Analytics, Economics, EU – Baltic States, Modern EU

The package includes, among other documents, some very important for the member states socio-economy developments:

a) “Communication on the 2019 European Semester: country-specific recommendations”; can be seen at: https://ec.europa.eu/info/files/2019-european-semester-commission-communication-country-specific-recommendations_en; and

b) “Country-specific recommendations (CSRs) for 28 Member States”; at https://ec.europa.eu/info/publications/2019-european-semester-country-specific-recommendations-council-recommendations_en. For Latvian CSR see:

https://ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-country-specific-recommendation-commission-recommendation-latvia_en.pdf

On the previous winter assessment see: Eteris E. “Winter-2019 Semester: the Baltic States’ position ranks positive” (4.03.2019) in:

http://www.baltic-course.com/eng/modern_eu/?doc=147675&ins_print.  

On country-specific recommendations, CSR

The CSR overall objective is to encourage the states to increase their growth potential by modernising their economies and further strengthening the resilience of their growth. As soon as the current economic development is subject to slowdown, all states should prioritise reforms aiming at sustainable and inclusive growth.

Moreover, increasingly digitalised and globalised member states’ economies require “smarter investments” in infrastructure, innovation, education and skills. Besides, the changing labour market and ageing population require additional measures to ensuring sustainable and inclusive social welfare systems.

Country-specific recommendations provide tailored advice to individual Member States on how to boost jobs, growth and investment, while maintaining sound public finances. 

The Commission publishes them every spring, as part of the European Semester, which is the EU's annual cycle for economic policy coordination. The recommendations adapt priorities identified at EU level in the Annual Growth Survey and at the euro area level in the recommendation for the economic policy of the euro area. They give guidance on what can realistically be achieved in the next 12-18 months to make growth stronger, more sustainable and more inclusive.

On public finances

Public debt is declining, but progress is uneven among the EU states: some having insufficient fiscal buffers while others have reached sound budgetary positions. Besides, government debt remains high in several EU states. The impact of an ageing population poses additional challenges for the sustainability of public finances in the EU, and calls for reforms of the pension, healthcare and long-term care systems.

The strengthening of fiscal sustainability in the euro area states requires differentiated national fiscal policies. The country-specific recommendations set a required fiscal adjustment effort consistent with the Stability and Growth Pact for those states that have not yet reached their medium-term budgetary objective. The states with adequate scope are also recommended to use fiscal and structural policies within the rules of the Stability and Growth Pact to increase public investment to support growth and facilitate economic rebalancing.

Improving the quality of public spending could enhance the ability of public finances to support growth. Fiscal policy that favors investment in education and skills, quality infrastructure and innovation is a means to increase growth potential.

On tax planning

This year, several country-specific recommendations directly address the topic of “aggressive tax planning”, ATP: tax avoidance reduces national revenues, disrupts fair competition and negatively impacts growth.

As soon as the European Semester is about coordinating national policies to ensure convergence and strong national economies, combating ATP and further tax coordination is an essential step to protect welfare and competitiveness; these moves are also reflected in recommendations for the euro area states by the Council in January 2019.

Besides, international efforts to improve transparency via automatic exchange of information on financial accounts (generally coordinated by the OECD) are aimed at improving tax compliance and delivering concrete results for governments worldwide.

More than 90 jurisdictions participating in a global transparency initiative under the OECD’s Common Reporting Standard (CRS) since 2018 have now exchanged information on 47 million offshore accounts, with a total value of around € 4.9 trillion. The Automatic Exchange of Information (AEOI) initiative - activated through 4,500 bilateral relationships - marks the largest exchange of tax information in history, as well as the culmination of more than two decades of international efforts to counter tax evasion.

More on AEOI in: https://www.oecd.org/tax/automatic-exchange/

Presently the international community has reached an unprecedented level of transparency in tax matters, which will bring concrete results for government revenues and services in the years to come, commented the OECD Secretary-General Angel Gurria.

