27.5.2013 EN Official Journal of the European Union L 140/11 REGULATION (EU) No 473/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 136 in combination with Article 121(6) thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Central Bank (1), Acting in accordance with the ordinary legislative procedure (2), Whereas: (1) The Treaty on the Functioning of the European Union (TFEU) requires that Member States regard their economic policies as a matter of common concern, that their budgetary policies are guided by the need for sound public finances and that their economic policies do not risk jeopardising the proper functioning of economic and monetary union. (2) The Stability and Growth Pact (SGP) aims to secure budgetary discipline across the Union and sets out the framework for preventing and correcting excessive government deficits. It is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth underpinned by financial stability, thereby supporting the achievement of the Union's objectives for sustainable growth and jobs. The SGP includes the multilateral surveillance system laid down in Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (3) and the procedure for the avoidance of excessive government deficit laid down in Article 126 TFEU and further specified in Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (4). The SGP has been further strengthened by Regulation (EU) No 1175/2011 of the European Parliament and of the Council (5) and Council Regulation (EU) No 1177/2011 (6). Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area (7) added a system of effective, preventive and gradual enforcement mechanisms in the form of the imposition of sanctions on Member States whose currency is the euro. (3) The strengthening of the SGP has enhanced the guidance provided to Member States concerning prudent fiscal policy-making, and, for the Member States whose currency is the euro, has reinforced and made more automatic the imposition of sanctions for non-compliance with prudent fiscal policy-making, in order to avoid excessive government deficits. Those provisions have created a more comprehensive framework. (4) In order to ensure closer coordination of economic policies and sustained convergence of the economic performance of Member States, the European Semester, as established in Article 2-a of Regulation (EC) No 1466/97, provides a framework for economic policy coordination. The European Semester includes the formulation, and the surveillance of the implementation, of the broad guidelines of the economic policies of the Member States and of the Union (broad economic policy guidelines) in accordance with Article 121(2) TFEU; the formulation, and the examination of the implementation, of the employment guidelines that must be taken into account by Member States in accordance with Article 148(2) TFEU (employment guidelines); the submission and assessment of Member States' stability or convergence programmes under that Regulation; the submission and assessment of Member States' national reform programmes supporting the Union’s strategy for growth and jobs and established in line with the broad economic guidelines, with the employment guidelines and with the general guidance to Member States issued by the Commission (the annual growth survey) and the European Council at the beginning of the annual cycle of surveillance; and surveillance to prevent and correct macroeconomic imbalances under Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (8). Where appropriate, opinions issued in the context of an economic partnership programme, as established by this Regulation, should also been taken into account. (5) To enable the Union to emerge stronger from the crisis, both internally and at an international level, by boosting competitiveness, productivity, growth potential, social cohesion and economic convergence, the European Council, in its conclusions of 17 June 2010, adopted a new Union’s strategy for growth and jobs which also contains objectives in the fields of poverty, education, innovation and the environment. (6) In order to ensure the proper functioning of the economic and monetary union, the TFEU allows the adoption of specific measures in the euro area which go beyond the provisions applicable to all Member States to strengthen the coordination and surveillance of their budgetary discipline. Such reinforced coordination and surveillance should be accompanied by commensurate involvement of the European Parliament and of national parliaments as appropriate. Active use, where appropriate and necessary, should be made of specific measures provided for in Article 136 TFEU. (7) The application of this Regulation should be in full compliance with Article 152 TFEU and the recommendations issued under this Regulation should respect national practice and institutions for wage formation. This Regulation takes into account Article 28 of the Charter of Fundamental Rights of the European Union, and, accordingly, does not affect the right to negotiate, conclude or enforce collective agreements or to take collective action in accordance with national law and practice. (8) Article 9 TFEU provides that, in defining and implementing its policies and activities, the Union is to take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion, and a high level of education, training and protection of human health. (9) Gradually strengthened surveillance and coordination, as set out in this Regulation, will further complete the European Semester for economic policy coordination, will complement the existing provisions of the SGP and strengthen the surveillance of budgetary and economic policies in Member States whose currency is the euro. A gradually enhanced monitoring procedure should contribute to better budgetary and economic outcomes, macro-financial soundness and economic convergence, to the benefit of all Member States whose currency is the euro. As part of a gradually strengthened process, closer monitoring is particularly valuable to Member States that are subject to an excessive deficit procedure. (10) Biased and unrealistic macroeconomic and budgetary forecasts can considerably hamper the effectiveness of budgetary planning and, consequently, impair commitment to budgetary discipline. Unbiased and realistic macroeconomic forecasts can be provided by independent bodies or bodies endowed with functional autonomy vis-à-vis the budgetary authorities of a Member State and which are underpinned by national legal provisions ensuring a high degree of functional autonomy and accountability. Such forecasts should be used throughout the budgetary procedure. (11) Strong public finances are best ensured at the planning stage and gross errors should be identified as early as possible. Member States should benefit not just from the setting of guiding principles and budgetary targets but also from a synchronised monitoring of their budgetary policies. (12) Setting up a common budgetary timeline for Member States whose currency is the euro should better synchronise the key steps in the preparation of national budgets, thus contributing to the effectiveness of the SGP and of the European Semester for economic policy coordination. This should lead to stronger synergies by facilitating policy coordination among Member States whose currency is the euro and by ensuring that Council and Commission recommendations are appropriately integrated in the budgetary procedure of the Member States. That procedure should be consistent with the framework for economic policy coordination in the context of the annual cycle of surveillance which includes, in particular, the general guidance to Member States issued by the Commission and the European Council at the beginning of the cycle. Member States' budgetary polices should be consistent with the recommendations issued in the context of the SGP and, where appropriate, with recommendations issued in the context of the annual cycle of surveillance, including the macroeconomic imbalances procedure as established by Regulation (EU) No 1176/2011, and with opinions on economic partnership programmes, as established by this Regulation. (13) As a first step of that common budgetary timeline, Member States should make public their national medium-term fiscal plan at the same time as their stability programmes preferably by 15 April and no later than by 30 April. Those fiscal plans should include indications on how the reforms and measures set out are expected to contribute to the achievement of the targets and national commitments established within the framework of the Union's strategy for growth and jobs. The national medium-term fiscal plan and the stability programme can be the same document. (14) One important milestone of that common budgetary timeline should be the publication of the draft central government budget by 15 October. Since compliance with the rules of the SGP is to be ensured at the level of the general government and achievement of the budgetary objectives requires consistent budgeting across all subsectors of the general government, the publication of the draft central government budget should be accompanied by the publication of the main parameters of the draft budgets of all the other subsectors of the general government. Such parameters should include, in particular, the projected budgetary outcomes of the other subsectors, the main assumptions underlying those projections and the reasons for expected changes with respect to the stability programme assumptions. (15) The common budgetary timeline also provides for the budget to be adopted or fixed upon annually by 31 December together with the updated main budgetary parameters for the other subsectors of the general government. Where, for objective reasons beyond the control of the government, the budget is not adopted by 31 December, reversionary budget procedures should be put in place to ensure that the government remains able to discharge its essential duties. Such arrangements could include the implementation of the government's draft budget, of the preceding year's approved budget, or of specific parliament-approved measures. (16) With a view to better coordinating the planning of their national debt issuance, the Member States should report ex ante on their public debt issuance plans to the Eurogroup and to the Commission. (17) Compliance with effective rules-based fiscal frameworks can be important in supporting sound and sustainable fiscal policies. Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States (9) established that monitoring of compliance with country-specific numerical fiscal rules should be supported at national level by independent bodies or bodies endowed with functional autonomy. It is important to note that given the diversity of possible and existing arrangements, while not the preferred option, it should be possible for more than one independent body to be in charge of monitoring compliance with those rules as long as there is a clear allocation of responsibility and as long as there is no overlap of competency over specific aspects of the monitoring. Excessive institutional fragmentation of monitoring tasks should be avoided. In order for monitoring bodies to fulfil their mandate effectively, national legal provisions ensuring a high degree of functional autonomy and accountability should underpin such bodies. The design of those monitoring bodies should take into account the existing institutional setting and the administrative structure of the Member State concerned. In particular, it should be possible to endow a suitable entity of an existing institution with functional autonomy provided that such an entity is designated to carry out specific monitoring tasks, has a distinct statutory regime and complies with the other principles referred to in this recital. (18) This Regulation does not impose on Member States additional requirements or obligations with regard to country-specific numerical fiscal rules. Strong country-specific numerical fiscal rules consistent with the budgetary objectives at the level of the Union and monitored by independent bodies are a cornerstone of the strengthened budgetary surveillance framework of the Union. The rules with which those bodies should comply, and their specific tasks, are set out in this Regulation. (19) Member States whose currency is the euro are particularly subject to spill-over effects from each other's budgetary policies. Member States whose currency is the euro should consult the Commission and each other before adopting any major fiscal policy reform plans with potential spill-over effects, so as to allow an assessment of the possible impact for the euro area as a whole. They should also consider their budgetary plans to be of common concern and submit them to the Commission for monitoring purposes in advance of their becoming binding. The Commission, in cooperation with the Member States, should propose guidelines in the form of a harmonised framework for the specification of the content of draft budgetary plans. (20) In the exceptional cases where, after consulting the Member State concerned, the Commission identifies in the draft budgetary plan particularly serious non-compliance with the budgetary policy obligations laid down in the SGP, the Commission, in its opinion on the draft budgetary plan, should request a revised draft budgetary plan, in accordance with this Regulation. This will be the case, in particular, where the implementation of the draft budgetary plan would put at risk the financial stability of the Member State concerned or risk jeopardising the proper functioning of the economic and monetary union, or where the implementation of the draft budgetary plan would entail an obvious significant violation of the recommendations adopted by the Council under the SGP. (21) The Commission's opinion on the draft budgetary plan should be adopted as soon as possible and in any event by the end of November, taking into account, to the extent possible, the specific national fiscal schedule and parliamentary procedures, in order to ensure that Union's policy guidance in the budgetary area can be appropriately integrated in the national budgetary preparations. In particular, the opinion should include an assessment of whether the budgetary plans appropriately address the recommendations issued in the context of the European Semester in the budgetary area. At the request of the parliament of the Member State concerned or of the European Parliament, the Commission should be prepared to present its opinion to the parliament making the request, after it has been made public. Member States are invited to take into account, in the process of adopting their budget law, the Commission opinion on their draft budgetary plan. (22) The extent to which that opinion has been taken into account in a Member State's budget law should be part of the assessment, if and when the conditions are met, leading to a decision on the existence of an excessive deficit in the Member State concerned. In such a case, no follow-up to the early guidance from the Commission should be considered as an aggravating factor. (23) Also, based on an overall assessment of the draft budgetary plans by the Commission, the Eurogroup should discuss the budgetary situation and prospects for the euro area as a whole. (24) Member States whose currency is the euro and which are subject to an excessive deficit procedure should be monitored more closely, in order to secure a full, sustainable and timely correction of the excessive deficit. Closer monitoring by means of additional reporting requirements should ensure prevention and early correction of any deviations from the Council recommendations to correct the excessive deficit. Such monitoring should complement the provisions set out in Regulation (EC) No 1467/97. Those additional reporting requirements should be proportionate to the stage of the procedure to which the Member State is subject, under Article 126 TFEU. As a first step, the Member State concerned should carry out a comprehensive assessment of in-year budgetary execution for the general government and its subsectors, taking into account in particular financial risks associated to contingent liabilities with potentially large impacts on public budgets. (25) Additional reporting requirements for Member States whose currency is the euro and which are subject to an excessive deficit procedure should enable a better exchange of information between the Member States concerned and the Commission, and, as a consequence, the identification of risks in the compliance of a Member State with the deadline which has been set by the Council to correct its excessive deficit. In the event of such risks being identified, the Commission should issue a recommendation to the Member State concerned setting out appropriate measures to be taken within a given timeframe. Upon request, the Commission should present its recommendation to the parliament of the Member State concerned. Compliance with the recommendation should lead to a prompt correction of any developments putting at risk the correction of the excessive deficit within the established deadline. (26) Assessment of compliance with the Commission recommendation should be part of the continuous assessment made by the Commission of effective action to correct an excessive deficit. When deciding whether effective action to correct the excessive deficit has been taken, the Council should also base its decision on whether or not the Member State complied with the Commission recommendation, while giving due consideration to Article 3(5) and Article 5(2) of Regulation (EC) No 1467/97. (27) Indeed, Regulation (EC) No 1467/97, which sets out in detail the excessive deficit procedure based on Article 126 TFEU, embeds elements of flexibility which allow unexpected adverse economic events to be taken into account. Article 3(5) and Article 5(2) of that Regulation provide that if effective action has been taken in compliance with, respectively, a recommendation under Article 126(7) TFEU or a decision to give notice under Article 126(9) TFEU, and unexpected adverse economic events with major unfavourable consequences for government finances occur after the adoption of that recommendation or decision to give notice, the Council may decide, on a recommendation from the Commission, to adopt a revised recommendation under Article 126(7) TFEU or a revised decision to give notice under Article 126(9) TFEU. The revised recommendation or revised decision to give notice, taking into account the relevant factors referred to in Article 2(3) of Regulation (EC) No 1467/97 may, in particular, extend the deadline for the correction of the excessive deficit by one year as a rule. The Council should assess the existence of unexpected adverse economic events with major unfavourable consequences for government finances against the economic forecasts in its initial recommendation or decision to give notice. In the case of a severe economic downturn in the euro area or in the Union as a whole, the Council may also decide, on a recommendation from the Commission, to adopt a revised recommendation under Article 126(7) TFEU or a revised decision to give notice under Article 126(9) TFEU, provided that that does not endanger fiscal sustainability in the medium term. In addition, Article 2(1a) of Regulation (EC) No 1467/97 provides that, in implementing the debt ratio adjustment benchmark, account shall be taken of the influence of the cycle on the pace of debt reduction. Thus, a Member State would not be considered as having breached the debt criterion laid down in Article 126(2)(b) TFEU if that is only because of negative cyclical conditions. (28) Also, since budgetary measures might be insufficient to ensure a lasting correction of the excessive deficit, Member States whose currency is the euro and are subject to an excessive deficit procedure should present an economic partnership programme detailing the policy measures and structural reforms needed to ensure an effective and lasting correction of the excessive deficit, building on the latest update of their national reform programme and their stability programme. (29) Furthermore, strengthening economic governance has involved a closer dialogue with the European Parliament. While recognising that the counterparts of the European Parliament in the framework of the dialogue are the relevant institutions of the Union and their representatives, the competent committee of the European Parliament may offer an opportunity to participate in an exchange of views to a Member State which is the subject of a Commission recommendation or of a Council opinion in accordance with this Regulation. The Member State's participation in such an exchange of views is voluntary. (30) In order to specify the extent of the reporting obligations for Member States subject to an excessive deficit procedure, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the content and scope of such reporting. