. It also targets restructuring government

expenditure toward capital outlays, enhancing fiscal management and transparency.

It includes reforms in health care and social insurance, and labour supply and wage

moderation measures. To a large extent, the Commission shares Cyprus’s point of

view on these challenges.

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According to the NRP, these measures should result in reducing the general

government deficit to 1.2% of GDP and government debt to below 60% of GDP by

2008 (and a deficit of 0.9% of GDP in 2009). Most measures are described in detail.

Nevertheless, measures and time-schedules regarding the delayed reform of the

healthcare system (part of the package of measures to address fiscal sustainability)

are only summarily indicated. On social security reform, government proposals are

presented, though the precise adjustments to be made to the system are to be agreed

with social partners. Their budgetary impact is left open.

Overall, the macroeconomic reform measures outlined in the NRP are appropriate

and their full and timely implementation would clearly help address the challenges

identified in the NRP.

Micro-economic policies

There are four microeconomic key challenges referred to in the NRP: promotion of

R&D, innovation and ICT; enhancing competition/improving business environment;

environmental sustainability; and upgrading basic infrastructure. These are consistent

with the objective of diversifying the economy and strengthening its competitive

advantages.

The need to further increase R&D investment, in particular by private business and

to promote innovation and ICT diffusion is recognised as essential to securing long-

term growth. Given the low level of R&D in Cyprus, reaching the ambitious target of

0.65% by 2008 represents a considerable challenge, notwithstanding impressive

public spending growth in this area in recent years. The proposed policy mix

concentrates on boosting the scientific base and private R&D and developing human

resources. It assembles the necessary building blocks for developing a full-scale

research and innovation system, although questions remain regarding potential

bottlenecks along the way and links between public and private R&D spending. The

programme appropriately envisages the creation of innovation poles, along with

“business incubators” to help emerging companies survive and grow during the start-

up period. Some important issues, such as promoting cross-border knowledge

transfer and venture capital for innovation, may deserve more attention. The clear

presentation in terms of timing, costing, and measurability of the large number of

measures on ICT bodes well for their effectiveness.

The strategy for improving investment and growth conditions by enhancing the

business climate and competition must be seen against the background of a generally

favourable business environment and strong competition in much of the economy.

The measures proposed to enhance competition in sectors where it was absent until

recently can be seen as initial steps. Introducing comprehensive evaluations of state

aid and focussing on market failures is appropriate and builds on progress already

made. Reducing the burden of regulation and systematically assessing its impact will

be particularly important for SMEs. The proposed loan guarantee facility will help

SMEs overcome financing constraints during the start-up phase. The intended

amendment to the bankruptcy law is not fully clear from the NRP. The steps

envisaged to increase public sector efficiency could do much to help improve the

business climate, although the absence of projected funding for most of them raises

questions about their effectiveness. Measures to upgrade basic infrastructure respond

well to the challenge identified.

10.

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11.

Given current environmental problems, the importance of environmental

sustainability for growth and jobs is well recognised in the NRP, in particular with

regard to the impact of environmental degradation on tourism. The policy priorities

to increase energy efficiency (including the use of renewables) are set out clearly and

reflected in relevant and concrete measures that promise to be effective in reaching

their specified objectives.

For the most part, micro-economic policies are clearly described and details of

timetables and budgetary impacts are included. However, more prioritisation and

consideration of synergies between the key challenges would be beneficial.

12.

Employment Policies

13.

The employment challenges set out in the NRP are achieving full employment,

improving quality and productivity at work and strengthening social and territorial

cohesion. Five priorities flow from these: promoting more effective use of domestic

labour reserves; better managing economic migration; increasing the flexibility of the

labour market; developing human capital; and further enhancing social inclusion.

The Commission subscribes to these priorities.

The NRP aims to attract and retain more people in employment through a lifecycle

approach involving a wide range of measures. There is high priority for

implementing appropriate active labour market measures and substantial funding is

allocated to this. The already high female employment rate is expected to increase to

an ambitious but realistic target of 63% by 2010, through the reconciliation of work

and family life, flexible forms of work, upgrading of skills and reducing the gender

pay gap, which is higher than the EU average. With an appropriate legal framework

already in place, the authorities are due to discuss with social partners the

development of a detailed policy favouring flexible but secure forms of work,

including by making part-time work more attractive for those currently inactive.

Further measures to activate older workers are underway, and it has been agreed that

the retirement age in the public sector will gradually increase to 63 by 2008. While

the employment of Turkish Cypriots is actively encouraged, a review of the

economic migration strategy is awaiting endorsement by the social partners. New

legislation is expected in 2006.

The development of a comprehensive lifelong learning strategy to respond to the

shift towards a knowledge-based economy could benefit from more clarity and focus.

High priority is given to numerous measures to reform the vocational education and

training systems. There is limited clarity on how these reforms will make vocational

education and training, as well as the outdated apprenticeship scheme, more

attractive and credible and on how they will offer vocational career paths which are

alternative to general education. Reducing the relatively high rate of early school

leaving is not addressed. A system of continuing education and training is well

established. Measures to improve opportunities for university studies in Cyprus are

expected to reduce the "brain drain". A quality certification system for training

providers is proposed and will be followed by the establishment of a quality

certification scheme for vocational qualifications.

14.

15.

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16.

The challenge of social and labour market integration of vulnerable groups is

addressed in an integrated manner in the NRP, with appropriate initiatives targeting

most groups.

Clear employment targets are set in the NRP, but other indicators in the field and

benchmarks are scarce, thus making the evaluation of results a difficult task.

Budgetary resources are earmarked, but for some important measures, notably the

reform of the apprentice scheme, appear insufficient.

17.

ART

III: C

ONCLUSIONS

18.

In line with the Integrated Guidelines, the Cypriot National Reform Programme

identifies and responds to the main challenges facing Cyprus, namely fiscal

sustainability; quality of public finances; R&D, innovation and ICT; increasing the

diversification of the economy; competition and business environment;

environmental sustainability; infrastructure; human capital; and social cohesion,

though more attention could have been paid to the development of vocational skills

and lifelong learning. Overall the programme is clear, comprehensive and ambitious.

However, more prioritisation in the micro-economic area will be necessary.

Most measures are described in detail, with an implementation schedule, and with

the annual budgetary impact indicated where relevant. The extensive consultations

undertaken with social partners and the clear provision for ongoing dialogue will

facilitate effective and timely implementation.

The programme’s strengths include:

•

the initiative to develop a research and innovation system;

•

the priority and funding allocated to active labour market measures;

•

efforts to further increase the already high female employment rate.

21.

Among the points requiring further attention are:

•

addressing long term sustainability of the public finances, including reforms of

social security;

•

measures to reduce the rate of early school leaving.

22.

Taking due account of the above, Cyprus is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Cyprus has dealt with the issues mentioned in paragraph 21. In

this context, the Commission looks forward to discussions with the Cypriot

authorities as part of the new partnership for growth and jobs.

19.

20.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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CYPRUS

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

80.5

75.1

0.24

80.8

90.5

15.4

81.3

73.6

65.7

49.4

0.25

79.0

91.3

14.3

1.3

83.2

73.6

67.8

49.1

0.26

80.5

91.9

14.1

1.0

82.4

80.5

83.6

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

72.4 71.1f 74.5f

68.6

49.4

0.31

83.5

90.9

15.2

0.8

69.2

50.4

68.9

49.9

71.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

0.35 0.37p 0.65 (2008) 1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

79.5

77.6

74.8

76.3

76.1

76.5

76.6

3.0

96.5 93.3p

14.3

15.0

1.1

15.3

1.4

76.5

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

135.4 141.6 140.7 145.1 152.8

282.0 282.3 274.4 269.9 278.6

96.2e 94.6e 93.9e

95.7

99.5

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

180

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

180

1999

2000

2003

2004

EU targets

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Czech Republic

Over the period 1996-2000 economic growth in the Czech Republic averaged 1.5%,

but since then growth has increased to 2.9% on average, and has been even more

robust in recent years, driven mainly by investment and strong exports. Labour

productivity growth has been slightly above the EU average over the last decade.

GDP per capita has risen to 71% of the EU average (2004). The employment rate is

slightly above the EU average at 64.2% (2004) and employment performance has

started to improve. The unemployment rate is at 8.3 % (2004).

ART

I: G

ENERAL

SSESSMENT

The Czech National Reform Programme (NRP) identifies three main overall

challenges: to continue public finance reform; to strengthen and increase industrial

competitiveness while respecting the need for sustainable resources; and to increase

labour market flexibility. The Commission shares this analysis of the main priorities.

The strategy presented in the NRP is essentially a continuation of existing policies.

The 46 policy areas identified for action in the NRP are relevant and represent a set

of consistent and mutually interlinked measures but there is little information on

prioritisation between them. The NRP has been drafted as a brief general document

with the intention of making it accessible to a wide public and intentions are

described often only in general terms. In only certain areas are concrete reforms set

out and information on their budgetary impact is limited, though in some cases more

detail is available in specific national strategic documents. Quantitative targets are

identified for public finances, for public expenditure on R&D (1% of GDP by 2010)

and employment rates (66.4% for overall employment in 2008). The role of

Structural Funds is specified in several parts of the NRP, in particular the

employment part.

Consultation and efforts to develop ownership of the document have been fairly

substantial, with more envisaged. In preparing the NRP, the Deputy Prime Minister

for Economic Affairs was appointed as political coordinator. A governance structure

was established involving relevant ministries and social partners. The NRP was

discussed with the Parliament and with the social partners. The government has

announced that the general public will be consulted and measures to achieve a high

degree of visibility for the Lisbon process will be undertaken.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

Continuing reform of public finance is expected to contribute to macroeconomic

stability and sustainable growth. The strategy proposed in the NRP outlines six

priorities with respect to these objectives, with particular focus in the medium term

on meeting the Maastricht criteria on budget deficits and government debt and

emphasis in the long term on safeguarding the sustainability of public finances. The

Commission subscribes to the focus on these two key areas.

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According to the NRP, the macroeconomic policies it sets out should result in

decreasing the general government deficit to less than 3% of GDP and in keeping

government debt below 60% of GDP by 2008, in order to be able to join the euro

area by 2010. After 2008, the target is gradually to reduce deficits to below 1% of

GDP. However, these objectives are not very ambitious in the light of the better than

expected budgetary outcomes in 2004 and 2005. The programme refers to the main

instrument of medium-term budgetary consolidation – expenditure ceilings for

central government but the record on implementing these is mixed so far. The NRP

recognises that the long-term sustainability of public finances is a central problem in

the Czech Republic but not enough detail is presented to permit an assessment of the

strategy proposed to deal with this. To improve long-term sustainability a

coordinated action plan is proposed, requiring medium-term budgetary consolidation

along with reforms of pensions, the health care system and the labour market.

Although this coordinated approach is evidence of good intentions, insufficient detail

is given on how it will be implemented in practice. There are positive measures to

increase the transparency of public finances, in particular by disclosing state

guarantees and contingent liabilities.

The fiscal strategy proposed is not very ambitious and is not supported by a clear

schedule for implementation. For medium-term consolidation it will be important to

ensure that the expenditure ceilings are respected and to improve budgetary planning.

The long-term sustainability issue requires more specific attention and especially a

clearer picture of health care and pension reforms.

Micro-economic policies

Among numerous microeconomic priorities the following four receive most attention

in the NRP: R&D and innovation; the business environment; the modernisation and

development of transport and ICT networks; and sustainable use of resources. The

Commission shares the view that these are key to improving economic growth and

employment.

R&D expenditure is currently 1.3% of GDP, one half of which comes from public

funds. A target has been set for public R&D investment to reach 1% of GDP by

2010, and budgetary plans reflect this targeted increase up to 2008. However, no

target is included in the NRP for overall R&D intensity. Efforts covered in the NRP

to stimulate private research expenditure by tax deductions have the potential to help

boost competitiveness, as does a planned change to make the funding mechanism for

public research institutions more favourable to industrial research. The NRP presents

a thorough analysis of the current problems with the R&D system. Changing the

R&D structure favouring special-purpose financing over institutional financing is

envisaged. However, issues such as prioritisation in the R&D budget, improving

R&D infrastructure or specific measures to deal with developing and investing in

highly qualified personnel for R&D need further development. With respect to

innovation policy, the NRP addresses the challenges created by insufficient

infrastructure and finance in rather general terms, while the coverage of the direct

support for innovation activities needs further clarification. The NRP does not

explicitly discuss measures to improve the quality of innovation support services and

to strengthen innovation links between domestic and foreign-owned companies.

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10.

The NRP sets out a plan to enhance the business environment through better

regulation and by supporting SMEs. The measures to improve regulation are focused

on administrative costs and impact assessment and represent a very strong reform

agenda in the area of better regulation. The NRP lists a number of ongoing SME

programmes that will end in 2006 but no indication is given in the NRP itself on

further action in this area.

In other important areas such as the modernisation and development of ICT and

transport networks and the sustainable use of resources, issues are well identified in

the NRP, but the measures proposed to deal with them are somewhat scattered. The

NRP presents strongly focused measures to invest in broadband connections (the

target of making the broadband internet available to 50% of the population by 2010

is mentioned) and stimulate the availability of online public services.

The ongoing micro-economic policy initiatives presented in the NRP are numerous

and in general useful. However, there are certain gaps in them and it remains to be

seen whether they bring solutions to the problems and challenges identified.

Linkages between different policy measures should be further developed. Attention

will need to be paid to ensuring the timely and full implementation of ongoing

policies.

11.

12.

Employment policies

13.

The key challenge of increasing labour market flexibility is complemented by

seeking greater inclusion in the labour market and improving education. Within these

challenges numerous general priorities are identified. The Commission subscribes to

the choice of challenges, though three issues deserve more attention: the most

disadvantaged groups in the labour market; regional disparities in unemployment;

and the gender dimension.

Labour market flexibility is given prominence in the NRP, which lists a number of

useful initiatives to promote making work pay and geographical mobility. The

programme includes measures such as reducing taxes for low-wage earners and

reforming the social benefits system to encourage the activation of benefit claimants.

The current legal provisions promoting flexible forms of labour relations (part-time

work, fixed-term contracts, teleworking) are still only partly used, though the new

Labour Code being discussed by the Czech Parliament is expected to allow for more

operational flexibility in the organisation of work and working time arrangements

and to provide greater contractual freedom in employment relationships. The

practical effects of these measures, once adopted and applied, will need to be

carefully assessed. The NRP recognises the modernisation of public employment

services as essential for the success of employment policy, though few concrete

measures are proposed in this area and the problems of limited personnel and funding

remain to be resolved.

The NRP identifies problems of inclusion in the labour market and of potential

labour market shortages and strives to address these problems by improving the

inclusion of three specific groups: the young, the elderly, and women. The measures

proposed are based mainly on an extension of existing labour market policies.

Particular attention is paid to active immigration policy and the inclusion of

foreigners in the labour market. The NRP does not cover measures targeted at

14.

15.

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promoting the inclusion of disabled people or of resident ethnic minorities such as

the Roma population, though the Czech authorities have indicated some separate

information on this.

16.

In the area of investment in human capital, the NRP gives particular priority to

reforming curricula for primary education and to improving relations between

employers and educational and professional institutions in order to better adapt

education and training systems to labour market needs. There has been some

progress in stimulating participation in tertiary education and lifelong learning. More

effort is needed however, to implement a comprehensive lifelong learning strategy,

especially in continuing education. The NRP stresses the need to increase incentives

for individuals and employers to invest in training.

The NRP identifies a broad set of problems in the Czech labour market and attempts

to address them. However, more effort will be needed to increase investment in

human capital so the proposed reforms in the educational system can be fully

implemented.

17.

ART

III: C

ONCLUSIONS

18.

In line with the Integrated Guidelines, the Czech National Reform Programme

identifies and responds to the main challenges facing the Czech Republic, namely to

continue public finance reform; to strengthen and increase industrial competitiveness

while respecting the need for sustainable resources; and to increase labour market

flexibility. Overall, the NRP includes some useful initiatives, notably in micro-

economic policy, but in some areas lacks clear priorities and concrete measures.

The budgetary impact of measures is not always clearly spelled out in the NRP. It

will be crucial to develop targets, time schedules for the implementation of reforms

and appropriate monitoring processes for the successful implementation of the

strategy.

The programme’s strengths include:

•

important steps to improve regulation and the business environment;

•

a wide-ranging set of measures to address potential shortages in the labour market,

especially with regard to making work pay and to particular groups such as the

young, the elderly, and foreigners.

21.

Among the points requiring further attention are:

•

securing the long-term sustainability of public finance, especially with regard to

reforms of pension and health care systems;

•

more emphasis on improving human capital through lifelong learning, taking

account of the most vulnerable groups, and regional disparities in unemployment;

•

policies to improve R&D and innovation and in particular to develop human

capital for the R&D system and improve its functioning.

19.

20.

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22.

Taking due account of the above, the Czech Republic is invited to implement its

NRP with vigour. The 2006 progress report on the implementation of the NRP

should cover in particular the way the Czech Republic has dealt with the issues

mentioned under paragraph 21. In this context, the Commission looks forward to

discussions with the Czech authorities as part of the new partnership for growth and

jobs.

ART

IV: S

TATISTICAL GRAPHS AND DATA

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CZECH REPUBLIC

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

* National target: 1% (2010) for the public sector

65.1

58.7

65.6

37.5

1.16

91.8

45.4

24.0

5.6

3.2

73.1

2000

64.0

58.9

65.0

36.3

1.23

91.1

47.2

24.7

5.8

4.2

76.8

2001

65.1

59.9

65.0

37.1

1.22

90.5

50.3

24.3

8.0

5.7

4.2

77.0

2002

66.6

60.4

65.4

40.8

1.22

91.7

54.7

22.9

5.6

3.7

74.3

2003

68.1

62.4

64.7

42.3

1.26

92.0

2004

70.6

64.8

1999

2000

2001

2002

2003

2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

64.2 66.4 (2008)

42.7

1.28

90.9

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

55.5 55.0p

22.7

8.0

5.8

3.8

75.7

22.6

5.6

4.2

93.3

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

868.4 888.4 883.9 875.8 889.6

95.7

94.0

93.5

97.9

99.5

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

4 0 4 .0

E n e rg y in te n s ity o f th e e c o n o m y

4 2 4 .6

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Denmark

Denmark benefits from high GDP per capita (122% of EU average in 2004),

productivity and employment levels. Annual real GDP growth has been some 2% on

average in the last decade, while labour productivity growth per person employed has

been at the speed of the EU average. The employment rate is the highest in the EU

(75.7% in 2004). Employment growth has been strong since 2004 and the

unemployment rate (5.4% in 2004), one of the lowest in the EU, has been further

reduced.

ART

I: G

ENERAL

SSESSMENT

The Danish National Reform Programme (NRP) outlines four broad challenges: to

prepare for the ageing of the population; reap the benefits of globalisation; strengthen

the framework for improved productivity; and increase value for the users of public

services. These broad challenges are translated into a number of priorities: improving

competition in certain sectors; enhancing public sector efficiency; developing a

knowledge society; securing environmental sustainability and energy; encouraging

entrepreneurship; and increasing the labour supply. The Commission shares the

NRP’s analysis of the main priorities.

The Danish reform strategy is presented clearly and coherently. The NRP’s approach

is broad, ambitious, long-term and realistic. It aims to carry out existing policies and,

if necessary, to reinforce them. Quantitative targets with timetables are set in some

areas. The target set for R&D investment is to exceed 3% of GDP by 2010, the same

level as the overall target for the EU. The employment target is to increase

employment by between 50 000 and 60 000 people, corresponding to around 2% of

the labour force, by 2010. The policies presented in the NRP often refer to broad

lines for action and relatively few specific measures are presented. This is

particularly the case for initiatives aiming at improving competition and increasing

the labour supply. The NRP states, however, that further measures to raise labour

supply and to strengthen education, innovation and entrepreneurship will follow on

the basis of the reports and recommendations of two key advisory bodies appointed

by the Government: the Welfare Commission, whose report was presented in

December 2005, and the Globalisation Council, due to report in Spring 2006. The

NRP also describes how EU structural funds will be used to promote the objectives.

Consultation and efforts to develop ownership of the document have been

substantial. The NRP has been endorsed by the Government and presented to

Parliament. The views of social partners, local authorities and representatives of civil

society have been collected and are presented in annexes to the programme.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The overall macro-economic aims are sound public finances, a stable exchange rate,

price stability and high employment. The Commission fully subscribes to these aims.

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The strategy to assure long-term fiscal sustainability is a continuation of the one in

place for a number of years, consisting of building up government funds by saving

budget surpluses in combination with increasing employment by around 2 per cent of

the labour force by 2010. In the medium and long term, a higher level of employment

is necessary to secure the future funding of welfare commitments. Policy to ensure

fiscal sustainability in view of an ageing population continues to be based on the

objective of an average annual general government budget surplus of 0.5-1.5% of

GDP until 2010. On the expenditure side, a key objective is to limit the annual

growth of real public consumption to 0.5 per cent up to 2010. Income taxes were cut

by 0.7 per cent of GDP in 2004 and taxes will be further reduced to the extent that

there is budgetary scope. Monetary policy aims at keeping the krone’s exchange rate

with the euro stable. This policy lays the basis for price stability in line with the euro

area.

The implementation of the measures outlined in the programme should contribute

significantly to attaining the objectives of the macro-economic strategy. However,

few concrete measures are set out to achieve the increase in employment necessary

for long-term fiscal sustainability.

Micro-economic policies

The Danish government identifies as important challenges: enhancing competition in

some sectors; strengthening public sector efficiency; developing a knowledge

society; securing environmental sustainability and encouraging entrepreneurship.

The Commission shares this analysis.

The NRP points to the objective of halving the number of sectors facing competition

problems by 2010, in order to help bring consumer prices in Denmark, consistently

the highest in the EU, more into line with the rest of the Union. Sectors currently

affected by a lack of competition include parts of the construction sector, utilities,

food processing and professional services. The NRP describes concretely how the

authorities identify sectors facing significant competition challenges. It sets out

measures to increase competition through amendments to the Competition Act and a

review of competition-restricting rules. This will complement action already under

way to make shop opening hours more flexible and to amend the Public Tender Act.

While the measures envisaged have good potential to enhance competition, full

details and clear schedules are not always given. Against this background, a swift

implementation of these measures, including strengthening competition through

combating cartels more effectively, would be positive.

The NRP also includes proposals to make public services more efficient. A planned

reform will lead in 2007 to a large cut in the number of municipalities and is likely to

deliver efficiency gains through economies of scale. In addition, the NRP presents

measures to increase competition in the provision of public services, including

enhanced competition between public and private providers.

Total R&D spending amounted to 2.6 per cent of Denmark’s GDP in 2003, well

above the EU average of 1.9 per cent. About 70 per cent of R&D spending is

financed by the private sector. If Denmark maintains its current strategy and

increases public R&D as intended, the 2010 target of 3 percent of GDP seems

realistic. There remains scope to maximise the results of Denmark’s relatively high

10.

11.

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R&D spending in terms of further boosting productivity. In this respect, the NRP

includes promising plans to better exploit technological opportunities by improving

knowledge transmission between universities and the private sector, though it is not

yet clear to what extent these plans will change incentives for public sector

researchers to collaborate with the private sector. In addition, Denmark aims to

promote e-government, use of ICT by SMEs, ICT skills and research. Broadband

take-up is to be stimulated through competition, enhanced by a framework that

strengthens convergence and security. The “National ICT policy initiatives”,

however, lack detail.

12.

The NRP makes positive efforts to decouple the link between economic growth and

environmental impacts. Environmental taxes, such as the new tax on mineral

phosphorous in animal feed and the reduction in tax on sulphur-free petrol, are used

to ensure that prices better reflect the costs of environmental degradation for society.

The 2005 energy strategy promotes energy-saving initiatives addressing in particular

energy consumption in the transport sector.

While Danish entrepreneurship looks healthy on the basis of the indicator of business

start-ups, few of the new firms develop into high-growth companies. The NRP

therefore includes plans to grant certain entrepreneurs a three-year period of tax relief

to provide an incentive for further growth. This is an interesting initiative and should

be followed by a careful evaluation. The relatively small and illiquid stock market

could hinder firm growth and the measures presented in the NRP to ease access to

capital will help address this problem. An example is the Entrepreneurship Fund that

provides early stage venture capital. The government aims to reduce the

administrative costs of enterprises by 25 per cent between 2001 and 2010, and has

developed a strategy to achieve this objective. With regard to internal market policy,

Denmark’s efforts in terms of implementing internal market policy, for instance

through a special task force, are encouraging.

The micro-economic policy initiatives in the NRP are likely to make a positive

contribution to jobs and growth. In some cases, the proposed measures need to be

more concrete in order to guarantee successful implementation. For example, few

details are given on the timing of the measures to enhance competition.

13.

14.

Employment policies

15.

Against the background of the ageing population, the Danish NRP identifies

increased labour supply through higher labour force participation as an important

challenge. In addition, the NRP focuses on improving the adaptability of employees

and enterprises, improving the basic school system and increasing the number of

students in secondary and tertiary education. The Commission shares this analysis of

the main challenge and priorities.

The NRP outlines a number of measures to attract and retain more people in

employment in order to increase the labour supply by 2010 and beyond: tighter

requirements to seek a job for immigrants who receive benefits; a lower average age

for finishing tertiary education; reducing absence due to illness; increasing the

average retirement age; and improved functioning of the labour market through

overhauling employment policies. These measures have potential to further increase

16.

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the already high employment rates but might be insufficient to meet the challenge of

a targeted increase of 50-60,000 persons in employment by 2010.

17.

The Danish labour market is generally characterised by a high degree of adaptability

of workers through mechanisms and measures reviewed and reinforced on a

continued basis through involvement of social partners. In terms of adaptability of

workers and enterprises, no specific measures have been taken so far. However, to

realise national objectives for lifelong learning, the government and the social

partners have established a Tripartite Task Force to reform the vocational and adult

training system. This is an important first step in a long-term process. The first

recommendations from this Task Force are expected in early 2006.

Regarding investments in human capital, the focus is again on addressing more long-

term challenges and preparing Danish society for the effects of globalisation and

technical change. One set of new initiatives aims at increasing the proportion of

young people completing upper-secondary education by establishing more cohesion

and interaction between subjects, and by improving apprenticeships and vocational

colleges. Another set of initiatives aims at increasing the numbers of young people

completing higher education and the speed with which they do it. Youth

unemployment, which is linked to early school-leaving in particular, will be tackled

through measures to ensure participation in individualised education or training.

These measures are adequate and focused, with overall targets identified for 2010

and 2015, although some of those seem over optimistic.

Overall, the Danish employment strategy is wide-ranging and ambitious but specific

measures to increase employment are so far limited, partly because the government is

awaiting important advisory reports. In general, budgetary information is scarce in

the employment section of the NRP.

18.

19.

ART

III: C

ONCLUSIONS

20.

In line with the Integrated Guidelines, the Danish National Reform Programme

identifies and responds to the main challenges facing Denmark, namely to prepare

for the ageing of the population; reap the benefits of globalisation; strengthen the

framework for improved productivity; and increase value for the users of public

services. These broad challenges are translated into a number of priorities: improving

competition in certain sectors; enhancing public sector efficiency; developing a

knowledge society; securing environmental sustainability and energy; encouraging

entrepreneurship; and increasing the labour supply. Overall the NRP’s approach is

broad, coherent and long-term, with ambitious and achievable objectives based on a

comprehensive and clear short, medium and long-term analysis and taking account of

important EU policies. Action on the recent and forthcoming recommendations of

key advisory bodies is likely to lead to an increase in the number of specific reform

measures proposed.

Clear timetables are given for some measures, but more detail and clearer

implementation schedules are necessary for others. Medium-term budgetary

implications are set out for most objectives.

The programme’s strengths include:

21.

22.

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•

it aims to actively incorporate environmental aspects across different policy fields;

•

measures on energy, education, improving the efficiency of the public sector and

promoting R&D and innovation;

•

the tax relief granted to entrepreneurs in order to provide incentives for further

growth is particularly interesting.

23.

Among the points requiring further attention are:

•

more concrete and specific measures to increase labour supply, which may flow

from the recommendations of the Welfare Commission (see above);

•

more detailed measures to enhance competition;

24.

Taking due account of the above, Denmark is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Denmark has dealt with the issues mentioned in paragraph 23. In

this context, the Commission looks forward to discussions with the Danish

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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DENMARK

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers *

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

2000

2001

2002

2003

2004

1999

2000

2001

2002

2003

2004

126.8 126.9 125.4 121.1 120.9 121.7

104.1 105.6 105.1 102.1 103.3 104.3

76.0

54.5

2.10

73.2

76.3

55.7

2.27

76.2

58.0

2.40

75.9

57.9

2.55

75.1

60.2

75.7

60.3

3.0

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

2.59 2.63p

74.8

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

69.8 78.3b

79.6 73.0b

128.4 127.8 130.7 135.6 138.8 137.0p

18.1

10.0

1.0

104.7

18.5

1.0

17.9

10.0

0.9

17.8

17.6

17.5

11.0

1.2

86.8

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

: 12.0b

0.9

1.1

98.1 100.2

99.1 106.3

132.1 125.0 126.6 123.8 128.2

93.1

93.0

85.5

86.2

87.7

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

* Alternative computation for Denmark using income definition including imputed rent revenue and mortgage interest payments: 2003 10.0b and 2004 10.0

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Estonia

Estonia’s economic transition to a market economy started from a very low position

with respect to GDP per capita and productivity. Employment declined significantly

during the transition, but drastic economic reforms have led to over 6% real GDP

growth during the last decade. Rapid productivity growth has been reflected in a

sharp increase in wages. As a result, GDP per capita has risen rapidly to 51% of the

EU average in 2004. The employment rate in 2004 was 63%. Unemployment has

fallen rapidly (9.2% in 2004).

ART

I: G

ENERAL

SSESSMENT

The Estonian National Reform Programme (NRP) focuses on two key challenges:

first, R&D and innovation and second, employment. The Commission shares this

analysis of the main priorities.

The strategy in the NRP is forward-looking, ambitious and linked well with existing

policies. References are made to other strategic initiatives that are already being

implemented or are in the pipeline. The programme is integrated and coherent across

the macro-economic, micro-economic and the employment policy chapters. The NRP

is structured clearly, indicating objectives and policies to achieve them, including

detailed measures. For most measures a set of quantitative indicators is provided with

the target values set for 2008, allowing progress to be measured. The NRP sets

targets to increase R&D spending to 1.9 percent of GDP by 2010 from 0.82percent in

2003 and to raise the employment rate to 67.2 percent in 2010 from 63 percent in

2004. The budgetary implications of the planned initiatives are only broadly defined.

The presentation of the link between measures envisaged in the NRP and Structural

Funds (estimated at some 4 % of GDP) is not sufficiently concrete.

Consultation and efforts to develop ownership of the document have been very

substantial. The Prime Minister’s office coordinated the preparation of the Estonian

NRP and will also oversee implementation. A competitiveness working group,

established for the preparation of the programme under the chairmanship of the

Director of the EU Secretariat of the State Chancellery, brought together

representatives of several ministries, social partners, local authorities, and civil

society. The draft NRP was posted on the internet for public consultation. The

programme was discussed in various parliamentary committees and the NRP

approved by the EU Affairs Committee of the Parliament.

ART

II: A

SSESSMENT BY

OLICY

REA

Macro-economic policies

Maintaining sound public finances and the conditions for low inflation and price

stability are the core objectives for macro-economic policies. These priorities are

particularly appropriate as Estonia has a currency board pegging the kroon to the

euro. Raising the employment rate is seen as a key for sustaining the economy’s

strong growth performance in the future and raising the living standard.

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The NRP strongly emphasises budget balance and financial sustainability, notably

through the tax system and the allocation of government spending. For the rest,

reliance on market forces is considered the key condition for sustained strong

growth. A business friendly tax reform, shifting the burden of taxation to

consumption and environmental taxes and away from labour and income are

complemented by public spending reform. If successfully implemented, this policy

direction should yield important benefits for growth and employment. The Estonian

NRP addresses the external account deficit in the context of the broader objective of

ensuring a stable macroeconomic environment.

The focus of macro-economic policies and measures proposed in the NRP on fiscal

sustainability and creating conditions for employment growth are fully appropriate in

the context of Estonia’s economic situation.

Micro-economic policies

Estonia has identified R&D and innovation as a key challenge for sustaining strong

economic growth and enhancing competitiveness. In addition to addressing this key

challenge, the NRP proposes measures to improve the business environment, the

functioning of markets and infrastructure. Given that the recent strong growth has

been achieved largely in low-productivity sectors whose competitiveness may come

under pressure in the context of globalisation, these micro-economic priorities are

particularly relevant for Estonia’s long-term growth prospects.

The NRP presents a clear diagnosis of the main weaknesses and constraints for R&D

and innovation. It formulates quantified objectives and provides clear timetables for

reaching them. Estonia plans to continue its efforts towards achieving investment in

R&D of 3% of GDP – the target level set for the EU as a whole - by 2014, building

on progress made in recent years. The intermediate objectives set (1.5% of GDP by

2008, 1.9 % by 2010) are ambitious but not unrealistic. Explicit budgetary

commitments for achieving them still need to be made. Several measures aim at

improving the quality of research and innovation as well as the development of

human capital. More emphasis may be needed on increasing the low level of private

investment in R&D to reach the overall target. The R&D and innovation strategy

would benefit from clearer prioritisation. The central role of foreign direct

investment (FDI) in financing R&D and fostering the transition from a relatively

low-tech to a high-tech based industrial portfolio are not mentioned in the plan.

The objective of further enhancing the business environment and stimulating

entrepreneurial culture, where Estonia has already achieved much, is addressed by

measures on improving the regulatory framework, reducing the administrative cost

for business and simplifying legal requirements for start-ups. Impact assessments of

new legislation related to enterprise policy are also envisaged. The creation of the

Estonian Development Fund in 2006 and the establishment of a network of local

“business angels” will help improve access to capital for start-up companies,

especially SMEs with high growth potential. The strengthening of access to finance

for innovative firms is particularly important in this regard.

