Today, the Commission has launched the 2024 European Semester cycle of economic policy coordination. The Autumn package draws on the Autumn 2023 Economic Forecast which showed that the EU economy continues to be resilient in the face of the multiple shocks endured in recent years, but that it has lost growth momentum in 2023 in a context of high inflation and tighter financing conditions, with only a moderate uptick in growth expected in 2024.
The EU is facing a number of important structural challenges, including low productivity growth, the green and digital transitions, ageing and social inclusion, that need to be tackled in order to stay on the path of sustainable competitiveness. Disruptive geopolitical events have also demonstrated the need for the EU to remain competitive in a global market, while ensuring that no one is left behind.
Economic policy coordination through the European Semester will help Member States achieve these objectives by setting priorities and providing clear and well-coordinated policy guidance for the coming year.
Annual Sustainable Growth Survey
This year’s Annual Sustainable Growth Survey puts forward an ambitious agenda to further strengthen a coordinated EU policy response to enhance the EU’s competitiveness through a green and digital transition, while ensuring social fairness and territorial cohesion.
The four priorities under the European Semester remain: promoting environmental sustainability, productivity, fairness, and macroeconomic stability, with a view to fostering competitive sustainability. This approach is in line with the UN Sustainable Development Goals, which are an integral part of the European Semester.
Addressing structural and emerging challenges, to fully realise each Member State’s competitiveness potential will be one of the focal points of this year’s cycle. This includes removing bottlenecks to private and public investment, supporting a conducive business environment, and ensuring the development of the skills required for the green and digital transitions. In this respect, the 2024 cycle of the European Semester will specifically focus on synergies and complementarities between the implementation of the recovery and resilience plans and the Cohesion Policy programmes, and on identifying areas with further investment and reform needs at national and regional level.
Moreover, in 2024, the general escape clause of the Stability and Growth Pact is set to be deactivated. Fiscal policy needs to support monetary policy in reducing inflation and safeguarding fiscal sustainability, while providing sufficient space for additional investments and supporting long-term growth.
Opinions on the 2024 Draft Budgetary Plans of euro area Member States
The Commission assessed the consistency of the draft budgetary plans for 2024 with the fiscal Council Recommendations of July 2023.
Overall, the Commission is of the opinion that the draft budgetary plans of Cyprus, Estonia, Greece, Spain, Ireland, Slovenia and Lithuania are in line with these Council Recommendations. The draft budgetary plans of Austria, Germany, Italy, Luxembourg, Latvia, Malta, Netherlands, Portugal and Slovakia are not fully in line with the Council Recommendations. The draft budgetary plans of Belgium, Finland, France, Croatia risk not being in line with the Council Recommendations.
Recommendation for euro area economic policy for 2024
The euro area recommendation presents tailored policy advice to euro area Member States on topics that affect the functioning of the euro area as a whole. This year the focus lies on policy responses to the challenges of high inflation and competitiveness.
Euro area Member States should:
- Adopt coordinated prudent fiscal policies and wind down energy support measures, with a view to enhancing public finances’ sustainability and avoiding fuelling inflationary pressures.
- Ensure high and sustained levels of public investment and promote private investment through the acceleration of the implementation of the Recovery and Resilience Facility and Cohesion Policy programmes.
- Support wage developments that mitigate the loss in workers’ purchasing power, taking into account competitiveness dynamics.
- Monitor risks related to tightening financial conditions, while completing the Banking Union; and
- Enhance competitiveness by improving access to finance, progressing in the Capital Markets Union and ensuring that public support to strategic sectors remains targeted and does not create distortions in the level playing field of the Single Market.
Alert Mechanism Report
The Alert Mechanism Report (AMR) is a screening exercise to detect potential macroeconomic imbalances. It identifies Member States for which in-depth reviews are needed to assess whether they are affected by imbalances requiring policy action.
The previous round of the macroeconomic imbalance procedure concluded thatCyprus, Germany, Greece, France, Hungary, Italy, the Netherlands, Portugal, Romania, Spain and Sweden were experiencing imbalances or excessive imbalances. As a result, in-depth reviews will again be prepared for these countries in the 2023-2024 cycle.
This year’s AMR concludes that in-depth reviews are warranted for an additional Member State, namely Slovakia. Slovakia had been subject to an in-depth review in the previous annual cycle, which concluded that it was not experiencing imbalances. However, economic developments since then point to a continued risk of possible imbalances as the abatement of these risks does not appear to be clearly underway.
Proposal for a Joint Employment Report
The proposal for a Joint Employment Report (JER) confirms that the EU labour market is resilient. Overall, the EU employment rate reached 74.6% in 2022. It rose further to 75.4% in the second quarter of 2023, well surpassing pre-pandemic levels. At the same time, EU unemployment decreased to a historic low in 2022 (6.2%), a trend that continued in the second quarter of 2023 (6%). Nevertheless, disparities exist across Member States, regions, and sectors.
