European Semester: The Winter Package explained

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(Thomas Millot, Unsplash)

This article is brought to you in association with the European Commission.


What does today’s package include?

Today, the Commission presents:

COUNTRY REPORTS

What are the overall findings of the country reports?

The analysis provided in this year’s country reports sets out the path for Member States to deliver on competitive sustainability and points towards the required structural reforms and investments challenges.

The country reports highlight that productivity growth remains a challenge, even more so in the light of demographic change. Poverty and social exclusion continue to decline on the back of good labour market conditions, but important pockets of vulnerability remain.

Member States continue to have very different positions in terms of debt and sustainability challenges. Government deficits in the EU have, on average, started rising again, reversing the declining trend of recent years. Public debt ratios remain on a declining path in many Member States, but not in those where debt reduction is most needed. Member States are still struggling to get back to their pre-crisis public investment levels. In particular, public investment spending remains at historically low levels and the ratio of public investment to GDP is projected to increase only marginally, especially in the euro area.

Banking sector resilience strengthened in 2019, supported by favourable economic conditions and measures taken to tackle remaining weaknesses.

Implementation of the country-specific recommendations continued, albeit to a differing extent across Member States. Reinvigorated reform implementation is needed amid high uncertainty surrounding the economic outlook.

How have environmental sustainability issues and the UN Sustainable Development Goals been integrated into the European Semester Winter Package?

The 2020 Annual Sustainable Growth Strategy was the first step in refocusing the European Semester on competitive sustainability, with the aim to build an economy that works for people and the planet in line with the European Green Deal.

The Commission has also started to integrate the United Nations Sustainable Development Goals (SDGs) into the European Semester as part of its strategy to put sustainable development at the heart of economic policy.

The country reports published today reflect this new approach. SDG-relevant policies and challenges are identified across the country reports, and a new annex sets out Member States’ performance in respect of the SDGs and the trend over the past five years.

The reports also feature a new dedicated section on environmental sustainability. This provides a more comprehensive analysis of Member States’ environmental challenges, with a focus on those areas that interlink with economic and employment policies.

What are the findings as regards the overall progress towards the SDGs?

Progress has been faster for some goals than for others. On average, the EU has made progress towards almost all of the 17 SDGs over the past five years.

The main progress refers to gains in actual and perceived health (SDG 3), reductions in certain dimensions of poverty and social exclusion (SDG 1), and improvements in the quality of life in cities and communities (SDG 11). These favourable trends can be seen in the context of an improving economic situation in the EU over the past five years, as shown by some clearly favourable trends in the EU’s labour market (SDG 8).

However, there was only limited progress in the use of natural resources and the reduction of its negative environmental impacts, as shown in the trends for affordable and clean energy (SDG 7), responsible consumption and production (SDG 12), climate action (SDG 13) and life on land (SDG 15).

Why has the Commission presented a country report for the United Kingdom?

On 31 January 2020, the United Kingdom withdrew from the European Union and the European Atomic Energy Community (Euratom). The arrangements for the withdrawal are set out in the Withdrawal Agreement, which entered into force on 1 February 2020. It provides for a transition period, lasting until at least 31 December 2020, during which EU law continues to apply to, and in, the United Kingdom.

This means that, until the end of the transition period, the UK will be part of the European Semester.

How are Member States involved in the preparation of the country reports?

National authorities are consulted on the analytical content of the country reports in advance of their publication and are given the opportunity to check the accuracy of facts and figures contained within the reports. This consultation helps the Commission to be precise in the analysis and facilitates a common understanding of the most pressing issues.

This year, for the first time, the Commission has reached out to national authorities to select a topic of common interest for deeper analysis in the country reports. Most national authorities directed their interest towards topics of relevance to the green and digital transitions and their impacts on the economy, industry and workforce, a strong sign of alignment of interest and priorities with the new economic agenda of the Commission.

What are the next steps for the country reports?

The Council is expected to discuss the country reports together with the results of the in-depth reviews. The Commission will discuss the summary findings of the country reports with the European Parliament.

In the coming months, the Commission will engage with Member States to seek the views of national parliaments, governments, social partners and other stakeholders on the analysis and conclusions of the country reports.

In April, Member States are expected to present their National Reform Programmes, detailing national reform priorities, and their Stability Programmes (for euro area countries) or Convergence Programmes (for non-euro area countries), setting out their multiannual fiscal strategies.

On the basis of these programmes and the country reports, the Commission will present its proposals for a new set of country-specific recommendations in spring 2020, targeting the key challenges that Member States should address in 2020-2021.

SOCIAL

Are Member States making progress with implementing the principles of the European Pillar of Social Rights?

