The European Commission’s package launches the annual cycle of economic governance. It sets out general economic and social priorities for the EU and gives Member States policy guidance for the following year. Policy challenges vary across countries, so responses will also vary. However, there are overarching themes that affect the EU as a whole. To strengthen the recovery and foster convergence, the Commission recommends building on the three main pillars identified last year for the EU’s economic and social policy: re-launching investment, pursuing structural reforms and responsible fiscal policies.
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This package builds on the latest data from the Commission Autumn Economic Forecast. It also reflects the new approach to the European Semester set out in the Commission’s recent Communication on steps towards completing the Economic and Monetary Union, including a stronger emphasis on employment and social issues and on the euro area dimension.
Today’s economic package includes the following elements:
– The 2016 Annual Growth Survey (AGS)
The AGS launches the annual cycle of economic governance. It focuses on the overarching challenges that Member States face collectively.
The Commission considers that the economic and social priorities of the 2015 Annual Growth Survey (investment, structural reforms and fiscal responsibility) remain valid. The priorities for 2016 are an update of these priorities, taking into account the progress made and of new challenges emerging. This is reflected in the three priorities proposed for 2016:
1. Re-launching investment
The Investment Plan for Europe proposed by the Commission a year ago aims at mobilising at least EUR 315 billion of additional investment over three years and bringing back investment to sustainable pre-crisis levels. Thanks to the swift support of the European Parliament and the Council, and the operational work of the European Investment Bank, the new European Fund for Strategic Investments (EFSI) is now getting into full swing. The EFSI has already started financing projects in the real economy, as well as SMEs and start-ups. The European Investment Advisory Hub has become operational. The European Investment Project Portal will be launched early next year.
Efforts at national level need to accompany this Plan, as public and private investment are still subdued. Supporting human capital is also important for investment. To steer dialogue with the Member States, country-specific information about key challenges for investment at national level is published alongside this Annual Growth Survey.
Moreover, the Banking Union needs to be completed to reinforce financial stability and normalise lending to the real economy in the euro zone and beyond, and work on the Capital Markets Union needs to be accelerated, so that economic actors can benefit from more diversified sources of funding.
2. Pursuing structural reforms to modernise our economies
As the focus continues to shift from tackling the crisis to building solid foundations for jobs and growth, a renewed commitment to structural reforms is needed. This is also part of a broader effort of Member States to correct their imbalances and improve their performance in some areas that are crucial for productivity and convergence.
Labour market policies need to achieve both flexibility and security in the world of work. A particular focus should be put on tackling the pressing issues of long-term unemployment and youth unemployment. Action is also needed to deliver more integrated and competitive product and services markets, and thus stimulate innovation and job creation. The Commission will engage in discussion with Member States and other partners about both the challenges and potential policy responses in these fields, to facilitate convergence towards the best performers.
3. Responsible public finances
The fiscal stance for 2015 and 2016 is expected to be broadly neutral both in the euro area and in the EU as a whole. Growth developments and low interest rates, together with the reduction of government deficits over the last few years, have contributed to stabilising debt levels and improving the sustainability of public finances. The decrease in the number of countries in the Excessive Deficit Procedure reflects these fiscal improvements. However, there is a difference in fiscal efforts that individual Member States should take under requirements of the Stability and Growth Pact. Public debt remains very high in many Member States. This makes economies more vulnerable to adverse shocks and can act as a drag on growth.
On the revenue side, it is important to ensure that tax systems are efficient and growth-friendly. They also need to address disincentives to job creation and be made fairer and still more effective. At the same time, social protection systems should be modernised to respond to upcoming demographic challenges.
– A recommendation for the economic policy of the euro area
Given the strong dependence and the potential for spill-over effects among euro area countries, coordination and surveillance of the economic policies of all euro area Member States need to be enhanced. In order to better integrate the euro area and national dimensions of the EU economic governance, the 2016 Annual Growth Survey is accompanied by a recommendation for a Council Recommendation on the economic policy of the euro area. This is an important change from previous Semester cycles where the euro area recommendation was proposed along the Country-Specific Recommendations towards the end of the Semester in spring. This 2016 euro area recommendation focuses on key issues for a well-functioning euro area and provides orientation on concrete actions to be implemented.
