2012 country-specific recommendations in the context of the European Semester - guide

30 May 2012
by eub2 -- last modified 30 May 2012

The country-specific recommendations put forward by the European Commission today give operational guidance for EU Member States while preparing their budgetary policies and for economic reforms that should be enacted over the coming twelve months to boost competitiveness and facilitate job creation. The adoption of the recommendations marks the concluding phase of the European Semester of economic policy coordination, launched with the Commission’s Annual Growth Survey on 23 November 2011. They should be endorsed by the European Council on 28-29 June and formally adopted by the Council in July. The basis for these recommendations is a thorough assessment of the implementation of those adopted last year, combined with a detailed analysis of the national reform programmes and stability or convergence programmes1 that Member States submitted by 30 April 2012. The analysis underpinning the recommendations is presented in 28 staff working documents (again, one for each Member State and one for the euro area). For the first time this year, the recommendations also reflect the findings of the twelve in-depth reviews carried out in the context of the Macroeconomic Imbalances Procedure. The recommendations cover a wide range of issues including public finances and structural reforms in areas such as taxation, pensions, public administration, services, and labour market issues, especially youth unemployment. The programme countries (Greece, Portugal, Ireland and Romania) receive only one recommendation: to implement the measures agreed under their programme.

What has been adopted today?

The Commission has adopted a package of proposals concluding the second European Semester of economic policy coordination and giving guidance for national policies in 2012-2013. The package consists of a Communication outlining the main findings and concrete measures to boost economic growth and job creation, as well as of 28 Council Recommendations, one for each Member State, with country-specific guidance on economic policy, such as public finances and structural reforms and one for the euro area. For twelve EU Member States, these policy recommendations also include guidance on how to address macroeconomic imbalances, according to the new mechanism implemented as part of the so-called 6-Pack legislation.

The basis for these proposals is a thorough assessment of the implementation of last year's policy recommendations, combined with detailed analysis of the national reform programmes and stability or convergence programmes that Member States submitted in the second half of April. The analysis underpinning the recommendations is presented in 28 staff working documents (again, one for each Member State and one for the euro area). In addition, the Commission carried out twelve in-depth reviews for those Member States that were identified as warranting closer inspection in the Alert Mechanism Report earlier this year.

Once these recommendations are endorsed at the June European Council and formally adopted by the Council of Ministers in July, they will help Member States to prepare and adopt their national economic policies and budgets for 2012-2013.

In parallel with the European Semester recommendations, the Commission has also adopted a number of new steps under the Excessive Deficit Procedure of the Stability and Growth Pact. These steps reflect the latest developments in Member States that are expected to bring their government deficit below the 3% of GDP reference value of the Treaty.

What are the country-specific recommendations about?

Tailored measures to be implemented at national level. In the scope of the Annual Growth Survey for 2012, Member States and the Commission agreed on five priorities: pursuing differentiated growth-friendly fiscal consolidation, restoring normal lending to the economy, promoting growth and competitiveness, tackling unemployment and the social consequences of the crisis and modernising public administration (MEMO/11/821). As situations vary from one country to another, the Commission is focussing today on the most important issues and the most pressing measures to be adopted in each Member State. The recommendations, which are concrete, targeted and measurable, concentrate on what can realistically be achieved in the next 12-18 months. As countries face different challenges, the recommendations are country-specific. They are tailored to the particular issues facing the Member State in question.

It should be noted that the programme countries, i.e. Greece, Portugal, Ireland and Romania, receive only one recommendation, calling on them to implement the measures agreed under their programme. The programmes are very comprehensive, typically covering all areas of economic policy-making; they aim at restoring macro-financial stability as well as boosting growth and competitiveness in countries that benefit from financial assistance.

Addressing a broad range of policy areas. The recommendations cover a broad range of issues including the state of public finances (growth-friendly consolidation), and structural reforms, i.e. of taxation, pension and health systems. In addition, the recommendations address employment issues, especially with regard to dampening the effects of the crisis and tackling youth unemployment. Moreover, they call for the competitiveness of the economy to be increased by opening up markets, for example among regulated professions.

