Analytics, Budget, EU – Baltic States, Financial Services, Legislation

In March and April 2016, the Commission will hold further bilateral meetings with the EU member states in order to discuss countries’ reports with the national authorities.

In April 2016, the EU member states are expected to present their national reform programmes and their stability programmes (for euro area countries) or convergence programmes (for non-euro area countries), including any follow-up to the winter Semester’s package.

On this basis, the Commission will present in spring 2016 its proposals for a new set of country-specific recommendations, targeting the key challenges to be addressed. The recommendations will also include fiscal guidance, which will be based on the Commission Spring Forecast which will incorporate final 2015 budgetary data validated by Eurostat.

The EU economic strategy demands a political debate at all levels: both European and national. In the same way the euro-states’ development follows the EU political project that requires political governance and democratic accountability. Finally, the EU’s ability to improve peoples’ present and future progress will be tested.

That is why the European Semester is not a technocratic exercise but a political process, shaped by dialogue and debate. The EU and the member states’ national parliaments play a central role in shaping political debate, the EU legitimacy and policy-making strategies.

Complex developmental environment

This year's Semester takes place in a complex global environment; the Commission’s 2016 Winter Economic Forecast has observed that “while growth in the EU was continuing at a moderate rate, significant parts of the world economy have been grappling with major challenges”. These challenges include a slowing down of the emerging economies including China; geopolitical tensions in the EU’s neighbourhood and volatility in global markets.

However, 2016 is expected to be the fourth year of recovery for the EU-28 with about 1.9% growth; thus confidence is returning both in the EU and the euro-area states (e.g. employment has raised to its highest level since 2008).

Yet these signs of progress are not enough: about 22 million Europeans are still without work, and 4.5 million of these are below the age of 25.

The European Commission put in a place a clear strategy at the end of 2014, to deliver growth and jobs: a virtuous triangle of investment, structural reforms and responsible fiscal policy. This strategy has an impact on all Commission’s efforts with a social fairness at its core.

When it comes to responsible public finances, average budget deficits in both euro area and the EU as a whole are clearly going down. For example, in the euro area the budget deficit is expected to go down from average 2.2% of GDP in 2015 to 1.9% in 2016.

Stability and Growth Pact (SGP): member state’s compliance

The assessment of compliance with the SGP is a continuous process throughout the year. For example for Spain, a country which is currently subject to the Excessive Deficit Procedure (EDP), the Commission’s reminder takes the form of an Autonomous Commission Recommendation (ACR).

ACRs are a regular tool introduced in the Two-Pack regulation as an early alert to euro area states in the form of a “corrective arm”. They are meant to come at a time in the Semester process when measures can be taken to ensure a timely correction of their excessive deficit.

The Commission also notified Belgium, Croatia, Finland, Italy and Romania of its concerns regarding those countries' compliance with their fiscal obligations.

The Commission previously adopted Autonomous Commission Recommendations for France and Slovenia following the Commission Winter Forecast 2014. As a result, these countries took specific policy actions, which were taken into account when the Commission prepared the 2014 country-specific recommendations for these EU states.

As part of the Semester cycle, further Commission proposals for Council recommendations to the EU states on fiscal matters may be adopted in spring 2016. This will allow taking into account the information the member states provide in their national reform programmes and their stability or convergence programmes, including any follow-up to the present package.

The recommendations will also be based on the Commission Spring forecast, which will incorporate final 2015 budgetary data validated by Eurostat.

Commission Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, underlined that Commission already identified six countries whose budgetary strategies may entail risks to respecting their commitments under the Stability and Growth Pact.

He stressed that there has been still time to take necessary measures; hence Commission’s intention to send “an early warning signal”.

However, he added, the Commission was ready to engage in a constructive dialogue with those countries in order to minimise such risks.

Commissioner Pierre Moscovici, responsible for Economic and Financial Affairs, Taxation and Customs said that present Commission’s steps reflected an updated assessment of the budgetary outlook in a number of countries following the Commission's Winter Economic Forecast.

He noted that the Commission has done everything “to alert national authorities to compliance risks”; hence it was up to the member states to take into consideration Commission’s advices when submitting their medium-term fiscal plans in April 2016.