– The Alert Mechanism Report (AMR)
The AMR is the starting point for the annual surveillance cycle under the Macroeconomic Imbalance Procedure (MIP) and is traditionally presented alongside the AGS. The AMR aims to identify risks of imbalances that require further in-depth investigation as imbalances may hinder the performance of national economies, the euro area, or the EU as a whole.
This year, in line with what was announced previously, the employment and social dimensions of the Alert Mechanism Report are strengthened through the addition of three headline indicators to the MIP scoreboard. There is also a particular focus on the euro area as such, given the deeper interdependence of its economies.
The AMR shows that Member States are continuing to address the macroeconomic imbalances identified in previous years. However, there are areas of concern, and new challenges are emerging. Vulnerabilities associated with high debt levels remain a risk in the context of subdued domestic demand. Surpluses in some Member States are set to remain large over the forecast horizon (2015-17). At the aggregate level, the euro area has one of the world’s largest current account surpluses. While weaker commodity prices and the depreciation of the euro have contributed to boosting the trade balance, the surplus also reflects a preference of domestic savings over investment.
The AMR identifies Member States which require further in-depth review to assess whether they are affected by imbalances. For the 2016 Semester cycle, 18 countries will be subject to an in-depth review (IDR) as part of the Macro-Economic Imbalance Procedure. For 16 countries, an imbalance was identified in the previous cycle and a new IDR is now needed to assess whether imbalances are persisting (Belgium, Bulgaria, France, Germany, Croatia, Italy, Hungary, Ireland, the Netherlands, Portugal, Romania, Spain, Slovenia, Finland, Sweden and the United Kingdom). On top of that, in-depth reviews will also be prepared for Austria and Estonia. The situation in Cyprus will be assessed after the country exits the financial assistance programme this is scheduled for March 2016.
The Commission will present its conclusions of the in-depth reviews as part of its annual Country Reports foreseen in February 2016.
– Draft Joint Employment Report
The Annual Growth Survey 2016 is also accompanied by the publication of the Commission’s draftJoint Employment Report, to be adopted jointly with the Council (on the basis of art 148 TFUE).It analyses the employment and social situation in Europe and the policy responses by Member States. The report shows that substantial structural reforms pay off. It also analyses the potential for improving the employment and social performance of the EU as a whole.
– Structural Reform Support Programme
As announced previously, the Commission intends to progressively roll out its support for technical assistance offered by its Structural Reform Support Service. This Annual Growth Survey is thus accompanied by a proposal for funding for technical assistance to the Member States that can be deployed upon request.
Background
Over the past year, the Commission has presented ambitious initiatives to create jobs, support growth, reinforce economic convergence and strengthen social fairness. The Investment Plan for Europe is now operational. The European Parliament and the Council adopted in record time the regulatory framework for the European Fund for Strategic Investments (EFSI) to finance new, additional investment projects that would not have been financed otherwise. The EFSI has already started financing projects in the real economy, as well as SMEs and start-ups. The Commission has made ambitious proposals to complete Europe’s Economic and Monetary Union, including through the streamlining of the European Semester, advancing the Banking Union and the Capital Markets Union, reinforcing transparency and democratic legitimacy while strengthening the social dimension of our economic governance. A new Single Market Strategy, an Action Plan for the Digital Single Market, and a Framework Strategy for a Resilient Energy Union with a forward-looking Climate Change Policy have also been put forward to strengthen the internal market.
All these initiatives should now be fully implemented to deliver concrete and tangible results. To succeed, the EU and Member States need to work together to ensure a bold and determined policy response with strong ‘buy-in’. This should be achieved by closely involving the European Parliament and national legislators as well as social partners, local and regional authorities and civil society. This is also a key message of the recent Commission’s Communication on steps towards completing the Economic and Monetary Union.
Further information:
The start of the 2016 European Semester: The November European Semester package explained
The EU’s economic governance explained