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council. (31) The power to adopt opinions on economic partnership programmes, as established by this Regulation should be conferred on the Council. Those opinions are complementary to the excessive deficit procedure laid down under Article 126 TFEU in accordance with which the Council is to decide on the existence of an excessive deficit and on the measures required to put an end to it. (32) Recalling the importance of sound public finances, structural reform and targeted investment for sustainable growth, the Member States' Heads of State or Government signed a Compact for Growth and Jobs on 29 June 2012, demonstrating their determination to stimulate job-creating growth in parallel to their commitment to sound public finances. The Compact includes, in particular, measures to boost the financing of the economy. EUR 120 000 million (equivalent to around 1 % of the Union's Gross National Income) are being mobilised for fast-acting growth measures. As recommended in the annual growth survey in 2012 and 2013, the Member States should strive to maintain an adequate pace of fiscal consolidation while preserving investment aiming to achieve the Europe 2020 goals for growth and jobs. (33) The Commission is monitoring the impact of tight budget constraints on growth enhancing public expenditure and on public investment. The Union's fiscal framework offers scope to balance the acknowledgement of productive public investment needs with fiscal discipline objectives: while fully respecting the SGP, the possibilities offered by the Union's existing fiscal framework to balance productive public investment needs with fiscal discipline objectives can be exploited in the preventive arm of the SGP. The Commission has announced its intention to report on the scope for possible action within the boundaries of the existing Union fiscal framework. (34) The European Parliament's resolution of 20 November 2012 with recommendations to the Commission on the report of the Presidents of the European Council, the European Commission, the European Central Bank and the Eurogroup ‘Towards a Genuine Economic and Monetary Union’ and the Commission's Communication of 28 November 2012 entitled ‘A blueprint for a deep and genuine EMU’ outline, respectively, the views of the European Parliament and of the Commission on the steps needed to achieve a deeper and better integrated economic and monetary union. Following the report ‘Towards a Genuine Economic and Monetary Union’, the European Council, in its conclusions in December 2012, set out its views on a number of issues with a view to the further strengthening of EMU, HAVE ADOPTED THIS REGULATION: CHAPTER I GENERAL PROVISIONS Article 1 Subject matter and scope 1. This Regulation sets out provisions for enhanced monitoring of budgetary policies in the euro area and for ensuring that national budgets are consistent with the economic policy guidance issued in the context of the SGP and the European Semester for economic policy coordination, by: (a) complementing the European Semester, as established in Article 2-a of Regulation (EC) No 1466/97, with a common budgetary timeline; (b) complementing the procedure for the prevention and correction of excessive macroeconomic imbalances, as established by Regulation (EU) No 1176/2011; (c) complementing the multilateral surveillance system of budgetary policies, as established by Regulation (EC) No 1466/97, with additional monitoring requirements in order to ensure that Union policy recommendations in the budgetary area are appropriately integrated in the national budgetary preparations; (d) complementing the procedure for correcting a Member State's excessive deficit, as established by Article 126 TFEU and by Regulation (EC) No 1467/97, with closer monitoring of the budgetary policies of Member States subject to an excessive deficit procedure in order to secure a timely and lasting correction of an excessive deficit; (e) guaranteeing the consistency between budgetary policies and measures and reforms taken in the context of the procedure for prevention and correction of excessive macroeconomic imbalances as established by Regulation (EU) No 1176/2011 and, where appropriate, in the context of an economic partnership programme as referred to in Article 9. 2. The application of this Regulation shall be in full compliance with Article 152 TFEU and the recommendations issued under this Regulation shall respect national practice and institutions for wage formation. In accordance with Article 28 of the Charter of Fundamental Rights of the European Union, this Regulation shall not affect the right to negotiate, conclude or enforce collective agreements or to take collective action in accordance with national law and practice. 3. This Regulation shall apply to Member States whose currency is the euro. Article 2 Definitions 1. For the purposes of this Regulation, the following definitions shall apply: (a) ‘independent bodies’ means bodies that are structurally independent or bodies endowed with functional autonomy vis-à-vis the budgetary authorities of the Member State, and which are underpinned by national legal provisions ensuring a high degree of functional autonomy and accountability, including: (i) a statutory regime grounded in national laws, regulations or binding administrative provisions; (ii) not taking instructions from the budgetary authorities of the Member State concerned or from any other public or private body; (iii) the capacity to communicate publicly in a timely manner; (iv) procedures for nominating members on the basis of their experience and competence; (v) adequate resources and appropriate access to information to carry out their mandate; (b) ‘independent macroeconomic forecasts’ means macroeconomic forecasts produced or endorsed by independent bodies; (c) ‘medium-term budgetary framework’ means medium-term budgetary framework as described in point (e) of Article 2 of Directive 2011/85/EU; (d) ‘stability programme’ means stability programme as described in Article 3 of Regulation (EC) No 1466/97. In order to ensure consistency across the independent macroeconomic forecasts referred to in point (b) of the first subparagraph, the Member States and the Commission shall, at least annually, engage in a technical dialogue concerning the assumptions underpinning the preparation of macroeconomic and budgetary forecasts in accordance with Article 4(5) of Directive 2011/85/EU. 2. The definitions of ‘general government sector’ and of ‘subsectors of the general government sector’, set out in point 2.70 of Annex A to Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (10) shall also apply to this Regulation. 3. The application of this Regulation is without prejudice to Article 9 TFEU. CHAPTER II ECONOMIC POLICY COORDINATION Article 3 Consistency with the framework for economic policy coordination The Member States' budgetary procedure shall be consistent with: (1) the framework for economic policy coordination in the context of the annual cycle of surveillance, which includes, in particular, the general guidance to Member States issued by the Commission and the European Council at the beginning of the cycle; (2) the recommendations issued in the context of the SGP; (3) where appropriate, recommendations issued in the context of the annual cycle of surveillance, including the macroeconomic imbalances procedure as established by Regulation (EU) No 1176/2011; and (4) where appropriate, opinions on economic partnership programmes, as referred to in Article 9. CHAPTER III COMMON BUDGETARY PROVISIONS Article 4 Common budgetary timeline 1. Member States shall, in the context of the European Semester, make public, preferably by 15 April but no later than 30 April each year, their national medium-term fiscal plans in accordance with their medium-term budgetary framework. Such plans shall include at least all the information to be provided in their stability programmes and shall be presented together with their national reform programmes and the stability programmes. Such plans shall be consistent with the framework for economic policy coordination in the context of the annual cycle of surveillance, which includes, in particular, the general guidance to Member States issued by the Commission and the European Council at the beginning of the cycle. They shall also be consistent with the recommendations issued in the context of the SGP and, where appropriate, with recommendations issued in the context of the annual cycle of surveillance, including the macroeconomic imbalances procedure as established by Regulation (EU) No 1176/2011, and with opinions on economic partnership programmes referred to in Article 9. National medium-term fiscal plans and national reform programmes shall include indications on how the reforms and measures set out are expected to contribute to the achievement of the targets and national commitments established within the framework of the Union's strategy for growth and jobs. Furthermore, national medium-term fiscal plans or national reform programmes shall include indications on the expected economic returns on non-defence public investment projects that have a significant budgetary impact. National medium-term fiscal plans and stability programmes may be the same document. 2. The draft budget for the forthcoming year for the central government and the main parameters of the draft budgets for all the other subsectors of the general government shall be made public annually not later than 15 October. 3. The budget for the central government shall be adopted or fixed upon and made public annually not later than 31 December together with the updated main budgetary parameters for the other sub-sectors of the general government. Member States shall have in place reversionary budget procedures to be applied if, for objective reasons beyond the control of the government, the budget is not adopted or fixed upon and made public by 31 December. 