More information on the issue:

= Autonomous Commission Recommendation; =Communication; = Memo; = Country Reports; = The start of the 2016 European Semester: The November European Semester package explained; = The EU's economic governance explained; = Alert Mechanism Report 2016; and =

Winter 2016 Economic Forecast.

General reference: Commission press release “European Semester 2016: Commission reminds member states of fiscal obligations”, Brussels, 9 March 2016, in:

http://europa.eu/rapid/press-release_IP-16-704_en.htm?locale=en.  

Cleaning up public finances and reducing national debt

These issues are important for present and future EU’s development; thus it’s important that in 2016, for the first time in years, the levels of public debt have begun to fall.

As is known, structural reforms are in the hands of the member states. The Commission’s latest country reports send a clear message: those with the courage to reform make progress and they have shown that they were having a window of opportunity to modernise national economies.

The Commission’s first steps were addressing one of the greatest weaknesses of the European economy: a lack of investment.

With the help of the EU Parliament, the Commission has launched a major offensive to boost investment across the EU and the first results are already seen. In first six months in 2015, the European Fund for Strategic Investment has mobilised more than € 60 billion of investment in 22 EU states; around 80 percent of this new finance takes the form of new private capital.

The European Semester – a political process

The Semester helps to identify new risks, increase stability and encourage the reforms that deliver growth; by focusing on its most urgent priorities, each EU state strengthens the Union.

In February 2016, the Commission published the latest country reports, which are vital to the quality of the EU’s policy-making. Thus, the economic and social developments in the member states as well as national programmes are properly debated and prepared.

This year's reports paint a varied picture: overall, the EU states are tackling their imbalances; they are making progress with the country-specific recommendations issued last year – although that progress varies from country to country. As a whole, these efforts will strengthen the European recovery and help national economies to converge.

In mid-March, the Winter Package of the European Semester has been discussed and the decisions under the Macroeconomic Imbalances Procedure were finalised. The main conclusion is that there are now fewer EU states with macroeconomic imbalances than last year: it means the states are making progress in reforming their economies and that the conditions for renewed convergence are gradually being restored.

Of the 18 countries examined in depth, six are found to have no imbalances, seven show signs of imbalances and five are experiencing excessive imbalances. The situation therefore differs across countries, but in general the main reason for concern are the persistence of very high levels of indebtedness (both public, private and/or external), the vulnerabilities in the financial sector and/or deteriorating competitiveness.

A clear reversal of these trends requires a decisive policy response as high debt levels are dragging down growth and make the economies vulnerable to shocks.

This is also crucial to keep up structural reform efforts to address long-standing weaknesses. It is not always easy, as reforms have political costs, but this is the only way to unlock the states’ growth potentials, make them more competitive, create more jobs and reverse the deterioration of social conditions.

But overall, the system of closer monitoring and stronger coordination is bearing fruit, which should convince the states to go further in “semester’s efforts”. The Semester is still in its early years, but the Commission has already made changes that make it more effective, more transparent and more accountable.

The changes include a new focus on employment and social performance to a streamlining of the process as a whole creating time and space for dialogue while focusing on urgent priorities that will deliver growth.

By publishing country reports earlier, the Commission made a more open and substantial discussion: thus, country-specific recommendations are becoming more targeted being focused on a limited number of priorities that require the government's attention in the coming 12 to 18 months.

Besides, the Commission published a recommendation for the euro-area states at the start of the Semester, which helps to develop a common understanding of the European challenges and the policies that would be adopted. Thus, the European Semester has become “lifeblood of EU’s economic governance”; its credibility depends not only on the quality of the analysis and judgment but also on the transparency and accountability of the process.

The Semester needs improvements and the Commission made changes that ensure a truly political debate at all levels: i.e. building bridges between all the actors in the EU political economy. Only in this way the Commission can build ownership and partnership, strengthen the legitimacy of economic governance and ensure that the EU’s economic strategy delivers on growth and the jobs.

Reference: Speech of Vice-President Dombrovskis at the EP plenary,9.03.2016, in: