Member States should use the window of opportunity offered by the economic recovery to pursue structural reforms, boost investment and strengthen their public finances. Priorities vary across the EU but further efforts across the board are essential to achieve more inclusive, robust and sustainable growth.
The European Commission today presents its 2017 country-specific recommendations (CSRs), setting out its economic policy guidance for individual Member States for the next 12 to 18 months. The economy in the EU and the euro area is proving resilient, but challenges, such as slow productivity growth, the legacies of the crisis – including persisting inequalities – and uncertainty arising mostly from external factors continue. The Commission therefore calls on Member States to use this window of opportunity to strengthen the fundamentals of their economies by implementing the economic and social priorities identified in common at European level: boosting investment, pursuing structural reforms and ensuring responsible fiscal policies. Particular attention is paid to the challenges and priorities identified for the euro area.
Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, said: “Economic trends are overall positive and we should use this window of opportunity to make European economies more competitive, resilient and innovative. Priority should be given to reforms that can make growth more inclusive and reinvigorate productivity. Structural reforms, investment and continued attention to responsible fiscal policies are indispensable to strengthen and sustain economic recovery in the EU.”
“Economic trends are overall positive and we should use this window of opportunity to make European economies more competitive, resilient and innovative.”
The European economy has proven resilient in the face of significant challenges. Growth rates in both the EU and the euro area were nearly 2% in 2016, public finances are improving and employment is at a record of nearly 233 million people. Unemployment is at its lowest since 2009 and investments exceed pre-crisis levels in some Member States – also helped by the Investment Plan for Europe, the so-called Juncker Plan. However, slow productivity growth and the legacies of the crisis, including disparities within and across countries, continue to weigh on the economy, as does uncertainty stemming mostly from external factors.
To strengthen the positive trends and the convergence within countries and the EU, it is essential to achieve a more inclusive, robust and sustainable growth, including through greater competitiveness and innovation. This is the objective of the recommendations made under the European Semester of economic policy coordination. This approach also includes an enhanced focus on the social priorities and challenges in the Member States. The Commission recently outlined its proposal for a European Pillar of Social Rights, which sets out key principles and rights to support fair and well-functioning labour markets and welfare systems.
Marianne Thyssen, Commissioner for Employment, Social Affairs, Skills and Labour Mobility, said: “This year addressing inequality is firmly at the heart of our assessment. We have turned the page of the crisis: the next chapter is social. With the economy moving forward, we need to restore opportunities for those left behind and keep pace with changing skills needs by investing in high quality education and training. Productivity increases should be reflected by higher wages. Only this way can we deliver on our joint commitment to improve living standards for all.”
“With the economy moving forward, we need to restore opportunities for those left behind and keep pace with changing skills needs by investing in high quality education and training. Productivity increases should be reflected by higher wages.”
Over time, Member States have made some progress with two out of every three country-specific recommendations on average, confirming that significant reforms are being implemented across the EU. Looking at a multi-year horizon provides a clearer picture of the evolution of progress than a single-year horizon, because designing and implementing significant reforms takes time. Progress is recorded for the large majority of reforms, but the pace and depth of reform implementation by Member States varies, also in light of their complexity and importance. Reform progress has been the highest in the policy areas that concern “fiscal policy and fiscal governance” as well as in “financial services”, which have been pressing issues in recent years.
Since the adoption of last year’s set of country-specific recommendations, Member States made most significant progress in the area of fiscal policy and fiscal governance, as well as in active labour market policies. Steps have been taken in taxation policies (such as to reduce the tax burden on labour), labour market and social policies (notably social inclusion and childcare) and financial services. The areas showing least progress include competition in services and the business environment. The overall picture that emerges is that Member States continue to make efforts to implement reforms, but so far the degree of progress ranges between ‘limited’ and ‘some’ for most policy areas identified in the 2016 country-specific recommendations.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “The EU is growing and will continue to enjoy this positive trend in 2018 for the sixth year in a row. Yet the recovery is uneven and still vulnerable. We need to use all available tools to support growth, and that includes smart economic reforms as well as an intelligent application of fiscal policy. Today, the European Commission recommends to Member States an appropriate balance between ensuring the sustainability of public finances and achieving a fiscal stance that will help strengthen – and not undermine – the recovery.”
“The EU is growing and will continue to enjoy this positive trend in 2018 for the sixth year in a row.”
Overall, the aggregate deficit level in the euro area is set to fall to 1.4% of GDP this year, down from a peak of 6.1% of GDP in 2010.
Based on the assessment of the 2017 Stability and Convergence Programmes, the Commission has also taken a number of steps under the Stability and Growth Pact. The Commission recommends that the Excessive Deficit Procedures be closed for Croatia and Portugal. If the Council follows the Commission’s recommendation, this would leave only four Member States under the corrective arm of the Pact, down from 24 countries in 2011.
The Commission also adopted reports for Belgium and Finland under Article 126 (3) of the Treaty on the Functioning of the European Union (TFEU), in which it reviews their compliance with the debt criterion of the Treaty. In both cases, the conclusion is that the debt criterion should be considered as currently complied with. In the case of Belgium, this conclusion is on the condition that additional fiscal measures are taken in 2017 to ensure broad compliance with the adjustment path towards the medium-term objective in 2016 and 2017 together. In the case of Finland, it is noted that the swift adoption and implementation of structural reforms increasing productivity and supply of labour are key to enhance growth prospects in the medium term and improve fiscal sustainability.
Concerning Italy, the Commission confirms that the requested additional fiscal measures for 2017 have been delivered and that therefore no further steps are deemed to be necessary for compliance with the debt criterion at this stage.
The Commission addressed a warning to Romania on the existence of a significant deviation from the adjustment path toward the medium-term budgetary objective in 2016 and recommends the Council to adopt a recommendation for Romania to take appropriate measures in 2017 with a view to correcting this significant deviation. It is the first time that this procedure of the EU economic governance framework is applied. It gives the authorities the opportunity to take corrective action in order to avoid the opening of an excessive deficit procedure.
Based on the assessment of the 2017 Stability Programmes, the Commission proposes to grant the requested flexibility to Lithuania and Finland.
The Commission calls on the Council to endorse the proposed approach and adopt the country-specific recommendations, and on Member States to implement them fully and in a timely manner. EU ministers are expected to discuss the Country-Specific Recommendations before EU Heads of State and Government are due to endorse them. It is then up to Member States to implement the Recommendations by addressing them through their national economic and budgetary policies in 2017-2018.