Despite nominal wage increases, real wages in 2022 fell, to various degrees, in almost all Member States. This highlights the importance of well-balanced wage setting mechanisms, including strong social dialogue and effective collective bargaining, in line with national practices. Adequate minimum wages can help protect the purchasing power of low-wage earners and decrease in-work poverty, while sustaining demand and strengthening incentives to work. Sizeable labour and skills shortages are posing bottlenecks to economic growth. If not adequately addressed, they risk hampering the green and digital transitions.
This edition of the JER is the first to report on progress towards the2030 EU and national employment, skills and social targets. While the EU is well on track towards its headline employment target of 78% by 2030, significant progress is still needed to reach the other two headline targets on adult learning and poverty reduction. This report also has a stronger country-specific focus in line with the principles of a Social Convergence Framework. Member States’ labour market, skills and social challenges are analysed to identify potential risks to upward social convergence that require deeper analysis.
Next steps
The Commission invites the Eurogroup and the Council to discuss the 2024 Autumn Package and to endorse the guidance offered. The Commission also looks forward to engaging in a constructive dialogue with the European Parliament on the contents of this package and each subsequent step in the European Semester cycle, as well as further engagement with social partners and stakeholders.
Background
The European Semester provides a framework for coordinating economic and employment policies of the Member States. Since its introduction in 2011, it has become a well-established forum for discussing EU countries’ fiscal, economic and employment policy challenges under a common annual timeline.
The Recovery and Resilience Facility is the centrepiece of NextGenerationEU, with €723.8 billion in loans and grants to support reforms and investments undertaken by EU countries. Its aim is to mitigate the economic and social impact of the coronavirus pandemic and make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions.
So far, payments disbursed under the Recovery and Resilience Facility amount to €175 billion. Up to €150 billion in additional resources – of which up to €127 billion in loans – are expected to be committed following REPowerEU-related revisions of the plans. Under the cohesion policy funds, over €210 billion has been disbursed since the beginning of the COVID-19 pandemic. As of today, the Commission has endorsed 21 revised national recovery and resilience plans submitted by Member States, which contain REPowerEU chapters to reduce energy dependence on Russia and accelerate the green transition. The Council has already approved 13 of these revised plans and is expected to decide on the remaining ones by the end of the year.
For more information
Questions and answers on the 2024 European Semester Autumn Package
2024 European Semester Autumn package – Documents
Quotes
Europe’s economy is facing multiple challenges. While inflation continues to recede from its record highs, it has taken its toll on households and businesses across Europe – eroding purchasing power and making financing conditions tighter. The current context of geopolitical shifts, and urgency of pushing ahead with the green and digital transitions, mean that restoring Europe’s competitiveness is at the heart of today’s European Semester package. To achieve this, our guidance is to focus on high-quality investments and reforms to enhance productivity, make our economy more inclusive and improve the conditions for our companies. We are also calling on Member States to carry out prudent fiscal policies and ensure the sustainability of their public finances. Our guidance will help them to achieve long-term growth, productivity and resilience.
With this comprehensive analysis and policy guidance, we chart a course for the EU and our Member States’ economies through the still turbulent waters ahead. We have assessed the 2024 draft budgetary plans against the recommendations adopted in the spring, with a focus on limiting expenditure growth, preserving public investment and phasing out energy support measures. This is a time for prudent fiscal policies that complement the ECB’s efforts to fight inflation and thus support purchasing power. Yet it is also essential that governments pursue the reforms and investments needed to enhance our competitiveness and deliver sustained and sustainable growth. From this standpoint, determined implementation of the national Recovery and Resilience Plans remains of fundamental importance.
While the EU is well on track towards its employment target of 78% by 2030, persistent labour and skills shortages are hampering economic growth. In addition, there remains a lot of work to be done to reach the EU social targets for training and poverty reduction. With policy measures spanning minimum wages, skills, child poverty, and minimum income, the EU has made a lot of progress in strengthening Europe’s social fabric in the past few years. The new country-specific focus of the Joint Employment Report, in line with the principles of a Social Convergence Framework, will help Member States identify potential challenges in meeting their national targets and the risks to upward social convergence, with a view to overcoming them.
Q&A: 2024 European Semester Autumn Package
Brussels, 21 November 2023
What is included in this year’s European Semester Autumn Package?
Today, the Commission is presenting:
- The 2024 Annual Sustainable Growth Survey;
- Communication and Opinions on the 2024 Draft Budgetary Plans of euro area Member States;
- A proposal for a recommendation on the economic policy of the euro area for 2024;
- The 2024 Alert Mechanism Report;
- A proposal for a Joint Employment Report for 2024.
What is the Annual Sustainable Growth Survey?
The Annual Sustainable Growth Survey (ASGS) outlines the economic and social policy priorities for the EU for the coming 12 to 18 months.
Since the 2020 Semester cycle, the compass for our coordinated social and economic policy action, i.e. competitive sustainability, has been anchored in four dimensions: environmental sustainability, productivity, fairness and macroeconomic stability.
What are the main priorities in the Annual Sustainable Growth Survey?