Europe is making progress in delivering on the European Pillar of Social Rights, as the social scoreboard published in December 2019 shows.  Employment continues to increase, though at a slower pace than in past years. Steady progress is being made in increasing the employment of older workers and reducing the unemployment of young people. Disposable household income continues to increase and the number of people at risk of poverty or social exclusion is on the decline.

However, in other areas challenges remain. Gender gaps between men and women persist in terms of both employment rate and pay. The number of young people not in employment, education or training remains a serious concern in some Member States. Participation of adults in learning remains low, in particular for the low-skilled. Several groups (notably self-employed and non-standard workers) still face difficulties in accessing social protection in several Member States and social transfers often do not take people out of poverty.

The Commission recently set out the road towards an Action Plan to implement the European Pillar of Social Rights and started a first-stage consultation of social partners on fair minimum wages. While there is no one-size fits all solution, social justice is the foundation of the European social market economy. The Commission therefore invites all partners to present their views by 30 November 2020 on new policy action or legal initiatives needed on different levels and/or pledge concrete commitments as a Member State, region, city or organisation towards implementing the Pillar.

Why is the Commission proposing new employment guidelines and what are the main changes relative to the past?

The employment guidelines proposed by the Commission and approved by the Council present common priorities and targets for national employment policies. They frame the scope and direction for Member States’ policy coordination and provide the legal basis for country-specific recommendations.

This year, the proposal has been amended to align the text with the four dimensions of the Annual Sustainable Growth Strategy: environmental sustainability, productivity, fairness and macroeconomic stability. The revised guidelines take into account the Commission’s reflections on a Strong Social Europe for Just Transitions and integrate the SDGs, in line with the European Semester. At the same time, they maintain fully their consistency with the Broad Economic Policy Guidelines of the Council and the alignment to the 20 principles of the European Pillar of Social Rights.

STEPS UNDER THE MACROECONOMIC IMBALANCES PROCEDURE (MIP)

How do you assess the recent evolution of imbalances?

Macroeconomic imbalances have been gradually correcting amid favourable economic conditions. Following a widespread post-crisis deleveraging process, a number of imbalances and unsustainable trends have been corrected.

Despite progress, private, public, and external debt stocks remain at high levels.

External rebalancing is incomplete and asymmetric. In countries with large external debt, further reduction of liabilities to more prudent levels has to be sustained. At the same time, large current account surpluses persist in some Member States, causing the overall euro area to register a sizeable surplus, which can affect its smooth functioning. Moreover, competitiveness developments have become less supportive of external rebalancing within the euro area.

Private sector deleveraging has benefited from the economic expansion but remains uneven. Deleveraging is now increasingly relying on GDP growth, because borrowing, especially by households, has regained dynamism. Levels of non-performing loans are declining but remain high in some countries, and weigh on banks’ balance sheets.

Overall, the resilience of the EU banking sector continues to improve. Nonetheless, challenges remain in a number of Member States where the banking sector is characterised by relatively low capitalisation and profitability and high non-performing loans ratios. House prices continue to rise, with price decelerations in Member States where evidence of overvaluation is stronger. Cost competitiveness is becoming less favourable in a number of Member States due to rising unit labour costs.

What are the findings of the in-depth reviews?

Imbalances or excessive imbalances have been identified in 12 out of the 13 Member States selected for an in-depth reviews in the Alert Mechanism Report, with the gravity of imbalances narrowing in a number of cases.

The 2020 in-depth reviews have found that 9 Member States are experiencing imbalances (Germany, Ireland, Spain, Netherlands, France, Croatia, Portugal, Romania and Sweden) and that 3 are experiencing excessive imbalances (Greece, Italy and Cyprus). One Member State (Bulgaria) identified with imbalances last year has reached sufficient progress in economic outcomes and policy response so that an exit from the MIP appears justified.

In Germany and the Netherlands, despite some correction and amidst some policy progress, large current account surpluses persist. Spain, Portugal, Ireland and Croatia are characterised by a combination of vulnerabilities linked to high private, government and foreign debt. In France, government debt is not yet declining and, despite some policy progress, productivity growth remains subdued. In Sweden, notwithstanding the recent correction, house prices remain at historically high levels, while household debt keeps growing; despite progress, policy gaps remain. In Romania, vulnerabilities linked to cost competitiveness losses and a widening current account deficit persist in context of a strongly expansionary fiscal policy.

In Cyprus, the current account deficit widened in a context of an already highly negative net international investment position (NIIP). In Greece very significant vulnerabilities remain, relating to government debt, NPLs and the external sector. In Italy, the public debt to GDP ratio is still on the rise, although government plans are becoming more compatible with debt reduction.

