What does today's package include?
Today, the European Commission presents:
-Annual Sustainable Growth Survey 2022
-Alert Mechanism Report 2022
-Proposal for a Joint Employment Report 2022
-Euro area recommendation 2022
-Communication on the 2022 Draft Budgetary Plans (DBPs)
-Opinions on the DBPs of 18 euro area Member States
-Communication on the fiscal situation in Romania
-Post-programme surveillance reports for Cyprus, Ireland, Spain, and Portugal
-Enhanced surveillance report for Greece.
What is the Annual Sustainable Growth Survey?
The Annual Sustainable Growth Survey (ASGS) outlines the economic and employment policy priorities for the EU for the coming 12 to 18 months. Since the 2020 Semester cycle, the ASGS has been structured around the following dimensions of the EU's competitive sustainability agenda: environmental sustainability, productivity, fairness and macroeconomic stability.
What are the main priorities in the Annual Sustainable Growth Survey?
In addition to laying down the economic and employment policy priorities for the EU for the coming 12 to 18 months, the ASGS 2022 also sets out how the European Semester process will evolve in light of the Recovery and Resilience Facility (RRF) implementation.
Our starting point remains the four dimensions of the EU's competitive sustainability agenda (i.e. environmental sustainability productivity, fairness and macroeconomic stability) as defined at the start of this College's mandate. Where possible, Commission policy initiatives have been presented under each of these dimensions.
Our policy efforts in dealing with the COVID-19 shock are bearing fruit. The focus now lies on ensuring a sustainable, fair and inclusive recovery, as well as on the medium- and long-term transformation of our economies, in line with the twin transition. The attention now crucially turns to implementation of Member States' recovery and resilience plans (RRPs) and other EU policy initiatives, such as the Fit for 55 Package, the Pillar of Social Rights and the Digital Decade.
The ASGS also sets out how the European Semester and RRF processes will be integrated in 2022, with country reports and country-specific recommendations to be published in May. Finally, the ASGS describes how the UN Sustainable Development Goals will be further integrated in the Semester framework.
How is the European Semester evolving this year and why?
Implementing the RRF makes it necessary to continue adapting the European Semester, as the two processes are closely linked in terms of process and substance. This is partly due to the RRF Regulation's legal requirements, but it is also driven by the need to ensure efficiency and avoid overlaps in reporting obligations for Member States.
The RRPs are a key tool for the delivery of the European Semester, as they address a significant subset of country-specific recommendations. Thus, the progress made in the implementation of RRPs is intrinsically linked to the monitoring of recommendations in the Semester.
How will the Recovery and Resilience Facility process and the European Semester framework be organised in the future?
The RRF makes it necessary to continue adapting the European Semester process, as RRF implementation will drive the reform and investment agenda for the years to come.
The European Semester, with its broader scope and multilateral surveillance, will complement the implementation of the RRPs. The 2022 European Semester Spring package will include:
-Streamlined country reports, identifying gaps vis-à-vis those challenges that are only partially or not addressed by RRPs.
-Country-specific recommendations to help bring forward Member States' efforts under RRPs, while addressing emerging socio-economic challenges to fast-forward the twin transition and build up resilience. There will also be fiscal recommendations.
The two processes will be closely linked and the Commission will make every effort to ensure synergies and avoid administrative burdens for Member States by:
-Streamlining reporting obligations: for example, the national reform programmes will also be used for the bi-annual reporting under the RRF.
-Making use of IT tools to monitor both the implementation of the plans and the progress on country-specific recommendations.
-Integrating bilateral exchanges with Member States under the European Semester with the dialogue on the implementation of their RRPs.
In the coming year, the implementation of RRPs will bring additional experience and knowledge on linkages between the Semester and the Facility. The 2022 cycle will be an opportunity to discuss these outcomes with Member States and relevant stakeholders to see if and how future European Semester cycles should further evolve.