For the 2024 cycle, the European Semester will continue to lay out the EU’s key economic and social priorities and, on that basis, ensure policy coordination. Furthermore, the European Semester will once again assess the ongoing implementation of Member States’ national Recovery and Resilience Plans(RRPs), including of the REPowerEU chapters.
This year’s Semester cycle will see a specific focus on the issue of competitiveness, where country reports and in-depth reviews will identify structural and emerging challenges to fully realise each Member State’s and each regions’ competitiveness potential.
The 2024 European Semester cycle, building on last year, will also emphasise the importance of EU funding in financing the green and digital transitions. Specifically, it will explore how actions under the RRPs interact with other EU funding instruments in reaching common policy goals. In this respect, it will also offer guidance in view of the forthcoming mid-term review of Cohesion Policy programmes.
Moreover,at the end of 2023, the general escape clause of the Stability and Growth Pact (SGP) is set to be deactivated.Fiscal policy needs to support monetary policy in reducing inflationand safeguard fiscal sustainability, while providing sufficient space for additional investments and supporting long-term growth.
This year’s European Semester cycle will also ensure complementarity with the updated national energy and climate plans (NECPs), which Member States must submit by June 2024, reflecting country-specific recommendations the Commission is to issue in December 2023.
What are the links between the European Semester and the Recovery and Resilience Facility and how is this reflected in the Autumn Package?
The Recovery and Resilience Facility (RRF), which will continue to provide a stream of investment to European businesses, infrastructure and skills until 2026, is integrated within the European Semester, the yearly EU cycle of economic and social policy coordination. Together, the European Semester and the RRF continue to provide a robust framework for effective policy coordination in view of current challenges.
The RRF will continue to drive Member States’ reform and investment agendas in the years ahead, accelerating the green and digital transition, investing in skills and employment, safeguarding social fairness and supporting territorial cohesion.
How will the proposed reform of the EU’s economic governance framework affect the European Semester?
According to the Commission proposal, the European Semester would remain the key channel for the Commission and the Council to monitor Member States’ compliance with their reform and investment commitments.
All Member States would be required to address the priorities identified in country-specific recommendations issued in the context of the European Semester. The national medium-term fiscal-structural plans should also put forward initiatives that are in line with strategic EU priorities derived directly from agreed EU guidance and targets that require policy action by Member States.
Member States would report on progress in the implementation of these commitments and actions taken to address country-specific recommendations in their annual progress reports. The Commission would closely monitor the delivery of those national commitments.
As part of the European Semester, monitoring and enforcement would be stronger for Member States that request a more gradual fiscal adjustment path to implement priority reforms and investment. In particular, the non-implementation of reforms and investment that underpin such a more gradual fiscal adjustment could result in a tightening of the fiscal adjustment path.
The Commission calls on the European Parliament and the Council to reach agreement on the proposed reforms as swiftly as possible, to adequately respond to the challenges ahead.
What is the current economic and employment outlook?
According to the Autumn 2023 Economic Forecast, economic activity is expected to gradually pick up as consumption recovers on the back of a steadily robust labour market, sustained wage growth and continued easing of inflation. Despite tighter monetary policy, investment is projected to continue increasing, supported by overall solid corporate balance sheets and by the Recovery and Resilience Facility. In 2024, EU GDP growth is forecast to improve to 1.3%. This is still a downward revision of 0.1 pps. from the summer. In the euro area, GDP growth is projected to be slightly lower, at 1.2%.
Although latest information from surveys points to some cooling and some Member States have seen an uptick in unemployment, the labour market is set to remain resilient over the forecast horizon. Employment growth in the EU is projected at 1.0% this year, before easing to 0.4% in both 2024 and 2025. The unemployment rate in the EU is expected to remain broadly stable at 6.0% in 2023 and in 2024, and to edge down to 5.9% in 2025. Real wages are expected to turn positive as of next year on the back of continued nominal wage growth and declining inflation.
What are the main risks to the economic outlook?
Uncertainty and downside risks to the economic outlook have increased in recent months amid Russia’s protracted war of aggression against Ukraine and the conflict in the Middle East. So far, the latter’s impact on energy markets has been contained, but there is a risk of disruptions to energy supplies that could potentially have a significant impact on energy prices, global output and the overall price level. Economic developments in the EU’s major trading partners, especially China, could also pose risks.
On the domestic side, the transmission of monetary tightening may weigh on economic activity for longer and to a larger degree than projected in this forecast, as the adjustment of firms, households and government finances to the high interest rate environment could prove more challenging. Finally, extreme weather events like heatwaves, fires, droughts and floods, which have been raging across the continent and beyond with increasing frequency and scope, illustrate the dramatic consequences that climate change can have not only for the environment and the people affected, but also for the economy.
What are the main regional imbalances identified by the Autumn Package?
This year’s Autumn Package highlights how the sustainable development of all European regions is key to achieve the EU’s growth and resilience agenda, as well as broader economic prosperity, social welfare and competitiveness. It lays out how regional disparities are potential challenges to the delivery of the four dimensions of competitive sustainability and calls for coordinated policy action to overcome these challenges.
