Analytics, EU – Baltic States, Legislation, Modern EU

International Internet Magazine. Baltic States news & analytics Tuesday, 18.09.2018, 22:52

European Semester in 2018: facing modern challenges

Eugene Eteris, RSU/BC, Riga, 12.03.2018.Print version
Since the start of the European Semester in 2011, the EU member states have made progress in financial services, in fiscal policy and governance. The Semester has been enriched in 2018 by requirements of the European Pillar of Social Rights. Besides, the states are having good guidance in getting support for progressive structural reforms.

The EU-2020 strategy has specified goals for the member states; they include: increase of employment rate of the population aged 20-64 to 75%; increase of investment in R&D to 3% of GDP; 20% reduction of greenhouse gas emissions; 20% increase of the share of renewable energy in final energy consumption and 20% increase in energy efficiency; reduction of school drop-out rates to less than 10%; increase of the share of the population aged 30-34 having completed tertiary education to 40%, and lifting at least 20 million people out of the risk of poverty and social exclusion.


The Semester’s winter package (published on 7 March 2018) includes three vital components: a) country reports from 27 member states (except Greece, which is subject to a stability support program), with in-depth reviews (IDRs) for 12 countries; b) a Communication on the main findings and results of the Country Reports and IDRs; and c) special monitoring reports in the context of the macroeconomic imbalances procedure.


See more in: https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-communication_en.pdf

On Alert Mechanism Report (November 2017) see: https://ec.europa.eu/info/publications/2018-european-semester-alert-mechanism-report_en


Country Reports, CRs

CRs are analytical documents that provide an overview of the economic and social challenges in the EU states as well as taken policy actions. The reports are the Semester’s tools in the process of states’ policy coordination to monitor reforms and to point to issues facing the states. For countries for which the Commission's Alert Mechanism Report identified the need for an in-depth review in November, such CRs include the analyses of the countries’ macroeconomic imbalances. The CRs serve as a basis for further Commission’s dialogue with the states and stakeholders at all levels, ahead of the presentation of national programmes in April and of the preparation of new Country-Specific Recommendations (CSRs) later in spring 2018. The CRs also include policy highlights for all EU states, which are also serving as inspiration for others.


The EU states have been consulted on the analytical elements of the reports in advance of publication, also to give them the opportunity to check the accuracy of facts and figures; the final analysis is made by the Commission.


Main country reports’ findings

The CRs’ review showed the EU states progress in addressing the issues identified in the previous CSRs. Present analysis shows that the economic recovery, together with the reforms in many states, has contributed to improving the European labour market and social cohesion.  Unemployment is at a ten-year low and almost back to pre-crisis levels, investment is picking up and public finances continue to improve. The share of people at risk of poverty or social exclusion has decreased to pre-crisis levels. However, remaining vulnerabilities, such as the high level of public and private debt, need to be overcome to safeguard the sustainability and inclusiveness of the current economic growth.


Present economic conditions in the states call for further strengthening, for further reforms to make them more resilient to future shocks, to mitigate the costs of demographic evolutions and to adapt to technological change. Commission’s continued focus on the so-called “virtuous triangle” (i.e. investments, structural reforms, and responsible fiscal policies) provides the states a guidance in implementing the necessary reforms. Winter CRs also look at the priorities of the European Pillar of Social Rights, which serve as a compass towards better working and living conditions across the EU.


Addressing CSRs’ challenges

As compared with May 2017, the EU states achieved certain progress in recommendations’ implementation in some key areas, e.g. in financial services, fiscal policy and fiscal governance. This continues to reflect the priority that was given to the stabilisation of public finances and of the financial sector, following the economic and financial crisis. Significant progress has also been made in addressing access to finance, in employment protection legislation and frameworks for labour contracts. However, only modest progress has been made in areas like the broadening tax bases or transport. In many EU states, progress is slow in important challenges related to long-term sustainability of public finances.