How does the economic governance review affect the content of this package? How should fiscal policies be designed for 2023?
The Commission Opinions on the 2022 Draft Budgetary Plans assess the consistency of euro area Member States' fiscal plans with the June 2021 Council Recommendations. In parallel, the Commission relaunched the public consultation on the review of the EU's economic governance framework in October 2021. This framework is a central part of the coordination of EU's economic policy that aims at sustainable growth, job creation and sound public finances. The Commission invites all key stakeholders to engage in this public debate to build consensus on the future of the economic governance framework and will consider all views expressed.
In the first quarter of 2022, the Commission will provide guidance for fiscal policy for the period ahead, to facilitate the coordination of fiscal policies and the preparation of Member States' Stability and Convergence Programmes. This guidance will reflect the global economic situation, the specific situation of each Member State and the discussion on the economic governance framework.
Following that, in spring 2022, Member States will receive country-specific recommendations for 2023 on the basis of their Stability and Convergence Programmes.
The Commission will provide orientations on possible changes to the economic governance framework to achieve a broad-based consensus on the way forward well in time for 2023.
How will the UN sustainable development goals be further integrated into the European Semester?
The 2020 European Semester cycle initiated the work on the Sustainable Development Goals (SDGs) integration into the Semester, as called for by President von der Leyen in her 2019 Political Guidelines. As of the 2022 European Semester cycle, SDGs will be further integrated into the European Semester, with a fully updated and consistent SDG reporting across Member States:
-The yearly SDG monitor report issued by Eurostat will now be part of the European Semester documents, published in the 2022 Spring package.
-Each country report will include a section discussing the country's status, compared to the EU average, and progress in each SDG area.
-A combination of these two elements and additional indicators that monitor Member States' performance in view of key EU policy targets will inform the country reports and underpin country-specific recommendations.
How will you involve stakeholders and the European Parliament in the European Semester/Recovery and Resilience Facility surveillance process?
The Commission is committed to strengthening the democratic accountability of the Union's economic governance and will continue the strengthened inter-institutional dialogue at EU level with both the European Parliament and the Council:
-The Commission will engage with the European Parliament before each key stage of the European Semester. The Commission will also continue to contribute to the Recovery and Resilience Dialogues with the Parliament and maintain regular exchanges in a dedicated Parliament Working Group on the RRF.
-The Macroeconomic Dialogue at political and technical level between the Council, the Commission and representatives of the European social partners already provides a platform for continuous exchange on social and economic developments in the European Union. This format has already been used to discuss the European Semester as well as the RRF.
Systematic involvement of social partners and other relevant stakeholders is key for a successful coordination and implementation of socio-economic policies. For the implementation of RRPs and to ensure national ownership of these plans, it is also important that Member States engage actively with social partners and other stakeholders on the broader socio-economic coordination agenda.
What is the future of the European Semester in the context of the debate on the economic governance review?
The economic governance review, relaunched in October 2021, is ongoing. It aims to help achieve a broad consensus on how to improve the effectiveness of economic surveillance and policy coordination.
The European Semester will remain the reference framework for integrated surveillance and the coordination of EU economic and employment policies. In the coming years, we will return to a more regular cycle of economic policy coordination and coherently integrate the implementation of the RRPs, as well as the fast-forwarding of the green and digital transition and the need to enhance economic and social resilience.
In the 2022 European Semester cycle, the Commission will resume preparing country reports, which assess country-specific challenges and take stock of progress with a view to proposing country-specific recommendations.
How did the Commission assess the 2022 Draft Budgetary Plans?
The Commission's Opinions on the 2022 DBPs focus on their consistency with the Council Recommendations of June 2021:
-Member States with low or medium levels of debt should pursue a supportive fiscal stance.
-Member States with a high level of debt should use the RRF to finance additional investment in support of the recovery while pursuing a prudent fiscal policy.
-All Member States should preserve nationally financed investment.