Addressing macroeconomic imbalances. For some countries, the recommendations also address macroeconomic imbalances such as high levels of indebtedness, weak trade performance and worrying trends in asset prices under the preventive arm of the Macroeconomic Imbalance Procedure (MIP). The MIP is being implemented for the first time this year, as it forms part of a comprehensive set of rules that entered into force on 13 December 2011, the so-called "six-pack". In the Alert Mechanism Report presented on 14 February, the Commission identified twelve Member States that warranted further economic analysis in order to determine whether macroeconomic imbalances exist or there is a risk of them emerging. These Member States are Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Italy, Hungary, Slovenia, Spain, Sweden and the United Kingdom. For each of these Member States, the ensuing "in-depth reviews" examined the origin, nature and severity of the macroeconomic developments identified in the Alert Mechanism Report; an assessment was made on whether the country is affected by an imbalance or not, and if so, whether the imbalance is excessive in nature.

Although the recommendations are country-specific, are there top-line messages for the EU as a whole?

First, there is a need for consolidation efforts to be more growth-friendly. The composition of Government expenditure and revenues should reflect the growth impact of spending items and revenue sources. All the available budgetary margins should be used to foster public investment.

Second, there is a pressing need to address the financial and macroeconomic imbalances (alongside and co-ordinated with the fiscal effort) that for some Member States are at the root of the crisis. While the adjustment is taking place, more needs to be done by both deficit and surplus countries.

What are the general conclusions from this year's European Semester?

The overall assessment of the Commission is that Member States are taking the necessary action to correct their public finances and to ensure sound future fiscal policies, but not always in the most growth-friendly way. Action is also being taken to ensure the soundness of the financial sector. Unemployment, particularly among young people, is a severe problem that can only be resolved over time, but immediate action is needed to provide stronger jobs- and skills-matching and training to help people get back to work. More generally, the negative social impact of the crisis, including its effect on poverty levels, must be addressed.

Several Member States, particularly the programme countries and those under close market scrutiny, are undertaking major structural reforms, including reforms of their labour markets. These efforts contribute to the overall reduction of macroeconomic imbalances within Europe and are essential to sustain recovery and lasting growth. Much greater action across the EU is needed, however, to unlock our growth potential, to open up opportunities for business development and to tap the potential of new sources of jobs, for instance in the services and energy sectors and in the digital economy; skills need to be raised and innovation needs to be boosted. Moreover, more has to be done to sustain recovery and living standards and to help tackle the demographic challenges of an ageing population.

Are the Member States on course to hit the Europe 2020 targets?

The Commission is concerned that the level of commitments so far taken by the Member States will not allow the EU to meet its headline targets for 2020 in essential areas such as employment rates, research and development, education and the fight against poverty. Yet meeting these targets is essential to our future. Of course, there has been progress in many Member States and detailed information on this can be found in each staff working document.

Detailed information on the targets under Europe 2020

What do the recommendations mean for growth and jobs in the EU?

Implementation of the recommendations will bring tangible benefits for Member States. In the shorter term, putting public finances in order will help to reduce debt costs. Similarly, opening markets and regulated professions can bring immediate benefits to a number of SMEs and workers who today face unjustified barriers to entry. Pursuing structural reforms, such as pension reforms or shifting taxation away from labour, will enable Member States to get ready for longer term challenges.

Did the Commission discuss the recommendations with Member States before adopting them?

The recommendations are based on the assessment of the implementation of last year's recommendations, national reform programmes and stability or convergence programmes. As such, they are not discussed with Member States before the Commission adopts them. The recommendations and the underpinning analysis are produced in an objective and independent way. However, informal discussions took place between the Commission and the Member States before the submission of the programmes. These discussions are enriched by a constant policy dialogue in the various sector-specific Councils and the many Council working groups.

So is the Commission now dictating national economic policy?