Analysis identifies several regional imbalances, notably in the domain of competitiveness, labour market, productivity, innovation as well as access to basic public services, hereby building on the Commission report on regional trends for growth and convergence in the EU of last June.
What are the main investment priorities for the Cohesion Policy mid-term review?
Cohesion Policy provides a continuous stream of investment to people and businesses alike through a combination of the new initiatives of the 2021-2027 programming period (€378 billion) and the implementation of the 2014-2020 programming period (€405 billion).
Funding is adapted to the specific needs of the different categories of EU regions and is in line with the Country Reports of the European Semester.
In line with the Common Provisions Regulation, in the context of the mid-term review, Member States will be able to assess Cohesion Policy programmes, and decide to re-allocate funds to tackle areas where pressing needs and new challenges may have emerged.
How did the Commission assess the 2024 Draft Budgetary Plans?
The Commission assessed the consistency of the 2024 Draft Budgetary Plans with the various components of the Council Recommendations of July 2023. Moving out of the period when the general escape clause was in force, the fiscal recommendations for 2024 provided that:
- Member States that have attained their medium-term budgetary objective (the budgetary target set for each country as part of the Stability and Growth Pact), based on the 2023 Spring Forecast, were asked to maintain a sound fiscal position in 2024.
- All other Member States were asked to ensure a prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024.
- All Member States should preserve nationally financed public investment and ensure the effective absorption of grants under the Recovery and Resilience Facility, and other EU funds, in particular to foster the green and digital transitions.
- All Member States should wind down the energy support measures in force as soon as possible in 2023 and 2024. Those not projected to be at the medium-term budgetary objective in 2023 should use the related savings to reduce the government deficit.
- For the period beyond 2024, Member States should continue to pursue a medium-term fiscal strategy of gradual and sustainable consolidation, combined with investments and reforms conducive to higher sustainable growth, to achieve a prudent medium-term fiscal position.
The Draft Budgetary Plans of Slovakia, Spain, Luxembourg and the Netherlands were submitted by caretaker governments, in view of developments in their national political cycles. Slovakia, Spain and Luxembourg are therefore invited to present updated Draft Budgetary Plans as soon as possible.
In the case of the Netherlands, although the Draft Budgetary Plan was submitted by a caretaker government, it introduces new fiscal policy measures. Additionally, the corresponding draft budget law has already been adopted by the national parliament within the regular budgetary process. Therefore, the Commission invites the Netherlands to stand ready to take the necessary measures within the national budgetary process to ensure that fiscal policy in 2024 will be in line with the July Council Recommendation.
What are the main conclusions of the assessment of the 2024 DBPs, and what are the next steps?
Overall, the Commission’s assessment finds that a number of Draft Budgetary Plans include plans to pursue prudent fiscal policies, withdraw energy support measures in 2023 and 2024 and use the savings from these measures to reduce the deficit. However, some Member States do not sufficiently limit the growth of net nationally financed primary expenditure, and some do not plan to withdraw their energy support measures fast enough or use the savings from these measures to reduce the deficit. All Member States plan to preserve nationally financed investment.
The aggregate fiscal stance for the euro area is projected to be contractionary in 2024 on the back of an almost complete phase out of the remaining energy-related measures. This comes after the fiscal stance moved into contractionary territory in 2023 following three years of a substantial crisis-related expansion. While policies should remain agile in the face of high uncertainty, the contractionary fiscal stance is consistent with the need to restore fiscal buffers over time and thus to improve the sustainability of their public debt in some Member States, alongside taming inflation and supporting monetary policy.
Overall, the Commission is of the opinion that the Draft Budgetary Plans of Cyprus, Estonia, Greece, Spain, Ireland, Slovenia, and Lithuania are in line with the Council Recommendations of July 2023. The Draft Budgetary Plans of Austria, Germany, Italy, Luxembourg, Latvia, Malta, Netherlands, Portugal and Slovakia are not fully in line with the Council Recommendations. The Draft Budgetary Plans of Belgium, Finland, France, and Croatia risk not being in line with the Council Recommendations.
The Commission invites Belgium, Finland, France and Croatia to take the necessary measures within the national budgetary process to ensure that fiscal policy in 2024 will be in line with the Council Recommendation of July 2023. Italy, Latvia and the Netherlands are invited to stand ready to take the necessary measures. Germany, Malta and Portugal are invited to wind down energy support measures as soon as possible in 2023 and 2024. Luxembourg and Slovakia are invited to ensure their new plan will be in line with the recommendation.
Does the Commission have any concerns regarding Member States’ fiscal sustainability?
The Commission did not find that any draft budgetary plan is at serious risk of non-compliance with the Stability and Growth Pact.
The Commission recommended Member States to respect a maximum growth rate in net primary expenditure in 2024. Belgium, Finland, France, Croatia are deemed to risk being not in line with this recommendation, while Italy, Luxembourg, Latvia, Netherlands and Slovakia are not fully in line with this recommendation.