Regulatory reforms have improved the business environment in general; e.g. some reforms have reduced administrative barriers to start-ups, however entrepreneurship remains weak in many states. Access to bank credit and loans has improved for SMEs but venture capital is still insufficient in many countries. Significant progress can also be reported in public procurement. However, the pace of reform in the market for services is slow in particular in business services, construction and real estate. More in:

https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-communication_en.pdf


Addressing employment and social priorities

The Commission has strengthened the Semester’s focus on economic policy coordination. Employment in the EU reached 236.3 million in the third quarter of 2017, the highest number ever recorded; the EU unemployment fell to 7.3% in December 2017. The number of people at risk of poverty or social exclusion continues to decrease for the 4th year in a row. The overall income distribution is more equal than in other regions of the world.


However, there are still significant differences among the EU states. Disposable household income is not yet above pre-crisis levels in all EU states and social dialogue becomes a precondition to successful reforms.


Much needed convergence among the EU states is needed towards better working and living conditions. The 2018 CRs look notably at how the states deliver on the dimensions of the European Pillar of Social Rights, e.g. for the low impact of social transfers on poverty reduction, the gender employment gap, high labour market segmentation and sluggish wage growth, as well as the role of social dialogue in some EU states.


The Pillar sets out a number of key principles and rights to support better living and working conditions across the EU. It is accompanied by a Social Scoreboard which tracks trends and relative performance in the EU states in the three main dimensions of the Pillar: a) equal opportunities and access to the labour market, b) fair working conditions, and c) social protection and inclusion.

See more in: https://composite-indicators.jrc.ec.europa.eu/social-scoreboard/


The Annual Growth Survey (AGS) published in November 2017 already makes clear that the Semester will be key for delivering on the Pillar. The Joint Employment Report includes most of the indicators of the Social Scoreboard to monitor areas covered by the Pillar. In addition, the Employment Guidelines, the basis for the Country-Specific Recommendations (CSRs), have been aligned with the principles of the Pillar.

 

On AGS see: https://ec.europa.eu/info/publications/2018-european-semester-annual-growth-survey_en

On Joint Employment Report see: https://ec.europa.eu/info/publications/2018-european-semester-draft-joint-employment-report_en


The Country Reports use the Pillar as a compass, focusing on reforms that help increase the resilience of labour markets, the effectiveness of national welfare systems and the capacity to deal with longer-term structural drivers of change (e.g. new forms of work, demographic ageing). To achieve this, the Pillar is included into report’s different parts; besides, a separate information box complements the analysis to outline the country's general performance and presenting a few specific examples on progressive structural policy development.


Macro-economic imbalances procedures, MIPs


In-depth reviews are carried out in the context of the macroeconomic imbalances procedure to identify and prevent the emergence of potentially harmful macroeconomic imbalances that could damage economic stability in a single country, the euro area or the EU as a whole. First, the Alert Mechanism Review identifies, on the basis of a reading of a scoreboard of indicators, released in November 2018, the EU states with possible risks of economic imbalances. Then the Commission undertakes in-depth reviews to assess whether imbalances or excessive imbalances indeed exist in these countries and to assess their gravity. For those countries where an in-depth review was carried out, the results are included in the Country Reports.


The reviews examine aspects such as the sustainability of the EU states' external accounts, savings and investment balances, effective exchange rates, export market shares, cost and non-cost competitiveness, productivity, private and public debt, housing prices, credit flows, financial systems, unemployment and other variables.


Since the publication of the Alert Mechanism Report, the Commission has been in close contact with experts from national authorities and stakeholders to gather the latest information and undertake the analysis.


As to macroeconomic imbalances, in the context of the European Semester, the MIPs are defined as “any trend giving rise to macroeconomic developments which are adversely affecting, or have the potential to adversely affect, the proper functioning of the economy of a EU state or of the Economic and Monetary Union, or of the Union as a whole”; the excessive imbalances are “severe imbalances that jeopardise or risk jeopardising the proper functioning of the Economic and Monetary Union”.