In several areas beyond the identified key challenges, the NRP proposes measures to

enhance competitiveness. The planned development of the public transport

infrastructure of rail and road systems and the proposed establishment of nation-wide

10.

11.

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broadband access will have a positive impact on Estonia’s competitiveness. The NRP

also proposes measures to improve e-services in the public sector in order to enhance

communication between businesses and the administration. The pro-active

competition policy envisaged along with the strengthening of competition authorities

are likely to improve the functioning of product and financial markets. Important

steps towards the opening the electricity market to competition are also envisaged.

12.

The objectives set for environmental policy are clear and the programme identifies

important links between environmental sustainability and growth potential.

Moreover, planning for ecological tax reform is well advanced. The NRP recognises

the energy sector as a main polluter and proposes specific reforms to improve the

situation.

The micro-economic part of the NRP is both focused and comprehensive. The

policies proposed to enhance Estonia’s growth potential are presented fully and

clearly in the programme and if fully implemented are likely to be effective.

13.

Employment policies

14.

The NRP reflects the government’s determination to address the employment

challenges facing Estonia. The programme lists those challenges as a low

employment rate, structural unemployment, skills and lifelong learning. It

specifically addresses the issues of: long-term unemployment; the unemployment of

youth and women; the high drop-out rate from school; the low quality of vocational

education and training of employees; and the fragmented higher education system.

Special attention is also paid to improving the adaptability of workers and

enterprises. The Commission shares the NRP analysis of where employment

priorities lie.

To attract and retain more people in employment, Estonia plans to further develop

public employment services, including introducing personalised case management,

and to improve the coordination between labour markets and social services. These

measures are supplemented by special instruments targeting the young and long-term

unemployed. Reforms of the pension system are intended to increase the

employment rate of older workers. The integration of significant numbers of

currently inactive people into the labour market will be necessary to reach the

targeted levels for overall employment (67.2% by 2010) and for the employment of

disabled people (30% by 2008). The NRP does not fully explain how these levels are

to be achieved. The integration of certain categories of the inactive and unemployed,

such as ethnic minorities, is not covered by the programme. In order to increase

female participation to 65% in 2010, the availability of childcare services will be

improved. Other measures to increase the female participation rate, including gender

mainstreaming measures, are not considered in the NRP.

To increase adaptability, measures are announced to improve the functioning of the

labour market, reduce undeclared work, modernise labour relations and improve the

working environment so as to sustain productivity and workers' ability to stay in

employment longer. Shortcomings in the current legal framework for labour relations

are addressed through a number of amendments to employment acts and regulation

on collective agreements. The social partners' role in keeping wage developments in

line with productivity improvements is insufficiently considered.

15.

16.

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17.

Despite an already high general level of education, Estonia is committed to

increasing investment in human capital. Further raising the skills and education

levels of the labour force to reduce structural unemployment features prominently in

the programme. National targets set for the effectiveness and quality of formal

education are ambitious but achievable through full implementation of the measures

proposed in the NRP. Several policy measures, particularly related to vocational

training and support to lifelong learning are presented in a clear and detailed way. A

comprehensive lifelong learning strategy is scheduled to be formally approved by the

Government by the end of the year. Attention is given to enhancing young people’s

employability and to reducing the drop-out rate, with the NRP focusing appropriately

on improving educational quality and access.

Estonia makes a strong effort to meet the key challenge it sets itself of increasing

employment and to address the issue of structural unemployment. By fully

implementing the proposed measures the ambitious objectives can be reached.

18.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Estonian National Reform Programme

identifies and responds to the main challenges facing Estonia as a fast growing

economy, namely R&D and innovation and employment.. Overall, the NRP is

integrated, coherent and clearly structured, with explicit links made between policy

areas. Objectives are ambitious, with clear paths and detailed measures set out for

achieving them.

For most measures a comprehensive set of quantitative indicators and targets is

provided. These, along with the extensive consultation with stakeholders and the

clear structures for implementation will be significant advantages in putting the NRP

into practice. However, the budgetary implications of the planned initiatives are only

broadly defined. More emphasis is needed on linking the measures in the NRP with

the forthcoming substantial injection of structural funds and on enhancing Estonia's

administrative capacity to manage the funds.

The programme’s strengths include:

•

the importance attributed to achieving synergies between environmental

sustainability and growth;

•

the credible effort to introduce ICT in the public sector, which builds on

impressive existing achievements and is a good example for other countries;

•

plans to improve the working of the labour market, reduce undeclared work,

modernise labour relations and improve the working environment.

22.

Among the points requiring further attention are:

•

a stronger focus on increasing private R&D investment and on the role of FDI in

that context;

•

further measures to develop a comprehensive active labour market policy and to

improve skills in order to achieve the ambitious employment rate target set .

20.

21.

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23.

Taking due account of the above, Estonia is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Estonia has dealt with the issues mentioned in paragraph 22 In this

context, the Commission looks forward to discussions with the Estonian authorities

as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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ESTONIA

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

39.0

39.3

61.5

47.5

0.70

83.0

57.3

20.5

5.0

45.2

2000

41.2

42.6

60.4

46.3

0.62

83.6

56.8

21.7

18.0

5.7

45.4

2001

42.4

43.8

61.0

48.5

0.73

79.5

59.7

22.9

18.0

5.7

44.7

2002

45.3

46.0

62.0

51.6

0.75

80.4

62.1

24.0

18.0

5.0

44.9

2003

48.5

48.2

62.9

52.3

2004

51.5

51.3

63.0

52.4

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

67.2

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

0.82 0.91p

81.4

82.3

1.9

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

63.2 62.9p

25.5

18.0

4.7

49.2

25.2

4.8

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

1398.1 1214.8 1273.0 1153.2 1208.4

214.9 208.8 209.7 206.5 209.5

164.4 182.8 165.2 172.3 158.5 167.9

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

180

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

6 5 0 .6

E n e rg y in te n s ity o f th e e c o n o m y

5 7 6 .8

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

180

1999

2000

2003

2004

EU targets

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Finland

After expanding at an annual rate of nearly 5% during 1995-2000, Finland’s

economic activity slowed with the global downturn in 2001, although growth has

remained well above the EU average. Yet, growth of the labour productivity per

person employed has been only slightly above the EU average over the last decade.

There are, however, marked differences between sectors. GDP per capita was at

113% of the EU average in 2004. The employment rate was at 67.6%. In 2004, the

unemployment rate was 8.8%, which is slightly below the EU average.

ART

I: G

ENERAL

SSESSMENT

The Finnish National Reform Programme (NRP) presents three medium-term

challenges: the sustainability of public finances, improving competitiveness and

productivity and improving the functioning of the labour market. There is a target of

attaining balanced central government finances by 2007. These challenges are

defined in a very broad sense and linked to eleven macro, micro and employment key

priorities. The Commission broadly shares the NRP’s analysis of the main priorities,

and it also sees increasing competition, particularly in services markets, as an

important challenge.

The NRP gives an overview of the Government’s ongoing and planned policy

actions. The NRP describes the main strategic orientations, while the reader is

referred to the underlying policy documents for details of specific action proposed.

The NRP is coherent across the different policy areas and contains a range of

ambitious but achievable quantitative targets, including an annual increase in labour

productivity of at least 2.5 per cent to 2010 and the creation of 100,000 new jobs by

2007, which would raise the employment rate to about 70 per cent. The longer-term

objective is to raise the employment rate still further, to 75 per cent by 2011. Targets

are also set for research spending, reduction of the dropout rate from school and

lowering the entry age into tertiary level education and the graduation age. The NRP

describes how EU Structural Funds will be used to promote the objectives.

Consultation and efforts to develop ownership of the document have been very

substantial, in part based on the preceding broad and inclusive debate on Finland’s

globalisation strategy. The NRP was prepared by a group composed of the key

Ministries and the Prime Minister’s office, under the leadership of a Director General

at the Ministry of Finance. Other Ministries, social partners, local government, the

science community and independent NGOs were consulted. The NRP was presented

to the Finnish parliament for information.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The overarching policy goal is to ensure the sustainability of public finances in the

face of demographic change, which means that while Finland’s overall macro-

economic performance is quite strong, new challenges will be faced in the medium

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and long term. Key priorities are controlling public expenditure, ensuring the

capacity to fund welfare services and improving public sector productivity.

The NRP includes a well-designed strategy for boosting public sector efficiency and

quality in the provision of services, through for example the public sector

productivity programme for the central government, the basic services programme

assessing income and expenditure for local governments and a project to reform

municipal and social services structures. Other on-going measures include phasing in

pension reform and the maintenance of central government spending limits. The

objective is set to restore balance in central government finances under conditions of

normal economic growth by 2007. The goal for local government finances is to

improve the balance, but no quantified targets are given.

The implementation of the measures outlined in the programme should contribute to

the long term sustainability of public finances and help address long term challenges

arising from population ageing.

Micro-economic policies

The NRP prioritises the functioning of markets and competition; knowledge and

innovation; entrepreneurship; ICT and transport networks; energy and climate policy.

In general, the NRP outlines many valuable micro-economic policy measures which

should stimulate growth and jobs.

Competition issues are a key challenge for Finland. Consumer prices are relatively

high – some 25 per cent above the EU25 average in 2002 – which is likely to

partially reflect a lack of competition in some sectors. The NRP points to regulations

which directly prevent competition in pharmacy services, opening hours for the sale

of consumables and in the transport and construction sectors. Some measures are

proposed in the NRP to address these issues, including a new law on public

procurement. Several ongoing research projects are analysing competition issues.

The NRP does not address in detail the specific issue of ensuring that the Finnish

competition authority possesses and exercises sufficient powers to speedily and

decisively remove barriers to open competition.

Total R&D spending amounted to 3.5 per cent of Finland’s GDP in 2003, well above

the overall 3 per cent EU target for 2010. About 70 per cent of R&D spending is

financed by the private sector. In the NRP, the Finnish government announces a

target of raising total R&D spending to 4 per cent of GDP by the end of the decade.

Public spending on R&D is projected to increase by 5-7 per cent each year over the

same period. This commitment to research is not fully reflected in the country’s

performance in terms of creating innovative products and services. The NRP sets out

plans to continue the process of strategic prioritisation in the allocation of research

funding, as well as stronger focus on the international dimension of the research and

innovation system. The NRP aims simultaneously at increasing excellence in cutting

edge technological research and broadening innovation policy to the service sector.

The rate of business start-ups in Finland is significantly below the EU average,

though the procedures and time required to set up businesses in Finland are already

quite favourable by international standards. Furthermore, too few firms grow into

medium-sized or large enterprises. To promote entrepreneurship and a favourable

10.

11.

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business environment, the NRP refers to a forthcoming national action plan for better

regulation and to the existing entrepreneurship policy programme. The proposed

steps to reduce further the administrative cost for private businesses are promising.

The reform of corporate and capital income taxes in 2005 and the ending of property

tax from 2006 also appear to have potential to improve the environment for

entrepreneurship and SMEs. The government also plans to invest an additional 11.5

million euro in a new type of venture capital fund.

12.

To facilitate the spread and effective use of ICT, several measures are presented,

such as the launch of programmes to promote the uptake of ICT in SMEs and

increased broadband availability. The NRP presents plans for promoting the

environmental technologies and includes a commitment to reform tax structures with

a view to promoting sustainable development.

In view of the opportunities and challenges increased globalisation presents for its

leading industries, the reform of the research and innovation system and the increase

in investment set out in the NRP are appropriate and of strategic importance for

Finland, even in the light of its existing strong performance in these areas. The better

regulation, ICT and environmental measures are also potential sources of jobs and

growth. Some of the other micro-economic policies proposed in the NRP are not set

out in a way detailed enough to allow a comprehensive assessment of their potential

impact. For example, it is not wholly clear how extensive the effect of the measures

proposed to boost competition will be.

13.

Employment policies

14.

The NRP identifies extending working life, improving the incentives of tax and

benefit systems, wage formation and improving the balance between labour demand

and supply as key employment priorities. The focus is on increasing labour supply at

both ends of the working age population. The Commission shares this point of view.

To attract and keep more people in employment, Finland focuses on the retention of

older workers in the labour market. The employment rate among older people has

increased rapidly in recent years, and recent pension reforms should contribute to

further increases in the average exit age. Nevertheless, the effectiveness of the

pension reforms needs careful monitoring and more measures may prove necessary

to remove remaining disincentives to stay in work. Measures for preventing

exclusion, especially of young people, as well as for “making work pay” through

developing the tax and benefit system have been strengthened in the 2006 budget

proposal. The decentralised implementation of active labour market measures

through the labour force service centres is appropriate and can help reduce structural

unemployment and meet employer demand for skills, though it will need to be

closely monitored to ensure effective delivery. Limited attention is given to

employment-based immigration in the Programme as the Government is currently in

the process of adopting a new immigration policy programme.

The NRP acknowledges that improving working conditions is an important

precondition for further increases in productivity and the employment rate.

Comprehensive programmes are being implemented to this end. Finland has a well-

balanced and targeted approach to lifelong learning and has already achieved the EU

benchmarks on education and training. Tackling early school leaving remains a key

15.

16.

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priority. An overall target for the proportion of working age people participating in

training is set at 60 per cent by 2008, compared to 54 per cent in 2000. To maximise

the effect of this, more attention may need to be paid to workers with lower

educational levels. In order to promote the occupational mobility of an ageing

workforce, further measures could be taken on "learning at work" methods, as well

as on the recognition of qualifications and competencies.

17.

The employment measures proposed in the NRP are likely to make an important

contribution to increasing the labour supply and reducing structural unemployment.

However, to reach the ambitious 75% employment rate target by 2011, further

measures need to be considered to encourage older workers to stay longer in

employment and to integrate immigrants and disabled people into the labour market.

ART

III: C

ONCLUSIONS

18.

In line with the Integrated Guidelines, the Finnish National Reform Programme

identifies and responds to most of the main challenges facing Finland, namely three

medium-term challenges: the sustainability of public finances, improving

competitiveness and productivity and improving the functioning of the labour market

and a target of attaining balanced central government finances by 2007. However,

increasing competition, particularly in services markets, is an important challenge for

Finland which is only partially addressed in the programme. Overall, the NRP is

coherent and sets out ambitious yet achievable objectives and a range of concrete and

appropriate policy measures to build on the recent successes of the Finnish economy.

The NRP includes fairly comprehensive information on timetables, targets and

budgeting. The broad debate organised with stakeholders to discuss Finland’s

globalisation strategy and the resulting sense of ownership is likely to pay dividends

in the implementation phase

The programme’s strengths include:

•

the sense of urgency with respect to the sustainability of public finances;

•

the set of measures to promote entrepreneurship and improve the business climate;

•

the ambitious R&D investment target of 4% by 2010 and the move towards

stronger specialisation of research and a wider application of innovation, in

particular in the service sector.

21.

Among the points requiring further attention are:

•

increasing competition in service markets;

•

further initiatives to keep older workers longer in employment.

22.

Taking due account of the above, Finland is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Finland has dealt with the issues mentioned in paragraph 21. In

this context, the Commission looks forward to discussions with the Finnish

authorities as part of the new partnership for growth and jobs.

19.

20.

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ART

IV: S

TATISTICAL GRAPHS AND DATA

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FINLAND

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

111.5 113.6 113.2 112.7 111.7 112.8

108.6 110.1 109.4 108.4 107.4 108.5

66.4

39.0

3.21

67.2

41.6

3.38

68.1

45.7

3.38

86.5

68.1

47.8

3.43

86.2

67.7

49.6

3.48

85.2

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

67.6 70.0 (2007)

50.9

3.51

84.6

4.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

86.8 87.8b

124.3 123.0 122.8 124.4 125.9 122.9p

16.6

11.0

6.7

3.0

102.9

17.1

17.6

16.0

11.0

6.7

2.3

15.3

15.8

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

11.0 11.0b

6.8

2.8

7.0

2.5

11.0 11.0b

6.1

2.3

5.5

2.1

91.3

99.7 107.6 109.7 121.5

276.0 260.1 263.8 272.2 280.7

97.6

99.3

94.2

95.1

91.4

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

180

200

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

180

200

1999

2000

2003

2004

EU targets

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France

Après une période de faible croissance au début des années 2000, l’activité

économique s’est sensiblement redressée en 2004 mais a progressé sur un rythme un

peu moins rapide en 2005. Depuis 2000, la croissance de l’économie française est

supérieure à celle de la moyenne de l’Union européenne (UE25). La croissance de la

productivité du travail par tête se situe juste en dessous de la moyenne européenne

sur les dix dernières années. En revanche, la progression de la productivité horaire

est supérieure à celle de la moyenne européenne. Le PIB par habitant s'élève à 110%

de la moyenne de l'Union européenne en 2004. Au cours des deux dernières années,

le taux d'emploi (63,1% en 2004) n’a que faiblement progressé, mais il est en

augmentation de 1 point par rapport à 2000.Le taux de chômage est resté à un niveau

élevé (9,6% en 2004). Cette situation a contribué à dégrader davantage la position

budgétaire de la France, déjà mise à mal par le triplement du taux d'endettement au

cours des vingt dernières années.

ARTIE

I - E

VALUATION GLOBALE

Le programme national de réforme (PNR) de la France est construit sur un concept

de « croissance sociale » et identifie trois priorités principales: créer les conditions

d'une croissance économique forte ; réduire le chômage et élever les niveaux

d'emploi ; construire une économie de la connaissance. Il met l’accent sur la

nécessité d'assainir les finances publiques, sur le retour à l’emploi et sur le

renforcement de la compétitivité des entreprises. La Commission partage le choix de

ces priorités, tout en notant que les aspects liés à la concurrence et à l'ouverture des

marchés sont peu abordés dans ce programme.

Le PNR se présente comme un document de politique générale, mettant l'accent sur

les trois priorités françaises, sans référence explicite aux lignes directrices

européennes pour la croissance et l'emploi. Celui-ci met l'accent sur les actions déjà

entreprises ou décidées en matière de finances publiques, de politique d'emploi, de

politique industrielle et de politique d'innovation et de recherche. Beaucoup de ces

actions semblent pertinentes et susceptibles de créer une dynamique réelle.

Toutefois, le PNR ne lève pas les incertitudes sur l’objectif préalable de réduction du

déficit public. L'articulation des mesures entre les différents domaines ne semble pas

toujours établie et le PNR ne fournit pas d'informations sur leur financement par le

budget national, ni sur l'utilisation des fonds structurels européens. Le PNR fixe des

objectifs en matière de déficit public et de dette publique mais ne fixe pas d'objectifs

quantitatifs pour l'emploi et l'investissement dans la recherche et le développement.

Le manque d'objectifs quantifiés, d'évaluations d'impact et d'informations plus

détaillées sur les conditions de mise en œuvre de certaines mesures limite le caractère

prospectif et opérationnel du programme.

Des efforts pour assurer la consultation des acteurs concernés ont été faits, mais ils

doivent être renforcés dans le but d’améliorer l'appropriation du document. Le PNR a

été élaboré par un travail interministériel, coordonné au niveau technique par le

secrétariat général pour les affaires européennes, rattaché au Premier ministre et

validé par le Comité interministériel sur l’Europe. Il a fait l’objet d’une discussion en

commission parlementaire mais n’a pas pu profiter d’une couverture médiatique

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spécifique. Il a été présenté aux partenaires sociaux et certaines de leurs observations

ont été intégrées dans la version finale du document. Un suivi au niveau du Conseil

économique et social est prévu pour l’ensemble de la durée couverte par le PNR.

ARTIE

II - E

VALUATION DES POLITIQUES

Politiques macroéconomiques

Le PNR fait de la consolidation des finances publiques un préalable à une croissance

durable, en lien notamment avec les défis posés par le vieillissement démographique.

Il fixe un objectif de solde des administrations publiques compris, selon les scénarii

de croissance, entre – 1,4% et + 0,1% en 2009. Le programme souligne que cette

consolidation des finances publiques doit aller de pair avec l'élévation du potentiel de

croissance de l'économie française, grâce à l'augmentation des niveaux d'emploi et la

diffusion d'une économie de la connaissance. La Commission partage ce choix de

priorités.

Afin de consolider la situation des finances publiques, le PNR confirme l'approche de

rigueur budgétaire de la France, qui s'articule autour des axes suivants : une

progression de la dette inférieure à celle de la richesse nationale, grâce à un effort

continu de réduction des déficits publics ; une poursuite de la maîtrise des dépenses

publiques, notamment en amplifiant l’effort de l’Etat au-delà de la stabilité en

volume de ses dépenses en 2007; une modernisation du cadre réglementaire des

finances publiques devant permettre une meilleure gestion des dépenses publiques ;

la poursuite des réformes en matière de protection sociale. A court terme, la montée

en charge de la réforme de l’assurance maladie et la diminution des dépenses

d’assurance chômage sont censées contribuer au redressement budgétaire, en dépit

d'une hausse des dépenses des collectivités locales.

En ce qui concerne le lien entre protection sociale et finances publiques, le

programme présente des objectifs chiffrés pour la réforme des retraites, tandis que

l'impact des réformes du système de santé reste plus imprécis. Ces réformes vont

dans la bonne direction même si elles sont probablement insuffisantes, à elles seules,

pour assurer la viabilité à long terme des finances publiques.

Globalement, l’approche mise en avant dans le PNR n'est pas nouvelle et s’inscrit

dans l’effort français de réduction du déficit public engagé ces dernières années, en

lien notamment avec l’ouverture d'une procédure européenne pour déficit excessif.

Toutefois, si les objectifs sont clairs, la Commission estime que des mesures

supplémentaires sont nécessaires pour garantir la correction du déficit excessif de

façon permanente. Il est vrai que le récent engagement politique concernant la

réduction de la dette va dans le bon sens. La conférence des finances publiques

visant à sensibiliser tous les acteurs publics à la nécessité du partage de la contrainte

budgétaire en est une bonne illustration.

Politiques microéconomiques

Le PNR met l'accent sur l'amélioration de la compétitivité des entreprises. Il insiste

notamment sur le renforcement de la recherche, le soutien à l'innovation et aux PME.

La Commission partage globalement cette approche, tout en notant que les aspects

liés au marché intérieur sont peu détaillés. Le PNR fait également état de mesures

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prises en matière d’environnement, de changement climatique et d’efficacité

énergétique.

10.

En matière de recherche et d'innovation, le programme vise à accroître

l’investissement privé dans la R&D et l’efficacité de la recherche publique, ainsi qu'à

soutenir la diffusion de l'innovation dans l'économie. Le programme présente une

série d’actions positives visant à rendre l’évaluation de la recherche publique plus

systématique et à renforcer la coopération avec les entreprises. Le programme aurait

toutefois gagné à être plus détaillé en ce qui concerne la réforme de la recherche

universitaire, pour laquelle une projet de loi est en cours de discussion En matière

d'innovation, le PNR annonce plusieurs projets ambitieux : agence de l’innovation

industrielle, création de 67 "pôles de compétitivité", mise en place d'une structure

visant à favoriser l'accès des PME à l'innovation. Ces propositions constituent un

socle solide pour le soutien à l’innovation et le développement d'une politique

industrielle dans les années à venir. La multitude des acteurs et des mécanismes

impliqués pose la question de leur bonne coordination Le PNR prévoit aussi des

mesures dans le domaine des TIC visant l’amélioration de l’accès au haut débit, de la

sécurité des réseaux et de l’administration électronique.

Afin de soutenir le développement des PME et d'améliorer l'environnement

réglementaire pour les entreprises, le PNR présente certaines mesures ayant pour but

une simplification du droit du travail, un allègement de la fiscalité, de meilleurs accès

au financement, la diffusion des technologies de l'information et de la

communication, des mesures d’aménagement du territoire et le développement

d'infrastructures de transport et d’énergie. Le PNR gagnerait à être précisé pour ce

qui touche à l’amélioration de la « qualité de la législation ». Cela concerne les

politiques, les structures et les outils qui pourraient être mis en œuvre pour réduire et

simplifier la législation, évaluer plus systématiquement l’impact des nouvelles

initiatives ainsi que la diffusion de bonnes pratiques réglementaires au sein de

l’administration.

En ce qui concerne la concurrence et l'ouverture des marchés des industries de

réseau, le PNR se limite essentiellement à un constat juridique concernant le respect

des directives européennes. Le PNR aborde peu les autres aspects liés à la

concurrence et à l’ouverture des marchés, tels que la question des professions

réglementées ou encore l’approfondissement du marché intérieur. En revanche, des

avancées ont été apportées en matière de concurrence dans le secteur du commerce et

dans le secteur bancaire et des réformes sont également annoncées en matière de

protection des consommateurs.

Globalement, le PNR français reprend à son compte des mesures récentes et

relativement fortes en matière de recherche, d'innovation et de politique industrielle.

Il est encore trop tôt pour évaluer les effets de ces mesures et juger de leur efficacité

dans la durée. Un enjeu particulier concerne la bonne articulation de ces dispositifs

afin de limiter les risques de superposition et/ou d'éparpillement des moyens même si

ceux-ci s’inscrivent dans un schéma d’ensemble. Par ailleurs, le PNR s’avère moins

détaillé et plus prudent sur les questions relevant du marché intérieur.

11.

12.

13.

Politiques d'emploi

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14.

Les priorités du PNR sont centrées sur le développement de la demande de travail

par la poursuite d'une politique d'allègement des charges sociales, l'augmentation de

l'offre de main-d'œuvre via des politiques de retour à l'emploi et des réformes du

fonctionnement du marché du travail. La Commission partage ce choix des priorités

mais regrette que les aspects liés à l'investissement dans le capital humain ne soient

pas abordés de manière plus explicite.

La France se caractérise par un taux de chômage relativement élevé et par la faiblesse

de ses taux d’emploi aux deux extrémités de la pyramide des âges. Afin d'attirer et de

retenir davantage de personnes dans l'emploi, le PNR insiste sur le renforcement des

incitations financières à la reprise d'un emploi, le développement de contrats aidés,

l'activation des revenus d'assistance, un accompagnement renforcé et une

responsabilisation accrue des demandeurs d'emploi. Sur ce dernier point la France a

mis au point un mécanisme de suivi, assorti de sanctions. L'insertion des jeunes

constitue une priorité particulière et le PNR met également l'accent sur la prévention

de l'échec scolaire et l'élargissement de l'accès à l'apprentissage. L'accent mis sur

l'insertion de groupes cibles en difficulté représente une inflexion par rapport aux

années précédentes. Ces mesures vont dans le bon sens. Il sera également important

d'assurer la cohérence entre ces mesures et les évolutions futures des règles relatives

à l'assurance chômage et aux minima sociaux. En ce qui concerne l'emploi des

travailleurs âgés, la France a engagé une politique de réformes pour améliorer le

maintien et le retour à l’emploi des personnes de plus de 50 ans. Le programme

privilégie la voie du dialogue social et annonce un plan d'action concerté entre l'Etat

et les partenaires sociaux. Le détail des mesures doit encore être précisé suite à la

concertation avec les partenaires sociaux. Le développement d'une stratégie globale

pour l'emploi des seniors reste un défi essentiel pour la France.

Concilier capacité d'adaptation des travailleurs et adaptabilité des entreprises est un

enjeu particulier pour la France, qui se caractérise par une segmentation forte du

marché du travail entre personnes dans l'emploi et personnes en situation de précarité

professionnelle. Dans ce contexte, le PNR met en avant l'instauration du contrat

nouvelle embauche (CNE) visant à favoriser le recrutement dans les entreprises

comportant jusqu’à vingt salariés. Une évaluation du CNE est prévue fin 2008. Parmi

les autres enjeux prioritaires pour la France, le PNR n'aborde qu'indirectement la

question de l'anticipation et de la gestion des mutations économiques. Par ailleurs, le

programme ne présente pas d'évaluation de l'impact sur l'emploi et la productivité de

certaines mesures d'une importance particulière, comme la diminution des charges

sur les bas salaires et l'assouplissement de la législation sur le temps de travail.

En dehors des éléments concernant l'accès des jeunes au marché du travail, le PNR

pourrait être plus complet sur la nécessité d'investir davantage dans le capital

humain. Des mesures récentes ont été annoncées qui vont dans ce sens. Sur ce point,

le PNR renvoie essentiellement à des mesures consacrées à l'égalité entre hommes et

femmes, à la santé au travail et à la lutte contre l'exclusion et contre les

discriminations. Augmenter l'accès à la formation tout au long de la vie reste un

enjeu pour la France, notamment pour les personnes les moins qualifiées et les

travailleurs âgés. De ce point de vue, la mise en œuvre de la loi sur la formation

professionnelle tout au long de la vie pourrait être davantage développée dans le

PNR.

15.

16.

17.

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18.

Le PNR présente un ensemble de mesures visant à répondre à certains problèmes

caractéristiques du marché du travail français. Un accent nouveau est mis sur les

personnes en difficulté, notamment les jeunes. La montée en charge de mesures

actives et de contrats aidés devrait contribuer à réduire le chômage à court terme.

Toutefois, la portée, la cohérence et l'impact des politiques d'emploi sont difficiles à

évaluer à partir du PNR. Il est à espérer que le dialogue entre partenaires sociaux

aboutisse à une avancée significative sur la question de l'emploi des travailleurs âgés.

ARTIE

III - C

ONCLUSIONS

19.

Dans l’axe des Lignes directrices intégrées, le programme national de réforme

français identifie et répond à un grand nombre des défis majeurs auxquels la France

est confrontée, notamment créer les conditions d'une croissance économique forte ;

réduire le chômage et élever les niveaux d'emploi ; construire une économie de la

connaissance. Il met l’accent sur la nécessité d'assainir les finances publiques, sur le

retour à l’emploi et sur le renforcement de la compétitivité des entreprises. Il

n’aborde que partiellement les questions importantes de la concurrence et de

l'ouverture des marchés et du renforcement du capital humain. Le PNR présente

plusieurs réformes et actions positives qui pourraient cependant être précisées

davantage en termes de la quantification et réalisation des objectifs. Le programme

profiterait également d’une articulation plus cohérente entre les différents domaines

traités.

Le PNR gagnerait à être clarifié au niveau de l’articulation avec les lignes directrices

européennes pour la croissance et l'emploi, ainsi que sur le plan des moyens

d’évaluer la portée exacte d'un certain nombre de mesures et de l’allocation des

ressources budgétaires mis à disposition pour les mettre en œuvre.

Parmi les points forts du programme sont:

•

l’accent donné à l’emploi des jeunes;

•

la mise en place d'une politique volontariste en matière d'innovation, notamment à

travers le développement de "pôles de compétitivité".

22.

Une attention supplémentaire sera nécessaire pour:

•

assurer une correction permanente du déficit public;

•

renforcer les initiatives visant l'amélioration de la réglementation et la promotion

de l'ouverture des marchés, notamment celui des industries de réseau;

•

renforcer les stratégies intégrées dans le domaine de l’emploi, y compris en ce qui

concerne la segmentation du marché de travail, l’adaptabilité des travailleurs et

des entreprises et l'emploi des seniors.

23.

La France est invitée à prendre ces éléments en compte et à mettre en oeuvre le PNR

avec vigueur. Le rapport de progrès sur la mise en œuvre du PNR en 2006 devrait en

particulier prendre en considération la manière dont la France a abordé les points

mentionnés sous le paragraphe 22 ci-dessus. Dans ce contexte, la Commission sera à

20.

21.

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la disposition des autorités françaises afin de tenir des discussions dans le cadre du

nouveau partenariat pour la croissance et pour l’emploi.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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FRANCE

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

114.1 114.2 114.5 112.7 111.8 109.8

123.5 122.9 123.2 121.2 120.9 119.6

60.9

28.8

62.1

29.9

62.8

31.9

2.20

81.8

63.0

34.7

2.23

81.7

63.3

36.8

63.1

37.3

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

2.16 2.15b

80.0

81.6

2.18 2.16p

80.9

79.8

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

109.4 107.0 105.5 106.1 105.8 108.0p

15.8

15.0

7.1

4.1

99.6

16.3

16.4

15.7

12.0

8.0

3.1

97.5

15.6

15.9

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

16.0 13.0b

6.9

3.5

98.7

8.3b

3.0

99.3

12.0 14.0b

7.2b

3.7

98.1

7.1

3.9

92.8

191.0 186.6 188.3 186.1 187.6

103.3 100.0

96.8

94.6

92.4

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Germany

Real GDP growth in Germany averaged 2 % over the period in 1996-2000, but has

fallen to half that rate since then. Over the last decade, labour productivity growth

has been slightly above the EU average, and has been improving in recent years.

GDP per capita stood at 109 % of the EU average in 2004. The employment rate

stands at 65 % of the working age population. The employment rate of older workers

(in 2004 at 41.8 %) is slightly above the EU average, but significantly below the

Lisbon target (50 %). Unemployment rose by 0.5 percentage points to 9.5 % in 2004.

ART

I: G

ENERAL

SSESSMENT

The German National Reform Programme (NRP) identifies six key challenges: the

knowledge society; market functioning and competitiveness; business environment;

the sustainability of public finances (including sustainable growth and social

security); ecological innovation; and the re-orientation of the labour market. The

Commission largely shares the analysis of the main priorities, but considers that a

stronger response is needed regarding competition in services.

The NRP provides a coherent and integrated strategy to address the challenges

identified. However, in many cases, as a result of the limited time-span between the

constitution of the new government and the required submission of the NRP, the

programme tends to present intentions without providing further detail regarding

goals, funding, and timetables. The programme would also benefit from a clearer

prioritisation among the main challenges in each policy area. It presents a national

R&D target for 2010 of 3 percent of GDP, compared to 2.5 percent in 2004. It does

not set a target for the employment rate. The role of the structural funds is only

described in passing. The plan to reduce the number of laws requiring co-decision by

the

Bundestag

and

Bundesrat

has the potential to facilitate future reforms.

The drafting of the NRP has been coordinated by the chancellor’s office. The NRP

recognises that, owing to the recent formation of a new government, efforts to

develop ownership of the document have been rather limited. It presents a firm

commitment by the authorities to involving all stakeholders much more closely in the

period ahead. The Commission recognises that the German NRP was produced under

special circumstances, preventing a stronger involvement of stakeholders and

constraining a more detailed elaboration. While the

Länder

contributed to the

drafting,

Bundestag

and

Bundesrat

were not formally consulted. Parliamentary

groups, local authority organisations and social partners received the document for

information.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

In the area of macro-economic policy, the programme identifies sustainability of

public finances (including sustainable growth and social security) as the key

challenge.

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The NRP envisages reducing the overall fiscal deficit from 3.7 percent of GDP in

2004 to below 3 percent by 2007 and reaching structural balance afterwards. The

planned measures include the phasing out of tax allowances from 2006 and raising

the VAT rate by three percentage points in 2007. Part of the related revenue increase

will be used to lower non-wage labour costs. The measures envisaged seem sufficient

to reach the deficit target. However, the consolidation effort by the

Länder,

which

are responsible for about half of the overall fiscal deficit in Germany, remains vague.

The NRP sets out to improve the quality of public finances by shifting from

consumption to investment on the expenditure side and from direct to indirect

taxation on the revenue side. This approach is appropriate in the context of the

overall fiscal strategy. However, the breakdown of the intended quality shift in terms

of broad budget items and timelines is not provided. Questions remain whether the

envisaged reduction in the contribution rate to unemployment insurance can be partly

funded as intended by efficiency gains in its administration. Further reforms in the

pensions system, such as the increase in the statutory retirement age, are also

intended to underpin long-term fiscal sustainability. On health, the NRP announces a

future reform of financial instruments without giving details. The reform aims

primarily at reducing non-wage labour costs. Moreover, statutory long-term care

insurance will be adapted to demographic changes by introducing elements of a

funded scheme.

The NRP sees the consequences of unification as a main obstacle to higher growth in

Germany. It recognises that the catching-up process of the eastern

Länder

was

accompanied by high unemployment and a review of regional policy is deemed

appropriate. A thorough analysis of the situation is, however, not provided in the

NRP and it does not substantiate how the already legislated transfers to the eastern

Länder

until 2019 can be used more effectively.

The macro-economic key challenge identified in the NRP is appropriate against the

background of fiscal developments in recent years. The choice of priorities in this

regard is shared by the Commission. If fully implemented, the proposed measures

will make a significant contribution to addressing the key challenge.

Micro-economic policies

10.

In the area of micro-economic policy, the programme presents the key challenges of

knowledge society; market functioning and competitiveness; business environment;

and ecological innovation.

Focusing on Germany’s strong international position with regard to R&D and

innovation, the NRP proposes efforts to enhance further this comparative advantage

by extending the knowledge society. The importance of strengthening the systems of

education and life-long learning is recognised in that context. The R&D investment

target (3% of GDP by 2010) is ambitious, given the stagnation in R&D spending in

recent years. However, recent initiatives provide substantial additional public

funding until 2011 to promote excellence in universities and large public research

organisations. Regular evaluations of subsidised research will help ensure proper

targeting of public R&D spending to sustain the leverage effect on private R&D. The

policy mix and the strong involvement of stakeholders bode well for the

effectiveness of the strategy. The intention of the

Länder

to support closer

11.

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cooperation between science, research, and businesses, if followed up by appropriate

measures, is likely to reinforce existing synergies. Timing and funding of the

measures envisaged in that regard are, however, not specified. The measures

announced for innovation and ICT to improve incentives for inventions and provide

support for their marketing will help sustain Germany’s strong innovative capacity.

However, the lack of detail regarding the proposed measures in this area makes their

full evaluation difficult.

12.

To improve the business environment through better regulation, the NRP envisages a

substantial reduction in the number of federal laws on the books. The proposed

systematic use of the standard-cost model should help reduce administrative costs for

businesses. The creation of an independent federal monitoring institution for impact

assessments and the intention of the

Länder

to introduce such systematic assessments

are important steps in the right direction. However, the crucial function of

municipalities in this context is not mentioned. The envisaged reduction in reporting

requirements for SMEs, the creation of a web-based, one-stop agency for start-ups,

and entrepreneurship education at all levels, are particularly promising for

enhancement of the business environment. The financing instruments for SMEs

described in the programme are suitable to strengthen framework conditions. A more

competitive corporate tax system is announced for 2008, albeit without details. The

switch to degressive subsidies with firm expiry dates will enhance subsidy

efficiency. On infrastructure, the NRP outlines a programme to improve the

efficiency of transport systems. Simplifying regulations on infrastructure planning

will accelerate respective policy measures. On corporate governance, the NRP

broadly describes measures already taken to enhance transparency and investor

protection, while preserving the system of co-decision.

The NRP recognises the need to improve market functioning further. The new

structure of the federal regulatory office is designed to achieve this in the area of

network services. The intention to exempt investment in broadband networks from

regulatory interventions for an unspecified period, in order to create investment

incentives, raises regulatory and competition issues, which need to be checked on a

case-by-case basis by the competent European and German institutions. Reforming

the regulation of intensely regulated professional services, beyond what was partly

achieved in the craft sectors, is not mentioned. On public procurement, where

competition is limited, only general intentions for reform are announced.

Furthermore, the NRP aims to increase the competitiveness of specific sectors

through targeted R&D subsidies and the support of information networks.

Energy efficiency and security, as well as innovation in environmental technologies,

are the components of the response to the key challenge of “ecological innovation”.

The strategy to achieve the clearly defined objectives in this area appears solid. It is

closely linked with objectives and strategies for R&D and innovation. Ongoing and

new measures aim to provide economic incentives for technological modernisation in

industrial energy production and use. Targets are set for upgrading the energy

efficiency of housing, the share of renewable energy in total consumption, and of

biological fuels in transport. The commitment to the existing target for the reduction

in greenhouse gas emissions is reaffirmed.

The programme addresses all relevant areas of micro-economic policies except

competition in services. Addressing the key challenges decisively still promises to

13.

14.

15.

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contribute to enhancing the growth potential of the German economy. The proposed

measures are generally relevant to the challenges. However, in many cases, only

intentions are presented.

Employment policies

16.

The NRP focuses on the education system and lifelong learning in the context of

promoting the knowledge society. It calls for adapting the labour market to the

demographic challenge through structural reforms of labour market institutions, an

increase in labour market participation, raising adaptability and employability and

improving the reconciliation of family life and work.

As regards the need to attract and retain more people in employment, the further

implementation of the comprehensive labour market reforms launched since 2002

and their possible adaptation after the evaluation announced in the NPR remains at

the centre of the employment strategy. These reforms can make a substantial

contribution to reducing unemployment. However, overcoming the administrative

and financial difficulties continues to be a major challenge, especially in a context of

budgetary consolidation.

The programme presents ambitious and clear objectives for the integration of young

people into the labour market, such as ensuring that they shall not be unemployed for

longer than three months and securing more apprenticeship places through the

successful National Training Pact. The intention to improve the employment

situation for older workers, among other measures, through an agreement with social

partners, focusing on access to qualifications, appears appropriate in of the light of

demographic trends and the planned increase in the statutory retirement age. The

response to the issue of women’s participation in the labour force appears weak,

given wide gender gaps regarding pay and part-time work. The NRP proposes to

strengthen transfers to families but does not report on progress towards the

announced increase in the number of childcare places. The commitment of

municipalities is crucial in this respect.

With regard to improved adaptability of workers and enterprises, the measures set

out to reduce non-wage labour costs would support the recent favourable trend in

unit labour costs, mainly due to wage moderation. In view of the concentration of

long-term unemployment among the low-skilled, the plans specified to review the

tax/benefit systems and to introduce in-work benefits should be implemented without

delay. The extension of the probationary period from six to 24 months may have a

positive impact on labour demand, but care should be taken that it does not

contribute to further labour market segmentation.

The NRP recognises the need to strengthen school and higher education. The

proposed measures should help to improve the quality of, and access to, education

from early childhood onwards, with a focus on disadvantaged and migrant children.

Their successful implementation, however, depends largely on the commitment of

the

Länder.

The intention to develop continuing education and training into a fourth

pillar of the education system is appropriate and a rapid introduction of the planned

financial instruments is desirable.

17.

18.

19.

20.

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21.

The NRPs priorities regarding employment are ambitious and coherent. More clarity

with respect to policy implementation, including financial and administrative

capacities, and close cooperation with Social Partners,

Länder

and municipalities

will be important for the success of the strategy.

ART

III: C

ONCLUSIONS

22.

In line with the Integrated Guidelines, the German National Reform Programme

identifies and responds to most of the main challenges facing Germany, namely the

knowledge society; market functioning and competitiveness; business environment;

the sustainability of public finances (including sustainable growth and social

security); ecological innovation; and the re-orientation of the labour market, though

competition in services is an important area only partially addressed. Overall, the

NRP sets out a coherent, integrated and appropriate strategy. However, given the

large number of measures included a clearer prioritisation would have been called

for.

The NRP was drawn up under very tight deadlines, given the recent elections. This

makes the limited consultation and degree of detail on objectives, funding and

timetables understandable. The plan to reduce the number of laws requiring co-

decision by the

Bundestag

and

Bundesrat

has the potential to facilitate the adoption

of reforms. The involvement of the

Länder

and of municipalities, particularly with

regard to their responsibilities in policy areas such as better regulation, education,

and R&D, is not always evident from the NRP.

The programme’s strengths include:

•

measures to improve the business environment, such as regular assessment of the

impacts of regulation at regional and federal level, measures to support start-ups

and improve access to finance for SMEs;

•

the approach to promoting “ecological innovation”, for example in the field of

energy efficiency and of environmental technologies;

•

the determined approach to tackling youth unemployment.

25.

Among the points requiring further attention are:

•

improving competition, notably in public procurement, in professional services

and in the provision of broadband networks;

•

a more comprehensive approach to improve the integration of low-qualified

workers, including immigrants;

•

a more concrete and operational plan to achieve the intended increase in childcare

facilities.

26.

Taking due account of the above, Germany is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Germany has dealt with the issues mentioned in paragraph 25. In

23.

24.

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this context, the Commission looks forward to discussions with the German

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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GERMANY

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

114.1 112.5 110.5 109.2 108.9 109.1

103.6 101.8 100.8 100.4 101.0 100.9

65.2

37.8

2.40

74.6

65.6

37.6

2.45

74.7

65.8

37.9

2.46

73.6

65.4

38.9

2.49

73.3

65.0

39.9

65.0

41.8

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

2.52 2.49e

72.5

72.8

3.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

108.5 105.6 107.1 107.5 108.7 106.6p

19.4

11.0

5.5

4.1

81.8

19.7

10.0

5.7

3.7

81.4

18.3

16.6

16.3

15.0

6.0

4.5

81.5

16.0

6.2

5.4

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

11.0 15.0b

6.1

3.7

82.3

5.9

3.9

81.3

163.9 159.7 162.5 158.7 159.5

214.9 208.8 209.7 206.5 209.5

103.7 103.3 103.3 102.2 103.1 107.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Greece

Greece has experienced strong economic growth of 4.4% on average since 1999 with

a labour productivity growth clearly above the EU average. GDP per capita stands at

82% of the EU average (2004). With job creation generally low, the employment rate

(59.4% in 2004) remains far below the Lisbon target, particularly for women and

elderly workers, and unemployment (10.5%) is still high. Greece has a high public

deficit (6.6% of GDP) and the highest public debt ratio in the EU (at 109.3 % of

GDP) (2004 figures).

ART

I: G

ENERAL ASSESSMENT

The Greek National Reform Programme (NRP) identifies key challenges in the field

of public finances, employment, education and lifelong learning as well as in a very

broad range of micro-economic and environmental policy areas. Modernisation of

the public administration is presented as crucial for addressing these challenges and

ensuring sustainable growth of the economy as a whole. The Commission broadly

shares the NRP’s analysis of the main priorities.

The NRP sets out a consistent strategy, backed up by relevant policies and measures,

but more prioritisation would improve the prospects of achieving important reforms

in a timely way. An immediate target is to reduce the budget deficit below 3% of

GDP in 2006, compared to 6.6% in 2004. Ambitious targets are also set for

employment (62.5 %) and unemployment rates (8.4 %) for the year 2008, as well as

for R&D expenditure (1.5% by 2010) and public expenditure for education (5% of

GDP by 2008). The programme presents numerous measures, both on-going and

new, across the macro-economic, micro-economic and employment areas.

Significant attention has been given to the contribution of the European Structural

Funds for the implementation of the NRP, both in the current period and for the

period 2007-2013.

Consultation and efforts to develop ownership of the document have been very

substantial. The NRP was prepared under the coordination of the Minister of

Economy and Finance. It was approved by the government and discussed in the

relevant Parliamentary committees. Its preparation involved extensive consultations

with the social partners. Regional and local authorities, NGOs and civil society were

also consulted. The Greek Economic and Social Committee (OKE) has established

an observatory to monitor the evolution of the reform process set out in the

programme.

ART

II: A

SSESSMENT OF POLICIES

Macro-economic policies

Given the high public deficit and public debt ratio, the programme sets as priorities

to restore fiscal balance in the short-term and to ensure the long-term sustainability

of public finances. The Commission shares this analysis.

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Although it is expected in the programme that the deficit will fall in 2005 and 2006,

it remains unclear in the programme how the government deficit will be reduced in a

sustainable manner below 3% of GDP by 2006 and beyond. The NRP announces

structural measures both on the expenditure side (a 3.5% reduction of government

consumption in nominal terms in 2006) and on the revenue side (fighting tax

evasion, broadening the tax base), as well as a series of interventions to improve

resource allocation and the quality of public finances. However, while the fiscal

consolidation is based to a large extent on permanent measures, the NRP includes

one off measures, such as the sale and extension of concession rights (airport, roads,

casinos). Achieving the target presupposes that the deficit figures for 2004 and

earlier years are not revised upwards and that the increasing co-financing

requirements of the Structural Funds up to 2008 are properly taken into account.

Achieving a more durable fiscal consolidation is recognised as a challenge. The

programme assumes that the expected increase in employment levels - with rather

ambitious targets set in this field - will make an important contribution to sustain

public finances. It also puts forward a number of reforms in the healthcare sector,

such as the introduction of an information system allowing better cost control and the

increased use of public private partnerships. However, the NRP does not present a

comprehensive strategy for reforming the pension system to improve adequacy and

sustainability. Except for in the banking sector, important measures such as reforms

of early retirement, reform of the pay-as-you go system, or the development of the

second pillar, are postponed to a future social agreement, with an imprecise calendar.

The NRP has potential for steering the process of reforming public finances in a

successful direction. However, to the extent that the fiscal consolidation path

outlined in the NRP is partially based on one-off measures, uncertainties remain on

the medium-term deficit reduction and on the path to reduction of the debt ratio.

Given the sharp deterioration of the dependency ratio and the large budgetary impact

of ageing, the slow progress on pension reform is a particular concern.

Micro-economic policies

The Greek NRP includes policies covering the following areas: structural reforms in

product markets to strengthen the business environment, competition and export

promotion; developing the knowledge society; improving capital markets;

environment and sustainable development; regional and social cohesion; and

modernisation of public administration. The Commission subscribes to the objectives

of this very broad range of micro-economic policies but sees improving the business

environment and competition and strengthening R&D and innovation as the first

priorities in making Greece more attractive as a business location and in improving

productivity levels.

The NRP addresses a wide-range of business environment and competition issues.

To reinforce entrepreneurship, the NRP includes support for business start-ups, better

access to finance for SMEs and one-stop-shops. It also seeks to contribute to a more

favourable fiscal environment by reform of corporate taxation and of the investment

incentives regime. The regulatory framework is to be enhanced through various

measures covering issues such as land use planning, industrial zoning, public-private

partnerships, bankruptcy law, e-commerce, independence for competition and

regulatory authorities and a reform of opening hours. The NRP also refers to

10.

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improvements to public procurement and the regulation of public works and the

wider use of impact assessment. The degree of specificity and detail varies across

policy areas. With its bearing on the business environment and better regulation, the

priority given to modernising public administration appears well chosen, although

implementation will be a challenging task.

11.

Most R&D and innovation measures put forward are of a spending nature, to be co-

financed by the European Structural Funds. The programme sets a target to increase

the level of public and private R&D expenditure to 1.5% of GDP by 2010 (from

0.61% in 2003). Some concerns remain as to whether this can be achieved and it is

not clear to what extent measures put forward will prove effective, given the absence

of a global framework for action and the limited absorption capacity of the economy.

In spite of their reliance on the Structural Funds, R&D and innovation initiatives are

not given a high priority in the planning for use of the Funds after 2007.

The programme addresses additional issues relevant to the Greek situation. For

example, it includes action to spread the use of ICT across Greek society, economy

and territory. The NRP presents a number of projects contributing to the ambition to

become a regional energy hub, including the development of infrastructure and

cross-border projects. The NRP also highlights, several, mostly ongoing, measures

on the environment and the sustainable use of resources, although measures on

ETAP and information on future financing of environmental policy are missing. The

NRP does not include structural measures to speed–up implementation of Internal

Market directives. On strengthening the competitive advantages of the industrial

base, only broad objectives and declarations of intent are included.

Overall, the programme addresses micro-economic challenges coherently, although a

more comprehensive strategy for R&D and innovation, addressing institutional

aspects and covering both the private and public sector seems to be missing. Specific

targets, timetables and data on budgetary resources are also scarce. Moreover,

instead of streamlining and simplifying policy development and administration, in

many cases it adds new layers and institutions to existing ones.

12.

13.

Employment policies

14.

The NRP highlights the need to increase low employment rates, in particular for

women, to tackle high unemployment and to develop education and lifelong learning

as central employment priorities. It also seeks to improve the functioning of the

labour market and the adaptability of workers and enterprises. The Commission

shares this analysis of the priorities.

The programme sets out a number of measures to attract and retain more people in

employment, in particular in regions lagging behind. It assumes sustained levels of

economic growth and therefore of labour demand in the years to come. Active labour

market policies are being strengthened to support job-seekers, with significant efforts

to modernise public employment services, including improving identification of

labour market needs. It is still not clear, however, how these services, together with

private operators, will be in a position to deliver personalised services. At the same

time, possible financial disincentives for taking-up a job are being partially

eliminated through employment subsidies granted for registered unemployed people.

However, a more in-depth review of the impact of the tax and benefit system would

15.

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seem appropriate. Measures proposed to address high youth unemployment (26.9%),

reduce gender pay gaps, and to promote older workers' participation would also

benefit from greater clarity. In particular, the programme could be clearer and more

ambitious in responding to the long-term challenge of population ageing, for

example by raising the average exit age as part of a wider modernisation of the social

protection system.

16.

A number of important commitments are made to improve investment in human

capital, concentrating on enhancing the quality of education and increasing

participation in lifelong learning, Particularly important steps are efforts to increase

public expenditure on education, measures to reduce the number of pupils dropping

out of school, the adoption of a new framework law on lifelong learning and skills

development measures in public administration. However, rapid and effective

implementation of the measures proposed will be essential if they are to succeed.

Particular attention will be needed to ensure that education and training cater better

for labour market needs, and that there is better access to training for low-skilled

workers, older workers and for SME staff.

In order to improve the functioning of the labour market and the adaptability of

workers and enterprises, measures are presented to support geographical and

occupational mobility, diversify working time arrangements and promote part-time

work through encouraging it in the public sector and improvements in the regulatory

framework. Policies in other important areas, such as non-wage labour costs,

undeclared work, quality and health and safety at work, are limited or unclear.

Assuming continuing high growth rates and the rapid implementation of reforms, the

NRP sets out ambitious commitments and targets to increase employment. The

employment challenges are addressed by a combination of on-going and new

measures, which will require a sustained commitment to ensure their effectiveness

and realism. Delivering all of these in a relatively short timescale will be a major

organisational challenge and good implementation will be crucial, in particular for

the delivery of personalised services as part of the modernisation of public

employment services, as well as for the reforms of the education and training

systems.

17.

18.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Greek National Reform Programme

identifies and responds to the main challenges facing Greece, namely in the field of

public finances, employment, education and lifelong learning as well as in a very

broad range of micro-economic and environmental policy areas. Modernisation of

the public administration is presented as crucial for addressing these challenges and

ensuring sustainable growth of the economy as a whole. The NRP presents many

appropriate policies and measures, though a strategic framework is not always clear.

The extensive consultation of stakeholders and the planned involvement of the Greek

Economic and Social Committee during the implementation phase will facilitate

putting the measures in the NRP into practice. Nevertheless, delivering the very wide

range of initiatives covered in the NRP within the 2005-2008 period will require a

20.

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strong and sustained commitment. Specific targets, timetables and budgetary details

are provided only for some initiatives.

21.

The programme’s strengths include:

•

strong linkage of the priorities in the NRP with current and future EU funding;

•

the systematic integration of an ICT dimension in sectoral policies.

22.

Among the points requiring further attention are:

•

fiscal consolidation through the use of more permanent measures;

•

ensuring that measures for R&D and innovation cover both financial and

institutional aspects and are part of a consistent strategy involving both public and

private partners;

•

putting into practice modernisation of the public administration;

•

reinforcement of active labour market measures and of education and training

reform.

23.

Taking due account of the above, Greece is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Greece has dealt with the issues mentioned in paragraph 22. In this

context, the Commission looks forward to discussions with the Greek authorities as

part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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GREECE

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

71.1

84.5

55.9

39.3

0.67

78.6

87.0

19.2

21.0

5.2

6.5

71.6

86.4

56.5

39.0

79.3

84.0

19.5

20.0

5.1

6.2

72.8

89.3

56.3

38.2

0.64

80.0

84.5

19.8

20.0

4.3

5.5

76.9

94.7

57.5

39.2

80.7

98.1

58.7

41.3

81.8

96.3

1999

2000

2001

2002

2003

2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

1.5

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

59.4 62.5 (2008)

39.4

: 0.62p 0.58p

80.7

82.2

20.2

81.7

81.9

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

84.5 85.1p

21.5

21.3

20.0

4.1

5.6

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

: 21.0b

3.8

5.3

3.2

5.3

114.1 118.5 119.6 119.6 123.2

262.5 263.6 260.6 258.0 250.1

141.7e

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Hungary

Since the mid-1990s, the Hungarian economy has grown at an average annual rate of

4%, one of the highest growth rates in the EU. Labour productivity growth is also

well above the EU average. However, the budget deficit (5.4% in 2004) will, instead

of declining as foreseen, increase above 6% in 2005. GDP per capita is currently at

60% of the EU average. Following a temporary acceleration in 2003, employment

growth turned negative in 2004 and the overall employment rate has decreased to

56.8%, far below the Lisbon target, while unemployment has increased (6% in

2004), though remaining below the EU average. Low unemployment is however

coupled with a very low rate of activity (60.5% in 2004)

ART

I: G

ENERAL

SSESSMENT

The Hungarian National Reform Programme (NRP) identifies nine main challenges:

reducing the fiscal deficit; R&D and innovation; business environment; competition;

infrastructure; raising the employment and activity rate; improving the labour market

situation of the disadvantaged; reducing regional labour market disparities; and

enhancing human capital through better education & training. The Commission

shares this analysis of the main priorities.

The medium-term strategy presented in the NRP aiming at a continuous catching-up

with EU average GDP per head through robust economic growth and increasing

employment appears realistic, but the level of ambition implied in the programme is

difficult to assess, as in places, the presentation of measures is not fully clear or

concrete. The programme does not fully explain how the reforms in various areas are

integrated and whether there are possible synergies between them. Their overall

coherence across policy areas is not always evident, for example when assessing the

objectives regarding infrastructure investment against the background of aiming also

for fiscal consolidation. The NRP refers to the ambitious employment rate target of

63% by 2010, as set by the Government in 2004. No target for R&D spending by

2010 is specified. For some measures, the NRP highlights support from the

Structural Funds. Given the strong emphasis on development needs, the role of

cohesion policy in the delivery of the “growth and jobs” agenda could have been

more strongly highlighted.

Consultation and efforts to develop ownership of the document have been

substantial. The programme has been formally endorsed by the Hungarian

government. It has been subject to wide consultation with social partners and local

authorities. Furthermore, a consultation conference has been organised for a wide

range of key partners. In addition, the draft was available on-line for comments. The

document was presented to the Employment Committee of the Hungarian parliament.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

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The macro-economic key challenge of reducing the fiscal deficit is a central issue for

the Hungarian economy. The policies and measures proposed are generally relevant

to respond that challenge but they lack detail and quantified estimates of their

impact. A clearer presentation of the integration and the overall coherence of the

proposed measures would facilitate their assessment.

The strategy of ensuring long-term sustainability by complementing a gradual

approach to cutting the fiscal deficit with further progress with healthcare and

pension reforms addresses crucial issues for the Hungarian economy. Coupled with a

planned reform of the tax regime, including a considerable reduction in the VAT

rate, the measures presented seem likely to be effective in contributing to growth and

employment and to improving the business climate. However, the information

provided in this regard is not sufficient to assess fully the consistency of the

proposed measures with the medium-term macroeconomic objectives. The absence

of a clear timeline for achieving budgetary balance and the reduction of government

debt makes it difficult in general to assess the macro-economic strategy.

While the policy objectives, strategies, and measures presented in the programme to

tackle the macroeconomic key challenge can be regarded as a suitable response in

principle, several questions remain unanswered owing to insufficient detail in the

programme. The absence of clear timelines risks undermining the credibility and

effectiveness of the strategy, in particular given the importance of careful sequencing

of those measures envisaged which will have a fiscal impact.

Micro-economic policies

The programme identifies R&D and innovation, the business environment,

competition, and the development of infrastructure as micro-economic key

challenges. The Commission subscribes to these priorities.

The NRP recognises the importance of achieving stronger R&D and innovation and

analyses many problems that need to be addressed in that regard. First is the small

contribution by the private sector to overall R&D spending, which stands at a

comparatively low level of 0.95 % of GDP. Regulatory problems, weak links

between business and research institutions, surprisingly small spillover effects for

innovation from cooperation with foreign companies, as well as the fragmentation of

research activities, are all seen as key factors constraining Hungary’s innovative

capacity. While the R&D and innovation challenge is well presented in its various

dimensions, the corresponding policy response is only in some cases clearly laid out.

The NRP does not set out to a monitoring and evaluation system for the R&D and

innovation strategy. To facilitate the move toward a more knowledge-based society,

the inefficiencies identified in the Hungarian education system need a more concrete

response. The programme fully recognises the importance of spreading the use of

ICTs, but says little on how this objective can be achieved in practice.

Measures presented to improve the business environment in Hungary comprise the

tax reform in 2006, the assessment and reduction of the administrative cost to

enterprises and efforts to achieve better regulation through the introduction of impact

assessments. The NRP recognises the importance for SMEs of better access to

finance, although insufficient detail in the presentation of measures in this area

makes assessing them difficult. The relatively low level of attention paid to practical

10.

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measures to achieve efficient bankruptcy procedures and company restructuring

regulations contrasts with the programme’s clear recognition of the importance of

these issues. Encouraging and supporting entrepreneurship at all school levels

remains an important challenge.

11.

The programme proposes to increase competition in the network industries, where

incumbents’ market shares remain high, and in the case of the gas and electricity

sectors, the switching rate is very low. However, apart from stating the general need

to continue the process of opening markets and to improve the efficiency and

independence of regulatory bodies, policies and implementation measures to achieve

more competition are not specified.

While the NRP identifies the environmental challenges and corresponding budget

allocations, little is said on the steps and timing for putting them in practice. The

programme places a strong emphasis on the development of high-quality

infrastructure, as regional disparities in this field are increasing, limiting the

country’s economic potential and regional competitiveness. The important budgetary

implications of modernising the infrastructure are not addressed very clearly.

The microeconomic key challenges identified are all presented clearly and existing

constraints on increasing potential economic growth in Hungary are analysed in

considerable detail. The strategies, policy objectives, and measures presented to

address these well-understood problems sometimes do not match the analysis in

clarity and detail. This raises questions about their level of ambition and likely

effectiveness.

12.

13.

Employment policies

14.

Raising the low employment and activity rate, improving the labour market situation

of the disadvantaged, reducing regional labour market disparities and enhancing

human capital through better education and training are the four key challenges

identified for Hungary’s employment policies. These priorities reflect well the

country’s needs in this area.

The NRP places strong emphasis on attracting more people to employment and

retaining them. Appropriate principles are laid down for a coherent reform of the

unemployment and social benefits system, with a view to boosting activity through

setting more coherent incentives, for example by making unemployment benefits

conditional on an active job search. Without a comprehensive review of the social

benefits system, including disability benefits, the effectiveness of the proposed

measures remains in doubt. Incentives encouraging active ageing need to be backed

by further measures to limit early retirement and by reducing the flow of new

recipients of disability pensions. Measures to reach the inactive population through

the public employment service by involving municipalities and setting up, with

European Social Fund assistance, an integrated employment and social services

system promise to deliver results. These measures can build on progress already

made with the reduction in employers’ social security contributions. Improving the

health situation of the population and related health care reforms could also

contribute to increasing participation and employment rates. Measures to improve the

situation of people with disabilities and of the Roma population and to reduce

15.

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persistent regional disparities may require stronger coordination and monitoring and

closer cooperation with stakeholders.

16.

The NRP shows the clear determination of the authorities to transform undeclared

work into regular employment through measures instituting strong and coherent

incentives and sanctions. In this respect, linking health service entitlements to

contribution payments made is an important step forward. The measures proposed to

reduce the tax wedge, particularly in the lower income segment, can contribute to

more employment and help combat undeclared work. The impact of recent minimum

wage increases on the levels of low-skill and low-wage employment needs to be

closely monitored.

On enhancing human capital, the lifelong learning strategy adopted by the

government is not described in the programme in enough detail to permit a full

assessment. The measures to reduce the number of drop-outs from school, to ensure

equal access to education, and to adjust education and training systems better to

labour market needs, do not seem to reflect a clear strategic policy approach. The

emphasis placed on upgrading skill levels may fall short with regard to the

particularly disadvantageous labour market situation of low-skilled persons.

Building on the existing national employment strategy, the programme presents a

number of important forward-looking measures aimed at increasing activity. While

the clear focus on this area enhances the likelihood of the measures being effective,

the policy response to the challenges in the area of education and lifelong learning

deserves a similar level of attention.

17.

18.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Hungarian National Reform Programme

identifies and responds to the main challenges facing Hungary, namely reducing the

fiscal deficit; R&D and innovation; business environment; competition;

infrastructure; raising the employment and activity rate; improving the labour market

situation of the disadvantaged; reducing regional labour market disparities; and

enhancing human capital through better education & training. Overall, the medium-

term strategy presented in the NRP appears appropriate given the Hungarian context

of aiming to push GDP rapidly towards the EU average. Nevertheless, the

programme is not fully integrated, in particular with the fiscal stability strategy, and

measures across the different policy areas do not always appear coherent.

The NRP contains a clear presentation of challenges and a frank and thorough

analysis of existing problems and constraints. The wide and transparent consultation

process bodes well for the implementation of the outlined policies. However, in

places, the presentation of measures and particularly their medium-term budgetary

impact could be clearer and more concrete.

The programme’s strengths include:

•

measures to improve the effectiveness of the public employment service and the

intention to set up an integrated system of employment and social services;

•

measures to transform undeclared work into regular employment.

20.

21.

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22.

Among the points requiring further attention are:

•

strategies to ensure sustainable public finances;

•

clearer and more robust measures to enhance competition in network industries;

•

improving the business environment including SMEs’ access to finance;

•

increasing the responsiveness of education and training systems to labour market

needs and upgrading skill levels, particularly for low-skilled persons.

23.

Taking due account of the above, Hungary is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Hungary has dealt with the issues mentioned in paragraph 22. In

this context, the Commission looks forward to discussions with the Hungarian

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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HUNGARY

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

52.0

59.6

55.6

19.4

0.69

85.2

46.8

21.0

9.1

3.3

68.5

53.2

60.9

56.3

22.2

0.80

83.6

48.4

20.2

11.0

9.0

3.0

66.3

56.1 58.4b

64.6 67.1b

56.2

23.5

0.95

84.4

52.0

19.5

11.0

8.8

2.5

68.5

56.2

25.6

1.02

59.6

67.2

57.0

28.9

0.95

60.4

68.6

56.8

31.1

0.89

83.4

1999

2000

2001

2002

2003

2004

100.0 100.0 100.0 100.0 100.0 100.0

63.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

85.8 85.0b

56.9

18.3

10.0

9.4

2.4

66.1

59.0 61.9p

18.8

12.0

8.5

2.4

68.1

19.3

9.4

2.6

91.9

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

642.0 600.5 588.6 579.6 582.0

99.6 97.5b

91.8

86.9

85.4

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

2 9 8 .7

E n e rg y in te n s ity o f th e e c o n o m y

2 7 7 .8

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Ireland

Over the last few decades, Ireland has experienced a rapid increase in real GDP per

capita and employment levels. Labour productivity growth has been well above the

EU average over the last decade. In terms of GDP per capita Ireland was close to the

EU average ten years ago, but now it stands at 138% (2004), the second highest in

Europe. Recent employment growth has been driven by increased participation and,

notably, by immigration from the new Member States, resulting in the employment

rate of 66.3% and the lowest unemployment rate in the EU, at 4.5% in 2004.

ART

I: G

ENERAL

SSESSMENT

The Irish National Reform Programme (NRP) recognises that the overall challenge

now for Ireland is to sustain and improve its recent good economic performance,

based on taking advantage of the opportunities presented by globalisation and the

internal market. The NRP therefore identifies an extensive set of priorities which can

be summarised as: maintain a stable macroeconomic environment; investment in

economic and social infrastructure; improve labour supply; better regulation;

improve R&D, innovation and entrepreneurship; promote social inclusion and

sustainable development. The Commission broadly shares the NRP’s analysis of the

main priorities, but identifies pension coverage as an additional area of concern.

The measures presented in the NRP are based on the current social partnership

agreement: “Sustaining

Progress”,

which will shortly be renegotiated, after which

new policies will emerge. Consequently, very few new policies are for now proposed

in the NRP, which presents existing policies clearly and within the well-established

national strategic framework. Ireland’s national target for investment R&D is 2.5%

of GNP for 2013 - no intermediate targets are given. Neither are formal employment

rate targets specified. The link between use of Structural Funds and the NRP

priorities is not clearly presented, as the role of cohesion policy is mentioned only in

the annex.

Consultation and efforts to develop ownership of the document have been very

substantial, assisted by the fact it is based on building on policies on which there was

a fair degree of existing consensus. The Department of the Taoiseach co-ordinated

the overall preparation of the NRP with the Departments of Finance and Enterprise,

Trade and Employment. An extensive consultation with other departments and

agencies took place. The social partners were consulted in the course of preparation

and the programme was considered in both houses of the Parliament. There were also

bilateral discussions with a number of Member States.

ART

II: A

SSESSMENT BY

OLICY

REA

Macroeconomic policies

The NRP identifies three key priorities in this domain: ensuring macro-economic

stability; prioritising public investment in infrastructure and other growth-promoting

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expenditure; and managing anticipated long-run fiscal pressures, including those

arising from the population ageing. The Commission supports this approach.

The NRP reiterates and reviews ongoing macroeconomic policies, in particular those

aimed at achieving long-term sustainability and quality of public finances, which to

an important extent are based on pension reform. The programme refers to some

existing policy initiatives in the area of pension coverage, recent improvements of

minimum pensions and further steps envisaged to strengthen the incentives to work

longer. However, coverage remains significantly below government targets and

detail is lacking on how Ireland will address the problem of a growing imbalance

between income in work and in retirement. The NRP refers to the preparation of a

new 2007-2013 National Development Plan, which will set out a new strategy for

infrastructure, human capital and R&D investment.

The macroeconomic policies set out largely involve continuing the successful

approach Ireland has taken in recent years and appear sufficient to underpin further

growth and job creation. Attaining the stability-oriented macro-economic objectives

should facilitate the implementation of the structural reforms envisaged. However,

the Commission believes that more attention could be given to the issue of pension

coverage as a key element behind financial and social sustainability.

Microeconomic policies

The NRP identifies several micro-economic priorities: improving competitiveness,

infrastructure, regulation and social inclusion; increasing R&D investment and

efficiency; encouraging greater innovation and entrepreneurship; and sustainable

development. The Commission largely supports the choice of these priorities, noting

however that the NRP does not identify competition in services as a key challenge.

Ireland provides a comprehensive set of measures to consolidate and improve the

competitiveness of its industrial base, but relatively little information is given on the

measures to address comparatively high price levels in Ireland, which tend to

underline the problem of overall competitiveness. Measures to enhance the transport

infrastructure are described, but without references to how they are related to

important ongoing projects. Better regulation measures described in the NRP include

the impact assessment system now in place, the planned simplification exercise and

the creation of a business forum for consultation purposes. Measures to extend and

deepen the Internal Market are clearly addressed and detailed information is

provided. No specific information is given on reform of the regulation of

professional services.

Ireland’s research and innovation policies build on existing measures. A key

initiative mentioned in the NRP is the Science, Technology and Innovation (STI)

Strategy to follow-up Ireland’s 2004 R&D action plan, but no detail on the content

and time schedule of the STI strategy is provided. The action plan’s R&D targets for

2013 are referred to but no intermediate targets are given. Some other individual

R&D initiatives are referred to but insufficient information is provided for their

evaluation. A general analysis and list of on-going policy measures in the annex to

the NRP reflects recent efforts to increase the scale and efficiency of research and

innovation investment over the long-term. The 2005-2007 Enterprise strategy

“Transforming Irish Industry” represents a major effort to address shortcomings in

10.

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innovation performance, for example regarding the creation of start-ups, “incubators”

and innovation centres, as well as the availability of venture and equity capital.

Measures to improve business support services for SMEs with specific focus on key

sectors are presented, but here the NRP would benefit from more clarity and detail.

11.

To strengthen the Irish position in the global information society, the NRP addresses

various areas to stimulate ICT use, but the proposals set out are either rather vague,

for example on e-government and ICT in schools, or already implemented, such as

actions on broadband communication and e-business development.

Concrete measures to support more sustainable production and consumption patterns

as well as green public procurement initiatives, such as financial support for bio fuels

and renewable electricity, are presented. The Irish climate strategy, currently under

revision, will be of key importance in delivering results.

Overall, the NRP identifies a number of important micro-economic policy priorities.

The initiatives in relation to these are largely on-going initiatives and in general are

producing or have the potential to produce good results. More details on new policies

to address bottlenecks in infrastructure and competition in services would be helpful.

Achievement of the relatively ambitious R&D target will depend on maintaining a

high level of R&D investment by foreign subsidiaries and on major increases in

R&D investment by Irish industry. This will require a bigger leverage effect of

public funding on private investment and creation of more extensive linkages

between public research and industry.

12.

13.

Employment policies

14.

Ensuring that the Irish labour force is cost competitive is a key government objective

reflected in the three employment priorities: the overarching priority of higher levels

of employment, improved quality and productivity at work, and social cohesion;

labour supply issues, including tackling inactivity and developing a skill-based

migration system; and developing a highly skilled and adaptable workforce.

In striving to further raise employment rates, against the background of the overall

employment rate target for the EU of 70 % by 2010, Ireland will seek to improve

labour supply through intensified measures to address specific target groups in the

inactive population, to address remaining disincentives in the tax and welfare

systems and to increase female participation. The NRP does not explain how the

provision of affordable, high quality childcare services will be further developed.

Greater integration of vulnerable groups is envisaged, with recent measures to

support the employment of people with disabilities highlighted. The NRP also

mentions the current development of a skills-based migration policy as an essential

element to ensure the sustainability of economic growth.

With regard to adaptability of workers and enterprises, the NRP focuses on the

implementation of the National Workplace Strategy, a promising initiative aimed at

supporting workplace innovation, skills development and work-life balance. Apart

from health and safety in the workplace, relatively little attention is paid to the issues

of quality of work and poverty among employed people. The linkages between

human capital and productivity are not directly addressed, though this issue is

relevant for securing the long-term sustainability of economic growth.

15.

16.

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17.

The problem of improving skills in the labour force is clearly recognised in the NRP.

It indicates that increased investment in human capital will focus on development of

skills relevant both to enterprises and individuals and ranging from improving

general skill levels to targeting more specific sectoral and occupational skills. The

need to improve the position of the low skilled is recognised, though details of

measures addressing this issue, especially with respect to older workers, are not

presented in detail.

The NRP provides a comprehensive approach to reaching its employment objectives,

though a ranking of priorities would be helpful. The measures set out are mostly on-

going and generally sufficient to make good progress. The specific manner in which

inactivity is to be addressed, the enhancement of adult participation in learning and

provision of affordable and improved childcare services could usefully have received

more attention.

18.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Irish National Reform Programme

identifies and responds to most of the main challenges facing Ireland, namely

maintaining a stable macroeconomic environment; investment in economic and

social infrastructure; improving labour supply; better regulation; improving R&D,

innovation and entrepreneurship; promoting social inclusion and sustainable

development, though pension coverage is an important question not fully addressed.

Overall, the NRP takes an integrated and ambitious approach to further reinforcing

factors which have underpinned Ireland’s recent economic success, based on a well-

established national strategic framework.

Details on measures, their objectives and their budgetary implications are incomplete

in some areas, including among others promoting ICT use, improving skills and

enhancing childcare provision. The extensive consultations on the NRP and the level

of existing consensus on many of policies presented in it will be a considerable

advantage as implementation of the reforms proceeds.

The programme’s strengths include:

•

its approach to sustaining macro-economic stability;

•

measures to enhance the quality of industrial development;

•

the emphasis on the need to integrate inactive people into the labour market, to

increase female participation and to address skills development.

22.

Among the points requiring further attention are:

•

ensuring policies on R&D and science and innovation investment are sufficiently

robust to reach the ambitious targets set;

•

more specific measures to address pensions coverage.

23.

Taking due account of the above, Ireland is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

20.

21.

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particular the way Ireland has dealt with the issues mentioned in paragraph 22 here-

above. In this context, the Commission looks forward to discussions with the Irish

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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IRELAND

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

2000

2001

2002

2003

2004

1999

2000

2001

2002

2003

2004

122.6 126.8 129.4 133.5 134.7 137.7

120.5 122.4 124.5 128.5 129.0 130.2

63.3

43.7

1.18

82.0

65.2

45.3

1.13

82.4

65.8

46.8

1.12

84.6

65.5

48.0

1.10

65.5

49.0

1.16

66.3

49.5

1.20

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

83.9 85.3p 85.3p

108.1 111.6 116.0 122.4 126.6 123.1p

20.8

19.0

2.4

20.7

20.0

1.6

18.9

21.0

1.3

18.1

19.2

20.9

21.0

1.6

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

: 21.0b

1.3

1.5

123.9 127.8 131.1 128.6 125.2

187.7 175.1 172.5 166.1 161.7

214.9 208.8 209.7 206.5 209.5

121.2 132.0 125.1 135.0 141.0 147.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

* National target: 2.5% (2013) of the Gross National Product (GNP)

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Italy

Italy’s GDP per capita in 2004 was 103% of the EU average. Between 1995 and

2004, Italian GDP grew by 1.6% per year on average, compared to 2% for the euro

area. During that period the growth of productivity per person employed was also

below the euro area average. In spite of low growth, robust job creation in recent

years has contributed to a fall in the unemployment rate to 8% in 2004, below the EU

average. At the same time, the employment rate, at 57.6% (2004) remains far below

the Lisbon target. Italy has faced a reduction of its international competitiveness and

has a very large public debt.

ART

I: G

ENERAL

SSESSMENT

Italy’s National Reform Programme (NRP) highlights five priorities to boost output

growth and employment: extending the area of free choice for citizens and

companies (by opening up energy and services markets); granting incentives for

scientific research and technological innovation; strengthening education and

training; upgrading infrastructure; protecting the environment. A sixth priority, long-

term fiscal sustainability, is addressed in a separate document (see paragraphs 5 and

6 below). The Commission shares this analysis but also sees general enhancement of

competition in all markets, including through deepening the internal market, as a

major challenge for Italy. Furthermore, the Commission believes that the challenge

of increasing employment rates and reducing regional employment disparities will

indeed benefit from reforms to strengthen education and training, but additional

initiatives should be considered as well. These measures were presented to the

Commission in a separate document.

The Italian programme contains many realistic and valuable measures, most of which

are already planned or on-going. However, the main steps for 2005-2008 are not

always accompanied by timetables or information on monitoring and evaluation

procedures. There is recognition in the NRP of the importance of integration between

micro-economic, macro-economic and employment policies. The programme focuses

largely on the micro-economic area, while macroeconomic and employment policies

are largely covered in the annexes. The estimated total cost of the programme is

€46.5 billion, most of which was already included in the 2005 budget. The remaining

part (€13 billion) is conditional on expected revenues deriving from sales of public

sector real assets in 2006-2008. Seventy per cent of the overall funding is allocated to

infrastructure. The Programme is to some extent coordinated with other policies,

partly covered by the annexed background material. No targets are set for R&D

spending. Cohesion policy, expected to provide a large contribution to achieving the

aims of the Programme, is discussed mainly in relation to the current implementing

period. General references to the possible use of financial resources from the

Structural Funds 2007-2013 are made.

Consultation and efforts to develop ownership of the Italian NRP at government,

administrative and expert level have been substantial. A new internal governance

structure (Comitato Tecnico) was charged of inter-ministerial co-ordination. The

results of a survey of 120 economists were taken into account. Regional authorities

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and social partners had the opportunity to express their views both formally and

informally. The NRP was presented to the parliament after its adoption.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The NRP’s five priorities for action relate mainly micro rather than to macro-

economic policies. However, the programme states that the consolidation of public

finances according to the plans in the economic and financial planning document for

the years 2006-2009 (DPEF)

is to be considered an integral part of the Programme.

Those plans identify long-term sustainability of public finance as a priority, to be

achieved based on the recovery of economic growth, the budgetary effects of the

2004 pension reform and medium-term fiscal consolidation. The DPEF aims to

reduce the general government deficit to below 3% of GDP by 2007 (from 4.3% in

2005) and to reduce the debt-to-GDP ratio from 108% in 2005 to 101% in 2009. This

is primarily thanks to an increase in the primary surplus from 0.6% to 3% of GDP

over the same period. However, the Commission’s analysis is that long-term fiscal

sustainability in Italy would require maintaining a minimum primary surplus of

around 4% of GDP, underpinned by reforms to permanently restrain public spending.

The Italian NRP does not cover pensions in detail but reforms since the early-1990s

have sought to address long-term sustainability by reducing future pension liabilities.

In particular, the 2004 reform, to take effect from 2008, raises the retirement age, and

foresees the development of the “second pillar” (funded pensions). Full

implementation of that reform together with raising employment rates, in particular

of women and older workers, will be important for the pensions system to combine

social adequacy and financial sustainability in future.

In the light of Italy’s high public debt, low potential GDP growth rate and the

expected increase in ageing-related expenditure, the macro-economic strategy and

targets might not prove sufficiently ambitious. In particular, the planning document

does not adequately address the continuing increases in health care expenditure.

However, the approval of the 2006 “Legge Finanziaria” represents, if fully

implemented a further step towards the goals of consolidation of public finances as

stated in the DPEF.

Micro-economic policies

The Italian NRP highlights four micro-economic priorities: R&D, “free choice for

citizens and companies”, infrastructure and environment. It includes various

initiatives to improve the business environment, including better regulation.

However, the programme does not address in full challenges such as strengthening

competition and deepening of the internal market.

Documento di Programmazione Economico-Finanziaria per gli anni 2006-2009 submitted by the

government to parliament on 15 July 2005. The document is available in Italian at:

http://www.tesoro.it/Documentazione/DPEF_2006-2009/DPEF_2006-2009.pdf

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The proposed action to boost R&D includes interesting elements, for example fiscal

measures to make undertaking R&D more attractive for companies. The proposed

reorganisation of the national research system should also over time help to improve

R&D performance, despite limited detail in the programme on cooperation between

Ministries and the regions and on fostering links between SMEs and between

business and the public sector. Research and innovation resources tend to be

concentrated on specific sectoral projects rather than on structural measures with a

potentially broader economic impact. The programme states that the combination of

measures and projects in research and innovation should enable Italy to approach the

3% of GDP goal for R&D spending. A strong commitment to achieving that

objective and the 66% target for the private contribution to R&D expenditure will be

necessary. The programme tackles the most important issues in ICT but without

prioritising fully the measures proposed.

Under the theme of “free choice for citizens and companies” the Italian NRP aims to

increase competition, especially through more open utilities markets (including

energy) and in services, but does not give full details on how these goals will be

achieved. The removal of barriers restricting competition in professional services is

envisaged, even though specific implementation measures are not mentioned in

detail. The programme proposes a series of specific measures to improve the

business environment by improving regulation and public sector efficiency, such as

simplification of existing legislation, a project on the application of the Standard

Cost Model for measuring administrative costs, guidelines for consultation exercises

and increasing the use of impact assessments. These initiatives are likely to

contribute to reducing the burden on businesses. The newly approved framework law

reforming bankruptcy legislation should also encourage entrepreneurs. Provisions for

speeding up and improving the implementation of EU legislation should be specified

in the NRP.

The NRP sets out plans for investment in upgrading road, sea and rail infrastructure

by completing major projects. There are also interesting initiatives to introduce or

improve IT infrastructure in schools, healthcare, tourism and public administration.

The programme would benefit largely from a detailed reference to the regional

dimension. The Trans-European Transport Network projects are at the centre of the

strategic framework for transport policy. Little reference is however made to the

railway network outside TENs, which merits improvements especially in the

Southern Italy.

The fairly strong emphasis on environmental protection in the NRP is not reflected in

the budgetary allocation for 2006-2008. The proposed measures to promote research

and innovation in renewable energy would need to be specified.

The micro-economic chapter of the Italian NRP contains important elements, notably

on boosting research and making the business environment more attractive, which

have the potential to contribute effectively to growth and jobs. The infrastructure

investment set out in the programme should also help the economy to function better.

Overall the aim of the measures proposed constitutes the type of micro-economic

reforms which, in synergy with macro-economic stability and labour market reform,

could reduce Italy’s dependence on traditional sectors, help SMEs to grow and new

businesses to emerge and thus help to tackle the reduction of international

10.

11.

12.

13.

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competitiveness which Italy is facing. Their effective, full and timely implementation

will be crucial to attain such goals.

Employment policies

14.

The Italian programme cites strengthening of education and training as its main

employment priority. Employment is considered as “endogenous” to all the other

priorities in the NRP. Other significant employment-related challenges such as

employment rates significantly below the EU averages and the sharpest regional

employment disparities in the EU are addressed in the annex.

Most of the education and training measures mentioned are already in place. The

NRP covers the 2003 education and training reform (operational as from 2007-2008)

and university reform. There are useful initiatives to support higher education -

particularly in scientific subjects – to ease the school-to-work transition, to reduce

early school leaving and to train civil servants. Further substantial information on the

evaluation and monitoring of reforms, on quality assurance mechanisms to ensure

common standards across regions or on training measures for low-skilled and older

workers should be provided. The overall funding included in the NRP for education

and training is very limited. The key role in employment policy of regions and social

partners could have been better highlighted.

Given its approach (with employment as an endogenous element) the Italian NRP

does not address directly the issue of attracting and retaining more people in

employment. The focus on youth employment, female participation, childcare, active

ageing, integration into work of people with disabilities or active labour market

policies is addressed in the annex, as are certain specific aspects important for Italy

such as flexibility and security, wage developments, geographical productivity

differentials, undeclared work and non-wage labour costs.

As far as employment policy is concerned, the Italian NRP devotes its attention to

education and training. There is cause for optimism over some of the individual

measures proposed, such as the reform in the educational system. However,

significantly more efforts would be certainly needed to boost educational and

training levels up to the EU average, despite some positive trends. As stated, more

information on other employment policies is available in other documents but the

provision of some details in the NRP itself would have allowed a more coherent

analysis of the links and synergies with other policy areas.

15.

16.

17.

ART

III: C

ONCLUSIONS

18. In line with the Integrated Guidelines, the Italian National Reform Programme

identifies and responds to many of the main challenges facing Italy, namely

extending the area of free choice for citizens and companies (by opening up energy

and services markets); granting incentives for scientific research and technological

innovation; strengthening education and training; upgrading infrastructure; protecting

the environment. A sixth priority, long- term fiscal sustainability, is addressed in a

separate document. However, a wider coverage in the NRP of the approach to

increasing employment rates and reducing regional employment disparities would

have allowed it to present a clearer strategy covering all policy areas and the links

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between them. Competition and regional issues are major challenges for Italy but are

addressed only in a limited way in the NRP.

19.

Targets, timetables and details on monitoring and evaluation procedures are often not

provided in the NRP. The distribution of implementing responsibilities between

different Ministries and between central government and regional and local

authorities is not always clear.

The programme’s strengths include:

•

measures to improve the regulatory environment for business, notably reducing

administrative costs and reform of bankruptcy legislation;

•

certain measures aimed at improving educational performance, in particular in

higher education.

21.

Among the points requiring further attention are:

•

further efforts to achieve fiscal sustainability;

•

stronger and more specific measures to boost competition, particularly in network

industries and services;

•

increasing labour supply and raising employment rates, including tackling

regional disparities.

22.

Taking due account of the above, Italy is invited to implement its NRP with vigour.

The 2006 progress report on the implementation of the NRP should cover in

particular the way Italy has dealt with the issues mentioned in paragraph 21. In this

context, the Commission looks forward to discussions with the Italian authorities as

part of the new partnership for grow

20.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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ITALY

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

2000

2001

2002

2003

2004

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

111.0 110.0 109.7e 107.6e 105.5f 103.4f

119.8 118.4 115.5 111.7 108.9

52.7

27.6

1.04

66.3

94.6

16.6

18.0

17.4

6.7

53.7

27.7

1.07

68.8

94.0

17.4

18.0

17.5

6.3

54.8

28.0

1.11

67.0

95.5

17.3

19.0

17.1

5.7

55.5

28.9

1.16

69.1

56.1

30.3

1.14

69.9

107.0

57.6b

30.5b

72.9

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

97.9 102.3 102.7p

17.9

16.7

5.1

16.6

17.0

4.9

16.9

19.0b

15.6

4.0

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

106.5 108.0 109.0 108.7 111.6

190.9 186.9 184.0 184.1 192.6

214.9 208.8 209.7 206.5 209.5

100.9 102.1 100.9e 102.6e 93.4e 104.4be

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

180

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

180

1999

2000

2003

2004

EU targets

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Latvia

Supported by one of the highest productivity growth rates in the EU, real GDP in

Latvia has grown at an annual average rate exceeding 7% since 2000. GDP per capita

rose to 43% of the EU average in 2004, still the lowest in the EU. This contrast with

much slower progress in the labour market – the total employment rate (62.3% in

2004) remains 1% below the EU average and the unemployment rate has only

recently fallen below 10%. Imbalances, as evidenced by high inflation and a wide

external account deficit, persist.

ART

I: G

ENERAL ASSESSMENT

The Latvian National Reform Programme (NRP) identifies five main economic

policy directions: securing macro-economic stability; stimulating knowledge and

innovation; developing a favourable and attractive environment for investment and

work; fostering employment; and improving education and skills. The Commission

shares the NRP’s analysis of the main priorities.

The NRP builds on a number of national programmes already in place. There is in

general coherence between macro-economic, micro-economic and employment areas

but the NRP envisages very ambitious reforms in many sectors. This raises doubts

over whether the ambitions set out are fully realistic. The programme links each

Integrated Guideline to specific measures and, where appropriate, includes the

planned contribution of EU Structural Funds. Some measures are set out in detail,

while others are broader lines for action. Action plans and funding commitments

have been set for most guidelines. National targets are set for 2010 for employment

rate (67%) and for R&D investment (1.5% of GDP).

Consultation and efforts to develop ownership of the document have been

substantial. A clear internal governance structure has been established to ensure

inter-ministerial coordination. The parliament was consulted. Regional and local

government bodies will be responsible for implementing some of the proposed

reforms and participated in debate during the drafting of the NRP. Social partners

and other stakeholders will be involved in the implementation process where

appropriate and were consulted during the drafting process, along with civil society.

ART

II: A

SSESSMENT BY POLICY AREA

Macroeconomic policies

The objective of macro-economic stability is to be reached by meeting four key

challenges: fulfilment of the Maastricht criteria on the government budgetary

position; the introduction of the euro; strengthening fiscal discipline and budgetary

planning procedures; and balancing budgetary discipline with improving social

conditions. The Commission subscribes to these objectives.

Policies for wage developments, pensions and income taxation are described in

detail, but there are in many other cases no clear timelines or analysis of budgetary

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implications. The NRP does not deal with savings-investments imbalances that are at

root of the current account deficit or with the rapid expansion of credit that is

contributing to inflationary pressures. Fiscal policy aims at maintaining a sustainable

budgetary position and achieving a balanced budget position in the long rather than

medium term.

The Commission believes that the macro-economic policy initiatives described in the

NRP could contribute to the sustainable economic development of Latvia.

Microeconomic policies

The Latvian NRP presents two micro-economic priorities: (i) stimulating knowledge

and innovation and (ii) developing a favourable and attractive environment for

investment and work. The Commission’s analysis is in line with this.

The Latvian NRP demonstrates clear ambition to move towards a more knowledge-

based economy by substantially increasing public investment in research and

innovation. To reach the objective for public R&D spending of 1.1% of GDP by

2008, public investments will be increased by 0.15% GDP each year. Many new

R&D measures are presented, though not in detail. The strategic framework seems

incomplete, and specific targets for the results of the various measures are set only in

certain cases. Creating conditions for increased cooperation between research

institutes and businesses is an important part of the policy mix not covered

comprehensively in the NRP. The main instrument to promote industrial research is

the technology agency, which may need to be complemented by other tools in order

to meet the ambitious goals for overall R&D spending. The programme outlines

policies to improve technology transfer through technology/business incubators. A

mechanism is set out for seed capital and promotion of clusters: this seems to be an

effective response to the need for increased co-operation between stakeholders in the

innovation system, though no details are given on the budget and scope of this

measure.

ICTs are mentioned as an important tool to strengthen the knowledge-based

economy. Measures to widen their use are focused on five areas: e-government; e-

learning; development of internet access points; improvement of internet security;

and the extension of broadband infrastructure to remote and rural areas. The

Commission supports this choice of priorities but a more detailed implementation

plan and a more precise budget allocation would be helpful in assessing the likely

results. The NRP presents a general outline of a support programme for patent

applications and protection. Within a context of sustainable growth, the NRP gives a

high priority to the promotion of renewable energy, supported by a limited number of

measures on environmental technology.

Regarding the business environment, implementation focuses on measures to support

SMEs and includes access to finance and support for participation in international

events. The NRP sets out a general outline of a limited number of new measures for

the development of competitive markets. These aim to improve the functioning of the

internal market by stronger market surveillance, promote the free movement of

services, reform public procurement rules, widen use of e-procurement and further

develop e-government. The NRP contains a comprehensive set of measures to

10.

11.

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improve the road and railway infrastructure. However, no details are provided on

energy infrastructure measures.

12.

The programme covers all key micro-economic topics and proposes measures that

are often well focused. Detail on implementation is not always provided. Latvia

would benefit from a more integrated research and innovation strategy to absorb

effectively the planned increase in public investment and to turn it into growth and

jobs. Increased use of market-based instruments in both R&D and environmental

policy may be needed to achieve the objectives outlined in those areas. Measures to

promote entrepreneurship in education could be strengthened.

Employment policies

13.

The Latvian NRP broadens the overarching strategic objectives of fostering

employment and improving education and skills into four key employment

challenges: reducing regional disparities in employment and unemployment;

reducing undeclared work; tackling the high unemployment risk for the young,

persons after child-care leave and people with poor knowledge of Latvian; and

matching education and skills to labour market requirements. The Commission

supports this choice of priorities, which the NRP addresses mostly through

continuing and refining existing policies.

The NRP addresses the marked regional disparities in employment mainly through

supporting business start-ups, infrastructure and geographical mobility. The role of

local governments and social partners, as well as the importance of local employment

plans are highlighted. However, no information is provided regarding the measures

envisaged to address the sharp rural-urban divide.

The NRP provides a comprehensive set of measures to prevent undeclared work and

improve the adaptability of the labour market. The administrative capacity of the

State Labour Inspectorate and the role of the social partners will be reinforced to

ensure compliance with health and safety and labour legislation and to combat

undeclared work. The Commission supports this choice of measures and looks

forward to their effective implementation.

There is a wide range of measures to strengthen labour supply. Measures to attract

more people to the labour market concentrate mainly on registered job-seekers and to

a much smaller extent on the other inactive people who wish to work. The NRP

focuses on policies covering the life-cycle approach, inclusive labour markets and

meeting labour market needs. It lists comprehensive measures to prepare the young

for the labour market and sets out a strategy to promote inclusive labour markets,

including reinforcing active labour market policies, unemployment prevention,

childcare and social services. Measures are foreseen for non-Latvian speakers and

disabled people. The NRP does not place planned increases in the minimum wage in

the context of possible risks to job creation for the low-skilled. Despite the increase

in the tax-free threshold, the tax wedge for the low paid is still high, which

contributes to an unemployment trap. Inflation is eroding efforts to make work pay.

The policy objective to reduce the “at-risk-of-poverty” rate to 11% by 2008 is

ambitious in these circumstances.

14.

15.

16.

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17.

Efforts to match education and skills to labour market requirements seek to increase

the attractiveness of professional education, engineering and natural sciences through

modernising the establishments where these options are offered, increasing

subsidised study places in engineering and natural sciences and providing access to

study loans and grants. Strengthening co-operation with employers will help in

designing training programmes and will improve forecasting of future needs.

Although the NRP mentions early school leaving and improving access to education

at all levels, few details are provided on specific action. The NRP provides very

limited information on progress expected in developing and implementing a lifelong

learning strategy. Further assessment of labour supply issues, including labour

emigration, is important for Latvia in dealing with potential bottlenecks in its

transformation to a knowledge-based society.

Overall, the NRP presents a comprehensive overview of the current approach to

tackling labour market challenges. The lack of implementation details in some cases

makes it difficult to assess the likely effectiveness of the measures. Areas seeming to

require further attention are reducing inactivity, the urban-rural divide, mismatch of

education and skills with labour market demand and developing a comprehensive

lifelong learning strategy.

18.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Latvian National Reform Programme

identifies and responds to the main economic challenges facing Latvia, namely

securing macro-economic stability; stimulating knowledge and innovation;

developing a favourable and attractive environment for investment and work;

fostering employment; and improving education and skills. Overall, the NRP is

coherent and ambitious and takes a broad approach to addressing the difficult

challenges of economic transition and structural adjustment. 20. Budgetary

information is included for most areas. However, details on the implementation and

timing of measures, for example on disseminating ICTs, reducing urban-rural wealth

disparities and on some aspects of education and training reform, are often lacking.

The programme’s strengths include:

•

the focus on R&D and ICT and the reforms envisaged in these areas;

•

the measures aiming at improving transport infrastructure;

•

measures to promote inclusive labour markets.

22.

Among the points requiring further attention are:

•

a clearer and stronger commitment to achieving macro-economic stability

including by stepping up fiscal consolidation ;

•

policies to stimulate partnerships between research and education institutions and

businesses;

•

stronger measures to adapt education and training to labour market needs and to

develop and implement a coherent lifelong learning strategy.

21.

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23.

Taking due account of the above, Latvia is invited to implement its NRP with vigour.

The Commission 2006 progress report on the implementation of the NRP should

cover in particular the way Latvia has dealt with the issues mentioned in paragraph

22. In this context, the Commission looks forward to discussions with the Latvian

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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LATVIA

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

33.9

35.4

58.8

36.6

0.37

74.6

51.1

21.7

7.6

41.3

35.1

38.0

57.5

36.0

0.45

76.8

57.5

23.2

16.0

7.9

39.2

36.9

39.2

58.6

36.9

0.41

38.4

40.0

60.4

41.7

0.42

40.5

41.2

61.8

44.1

0.38

74.0

43.1

62.3

47.9

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

67.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

0.42 1.5 (2008) 1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

76.9

74.8

76.3

76.1

76.5

76.6

3.0

70.3 73.2b

58.2

24.0

7.2

42.3

57.6

22.8

16.0

5.7

41.9

55.4 56.4p

23.2

16.0

4.3

41.5

25.5

4.3

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

840.9 756.0 816.5 750.3 728.8

214.9 208.8 209.7 206.5 209.5

116.2 120.2 120.1 122.5 133.4 129.3

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

1 8 5 .4

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

3 9 1 .3

E n e rg y in te n s ity o f th e e c o n o m y

3 4 7 .9

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

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Lithuania

Lithuania has been experiencing rapid economic growth since 1996, supported by the

second highest labour productivity growth rate in the EU. Over the period 2001-2004

real GDP growth averaged 7.9%. However, GDP per capita was only 48% of the EU

average in 2004. Domestic demand has accelerated rapidly in the last three years,

overtaking exports as the driver of economic growth and leading to higher external

account deficits. The employment rate is at 61.2%. Unemployment fell sharply from

12.7% in 2003 to 10.9% in 2004.

ART

I: G

ENERAL

SSESSMENT

The Lithuanian National Reform Programme (NRP) sets three key national priorities:

(1) macroeconomic policies to sustain fast growth of the economy and a stable

macroeconomic environment; (2) microeconomic policy to promote the

competitiveness of Lithuanian companies; (3) employment policy to promote

employment and investment in human capital. The Commission shares this analysis.

The NRP sets out an ambitious forward-looking strategy, while building on a number

of national programmes already in place. Although the sections on macro-economic,

micro-economic and employment policies contain cross-references, in terms of

content it is not clear that they are consistent. Several targets are set for 2010 and for

2005-2008, including ambitious targets for overall employment (68.8% in 2010) and

investment in R&D (2% of GDP in 2010). The presentation of measures, however,

varies in the level of detail. This sometimes makes a full appreciation difficult of

how measures will contribute to growth and jobs and of whether they are sufficient

to respond to the challenges identified or to meet the targets set. While the

preparations for the next programming period for the Structural and Cohesion Funds

are described, it is not entirely clear how a coherent approach with the NRP will be

achieved in practice.

Consultation and efforts to develop ownership were very substantial. Lithuania has

established an ad-hoc inter-ministerial committee to ensure coordination and

ownership of the NRP within the government. Steps were taken to involve key

stakeholders. The parliament was involved in the preparation of the plan, the social

and economic partners were consulted, civil society was invited to comment on the

draft NRP and a conference was held in September. The NRP also attributes to the

social partners a role in implementing certain measures but does not set out in detail

what specific tasks or responsibilities this would involve.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

In a context of accelerating wage growth and inflation, the NRP aims to maintain

high productivity growth through tax and labour market reforms, together with the

promotion of R&D and innovation activities. Those activities are expected to be

underpinned, to a certain extent, by foreign direct investment. The NRP also

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acknowledges the importance of an efficient allocation of bank credit for macro-

economic stability and highlights the need for reforms of the pension and healthcare

systems to guarantee the sustainability of public finances in the long term. The

Commission largely shares Lithuania’s point of view on these priorities.

The macro-economic strategy builds on the policies implemented in previous years.

Monetary and fiscal policies will aim for participation in the eurozone in 2007. The

most important macro-economic measures outlined in the NRP are reforms in

pension and healthcare systems, the promotion of flexible wage setting and tax

reform. These will be accompanied by microeconomic and labour market reforms

that should strengthen competitiveness and productivity. The programme presents

some detailed measures for tax reform but very little on measures to attract foreign

direct investment or in relation to financial stability. Most of the macro-economic

measures are difficult to assess fully as they are presented only in general terms:

further measures to increase employment rates and the retirement age would

contribute to the future adequacy and sustainability of pensions.

