Analytics, EU – Baltic States, Funds, Latvia, Modern EU

Generally, the EU institutions and Commission’s assistance includes reforms’ assistance highlighted in specific recommendations for each country. For example in 2019, the SRSP will provide technical support to 26 member states to carry out more than 260 projects in addition to more than 290 projects during 2017-18.

Present winter “semester-package” is part of the EU’s annual cycle of economic policy coordination among the member states; it follows the Commission publication in November 2018 the EU-28 annual growth survey and the euro area autumn recommendations. These documents set the developmental priorities for the year ahead in the member states and finally reflected as the national dimensions in the European Semester.

General web-link for semester in: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester_en;

On annual growth survey in:  

https://ec.europa.eu/info/publications/2019-european-semester-annual-growth-survey_en

The statistics from the Commission's Winter-2019 economic review and countries’ reports provide the background for the states national socio-economic programs, which will be assessed again in mid-April in the corresponding upcoming Country-Specific Recommendations later in the Spring Package. In the Baltic States’ country reports, macroeconomic imbalances were not specified.

More in: http://europa.eu/rapid/press-release_IP-19-1389_en.htm?locale=en

In the winter’s review, the Commission published the country reports for all EU-28 states, including in-depth reviews for 13 countries identified in the “alert mechanism reports” published in November 2018. See more in:   

https://ec.europa.eu/info/publications/2019-european-semester-alert-mechanism-report_en

Country reports represent analytical documents providing an overview of both the economic and social challenges in the states and their national policies. The reports are a tool under the European Semester, which is the EU’s “framework for economic and social policy coordination” in monitoring reforms’ implementation. For those EU states for which the Commission's alert mechanism reports (in November 2018) identified the need for an in-depth review, the country reports include an analysis into whether the countries are experiencing macroeconomic imbalances and, if they are, to what extent.

Thus, the country reports serve as the basis for discussion with EI states of their national policy choices ahead of designing their national programmes in April, and will lead to the formulation in late spring of the annual country-specific recommendations. More in:

https://ec.europa.eu/info/sites/info/files/2019-european-semester-alert-mechanism-report-statistical-annex.pdf

The country reports review both reform and investment priorities at the state’s level. This year, for the first time, they also include identified priorities in investments for EU Cohesion Policy funding in the period 2021-2027. It presents the Commission's view on how to maximize the positive economic impact of the three Cohesion Policy funds: the European Regional and Development Fund, the European Social Fund and the Cohesion Fund.

Below are some vital aspects for the Baltic States in implementing semester’s aims.

- The national macro-imbalance programs’ scoreboards, MIPs consist of fourteen indicators measuring internal and external imbalances as well as social and labour market developments. The MIPs help in understanding potential imbalances in the states, as well as the adjustment capacity of the national economy.  

In analysing MIPs, the Commission has based its economic strategy on a ‘virtuous triangle' policy mix which combines the promotion of reforms, investment and fiscal responsibility. Identifying and addressing investment needs is thus a key priority of the European Semester.

As a novelty of the winter package, the Commission includes investment challenges and priorities in the states and makes analysis as to how EU funds, in particular EU Cohesion Policy funds, can function in the 2021-2027 budgets. This novelty will also serve to ensure greater coherence between the coordination of economic policies and the use of EU funds, which are a significant part of public investment in several EU states, e.g. in the Baltics.

- The level of employment

With 240 million Europeans currently in employment, the level of employment in the EU is the highest ever recorded. Unemployment, at 6.6% in the EU, is also at a record low. Following years of robust growth and job creation, the social situation continues to improve. In 2017 alone, more than five million people were lifted out of poverty and social exclusion.

However, the analysis points to remaining challenges and also to significant differences across Member States. In some Member States, unemployment rates have not fully recovered and are still above 10%, while youth unemployment remains too high. Social distress is a concern in several Member States and inequalities are still a challenge.

-The annual Structural Reform Support Program, SRSP  

The 2019 SRSP work program sets out the priorities, objectives and expected results while describing the actions that will be implemented in 2019. The SRSP is managed by the Commission's Structural Reform Support Service, which acts as a hub to gather and supply European and international expertise.

During 2019, the SRSP will provide technical support to 26 EU states to carry out more than 260 projects. This comes in addition to the more than 290 projects selected in 2017 and 2018. In 2019, the programme will also provide targeted support for reforms in the states wishing to adopt the euro. More in:

https://ec.europa.eu/info/publications/structural-reform-support-programme-financing-decisions-and-annual-work-programmes_en

- On national productivity boards

The Council adopted in September 2016 a Recommendation inviting euro area states to establish National Productivity Boards by March 2018.