The Commission will continue reviewing developments and policy measures taken by all Member States with imbalances or excessive imbalances in the framework of specific monitoring.

GUIDANCE ON THE USE OF THE JUST TRANSITION FUND (ANNEX D)

What is the link between the Just Transition Fund, the territorial Just Transition Plans and the European Semester?

In January 2020, the Commission proposed a Just Transition Fund to provide financial support to people, regions and sectors that are most affected by the social and economic effects of the transition towards a climate-neutral economy. The use of the fund by Member States will be triggered by the adoption of Just Transition Plans that should identify the regions to support and the activities to be undertaken, as laid out in the regulation. In order to facilitate this process, the 2020 European Semester country reports include dedicated investment guidance (Annex D) concerning the Just Transition Fund. This guidance marks the starting point of the dialogue between the Commission and Member States on the programming of the Just Transition Fund. Member States, in cooperation with the relevant stakeholders and supported by the Commission, will develop the regional Just Transition Plans for the territories identified as the most impacted by the transition. These plans will outline the assessment of transition challenges, development needs and objectives, types of operation envisaged for each of the identified territories.

Why is the Commission providing guidance on the use of the Just Transition Fund for each Member State?

Member States and their regions have different socio-economic challenges associated with the transition towards a carbon-neutral economy, and different investment opportunities and needs. This is why the Commission services have produced country-specific investment guidance (Annex D), tailored for the specific situation in each country, with proposals for priority actions eligible under the Just Transition Fund regulation.

To maximise the impact of the Just Transition Fund, the Commission services have identified in the country reports for each Member State a targeted number of territories most affected by the transition to a climate-neutral economy where interventions should be prioritised. The guidance is intended to propose a prioritisation that will best benefit the specific regional and national context.

The analysis has taken into account the main indicators used for the allocation method of the proposed Just Transition Fund regulation. These include the industrial greenhouse gas emissions’ intensity, the use in fossil fuel-producing industries and the impact of the transition on employment opportunities in the region. Equally, the investment guidance takes into account the intrinsic capacity of the respective regions to cope with the transition challenges, and attention is also given to medium and long-term national energy and climate plans.

What are the next steps?

The investment guidance in Annex D represents the starting point of the forthcoming dialogue with Member States which will end with the adoption of the programming documents for the Just Transition Fund, based on the approved territorial Just Transition Plans.

It will be presented in dedicated events in each Member State, in most instances in the context of the presentation of the European Semester country reports. These discussions with Member State will feed into the already ongoing informal programme negotiations process for cohesion policy.

FIFTH ENHANCED SURVEILLANCE REPORT FOR GREECE

What are the main findings of the report?

The enhanced surveillance framework facilitates continued support for the completion, delivery and implementation of reforms agreed under Greece’s stability support programme, in line with the commitments made by the Greek authorities.

The fifth enhanced surveillance report for Greece published today assesses the country’s progress on policy commitments made at the Eurogroup in June 2018. This report concludes that Greece has progressed well in implementing its specific reform commitments for the end of 2019. The supplementary measures that are being implemented or announced by the government should allow for their completion in time for the sixth enhanced surveillance report scheduled for May 2020. This requires the continuous engagement of the Greek authorities, in particular in the financial sector, where significant further action is needed.

The ten specific commitments due by the end of 2019 include important reforms aimed to increase the efficiency of the Greek public sector, strengthen the effectiveness of social policy, advance the privatisation agenda and further improve the quality of the business environment.

The authorities are undertaking their efforts in close cooperation with the institutions, and are pursuing measures beyond the Eurogroup commitments in the context of their broader reform agenda.

The report is not intended to lead to a release of debt measures. This is done only twice a year.

ANNUAL WORK PROGRAMME OF THE STRUCTURAL REFORM SUPPORT PROGRAMME

What is the Annual Work Programme of the Structural Reform Support Programme and how is it linked to the European Semester?

The Annual Work Programme of the Structural Reform Support Programme sets out the priorities, objectives and expected results, and describing the actions that will be implemented through the programme in 2020.

This year, for the first time, the programme will provide support to all 27 Member States to carry out more than 240 reform projects. This comes in addition to the 550 technical support projects already being implemented.

In 2020, a portion of the budget of the SRSP has been set aside for a new call in the first quarter of 2020 to assist Member States with the preparation of their territorial just transition plans for the Just Transition Mechanism.

Concrete examples of technical support provided in 2019 and earlier are provided in the country reports published today. These include projects to improve the design of tax policies, prepare national budgets, implement digital strategies, or improve the quality and efficiency of national judicial systems.

The SRSP is closely linked to the European Semester as it also aims to improve the implementation of reforms highlighted in the country-specific recommendations and the country reports.

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