The European Semester is about checking whether the Member States have lived up to the commitments they made last year, including commitments made within the Euro Plus Pact, and assessing their policy plans for the next years.Under the Treaty, the Member States have agreed to coordinate their economic policies at the EU level. In addition, they have adopted common rules governing public finances, as set out in the Stability and Growth Pact and the new framework for addressing macroeconomic imbalances. Moreover, Member States have committed themselves repeatedly to work towards the targets set out in the Europe 2020 strategy. So it is not about dictating policy.

Heads of State or Government also formally endorsed the EU's economic priorities at the March 2012 European Council, based on the Annual Growth Survey which the Commission presented in November 2011. The recommendations are a tool for ensuring that Member States maintain and act on the commitments they have made, within this agreed framework, before their peers and before their citizens.

National governments retain responsibility for economic policies implemented in Member States. But the impact of those policies no longer stops at national borders. The crisis has made abundantly clear the extent to which the economies of the EU in general – and the euro area in particular – are interdependent. That is why all 27 Member States have signed up to a streamlined and strengthened process of economic policy coordination in the EU, which is called the European Semester.

The Commission is the only EU institution with the political autonomy, the technical expertise and the pan-European perspective to be able to oversee this process.

What is the legal basis for the recommendations?

The recommendations relating to economic policy and employment are adopted on the basis of Articles 121 and 148 of the EU Treaty respectively. Those referring to the Stability and Growth Pact are based on Council Regulation 1466/97 and those referring to the Macroeconomic Imbalance Procedure on Council Regulation 1176/2011.

What are the main features of the European Semester?

Strengthened coordination. Drawing on the lessons of the crisis, which showed the extent to which our economies are interdependent, the EU introduced the European Semester in 2011 to ensure that coordinated action on key policy priorities is taken at the EU level, before and not after decisions are taken at the national level.

Addressing public finances and economic reform together. Under the European Semester, Member States present their stability or convergence programmes (which set out their plans for sustainable public finances) and their national reform programmes (which present key policy measures to enhance growth and job creation and reach the Europe 2020 targets) – simultaneously. This enables the EU to assess national growth and employment and budgetary plans together, enabling it to identify possible risks or imbalances that would not otherwise be picked up, and to address recommendations to Member States in a much more integrated, transparent and timely way.

Coherent and predictable annual policy coordination. The combination of EU-level guidance and country-specific recommendations in the first half of each year allows governments to draw up budgets and other economic policies with the agreed EU priorities in mind. It also allows the EU to monitor national efforts and decide on complementary actions to be taken at the EU level.

What is the link between the country-specific recommendations, the Annual Growth Survey and the European Semester?

Both the Annual Growth Survey and the country-specific recommendations are part of the European Semester. One comes at the beginning of the process and one rounds it off in June.

    The Semester begins with the presentation of the Annual Growth Survey (most recently in November 2011). This is where the Commission sets out the priority actions for the EU in terms of public finances, structural reforms and other growth-enhancing measures. The Annual Growth Survey forms the basis for discussions among Heads of State or Government in the European Council, which sets the economic policy framework for the EU for the coming months.

    Subsequently the Member States submit their national reform programmes and stability or convergence programmes to the Commission for assessment.

    The results of that assessment, against the priority areas defined in the Annual Growth Survey, are the country-specific recommendations that are endorsed by the European Council in June.

Where do the new rules to strengthen economic governance (the six-pack) come in?

In December 2011, five regulations and one directive – the so-called "six-pack" – entered into force, aimed at further strengthening the EU's economic governance. The six-pack is distinct from the European Semester, though both are means to achieve the same end – more effective and coordinated management of economic policies in the EU.

The six-pack strengthens the EU's capacity to take preventive and, where necessary, corrective action when a Member State does not respect its obligations on budgetary or economic policy. It also broadens the focus of the Stability and Growth Pact so that it pays the same attention to a Member State's public debt as to its deficit. Moreover, it creates a mechanism to prevent and correct macroeconomic imbalances – the Macroeconomic Imbalance Procedure.

