This year's European Semester comes at a time when we are slowly emerging from several years of major shocks.
First, the COVID-19 pandemic. Then, Russia's protracted war against Ukraine and the related energy price surges.
Throughout this period, the EU has shown an impressive degree of economic and social resilience.
Despite massive challenges, we see a strong labour market and record-low unemployment in the EU.
This is largely thanks to the unified policy response.
These are unprecedented challenges, and they have also led us to reform the annual Semester process, making it more adaptable to fast-changing circumstances.
And it is all the better for the changes made.
As an example, the Semester is now instrumental in linking EU funding with reforms and investments – as we can see with the Recovery and Resilience Facility.
From the economic perspective, we see a slow but steady brightening in prospects. While high inflation took a toll in Europe, with a severe impact on people's purchasing power, today it is declining and should continue on a downwards path.
As inflation loosens its grip on households' budgets, consumption is set to rebound and bolster growth, which should pick up gradually this year and next.
However, there are still many challenges to tackle, many of which are long-standing structural issues.
They have a direct impact on the EU's competitiveness and resilience. For example, we need to:
- raise productivity growth through research and innovation,
- improve access to finance,
- reduce labour and skills shortages,
- and improve the business environment.
Our competitiveness is intrinsically linked to a further push to upward economic and social convergence, within and between Member States. We need to build on the success of the 13 Member States that joined the EU since 2004.
And all this while making sure that nobody is left behind, with the help of improved employment, skills and social policies.
This is why this European Semester cycle introduces the principles of a social convergence framework. Nicolas will say more on how we have strengthened our analysis.
In today's challenging landscape, it is vital for the EU to coordinate its economic and employment policies effectively.
The European Semester is our main compass and guide for doing so.
Today's package therefore has a strong focus on ensuring the EU's long-term competitiveness.
This requires making improvements and reforms across a wide range of areas. These are addressed in country-specific recommendations – or CSRs – that we are proposing today.
In all these areas, Member States can already achieve a great deal by putting their national Recovery and Resilience Plans into effect.
And maintaining the momentum in doing so.
We cannot waste time here.
Overall, the progress has been good.
So far, the RRF has disbursed more than €240 billion to Member States in grants and loans, representing 37% of total funds available. This represents significant progress with reforms and investments on the ground.
At the same time, however, several Member States face accumulated delays and challenges in implementation.
With the RRF's cut-off date fast approaching by the end of 2026, they must address these issues urgently. Today's package contains tailored recommendations to that effect.
In addition, new challenges and policy priorities have emerged beyond what is reflected in national Recovery and Resilience Plans.
The CSRs recognise these further socio-economic challenges and provide tailor-made advice on how to address them, focused on bolstering competitiveness.
They also guide countries in preparing the forthcoming mid-term review of cohesion policy programmes, providing an opportunity to consider adjustments where needed.
On the fiscal side: now that the revised economic governance framework has entered into force, this year marks a transition for EU policy coordination.
The new fiscal rules are fully embedded in today's package.
The new set-up calls for Member States to prepare medium-term fiscal-structural plans, to be submitted by September 20.
The plans will set out expenditure paths for the next four years, along with commitments to reforms and investments that are underpinned by the CSRs proposed today.
This will be especially important if a country chooses to request an extension of its agreed fiscal adjustment period.
Thanks to its stronger focus on reforms and investments, the new framework allows countries to better achieve both debt sustainability and sustainable growth.
I will now turn to the excessive deficit procedures. These are a standard element of the European Semester process.
They provide a supportive framework for countries to strengthen their macroeconomic stability, providing a solid basis for sustainable competitiveness.
The Commission has identified 12 Member States with deficits that exceed 3% of GDP.
We have analysed the reasons for this situation and concluded that the deficit criterion is not fulfilled in seven Member States: Belgium, France, Italy, Hungary, Malta, Slovakia and Poland.
This means that, for these Member States, the Commission will propose decisions establishing the existence of an excessive deficit procedure.
The Council - the Economic and Financial Committee - will have to provide an opinion on this and we will follow with the next steps in July. After that, the recommendations for correcting the excessive deficits will come in the autumn.
This will ensure consistency with Member States' medium-term fiscal-structural plans which are due in September.
A brief mention of Romania, currently the only EU country under the excessive deficit procedure.
We have found that Romania has not taken effective action.
Its deficit was well above the recommended target of 4.4% of GDP, while the fiscal effort fell substantially short of what was required, despite resilient economic growth. The Commission will therefore propose a new adjustment path in the autumn.
Lastly, on macro-economic imbalances.
In general, vulnerabilities are receding.
In many countries, cost and price competitiveness pressures are easing, debt ratios have continued to decline, and the banking sector has shown resilience.
However, the overall positive picture also hides clear divergences. In a few cases, the dynamics are worrying – Paolo will give you more details on this.
I will stop here, and I give the floor to Paolo.
Thank you.
Commissioner Schmit
Good afternoon.
The social and employment dimension remains central to the European Semester.
It is mainstreamed in the Country Reports and Country-specific Recommendations, to ensure that the green and digital transitions are fair and inclusive.