-Growth of nationally financed current expenditure should be kept under control, and be limited for Member States with high debt.
-All Member States should pay particular attention to the quality of budgetary measures to ensure a sustainable and inclusive recovery.
What are the main conclusions of the assessment of the 2022 Draft Budgetary Plans?
Member States are unwinding the temporary emergency measures and increasingly focusing support measures on sustaining the recovery. RRF grants will in 2022 fund 24% of total recovery support measures. The absorption of RRF grants is set to be frontloaded: Member States are expected to spend over 40% of the total amount of allocated RRF grants, pending the decision to disburse following the fulfilment of the milestones and targets. Nationally financed investment is planned to be preserved or broadly preserved in 2022 in all Member States, as recommended by the Council.
The euro area fiscal stance is projected to be expansionary over the 2020-2022 period. The positive contribution coming from public investment and other capital spending financed by both the national and EU budgets is important, but the main driver of the fiscal expansion in 2021 and 2022 is nationally financed net current primary expenditure. In several Member States including some high-debt ones, the projected supportive fiscal stance is set to be driven by higher nationally financed current spending, or by unfunded tax cuts. In some cases, this is expected to have a sizeable impact on the underlying fiscal position. In about a quarter of Member States the supportive fiscal stance is expected to be driven by investment, both nationally and EU financed.
High-debt Member States (Belgium, France, Greece, Italy and Spain)
-As recommended by the Council, all Member States use the RRF to finance additional investment in support of the recovery.
-As recommended by the Council, all Member States preserve nationally financed investment.
-Italy has been recommended by the Council to limit the growth of nationally financed current expenditure. This is not projected to be sufficiently ensured, as the growth of nationally financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide a sizeable contribution to Italy's overall supportive fiscal stance. In order to contribute to the pursuit of a prudent fiscal policy, the Commission invites Italy to take the necessary measures within the national budgetary process to limit the growth of nationally financed current expenditure.
-For Belgium, France, Greece, Italy and Spain, given the level of their government debt and high sustainability challenges in the medium term before the outbreak of the COVID-19 pandemic, when taking supporting budgetary measures, it is important to preserve prudent fiscal policy in order to ensure sustainable public finances in the medium term.
Low/medium debt Member States (Austria, Cyprus, Estonia, Finland, Germany, Ireland, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Slovenia and Slovakia)
-As recommended by the Council, all Member States, with the exception of Slovakia and Malta, pursue a supportive fiscal stance, including the impulse provided by the RRF. Slovakia's restrictive fiscal stance occurs against the background of high output growth and emerging capacity constraints. Malta's neutral stance reflects mainly very high estimated potential growth, while public investment reaches a historically high level. This is broadly as recommended by the Council.
-All Member States plan to use the RRF to support their recovery, while the Netherlands has not yet submitted its Recovery and Resilience Plan.
-As recommended by the Council, all Member States preserve or broadly preserve nationally financed investment.
-Latvia and Lithuania have been recommended by the Council to control the growth of nationally financed current expenditure. This is not projected to be sufficiently ensured, as the growth of nationally financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide a sizeable contribution to their overall supportive fiscal stance.
Why is there no Opinion on Portugal's Draft Budgetary Plan?
The Commission did not adopt an Opinion on the DBP submitted by Portugal, as the Portuguese Parliament rejected the 2022 budget on which Portugal's DBP was based. Portugal's incoming government is expected to submit an updated DBP to the Commission once it takes office.
What is the euro area recommendation?
The euro area recommendation presents tailored advice to euro area Member States on those topics that affect the functioning of the euro area as a whole. The recommendation reviews fiscal, financial and structural issues, as well as institutional aspects of Europe's Economic and Monetary Union (EMU).
What is contained in the euro area recommendation?
The euro area recommendation, which applies to the period 2022-23, calls for euro area Member States to take action individually and collectively to address key current policy challenges and work towards a sustainable recovery.