The six-pack dovetails with the country-specific recommendations (and the European Semester more broadly), in particular when it comes to the preventive arm of the Stability and Growth Pact, which is about taking early action on deficits and debt before they become unsustainable. If this action should fail to achieve the desired effect, the legislative package also strengthens the enforcement arm of the Pact with a reformed Excessive Deficit Procedure.

Similarly, under the Macroeconomic Imbalance Procedure, the country-specific recommendations address macroeconomic imbalances with the aim of preventing these from becoming problematic.

Because of its strengthened enforcement mechanisms for both public finances and macroeconomic imbalances, the six-pack will further increase the incentives for Member States to properly implement the country-specific recommendations. Ultimately though, the most compelling reason for Member States to follow the recommendations is that they will help to improve their economic performance and lay the foundation for sustainable growth and job creation.

Who produces the recommendations?

The recommendations are drafted by the Commission services and adopted by the College of Commissioners. The extensive and objective technical analysis that forms the basis for the recommendations is published in staff working documents prepared by experts within the Commission services.

What happens next?

The recommendations will be discussed by the Council of Ministers in June and endorsed by EU Heads of State or Government at the European Council on 28/29 June. They will be formally adopted by the Council of Ministers in July.

It will then be up to Member States to implement the recommendations by taking them up when drafting their national budgets and other relevant policies.

Can Member States rewrite or soften the recommendations before they are formally approved?

The recommendations will be debated in the Council by ministers of employment and finance before being discussed and endorsed by Heads of State or Government at the 28/29 June European Council. During that process, Member States at the Council level are free to amend the recommendations. However, if the recommendations were to be substantially 'softened', the process would lose credibility. The value of these recommendations is that they are the product of extensive and objective technical analysis, validated by thorough discussion in the Council.

Will the European Parliament have a say on the recommendations?

Although the Treaty does not require a specific role for the European Parliament under Articles 121 and 148, it of course remains fully involved in the policy discussion on economic governance, both on the design of the new mechanisms and on the EU priorities.

What about national parliaments?

National parliaments retain their prerogatives in debating and voting on Member States' budgets and other economic policy legislation. Collectively, national authorities are now expected to take up the country-specific recommendations made to them in the definition of priorities and measures, notably in view of the preparation of the next round of programmes in spring 2013.

Why should Member States follow the recommendations?

There are three key reasons why Member States should follow the recommendations:

Peer pressure. Member States will endorse the recommendations at the highest political level and are expected to reflect them in their national decision-making processes, including in the preparation of their annual budgets. They will track each other's progress through a process of peer monitoring, with input from the Commission, throughout the year.

Market pressure. The sovereign debt crisis has dramatically increased the scrutiny to which EU Member States are subjected on the financial markets. This is clearly a strong incentive for governments to pursue policies aimed at bringing down debt and deficits, while boosting their economies' growth potential and capacity to generate jobs, in line with the country-specific recommendations.

Possible sanctions. Since the new rules for economic governance entered into force in December 2011, euro area Member States have had a further incentive to adopt policies in line with the recommendations: the prospect of sanctions under the Excessive Deficit Procedure or the Excessive Imbalance Procedure.

How will the Commission monitor the implementation of the recommendations? Will there be regular review missions and reports?

Implementation of the recommendations will be monitored closely and on an ongoing basis by the Commission services. The Commission will keep the Council informed of its findings throughout the coming year. A formal assessment of each Member State's performance will take place in May/June 2013, when the Commission presents next year's country-specific recommendations and accompanying analysis. There will be no formal review missions as such.

Can Member States be fined or taken to court if they do not implement the recommendations?

No. Implementation of the country-specific recommendations will be driven primarily by peer pressure, though market pressure will also play an important role. At the same time, there are recommendations that aim at preventing developments – such as excessive deficits or excessive macroeconomic imbalances – that may lead to sanctions under separate proceedings.

Further information
Europe 2020 website (for the Country-Specific Recommendations)

Source: European Commission