See: Council Recommendation of 20 September 2016 on the establishment of National Productivity Boards. OJ C 349, 24.9.2016, p. 1.

These productivity boards should act as independent institutions to investigate the states’ productivity challenges and contribute to evidence-based policy-making at national level. The Council Recommendation also invited the Commission to prepare a Progress Report on its implementation and suitability by 20 March 2019.

By the end of 2018, ten euro area states - Belgium, Ireland, France, Cyprus, Finland, Lithuania, Luxembourg, Netherlands, Portugal and Slovenia have established National Productivity Boards, NPBs; besides, 3 non-euro area member states have identified or set up similar institutions - Denmark, Hungary and Romania.

Remaining nine euro area states: Austria, Germany, Greece, Estonia, Spain, Italy, Latvia, Malta and Slovakia have announced their intention to set up boards (the process has been at an advanced stage only in Greece, Malta and Slovakia).

Apart from Croatia, five non-euro area states: Bulgaria, the Czech Republic, Poland, Sweden and the UK have decided not to establish NPBs; generally, they justified their decision on the basis that they already have had institutions performing some or all the NPBs’ tasks.  

Thus, seven EU states (Denmark, Ireland, Lithuania, the Netherlands, Portugal and Romania and Slovenia) have appointed already existing institutions as NPBs and broadened their mandates to execute the envisaged tasks; e.g. in Lithuania in the Ministry of Economy and Innovation with two full-time analysts, which is somewhat exceptional among the EU states where the number of people involved reaches 16 in Ireland. In Hungary, the Productivity Board in chaired by the Minister of Finance.

The six states have created new bodies (Belgium, Cyprus, Finland, France, Hungary, Luxembourg), which typically rely on support from an existing structures, e.g. a ministerial department or a research institute. See more in: https://ec.europa.eu/info/sites/info/files/economy-finance/progress_report_on_the_council_recommendation_on_the_establishment_of_national_productivity_boards.pdf / 27.02.2019.

- On labour productivity

Labour productivity growth in the EU was in decline even before the crisis; for example, the productivity gap between the EU and the US has widened over the last two decades: in the US by about 40% and in the EU by about 15-20%. See more in the Commission Report (2019, page 3) in: https://ec.europa.eu/info/sites/info/files/economy-finance/progress_report_on_the_council_recommendation_on_the_establishment_of_national_productivity_boards.pdf.   

Generally, labour productivity and so-called “total factor productivity growth”, TFPG in the EU and the euro area are still around their pre-crisis level. Moreover, the recent improvement masks significant differences among the EU states: e.g. in 2018, productivity growth ranged between -0.4% in Luxembourg and 4.3% in Poland. Differences in labour productivity growth across EU states are related to factors such as the catching-up process: countries with lower initial labour productivity have shown, on average, higher productivity growth since 1995.

Among factors affecting productivity growth and competitiveness, the Report includes: a) sustained innovation and improvements in education levels; b) well-functioning labour and product markets; c) access to finance and effective insolvency frameworks; and d) a supportive business environment. In some EU states, some other factors played an important role in productivity growth: e.g. a slowdown in the introduction of new technologies, competition-impeding product market regulations and malfunctioning labour markets.

Following the winter-semester’s analysis, the EU policy objectives are the following: - moving to a “smarter Europe” by promoting innovative and smart economic transformation; - a greener and low-carbon economy in the states; - a more connected Europe by enhancing mobility and regional ICT connectivity; - a more social Europe implementing the European Pillar of Social Rights; and - a Europe closer to citizens by fostering the sustainable and integrated development of urban, rural, coastal areas and local initiatives.

The policy assessments in the states have shown the need for closer links between these policies’ guidelines and the investments needs: investing in skills must be the top priority in order to maintain competitiveness and social cohesion.

However, there is a need “to shift up a gear”, as the Commission acknowledged, because the demographic changes and technological developments have been reshaping the labour market. Besides, there are skills shortages and mismatches; the states need skilled workforce to make a successful transition to the digitalised and carbon neutral economy. Only equipped with the right skills, people will embrace new opportunities; to reach this goal the states need to invest in people in order to sustain growth and boost convergence across Europe (over 6 million adults in Europe are low qualified).

See more in Commissioner Thyssen’s remark/27.02.2019/ in:

http://europa.eu/rapid/press-release_SPEECH-19-1452_en.htm?locale=en