More specifically, the recommendation calls for:
-Maintaining a moderately supportive fiscal stance in 2022 across the euro area and gradually pivoting fiscal policy measures towards investments
-Promoting policies that ensure fair and efficient tax systems, including through the implementation of the global consensus-based solution to address tax challenges arising from a digital and global economy. Transitioning from emergency to recovery measures in labour markets, ensuring effective active labour market policies
-Monitoring the effectiveness of policy support packages for companies and focusing on targeted support for the solvency of viable firms.
-Further strengthening national institutional frameworks and pursuing reforms to address bottlenecks to investment and reallocation of capital
-Supporting macrofinancial stability and credit channels to the economy, in particular through progress in completing the Banking Union, strengthening the international role of the euro and continued support for the creation of a digital euro.
What are the next steps following the presentation of the 2021 euro area recommendation?
The Council will have to formally adopt the Recommendation, based on this Commission's proposal. The Commission's proposal for the euro area recommendation will be presented at the Economic and Financial Affairs Council in December before being discussed by the Eurogroup next January. Endorsement by the European Council is expected in March 2022 with formal adoption by the Economic and Financial Affairs Council later in 2022.
Member States should take action based on the Recommendation both individually and collectively within the Eurogroup to implement the euro area recommendation in the period 2022 - 2023.
What is the Alert Mechanism Report?
This Alert Mechanism Report (AMR) initiates the eleventh round of the Macroeconomic Imbalance Procedure (MIP) to detect, prevent and correct imbalances that hinder the proper functioning of Member States' economies, the economic and monetary union or the Union as a whole, and at eliciting appropriate policy responses.
The AMR identifies Member States for which in-depth reviews (IDRs) should be undertaken to assess whether they are experiencing macroeconomic imbalances. The AMR analysis is based on the economic reading of a scoreboard of agreed indicators.
What are the main findings of the Alert Mechanism Report?
The AMR concludes that IDRs should be prepared for 12 Member States to identify and assess the severity of possible macroeconomic imbalances. The Member States identified are: Croatia, Cyprus, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Romania, Spain, and Sweden - the same ones that had already been identified as having imbalances or excessive imbalances in the previous MIP cycle.
The new IDRs will assess how those imbalances have developed, analysing their gravity, evolution and the policy response delivered by Member States, to update existing assessments and to assess possible remaining policy needs.
In addition, the AMR finds that, while the balance of risks does not at present point to a need for an IDR, some Member States display developments that merit particular attention:
-Slovakia is marked by strong house price growth alongside an increase in household borrowing. Exports are markedly concentrated in a few specific sectors and there have been cost competitiveness losses, but export market shares have so far not been adversely affected.
-In Hungary, the interplay between government borrowing and external financing in a context of significant debt exposure in foreign currency merits attention.
-In Denmark, Luxembourg and Czechia risks linked to the housing market must be monitored.
-In Malta, growing private debt combined with weaknesses of the insolvency framework, create particular vulnerabilities as crisis support measures are phased out.
What are the next steps following the presentation of the Alert Mechanism Report?
Discussions on the AMR with the European Parliament and within the Council and the Eurogroup will focus on the horizontal findings of the report. The Commission will in the coming months prepare IDRs for the Member States concerned. The IDRs will be published in spring 2022, and will provide the basis for the Commission assessment regarding the existence or unwinding of macroeconomic imbalances, and to what extent policies are addressing these challenges.
What are the findings of the enhanced surveillance report for Greece?
The Commission has published the twelfth report for Greece under the Enhanced Surveillance framework that was activated following the conclusion of the financial assistance programme in August 2018. The report concludes that Greece has further progressed towards achieving its specific commitments, despite delays encountered in some areas, that are partly linked to the challenging circumstances caused by the pandemic or the catastrophic wildfires in August 2021.