4. National medium-term fiscal plans and draft budgets referred to in paragraphs 1 and 2 shall be based on independent macroeconomic forecasts, and shall indicate whether the budgetary forecasts have been produced or endorsed by an independent body. Those forecasts shall be made public together with the national medium-term fiscal plans and the draft budgets that they underpin. Article 5 Independent bodies monitoring compliance with fiscal rules 1. Member States shall have in place independent bodies for monitoring compliance with: (a) numerical fiscal rules incorporating in the national budgetary processes their medium-term budgetary objective as established in Article 2a of Regulation (EC) No 1466/97; (b) numerical fiscal rules as referred to in Article 5 of Directive 2011/85/EU. 2. Those bodies shall, where appropriate, provide public assessments with respect to national fiscal rules, inter alia relating to: (a) the occurrence of circumstances leading to the activation of the correction mechanism for cases of significant observed deviation from the medium-term objective or the adjustment path towards it in accordance with Article 6(2) of Regulation (EC) No 1466/97; (b) whether the budgetary correction is proceeding in accordance with national rules and plans; (c) any occurrence or cessation of circumstances referred to in the tenth subparagraph of Article 5(1) of Regulation (EC) No 1466/97 which may allow a temporary deviation from the medium-term budgetary objective or the adjustment path towards it, provided that such a deviation does not endanger fiscal sustainability in the medium term. CHAPTER IV MONITORING AND ASSESSMENT OF MEMBER STATES DRAFT BUDGETARY PLANS Article 6 Monitoring requirements 1. Member States shall submit annually to the Commission and to the Eurogroup a draft budgetary plan for the forthcoming year by 15 October. That draft budgetary plan shall be consistent with the recommendations issued in the context of the SGP and, where applicable, with recommendations issued in the context of the annual cycle of surveillance, including the macroeconomic imbalances procedure as established by Regulation (EU) No 1176/2011, and with opinions on the economic partnership programmes referred to in Article 9. 2. As soon as the draft budgetary plans referred to in paragraph 1 have been submitted to the Commission, they shall be made public. 3. The draft budgetary plan shall contain the following information for the forthcoming year: (a) the targeted budget balance for the general government as a percentage of Gross Domestic Product (GDP), broken down by subsector of general government; (b) the projections at unchanged policies for expenditure and revenue as a percentage of GDP for the general government and their main components, including gross fixed capital formation; (c) the targeted expenditure and revenue as a percentage of GDP for the general government and their main components, taking into account the conditions and criteria to establish the growth path of government expenditure net of discretionary revenue measures under Article 5(1) of Regulation (EC) No 1466/97; (d) relevant information on the general government expenditure by function, including on education, healthcare and employment, and, where possible, indications on the expected distributional impact of the main expenditure and revenue measures; (e) a description and quantification of the expenditure and revenue measures to be included in the draft budget for the year to come at the level of each subsector in order to bridge the gap between the targets referred to in point (c) and the projections at unchanged policies provided in accordance with point (b); (f) the main assumptions of the independent macroeconomic forecasts and important economic developments which are relevant to the achievement of the budgetary targets; (g) an annex containing the methodology, economic models and assumptions, and any other relevant parameters underpinning the budgetary forecasts and the estimated impact of aggregated budgetary measures on economic growth; (h) indications on how reforms and measures in the draft budgetary plan, including in particular public investment, address the current recommendations to the Member State concerned in accordance with Articles 121 and 148 TFEU and are instrumental to the achievement of the targets set by the Union's strategy for growth and jobs. The description referred to in point (e) of the first subparagraph may be less detailed for measures with a budgetary impact estimated to be lower than 0,1 % of GDP. Particular and explicit attention shall be paid to major fiscal policy reform plans with potential spill-over effects for other Member States whose currency is the euro. 4. Where the budgetary targets reported in the draft budgetary plan in accordance with paragraph 3 or the projections at unchanged policies differ from those in the most recent stability programme, the differences shall be duly explained. 5. The specification of the content of the draft budgetary plan shall be set out in a harmonised framework established by the Commission in cooperation with the Member States. Article 7 Assessment of the draft budgetary plan 1. The Commission shall adopt an opinion on the draft budgetary plan as soon as possible and in any event by 30 November. 2. Notwithstanding paragraph 1, where, in exceptional cases, after consulting the Member State concerned within one week of submission of the draft budgetary plan, the Commission identifies particularly serious non-compliance with the budgetary policy obligations laid down in the SGP, the Commission shall adopt its opinion within two weeks of submission of the draft budgetary plan. In its opinion, the Commission shall request that a revised draft budgetary plan be submitted as soon as possible and in any event within three weeks of the date of its opinion. The Commission's request shall be reasoned and shall be made public. Article 6(2), (3) and (4) shall apply to revised draft budgetary plans submitted pursuant to the first subparagraph of this paragraph. The Commission shall adopt a new opinion on the revised draft budgetary plan as soon as possible and in any event within three weeks of submission of the revised draft budgetary plan. 3. The Commission's opinion shall be made public and shall be presented to the Eurogroup. Thereafter, at the request of the parliament of the Member State concerned or of the European Parliament, the Commission shall present its opinion to the parliament making the request. 4. The Commission shall make an overall assessment of the budgetary situation and prospects in the euro area as a whole, on the basis of the national budgetary prospects and their interaction across the area, relying on the most recent economic forecasts of the Commission services. The overall assessment shall include sensitivity analyses that provide an indication of the risks to public finance sustainability in the event of adverse economic, financial or budgetary developments. It shall also, as appropriate, outline measures to reinforce the coordination of budgetary and macroeconomic policy at the euro area level. The overall assessment shall be made public and shall be taken into account in the annual general guidance to Member States issued by the Commission. The methodology (including models) and assumptions of the most recent economic forecasts of the Commission services for each Member State, including estimates of the impact of aggregated budgetary measures on economic growth, shall be annexed to the overall assessment. 5. The Eurogroup shall discuss opinions of the Commission on the draft budgetary plans and the budgetary situation and prospects in the euro area as a whole on the basis of the overall assessment made by the Commission in accordance with paragraph 4. The results of those discussions of the Eurogroup shall be made public where appropriate. Article 8 Reporting on debt issuance 1. Member States shall report to the Commission and the Eurogroup, ex ante and in a timely manner, on their national debt issuance plans. 2. The harmonised form and content of the report referred to in paragraph 1 shall be laid down by the Commission, in cooperation with the Member States. CHAPTER V ENSURING THE CORRECTION OF EXCESSIVE DEFICIT Article 9 Economic partnership programmes 1. If the Council, acting under Article 126(6) TFEU, decides that an excessive deficit exists in a Member State, the Member State concerned shall present to the Commission and to the Council an economic partnership programme describing the policy measures and structural reforms that are needed to ensure an effective and lasting correction of the excessive deficit, as a development of its national reform programme and its stability programme, and fully taking into account the Council recommendations on the implementation of the integrated guidelines for the economic and employment policies of the Member State concerned. 2. The economic partnership programme shall identify and select a number of specific priorities aiming to enhance competitiveness and long-term sustainable growth and addressing structural weaknesses in the Member State concerned. Those priorities shall be consistent with the Union’s strategy for growth and jobs. Where appropriate, potential financial resources shall be identified, including credit lines of the European Investment Bank and other relevant financial instruments, as appropriate. 3. The economic partnership programme shall be presented at the same time as the report provided for in Article 3(4a) of Regulation (EC) No 1467/97. 4. The Council, acting on a proposal from the Commission, shall adopt an opinion on the economic partnership programme. 5. A corrective action plan as referred to in Article 8(1) of Regulation (EU) No 1176/2011 may be amended in accordance with Article 9(4) of that Regulation to replace the economic partnership programme provided for in this Article. Where such a corrective action plan is submitted after the adoption of an economic partnership programme, the measures set out in the economic partnership programme may, as appropriate, be included in the corrective action plan. 6. The implementation of the programme, and the annual budgetary plans consistent with it, shall be monitored by the Council and by the Commission. Article 10 Reporting requirements for Member States in excessive deficit procedure 1. Where the Council decides in accordance with Article 126(6) TFEU that an excessive deficit exists in a Member State, the Member State concerned shall, on a request from the Commission, be subject to reporting requirements in accordance with paragraphs 2 to 5 of this Article, until the abrogation of its excessive deficit procedure. 2. The Member State shall carry out a comprehensive assessment of in-year budgetary execution for the general government and its subsectors. The financial risks associated with contingent liabilities with potentially large impacts on public budgets, as referred to in Article 14(3) of Directive 2011/85/EU shall also be covered by the assessment to the extent that they may contribute to the existence of an excessive deficit. The result of that assessment shall be included in the report submitted in accordance with Article 3(4a) or Article 5(1a) of Regulation (EC) No 1467/97 on action taken to correct the excessive deficit. 3. The Member State shall report regularly to the Commission and to the Economic and Financial Committee, for the general government and its subsectors, the in-year budgetary execution, the budgetary impact of discretionary measures taken on both the expenditure and the revenue side, targets for the government expenditure and revenues, and information on the measures adopted and the nature of those envisaged to achieve the targets. The report shall be made public. The Commission shall be empowered to adopt delegated acts in accordance with Article 14 specifying the content of the regular reporting referred to in this paragraph. 4. If the Member State concerned is the subject of a Council recommendation under Article 126(7) TFEU, the report referred to in paragraph 3 of this Article shall be submitted for the first time six months after the report provided for in Article 3(4a) of Regulation (EC) No 1467/97, and thereafter on a six-monthly basis. 5. If the Member State concerned is the subject of a Council decision to give notice under Article 126(9) TFEU, the report in accordance with paragraph 3 of this Article shall also contain information on the actions being taken in response to the specific Council notice. It shall be submitted for the first time three months after the report provided for in Article 5(1a) of Regulation (EC) No 1467/97, and thereafter on a quarterly basis. 6. Upon request and within the deadline set by the Commission, a Member State subject to an excessive deficit procedure shall: (a) carry out and report on a comprehensive independent audit of the public accounts of all subsectors of the general government conducted preferably in coordination with national supreme audit institutions, aiming to assess the reliability, completeness and accuracy of those public accounts for the purposes of the excessive deficit procedure; (b) provide available additional information for the purposes of monitoring progress towards the correction of the excessive deficit. The Commission (Eurostat) shall assess the quality of statistical data reported by the Member State concerned under point (a) in accordance with Council Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community (11). Article 11 Member States at risk of non-compliance with their obligation under their excessive deficit procedure 1. When assessing whether compliance with the deadline to correct the excessive deficit, as established by a Council recommendation under Article 126(7) TFEU or a Council decision to give notice under Article 126(9) TFEU, is at risk, the Commission shall base its assessment, inter alia, on the reports submitted by the Member States in accordance with Article 10(3) of this Regulation. 2. In the case of a risk of non-compliance with the deadline to correct the excessive deficit, the Commission shall address a recommendation to the Member State concerned regarding full implementation of the measures provided for in the recommendation or decision to give notice referred to in paragraph 1, adoption of other measures, or both, within a timeframe consistent with the deadline for the correction of its excessive deficit. The recommendation by the Commission shall be made public and shall be presented to the Economic and Financial Committee. At the request of the parliament of the Member State concerned, the Commission shall present the recommendation to that parliament. 3. Within the timeframe set by the Commission recommendation referred to in paragraph 2, the Member State concerned shall report to the Commission on measures adopted in response to that recommendation together with the reports provided for in Article 10(3). The report shall include the budgetary impact of all discretionary measures taken, targets for the government expenditure and revenues, information on the measures adopted and the nature of those envisaged to achieve the targets, and information on the other actions being taken in response to the Commission recommendation. The report shall be made public and shall be presented to the Economic and Financial Committee. 4. On the basis of the report referred to in paragraph 3, the Commission shall assess whether the Member State has complied with the recommendation referred to in paragraph 2. Article 12 Impact on the excessive deficit procedure 1. The extent to which the Member State concerned has taken into account the Commission's opinion referred to in Article 7(1) shall be taken into account by: (a) the Commission when conducting a report under Article 126(3) TFEU and when recommending the imposition of a non-interest bearing deposit in accordance with Article 5 of Regulation (EU) No 1173/2011; (b) the Council when deciding whether an excessive deficit exists in accordance with Article 126(6) TFEU. 2. The monitoring established by Articles 10 and 11 of this Regulation shall be an integral part of the regular monitoring, as provided for in Article 10(1) of Regulation (EC) No 1467/97, of the implementation of action taken by the Member State concerned in response to Council recommendations under Article 126(7) TFEU or Council decisions to give notice under Article 126(9) TFEU to correct the excessive deficit. 3. When considering whether effective action has been taken in response to recommendations under Article 126(7) TFEU or to decisions to give notice under Article 126(9) TFEU, the Commission shall take into account the assessment referred to in Article 11(4) in this Regulation and shall recommend, as appropriate, that the Council take decisions under Article 126(8) or Article 126(11) TFEU, giving due consideration to Article 3(5) and Article 5(2) of Regulation (EC) No 1467/97. Article 13 Consistency with Regulation (EU) No 472/2013 (12) Member States subject to a macroeconomic adjustment programme shall not be subject to Articles 6 to 12 of this Regulation. CHAPTER VI FINAL PROVISIONS Article 14 Exercise of the delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 10(3) shall be conferred on the Commission for a period of three years from 30 May 2013. The Commission shall draw up a report in respect of the delegation of power not later than nine months before the end of the three-year period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than three months before the end of each period. 3. The delegation of power referred to in Article 10(3) may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 5. A delegated act adopted pursuant to Article 10(3) shall enter into force only if no objection has been expressed either by the European Parliament or by the Council within a period of two months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by two months at the initiative of the European Parliament or of the Council. Article 15 Economic Dialogue 1. In order to enhance the dialogue between the Union institutions, in particular the European Parliament, the Council and the Commission, and to ensure greater transparency and accountability, the competent committee of the European Parliament may invite, where appropriate, the President of the Council, the Commission, the President of the European Council or the President of the Eurogroup to appear before the committee to discuss: (a) the specification of the content of the draft budgetary plan as set out in a harmonised framework established in accordance with Article 6(5); (b) the results of the discussion of the Eurogroup on the Commission opinions adopted in accordance with Article 7(1), to the extent that they have been made public; (c) the overall assessment of the budgetary situation and prospects in the euro area as a whole made by the Commission in accordance with Article 7(4); (d) Council acts referred to in Article 9(4) and in Article 12(3). 2. The competent committee of the European Parliament may offer the opportunity to the Member State that is the subject of a Commission recommendation under Article 11(2) or Council acts as referred to in paragraph 1(d) to participate in an exchange of views. 3. The European Parliament shall be duly involved in the European Semester in order to increase the transparency and ownership of, and the accountability for the decisions taken, in particular by means of the economic dialogue carried out pursuant to this Article. Article 16 Review and reports on the application of this Regulation 1. By 14 December 2014, and every five years thereafter, the Commission shall submit to the European Parliament and to the Council a report on the application of this Regulation, accompanied, where appropriate, by a proposal to amend this Regulation. The Commission shall make that report public. The reports referred to in the first subparagraph shall evaluate, inter alia: (a) the effectiveness of this Regulation; (b) progress in ensuring closer coordination of economic policies and sustained convergence of economic performances of the Member States in accordance with the TFEU; (c) the contribution of this Regulation to the achievement of the Union’s strategy for growth and jobs. 2. By 31 July 2013, the Commission shall report on the possibilities offered by the Union's existing fiscal framework to balance productive public investment needs with fiscal discipline objectives in the preventive arm of the SGP, while complying with it fully. Article 17 Transitional provisions 1. Member States already subject to an excessive deficit procedure at the time of the entry into force of this Regulation shall comply with the regular reporting in accordance with Article 10(3), (4) and (5) by 31 October 2013. 2. Article 9(1) and Article 10(2) shall apply to Member States that are already subject to an excessive deficit procedure at the time of the entry into force of this Regulation only when a Council recommendation in accordance with Article 126(7) TFEU, or a Council decision to give notice in accordance with Article 126(9) TFEU, is taken after 30 May 2013. In such cases, the economic partnership programme shall be presented simultaneously with the report submitted in accordance with Article 3(4a) or Article 5(1a) of Regulation (EC) No 1467/97. 3. Member States shall comply with Article 5 by 31 October 2013. Article 18 Entry into force This Regulation shall enter into force on the third day following that of its publication in the Official Journal of the European Union. This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaties. Done at Strasbourg, 21 May 2013. For the European Parliament The President M. SCHULZ For the Council The President L. CREIGHTON (1) OJ C 141, 17.5.2012, p. 7. (2) Position of the European Parliament of 12 March 2013 (not yet published in the Official Journal) and decision of the Council of 13 May 2013. (3) OJ L 209, 2.8.1997, p. 1. (4) OJ L 209, 2.8.1997, p. 6. (5) OJ L 306, 23.11.2011, p. 12. (6) OJ L 306, 23.11.2011, p. 33. (7) OJ L 306, 23.11.2011, p. 1. (8) OJ L 306, 23.11.2011, p. 25. (9) OJ L 306, 23.11.2011, p. 41. (10) OJ L 310, 30.11.1996, p. 1. (11) OJ L 145, 10.6.2009, p. 1. (12) Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability (see page 1 of this Official Journal).