Lithuania plans to meet the conditions for participation in the euro by a sustainable

fiscal policy and timely legal and administrative preparations. In the short to medium

term, the NRP projects a reduction in general government deficit from 2.3% of GDP

in 2005 to 1.5% in 2007, which from the point of view of the Commission, is

realistic. However, reducing the deficit further to 1.3% of GDP in 2008 might be

considered optimistic without measures to compensate for the decrease in the

personal income tax. Furthermore, the budgetary targets presented in the NRP

involve a more expansionary fiscal stance which would make fiscal policy less

supportive of price stability. On the other hand, the latest update of Lithuania's

Convergence Programme, submitted to the Commission in December 2005, presents

lower general government deficit targets. The NRP also highlights an increase in

competition as a factor that should help to keep inflation down but does not set out

clear measures in this respect. The Commission would be interested in learning more

about plans to strengthen competition in network industries. The inflation projection

of 2.1% for 2006 is considered optimistic, particularly in view of the acceleration of

wage growth that is predicted in the NRP.

Overall, however, the macro-economic strategy presented in the NRP seems realistic

provided the reforms envisaged are implemented in full.

Micro-economic policies

The NRP identifies the promotion of competitiveness as the key priority. The

Commission shares this view and would stress the importance of infrastructure, R&D

and innovation policies.

Infrastructure remains a key problem and Lithuania devotes considerable financial

resources to connecting its energy network with West European networks and

modernising transport (road and rail). Here the focus is on environmentally

sustainable forms of transport, for example multimodal transport systems and the

creation of “rail Baltica”, linking Lithuanian railways with rail networks in Western

Europe. The NRP envisages activities in three areas of information and

communication technologies: citizens’ use of ICT, e-government and the use of ICT

10.

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in the economy. Funding efforts concentrate on broadband infrastructure, where the

Structural Funds are to play an important role.

11.

The government plans structural reforms to boost R&D. Investment both in public

and private sectors, knowledge transfer and the reform of the education system are

key points, aiming at strengthening the public science base and upgrading the

innovation system. Lithuania will need to increase considerably public sector

spending on research, if it wants to reach the target of 1% of GDP by 2010 (from

about 0.5% in 2002), and also has a very ambitious target for private sector research

investment. Substantial efforts to leverage private sector spending will be needed to

achieve the ambitious overall 2% target for research investment (0.68% in 2003).

The NRP contains many measures to improve innovation performance. The Business

Innovation Programme tries to provide a coherent national research and innovation

strategy. While the development of clusters is well covered, little priority is given to

efforts to increase intellectual property. Furthermore, a reliable national statistical

system is not yet – despite recent efforts – fully developed in Lithuania. Such a

system could be used for industrial research and innovation monitoring purposes.

Overall, the NRP conveys a sense of where the government sees the key priorities

and how it tries to address them, though assessing policies in detail is not easy

because the description of measures is not always very precise. This is also the case

in a number of other important areas such as the internal market, competitive

markets, better regulation, or policy on SMEs, which represent 99.3% of Lithuanian

enterprises.

12.

13.

Employment Policies

14.

The key priorities are boosting employment and investing in human capital. The

challenges referred to include: responding to the rapid ageing of the labour force;

reducing high long-term and youth unemployment; ensuring that the labour force has

the skills employers need; reducing labour market imbalances between sectors and

regions; and the need to boost productivity and participation in education and

lifelong learning. The Commission shares this analysis and the resulting choice of

priorities.

Measures to attract and retain more people in employment focus on promoting a

lifecycle approach to work, improving health care, strengthening labour market

institutions and social partnership. Key targets are set, including an ambitious overall

employment rate target (68.8% in 2010, 61.2% in 2004). To retain older workers in

employment, the scope for part-retirement and increasing the pension age are to be

analysed with a view to rising the pension age to 65 by 2026. Social inclusion

measures have a strong emphasis on disabled people and there is a clear reference to

the national action plan on social inclusion. There is a varied and appropriate policy

mix on youth employment, with youth organisations involved in delivery. Whilst

general healthcare is covered, health and safety at work is not, though relevant

prevention measures could improve productivity. The development of the network of

vocational guidance centres is a step towards better meeting employers’ needs in

terms of skills.

15.

100

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16.

To improve adaptability, Lithuania intends to take a number of initiatives that the

Commission considers generally appropriate. These include: the implementation of

unemployment prevention programmes; the promotion of flexible forms of

employment; strengthening measures against undeclared work; the promotion of

labour mobility; increasing investment in training and the reduction of labour

taxation. However, the description of these policies in the NRP is not very detailed

and targets are not set. In particular, it is doubtful whether the policy response to the

challenge of labour mobility will prove sufficient, despite its importance given

existing regional disparities. The NRP envisages a reduction of the income tax rate

and an increase in the minimum wage, but it is not entirely clear from the document

whether there is a comprehensive overall approach to ensuring employment-friendly

developments in labour costs and wage setting.

The NRP covers investment in human capital exhaustively, but not entirely

systematically, which makes it difficult to identify the priorities. Lithuania has a

lifelong learning strategy, which is mentioned along with measures to develop

teachers' skills, improve learning conditions in schools, enhance vocational guidance

and training curricula, develop the national system of qualifications and establish

quality assessment. The low-skilled and those with special educational needs receive

particular attention. Regarding higher education, strong emphasis is put on increasing

efficiency by creating centres of excellence, promoting entrepreneurship and

developing self-government. Important national targets are set. The target for

participation in lifelong learning (10% in 2010) would, if achieved, represent a

significant improvement compared with the present situation (6.5%).

Overall, the analysis of the employment situation is sound and the priorities chosen

respond to the key challenges. Important and ambitious targets are set. However,

many measures are not yet sufficiently concrete, their link to the objectives is not

always apparent. More quantitative indicators would clarify their expected impact.

The financial resources mentioned, when identified, mainly refer to the current

Structural Funds programme.

17.

18.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Lithuanian National Reform Programme

identifies and responds to the main challenges facing Lithuania as an economy

seeking to maintain high growth in order to reach EU average levels of per capita

income, namely (1) macroeconomic policies to sustain fast growth of the economy

and a stable macroeconomic environment; (2) microeconomic policy to promote the

competitiveness of Lithuanian companies; (3) employment policy to promote

employment and investment in human capital.. Overall, the NRP is ambitious and

builds on existing policies. However, coherence between policy areas is not always

clear.

Implementation will be facilitated by the Lithuanian authorities’ efforts to launch a

public debate about the reform agenda and to involve stakeholders, including in

ensuring that structural funding is used effectively. Nevertheless, the detail given in

the NRP on the content, funding, timing and monitoring of measures is in many

cases insufficient to allow a complete assessment of their likely effectiveness.

20.

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21.

The programme’s strengths include:

•

the attention and financial resources devoted to improving transport and energy

infrastructure, including by better international connections;

•

the focus on raising youth employment rates;

•

the attention given to improving skills.

22.

Among the points requiring further attention are:

•

strengthening the science and technology base, including by increasing public

sector spending on R&D to reach the ambitious target set for 2010;

•

additional efforts to strengthen innovation systems;

•

further reinforcement of active labour market policy and of the promotion of

labour mobility.

23.

Taking due account of the above, Lithuania is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Lithuania has dealt with the issues mentioned in paragraph 22. In

this context, the Commission looks forward to discussions with the Lithuanian

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

102

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LITHUANIA

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

2000

2001

40.3

45.1

57.5

38.9

0.68

2002

42.1

45.1

59.9

41.6

0.67

2003

45.5

47.4

61.1

44.7

0.68

82.1

2004

48.0

49.9

61.2

47.1

0.76

86.1

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

37.3 38.3b

33.9 41.2b

61.7

40.9

0.51

59.1

40.4

0.59

68.8

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

2.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

81.3 77.9b

46.1

19.6

5.3

41.9

51.6

16.3

17.0

8.0

40.9

81.2 79.3b

53.0

17.9

17.0

9.2

40.0

54.6

17.4

17.0

7.2

38.5

54.9 54.6p

18.2

15.0

6.1

33.8

18.5

5.6

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

1372.2 1208.4 1256.8 1272.7 1204.8

106.5 109.7

214.9 208.8 209.7 206.5 209.5

98.2 117.6 119.1 116.2

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

6 3 8 .5

E n e rg y in te n s ity o f th e e c o n o m y

5 7 5 .1

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

103

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Luxembourg

La croissance du PIB luxembourgeois a été deux fois moins importante en 2004

qu'en 2000, mais elle reste forte, égale à 4,5%. Lors de cette période, la croissance de

la productivité a ralenti considérablement. Le PIB par habitant s'élève à 227% de la

moyenne européenne en 2004. Le taux d'emploi (61,6% en 2004) reste légèrement

plus bas que la moyenne européenne tandis que le taux de chômage se maintient à un

niveau historiquement élevé (4,8% en 2004, en augmentation de 2,7 points par

rapport à 2001) et qu'un chômage structurel semble apparaître. Le Luxembourg se

distingue par la part très importante prise par les travailleurs transfrontaliers dans la

population active: ils représentent 40% des emplois occupés et plus des deux tiers

des nouveaux emplois.

ARTIE

I: E

VALUATION GLOBALE

Le programme national de réforme (PNR) du Luxembourg fait du plein emploi et de

l'innovation les deux fondements de sa stratégie, tout en soulignant la nécessité de

pérenniser le modèle social existant. Le programme identifie cinq priorités d'action :

un système d'éducation et de formation de haute qualité, une économie intégrée dans

le contexte européen et international, un environnement économique attractif, un

cadre macro-économique stable et le respect des principes du développement

durable. La Commission partage ce choix de priorités. Néanmoins, certaines

problématiques importantes, comme celle des travailleurs âgés, auraient mérité

davantage de visibilité.

Le PNR fournit, au moins au niveau des principes, une vision pertinente des

politiques à mener en réponse à ces défis. Le PNR ne permet cependant pas d'évaluer

la portée exacte d'un certain nombre de mesures, étant donné que leurs conditions de

mise en œuvre ne sont pas précisées. Dans une large proportion, les mesures

présentées sont en effet à l'état de projets ou constituent des manifestations

d'intention du Gouvernement. Le programme fixe un objectif pour l'investissement

dans la R&D (3% du PIB en 2010) mais ne fournit pas d'objectifs quantifiés en

matière d'emploi, ni ne présente d'échéancier pour la mise en œuvre des principales

mesures. Le lien entre la stratégie développée et l'apport des fonds structurels

européens n'est que brièvement mentionné.

Les initiatives prises pour assurer des procédures de consultation et garantir

l'appropriation du document ont été significatives. L'élaboration du PNR a été

coordonnée par le Ministre de l'économie et du commerce extérieur au nom du

gouvernement. Une structure ad hoc a été constituée, dans laquelle les principaux

ministères concernés sont représentés. L'observatoire de la compétitivité, rattaché au

Ministère de l'économie, assiste le coordinateur "Lisbonne" dans ses tâches. Le

programme a fait l'objet d'une importante concertation entre gouvernement,

Parlement et partenaires sociaux. Ces derniers seront directement impliqués dans la

mise en œuvre du programme.

104

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ARTIE

II : E

VALUATION DES POLITIQUES

Politiques macroéconomiques

Le PNR identifie deux défis macroéconomiques principaux : la stabilité économique,

grâce à la réduction du déficit public, et la pérennité économique et budgétaire à plus

long terme, en lien avec la viabilité sociale et financière du système de sécurité

sociale. La Commission partage ce choix de priorités.

Le Luxembourg a enregistré pour la première fois un solde budgétaire négatif en

2004, équivalant à -2,3% du PIB en 2005. Dans ce contexte, le PNR souligne

l’engagement du gouvernement, matérialisé dans le budget 2006, de réduire le déficit

des administrations publiques à -1,8% en 2006. Le PNR affirme que cet effort sera

poursuivi en 2007 et 2008 sans indiquer les moyens pour y parvenir. Le PNR

souligne également que des mesures de consolidation plus structurelles seront

nécessaires à plus long terme.

Quant au second défi, le PNR confirme l’intention du gouvernement de poursuivre

l’adaptation du système de sécurité sociale aux besoins de la population tout en

garantissant la pérennité du modèle social existant. Il rappelle les principales mesures

prises récemment en ce sens. Il n’annonce toutefois pas de mesures nouvelles.

En dehors des objectifs et des mesures annoncées par le budget 2006, le PNR ne

présente donc pas de mesures nouvelles et détaillées qui permettraient de répondre

aux deux défis identifiés dans le domaine macroéconomique.

Politiques microéconomiques

Le programme identifie trois défis micro-économiques principaux: l’innovation,

l’environnement économique et le développement durable. La Commission considère

que ce choix reflète bien les besoins du pays.

La recherche et l'innovation sont présentées comme des priorités essentielles du

programme, notamment afin de diversifier et de redéployer l'économie vers des

secteurs de pointe. L’objectif affiché est d'atteindre 3% du PIB en investissement

pour la R&D en 2010. Cet objectif est ambitieux au regard du niveau actuel de 1,8%

du PIB et du niveau de la part publique dans la recherche, qui est parmi les plus

faibles de l’UE. Beaucoup dépendra de la capacité à accroître les ressources

publiques consacrées à la recherche et à l'innovation tout en assurant une

augmentation du niveau d’investissement privé. Atteindre cet objectif nécessite

également un effort particulier en termes de capacité institutionnelle, de suivi et

d’évaluation des programmes. Le PNR annonce un soutien renforcé au

développement des ressources humaines dans ces domaines et met l'accent sur le

développement de grappes d'innovation et le soutien aux entreprises innovatrices.

Ces mesures vont dans le bon sens. Toutefois, des mesures plus concrètes semblent

nécessaires dans plusieurs domaines, tels que les brevets et l'accès au financement.

Afin d'améliorer l’environnement économique, le programme met l'accent sur la

création de pôles de compétitivité spécialisés et ciblés sectoriellement. Il affiche

aussi des actions vers l’amélioration de l’offre de réseaux à haut débit. Il insiste sur

l'amélioration du contexte réglementaire et administratif, au moyen d'une

simplification des procédures et du développement de l'administration électronique.

10.

11.

105

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Des mesures spécifiques sont également prévues en faveur des PME, notamment afin

de promouvoir l’esprit d’entreprise auprès des jeunes et d'améliorer la législation sur

les faillites. Pour le reste, le Luxembourg devrait également accélérer la mise en

œuvre des directives relatives au marché intérieur, dans le domaine des finances, de

l'énergie et des professions libérales.

12.

Dans une logique de développement durable, le programme souligne la

complémentarité entre l’environnement et la compétitivité. De nombreuses mesures

se concentrent sur le renforcement de l'efficacité énergétique des différents secteurs

économiques et sur l'utilisation de sources d’énergies renouvelables. Des aides

financières spécifiques et un recours plus systématique aux marchés publics "verts"

sont prévus à cet effet. De plus on prévoit le développement d'infrastructures de

transports durables permettant de mieux réguler le trafic dû aux navetteurs

transfrontaliers. En revanche, les mesures proposées en matière de changement

climatique et de taxes environnementales semblent manquer d'éléments concrets.

Seules des études concernant les taxes sont prévues à ce stade.

Globalement, les priorités microéconomiques mises en avant dans le PNR vont dans

le bon sens. Toutefois, les mesures présentées manquent souvent de précision et leur

mise en œuvre n'est dès lors pas établie sur base de ce programme.

13.

Politiques d'emploi

14.

Insistant sur la nécessité de redéployer l'activité économique et de mieux anticiper et

gérer les restructurations économiques en cours, le PNR identifie deux défis

principaux en matière d'emploi : faire participer un plus grand nombre de résidents

au marché du travail et renforcer la fréquentation et la qualité des systèmes

d'éducation et de formation. La Commission partage ce choix de priorités.

Le Luxembourg bénéficie d'une forte création d'emplois, en grande partie occupés

par les frontaliers. Afin de favoriser la participation d'un plus grand nombre de

résidents au marché du travail, le programme présente un ensemble relativement

équilibré de mesures. Le PNR vise tout d'abord à renforcer l'efficacité des services

d'orientation, d'information et de suivi ainsi que des procédures d'activation, par une

modernisation du service de l'emploi et une prise en charge plus précoce des

demandeurs d'emploi. Il met également l'accent sur la promotion d'une "culture" de

gestion prévisionnelle des emplois afin de réduire l'inactivité et de prévenir les

retraits du marché du travail. Tous les acteurs sont invités à y contribuer et le

gouvernement se propose de constituer un tableau de bord, basé entre autres sur les

indicateurs de Lisbonne. Le PNR vise enfin à permettre une meilleure conciliation

entre vie privée et vie professionnelle par une meilleure sécurité physique, juridique

et financière au travail - incluant une meilleure prévention des risques, une réforme

de l'inspection du travail, l'égalité salariale et la lutte contre le stress et le

harcèlement - ou encore par une adaptation des régimes de protection sociale afin de

renforcer les incitations à la reprise ou à la continuation d'un emploi. Dans leur

ensemble, ces mesures restent toutefois peu concrètes et certaines thématiques

importantes, telles que la situation des travailleurs âgés, le statut des travailleurs

handicapés ou le traitement de l'exclusion sociale, manquent de visibilité.

En ce qui concerne le renforcement de la participation et de la qualité des systèmes

éducatif et de formation, le PNR offre une réponse en demi-teinte. Certains

15.

16.

106

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dispositifs importants inscrits dans les plans nationaux d'action pour l'emploi

antérieurs, tels que la stratégie globale pour le développement de la formation et les

projets de loi sur l'école, ne sont pas mentionnés dans le PNR. En outre, des thèmes

importants tels que la lutte contre les abandons scolaires ou l'intégration des enfants

d'immigrés bénéficient d'une attention assez réduite. Le PNR offre toutefois de

nouveaux accents, qui vont dans le bon sens: renforcement des possibilités de

formation pour les jeunes avec le développement des jobs de vacances et d'un service

volontaire; mise en place d'un mécanisme d'assurance qualité pour les systèmes

d'éducation et de formation; développement de mécanismes de validation des

compétences formelles ou non formelles.

17.

Afin de renforcer les capacités d'adaptation de l'économie luxembourgeoise, le PNR

met l'accent sur la capacité d'anticipation des restructurations économiques et sur la

promotion de nouvelles formes d'emploi, tels que le travail à temps partiel, le

télétravail, le travail à domicile et les mécanismes d'épargne-temps. Il souligne

également la nécessité d'assurer le lien entre salaires et gains de productivité en

maintenant, et si besoin en aménageant, le mécanisme actuel d'indexation

automatique des salaires. Le PNR manifeste sur ce point le souci de responsabiliser

les acteurs privés et publics et d'assurer en même temps l'équilibre entre

modernisation et sauvegarde du modèle social national.

Globalement, le PNR répond de manière adéquate aux deux défis qu'il se fixe en

insistant sur la nécessité de rendre le travail plus attrayant, de renforcer l'efficacité

des mesures d'activation, de développer une meilleure gestion prévisionnelle de

l'emploi et de promouvoir davantage la valorisation des compétences. Toutefois, les

mesures présentées restent souvent peu concrètes et leur continuité par rapport aux

plans nationaux d'action pour l'emploi et pour l'inclusion sociale antérieurs n'est pas

clairement établie.

18.

ARTIE

III : C

ONCLUSIONS

19.

Dans l'axe des Lignes directrices intégrées, le programme national de reforme

luxembourgeois identifie et répond aux défis majeurs auxquels le Luxembourg est

confronté, notamment un système d'éducation et de formation de haute qualité, une

économie intégrée dans le contexte européen et international, un environnement

économique attractif, un cadre macro-économique stable et le respect des principes

du développement durable. Dans l’ensemble, le programme est cohérent, mais le

manque actuel d'objectifs, d'échéances et d'indicateurs clairs rend difficile l’analyse

de l’efficacité probable du programme.

L’implication prévue des partenaires sociaux et d’autres acteurs importants dans la

mise en oeuvre du PNR pourrait faciliter la concrétisation des reformes envisagées.

Parmi les points forts du programme sont:

•

l’attention consacrée à la création de pôles technologiques spécialisés

•

les mesures visant la complémentarité entre l’environnement et la compétitivité,

notamment dans le domaine de l'efficacité énergétique;

20.

21.

107

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•

les initiatives en matière de gestion prévisionnelle des emplois, d'activation des

demandeurs d'emploi et de certification des compétences.

22.

Une attention supplémentaire sera nécessaire pour:

•

la mise en œuvre des objectifs ambitieux en matière de recherche et d'innovation;

•

dans le domaine de l’emploi, aborder la situation des travailleurs âgés et le statut

des travailleurs handicapés.

23.

Le Luxembourg est invité à prendre ces éléments en compte et à mettre en oeuvre le

PNR avec vigueur. Le rapport de progrès sur la mise en œuvre du PNR en 2006

devrait en particulier prendre en considération la manière dont le Luxembourg a

abordé les points mentionnés sous le paragraphe 22 ci-dessus. Dans ce contexte, la

Commission sera à la disposition des autorités luxembourgeoises afin de tenir des

discussions dans le cadre du nouveau partenariat pour la croissance et pour l’emploi.

ART

IV : S

TATISTICAL GRAPHS AND DATA

108

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LUXEMBOURG

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

206.3 216.2 210.3 210.0 219.1 227.2f

151.3 154.4 144.6 141.8 146.2 149.2

61.7

26.4

71.2

62.7

26.7

1.71

77.5

63.1

25.6

68.0

63.4

28.1

69.8

62.7

30.0

1.78

71.0

61.6

30.8

71.1

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

3.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

102.3 100.9 102.9 102.5 105.3 106.1p

19.2

13.0

0.7

70.9

16.9

12.0

0.6

74.7

18.4

12.0

0.6

76.9

16.8

14.9

14.3

11.0

1.1

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

: 10.0b

0.8

84.9

0.9

88.5

192.9 186.6 190.7 196.7 201.5

88.9

214.9 208.8 209.7 206.5 209.5

96.5 106.4 107.3 109.0 104.8

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

2 0 6 .3

G D P p e r c a p ita in P P S

2 2 7 .2

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

109

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Malta

After strong expansion at an annual average of 5% during 1994-2000, the Maltese

economy practically stopped growing over 2001-2004, reflecting intensive industrial

restructuring and deteriorating international competitiveness. Labour productivity

growth has been well below EU average during the same period. GDP per capita has

grown less than in the rest of the EU during that period and stood at 69% of the EU

average in 2004. Malta's employment rate is only 54%, despite significant potential

gains that could be achieved from the development of human capital. The

unemployment rate was 7.6% in 2004.

ART

I: G

ENERAL

SSESSMENT

The Maltese National Reform Programme (NRP) identifies five broad themes as key

challenges: sustainability of public finances; competitiveness; the environment;

employment; and education and training. The Commission broadly shares the NRP’s

analysis of the main priorities, though it would tend to place more emphasis on

competition issues, addressed in the NRP as one of several areas under the key

challenge of competitiveness.

The programme presents the individual challenges comprehensively and bases future

strategy and the large number of new measures on an analysis of the current

situation. It is well structured with a clear timeframe and budgetary implications for

most measures. However, an overall strategic vision integrated across all policy areas

and justifying and linking the choice of themes, priorities, objectives and measures is

present only to a limited extent. The NRP specifies an ambitious employment target

of 57 percent by 2010, but does not set an overall target for R&D expenditure. The

policy objectives presented are appropriately ambitious, though the reform measures

outlined may not be fully sufficient to deliver them. Synergies among the measures

are not clearly identified, which may raise difficulties in implementation. The

coherence of measures across policy areas is not systematically addressed. The NRP

states that priorities for the use of Structural Funds are currently being prepared in a

separate document.

Consultation and efforts to develop ownership of the document have been very

substantial. The programme was produced by a coordination team in the Office of

the Prime Minister, which will also plan and monitor implementation, and approved

by the Cabinet. The final programme was presented to the parliament after a wide

consultation process including a launch conference and a public consultation

document. There were meetings with social partners and the government intends to

pursue the dialogue with them and with other stakeholders during the implementation

phase.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

110

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Fiscal sustainability through reducing public sector expenditure on the one hand and

measures to foster economic growth on the other is the key challenge referred to in

the macro-economic part of the programme. Priorities to address it include ensuring

the sustainability of pension and healthcare systems and reviewing the tax

framework. The Commission subscribes to this general approach.

The policy objectives and targets set out are coherent with previous government

commitments. Reaching them would mean good progress towards addressing the

fiscal sustainability challenge successfully. The strategy to limit the role of the

government in the economy and to stimulate private sector activity is appropriate for

Malta. However, the prioritisation between the various sets of measures is not

sufficiently clear and they do not seem fully integrated. Potential synergies between

them may be missed as a consequence. Furthermore, budgetary implications of the

macro-economic measures are not spelled out. In some cases, such as the tax and

pension reforms, the absence of a clear time schedule raises questions about the

effectiveness of the overall macro-economic strategy.

The policy objectives and measures are relevant and would seem to constitute a

strong response to the macro-economic key challenge if fully implemented. But as no

information is provided on timelines and budgetary impact of several important

measures a full assessment of the reform package in the macro-economic area is

difficult.

Micro-economic policies

Competitiveness and environment are identified as priority themes in the programme.

The competitiveness challenge comprises the sub-categories of enterprise, tourism,

and infrastructure. These priorities are appropriate for enhancing the growth potential

of the Maltese economy, although a stronger focus on competition issues would be

justified.

As response to the competitiveness challenge, enterprise policy adopts a strong

sectoral focus and many of the planned measures aim at strengthening specific areas

of economic activity. The issue of building closer links between sectors with strong

Foreign Direct Investment and the rest of the economy is not taken up in the NRP.

While the programme acknowledges current heavy administrative costs for

businesses, it is not clear whether measures in the NRP to increase the efficiency of

public administration will respond adequately to that problem, though the proposed

creation of a Better Regulation Unit is a useful step, in particular if one of its roles is

to perform systematic impact assessments of new regulations. The limited measures

to enhance competition include the opening of the electricity market and the

privatisation of yacht marinas.

Research and innovation policy has a low profile in the NRP. While a target for

public R&D investment of 0.2 percent of GDP is presented for 2007, the NRP does

not include an integrated R&D strategy aiming at an overall R&D target for 2010.

Although the need for a strategy on innovation is recognised, the schedule and

process for developing one is not clearly set out. The programme highlights the

objective of furthering the use of ICT but adds little detail. In view of these

weaknesses, the effort on R&D and innovation may not be sufficient to make a

substantial contribution to business competitiveness.

10.

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11.

Malta has placed the environment high on its reform agenda. Almost two-thirds of

the funding envisaged in the NRP is allocated to a detailed action plan of

environmental measures. The substantial attention paid to this issue is particularly

appropriate for Malta, in its own right and also given the importance of tourism for

the economy. However, the link between environmental policies and competitiveness

is not presented in the programme. Regarding infrastructure, the potential role of

transnational cooperation in reducing the problems arising from Malta’s peripheral

position is considered mainly through the use of sea ways.

The proposed objectives and measures are largely relevant in the light of the

challenges and priorities identified. An overall strategic approach that integrates

policy objectives and measures across themes is, however, not spelled out. In a few

cases, primarily in areas dealt with under the competitiveness challenge, the

proposed measures may be insufficient to achieve the policy objectives.

12.

Employment policies

13.

The employment level and education and training are identified in the NRP as key

challenges. The programme stresses that an effective response is crucial for

economic growth and the sustainability of public finances. The priorities identified

for employment policies are appropriate in view of the labour market situation in

Malta.

Reforms set out in the NRP seek to attract and retain more people in employment and

to expand labour supply, mainly by increasing employment rates for women and

older workers, which are particularly low at 33.7% and 32.6 % respectively. The

proposed measures target these groups and, by changing the impact of the current tax

and benefits systems, aim at setting the appropriate incentives to increase

participation. Making unemployment benefits conditional on participation in a

mixture of training and community service is an important step in that direction and

should also help increase the mobility of labour. While the approach is generally

sound, reviewing comprehensively the incentives resulting from the tax and benefit

system is still not a sufficiently high priority, given the Maltese labour market

situation. The NRP expresses the Maltese authorities’ intention to closely involve the

social partners during the implementation process and this should increase the

effectiveness of the strategy.

Meeting the challenge of improving education and training, and generally increasing

investment in human capital is seen as a crucial priority in the programme. The

policies set out in the NRP in this field are appropriate and focus on raising general

educational levels, reducing the number of school drop-outs and higher participation

in training and lifelong learning, in particular for the low-skilled. The measures

envisaged to achieve these aims build on the implementation of reforms already

initiated in the compulsory education system. They are complemented by a coherent

set of new measures aiming at ensuring the quality and comprehensive provision of

education. These include formally involving the relevant stakeholders in monitoring

the match between the demand for skills on the labour market and the supply. The

initiative to provide for the certification of all forms of competencies achieved

through learning, including training in basic computer skills and teacher training, can

help make the labour market more efficient.

14.

15.

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16.

The NRP complements in a number of ways efforts to improve the adaptability of

workers and enterprises. It sets out plans to provide employees with support to help

them cope with changes in employment conditions. It also includes initiatives to

manage economic migration and to enhance generally the capacity of individuals -

and therefore of the economy - to absorb the impact of economic restructuring. The

measures proposed to help make employment practices more flexible, such as lower

tax rates for part-time work and tele-working, are appropriate to improve labour

mobility. Nevertheless, reducing administrative costs and the tax burden on labour

are not directly addressed.

The objectives and measures set out are coherent and sufficient to achieve progress

towards addressing the key challenges. A fully comprehensive review of the

incentives provided in the labour market by the tax and benefits system could be

valuable in ensuring that the effectiveness of the overall employment strategy is

maximised.

17.

ART

III: C

ONCLUSIONS

18.

In line with the Integrated Guidelines, the Maltese National Reform Programme

identifies and responds to the main challenges facing Malta, namely sustainability of

public finances; competitiveness; the environment; employment; and education and

training. Overall, the NRP is clear and based on a good analysis of the current

situation, with ambitious objectives and concrete measures. However, those

measures do not in all cases appear sufficient to achieve the objectives, prioritisation

is limited and integration and coherence across policy areas is not always evident.

The programme contains clear information on budgets and time schedules for

measures in the micro-economic and employment fields, though this is not the case

for the macro-economic section. Implementation will be facilitated by the clear and

inclusive governance structure and the continuity envisaged.

The programme’s strengths include:

•

the emphasis on improving human capital by raising educational levels and

participation in training and lifelong learning;

•

the emphasis given to environmental sustainability.

21.

Among the points requiring further attention are:

•

strengthening competition and improving the quality of the regulatory system;

•

reducing the tax burden on labour and making work more attractive through a

comprehensive review of the tax and benefit system.

22.

Taking due account of the above, Malta is invited to implement its NRP with vigour.

The 2006 progress report on the implementation of the NRP should cover in

particular the way Malta has dealt with the issues mentioned in paragraph 21. In this

context, the Commission looks forward to discussions with the Maltese authorities as

part of the new partnership for growth and jobs.

19.

20.

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ART

IV : S

TATISTICAL GRAPHS AND DATA

114

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MALTA

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

* National target: 0.2% (2010) for the public sector

76.2

95.2

71.5

15.3

76.3

87.9

54.2

28.5

40.9

74.8

18.1

15.0

4.4

72.7

83.5

54.3

29.4

40.1

75.5

15.8

3.7

72.6

84.7

54.4

30.1

0.28

39.0

73.7

11.0

3.4

71.7

84.6

54.2

32.5

0.27

43.0

69.4

81.4

54.0

31.5

0.29

51.4

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

57.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

74.4 74.9p

14.3

3.3

16.0

3.5

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

125.9 129.0 124.4 129.7 129.1

332.3 303.2 266.6 263.9 269.0

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

115

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the Netherlands

Real GDP growth was booming in the Netherlands in 1996-2000, averaging 3.7%

annually. Labour productivity growth, however, was close to the EU average.

Economic growth in the Netherlands came to a near standstill in 2002 and only

recovered somewhat in 2004, to 1.7%. GDP per capita at 125% of the EU

average in 2004 was one of the highest in Europe. The overall employment rate

declined slightly to 73.1 % in 2004, while continuing to exceed the Lisbon target.

Unemployment rose to 4.6%. The share of part-time employment in the overall

employment rate is very high.

ART

I: G

ENERAL

SSESSMENT

The Dutch National Reform Programme (NRP) places particular emphasis on

improving labour supply. The other key challenges it identifies are: achieving

faster growth in labour productivity, in particular by strengthening R&D,

innovation and education; and improving price competitiveness, in particular by

containing labour costs. The Commission shares the NRP’s analysis of the main

priorities.

The National Reform Programme is clear. There is coherence between the macro-

economic, micro-economic and employment policy chapters. The policies

presented build on a number of key reforms already in progress or announced.

Quantitative targets have been adopted for many guidelines, although these are

sometimes less ambitious than previous policy goals. The ambitious target for

private sector investment in R&D is expressed relative to other EU Member

States rather than in quantitative terms and there is no target set for R&D overall

or for employment rate. The Programme refers to recently approved funding of €

2.3 billion for knowledge, innovation, education, mobility and environmental

projects, but only for the latter does the NRP provide detailed funding

information for specific initiatives, though the Dutch authorities have also

recently submitted limited additional information on the specific funding for

innovation and education. The National Reform Programme also sets out the

intention to concentrate any 2007-13 EU structural funding on innovation,

knowledge and human capital.

Consultation and efforts to develop ownership of the document have been

substantial. The Secretary-General of the Ministry of Economic Affairs, as

Chairman of the Central Economic Committee, took overall responsibility for

drafting the programme, which was approved by the Dutch Council of Ministers.

Social partners were consulted and a partial consensus reached. Their own

contribution to the Strategy for Growth and Jobs is in a separate document

Regional and local government bodies will be responsible for implementing some

of the proposed reforms and were involved in the drafting through standing

consultation bodies. The NRP was discussed in parliament.

http://www.stvda.nl/_uploads/nota_20050900_engels.pdf

116

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ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The NRP refers to objectives in four broad macro-economic policy areas: promoting

economic stability; maintaining a sustainable budgetary position; improving

coherence between macroeconomic, structural, and employment policies; and

ensuring employment-friendly wage developments. The Commission subscribes to

these objectives.