The situations that fall under the definition of imbalances might be related to unsustainable trends (e.g. excessive and protracted growth in house prices) which could result in disruptive adjustment, or the presence of vulnerabilities (e.g. large stocks of debt) that weigh on the economy and amplify the impact of macroeconomic shocks.


In the 2018 Alert Mechanism Report, published in November 2017 as part of the European Semester Autumn Package which started the 2018 European Semester cycle, the Commission identified 12 states for in-depth reviews: Bulgaria, Croatia, Cyprus, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden. All 12 countries were found to experience imbalances or excessive imbalances also in 2017. An in-depth review is needed to identify the existence of imbalances and to assess their gravity. For imbalances already identified, in-depth-reviews are needed to analyse whether imbalances are unwinding, persisting or aggravating, while paying due attention to the contribution of the policies implemented by these states to overcome imbalances.


In the case of Greece, the surveillance of imbalances and the monitoring of corrective measures continue to take place in the context of its stability support programme.


The Commission has concluded that 3 EU states examined are facing excessive economic imbalances: Croatia, Cyprus, and Italy (the eurozone’s third-largest economy); Slovenia is no longer experiencing economic imbalances.


The countries experiencing imbalances will continue to be subject to specific monitoring of progress in addressing their imbalances within the MIPs framework. For Bulgaria and Portugal the Commission underlined that further efforts remain necessary to achieve a sustainable correction of the imbalances.


The Commission does not at this stage carry out further analyses in the context of the MIP for other EU states. However, careful surveillance and policy coordination are necessary on a continuous basis for all EU states to identify emerging risks and put forward the policies that contribute to growth and jobs.


Specific monitoring reports

Specific monitoring is an instrument to monitor policies carried out in the context of the MIP. It allows for an intensified dialogue with the national authorities for countries identified as experiencing imbalances or excessive imbalances under the MIPs. It takes place through experts' missions and through specific monitoring reports, which are progress reports focusing on policy measures. The most recent reports were discussed in the relevant Council committees in late autumn 2017 and the findings have fed into the country reports. Presently, the Commission published these specific monitoring reports for nine countries: Bulgaria, Croatia, France, Germany, Italy, Spain, Slovenia, Sweden and the Netherlands. The specific monitoring reports for Cyprus, Ireland and Portugal were included in their latest post-programme surveillance reports.


Perspectives

The Council is expected to discuss the Commission's findings emerging from the Country Reports and the in-depth reviews included in some of them. The Commission will then hold bilateral meetings with the states on the Country Reports. The Vice-Presidents and Commissioners will visit the states to meet the governments, national parliaments, social partners and other stakeholders and to discuss the findings from the Country Reports.


By mid-April 2018, the states are expected to address the identified challenges in their National Reform Programmes and their Stability Programmes (for euro area countries) or Convergence Programmes (for non-euro area countries) related to public finances.


The EU states are expected to closely involve national parliaments and social partners to include a wider range of discussions. The states will also be invited to explain how regional and local authorities are involved in the preparation of the programme, as the success of implementation also relies on various levels of government. On the basis of all these sources, the Commission will present its proposals for new Country-Specific Recommendations later in spring, targeting the key challenges each country should address.


More information on the Semester in the following web-sites: = Press release Communication Country Reports, = Specific monitoring reports under the MIP; = SRSP 2018 Annual work programme; = Winter 2018 Economic Forecast; = Start of the 2018 European Semester: Autumn Package; = Visual presentation of the European Semester cycle; = Alert Mechanism Report 2018; = Annual Growth Survey 2018; = Euro Area Recommendation 2018; = Draft Joint Employment Report 2018. General reference: http://europa.eu/rapid/press-release_MEMO-18-1581_en.htm?locale=en

Other references: http://europa.eu/rapid/press-release_IP-18-1341_en.htm?locale=en; Latvian version: http://europa.eu/rapid/press-release_IP-18-1341_lv.htm






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