Summary: Fiscal surveillance and excessive deficit correction in the euro area Fiscal surveillance and excessive deficit correction in the euro area SUMMARY OF: Assessing euro area countries’ draft budgetary plans and ensuring the correction of excessive deficits — Regulation (EU) No 473/2013 SUMMARY WHAT DOES THIS REGULATION DO? It is designed to improve the surveillance of budgetary policies in euro area countries through, for instance, a coordinated assessment of their draft budgets by the European Commission every autumn. It introduces a European assessment of draft budgetary plans on a coordinated time frame in autumn for euro area countries. It improves national budgetary frameworks by requiring the creation of independent bodies. KEY POINTS Scope The regulation applies to all euro area countries, with special rules for those subject to an excessive deficit procedure (EDP). The EDP comprises a set of rules designed to bring the deficit below the 3 % gross domestic product target defined in Article 126 of the Treaty on the Functioning of the European Union and in the context of the stability and growth pact (SGP). A country is in deficit for a given year when its spending for that year is greater than its revenue. Common timeline The new common budgetary rules include a common budgetary timeline according to which all euro area countries submit their draft budgetary plans by 15 October, i.e. before the final adoption by national parliaments. The Commission issues an opinion in light of compliance with the SGP requirements. If the plan is found to be in breach of the common budgetary rules, the Commission may ask the country concerned to send in a revised draft plan within 3 weeks of its opinion. The Commission’s request will be reasoned and made public. The Commission’s opinion is not binding and national parliaments retain full sovereignty. In 2013, the Commission issued a communication outlining the specifications for draft budgetary plans and debt issuance reports. It subsequently amended these specifications in a further paper in 2014, so as to provide greater clarification. Compliance and forecasting The regulation requires euro area countries to put in place independent bodies in charge of monitoring compliance with the relevant fiscal rules and to produce or endorse the macroeconomic forecasts underpinning the annual budget and the medium-term fiscal plans. Reporting Lastly, euro area countries in an EDP are subject to more stringent reporting requirements. The regulation gives the Commission a new tool to react more quickly when the EDP requirements are at risk by issuing a warning. FROM WHEN DOES THIS REGULATION APPLY? It applies from 30 May 2013. BACKGROUND Draft budgetary plans of euro area Member States on the European Commission’s website The corrective arm on the European Commission’s website ACT Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 140, 27.5.2013, pp. 11–23) RELATED ACT Commission Delegated Regulation (EU) No 877/2013 of 27 June 2013 supplementing Regulation (EU) No 473/2013 of the European Parliament and of the Council on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area (OJ L 244, 13.9.2013, pp. 23–31). Communication from the Commission: Harmonized framework for draft budgetary plans and debt issuance reports within the euro area (COM(2013) 490 final of 27.6.2013) Communication from the Commission replacing the Communication from the Commission on Harmonized framework for draft budgetary plans and debt issuance reports within the euro area (COM(2014) 675 final of 28.10.2014) last update 22.02.2016


20.9.2013 EN Official Journal of the European Union L 250/40 COUNCIL IMPLEMENTING DECISION of 13 September 2013 on approving the macroeconomic adjustment programme for Cyprus and repealing Decision 2013/236/EU (2013/463/EU) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, Having regard to Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability (1), and in particular Article 7(2) and (5) thereof, Having regard to the proposal from the European Commission, Whereas: (1) Regulation (EU) No 472/2013 applies to Member States already in receipt of financial assistance, including those from the European Stability Mechanism (ESM), at the time of its entry into force. (2) Regulation (EU) No 472/2013 sets the rules for the approval of macroeconomic adjustment programmes for Member States in receipt of financial assistance; those rules need to be consistent with the provisions of the Treaty Establishing the European Stability Mechanism. (3) Upon a request of 25 June 2012 by Cyprus for financial assistance from the ESM, the Council decided on 25 April 2013 by Decision 2013/236/EU (2), that Cyprus was to rigorously implement a macroeconomic adjustment programme. (4) On 24 April 2013, the ESM Board of Governors decided to grant, in principle, stability support to Cyprus and approved the Memorandum of Understanding on Specific Economic Policy Conditionality (hereinafter the ‘MoU’) and its signing by the Commission on behalf of the ESM. (5) In accordance with Article 1(2) of Decision 2013/236/EU, the Commission, in liaison with the European Central Bank (ECB), and, where appropriate, with the International Monetary Fund (IMF), has conducted the first review to assess the progress with the implementation of the agreed measures as well as their effectiveness and economic and social impact. As a consequence of this review, an update has been made to the existing macroeconomic adjustment programme, reflecting the steps taken by the Cypriot authorities by the second quarter of 2013. (6) Following the entry into force of Regulation (EU) No 472/2013, the macroeconomic adjustment programme is now to be adopted in the form of a Council implementing decision. For the sake of clarity and legal certainty, the programme should be readopted on the basis of Article 7(2) of Regulation (EU) No 472/2013. The substance of the programme should remain identical to the one approved by Decision 2013/236/EU, but also incorporate the results of the review carried out in accordance with Article 1(2) of that Decision. At the same time, Decision 2013/236/EU should be repealed. (7) The Commission, in liaison with the ECB and the IMF, has conducted the first review to assess the progress on the implementation of the agreed measures as well as their effectiveness and economic and social impact. As a result, the MoU has been updated in the areas of financial sector reform, fiscal policy and structural reforms, in particular with regard to (i) a roadmap for the gradual relaxation of capital controls, (ii) establishing the legal framework for a new governance structure to manage the stake of the State in the cooperative credit sector, (iii) an anti-money laundering action plan, (iv) a compensation scheme for provident funds and retirement funds which held deposits at the Cyprus Popular Bank, (v) ensuring that the necessary national funds remain available to cover national contributions for projects funded by the Structural and other EU funds, (vi) providing details of the planned reform of public assistance, and (vii) preparing detailed policy proposals for activation policies and taking swift action to create opportunities for young people and improve their employability prospects. The implementation of comprehensive and ambitious reforms in financial, fiscal and structural areas should safeguard the medium-term sustainability of the Cypriot public debt. (8) Throughout the implementation of Cyprus’ comprehensive policy package, the Commission should provide additional policy advice and technical assistance in specific areas. A Member State subject to a macroeconomic adjustment programme experiencing insufficient administrative capacity is to seek technical assistance from the Commission, which may constitute, for that purpose, groups of experts. (9) The Cypriot authorities should seek the view, in accordance with current national rules and practices, of social partners and civil society organisations in the preparation, implementation, monitoring and evaluation of the macroeconomic adjustment programme, HAS ADOPTED THIS DECISION: Article 1 1. In order to facilitate the return of the Cypriot economy to a path of sustainable growth and to fiscal and financial stability, Cyprus shall rigorously implement the macroeconomic adjustment programme (the ‘programme’), the main elements of which are laid down in Article 2 of this Decision. 2. The Commission, in liaison with the ECB and, where appropriate, with the IMF, shall monitor Cyprus’ progress in implementing the programme. Cyprus shall give the Commission and the ECB its full cooperation. It shall, in particular, provide them with all the information that they deem necessary for the monitoring of the programme. The Cypriot authorities shall consult ex ante the Commission, the ECB and the IMF on the adoption of policies that are not included in this Decision but that could have a material impact on the achievement of programme objectives. 