AEOI has uncovered a deep pool of offshore funds that can now be effectively taxed by authorities in the EU states and worldwide. Thus, cross-border financial activity is already demonstrating the extent that international standards on automatic exchange of information have strengthened tax compliance with stronger results in future.

Voluntary disclosure of offshore accounts, financial assets and income during the AEOI’s implementation resulted in more than € 95 bn in additional revenue (tax, interest and penalties) for OECD and G-20 countries during 2009-2019; only since November 2018, about € 2 bn was added to this sum.   

Preliminary OECD analysis of the AEOI’s impact has shown that bank deposits held by companies or individuals in more than 40 key international finance centers, IFCs increased substantially during last decade, reaching a peak of $1.6 trillion by mid-2008.

More in” “Using bank deposit data to assess the impact of exchange of information”, OECD Paper, 2019.

 These deposits have fallen by 34% over the past ten years, representing a decline of $ 551 bn, as countries adhered to tighter transparency standards; a large part of that decline is due to the AEOI initiative, which accounts for about two thirds of the decrease. Specifically, AEOI has led to a decline of 20% to 25% in the bank deposits in IFCs; the complete study OECD will publish at the end of 2019. Thus, global collective actions make financial transactions and bank deposits more transparent while increasing national tax revenues and reducing the off-shores’ negative effect.

Reference to: www.oecd.org/tax/exchange-of-tax-information/using-bank-deposit-data-to-assess-the-impact-of-exchange-of-information.pdf  

Improving education system

Investing in education and skills is essential to sustain innovation and productivity growth, especially in a rapidly changing world of work with rising skills shortages.

Inequality in education among the EU states represents a threat to social cohesion and the long-term prosperity of European countries.

Equal access to quality education is also essential for disadvantaged groups; in some cases this may require to pay teachers more.

Since the world of work changes fast, stronger investments in lifelong learning are needed – currently only 10% of the European population participates in adult learning. 

Boosting investment

Country-specific recommendations include a stronger focus on investments: these recommendations refer to regional and territorial disparities and aim to identify specific investment needs to ensure a more even economic and social development. The EU guidance is set to inform the programming of the EU Cohesion Policy Funds during 2021-27.

Developing a comprehensive EU investment policy agenda remains crucial to address current and future growth.

Since the launch of the EU “Investment Plan for Europe”, substantial private and public funds have been mobilised for investments across strategic economic sectors, which gave a substantial boost to growth and job creation. As of May 2019, this plan managed to mobilise almost €400 bn in investments and to create around 750 000 jobs. In addition to unlocking investments, the plan created numerous projects and measures to stimulate investment in the SMEs business environment. The Commission will continue to address regulatory and administrative barriers, at national and at EU level.

The EU states should also use EU Cohesion Policy Funds in an optimal way to enhance investments in the relevant policy areas and this year's European Semester cycle puts particular emphasis on this element, underlined the spring Semester-2019.

The country-specific recommendations demonstrate an emphasis given to investment needs in the country reports: first, the recommendations refer to the investment needs of the whole economy, irrespective of how they will be addressed (private funding, national public funding, or EU co-financed public funding). Second, they include non-financial policies for improving the general business climate in their approach to investment-related economic policy. This focus should help the discussion on how the EU Cohesion Policy Funds under the next programming period 2021-27 can address investment priorities in the EU states.

Country-specific recommendations and the EU funding

Country-specific recommendations provide guidance to the EU states to pursue a policy mix of effective reforms, well-targeted investment strategies and responsible fiscal policies.

While EU funds cannot address all investment needs, they provide considerable opportunities to address the concrete investment gaps identified in the country-specific recommendations. The Commission is making strong efforts to better align EU funds with the European Semester recommendations to improve results and strengthen the European added value of all EU funds.  

The Commission initiated a dialogue with national authorities on how better to target Cohesion Policy Funds at national level for the period 2021-27. The country reports and country-specific recommendations provide the analytical and policy framework for successful programming.

General source: European Commission fact-sheets at: http://europa.eu/rapid/press-release_MEMO-19-2815_en.htm?locale=en/5.06.2019