The Commission invites Belgium, Finland, France and Croatia to take the necessary measures within the national budgetary process to ensure that fiscal policy in 2024 will be in line with the Council Recommendation of July 2023. Italy, Latvia and the Netherlands are invited to stand ready to take the necessary measures.
What is the Commission’s assessment with respect to the winding down of energy measures?
In July, the Council recommended that the phase-out of untargeted support measures to tackle the energy crisis should take place in a timely manner and that Member States use the resulting savings to reduce deficits. At the same time, they should ensure that in case of renewed energy price increases well-targeted measures are put in place to protect vulnerable households and firms.
Most Member States are projected to phase out the remaining energy measures as soon as possible in 2023 and 2024, as recommended by the Council. However, this is not the case for France, Croatia, Luxembourg, Malta, Germany and Portugal, which are projected to have substantial measures still in force in 2024.
As regards the use of the related savings to reduce the government deficit, several countries are in line with the recommendation. By contrast, Austria, Belgium, Croatia, Germany, Italy, Latvia, Luxembourg, the Netherlands, and Slovakia risk not being in line with this part of the Council recommendation, as part of their savings from the winding down of their energy measures are not expected to be used to reduce their government deficit.
What are the next steps following the presentation of the Commission’s Opinions?
The Commission’s Opinions on the Draft Budgetary Plans will be discussed in the Eurogroup in December. National parliaments are expected to take due account of the Commission opinions and the Eurogroup discussion before they adopt budgets, taking into account national procedures.
What is the Commission proposal for a recommendation on the economic policy of the euro area?
The recommendation on the economic policy of the euro area presents tailored advice to euro area Member States for the period 2024-2025 and is underpinned by a Staff Working Document analysing the macroeconomic outlook and the main challenges that the euro area is currently facing. The recommendation reviews fiscal, financial and structural issues, as well as institutional aspects of Europe’s Economic and Monetary Union.
What are the main elements contained in this year’s euro area recommendation?
The euro area recommendation calls on euro area Member States to take action, individually, and collectively within the Eurogroup, in the period 2024–2025 to:
- Adopt coordinated prudent fiscal policies and wind down energy support measures, with a view to enhancing public finances’ sustainability and avoiding fuelling inflationary pressures.
- Ensure high and sustained levels of public investment and promote private investment through the acceleration of the implementation of the RRF and Cohesion Policy programmes.
- Supportwage developments that mitigate the loss in workers’ purchasing power, taking into account competitiveness dynamics.
- Monitor risks related to tightening financial conditions, while completing the Banking Union;
- Enhance competitiveness by improving access to finance, progressing in the Capital Markets Union and ensuring that public support to strategic sectors remains targeted and does not create distortions in the level playing field of the Single Market.
How is the fiscal part of the euro area recommendation consistent with the broader political goal to stimulate investments and support the twin transitions?
Promoting investment is at the core of the EU recovery strategy. It is crucial for addressing the pressing challenges of our time, including the green and digital transition, and to support an inclusive and sustainable growth.
Accordingly, the euro area recommendation calls for Member States to promote private investment and to sustain a high level of public investment, in particular with the financial support offered by the Recovery and Resilience Facility and by Cohesion Policy programmes. This support to public investment should come as part of a fiscal policy that aims to keep debt at prudent levels or to put debt ratios on a plausibly downward path. Our assessment of the Draft Budgetary Plans for euro area countries shows that in 2024, as in 2023, the fiscal stance is expected to be restrictive while public investment is set to expand.
In the medium-term, high-quality public investments should be an essential part of fiscal strategies developed by Member States, together with reforms and measures to increase the efficiency and spending of public expenditure.
Beyond public investments, there is also a need to promote private investment. In this respect, the recommendation calls for removing investment obstacles and emphasises the importance of deepening the Capital Market Union to improve access to finance, in particular for innovative companies and SMEs. The call also extends to strengthening our common currency by enhancing its international role and moving forward in the digital euro agenda.
What are the next steps following the presentation of the euro area recommendation?
The Commission will present its proposal for the euro area recommendation at the Economic and Financial Affairs Council and Eurogroup in December. The proposal is expected to be discussed by the Eurogroup in January 2024. Endorsement by the European Council is expected in March 2024 with formal adoption by the Economic and Financial Affairs Council later in 2024.
What is the Alert Mechanism Report?
The Alert Mechanism Report (AMR) initiates the next annual round of the Macroeconomic Imbalance Procedure 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 findings of the Alert Mechanism Report in terms of the evolution of macroeconomic imbalances?
The Alert Mechanism Report finds that strong nominal economic growth has facilitated the reduction of debts by households, corporations, and governments. That has accelerated the reduction in debt in Member States with long-standing vulnerabilities. Yet tighter financing conditions have also increased concerns around existing high debts, in particular in those Member States where the private or the government sector, or both sectors, face additional borrowing or re-financing needs.