The authorities delivered on specific commitments in the energy sector and public financial management, while making important and welcome steps towards completion of most of its specific commitments by April 2022. The European institutions welcome the close and constructive engagement in all areas and encourage the authorities to keep up the momentum and remedy the delays in particular as concerns financial sector reforms, arrears clearance, health care and justice.
The report could serve as a basis for the Eurogroup to decide on the release of the next set of policy-contingent debt measures.
What are the main findings of the post-programme surveillance reports for Spain, Portugal, Cyprus and Ireland?
The post-programme surveillance reports for Spain, Portugal, Cyprus and Ireland find that all four Member States retain their capacity to service their outstanding debt.
In the case of Cyprus, economic activity started recovering from the sharp recession as of the first half of 2021, driven mainly by domestic demand, although tourism activity still remains well below the pre-pandemic level. While the fiscal situation continues to reflect the impact of the pandemic on the economy and sizeable fiscal support measures, public finances are expected to improve in the next years. The banking sector is weathering the COVID crisis rather well and work continues on reducing non-performing loans. Cyprus enjoyed a supportive market environment when tapping the international markets, continues to have a sizeable liquidity buffer and benefits from ‘investment grade' ranking by three major rating agencies.
In the case of Spain, economic recovery is gaining traction. Support measures at national and European level have underpinned a recovery of the labour market and buffered the effects of the crisis in the corporate sector. Moreover, continued economic growth and a broad implementation of the RRP will help reduce the deficit and the debt over the forecast horizon. Nonetheless, certain challenges for the economy lie ahead as risks to this outlook are slightly tilted to the downside in the short term. The Spanish banking sector has remained resilient during the pandemic, as loan moratoria have alleviated the impact of the pandemic on banks and borrowers.
Portugal's economy in the second quarter of 2021 outperformed expectations after a weak start of the year. It is expected to continue growing at a considerable pace, reaching its pre-pandemic output level in mid-2022. Portugal's fiscal policy has provided targeted support and cushioned against the negative consequences of the COVID-19 pandemic. Its public finances are expected to benefit from the economic recovery as of 2021, amid a wind-down of fiscal support and revived momentum in public investment. The banking sector confirmed its resilience to the pandemic shock while adjusting to risks related to the expiration of the credit moratoria at the end of September 2021.
Ireland avoided a recession in 2020 and is on track to record very strong growth in 2021. This growth is driven by exports of multinational corporations headquartered in Ireland as well as by the domestic recovery. Government support measures counteracted the socio-economic impact of the pandemic, but increased the deficit and debt stock over 2020 and 2021. Ireland's financial sector has remained resilient to the impact of the pandemic.
What are the main findings of the Communication on the fiscal situation in Romania?
Romania has been under the excessive deficit procedure (EDP) since April 2020 due to the breach of the Treaty deficit threshold in 2019. The trend of rising public deficits was driven by expansionary measures that were adopted before the onset of the coronavirus pandemic. The June 2021 Council recommendation to Romania requires Romania to bring an end to its excessive deficit by 2024 at the latest.
The Romanian authorities submitted their report on action taken in response to the Recommendation in October. The report shows that, for 2021, the headline budget balance is compliant with the recommended target, while the fiscal effort is expected to fall short of the requirements. At the same time, the targets for 2022-2024 are currently not projected to be met on a no-policy-change basis, indicating the need for a medium-term consolidation strategy and corresponding corrective measures.
In its Autumn 2021 Economic Forecast, the Commission projects Romania's deficit at 8% of GDP in 2021 and to slowly decrease in subsequent years, but not enough to meet the recommended targets under the EDP.
In light of the compliance of the headline budget balance target for 2021, and of the caretaker nature of the government when Romania submitted the effective action report, the Commission considers that no decision on further steps in Romania's excessive deficit procedure should be taken at this juncture. The Commission will reassess Romania's budgetary situation after the new government has presented a budget for 2022 and a medium-term fiscal strategy.