The NRP does not set out new macro-economic measures but refers to a number of

policies that have been or are being implemented. The most important are efforts to

curb the budget deficit (from 3.2% in 2003 to a projected 1.8% in 2005), a new

surveillance scheme for pension funds and the introduction of new health insurance

and disability schemes by 2006. Together with recent moderation in wages in sectors

where pay levels are agreed collectively by the social partners, these measures are

expected to contribute to the recovery of growth and employment expected in 2006.

The NRP refers to the fact that open economies such as the Netherlands are very

sensitive to external factors. When the performance of its main trading partners and

activity in the EU as a whole recovers, positive effects of recent reforms should be

reinforced. However, global developments, particularly higher oil prices, may act as

a brake.

The policies outlined in the Dutch NRP appear sufficient to improve the macro-

economic situation.

Micro-economic policies

Improving labour productivity growth by boosting innovation and R&D is one of the

key challenges addressed in the Dutch NRP. There is a range of measures to improve

the business climate, but strengthening competition could have been addressed more

comprehensively.

The Programme contains a set of policies for stimulating R&D and innovation,

including tax incentives, changes to curricula, funding reforms in the university

system, innovation contracts with companies and a scheme for innovation vouchers

for SMEs. It notes the need for better use of investment in industrial research. The

NRP states that €660 million have been allocated so far to stimulate R&D and

innovation. Further funds are also expected and the assumption is that improving

competition and the general climate for investment will also contribute to reaching

R&D and innovation objectives. The NRP acknowledges the need for more highly

qualified researchers and to strengthen cooperation between universities and

businesses but does not set out an overall strategy or a clear timetable.

The target of privately-financed R&D expenditure matching the EU average as a

proportion of GDP in 2007 and being in the EU top five in 2010 is ambitious. Given

that private R&D intensity in the Netherlands declined over the 1997-2003 period to

0.99 %, it is likely that achieving it would require a doubling of expenditure by 2010.

The Dutch NRP does not set an explicit target for public or total R&D expenditure,

10.

117

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although it indicates that private sector expenditure should be at the level of the five

best performing Member States.

11.

The programme seeks to boost innovation by building up critical mass in key areas.

Sector-specific policies and incentives for the development of clusters and

“innovation poles” are set out. Synergies with international clusters are not

specifically mentioned in the NRP. Measures are proposed to improve diffusion of

new technology among SMEs and through public procurement and to address ICT

priorities such as e-government, improved use of the internet and the EU’s i2010

strategy on focusing ICT developments on contributing to growth and jobs. There is

limited information on implementation in the NRP itself.

There are new initiatives to improve the business and investment climate,

complementing ambitious policies in place. Special loans for enterprises to

participate in European aircraft and space industries and in shipbuilding are

proposed. The NRP also contains promising measures to complete and strengthen the

Internal Market, including targets for implementing EU Directives, with mechanisms

to achieve them. There is a commitment to stop adding additional national provisions

when Directives are written into national law. Financial market supervision will be

streamlined. Competition will be stimulated by new legislation on public

procurement and by enhancing supervisory powers.

Specific measures are set out to improve the regulatory environment by improving

licensing and continuing good progress towards the target of reducing regulatory

costs for businesses by 25% between 2002 and 2007. SME-friendly policies include

facilitating start-ups and improving access to credit and tax reductions. Measures to

improve infrastructure are relatively limited, do not address in detail high quality

cross-border transport links such as high-speed rail and concentrate on relieving

domestic bottlenecks, though cooperation with Belgium and France in energy

transport is referred to. There will be new investment (€700 m) in environmental

projects, including improving air quality. The NRP contains quantitative targets for

emissions and sustainability but no time plan for realisation. Measures focus on the

promotion of environmental technologies.

The Commission’s assessment of the micro-economic chapter is generally positive.

New policies on the business environment and on better regulation appear likely to

build further on a successful track record. The measures to stimulate R&D and

innovation are sensible but may be insufficient to achieve the target – top five in the

EU by 2010 – set for private R&D investment, or to improve total R&D intensity to

the extent needed. Timetables for implementing measures are not always given in the

NRP.

12.

13.

14.

Employment

15.

The Dutch programme identifies labour supply as a principal employment challenge

both in terms of integrating those outside the labour market and increasing the

relatively low average number of hours worked, in particular by those currently

working part-time. Enhancing productivity growth through investment in human

capital, as well as moderate wage development, are also identified as priorities.

118

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16.

There are significant measures to increase financial incentives to work for recipients

of social and disability benefits, older workers and the unemployed, including from

2006 new disability and unemployment benefit schemes with tightened eligibility

requirements. The duration of unemployment benefit will be reduced from five years

to three years and two months. The national interim target for older workers (40 %

working at least 12 hours weekly by 2007) is reiterated in the NRP and there are

continued efforts to raise the effective exit age from the labour market. For example,

tax advantages will no longer be offered for schemes providing pre-pensions before

the age of 65. The intention stated in the NRP of combining making work financially

attractive with proactive policies to help people to find jobs is appropriate. But

successful delivery will depend on the agencies and municipalities which implement

active labour market policies offering effective job search support and on the

establishment of monitoring mechanisms. For example, currently only 37% of adult

unemployed people are offered a new start (training, etc) during the first year of

unemployment. So far, municipalities have tended to focus on those benefit

recipients easiest to help back into the labour market, leading to a slight decline in

the number of benefit recipients. However, the sustainability of this reintegration

effort is yet to be determined.

Policies to increase the employment of women, despite the presence of a national

target (65% working at least 12 hours weekly by 2010), are rather limited, centering

on tax reforms, improving the supply of affordable child care and better

reconciliation of work and private life. These may not be sufficient to stimulate a

widespread transition from part-time to full-time work as they do not fully tackle the

marginal tax burden on the second income or the gender pay gap. No overall

employment rate target has been set for 2008 or 2010, although the NRP reiterates

the government’s commitment to helping achieve the 70% overall target for the EU.

Neither does it mention the existing national target for youth (not more than double

the overall unemployment rate), though there is an integrated approach to support for

disadvantaged young people. The programme acknowledges that the employment

rate target for ethnic minorities of 54% will not be attained in 2005, but addresses

this issue only to a limited extent.

To increase the adaptability of workers and enterprises, wage moderation in line with

the “Tripartite Autumn Agreement” between the social partners and the government

will be complemented by changes in employment protection legislation. The greater

responsibility given to the social partners on health and safety at work and risk

prevention should help improve quality at work and productivity. To improve human

capital, the Dutch NRP concentrates on reducing early school leaving to 8% by 2010,

raising the educational attainment of 22-year-olds, and creating better links between

education and the labour market. However, the NRP acknowledges that national

targets are ambitious and difficult to reach, despite substantially increased efforts.

Initiatives by the Dutch authorities and the social partners appear to have good

potential for building on the already relatively high adult participation in lifelong

learning.

The employment policies in the NRP are extensive, coherent and reflect the

government’s determination to increase labour supply. Successful implementation

will depend on strong cooperation between government, implementing agencies,

municipalities and social partners and on effective monitoring. Appropriate

assistance to reintegrate people in the job market will be needed, as well as a stronger

17.

18.

19.

119

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focus on vulnerable groups such as recipients of social and disability benefits, long-

term and low-skilled unemployed and ethnic minorities.

ART

III: C

ONCLUSIONS

20.

In line with the Integrated Guidelines, the Dutch National Reform Programme

identifies and responds to the main challenges facing the Netherlands, namely

improving labour supply, achieving faster growth in labour productivity, in particular

by strengthening R&D, innovation and education; and improving price

competitiveness, in particular by containing labour costs. A more developed policy

for R&D as well as measures to strengthen competition, thereby improving the

resilience of the economy, would be appropriate. Overall the NRP is clear and

coherent and in several areas shows ambition and originality.

The involvement and commitment of social partners in many of the reforms is likely

to facilitate implementation. In some areas, such as innovation and active labour

market measures, only limited detail on funding, implementation schedules and

evaluation is provided.

The programme’s strengths include:

•

initiatives to reduce regulatory burdens on businesses, which have recently

inspired other Member States to develop policies along similar lines;

•

measures to increase financial incentives to work for recipients of benefits;

•

efforts to raise the effective exit age from the labour market.

23.

Among the points requiring further attention are:

•

enhanced measures to increase the number of hours worked by part-time workers;

•

further efforts to facilitate the integration of ethnic minorities into employment.

24.

Taking due account of the above, the Netherlands is invited to implement its NRP

with vigour. The 2006 progress report on the implementation of the NRP should

cover in particular the way the Netherlands has dealt with the issues mentioned in

paragraph 23. In this context, the Commission looks forward to discussions with the

Dutch authorities as part of the new partnership for growth and jobs.

21.

22.

ART

IV : S

TATISTICAL GRAPHS AND DATA

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NETHERLANDS

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

119.5 120.2 127.6b 125.9 125.3 125.0

101.0 101.6 107.7b 106.5 107.0 108.6

71.7

36.4

2.02

72.3

72.9

38.2

1.90

71.7

74.1

39.6

1.81

72.1

74.4

42.3

1.72

73.3

73.6

44.3

73.1

45.2

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

1.76 1.77p

74.5

74.2

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

105.0 104.2 104.0 105.3 106.6 105.2p

19.5

19.0

17.9

16.4

15.7

16.3

2.3

1.6

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

11.0 11.0p 11.0p 11.0p 12.0p

2.3

1.2

2.2b

0.8

2.3p

0.6

2.2

0.7

2.3

1.0

100.8 100.4 101.1 100.2 100.8

202.1 198.5 200.7 201.1 208.7

105.2

98.9

96.8

94.9

214.9 208.8 209.7 206.5 209.5

96.0 105.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

121

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Poland

Over the period 1996-2000 economic growth averaged 5.1%, but was followed by a

sharp economic downturn in 2001–2002 which triggered a rapid deterioration in the

fiscal accounts. Nevertheless, more recently Poland has experienced an export-led

upswing. GDP per capita exceeded 49% of the EU average in 2004 and was the third

lowest in the EU. Labour productivity growth has been well above the EU average

over the last decade. Labour market conditions have recently been improving slowly.

At 18.8% in 2004, the unemployment rate is still the highest in the EU and the

employment rate (51.7% in 2004) the lowest.

ART

I: G

ENERAL ASSESSMENT

The Polish National Reform Programme (NRP) sets as the main policy objective

maintaining a high economic growth rate fostering job creation, while respecting the

principles of sustainable development. To achieve this, the NRP identifies six main

priorities: consolidating public finances and correcting their management;

developing entrepreneurship; making enterprises more innovative; developing and

modernising infrastructure and ensuring a competitive environment in network

industries; creating and sustaining new jobs and reducing unemployment; and

improving the adaptability of workers and enterprises by investing in human capital.

The Commission shares this analysis of the main priorities.

The NRP focuses on continuity but also introduces some shifts in on-going policies.

Its assessment of areas where improvements are needed is comprehensive and frank.

There are in general coherence and cross-references between macro-economic,

micro-economic and employment strands but the degree of precision in the definition

of implementing measures varies widely. Main steps for 2005-2008 are not

accompanied by indications of which institutions are responsible. Neither are

timetables, budgetary implications or information on monitoring and evaluation

procedures provided, making it difficult to assess the practicability of proposed

solutions. However, the Polish authorities have indicated that as part of the new

government’s work programme they are preparing much of this information. No

target is set for the overall employment rate. Quantified assumptions are made for

2008 (no target is set for 2010) for R&D spending (1.65% of GDP compared to

0.58% in 2004) and for the unemployment rate (14.6% compared to 18.8% in 2004).

However, the measures presented do not appear sufficient to meet them. The role of

the Structural and Cohesion Funds - that are and will continue to be a major source

for public investments in the coming years - is mentioned but the NRP gives only

general guidance on how they will be used to fulfil the Lisbon agenda.

There were wide consultations on the first draft of the NRP, with parliament, social

partners and civil society. Owing to the recent formation of the new government,

efforts to develop ownership of the final version of the NRP have inevitably been

rather limited. While the Commission recognises these special circumstances,

cooperation with stakeholders will need to be reinforced as the NRP is implemented

and updated.

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ART

II: A

SSESSMENT BY POLICY AREA

Macroeconomic policies

The NRP identifies one key challenge in the area of macroeconomic policies: the

consolidation and better management of public finances. The Commission supports

this choice.

The NRP outlines a number of reform initiatives. The main measures are first, social

security reforms, including reform of early paths out of the labour market and of the

farmers’ special social security system and second, stricter monitoring and reductions

of extra-budgetary expenditure managed by special government agencies. The NRP

also points to the continuation of changes to the healthcare system as an important

element in stabilising public finances. In addition, the programme envisages a further

decentralisation of public finances and a reduction in state aid aimed at financing

increased spending on R&D, job creation and the environment. The NRP does not

contain any macroeconomic outlook integrated with the proposed reforms– though

the new government is preparing one as part of its update of the Convergence

Programme – or consider the effects of the expected inflow of EU funds reaching up

to 4% of GDP. No targets for the general government deficit are set. The proposed 4-

year nominal anchor covers the state budget only. The programme is silent about the

budgetary impact of the planned measures, including those which may entail

significant short-term spending. For example, the programme does not estimate the

cost of its extensive ambitions for improving housing and infrastructure, introducing

comprehensive monitoring of medical prescriptions or of a comprehensive computer

system for administering the state budget. The Ministries responsible are understood

to be preparing such costings now.

The approach to the sustainability of public finances is broad and covers the

appropriate areas. However, the limited detail provided on the macro-economic and

budgetary impact of reforms makes it difficult to assess the realism of the overall

strategy.

Microeconomic policies

The NRP identifies developing entrepreneurship, increased innovation by companies,

infrastructure development and upgrading and ensuring a competitive environment in

network sectors as key microeconomic challenges. The Commission broadly shares

this view, though a stronger and more general emphasis on competition policy,

where the NRP concentrates largely on network sectors, would be appropriate.

There is a range of initiatives in the NRP to improve the business environment and

develop entrepreneurship. These have positive potential, including in improving the

competitiveness of the manufacturing sector, if integrated into an industrial policy

strategy. A “one-stop-shop” system for the registration of new businesses, an

platform

for businesses and a system to identify administrative costs are useful steps.

Improvements in the impact assessment system (OSR) are also set out but the

approach to Better Regulation needs to be further developed. The plan to rationalise

commercial jurisprudence is appropriate, though more ambitious measures to

accelerate proceedings, to reduce their costs and to remove legal uncertainties are

necessary. Reform of regulations covering professional services is not fully

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addressed in the NRP. Since access to finance is a chronic problem for Polish SMEs,

the initiatives proposed to improve this are valuable, though more specific attention

for technology-based start-ups would be useful. Areas not dealt with in the NRP

include improving the transparency of tax procedures, reducing fiscal uncertainty,

implementing Internal Market law and building on existing efforts to promote

entrepreneurship to citizens through the education system, where entrepreneurship is

already part of the curriculum for secondary schools. The NRP explicitly mentions

the goals of redirecting state aid expenditure towards horizontal objectives while

reducing the overall level of state aid. This is particularly necessary in relation to

shipbuilding, steel and coal-mining, without, however, hampering the necessary

restructuring processes in these sectors.

10.

The assumption of reaching R&D intensity of 1.65% by 2008, from the very low

current base, is ambitious but is only supported to a very limited extent by detailed

proposals for concrete measures linked to performance indicators. The NRP correctly

identifies a lack of business innovation as the principal weakness of Polish

innovation performance. The measures to improve this are based on changes to

regulation and on encouraging private funding. More emphasis on reforming public

sector R&D and innovation support, in line with clear research priorities, as well as

on upgrading technical skills, is necessary. Finally, the programme addresses only in

a limited way the role of foreign-owned companies in the innovation system and the

decline in patenting.

The NRP sets out in general terms a range of initiatives to improve transport, energy

and housing infrastructure. The national and regional programmes will have to be

coordinated closely with regulatory measures in order to bring maximum benefits:

simplification of investment processes is particularly important. The opening of

network markets presented in the NRP will increase competition, but the detail

provided is not sufficient to assess its likely impact, in particular in electricity and

telecommunications. While the NRP highlights the link between environmental

technologies and increased competitiveness, setting out in more detail measures to

support such technologies and the use of economic instruments to internalise external

costs would allow a better assessment of their likely effect. Similarly, ICT initiatives

are not precisely described. Poor housing is identified as a factor in social exclusion,

unemployment and lack of labour mobility. The extensive initiatives to address this

are not presented in detail or costed.

The micro-economic measures in the NRP would, if fully implemented, boost the

business environment, innovation, entrepreneurship and infrastructure. The likely

extent of that effect is unclear in the absence of details on the measures or on targets,

timetables, implementation mechanisms and budgetary impacts.

11.

12.

Employment policies

13.

Creating and sustaining jobs and reducing unemployment, along with improving the

adaptability of workers and enterprises by investing in human capital are among the

main priorities of the NRP. The Commission subscribes to this.

Measures to attract and retain more people in employment focus on changes in active

labour market policies, including measures to improve labour market services and to

make public employment services more effective. The efforts envisaged to improve

14.

124

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labour market information (including statistics) should allow better targeting of

labour supply to meet the economy’s needs. Measures are proposed to integrate

disadvantaged persons and disabled people into employment. To retain older workers

in employment, efforts to reform access to early retirement schemes will continue.

Gradual reforms envisaged to increase flexibility in the retirement age and to

equalise the retirement age of women and men could contribute to increasing the

employment of older people, thus strengthening the adequacy and sustainability of

pensions. However, their successful delivery will depend on the result of a public

consultation and on overall developments in the labour market. More resolute steps

are needed to reduce the very large number of inactive people, to raise the

employment rate and to meet the ambitious assumption of reducing unemployment to

14.6%. Cutting youth unemployment is considered a priority and the programme

builds on existing policies but given the scale of the challenge new measures are

needed. The issues of undeclared work, the creation of alternative jobs in rural areas,

the reconciliation of work and family life and the emigration of qualified workers are

not addressed. The NRP does not refer to strengthening territorial cohesion, reducing

regional disparities or to the marked urban-rural divide.

15.

To improve the adaptability of workers and enterprises, planned reforms concentrate

on reducing the tax burden on workers with the lowest incomes and on increasing

flexibility and differentiation in forms of employment. These initiatives are

appropriate but described only in general terms which make it difficult to judge their

likely effect. Widening the use of flexible forms of employment is raised in the NRP

but is not fully backed-up by specific measures making them financially attractive.

Issues of health and safety at work are not covered, though relevant prevention

measures could improve productivity. Still incomplete industrial restructuring

processes, which may entail job losses in coming years, also need special attention.

The issue of occupational and geographical mobility, is addressed only partially.

In terms of investment in human capital, the NRP aims to improve the education and

training system, better match education and training programmes with labour market

needs and increase participation in lifelong learning, in cooperation with social

partners. Measures to remove barriers to access to education, particularly those

resulting from poverty and disability, include the development of distance learning

and of vocational counselling systems. A strategy for lifelong learning is to be

developed and implemented. However, a fully-fledged strategy for vocational

training is not visible in the programme, despite the fact that over half of employers

do not invest in employees' training.

The employment challenges are well identified in the NRP but proposed measures

seem too modest both in scope and scale given the extent of the problems facing the

Polish labour market. The lack of implementation details makes it difficult to assess

the likely effectiveness of the measures, though the Polish authorities intend to add

some of the necessary material in their Annual National Action Plan for

Employment.

16.

17.

ART

III: C

ONCLUSIONS

18.

In line with the Integrated Guidelines, the Polish National Reform Programme

identifies and responds to the main challenges facing Poland, namely consolidating

125

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public finances and correcting their management; developing entrepreneurship;

making enterprises more innovative; developing and modernising infrastructure and

ensuring a competitive environment in network industries; creating and sustaining

new jobs and reducing unemployment; and improving the adaptability of workers

and enterprises by investing in human capital. It is based on a coherent analysis and

states the intention to take a wide range of ambitious and appropriate measures.

However, many are described only in the most general terms and are not yet situated

within a comprehensive strategy establishing clear priorities for early action.

19.

The NRP was drawn up under very tight deadlines, given the recent elections.

Targets, timetables, budgetary information and details on monitoring and evaluation

procedures are in general not provided. The links with Structural Funds and the

distribution of implementing responsibilities is not always clear.

The programme’s strengths include:

•

some initiatives aimed at improving the business environment by reducing

administrative costs and improving SME’s access to finance;

•

the focus on improving education, training and lifelong learning.

21.

Among the points requiring further attention are:

•

more emphasis on competition, on reinforcing public sector R&D and innovation;

•

a comprehensive strategy for infrastructure investment and on environmental

protection;

•

a more robust approach to raising employment rates and addressing regional

disparities.

22.

Taking due account of the above, Poland is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Poland has dealt with the issues mentioned in paragraph 21. In this

context, the Commission looks forward to discussions with the Polish authorities as

part of the new partnership for growth and jobs.

20.

ART

IV : S

TATISTICAL GRAPHS AND DATA

126

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POLAND

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

46.1

49.3

57.6

31.9

0.70

81.6b

50.7

20.0

4.8

5.8

71.0

47.0

51.6

55.0

28.4

0.66

87.8

56.3

20.5

16.0

6.9b

7.6

68.3

46.3

50.6

53.4

27.4

0.64

88.6

62.9

16.8

16.0

7.2

9.3

67.7

46.6

51.9

51.5

26.1

0.58

88.1

59.5

14.9

17.0

7.3

10.8

65.5

47.2

59.9

51.2

26.9

0.56

88.8

49.1

62.5

51.7

26.2

0.58

89.5

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

53.4 52.4p

14.5

17.0

7.2

10.8

67.9

14.1

6.4

10.2

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

730.2 680.2 673.5 654.2 663.1

85.1

82.9

81.0

81.7

214.9 208.8 209.7 206.5 209.5

83.1 90.3b

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

2 4 8 .8

T o ta l g re e n h o u s e g a s e m is s io n s

3 3 9 .8

E n e rg y in te n s ity o f th e e c o n o m y

3 1 6 .5

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

127

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Portugal

From a high annual average 4% in the period 1995-2000, economic growth declined

to only 0.5% per year between 2001 and 2005. This reflects the necessary unwinding

of imbalances in the economy, in particular in government finances (a general

government deficit of some 6% of GDP in 2005) and the external account. GDP per

capita was 75% of the EU average in 2004, and labour productivity the lowest in the

euro area. The recent economic slowdown has led to a decline in the employment

rate (67.8% in 2004) and an increase in unemployment (6.7% in 2004).

ART

I: G

ENERAL

SSESSMENT

The Portuguese National Reform Programme (NRP) is built on four strategic

objectives: the strengthening of budgetary consolidation, fostering economic growth,

increasing overall competitiveness and reinforcing social, territorial and

environmental cohesion. In order to achieve these strategic objectives a few key

policy areas are identified, the majority concentrating on the micro-economic area:

economic growth and sustainability of public finances; public administration reform;

competitiveness and entrepreneurship; R&D and innovation; territorial cohesion and

environmental sustainability; market efficiency; qualifications, employment and

social cohesion. The Commission shares the analysis of the key policy areas.

The programme identifies clearly the main weaknesses affecting the Portuguese

economy. It reviews many recently initiated policy measures. While some measures

are presented in detail and with ambitious quantified targets, others are less specific,

and would benefit from more detail on timing and sources of funding. This could be

partly attributed to the fact that the NPR started to be prepared by a government

empowered only a few moths before; since the submission of the NRP some of its

measures have been further detailed and implemented. Measures vary considerably

in importance and relevance. Integration between the different areas could be

enhanced. Furthermore a better treatment in the NPR of the modalities for its

implementation and monitoring would have allowed to better assess whether the

measures will be sufficient to address the key challenges. Addressing in a proper way

the NPR’s internal governance and in particular how its implementation is monitored

is essential for the success of the NPR. The NRP defines as a key target an

employment rate of 69% by 2008. While not setting an explicit quantified target for

total investment in R&D, it aims to double public and to triple private R&D

expenditure by 2010, thus setting an implicit target of around 2% of GDP, against the

background of the overall 3% target for the EU. The NRP should specify more

clearly the role of Structural Funds in providing support.

Consultation and efforts to develop ownership of the document have been fairly

substantial. A new ad hoc team, coordinating a network consisting of representatives

of all Ministers, was established at Cabinet level under the authority of the Lisbon-

coordinator, reporting directly to the Prime Minister. Both the Economic and Social

Council and the Parliamentary Committee for European Affairs were consulted and

had a specific session on the draft programme.

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ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The NRP identifies two key policy areas in the area of macro-economic policy. The

first is enhancing economic growth and promoting the sustainability of public

finances. The NRP restates Portugal’s commitment to the fiscal consolidation

strategy, adopted earlier this year and attached to the NRP. The second is the reform

of public administration. Both these challenges are relevant for Portugal.

Fiscal consolidation is crucial for Portugal to return to sustained economic growth.

Based on a favourable economic outlook, the NRP identifies a key target as

achieving a general government deficit below 3% of GDP by 2008. The most

important measures for fiscal consolidation are the Central Government Re-

structuring Programme (PRACE) and changes in the social security schemes for

various categories of government employees. Other measures concentrate on

strengthening the expenditure control framework. The programme mentions concern

over the long-term sustainability of public finances given the ageing population and

acknowledges the importance of reforms in social protection to improve

sustainability and fairness. Recent initiatives, notably changes in civil servants’

retirement rules and on curbing early retirement, have positively contributed to

address this problem. The programme recognises, however, that further measures

might need to be adopted to assure the sustainability of social security and for the

authorities’ fiscal targets to be reached..

The reform of the public administration mainly refers to changes in the relations with

individual citizens and enterprises, and to issues of internal organisation. While the

selection of areas for action seems appropriate, the measures envisaged are not

presented in a detailed manner, which makes it difficult to assess them.

The reform measures in the area of macro-economic policy outlined in the NRP are

promising steps in relevant areas. Their implementation should both support growth

and improve the sustainability of public finances. In addition, they would help curb

Portugal’s heavy net external borrowing. However, while some measures are

described in detail, the programme does not quantify their expected impact on

growth and public finances.

Micro-economic policies

The micro-economic part of the NRP is divided among four “transversal policies”:

competitiveness and entrepreneurship; R&D and innovation; territorial cohesion and

environmental sustainability; and market efficiency. The Commission agrees that

these are priority areas, and would particularly emphasise the need to ensure

adequate levels of competition in network industries.

The NRP deals with science and technology measures largely on the basis of the

government’s “Technological Plan”. It sets ambitious objectives to bring Portugal

close to the EU average in scientific and technological capacity and contains many

useful measures in this regard. However, the coordination of policy design and of

implementation is not explicitly addressed and the NRP would benefit from more

specific information on how to achieve most of the science and technology targets.

More information could be provided to help in assessing the scale of the expected

10.

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interventions or the strategic vision behind individual measures. Making investment

more effective would require development of the research and innovation system and

closer integration of science and industry policies, among other things in order to

avoid bottlenecks in human resources. Monitoring and evaluation mechanisms could

be given more attention, for example in the promotion of private investment in R&D

and innovation. Stimulation of private R&D is dealt with by a mix of complementary

measures (risk capital, tax credits, and thematic support programmes), but it is

unclear whether this is sufficient to create enough absorption capacity and avoid

crowding out private financing.

11.

It should be specified how some of the measures proposed to improve competition in

services, particularly in network industries such as telecommunications and energy,

will address the problem. Most measures in the energy sector concern the writing of

EU Directives into national law. No deadlines are set for the integrated energy

market in the Iberian Peninsula and no timetable is given for opening the gas sector

to competition. With regard to financial services, the NRP mentions the

implementation of the measures in the EU Financial Services Action Plan and

envisages a reinforcement of the Guarantee Fund and adapting the legal framework

for risk capital. The process of gradually introducing competition into postal services

will be supervised by a regulatory body in the period 2006-2008.

Synergies between environmental protection and growth are addressed by seeking

energy efficiency and by increasing the share of renewables. But measures to

promote environmental technologies are limited. Better regulation measures concern

mainly the reduction of administrative costs and no explicit reference is made to

impact assessment and stakeholders’ consultation. Improving the implementation of

EU law is mentioned. Introduction of entrepreneurship training in secondary schools

is planned. Widespread access and use of ICTs is presented as a priority, both as a

tool to cut red tape in public administration and to foster regional development and

enhance productivity.

The NRP announces a vast set of micro-economic policy measures associated with

ambitious objectives. However, it is difficult to discern the strategic priorities. The

measures differ greatly in importance, relevance and details on costs and timing.

There is insufficient information on implementation and monitoring mechanisms.

12.

13.

Employment policies

14.

The employment chapter is based on the National Action Plan for Employment.

“Qualifications, Employment and Social Cohesion” is a key policy area in the NRP.

The Commission supports the top priority given to enhancing qualification levels.

The NRP proposes a comprehensive set of education and training measures with very

ambitious targets. Due to serious structural weaknesses in qualification levels, the

priority given to investment in human capital and to lifelong learning is appropriate.

The proposed expansion of the double certification system at secondary level can

strongly contribute to improving skills and reduce early school leaving. Further

efforts are required to improve the efficiency and labour market relevance of

education and training. The involvement of the social partners will be crucial to the

success of the ambitious measures to certify acquired skills and to increase the

15.

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qualifications of the adult population. Measures to boost vocational training relevant

to company-specific needs, should be strongly pursued.

16.

Employment is addressed through policies to attract more people to the labour

market and promote the adaptability of workers and enterprises. Targets for full

employment by 2010 have been set and appear to be realistic. The measures to attract

and retain more people in employment focus on increasing the employability of the

young, disabled people, increasing female participation, promoting active ageing,

and modernising public employment services. The increasing number of long-term

unemployed and the gender pay gap in the private sector require further attention.

Most of the measures rely heavily on the efficient and effective provision of public

employment services in close contact with the social partners. The NRP could be

more specific on how this is going to be achieved. Adaptability is pursued through

measures to improve the anticipation and management of restructuring and the

reform of labour relations. Measures on critical issues such as labour market

segmentation, modernisation of work organisation, labour cost developments and

productivity and quality at work are not proportionate to the challenges ahead. Some

measures correctly address flexibility, but with little emphasis on security. This

response may lead to imbalances and may weaken the effectiveness of the approach

to adaptability.

Social cohesion is a fundamental component of the employment challenge. The “at-

persistent-risk-of-poverty rate” and the inequality of income distribution are the

highest in the EU, justifying this concern. However, the NRP would greatly benefit

from a focused approach on fighting poverty and only partially addresses the

challenge by including measures for the disadvantaged and socially excluded among

other items such as education, active labour market policies The NRP also refers to

major actions to improve the sustainability and fairness of the social protection

system, notably pension and healthcare. Mainstreaming of gender equality is

identified as a priority but is scarcely addressed.

The ambition of some measures is encouraging, but in many cases there is little

information on the means and instruments for implementation and on how the crucial

involvement of the social partners will work in practice.

17.

18.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Portuguese National Reform Programme

identifies and responds to the main challenges facing Portugal, namely the

strengthening of budgetary consolidation, fostering economic growth, increase

overall competitiveness and reinforcing social, territorial and environmental

cohesion. In order to achieve these strategic objectives a few key policy areas are

identified, the majority concentrating on the micro-economic area: economic growth

and sustainability of public finances; public administration reform; competitiveness

and entrepreneurship; R&D and innovation; territorial cohesion and environmental

sustainability; market efficiency; qualifications, employment and social cohesion. .

The NRP presents a large number of measures. Many of the measures proposed

appear promising, but there is considerable variation in importance and relevance.

Strategic priorities, detail and integration between the different policy areas could be

further enhanced.

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20.

The NRP does not provide extensive information on the implementation and

monitoring progress or on the implications for public finances and only in certain

cases are objectives clear. It is therefore difficult to assess whether the measures will

be sufficient to address the key challenges.

The programme’s strengths include:

•

the priority given to addressing shortcomings in science and technology through

the Technological Plan;

•

the focus on investing in human capital, with ambitious measures throughout the

NRP.

21.

22.

Among the points requiring further attention are:

•

addressing the sustainability of the public finances;

•

stronger measures for effective competition in network industries, in particular

telecommunications and energy;

•

more emphasis on promoting the adaptability of workers, notably the low-skilled,

and of enterprises by modernising work organisation, while ensuring a less

segmented labour market.

23.

Taking due account of the above, Portugal is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Portugal has dealt with the issues mentioned under paragraph 22.

In this context, the Commission looks forward to discussions with the Portuguese

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

132

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PORTUGAL

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

* National target: 1% (2010) for the public sector

2000

2001

80.1

71.8

69.0

50.2

2002

2003

2004

72.4f

66.2f

67.8

50.3

49.0

1999

2000

2001

2002

2003

2004

80.8 80.9b

71.3 72.4b

67.4

50.1

0.72

40.1

74.3

22.9

21.0

3.6

1.8

68.4

50.7

42.8

73.4

23.4

21.0

4.3

1.7

79.6 72.9b

71.5 66.1bf

68.8

51.4

68.1

51.6

0.78

47.7

100.0 100.0 100.0 100.0 100.0 100.0

70.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

0.85 0.80e

43.5

74.6

22.7

44.2

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

76.2 87.3b 85.7p

21.1

19.0

18.3

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

20.0 20.0p 19.0p 21.0b

3.5

1.5

3.8

1.7

3.9

2.2

3.5

3.0

139.4 135.0 136.8 144.3 136.7

247.4 241.5 243.9 254.7 251.3

214.9 208.8 209.7 206.5 209.5

115.8 114.5 124.2 122.8 114.9 165.9b

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

133

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Slovakia

The average annual real GDP growth rate equalled 3.7% over the period 1996-2000.