The competitiveness concerns that were highlighted in last year’s AMR remain, although they have abated in some cases. High and diverging inflation and continued increases in labour costs in some Member States risk leading to losses in competitiveness. This could result in negative spill overs affecting other economic developments, especially where vulnerabilities such as hight debt levels are already present.
In 2022, current account balances declined in almost all Member States as soaring energy prices reduced surpluses and widened deficits. Throughout 2023, external balances have been making a partial return to their previous levels, owing mainly to falling energy prices and weakening demand. While many moderate current account deficits are closing, a small number of countries continue to have much higher deficits than prior to either 2022 or the COVID-19 crisis.
In most Member States, higher interest rates have resulted in a decrease in the pace of house prices or some, often moderate, house price reductions. However, in some Member States, house price dynamics, and the impact of their possible spillovers into other sectors, remain a cause for concern.
For which Member States will an in-depth review now be carried out?
This year’s Alert Mechanism Report concludes that in-depth reviews are warranted for 12 Member States.
In-depth reviews are warranted for eleven Member States that were subject to an in-depth review in the previous annual cycle of Macroeconomic Imbalance Procedure surveillance and were considered to be experiencing excessive imbalances, or imbalances. These countries are Cyprus, Germany, Greece, France, Hungary, Italy, the Netherlands, Portugal, Romania, Spain and Sweden. The in-depth reviews will assess whether those imbalances are aggravating, under correction, or corrected, to update existing assessments and assess possible remaining policy needs.
In addition, the AMR points to the need to closely monitor potentially risky trends in Slovakia which was subject to an in-depth review in the previous annual cycle, which concluded that it was not experiencing imbalances. However, economic developments since then point to a continued risk of possible imbalances as the abatement of these risks does not appear to be clearly underway.
What are the next steps following the presentation of the AMR?
Discussions on the Alert Mechanism Report within the Council and the Eurogroup will focus on the findings of the report. The Commission will in the coming months prepare in-depth reviews for the Member States concerned. These will be prepared in two batches in early 2024, in advance of the European Semester package.
They will be technical documents and will provide the basis for the Commission’s assessment regarding the existence or unwinding of macroeconomic imbalances, and the extent to which policies are addressing these challenges, which will form part of the Spring European Semester Spring Package.
What is the Proposal for a Joint Employment Report?
The Joint Employment Report (JER) provides an annual overview of the main employment and social developments in the EU, as well as of Member States’ actions in line with their Guidelines for the Employment Policies. In addition, the Joint Employment Report 2024 monitors Member States’ performance in relation to the Social Scoreboard accompanying the European Pillar of Social Rights. The report fully integrates the three EU headline targets on employment, skills and poverty reduction by 2030 and covers the national targets put forward by the Member States.
The Report shows the main employment and social challenges in Europe as well as policy measures taken by Member States to address them. Member States can therefore compare their own performance to that of others and take steps to align policy measures more closely.
What are the main findings of this year’s proposal for a Joint Employment Report?
The Joint Employment report analyses progress made towards reaching the 2030 headline targets on employment, skills and poverty reduction:
Employment: The EU labour market is resilient. Solid growth in employment over the last two years has put the EU well on track towards its 2030 employment target. To reach the objective of 78% of people in employment by 2030, the 2022 employment level (74.6%) will need to increase by another 3.4 percentage points, although most recent quarterly data point to slower progress. For many Member States, further policy efforts are needed to reach their targets. Access to the labour market for lower qualified workers, as well as for older women and young people offer the largest potential for improvement.
Training: Significant progress is needed to reach the EU headline target of skills of 60% of adults participating in training every year by 2030, compared to only 37.4% of adults in 2016. This is key to address labour and skills shortages, adapt to the changing labour market, and enable the green and digital transitions. It will also contribute to a Europe that is competitive, innovative, and inclusive. Member States should for instance develop further skills intelligence tools, strengthen the provision of individual training entitlements and micro-credentials. Tackling the systemic challenge of a lack of women studying STEM subjects should also be a priority. The Pact for Skills is playing a central role in matching skills gaps with committing to providing targeted training opportunities.
Social inclusion: Against the challenging socio-economic background of the past three years, and as a result of decisive policy action at EU and Member States’ level, the number of people at risk of poverty or social exclusion remained broadly stable in the EU. Their number decreased by 279,000 in 2022. While the majority of Member States made some progress towards their national poverty reduction targets, several others experienced changes in the opposite direction. Therefore, significant efforts and monitoring will be needed to reach the EU headline target of at least 15 million fewer people at risk of poverty or social exclusion by 2030, compared to 2019. When it comes to combatting child poverty, the Member States have made progress in implementing the European Child Guarantee, with more work still to be done.
The report also analyses labour market trends in the EU. Labour and skills shortages are projected to persist and could hinder the success of the green and digital transitions if not tackled urgently. Labour shortages in sectors that are key to the green transition have doubled since 2015, while training provision in these sectors remains below average. Demographics also play a key role, with the projected decline in the working-age population set to have an impact on the labour market.