The chosen focus on sustainable competitiveness of this year's spring package is very important for the future of Europe's economy in the global context, and for the cohesion of our societies.
Strengthening competitiveness is also key for quality job creation, for growth and for the EU's overall resilience.
Boosting productivity growth and competitiveness in the EU essentially relies on the strengths of our human capital – our people – a message that comes across strongly from this year's package.
A common theme in the country reports and CSRs is related to skills.
Building on the momentum of the European Year of Skills, Member States should accelerate their investments in training and reskilling programmes to help plug labour shortages.
This will also help us deliver on the EU's headline target of having at least 60% of adults participating in training every year, by 2030.
The other headline target linked to the European Pillar of Social Rights relates to poverty, which is still all too pervasive in our societies: for this reason, we have committed to lift at least 15 million people out of poverty by the end of this decade.
It is universally accepted that combating child poverty should be considered as an investment in our societies and economic future.
Several CSRs in this Spring Package indeed relate to poverty reduction, including energy poverty, which was exacerbated by Russia's war of aggression against Ukraine.
Employment guidelines
Turning to the proposal for Employment Guidelines:
These guidelines set common priorities for national employment and social policies to make them fairer and more inclusive.
They are regularly updated to reflect the latest policy initiatives that have been presented, as well as the socio-economic context in which we are living.
Over the past five years, the Commission has provided the tools, support and funds to help Member States create resilient and inclusive economies through the European Pillar of Social Rights Action Plan.
However, further efforts are needed if Member States are to achieve the 2030 headline targets on employment, skills and poverty reduction.
The Employment Guidelines are grouped under four headlines:
- Boosting the demand for labour
- Enhancing labour supply and improving access to employment, lifelong acquisition of skills and competences
- In most of the MS we are facing labour and skills shortages in various sectors. This is why we adopted an action plan to address these shortages.
- Enhancing the functioning of labour markets and the effectiveness of social dialogue – reaffirmed at the Social Partner Summit at Val Duchesse recently; and
- Promoting equal opportunities for all, fostering social inclusion and fighting poverty
To give you a few examples of concrete guidelines, our proposal states that Member States should:
- support the creation and growth of micro, small and medium-sized enterprises, including through access to finance
- actively promote the development of the social economy, including social enterprises
- make the teaching profession more attractive, and invest in teachers' digital skills
- increase opportunities for recognising and validating skills acquired outside of formal education and training
- enhance childcare facilities in order to facilitate women's full access to the labour market as we still have a gender gap of more than 10%
- provide unemployed and inactive people tailor-made job-search assistance
- engage in talent partnerships to enhance legal migration pathways; and
- promote access to permanent housing and the provision of enabling support services for persons experiencing homelessness.
Social Convergence Framework
The new Social Convergence Framework which has been integrated into the Semester for the first time.
The Social Convergence Framework consists of a two-stage analysis to assess the risks and challenges to achieving upward social convergence in Member States.
In the first-stage analysis, labour market, skills and social policies were analysed for all 27 Member States. The first-stage analysis was presented in the proposal for the Joint Employment Report (JER) 2024 as part of the Semester Autumn Package and adopted by labour ministers at EPSCO in March 2024.
A more detailed second-stage analysis was then carried out for the countries where potential risks had been identified, namely Bulgaria, Estonia, Spain, Italy, Lithuania, Hungary and Romania. The analysis was published by the Commission services last month (May 2024).
The findings of the two-stage analysis are reflected in the country reports, after having informed multilateral discussions in the Council.
They also underpin relevant Country-specific Recommendations issued in this 2024 Semester cycle.
For instance, you will see that we have issued CSRs mentioning the adequacy of social protection, and in particular the need to address challenges related to access and quality of healthcare and long-term care, for Estonia, Finland, Croatia, Hungary, Italy, Latvia, Lithuania and Poland.
We have also issued CSRs on the need to strengthen incentives to work or to enhance the labour market participation and skills of under-represented and vulnerable groups for Austria, Belgium, Bulgaria, Czechia, Germany, Hungary, Luxembourg, the Netherlands, Poland, Sweden and Slovakia.
Finally, we issued CSRs related to education and skills for almost all Member States.
Thank you.
Commissioner Gentiloni
This year's Spring economic package comes at a time of gradual economic recovery, with cooling inflation and a still very strong labour market.
But it is also a time of elevated geopolitical tensions and complex economic and social challenges.
Against this backdrop, we are providing detailed guidance aimed at building a more competitive, fiscally sustainable and socially cohesive Europe.
After almost four years of General Escape Clause, our economic and fiscal policies enter a new cycle.
This does not mean back to normal – because we are not living in normal times. Much less, back to austerity – because this would be a terrible mistake.
We focus on three strands in our guidance:
- Strengthening competitiveness, a cross-cutting feature of our country-specific recommendations;
- Making the most of EU funding opportunities, which means continuing and where necessary stepping up implementation of the Recovery and Resilience Facility and Cohesion Policy programmes;
- And moving forward with the first steps in the application of our new economic governance, reflecting both the requirement for fiscal prudence and addressing the immense investment needs we face.