Labour productivity growth was well above the EU average. Slovakia has recorded

even sharper GDP growth since then, with 5.5% in 2004. GDP per capita was at 52%

of the EU average in 2004. However, strong economic growth has not been reflected

in the labour market performance in 2004, when the employment rate stood at 57%.

The unemployment rate remained the second highest in the EU at 18.2% in 2004,

particularly hitting young people. The employment rate for older people, at around

26.8% in 2004, is one of the lowest in the EU, but rising.

ART

I: G

ENERAL

SSESSMENT

The Slovak National Reform Programme (NRP), which was preceded by a National

Competitiveness Strategy, aims at equalling the living standards of Europe’s most

advanced economies, through a competitive and diversified market economy with

social balance, environmental responsibility and eurozone membership. To this end,

it identifies four key challenges: information society; R&D and innovation; business

environment; and education and employment. The Commission shares the NRP’s

analysis of the main priorities.

The NRP tries to integrate the different policy strands in a sound and responsible

way, given the necessity for sometimes difficult policy choices. It outlines a coherent

national strategy aimed at increasing the competitiveness of the country, building on

several important recent reforms in the areas of public finances, taxation, pensions,

healthcare, and labour market. The policy measures set out mainly concentrate on the

employment and micro-economic areas. A few national targets have been set

(general deficit, employment growth and unemployment rate) but not in relation to

the EU targets on R&D and the overall employment rate. The target for annual

employment growth of 1-2% appears achievable. The target for reducing the

registered unemployment rate to under 10% by 2010 appears less ambitious given

that the current level of registered unemployment is considerably lower than under

the Eurostat definition referred to in paragraph (1). The NRP is less precise on the

regional dimension as well as on the programme for investing the expected major

inflow of structural funds.

Consultation and efforts to develop ownership of the document have been fairly

substantial, though the role of local and regional authorities is not mentioned in the

programme. The NRP was developed under the leadership of the Office of the

Government and the Ministry of Finance. All the relevant ministries participated in

the process, together with social partners, academic representatives and members of

the Parliamentary Committee for EU Affairs.

ART

II: A

SSESSMENT BY

OLICY

REA

Macro-economic policies

134

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The macroeconomic part of the NRP mainly focuses on achieving long-term

sustainability of public finances by 2010 and entry into the eurozone in 2009, as well

as contributing to raising employment rates. The Commission subscribes to these

macro-economic priorities.

The fiscal policy challenge is translated into a short-term goal of reducing the general

government deficit, excluding pension reform cost, to below 3% of GDP in 2006 and

of meeting the same target, including the cost of the pension reform, in 2007. The

NRP contains only limited details about the measures on fiscal and monetary policy,

usually without timetables or budgetary analyses, instead referring readers to the

update of the convergence programme. The reforms already adopted in the areas of

pension, healthcare, tax and public finance management are mentioned. The NRP

reiterates the government’s intention to achieve the fiscal policy goals by allocating

additional public revenues primarily to faster reduction of the deficit.

The Commission’s analysis of reforms already undertaken and in progress is

generally positive but further measures may be necessary to meet the fiscal targets

mentioned above.

Micro-economic policies

The Slovak programme identifies the business environment, R&D and innovation

and information society as the key challenges in the micro-economic area. The

Commission shares this view.

The NRP recognises the need to create a favourable business environment in order to

ensure long term competitiveness. The efforts mentioned towards establishing an

integrated system of impact assessment and to make improve and expand

consultation are promising but require completion. The programme also contains an

interesting initiative to audit barriers to business in 2006. Efforts are made to reduce

and redirect state aid from sectoral state aid assistance to horizontal priorities,

including R&D and SMEs. A proposal to increase access to finance by setting up a

stock exchange with the participation of neighbouring countries is interesting, though

the NRP remains vague on the project and its participants. The NRP announces

measures to improve law enforcement in 2006, though there is no information on

implementation of the new bankruptcy law. The policy measures to improve the links

between indigenous and foreign-owned companies are not fully developed and more

could be done to improve businesses support services specifically targeted at SMEs.

There is no indication of measures aimed at reducing the deficit in writing EU

Internal Market legislation into national law.

The NRP lists a quite comprehensive range of planned actions targeting R&D and

innovation, focused on three priorities: developing and supporting highly qualified

scientists; research of international quality, adequately linked with the business

sector; and effective public support for R&D and innovation. Despite the low starting

point in terms of overall investment in R&D (0.58% of GDP in 2003), the NRP does

not set national targets. It could focus more explicitly on R&D and innovation in

SMEs (including early stage financing), on increasing the impact of the high level of

foreign direct investment on R&D and innovation and on more and better leveraged

public spending on R&D and innovation. A stronger emphasis on applied R&D

10.

135

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together with an improved patenting regime would be needed to strengthen the

bridge from sciences and technology towards innovation.

11.

The strong emphasis on the role of ICTs in education, digital literacy, e-government

and broadband infrastructure is appropriate, as well as the commitment to introduce

ICT-based methods in public administration management. Full implementation of

these initiatives could provide a range of benefits in terms of human capital,

improving the business environment and job creation.

The NRP proposes interesting measures to deal with certain aspects of the micro-

economic challenges identified, but does not present an integrated strategy catering

for different types of businesses. The action planned addresses crucial weak points in

the Slovak R&D, ICT and innovation system. However, it remains to be seen

whether the measures are sufficient to reverse current negative trends. A

reinvigorated commitment to advance the implementation of planned policy

measures and particular attention to their early evaluation will be indispensable.

12.

Employment policies

13.

Four key priorities are identified by the Slovak authorities in the field of

employment, namely: achieving a high employment rate; modern educational policy;

coping with demographic changes and social inclusion. The Commission’s

assessment coincides with this.

In order to support employment growth, attract and retain more people in

employment, the NRP puts forward an extensive set of policy measures, focusing on:

reduction of the tax burden for those on low incomes; simplification of

administrative procedures linked to employment and self-employment; support for

geographical mobility; and active labour market policy measures for disadvantaged

job seekers. Although the mobility measures and housing policy are well established

and linked together, they might not be sufficient to resolve the significant regional

employment disparities. The high level of structural unemployment and the gender

pay gap, which remains among the highest in the EU, deserves more attention in the

programme. The NRP includes several measures aimed at creating inclusive labour

markets. However, some groups require more attention, such as disabled people,

large families and Roma. The measures put forward to respond to demographic

changes in Slovakia do not include support for “active ageing”.

A long-term objective to further reduce the tax and social security burden is set, with

priority given to low-income earners. However, the NRP does not formulate a strong

commitment to reform the overall system of social contributions. Increased

flexibility for enterprises in hiring staff is planned, whilst support for flexible

working arrangements is limited. The NRP proposes to continue with labour

inspection measures in order to reduce undeclared work, but little attention is given

to reduction of the tax wedge. Although the Labour Code in 2003 transferred the

responsibility for wage setting to company level, the NRP recognises the need for

more commitment by the social partners in setting up the wage bargaining

mechanism. In-company training needs more specific attention, also in connection

with the use of Structural Funds.

14.

15.

136

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16.

The NRP considers education policy a top priority in the light of young people’s

often poor levels of key skills and the low rate of adult participation in training. It

refers to the new law on education to be adopted in 2006, which if fully implemented

has potential to be effective in improving human capital over time. The planned

educational reform is focused on all levels of the system and covers ICT use, foreign

language training, lifelong learning and education for disadvantaged children. The

priorities in education policy are clearly defined, with a short reference to the future

use of Structural Funds. . More emphasis could be put on cooperation with the

private sector in the reform of secondary and higher education and to promoting

entrepreneurship education in general.

The NRP presents a wide set of measures aimed at addressing the employment

challenges identified. However, more developed responses to some issues would be

warranted - in particular structural unemployment, regional employment disparities,

investment in in-company training, and the integration of vulnerable groups into the

labour market. More developed policies are also needed to tackle long-term

unemployment and youth unemployment.

17.

ART

III: C

ONCLUSIONS

18.

In line with the Integrated Guidelines, the Slovak National Reform Programme

identifies and responds to the main challenges facing Slovakia, namely information

society; R&D and innovation; business environment; and education and

employment. Overall, the NRP builds on recent reforms. However, it is not always

clear that measures presented are sufficient to meet the objectives set out.

The level of detail given on the various policy initiatives varies widely. The data

provided is insufficient to allow an assessment of whether the financial commitments

for individual initiatives are consistent with the target for the general budget deficit.

In order to facilitate implementation, more should be done to foster the participation

of all stakeholders and ensure efficient monitoring and evaluation.

The programme’s strengths include:

•

measures to improve the business environment including plans to introduce an

integrated system of impact assessments;

•

the priority given to developing the use of ICT, including in education;

•

the comprehensive set of measures supporting employment growth.

21.

Among the points requiring further attention are:

•

stimulating R&D and innovation;

19.

20.

•

tackling regional disparities and structural unemployment;

•

the issue of integration of vulnerable groups, such as disabled people and the

Roma.

137

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22.

Taking due account of the above, Slovakia is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Slovakia has dealt with the issues mentioned in paragraph 21. In

this context, the Commission looks forward to discussions with the Slovak

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

138

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SLOVAKIA

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

46.7

51.9

58.1

22.3

0.66

93.3

40.3

26.7

8.1

8.0

71.1

2000

47.3

54.4

56.8

21.3

0.65

94.5

44.1

23.1

9.1

10.2

66.6

2001

48.2

55.6

56.8

22.4

0.64

94.4

44.6

25.7

8.3

11.4

73.6

2002

50.6

58.7

56.8

22.8

0.58

94.0

44.6

24.3

7.3

12.2

72.8

2003

51.7

58.7

57.7

24.6

0.58

94.1

2004

52.1

59.4

57.0

26.8

0.53

91.3

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

50.5 54.9p

23.1

22.2

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

21.0 21.0p

7.6

11.4

71.8

9.0

11.8

47.4

976.5 955.9 1015.8 976.0 937.3

61.4 54.0b

49.7

46.8

47.6

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R&D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

1 9 5 .1

L o n g -te rm u n e m p lo y m e n t ra te

2 8 7 .8

T o ta l g re e n h o u s e g a s e m is s io n s

4 5 4 .4

E n e rg y in te n s ity o f th e e c o n o m y

4 4 7 .4

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

139

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Slovenia

The Slovene economy has experienced robust GDP growth averaging 3.9% over the

last decade. GDP per capita reached 79% of the EU average in 2004. Even though

labour productivity has grown faster than the EU average, it remains well below the

EU-15 average. Inflation, which has been one of the main concerns since 2000, is

now approaching the EU average. While the employment rate is slightly above the

EU average (65.3% in 2004) and the unemployment rate is one of the lowest (6.0%

in 2004), the labour market is characterised by low employment of older workers and

high youth unemployment.

ART

I: G

ENERAL

SSESSMENT

The Slovene National Reform Programme (NRP) identifies, in line with the

“Slovenia’s Development Strategy”, five development priorities: a competitive

economy and faster growth; a knowledge-based society; an efficient state; a modern

social state and higher employment; and sustainable development. These priorities

are subdivided into a number of more concrete objectives. The Commission shares

the NRP’s analysis of the main priorities.

In order to address the above challenges, the NRP presents a comprehensive set of

largely appropriate measures. It is very wide in scope and as a result the prioritisation

is sometimes difficult to discern. Some reform measures are concrete, backed up

with quantified targets and specific deadlines, while others appear to be only general

aims. Ambitious targets are set for total R&D investment (3% of GDP by 2010, in

line with the overall target for the EU) and employment (raising the overall

employment rate from 65.3% to 67% by 2008) as well as in other key areas.

However, as targets do not always bear a close link to specific measures, it is

difficult to assess the general level of ambition and feasibility of the plan. The NRP

does not elaborate on the budgetary implications of the measures it outlines. While

the document stresses that the success of the reforms hinges on appropriate support

from the EU budget, the links between the NRP priorities and the use of Structural

and Cohesion Funds are not very explicit.

Consultation and efforts to develop ownership of the document have been very

substantial. The government endorsed the programme, which closely corresponds to

the framework document “Slovenia’s Development Strategy”. This strategy has been

widely debated in public involving the tripartite Economic and Social Council, local

authorities and the media. A discussion on the NRP is planned in parliament and may

lead to adjustments. A new government office headed by a Minister without portfolio

has been set up to co-ordinate the implementation of the reforms and a monitoring

procedure will be developed.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

140

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With a view to adopting the Euro in 2007 as the key priority, the NRP identifies

macro-economic policies geared to achieving, as key priorities, nominal convergence

and sustainable fulfilment of the Maastricht criteria related to inflation, long-term

interest rate and exchange rate stability, as well as criteria regarding public finances.

It seeks to achieve a balanced budgetary position by 2010 and cites as crucial in this

respect reducing the scale of public expenditure, reforming the tax system, renewing

the social agreement to keep wage policy stringent and encouraging prolonged

activity on the labour market. The Commission supports this choice of goals. The

expected relatively favourable macro-economic growth conditions in 2005 and 2006,

with the economy growing slightly above potential, offer the opportunity to speedily

proceed with reforms.

The policy measures to be applied to enhance the long-term sustainability of public

finances remain largely unspecified in the NRP, without clear schedules for action.

They can thus be seen as constituting merely broad lines for action. This lack of firm

plans and of detail makes it difficult to assess the credibility of objectives for

reducing general government expenditure and making public spending more flexible,

while ensuring the stability of general government revenue. The NRP refers to the

gradual abolition of the payroll tax by 2009 as well as the simplification of the direct

tax regime and the possible introduction of a flat tax rate in 2007. There is a risk that

these tax reforms could impinge on the general government balance, should the

revenue shortfall due to the abolition/reduction of certain taxes not be off-set with

curbs on expenditure. The NRP does not cover the details of the reform package

designed to cut the high share of fixed spending commitments, currently still

accounting for more than 80% of total outlays.

The programme presents a comprehensive approach to respond to the challenge of

successfully introducing the Euro. However, policy measures put forward for

improving public finances remain vague and do not allow an assessment of the

feasibility of the strategy in the longer term.

Micro-economic policies

The NRP addresses competition, R&D and innovation, business environment, better

regulation, and foreign direct investment as key microeconomic challenges. The

Commission’s analysis is in line with this.

The competition challenge is addressed through a wide range of measures. The

proposal to strengthen the legal basis for the Competition Protection Office is useful,

but the on-going measures are needed to strengthen its staffing and financing need to

be implemented. The proposed privatisation measures are not accompanied by a

detailed timetable. Details are also missing on the proposals for stimulating market

entry and removal of abuse of dominant position in those segments of the telecom

sector with weak competition. There is nothing on reform of regulation in the

professional services sector. Further proposals for increasing cross-border electricity

transmission capacity, so as to increase competition in the domestic market, would

be useful.

On R&D and innovation, a very heterogeneous set of measures has been proposed

that are not sufficiently integrated to ensure the development of a coherent and

successful national research and innovation system. In particular, the NRP does not

10.

141

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sufficiently address the key issue of improving the contribution from the private

sector to R&D. Other issues requiring attention are encouraging cross-border

knowledge transfer, increasing protection for intellectual property rights and the role

of public procurement. An ambitious target to increase investment in R&D as a

proportion of GDP to 3% by 2010 is set but does not seem realistic. The target for

private R&D is not concrete enough. Whilst the initiative to increase public funding

of R&D and to redirect it gradually towards technological research constitutes an

important step, this needs to be combined with an increased concentration of efforts

in a limited number of priority areas with sufficient critical mass. ICT measures such

as the development of wireless broadband, improved ICT education, support for

people buying computers and focus on e-content in Slovene are appropriate.

11.

With respect to business environment, the NRP addresses pertinent issues. The

measures to simplify legislation, to reduce state aid, lighten the tax and

administrative costs to enterprises and set up a structure to steer this process are

serious efforts to improve regulation. The introduction of mandatory impact

assessment is important step but reflection is needed on appropriate structures and

consultation practices. The programme also includes appropriate measures to

encourage entrepreneurship. These include improved SME access to finance, notably

through the establishment of risk capital funds, and the promotion of entrepreneurial

skills.

Although the penetration of foreign direct investment (FDI) into the Slovene

economy has been low, the NRP recognises its importance and sets a quantitative

target. Further privatisation should attract a significant proportion of foreign capital

but the links between FDI and the privatisation strategy are not coherent. The NRP

proposes measures to strengthen the industrial base that will have a positive impact

on industry and will improve attractiveness for FDI. The importance given to

supporting the internationalisation of SMEs is also positive.

The NRP focuses on important major transport initiatives which can make a

significant contribution to competitiveness. However, these initiatives have to be

implemented in order to improve infrastructure for railways and other forms of

public transport and to manage congestion. The focus on improved environmental

and spatial planning policy is appropriate and these policies need to be closely

integrated to ensure that the tourism potential of the economy is realised. More

emphasis on environmental technologies, energy efficiency and the use of

renewables would be helpful.

Overall, the NRP provides a convincing response to the main micro-economic

challenges identified and encouraging progress is being made on better regulation.

However more action will be needed to meet certain challenges, such as improving

the interaction between research activities and industry, strengthening the

Competition Protection Office and increasing effective competition in the electricity

market.

12.

13.

14.

Employment policies

15.

A knowledge-based society, a modern social state and higher employment are among

the priorities of the NRP. The Commission's analysis of the employment and

education related challenges facing Slovenia is in line with this.

142

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16.

Ambitious targets for 2008 are set for attracting and retaining more people in

employment. The target for the overall employment rate is 67%, up from the current

65.3%, and the target for older workers is 35%, compared to 29% currently. These

are combined with less ambitious targets for the unemployment rate (from 6% to

5.5%) and female employment rate (2 percentage points above the EU 15 average).

The intention to complement a gradual increase in retirement age with an active

ageing strategy and integrated programmes for older workers is a positive

development. Measures on the promotion of youth employment largely concentrate

on improving employment opportunities for university graduates and preventive

measures to reduce the drop-out rate from schools. The NRP sets the target of

ensuring that graduates and post-graduates seeking a first job find employment

within six months of completing their studies. Activation measures are foreseen to

help tackle the high youth unemployment. However, the poor performance in terms

of activation and prevention raises concerns over the approach. In this context, the

stated intention of modernising public employment services and encouraging the

development of private employment agencies is helpful. Among disadvantaged

groups, only disabled people are targeted while action against discrimination is

narrowly focused on gender.

Increased flexibility in the labour market is the main instrument put forward in the

NRP to promote adaptability of workers and enterprises. All regulations hindering

flexibility will be revised. The NRP recognises the need for a balance between

flexibility and security but remains unspecific on how this goal will be achieved.

Special attention needs to be paid to the low-skilled, older workers and workers

threatened by the restructuring of some sectors. Measures increasing geographical

mobility are constructive. However, no measures to prevent undeclared work are

included.

Slovenia is performing well in education and lifelong learning relative to several EU

benchmarks. The reforms in higher education and the preparation of a new lifelong

learning strategy are the most important measures mentioned in this respect but

attention needs to be given to achieving a minimum critical size for new universities.

The NRP also states aspirations to promote private investment in human capital and

increase access to lifelong learning for low skilled workers. However, concrete

action to realise these aims is not specified.

The structural weaknesses of the labour market are well identified in the programme.

Key labour market reforms are set out, aiming to increase flexibility, reduce the tax

burden on labour and reform the system of social transfers. Overall, the NRP

addresses the right priorities. However, the major reforms announced are not yet

sufficiently well defined to permit an assessment of their probable results and many

individual measures are too vaguely presented for their feasibility to be determined.

17.

18.

19.

ART

III: C

ONCLUSIONS

20.

In line with the Integrated Guidelines, the Slovene National Reform Programme

identifies and responds to the main challenges facing Slovenia, namely a competitive

economy and faster growth; a knowledge-based society; an efficient state; a modern

social state and higher employment; and sustainable development. Overall, the NRP

143

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is comprehensive and the wide range of measures presented is generally appropriate,

although clearer prioritisation would have been welcome.

21.

There are quantified targets and specific timetables only for some of the reforms

presented. Better links between targets and specific measures would allow a better

assessment of the ambition and feasibility of the plan. The budgetary implications of

the measures proposed are not covered in detail. However, the wide public

consultation and the clear arrangements for coordinating implementation and

monitoring are likely to be a significant advantage in putting the NRP into practice.

The programme’s strengths include:

•

measures to improve regulation, including by simplifying legislation and

lightening the administrative costs to enterprises;

•

efforts to support the development and internationalisation of SMEs, including by

improving their access to finance.

23.

Among the points requiring further attention are:

•

stronger measures to ensure the long term sustainability of pension systems and to

promote active ageing;

•

a more coherent strategy for R&D and innovation, in particular improving the

contribution from the private sector to R&D.

24.

Taking due account of the above, Slovenia is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Slovenia has dealt with the issues mentioned in paragraph 23. In

this context, the Commission looks forward to discussions with the Slovene

authorities as part of the new partnership for growth and jobs.

22.

ART

IV : S

TATISTICAL GRAPHS AND DATA

144

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SLOVENIA

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

74.1

70.4

62.2

22.0

1.42

85.8

74.8

26.4

3.2

93.3

73.2

70.2

62.8

22.7

1.44

87.0

73.1

22.5

11.0

4.0

94.0

74.2

71.6

63.8

25.5

1.56

85.9

73.2

21.2

11.0

3.5

98.6

74.9

71.4

63.4

24.5

76.3

72.9

62.6

23.5

79.5

75.7

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

65.3 67.0 (2008)

29.0

3.0

70.0

1.53 1.54e 1.61e

90.0

75.5

19.8

10.0

3.4

99.3

90.7

89.7

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

77.9 75.8p

20.5

10.0

3.4

98.1

21.3

3.1

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

348.1 341.7 349.6 344.6 338.1

89.0e 87.6e

88.5

84.0

214.9 208.8 209.7 206.5 209.5

87.1 101.1

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

1 6 2 .0

E n e rg y in te n s ity o f th e e c o n o m y

1 6 1 .4

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

145

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Spain

Over the last decade, Spain experienced annual average real GDP growth above 3%

and a sustained pace of catching-up to GDP per capita of 98% of the EU average in

2004. As a result of strong job creation, the employment rate (61.1% in 2004) has

increased significantly, but remains far below the Lisbon target, especially for

women, while unemployment (11% in 2004) has considerably decreased over recent

months. Low productivity growth, which during the last decade has been below the

EU average, coupled with persistently high inflation is damaging competitiveness.

ART

I: G

ENERAL

SSESSMENT

The Spanish National Reform Programme (NRP) presents two overarching policy

objectives related to growth and employment: completing the real convergence of

Spain with the EU-25 in terms of per capita income and increasing the employment

rate to 66% by 2010. In order to achieve these two main objectives, the programme

identifies seven key policy areas: budgetary stability; R&D strategy; a better

environment for business; the achievement of higher competition; infrastructure

development; a better functioning of the labour market; and better education and

human capital. The Commission shares this analysis of the main priorities.

The Spanish NRP is ambitious and focuses on the most urgent challenges facing the

country. The programme sets out a fairly comprehensive strategy to address Spain’s

economic and employment challenges, although the selection of priority measures

for the period 2005-2008 is not always clear and some of the measures remain vague.

Quantified targets are set for R&D spending (2% of GDP by 2010) and for the

overall employment rate (66% by 2010). The target for the employment of women is

57% by 2010. An extensive set of indicators is provided to help monitor

implementation. However, details on timetables and budgetary implications are

limited making it difficult to assess the practicability of measures; for instance, how

Spain envisages using EU Structural Funds to help reach the objectives in the

programme for the period beyond 2007.

A clear internal governance structure has been established to ensure inter-ministerial

coordination and governmental ownership of the programme. There is a call to

reinforce regional governments’ involvement during implementation of the

programme. They have been invited to appoint “Lisbon coordinators” and draft their

own programmes. Also positive is the announced involvement of stakeholders at the

monitoring and evaluation stages of the programme. However, the programme

provides limited information on the level of involvement and consultation of other

stakeholders during its development as well as on efforts to consult and raise

awareness of civil society at large.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

146

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On the macro-economic side, reinforcing macroeconomic and budgetary stability is

considered paramount to support real GDP convergence, which is a top priority of

the NRP.

The NRP sets the target of real GDP per capita reaching 100% of the EU-25 average

by 2010 (no indication is given for 2008). This target is easily attainable as real GDP

per capita increased from 92.8% of the average EU-25 in 2000 to 98% in 2004. All

measures presented in the NRP are expected to contribute to the overall convergence

process.

The main quantified target is to reduce the ratio of public debt to 34% of GDP by

2010 (38% in 2008). This confirms existing commitments and policies to reduce

public debt, a key aspect of which is the reform of the General Budgetary and

Stability Law. The aim is to ensure greater budgetary stability over the economic

cycle, to increase transparency of public accounts and to improve co-ordination with

regional and local administrations. Other policy areas important for the sustainability

of public finances, such as health care and pensions, are referred to but the

effectiveness of on-going reforms is difficult to assess on the basis of the NRP. In the

case of healthcare, success will depend on further cooperation with the regional

governments.

Overall, the macro-economic policies outlined in the NRP appear suitable. They

build on the good performances that have been achieved, notably in terms of fiscal

consolidation.

Micro-economic policies

The programme identifies four key policy areas for action in the micro-economic

area: setting up a R&D and innovation strategy; improving the business environment;

achieving greater competition; and developing infrastructure.

Concerning the R&D and innovation strategy, the research investment objective is

ambitious (2% of GDP by 2010) but achievable if Spain sustains current increases in

public research investment (with an objective of a 25% minimum annual increase)

and succeeds in mobilising private expenditure, including through the financial

participation of regional governments. The programme puts forward a wide array of

measures, with quantified objectives and clear timetables. In particular, reforms of

the legal and administrative framework for R&D, the new monitoring and evaluation

system and the new “Plan Avanz@” to improve take-up of ICT are useful steps.

Widening the use of ICT is also highlighted as a driver for modernising public

administration. Further efforts would seem needed to ensure that SMEs and new

firms have the capacity to engage in R&D activities and benefit from innovation.

With respect to improving the business environment and achieving greater

competition, the new measures proposed appear appropriate, although detailed

information on implementation is limited. Particular consideration is given to better

regulation and achieving greater efficiency in public administration, although

the

plan does not discuss better regulation challenges in detail. Some important issues

related to competition are not sufficiently addressed, in particular as far as the retail

sector and the electricity market are concerned. For example, for the latter,

improving interconnection with neighbouring countries is essential.

10.

11.

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12.

As regards infrastructure and sustainable development, the NRP refers to the

Strategic Plan for Infrastructures and Transport and identifies a very complete set of

objectives for road and rail networks for 2020, but does not set intermediate targets.

Increased energy efficiency and decreased CO

emissions are also presented as

overarching objectives.

Overall, the list of micro-economic policies put forward in the NRP appears relevant

and should contribute to increasing productivity growth. However, except for R&D

and infrastructure, it is difficult to assess the exact scope and likely impact of the

measures based on the programme. The specific needs of SMEs deserve greater

attention.

13.

Employment policies

14.

Together with convergence in income per capita, increasing the employment rate to

66% by 2010 is the overarching objective of the NRP. Raising female employment is

considered crucial in this respect and the NRP sets a target of increasing the

employment rate of women from 48.3% in 2004 to 57% by 2010. The programme

also seeks to address the segmentation of the labour market caused by the proportion

of fixed-term contracts, which is the highest in the EU. Increasing investment in

human capital through better education and skills is also considered a key priority to

sustain employment and productivity growth. The Commission supports all these

objectives.

In order to attract and retain more people in employment, measures focus on

increasing the participation of women, older workers, young people and

disadvantaged groups, including migrant workers. These measures include the

revision of incentives for early retirement, an income tax reform and increasing the

number of places in public childcare facilities, as part of a wider endeavour to

modernise the social protection system. The objective of increasing public care

facilities for children under three by 2% a year is helpful but would seem insufficient

given the size of the challenge. While the high level of youth unemployment is

considered a priority, the programme builds on existing policies and no new

measures are presented. It also sets the target of reducing the current youth

unemployment rate to close to the EU average by 2010 (from 22.1% to 18.7%).

The NRP includes measures to reduce the use of fixed-term contracts through a

review of different contract types and their respective costs. These, along with

measures to promote self-employment and improve health and safety at work, would

constitute a first step in addressing the segmentation of the labour market. However,

overall progress in improving the functioning of the labour market and the

adaptability of workers and enterprises will depend on the outcome of current

dialogue between social partners. Particular attention is given in the NRP to the

collective bargaining agreement signed by the social partners in March 2005, which

covers wage moderation. Measures to develop the market for rental housing seem

likely to facilitate geographical mobility.

Measures to foster human capital are taking shape through a recently-adopted

framework Law on education and a new joint system for occupational and

continuous vocational training, due for adoption on January 2006. Action focuses on

preventing learning problems in primary education, better integrating children of

15.

16.

17.

148

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immigrant origin in schools, developing the use of foreign languages and ICT,

supporting higher education reforms and developing lifelong learning. Important

commitments are made, although for most measures without funding being specified.

The commitment to halve early school leaving by 2010 seems realistic. It will require

a significant effort to achieve the objectives of 80% of 24-year-olds completing

upper secondary education and of increasing the share of population in continuous

training from 5.2% to 12.5% by 2010.

18.

Overall, the programme reinforces the employment objectives set in previous

national action plans for employment, at least in so far as most of the fairly ambitious

but realistic targets are concerned. Measures would in general benefit from greater

clarity, including more consideration of regional disparities, more specific

information on action to raise female employment and clearer references to

budgetary means. Success will depend to a large extent on the results of the on-going

process of social dialogue.

ART

III: C

ONCLUSIONS

19.

In line with the Integrated Guidelines, the Spanish National Reform Programme

identifies and responds to the main challenges facing Spain, namely budgetary

stability; R&D strategy; a better environment for business; the achievement of higher

competition; infrastructure development; a better functioning of the labour market;

and better education and human capital. Overall, the NRP is ambitious, coherent and

fairly comprehensive. It builds appropriately on existing policies, although

prioritisation between measures could be improved.

An extensive set of indicators is provided to help monitor implementation. However,

timetables, budgetary implications and clear links with the use of EU funding are

often missing, making it difficult to assess the practicability of measures. It will be

important to involve stakeholders in implementing the NRP, thus spreading

ownership beyond governmental circles.

The programme’s strengths include:

•

continuing efforts on achieving greater budgetary stability over the economic

cycle;

•

the comprehensive R&D and innovation plan set out;

•

the complete set of objectives for road and rail networks in the Strategic Plan for

Infrastructures and Transport.

22.

Among the points requiring further attention are:

•

competition issues, in particular in the retail and electricity sectors, for example

by improving interconnection with neighbouring countries.

•

the segmentation in the labour market, the need to increase female employment;

23.

Taking due account of the above, Spain is invited to implement its NRP with vigour.

The 2006 progress report on the implementation of the NRP should cover in

20.

21.

149

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particular the way Spain has dealt with the issues mentioned in paragraph 22. In this

context, the Commission looks forward to discussions with the Spanish authorities as

part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

150

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SPAIN

2010

National

target

EU-25

2010

target

1999 2000 2001 2002 2003 2004

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

92.6

100.6

53.8

35.0

0.88

65.2

84.8

21.3

19.0

10.8

5.9

92.8

98.2

56.3

37.0

0.91

65.9

85.0

22.8

18.0

10.7

4.8

93.5

97.9

57.8

39.2

0.92

64.8

85.1

22.6

95.6 97.8f 98.0f

99.3 100.5

58.5

39.6

0.99

64.0

85.0

22.7

59.8

40.7

1.05

62.1

99.9

61.1

41.3

61.1

1999 2000 2001 2002 2003 2004

100.0 100.0 100.0 100.0 100.0 100.0

66.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

70.0

2.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

3.0

86.6 87.4p

23.5

24.5

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

19.0 19.0b

10.0

3.9

9.3

3.9

19.0 20.0b

9.0

3.9

8.7

3.5

127.6 133.0 132.6 139.3 140.6

227.0 227.0 225.4 226.3 226.6

214.9 208.8 209.7 206.5 209.5

111.7 117.7 122.5 135.4 137.1 151.4

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

151

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Sweden

Sweden is in a good position with respect to GDP per capita (118% of EU average in

2004), productivity and employment levels. Real GDP growth has been slightly

below 3% on average over the last decade. Labour productivity growth has been just

above the EU average. The employment rate is one of the highest in the EU (72.1%

in 2004). However, over recent years employment growth has been weak and

employment rates have declined, while unemployment (6.3% in 2004) has increased.

ART

I: G

ENERAL

SSESSMENT

The Swedish National Reform Programme (NRP) puts a strong emphasis on

sustainable development and integrates this theme into the social, economic and

environmental policies set out. The NRP does not explicitly set clear priority areas

but emphasises high labour market participation and hours worked and promotes a

knowledge-based economy with environmentally efficient production processes. The

Commission broadly supports this approach but also regards competition in services

as a key area for attention.

The strategy of the NRP is broad, guided by the notion of sustainable development.

The NRP spells out long-term ambitions under each guideline, emphasises continuity

with existing policies and appears realistic. Timetables for implementing measures

are not in most cases given and budgetary information is not always complete. The

NRP does not always provide a full strategic vision and more priority setting would

improve this. Some measures still need to be made more concrete. The NRP

mentions ambitious targets for employment rate (80% for 20-64 year olds) and for

publicly financed R&D (the annual target of 1% of GDP). No overall national target

for investment in R&D is mentioned in the NRP, but at 3.75% of GDP (2004) recent

investment has been high, against the background of the overall target for the EU of

3%. Relatively little new policy is set out in the section dealing with competition in

services. Measures already proposed in the 2006 budget are described in more

specific terms than those for subsequent years, although the NRP signals many

reports and studies in the pipeline that may lead to interesting additional measures

during those years. The NRP also describes how EU structural funds will be used to

promote the objectives.