Is the Commission concerned by the impact of inflation on the recovery and how should this affect economic policies in the EU and the euro area?
The increase in inflation in 2021 is primarily driven by the surge in energy prices, but appears also linked to a broad set of post-pandemic economic adjustments, suggesting that the current elevated levels are largely transitory. Inflation may turn out higher than forecast if supply constraints are more persistent and above-productivity wage increases are passed on to consumer prices.
The Commission will continue to closely monitor developments for signs that the increase in inflation may be more sustained or become structural.
Economic policies should remain agile and reflect the evolving economic situation. Despite the improved economic and health outlook, the recovery remains fragile and policy support is still needed. While this support should be targeted and limited in time, its phasing out should not be precipitated either, in reaction to transient upside pressures on inflation.
What is the Proposal for a Joint Employment Report?
The Joint Employment Report provides an annual overview of the main employment and social developments in the EU. In addition, the Joint Employment Report 2022 monitors Member States' performance in relation to the Social Scoreboard accompanying the European Pillar of Social Rights.
What is new in this year's Joint Employment Report?
This edition of the Joint Employment Report has a stronger focus on the implementation of the European Pillar of Social Rights, in line with the commitments of the Action Plan of March 2021 and the 8 May Porto Declaration.
The focus on the Pillar is strengthened by analysing key challenges related to its implementation, notably on:
-Active support to employment
-Adult learning for inclusive and sustainable growth
-Job quality and ‘quality of life at work'
-Combatting social exclusion and providing support to children
-Access to adequate social protection
The report integrates the three EU headline targets on employment, skills and poverty reduction by 2030, which were put forward by the Commission in the Pillar Action Plan and welcomed by EU leaders at the Porto Social Summit in May and by the European Council in June 2021.
The revised Social Scoreboard underpins the analysis in this year's Joint Employment Report. The updated set of indicators captures important dimensions like adult learning, labour market integration of persons with disabilities, children's risk of poverty or social exclusion, and housing costs. As part of the policy response analysis, the JER also includes a selection of measures supported by the RRF and other EU funding sources, including the European Social Fund Plus.
What are the main findings of the proposal for a Joint Employment Report?
The labour market is recovering, although employment is not yet back to pre-crisis levels. In the second quarter of 2021, the total number of people in employment in the EU reached 207.5 million. This is 4.1 million more than in the second quarter of 2020, but still 2 million below the peak of the fourth quarter of 2019.
Overall, the increase in unemployment as compared to the pre-COVID-19 situation remained below what could have been expected. This is thanks to the policy measures introduced by Member States, notably short-time work schemes. These actions were supported by EU funding (notably SURE but also REACT-EU and the Coronavirus Response Investment Initiative, CRII and CRII plus).
The analysis confirms that the crisis affected in particular young people, workers in non-standard forms of employment, the self-employed and third-country nationals. It also highlighted long-standing challenges for women in the labour market, particularly regarding care obligations and hours worked. Social protection systems helped weather the COVID-19 crisis, contributing to keeping households' disposable incomes broadly stable. Nonetheless, poverty and social exclusion risks remain high for certain population groups, and in particular families with children, persons with disabilities, people born outside the EU and Roma. For people experiencing poverty, housing and energy costs pose a particular challenge.
The Commission encourages Member States to address the employment, skills and social policy challenges identified, making full use of EU funding possibilities. They should in particular support job creation, ease transitions from unemployment into employment and between jobs (including across sectors), strengthen economic and social resilience and ensure that the green and digital transitions are fair and inclusive. Such measures should also help to progress towards the European Pillar of Social Rights Action Plan's three 2030 EU headline targets on employment, skills and poverty reduction.
What are the next steps following the presentation of a Joint Employment Report?
The proposal for a Joint Employment Report will now be discussed in two advisory bodies of the Council: the Employment Committee and the Social Protection Committee, with a view to final adoption by the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) in March 2022.
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