What are the new features in this year’s proposal for a Joint Employment Report?
The proposal for a 2024 Joint Employment Report has a stronger country-specific focus in line with the work on a Social Convergence Framework (SCF), as prepared following discussions at the June 2022 EPSCO Council. The JER presents a first-stage country analysis of Member States’ labour market, skills and social challenges. It does so by existing tools, notably the Social Scoreboard headline indicators and a traffic-light methodology. This analysis aims to identify potential challenges to upward social convergence that require deeper analysis at a second stage.
The first-stage analysis of the SCF included in the JER points at:
- Member States starting with relatively worse overall employment and unemployment levels having improved more substantially in 2022, which points at convergence on these dimensions;
- potential challenges to upward social convergence with regard to skills, despite recent positive developments, which may pose employability challenges and raise inequalities unless policy action is significantly stepped up;
- social outcomes that are broadly stable overall despite the multiple crises, but that should be closely monitored in light of the high cost of living.
The second-stage analysis (using a wider set of quantitative and qualitative evidence, including on progress towards the 2030 national targets) will be conducted by the Commission services in relation to the seven Member States for which potential risks to upward social convergence were identified in this report (Bulgaria, Estonia, Spain, Italy, Lithuania, Hungary and Romania).
What are the next steps following the presentation of the Proposal for 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 2024.
For More Information
Press release – European Semester Autum package
2024 European Semester Autumn package – Documents
The Recovery and Resilience Facility
Commission Report on Regional Trends for Growth and Convergence in the European Union
Source – EU Commission
Remarks by Executive Vice-President Dombrovskis and Commissioner Gentiloni at the press conference of the 2024 European Semester: Autumn Package
Brussels, 21 November 2023
Executive Vice-President Dombrovskis
Good afternoon, ladies and gentlemen.
This year’s European Semester package comes as we again find ourselves navigating stormy economic waters.
In the last few years, we have endured one shock after another.
Despite this, the European economy has shown remarkable resilience. This is largely thanks to our strong and coordinated policy response. However, we still face many challenges.
Today’s geopolitical turbulence adds a great deal of uncertainty: Russia’s protracted war against Ukraine, and now a conflict raging in the Middle East.
In this difficult context, the EU’s economic activity has slowed down this year. European consumers are also struggling with higher prices. Global demand is weak.
While high inflation has taken its toll in Europe, it is now declining and should continue on a downward path.
We are expecting a modest rebound of economic growth to 1.3% in 2024, helped by the strong EU labour market.
The European Semester is our economic compass through these turbulent times.
This year’s cycle will focus on longstanding structural problems, including weak productivity, ageing societies, and challenges linked with adapting to the green and digital transitions.
If left unaddressed, they may drag on growth for years to come.
Here, Member States can already achieve a great deal by carrying out high-quality investments and reforms, starting with those set out in national Recovery and Resilience Plans.
They will boost our long-term growth, productivity, resilience, competitiveness – and also social cohesion, in line with the European Pillar of Social Rights.
One particular area of concern is labour and skills shortages. Over two-thirds of employers cannot find the talent that they need – particularly in the healthcare, ICT and green sectors.
There are other challenges too: from excessive regulatory and administrative burdens, insufficient access to financing and the need to promote more innovation.
Today’s policy advice suggests how to address these issues.
Moving to the fiscal side, we recommend that Member States ensure more prudent fiscal policies.
This will help to lower inflation, improve debt sustainability, and rebuild buffers after the large-scale public spending during the pandemic and the energy crisis.
Remaining emergency support that was provided to households and firms to offset very high energy prices at the time should be wound down.
And savings made should be used to reduce deficits.
Correspondingly, we recommend an overall restrictive fiscal stance in the euro area.
As you know, the general escape clause under the Stability and Growth Pact will soon be deactivated.
At the same time, however – and as part of our work to boost the EU’s competitiveness – it is vital to preserve investment.
The Commission has taken all these elements into account when assessing the Draft Budgetary Plans for 2024 against the Council recommendations from July.
We consider that seven Member States in the euro area are in line with our fiscal policy guidance: Cyprus, Estonia, Greece, Ireland, Lithuania, Slovenia and Spain.
Nine countries are not fully in line:
Austria, Germany, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal and Slovakia.
And the remaining four countries risk not being in line, namely Belgium, Croatia, Finland and France.
These countries need to make sure that their fiscal policies for 2024 follow our recommendations.
This means reducing net current expenditure and, in some cases, further phasing out energy support measures.
On the positive side, we consider all Member States to be in line with the recommendation to preserve nationally financed investment in 2024.
The Commission has already clarified that it will recommend to the Council that excessive deficit procedures should be opened in spring 2024.
In short: Member States have full clarity on their fiscal priorities for 2024. But we need similar clarity and predictability for the coming years as well.
This is why it is essential to conclude negotiations on the Commission’s proposals for the economic governance review as quickly as possible. Negotiations are going on intensively, and we hope to conclude them soon.