Consultation and efforts to develop ownership of the document have been fairly

substantial. The Programme was formally endorsed by the Government and

presented to Parliament for discussion. Meetings to consult social partners, including

local and regional public authority employers, and civil society were arranged.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The macro-economic strategy presented in the NRP is a continuation of policies

already in place for a number of years. The strategy aims for sound public finances,

low and stable inflation and wage setting in line with productivity. The NRP

152

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acknowledges that, in the medium to long term, reaching a high level of employment

and hours worked in the economy are important to sustain public welfare

commitments, a view shared by the Commission.

The macro-economic strategy implies that fiscal policy will continue to be set within

a general government budget surplus objective of 2% of GDP on average over the

economic cycle and within rolling 3-year nominal expenditure ceilings. The NRP

emphasises the continued need for social partners to set wages in a responsible way,

supported by the national mediation office. The general government budget balance

is forecast to remain in surplus over the period, but below the 2% objective. Were it

to do so, the funds that could be built up would be an important element in meeting

the budgetary demands created by the ageing of the population.

The NRP mentions ongoing investigations into the efficiency of the welfare

insurance systems and the appropriateness of the way responsibilities are divided

across different levels of government. The proposals based on this work may prove

to be important for the long-term provision of public welfare services. The NRP

mentions that the government intends to conduct a general overview of the tax

system taking into account changes both in that system and in the economy as a

whole since the 1990/91 reform. This work may also yield important efficiency

benefits contributing to growth and incentives to work.

Overall, there is no urgent macro-economic challenge for Sweden and the stability-

oriented framework is well designed. There is nothing in the short-term outlook that

appears likely to prevent Sweden continuing to achieve its macro-economic policy

objectives.

Micro-economic policies

The micro-economic policy priorities are R&D, innovation, and ICT diffusion. The

business environment and strengthening competition policy are cited as the key areas

for action. The NRP sees the knowledge-based economy as its main objective.

R&D, innovation and ICT diffusion are identified by the government as key

challenges in the context of the national “Innovative Sweden strategy”. The NRP sets

clear priorities in these areas and shows a readiness to finance them. These priorities

are: strengthening the role of industrial research institutes as a bridge between

science and industry; improving the commercialisation of R&D; and strengthening

research and training of researchers. Concerted measures to improve the intellectual

property regime are set out. While the NRP contains some measures for SMEs, there

would be scope for further measures focusing on research-driven and innovative

SMEs, particularly encouraging links with larger firms. On ICT, the objective of a

recently adopted law is a sustainable information society for all, to be complemented

by a national action plan on electronic procurement and an increase in R&D

investment on ICT.

To increase entrepreneurship, weak by international comparisons, the government

plans to create a more competitive business environment. An action programme to

reduce administrative costs to enterprises is being implemented, including a target to

reduce such burdens arising from tax legislation by 20% by 2010. More targets will

be set in 2006. Improving the use of impact assessment is mentioned, but without

10.

11.

153

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information on specific implementation measures. Six sectoral industrial strategies

are proposed to strengthen the competitiveness of the industrial base. Improving co-

operation between industry, government, and universities at national and regional

level will play an important role in this. The implementation of the long-term

strategic framework on transport infrastructure, including a prioritised Trans-

European Transport Network project, will contribute to links between major Swedish

cities and the rest of Europe. The NRP envisages that Sweden’s competitiveness

increasingly will build on environmentally-friendly production processes. In

particular, measures for green electricity certificates, financial support for wind

power, investment programmes for renewables and energy efficiency in the

construction and renovation of buildings are included.

12.

The NRP acknowledges the need to strengthen competition policy and a government

appointed commission is looking into streamlining the legal framework governing

competition cases. No specific measures to remove barriers to entry in services

markets are set out. While the NRP acknowledges that Sweden will need to adjust

national rules to future EU legislation, it makes no specific commitments or

initiatives to increase competition in key service sectors. 13.

As regards the

efficiency of the public sector, the e-government proposals are appropriate, but lack a

precise timetable for implementation. No concrete measures are presented in the

NRP to encourage outsourcing and benchmarking in the public sector or to

strengthen the prevention of direct procurement contravening EU law.

The Commission’s assessment of the innovation and ICT strategies is positive.

Additional micro-economic measures could usefully be taken to promote a more

effective market for services and improve the efficiency of the public services. The

emphasis on sustainable development in the micro-economic chapter, and in

particular the series of measures that will increase energy efficiency and improve the

environment can help drive growth over time.

14.

Employment Policies

15.

The NRP identifies increased labour supply through higher labour force participation

and more working hours as a high priority given the ageing population and the

current high level of welfare services. The Commission shares this view.

To attract more people into employment, Sweden maintains its commitment to

achieve as soon as possible its existing targets on employment rate (80% for 20-64

year olds) and unemployment rate (4%). The main priority is a reinforced active

labour market policy to tackle the recent increases of youth, long-term and overall

unemployment, and to help the young, immigrants and disabled persons into work.

The NRP recognises the need to improve the integration of immigrants into the

labour market and to tackle discrimination given the high employment gap between

immigrants and native born Swedes (16 percentage points). The NRP proposes a

number of measures, including rehabilitation and work-based solutions, to reduce

sick leave and entrants into disability pension – some progress has been made on this

already. However, the large number of people already on disability pensions receives

less attention and makes more active measures necessary for these people. A better

balance between incentives and a substantial social safety net in the tax and benefit

systems remains a challenge, in view of a persistently high unemployment trap and a

high tax wedge on labour.

16.

154

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17.

Plans to address the adaptability of workers and enterprises mainly relate to issues

such as the right to full-time employment, the use of temporary employment,

subsidies for mobility and preventing undeclared work. With the currently high

gender pay gap (16% unadjusted), the future action plan to eliminate gender-based

wage discrimination is a positive move.

Sweden exceeds all the EU benchmarks for investment in human capital. The NRP

focuses on the need to develop further improve quality throughout the education

system and to increase equality in levels of attainment. The government’s target that

at least 50% of 25-year olds should begin higher education seems challenging but

achievable. The NRP is weak on skills development in the workplace and

participation in lifelong learning by the low-skilled, is currently lower than

participation by men and women with higher skills, remains a priority.

Overall, the NRP provides a fairly ambitious yet not entirely complete response to

the challenge of increasing labour supply. The NRP addresses most of the key areas

but would have deserved a more in depth consideration of issues like unemployment

and inactivity traps, maintaining a continued high labour supply of older workers and

reducing the number of people on disability pensions.

18.

19.

ART

III: C

ONCLUSIONS

20.

In line with the Integrated Guidelines, the Swedish National Reform Programme

identifies and responds to most of the main challenges facing Sweden, emphasising

namely high labour market participation and hours worked and promoting a

knowledge-based economy with environmentally efficient production processes.

However, competition in services is a key issue only partially addressed in the NRP.

Overall the programme is broad, builds appropriately on existing initiatives and

recent economic successes and sets out clear and realistic long-term ambitions. It

includes many innovative measures underpinned by a strong effort to reinforce the

three pillars - economic, social and environmental - of sustainable development. The

programme’s strategic vision and practicability could be enhanced by more

prioritisation.

Timetables for implementing measures are not in most cases given and budgetary

information is not always complete. Some measures could be described further. The

NRP refers to various reports and studies that may give rise to further initiatives in

the second half of the 2005-2008 implementation period.

The programme’s strengths include:

•

the high priority and the associated funding commitment for promoting R&D,

innovation and ICT;

•

the comprehensive approach to integrating environmental and energy aspects in

the production process;

•

measures to reduce unemployment, including reinforced active labour market

policies.

23.

Among the points requiring further attention are:

21.

22.

155

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•

enhancing competition in services;

•

increasing labour supply, including by addressing incentives in tax and benefit

systems.

24.

Taking due account of the above, Sweden is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way Sweden has dealt with the issues mentioned in paragraph 23. In

this context, the Commission looks forward to discussions with the Swedish

authorities as part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

156

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SWEDEN

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

* National target: 80% for the population aged 20-64

** National target: 1% (2010) for the public sector

2000

2001

2002

2003

2004

1999

2000

2001

2002

2003

2004

118.4 119.6 115.7 114.2 116.4 117.9

107.1 107.3 103.2 102.1 104.6 107.1

71.7

63.9

3.65

86.3

73.0

64.9

74.0

66.7

4.27

73.6

68.0

86.7

72.9

68.6

3.98

85.6

72.1

69.1

3.74

86.3

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

85.2 85.5b

125.3 126.7 117.0 121.1 124.0 121.1p

13.9

8.0

4.8

1.9

96.7

14.7

4.5

1.4

93.0

14.3

13.3

12.9

13.0

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

9.0 11.0b

4.2b

1.0

94.4

4.6

1.0

96.1

: 11.0b

4.3

1.0

97.6

4.4

1.2

89.3

238.2 215.0 228.9 224.3 218.6

91.1e

93.1

88.8

90.6

90.8

214.9 208.8 209.7 206.5 209.5

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

1 9 5 .2

G ro s s d o m e s tic e x p e n d itu re

on R &D

1 9 6 .8

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

180

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

180

1999

2000

2003

2004

EU targets

157

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United Kingdom

The United Kingdom’s real GDP grew 3.2% on average in 1996-2000, well above

the EU average, with GDP per capita at 117% of the EU average in 2004. GDP

continued to grow relatively well with favourable labour market outturns. Labour

productivity growth has been a bit faster than the EU average. The employment rate

at 71.6% is high and exceeds the Lisbon target. The unemployment rate has been

broadly stable and is at an historic low (4.7% in 2004).

ART

I: G

ENERAL

SSESSMENT

The UK National Reform Programme (NRP) sets out broad policy priorities:

maintaining fiscal sustainability in the face of demographic challenges; building an

enterprising and flexible business sector; promoting innovation and R&D; widening

opportunities for the acquisition of skills; increasing innovation and adaptability in

the use of resources; and ensuring fairness through a modern and flexible welfare

state. The Commission broadly shares the NRP’s analysis of the main priorities but

notes that improving transport infrastructure is also an important challenge in some

regions.

The UK has already made considerable progress in structural economic reforms and

the NRP largely reflects existing strategies. Some potential synergies between

different policies are not addressed. The NRP presents a series of measures that are

likely to build on to the successful structural economic reforms already undertaken in

the UK through further opening markets, encouraging employment and improving

the business environment. However, a number of other important challenges remain

such as the fiscal balance, the efficiency of public expenditure, the quality of

transport infrastructure, skill levels, pension reform and R&D policy. The UK

already exceeds the employment rate target of 70% set for the EU as a whole. The

NRP refers to a target of 80% for the long term, although there is no target for 2010.

In addition, the government has set an R&D investment target of 2.5% of GDP for

2014, against the background of the overall target for the EU of 3% by 2010. The

UK sets no target for that date, but will review progress to the UK’s own target and

calibrate policy on an annual basis. The role of Structural Funds in supporting the

NRP is not fully explained.

Consultation and efforts to develop ownership of the document have been rather

limited. The UK NRP was issued by H.M. Treasury. Some consultation took place,

for example with the devolved administrations responsible for Scotland, Northern

Ireland and Wales, but wider consultation could have strengthened the integration

and ownership of the NRP. Annexed to the NRP is a joint declaration with the Irish

Government on North/South cooperation to promote growth and jobs throughout the

island of Ireland. A short stakeholder consultation was undertaken over the summer

to gauge general interest in the Lisbon Strategy.

ART

II: A

SSESSMENT BY

OLICY

REA

Macro-economic policies

158

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In terms of macroeconomic strategy, the NRP focuses on efficiency improvements to

public expenditure and new initiatives for pension provision. Improving the

structural fiscal balance is a challenge for fiscal policy not addressed in the NRP.

On the quality of public finances, the government has set an ambitious target to

improve the efficiency of public spending, involving redirecting some £20bn (€29bn

or 1.7% of GDP) to priority spending areas by 2007/08. The redeployment of

resources to frontline health services should increase their effectiveness, but more

emphasis could be given to reducing sickness costs for businesses. The NRP could

have specified in more detail the monitoring mechanism and the incentives for

efficiency improvements, especially in some cases where achieving savings might be

particularly challenging. The 2007 Comprehensive Spending Review is expected to

assess further the effectiveness of central government expenditure.

On public and private pension provision, the NRP reviews a number of existing

policy initiatives. The low level of public pension provision is one of the

determinants of the favourable long-term outlook for UK public finances. However,

projected public and private pension provision appears insufficient to avoid a

growing imbalance between income in work and in retirement, despite recent

reforms. The report from the Pensions Commission published on 30 November 2005

suggests a possible way forward for further pension reforms.

Improving the structural fiscal balance is a remaining challenge. The macro-

economic framework underpinned a significant fiscal consolidation in the late 1990s

but the fiscal situation has deteriorated since 2002. There is a risk that revenues will

continue to be below initial projections so that the deterioration of the structural

balance might not be reversed sufficiently.

The Commission’s overall analysis of the macro-economic chapter of the UK NRP is

that the reforms to large areas of public expenditure, provided the necessary further

efforts are made to deliver them, should provide significant efficiency benefits. On

pensions, it is too early to tell whether current policy deliberation will lead to the

extensive revisions necessary. The NRP gives insufficient attention to the

improvement of the structural fiscal balance.

Micro-economic policies

10.

The UK authorities have identified R&D and innovation and the encouragement of

entrepreneurship as key micro-economic challenges. The Commission broadly shares

this analysis but also identifies the quality and efficiency of the transport

infrastructure as a key theme because of its importance for productivity growth.

The mix of measures for R&D and innovation broadly matches the longer term UK

policy priorities, as identified by recent strategic reviews such as the Lambert report

on business-university links. In particular, the 10-year Science and Innovation

Investment Framework can help rectify a period of consistent under-investment. The

NRP, however, mainly describes existing schemes and measures. Further policy

initiatives will be needed in order to achieve the government’s 2.5% R&D target for

2014. A timetable and intermediate investment targets for 2008 and 2010 are

missing, and few details are given on the expected impact of the proposed measures

on business R&D investment and innovation. The development of innovation

11.

159

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clusters linked to universities and cross-border knowledge transfers are issues that

could be examined in more detail.

12.

Funding of railway infrastructure has been substantially increased and the London

congestion charge has proved successful. However, the NRP would be enhanced by

more measures to improve other specific transport needs outside London and the

South East, particularly accessibility to local employment opportunities. The NRP

contains interesting policies on innovation for improved energy and resource

efficiency, but more could be done to increase energy efficiency and to promote

environmental technologies.

Concerning the business environment, the UK identifies encouraging

entrepreneurship and better regulation as key priorities. The NRP mentions a number

of recent SME initiatives, some implemented successfully using significant support

from Structural Funds. Nevertheless, more could be done to reduce the time period

for business VAT registration, to tackle the recent decline in entrepreneurship among

ethnic minorities and to achieve the very ambitious target set for female

entrepreneurship. Current better regulation initiatives include: improvements to

regulatory impact assessment guidelines, cross-government initiatives to reduce

administrative costs and measures to simplify legislation and tax administration.

UK competition policy appears to be working well and contributes to the

development of an open and dynamic internal market. The on-going market reviews

by the Office of Fair Trading (OFT), particularly that on public subsidies, will assist

in maintaining and further improving this, as will the independent review of legal

services. The UK’s review of the Financial Services and Markets Act allows for the

speeding up of the implementation of the EU Financial Services Action Plan.

On the microeconomic challenges, whilst clear progress is being made in some areas

from a strong policy base, additional policy initiatives will be required to ensure the

achievement of the UK government’s own R&D target for 2014 and in order to

sufficiently improve the quality and efficiency of transport infrastructure.

13.

14.

15.

Employment policies

16.

The UK NRP refers to the aspiration of raising the employment rate to 80% over the

long term, but sets no targets for 2008 and 2010. Raising employment is to be

achieved through increasing employment opportunity for all, removing barriers to

participation and ‘making work pay’. Increasing skills in the workforce, particularly

at low and intermediate levels, is identified as key to productivity growth. The UK

also recognises other on-going concerns, especially over labour market integration of

vulnerable groups.

Key to achieving this ambitious target for attracting and retaining more people in

employment will be the integration into the labour market of vulnerable groups such

as incapacity benefit claimants, disabled people, lone parents, some ethnic minority

groups, older people and those from areas of high deprivation. Barriers to

participation in work are addressed through individually tailored support to increase

employability and help people find jobs as well as by skills improvement and

additional measures to 'make work pay'. As the focus of activation measures shifts to

harder to reach groups, success will depend upon ensuring the continued capacity of

17.

160

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public employment services to intervene flexibly according to the needs of

individuals, in the context of substantial administrative efficiency savings, as well as

on the strength of private sector labour demand. In addressing the particularly large

number of people inactive for reasons of ill-health or disability, a pilot scheme

“Pathways to Work” is showing encouraging results. The scheme combines

employment advice, health support and financial incentives to take up work.

Notwithstanding considerable recent improvements in the availability and

affordability of childcare, further progress on both aspects is needed for all parents to

have a real choice to work.

18.

On adaptability of workers and enterprises, there is a clear commitment in the NRP

to drive productivity improvements by addressing skills challenges, particularly for

low-skilled adults, and enhancing human capital. Growing emphasis is placed on the

responsibilities of employers and individuals to invest in education and training,

supported by incentives. The dovetailing of national/regional skills strategies and

newly-created Sector Skills Councils will be vital in ensuring effectiveness. Reforms

to secondary curricula seek to provide more flexible learning pathways and reduce

high levels of early school leaving, to improve qualification levels and eliminate skill

mismatches.

Overall, the employment approach is well-balanced and focused on achieving results

in areas of identified weakness and piloting solutions. Against the background of the

already high employment rate of 71.6%, the initiatives to engage various groups in

the labour market are likely to make a positive contribution.

The commitments made in the NRP to address the skills challenge are indispensable

in order to improve the situation on the ground. Though concerted efforts have been

made to address issues such as the low level of job retention and the working poor

through the introduction of the national minimum wage and child and working tax

credits, further efforts are still required.

19.

20.

ART

III: C

ONCLUSIONS

21.

In line with the Integrated Guidelines, the UK’s National Reform Programme

identifies and responds to the main economic challenges facing the UK, namely

maintaining fiscal sustainability in the face of demographic challenges; building an

enterprising and flexible business sector; promoting innovation and R&D; widening

opportunities for the acquisition of skills; increasing innovation and adaptability in

the use of resources; and ensuring fairness through a modern and flexible welfare

state.. Overall the NRP is coherent and contains many concrete, ambitious and

original measures appropriate to build on successful structural reforms already

undertaken, though integration across different policy areas is not always fully

evident.

More detail on timetables, monitoring and evaluation methods would be necessary to

allow a comprehensive assessment of the likely effectiveness of the measures

proposed. Involving stakeholders in the implementation phase will be important in

order to increase ownership and the effective application of policies on the ground.

22.

161

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23.

The programme’s strengths include:

•

the better regulation initiatives;

•

the “Pathways to Work” pilot initiative to assist incapacity benefit claimants to re-

enter the labour market;

•

policies on competition and entrepreneurship.

24.

Among the points requiring further attention are:

•

budgetary consolidation, in the light of the need to upgrade transport

infrastructure and to ensure an adequate pension system;

•

additional policy initiatives to boost R&D and improve transport infrastructure;

•

efforts to address skills challenges and to improve employment prospects for the

most disadvantaged.

25.

Taking due account of the above, the UK is invited to implement its NRP with

vigour. The 2006 progress report on the implementation of the NRP should cover in

particular the way the UK has dealt with the issues mentioned in paragraph 24. In

this context, the Commission looks forward to discussions with the UK authorities as

part of the new partnership for growth and jobs.

ART

IV : S

TATISTICAL GRAPHS AND DATA

162

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UNITED KINGDOM

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

* National target: 80% following the national definition

2000

2001

2002

2003

2004

1999

2000

2001

2002

2003

2004

112.4 113.1 113.7 116.6 116.7 116.8f

102.8 104.1 105.5 108.0 107.3 106.9

71.0 71.2b

49.6 50.7b

1.84

75.3

1.84

76.4

71.4

52.2

1.89

77.0

71.3

53.4

1.89

77.2

71.5

55.4

1.88

78.1

71.6

56.2

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

: 2.5 (2014) 1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

76.4

74.8

76.3

76.1

76.5

76.6

112.0 117.3 114.3 110.7 103.8 105.6p

15.9

19.0

7.5

1.7

86.8

15.7

19.0

7.1

1.4

86.7

15.2

18.0

6.8

1.3

88.3

15.1

18.0

6.6

1.1

85.7

14.3

18.0

6.1

1.1

86.7

14.6

5.8

1.0

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

234.3 227.3 223.7 214.5 213.1

93.6

89.6

87.2

85.5

214.9 208.8 209.7 206.5 209.5

84.8 84.3p

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity

p e r p e rs o n e m p lo y e d

E m p lo y m e n t ra te

o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re

on R &D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te

a fte r s o c ia l tra n s fe rs

D is p e rs io n o f re g io n a l

e m p lo y m e n t ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt

re la tiv e to G D P

100

120

140

160

1999

2000

2003

2004

EU targets

163

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Euro Area

Since the launch of the Lisbon strategy in 2000, the annual growth rate for the euro

area averaged 1.8% per year, lagging behind its main competitors. Hourly

productivity rose 1.2% yearly between 1999 and 2003 and exhibited a declining

trend. The employment rate rose from 60.6% in 1999 to 63% in 2004, whereas

unemployment declined just marginally, from 9.1% in 1999 to a still high 8.9% in

2004. Employment rates for older workers and for women remained particularly low,

at 38.6% and 54.5% in 2004.

ART

I: G

ENERAL

SSESSMENT

The euro area is more than just the sum of its parts. Membership to the Economic

and Monetary Union (EMU) places a particular premium on effective policy

coordination to ensure fiscal discipline and structural reforms that enhance the

capacity for absorption of asymmetric shocks and to preserve price stability, low

interest rates and the euro’s exchange rate. In this respect, the Integrated Guideline

No. 6 calls on the euro area Member States to contribute to a dynamic and well-

functioning EMU.

The National Reform Programmes (NRPs) of the euro area countries rightly place

particular emphasis on sustainability of public finances and the need to boost labour

productivity through R&D, innovation and an attractive business environment and on

increasing employment and participation rates. On the other hand, some important

challenges such as competition in services appear to have been omitted in many

NRPs.

The euro area countries present rather comprehensive and mostly forward-looking

and consistent strategies. However, their in-depth assessment is made difficult due to

limited level of detail on measures, targets, timetables and resources involved. Only

some euro area programmes present quantitative targets for R&D or employment

rates. Possible budgetary implications of reforms are in most cases missing.

Moreover, the Programmes widely rely upon already foreseen measures which

amount to just incremental improvements, rather than highly ambitious new

strategies.

The NRPs also generally demonstrate the commitment of the national governments

to the renewed Lisbon strategy. All the governments have adopted the Programmes

and invited parliaments to discuss them. Social Partners were involved to some

degree, whereas this was rare as regards local and regional authorities.

ART

II: A

SSESSMENT BY POLICY AREA

Macro-economic policies

The euro area needs coordinated policies that achieve and maintain sound and

sustainable macro-economic positions thereby contributing to a policy-mix which

helps its economy to become more dynamic and resilient. Since national interest rate

164

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and exchange rate instruments are no longer available, particular emphasis is

necessary on achieving and maintaining sound budgetary positions over the cycle

which will provide sufficient budgetary margin to help absorb through the working

of automatic stabilisers the impact of cyclical fluctuations. Fiscal discipline is also a

precondition for promoting long-term growth as well as creating the capacity to

respond to future fiscal policy challenges stemming from population ageing.

The Programmes identify fiscal discipline, both short-term budgetary stability and

long-term sustainability of public finances, as their main challenge in the area of

macro-economic policies. Other challenges considered in the NRPs are efficiency of

public administrations and quality of public finances, including reforms of social

security and pension schemes as well as health care reforms. Nonetheless, the

measures proposed to achieve the budgetary consolidation are often not sufficiently

detailed thereby involving risks as regards the targets to be achieved and the

timetables envisaged.

The fiscal consolidation strategies highlighted in the NRPs are typically expenditure-

based. In general fiscal consolidation is embedded in a broader structural reform

effort. The budgetary implications of the actions envisaged in other policy areas,

such as employment and social policies, are seldom spelled out. To some extent one-

off measures to support the process of budgetary consolidation (such as the

privatisation of state assets) have been presented. A number of measures have been

launched to reform pension schemes, health care and social security systems.

Concerning policies for improving the quality of public finances, the euro area

members typically refer to national strategies for strengthening infrastructure, human

capital and R&D investment.

The euro area deficit is estimated at 2.9% in 2005 and according to the Commission

services’ autumn 2005 forecast, the deficit is expected to diminish again marginally

in 2006, based on unchanged policies, and to stabilise in 2007 in the context of a

moderate economic recovery. Accordingly, the upward trend in the debt ratio would

continue, albeit at a diminished pace. Despite recently announced measures to

strengthen the adjustment, overall, the measures announced are unlikely to

significantly improve the situation. A number of Member States will still have

budgetary deficits above the reference value in 2007.

The Programmes often neglect to take into account, and thereby give due priority, to

reforms that, justified at national level, can also enhance the ability of the euro area

as a whole to adjust smoothly to shocks and the changing economic environment.

Some of the reforms envisaged can be expected to reinforce such resilience, for

example, through support for easier matching of demand and supply in the labour

market, more adaptable workforce and ‘better regulation’ initiatives to foster

business dynamism. However, attention should be paid too to the importance of

wage developments, wage flexibility and wage differentiation and to product market

reforms that will increase competition and will improve the functioning of the

Internal Market.

10.

Micro-economic policies

11.

Comprehensive structural reforms in product, services and capital markets are

particularly important for the euro area to increase its adjustment capacity. Moreover,

165

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in the view of the persistence of growth differences across some euro area Member

States structural reforms are necessary to boost the responsiveness of the economy

through changes in prices (the so-called competitiveness adjustment mechanism).

12.

Promoting R&D and innovation are singled out in the euro area programmes along

with improving business environment and entrepreneurship. Further key challenges

are the strengthening of competition and the opening up of markets. The efficiency

of public administrations, upgrading infrastructures and promoting ICT investment

and use are identified to a lesser degree. The Commission generally subscribes to

these priories though notes that the competition challenge, notably in services and

network industries, is not treated well enough.

R&D expenditures in the euro area stand at around 2% of GDP, thus significantly

short of the EU-wide objective of 3%. In terms of public R&D expenditures, the

Programmes foresee further increases in spending and outline measures to increase

efficiency of public research. To achieve the overall objective on R&D, it is crucial

to enhance more private spending in R&D. Several Programmes intend to use tax

incentives and/or to make the regulatory or institutional framework more supportive

for innovation, in particular among SMEs. Several Programmes also propose to

identify and support clusters and innovation poles, although cross-border cooperation

between them is not addressed.

The Programmes acknowledge the need for better business environment for

companies and in particular, for SMEs. Measures to improve business environment

include better regulation, easier market entry and exit, tax reforms, reforms of public

administration, diffusion of ICT and upgrading infrastructures. These measures,

together with those in the labour markets, are likely to lead to some reduction in

costs for business and contribute positively to economic dynamism.

A well functioning and competitive Internal Market is particularly important for the

euro area as a whole inasmuch as it will enhance its capacity to adjust smoothly to

asymmetric shocks. The Programmes should address more explicitly how to reduce

current transposition deficits and the number of pending infringement cases.

Likewise more concrete measures should aim to increase effective competition in

services and network industries and remove the significant remaining barriers in

these sectors.

Microeconomic measures go broadly in the right direction, particularly the measures

to boost R&D or to improve business environment, including better regulation. It is

also however not clear whether the measures proposed to raise business R&D will be

sufficient to achieve the stated objectives. In addition, the essential issues of

increasing competition and improving the Internal Market have not been given

appropriate attention.

13.

14.

15.

16.

Employment policies

17.

Achieving more and better jobs and better responsiveness of labour markets is

another major contribution to make the euro area more resilient to asymmetric

shocks. This requires encouraging higher labour participation, especially among

women and older people, increased adaptability of workers and enterprises, and more

and better investment in human capital.

166

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18.

The Programmes in the euro area aim at raising employment and labour force

participation and tackling high (structural) unemployment. They are relatively

scattered and generally address the groups with low employment/high

unemployment, namely youngsters, females and older workers. One measure

frequently proposed is a reform of the tax and benefit. Overall, the challenges

identified in the NRPs with respect to retaining and attracting more workers

correspond reasonably closely to those resulting from the Commission’s analysis.

Some Member States envisage measures to strengthen adaptability. Steps are

envisaged in the direction of loosening employment protection for new work

contracts, geographical and occupational mobility, and easier job placement. Overall,

however, more comprehensive reforms leading to greater responsiveness of labour

markets through adaptation of employment legislation and the effectiveness of active

labour market policies are paid insufficient attention in the programmes (i.e. the

concept of flexicurity).

Enhancing the quality of human capital through improving education and upgrading

skills, including the long-life learning strategies, are also considered to be important.

Reforms of the education system find a prominent place as precondition for boosting

labour productivity. The Programmes develop less on measures to boost investment

in education, training for adults, and life-long learning, despite their potential for

greater productivity and adaptability of the current labour force.

The measures have indeed a potential to contribute to increasing labour utilisation,

adaptability and improving human capital. Nonetheless, the strategies put insufficient

emphasis on important, though arguably difficult measures: for instance, linked to

flexicurity, including changes of employment legislation, and achieving a rapid

breakthrough in human capital investment.

19.

20.

21.

ART

III : C

ONCLUSIONS

22.

The National Reform Programmes of the countries in the euro area are broadly

supported by the Commission as they address some main economic challenges for

the euro area as a whole. However, further reinforcement of measures in several

areas is deemed necessary to achieve a more substantial impact to address the quite

sizeable challenges ahead.

The Programmes lay out rather comprehensive and forward-looking strategies.

However, their degree of concretion varies considerably and reference to monitoring

procedures are very often missing. The Commission notes, in particular, the need for

more details on synergies and best sequencing of reforms and their budgetary

implications.

The strengths of the Programmes of the countries in the euro area include:

•

Measures to ensure the sustainability of public finances in the longer term,

through increases in effective pension retirement age;

•

Measures to improve regulatory environment and cut administrative costs on

businesses;

23.

24.

167

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•

Measures to provide financial and other incentives to increase labour supply.

25.

Among the points requiring further attention for a better functioning of the euroarea

are:

•

the need to reinforce the long-term sustainability of public finances, in particular

by reverting the upward trend in the debt ratio, in line with the revised Stability

and Growth Pact.

•

R&D and innovation policies need to be enhanced in order to achieve the desired

objectives;

•

challenges of competition in services and in network industries and the need of a

better functioning of the Internal Market are not treated sufficiently;

•

the importance of increased adaptability deserves greater attention, including

wage developments, flexicurity, and investment in training for adults.

ART

IV : S

TATISTICAL GRAPHS AND DATA

168

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EUROZONE 12

EU-12

2010

National

target

EU-25

2010

target

1999

GDP per capita in PPS

Labour productivity per person employed

Employment rate

Employment rate of older workers

Gross domestic expenditure on R&D

Youth education attainment level

Comparative price levels

Business investment

At-risk-of-poverty rate after social transfers

Dispersion of regional employment rates

Long-term unemployment rate

Total greenhouse gas emissions

Energy intensity of the economy

Volume of freight transport relative to GDP

2000

2001

2002

2003

2004

1999

2000

2001

2002

2003

2004

109.0 108.5 108.5 107.6 107.2f 106.6f

109.3 108.0 107.6 106.8 106.5f 106.0f

60.4

33.9

61.5

34.4

62.2

35.2

62.4

36.5

62.6

37.9

63.0

38.6

100.0 100.0 100.0 100.0 100.0 100.0

61.9

36.2

62.4

36.6

62.8

37.5

62.8

38.7

62.9

40.2

63.3

41.0

3.0

70.0

1.90e 1.90e 1.90e 1.90e 1.90e 1.89pe

71.5

101.6

18.3

72.8

72.2

72.6

72.5

72.9

1.87e 1.89e 1.93e 1.93e 1.92e 1.90pe

74.8

76.3

76.1

76.5

76.6

99.9 100.3 101.1 102.9 102.7p

18.8

18.3

15.0

12.7

3.6

17.6

15.0

12.1

3.6

17.3

14.0

11.5

3.9

17.5

17.0

10.5

4.0

100.0 100.0 100.0 100.0 100.0 100.0p

17.9

13.3

4.1

90.6

18.3

16.0

13.4

3.9

90.5

17.7

15.0

13.5

3.8

91.4

17.1

15.0

13.3

3.9

90.7

16.7

15.0

12.9

4.0

92.0

16.9

16.0

12.2

4.1

15.0e 15.0e

13.3

4.5

12.9

3.9

98.1e 98.6e 99.6e 99.6e 100.7e

192.0 188.6 190.0 184.9 188.2

214.9 208.8 209.7 206.5 209.5

104.1e 104.7e 104.5e 105.3e 103.6e 109.7e

100.7e 100.4e 99.4e 100.3e 99.7e 104.7e

EU-25 = 100

G D P p e r c a p ita in P P S

L a b o u r p ro d u c tiv ity p e r p e rs o n

e m p lo y e d

E m p lo y m e n t ra te

E m p lo y m e n t ra te o f o ld e r w o rk e rs

G ro s s d o m e s tic e x p e n d itu re o n R & D

Y o u th e d u c a tio n a tta in m e n t le v e l

B u s in e s s in v e s tm e n t

100

120

140

160

EU-25 = 100

C o m p a ra tiv e p ric e le v e ls

A t-ris k -o f-p o v e rty ra te a fte r s o c ia l

tra n s fe rs

D is p e rs io n o f re g io n a l e m p lo y m e n t

ra te s

L o n g -te rm u n e m p lo y m e n t ra te

T o ta l g re e n h o u s e g a s e m is s io n s

E n e rg y in te n s ity o f th e e c o n o m y

V o lu m e o f fre ig h t tra n s p o rt re la tiv e to

GDP

100

120

140

160

1999

2000

2003

2004

EU targets

169