3. The Commission, in liaison with the ECB and, where appropriate, with the IMF, shall examine with the Cypriot authorities any changes and updates to the programme that may be needed in order to take proper account of, inter alia, any significant gap between macroeconomic and fiscal forecasts and realised figures (including employment), negative spill-over effects, as well as macroeconomic and financial shocks. In order to ensure the smooth implementation of the programme and to help the correction of imbalances in a sustainable way, the Commission shall ensure the provision of continued advice and guidance on fiscal, financial market and structural reforms. The Commission shall at regular intervals assess the economic impact of the programme and shall recommend necessary corrections with a view to enhancing growth and job creation, securing the necessary fiscal consolidation, and minimising harmful social impacts. The macroeconomic adjustment programme, including its objectives and the expected distribution of the adjustment effort, shall be made public. Article 2 1. The key objectives of the programme shall be: to restore the soundness of the Cypriot banking sector; to continue the ongoing process of fiscal consolidation; and to implement structural reforms to support competitiveness and sustainable and balanced growth. The programme shall address the specific risks emanating from Cyprus for the financial stability of the euro area and shall aim to rapidly re-establish a sound and sustainable economic and financial situation in Cyprus and restore its capacity to finance itself fully on the international financial markets. The programme shall take due account of the Council recommendations addressed to Cyprus under Articles 121, 126, 136 and 148 Treaty as well as Cyprus’ actions to comply with them, while aiming to broaden, strengthen and deepen the policy measures required. 2. Cyprus shall pursue fiscal consolidation consistent with its obligations under the excessive deficit procedure by means of high-quality permanent measures while minimising the impact on vulnerable groups. 3. In order to bring its deficit below 3 % of GDP by 2016, Cyprus shall stand ready to take additional consolidation measures. Specifically, in the event of underperformance of revenue or higher social spending needs due to adverse macroeconomic effects, the Cypriot Government shall stand ready to take additional measures to preserve programme objectives, including by reducing discretionary spending, while minimising the impact on vulnerable groups. Over the programme period, cash revenue above the programme projections, including any windfall gains, shall be saved or used to reduce debt. Conversely, over-performance, to the extent that it is deemed permanent, can reduce the need for additional measures in the outer years. 4. Cyprus shall preserve the good implementation of Structural and other EU Funds, in respect of the programme’s budgetary targets. In order to ensure the effective implementation of EU funds, the Cypriot Government shall ensure that the necessary national funds remain available to cover national contributions, including non-eligible expenditure, under the European Structural and Investment Funds (ERDF, ESF, Cohesion Fund, EAFRD and EFF/EMFF) in the framework of the 2007-13 and 2014-20 programme periods, while taking into account available European Investment Bank funding. The authorities shall ensure that the institutional capacity to implement current and future programmes is improved and the appropriate human resources of Managing Authorities and implementing bodies are available. 5. With a view to restoring the soundness of its financial sector, Cyprus shall continue to thoroughly reform and restructure the banking sector and reinforce viable banks by restoring their capital, addressing their liquidity situation and strengthening their supervision. The programme shall provide for the following measures and outcomes: (a) ensuring that the liquidity situation of the banking sector shall be closely monitored. Temporary restrictions on the free movement of capital (inter alia, limits on cash withdrawals, payments and transfers) shall be closely monitored. The goal is that controls shall remain in place only for as long as is strictly necessary to mitigate serious risks for the stability of the financial system. A roadmap for the controls’ gradual relaxation has been published, based on milestones and progress with the programme implementation and consistent with the banks’ liquidity situation. The medium-term funding and capital plans of domestic banks relying on central bank funding or receiving state aid shall realistically reflect the anticipated deleveraging in the banking sector, and reduce dependency on borrowing from the central banks, while avoiding asset fire sales and a credit crunch. The regulations on the minimum liquidity requirements shall be updated to prevent excessive issuer concentration in the future; (b) adopting the necessary regulatory requirements regarding an increase in the minimum core Tier 1 capital adequacy ratio to 9 % by the end of 2013; (c) taking steps to minimise the costs of bank restructuring carried by taxpayers. Undercapitalised commercial and cooperative credit institutions shall raise, to the largest extent possible, capital from private sources before State aid measures are granted. Any restructuring plans shall be formally approved under State aid rules, before any State aid is provided. Commercial banks with a capital shortfall may, if other measures do not suffice, ask for recapitalisation aid from the State in accordance with State aid procedures; (d) ensuring that a credit register is created, that the current regulatory framework on loan origination and management processes is reviewed and amended, if necessary, and that legislation strengthening the governance of commercial banks is adopted; (e) strengthening banks’ governance, including by prohibiting lending to independent board members or their connected parties; (f) maximising recovery for non-performing loans, while minimising incentives for strategic default by borrowers. This shall include easing constraints on the seizure of collateral and proper monitoring and managing of non-performing loans; (g) completing the harmonisation of the regulation and supervision of cooperative credit institutions with those of commercial banks; (h) implementing the strategy for the future structure, functioning and viability of the cooperative credit institution sector, as designed by the Central Bank of Cyprus in consultation with the Commission, the ECB and the IMF; (i) enhancing the monitoring of the indebtedness of the corporate and household sectors and establishing a framework for targeted private sector debt restructuring to facilitate new lending and diminish credit constraints; (j) further strengthening the anti-money laundering framework and implementing an action plan ensuring the implementation of improved practices with regard to customer due diligence and entity transparency, in line with best practice; (k) submitting legislation for mandatory supervision based on capitalisation levels; (l) integrating stress-testing into regular off-site bank supervision; (m) introducing mandatory disclosure requirements to ensure that banks regularly communicate, to markets, progress in restructuring bank operations; and (n) establishing the legal framework for a new governance structure to manage the stake of the State in the cooperative credit sector. 6. Over 2013, the Cypriot authorities shall rigorously implement the 2013 Budget Law (as amended), including the additional permanent measures adopted prior to the granting of the first disbursement of financial assistance, which shall amount to at least EUR 351 million (2,1 % of GDP). Cyprus shall adopt the following measures: (a) a reform of its tax system for motor vehicles, based on environmentally-friendly principles and with a view to raising additional revenue in the medium term; (b) a compensation scheme for provident and retirement funds which held deposits at the Cyprus Popular Bank, which ensures comparable treatment with such funds in the Bank of Cyprus, takes into account the cash-flow and actuarial position of each fund and minimises the impact on the general government deficit. Given the social welfare nature of such funds, the 2013 general government deficit target may be revised to incorporate the budgetary impact of this scheme; and (c) full implementation of the consolidation measures adopted since December 2012. 7. The following measures shall be applied by Cyprus as of 1 January 2014: (a) on the expenditure side, the budget is to include: a reduction in total outlays for social transfers through better targeting; a further reduction in the public and broader public sector wages and overtime compensation; the introduction of a fee on public transport cards for students and pensioners; and structural reform measures in the educational sector to improve the use of resources; and (b) on the revenue side, the budget for 2014 is to include: an extension of the temporary contribution on gross earnings of public and private sector employees up to 31 December 2016; increases in VAT; increases in excise duties; and an increase in the contributions to the General Social Insurance Scheme. 