Recommendations on competitiveness
Let me begin then with competitiveness.
Our recommendations cover a broad panoply of issues to strengthen the competitive sustainability that is at the heart of our economic development strategy for Europe, including:
- skills mismatches;
- improving the business environment;
- phasing out fossil fuels;
- and addressing demographic challenges.
Recommendations on RRP/Cohesion Policy
Each Member State also receives a recommendation on the implementation of its national recovery and resilience plan. These reflect the different pace of implementation and degree of urgency in each Member State.
This recommendation also addresses challenges in implementing Cohesion policy programmes.
Fiscal policy recommendations
Turning now to the fiscal recommendations, all Member States are recommended to submit their medium-term fiscal-structural plans by 20 September.
All should pursue prudent fiscal policies by ensuring that the growth in net primary expenditure in 2025 and beyond is consistent with our new governance framework. This is kept qualitative to not pre-empt the medium-term plans.
Member States also receive recommendations covering fiscal-structural elements, such as improving the tax mix for more inclusive and sustainable growth; addressing aggressive tax planning risks; securing the fiscal sustainability of social security, health, long-term care and pensions; improving the efficiency of public spending. These recommendations are very important because they are also in a certain sense guidance for reforms and investments to be included in Member States' medium-term plans.
The 126(3) Report
Beyond the fiscal recommendations, we have also published today a report under article 126(3) on excessive deficits. This report assesses compliance with the deficit criterion of the Treaty for the ten Member States that reported a deficit above three percent of GDP last year, plus two that plan a deficit above three percent for this year. So twelve overall. The report takes into account all relevant factors, including the increase in defence investment spending, a new element in the revised legislation.
The report concludes that the deficit criterion is not fulfilled in seven of these Member States: Belgium, France, Italy, Hungary, Malta, Poland and Slovakia.
Today's report is the first step in the process of opening an Excessive Deficit Procedure. It will be for the Council in July to adopt a Decision establishing the existence of an excessive deficit in those Member States. The EDP recommendations on the correction of the excessive deficits will be proposed only in November, to ensure consistency with the adjustment path set out in the medium-term plans.
We have concluded that the deficit criterion is fulfilled by Czechia, Estonia, Finland, Slovenia and Spain:
- For Czechia, the excess is considered temporary, with overall mitigating relevant factors.
- For Estonia, the deficit was above but close to the reference value in 2023 and here again, there were mitigating relevant factors.
- For Slovenia and Finland, the excessive deficit planned for this year is subject to uncertainty and, according to our forecast, this planned breach is not confirmed for Slovenia and it is projected to remain close to the 3% in 2024 and fall below it in 2025 for Finland.
- And for Spain, the excess is considered temporary, as the deficit is projected to be at 3% in 2024, according to our Spring Forecast. The Commission will, in any case, continue to monitor budgetary developments in Spain and re-assess the situation in autumn.
We have also assessed compliance with the ongoing Excessive Deficit Procedure for Romania. We consider that Romania has not taken effective action to correct the excessive deficit.
Let me underline that the report describes a different situation across Member States. But overall, the picture is one of stability and gradually decreasing deficits (Spring Forecast for EU: 2023: 3.5%; 2024: -3.0%; 2025: -2.9%). And this is a picture that conveys a message of confidence.
Macroeconomic imbalances
Lastly, on macroeconomic imbalances, a few words on the conclusions of our in-depth reviews of 12 Member States. In terms of horizontal messages:
- Current accounts improved in 2023, with marked reductions in energy prices. But concerns remain about some large current account deficits and surpluses.
- House prices have moderated or even fallen in several Member States, but underlying issues, including housing undersupply, have not been resolved.
- Cost competitiveness concerns are easing, but divergent price and cost dynamics are still an issue in some countries.
- Large public, private and external debts have continued their downward trend - with strong reductions last year on the back of high nominal GDP growth and weak credit flows - but with inflation easing, deleveraging is slowing down too.
- The banking sector has proved resilient, and non-performing loans have continued to fall, albeit often only marginally. But tightening financing conditions may still increase risks for borrowers and lenders.
Coming to the position of individual Member States, of the 12 Member States subject to an in-depth review, eight have been identified with imbalances: Cyprus, Germany, Greece, Hungary, Italy, Netherlands, Sweden and Slovakia; and one with excessive imbalances (Romania).
Five Member States have been de-escalated (Spain, Portugal, France, Greece and Italy), while two have been escalated (Slovakia and Romania).
In the case of France and Italy, fiscal imbalances and sustainability risks are expected to be reduced through compliance with the fiscal trajectories defined in the medium-term plans under the reformed economic governance framework, and consistent with the excessive deficit procedure.
Conclusion
Our economies have shown an extraordinary resilience in recent years, also thanks to our collective policy response.
Looking ahead, we must continue to address the structural challenges that are holding back our competitiveness, starting with the determined implementation of the recovery and resilience plans. I am confident that the European Semester, together with the new economic governance framework, will continue to help us deliver on our common objectives.