Let me now say a few words on macroeconomic imbalances.
First: while strong nominal growth has eased some longstanding imbalances, tighter financing conditions have increased concerns about existing high debts.
Second: price and cost pressures continue to diverge across Member States.
This raises concerns about potential losses in the EU’s overall competitiveness, especially in countries with high inflation.
In early 2024, the Commission will prepare in-depth reviews for the 11 countries that were identified with imbalances or excessive imbalances in 2023, meaning:
Cyprus, France, Germany, Greece, Italy, Hungary, the Netherlands, Portugal, Romania, Spain and Sweden.
An in-depth review will also be undertaken for Slovakia, since it presents a risk of newly emerging imbalances linked to strong inflation, cost competitiveness losses and high fiscal deficits.
As we tackle all these imminent priorities, we will not forget our long-term objectives. What we do now should be consistent with our goal of competitive sustainability.
And this is exactly what the European Semester ensures.
On that note, I conclude and pass over to Paolo.
Commissioner Gentiloni
Good afternoon.
Today, we build on last week’s Autumn Forecast and gives policy guidance on this basis. Our objective is to chart a course for the EU and our Member States’ economies through this difficult period, with still turbulent waters. And of course, to keep our Union on track towards the Sustainable Development Goals.
I will focus on three of the main components of today’s package.
First of all, the euro area recommendation
As the ECB pursues the fight against inflation – with good results, but the fight is not concluded – we need to adopt coordinated, prudent fiscal policies, starting with the winding down of energy support measures.
This is key both to enhance public finances’ sustainability and to avoid fuelling inflationary pressures – and thus to help households recover purchasing power.
Yet it is equally important for governments to remain agile, as geopolitical tensions cast a shadow of uncertainty across the economic outlook.
We also call on euro area governments to ensure high and sustained levels of investment, both public and private. You will recall that we have estimated at €650bn the annual additional investment needs up to 2030 for the green and digital transition. So we need to accelerate the implementation of the RRF and Cohesion Policy programmes. But we also need to remove barriers to the deployment of private capital in the EU, ensuring that State aid does not distort the level playing field in our Single Market. Because it is clearly private investment that will be the main contributor to this mountain of investment for the transition.
The labour market has remained resilient so far, even if we see some recent signs of cooling in some countries. However, wage growth has not kept up with inflation and this has affected low-income households most of all. So we are calling to support wage developments that mitigate the loss in workers’ purchasing power, of course taking into account competitiveness dynamics.
Finally, regarding the financial sector, it will be important to monitor risks related to tightening financial conditions to ensure a sufficient flow of credit to the economy.
Second, let me turn to the key findings of the Alert Mechanism Report, with its focus on developments in macroeconomic imbalances.
The good news is that strong nominal economic growth has facilitated the reduction of debts by households, corporations, and governments. At the same time, we must be aware that higher financing costs can affect indebted households, government and companies and create stress for the financial sector.
This Alert Mechanism Report also concludes that the entrenchment of cost competitiveness deteriorations is becoming a more concrete risk, as price and cost pressures continue to diverge across the EU. This needs to be monitored carefully.
Our report highlights two main concerns:
First, as regards external imbalances, we see that several countries face the prospect of larger external deficits than before energy prices increases. This is because of high energy import dependency and resilient domestic demand, associated with loose fiscal policy. At the same time, the surpluses which fell in 2022 are now back on the rise.
Second,house price dynamics, and their possible spillovers into other sectors, remain a cause for concern in some Member States – since despite the overall recent reversal in house price growth, in some Member States property prices continue to increase markedly and construction activity remains strong.
We will again be carrying out in-depth reviews for the 11 Member States identified last spring as having imbalances or excessive imbalances.In addition, we will carry out an in-depth review to assess the risk of newly emerging imbalances in Slovakia.
Finally, the Opinions on the 2024Draft Budgetary Plans for the 20 euro-area Member States.
These Opinions are anchored in the Council’s fiscal recommendations adopted last July, which saw the return to quantitative recommendations after four years in which the general escape clause was activated.
So these post-general escape clause recommendations have focused on three key dimensions.
The respect of the limit to the growth of net primary expenditure;
The winding down of energy measures and the associated deficit reduction; and
The preservation of nationally financed public investment.
Overall, the conclusions of our assessment are that:
The draft budgetary plans of seven Member States are in line with the Council Recommendations.
Those of nine Member are not fully in line with the Recommendations and these countries are invited to address the specific issues emerging from our assessment.
Lastly, we consider that four draft budgetary plans risk not being in line with the Council Recommendations.
Importantly, all Member States plan to preserve nationally financed public investment, alongside the support to investment provided by the RRF. This is in stark contrast to the substantial cuts to investment we saw in the wake of the financial crisis. Of course, determined implementation of the national Recovery and Resilience Plans remains of fundamental importance. Because we need both stabilityandgrowth. And we should not be resigned to a new period of ‘low for long’ when it comes to the growth of the European economy.
Source – EU Commission