8. In order to ensure the long-term sustainability of public finances, Cyprus shall implement fiscal-structural reforms, comprising, inter alia, the following measures and outcomes: (a) if necessary, further reforms of the general and public sector pension system to ensure the long-term viability of the pension system, while addressing the adequacy of pensions. Reform options shall be provided by an actuarial study; (b) control of the growth of health expenditure in order to ensure sufficient means for fundamental healthcare by strengthening the sustainability of the funding structure and the efficiency of public healthcare provision; implement a National Health System, ensuring its financial sustainability while providing universal coverage; (c) improvement in the efficiency of public spending and the budgetary process by means of an effective medium-term budgetary framework as part of an improved public finance management, thereby contributing to the budgetary consolidation efforts while taking into account the need to ensure sufficient means for fundamental policies, such as education and healthcare. This framework shall be fully compliant with the Council Directive 2011/85/EU (3) and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, signed in Brussels on 2 March 2012; (d) adoption of an adequate legal and institutional framework for Public Private Partnerships designed according to best practice; (e) elaboration of a programme to achieve a solid corporate governance system for state-owned and semi-public enterprises and initiation of a privatisation plan to help improve economic efficiency and restore debt sustainability; (f) elaboration and implementation of a comprehensive reform plan to improve the effectiveness and efficiency of tax collection and administration, including measures to fight against tax fraud and evasion and safeguard the full and timely application of laws and standards governing international tax cooperation and the exchange of tax information; (g) reform of the immovable property tax regime; (h) reform of the public administration to improve its functioning and cost-effectiveness, in particular by reviewing the size, employment conditions and functional organisation of the public service in order to ensure the efficient use of government resources and the provision of a quality service to the population; (i) reforms of the overall structure and the levels of welfare benefits, with the aim of producing an efficient use of resources and ensuring an appropriate balance between welfare assistance and incentives to take up work. The planned reform of public assistance shall ensure that social assistance serves as a safety net to ensure a minimum income for those unable to achieve a basic standard of living, while safeguarding incentives to take up work; and (j) undertaking a comprehensive audit of its public finances in order, inter alia, to assess the reasons that led to the building up of excessive levels of debt. 9. Cyprus shall ensure that the suspension of wage indexation in the wider public sector remains in place until the end of the programme. Any change in the minimum wage shall be in line with the economic and labour market developments, and shall be adopted after consultation with the social partners. 10. Cyprus shall prepare detailed policy proposals with regard to addressing identified shortcomings in its activation policies. Cyprus shall take swift action to create opportunities for young people and improve their employability prospects, in line with the objectives of the Council Recommendation on Establishing a Youth Guarantee (4). The design, management and implementation of the measures targeted to youth shall be well integrated within the broader system of activation policies and be coherent with the reform of the social welfare system and the agreed budgetary targets. 11. Cyprus shall adopt any remaining necessary amendments to sector-specific legislation required in order to fully implement Directive 2006/123/EC of the European Parliament and of the Council (5). Unjustified obstacles in the services markets, in particular in relation to regulated professions, shall be eliminated. The competition framework shall be improved by enhancing the functioning of the competent competition authority and by safeguarding the independence and powers of the National Regulatory Authorities. 12. Cyprus shall ensure a reduction in the title deed issuance backlog, take action to accelerate the swift clearing of encumbrances on title deeds to be transferred to purchases of immovable property, and implement guaranteed timeframes for the issuance of building certificates and title deeds. 13. Cyprus shall amend the rules on the forced sale of mortgaged property and allow for private auctions within the shortest feasible timespan. The pace of court case handling shall be improved and court backlogs shall be eliminated by the end of the programme period. Cyprus shall take initiatives to strengthen the competitiveness of its tourism sector, by providing a concrete action plan leading to the implementation of the quantified targets identified, inter alia, in the recently revised Tourism Strategy for 2011-15. Cyprus shall report on air connectivity needs as the basis for an aeropolitical strategy. 14. In the energy sector, Cyprus shall fully implement the Third Energy Package, notwithstanding Article 44(2) of Directive 2009/72/EC of the European Parliament and of the Council (6) and Article 49(1) of Directive 2009/73/EC of the European Parliament and of the Council (7). Cyprus shall consider whether to make use of the derogations provided to it in those Articles. In parallel, a comprehensive development plan for the rearrangement of the Cypriot energy sector shall be formulated. That plan shall consist of: (a) a roll-out plan for the infrastructure required for the exploitation of natural gas, taking into account commercial options and risks; (b) a comprehensive outline of the regulatory regime and market organisation for the restructured energy sector and gas exports, including an appropriate sales framework for the off-shore gas supply aimed at maximising revenues; and (c) a plan to establish the institutional framework for the management of hydrocarbon resources, including a resource fund, which should receive and manage public revenue from offshore gas exploitation and which is set up on the basis of internationally-recognised best practice. 15. Cyprus shall submit a request to the Commission for technical assistance during the programme period. The request shall identify and specify the areas of technical assistance or advisory services which the Cypriot authorities consider essential for the implementation of its macroeconomic adjustment programme. Article 3 Decision 2013/236/EU is repealed. Article 4 This Decision is addressed to the Republic of Cyprus. Done at Brussels, 13 September 2013. For the Council The President L. LINKEVIČIUS (1) OJ L 140, 27.5.2013, p. 1. (2) Council Decision 2013/236/EU of 25 April 2013 addressed to Cyprus on specific measures to restore financial stability and sustainable growth (OJ L 141, 28.5.2013, p. 32). (3) Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States (OJ L 306, 23.11.2011, p. 41). (4) Council Recommendation of 22 April 2013 on establishing a Youth Guarantee (OJ C 120, 26.4.2013, p. 1). (5) Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (OJ L 376, 27.12.2006, p. 36). (6) Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55). (7) Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211, 14.8.2009, p. 94).

Summary: Financial assistance to Cyprus Financial assistance to Cyprus SUMMARY OF: Regulation (EU) No 472/2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability Implementing Decision 2013/463/EU approving the macroeconomic adjustment programme for Cyprus WHAT DO THE REGULATION AND DECISION DO? The regulation provides the legal justification allowing the European Union (EU) to provide financial help to any countries in the euro area requiring assistance. Cyprus is one of the EU countries to have benefited from the European stability mechanism (ESM). The decision sets out the objectives and conditions relating to Cyprus’s macroeconomic adjustment programme. KEY POINTS The economic adjustment programme for Cyprus agreed by euro area countries and the International Monetary Fund (IMF) covered the period 2013-2016. The ESM promised loans worth up to €9 billion and the IMF around €1 billion. The programme tackled short- and medium-term financial, fiscal and structural challenges facing the country. It aimed to: restore the banking sector to a sound footing; reduce the excessive government deficit as quickly as possible; implement structural reforms to make the economy more competitive. The economic adjustment programme ended on 31 March 2016. During this time, the ESM paid out €6.3 billion and the IMF €1 billion. Cyprus is now subject to post-programme surveillance (PPS). This will continue until at least 75% of the loans it received from the ESM have been repaid. Barring any early repayments, the surveillance will continue to 2029. Under the PPS, the Commission, cooperating with the European Central Bank: conducts regular reviews to assess the country’s economic, fiscal and financial situation; prepares half-yearly assessments of the progress being made and determines whether any further measures are needed. FROM WHEN DO THE REGULATION AND DECISION APPLY? The regulation has applied since 30 May 2013. The decision took effect on 17 September 2013. BACKGROUND The financial and economic crisis which began in 2008 brought intense pressure on several countries in the euro area. This led EU leaders to agree in October 2010 to establish a permanent crisis mechanism to safeguard the stability of the single currency area. In March 2011, the leaders formally amended Article 136 of the Treaty on the Functioning of the European Union by adding a single paragraph. This created a stability fund, the European stability mechanism, whose resources could be used to help any euro area government in financial difficulty. On 25 June 2012, Cyprus formally requested help from its euro area partners. For more information, see: ‘Post-Programme Surveillance for Cyprus’ on the European Commission's website. MAIN DOCUMENTS Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability (OJ L 140, 27.5.2013, pp. 1–10) Council Implementing Decision 2013/463/EU of 13 September 2013 on approving the macroeconomic adjustment programme for Cyprus and repealing Decision 2013/236/EU (OJ L 250, 20.9.2013, pp. 40–44) Successive amendments to Implementing Decision 2013/463/EU have been incorporated in the original text. This consolidated version is of documentary value only. last update 19.01.2017