Commission spells out reforms to ‘move EU beyond the crisis’

The European Commission tabled yesterday (29 May) its “country-specific reports” with recommendations to capitals to boost competitiveness and make their economies more dynamic. In an apparent shift from austerity, this year's recommendations call on countries to be “more ambitious” in spurring growth.

“Europe must move beyond the crisis”, Commission President José Manuel Barroso said at the press event marking the publication of the recommendations.

Feared in many capitals and awaited by enormous interest by European and national stakeholders, the annual country reports are becoming a major highlight of the Commission’s action to tackle the eurozone crisis and introduce coherence in Europe’s economic policies.

“This year's recommendations call on all countries to be more ambitious when it comes to growth-boosting economic reforms,” Barroso said. He added that the debate about austerity versus growth was counter-productive, and that instead, capitals should focus on promoting the European consensus which the Commission is putting forward.

A key problem in many member states is the lack of access to banking funding for companies. The Commission plans to provide companies with alternatives to bank loans. Barros gave as example private equity, risk-sharing instruments with the European Investment Bank or grants from the European Commission.

The Commission advises countries to create conditions that favour business development. Member states are requested to complete the single market in areas such as energy, transport and services. Several recommendations address issues such as energy prices, broadband development, competition in the services sector and also red tape.

Barroso said EU countries needed to improve the skills and qualifications of its population. The Commission is advising 22 of its members to reform their educational systems.

Social emergence

Barroso admitted that the social emergency in many parts of Europe and the increasing level of inequalities in some regions add to the pressing need for reforms.

As structural measures take time before delivering results in terms of employment creation, he said that special attention was needed to deliver short-term results for the unemployed, and especially young people. Also, he insisted that efforts to put in place the Banking Union, should continue “with determination”.

“It will not be acceptable, a relaxation of efforts in that matter,” Barroso said.

Fewer countries under excessive deficit

As Economic and Monetary Affairs Commissioner Olli Rehn put it, 16 countries are now under excessive deficit procedure (EDP), down from 24 two years ago. The EU executive has recommended that the Council abrogate the EDP for Hungary, Italy, Latvia, Lithuania and Romania. At the same time, the Commission has also recommended that the Council open an EDP for Malta.

The Commission also adopted recommendations to extend the deadlines for correcting the excessive deficit in six countries.

France and Spain, the eurozone's second and fourth biggest economies, got two extra years to cut their budget deficits to below the European Union ceiling of 3% of GDP. Poland and Slovenia also got two extra years, while Portugal and the Netherlands each got a one-year extension.

Belgium gets warning

The Commission has proposed granting an extra year to Belgium to correct its excessive deficit. The EU executive takes the view that “no effective action has been taken” by Belgium to put an end to the excessive deficit over the last three years. Belgium’s problems have been largely due to the bailout of its bank DEXIA.

However, Belgium will not be fined, as the six-pack legislation of reinforced economic governance entered into force only in mid-December 2011, and imposing a fine for the years 2010 or 2011 could go against the principle of non-retroactivity.

Special attention to Italy, France, Spain, Slovenia

Italy was praised for having carried out a large structural adjustment over the past two years. According to the Commission, the new government is reversing some of the measures, but has put in place safeguards to make sure that the deficit remains below 3%. Continuing with structural reforms is seen as key to recovery in Italy, and paying back commercial debt arrears as the government has agreed with the Commission are expected to provide the economy with liquidity and assist economic recovery.

For France, the recommended structural fiscal adjustment over 2014 and 2015 is in slightly lower than that being made this year, the Commission says. France should further reduce the cost of labour, especially through reducing social security contributions, the country-specific recommendation says.

The Commission says Spain has carried out a wave of reforms over the last year, but adds that the high debt level remains a concern. Spain has put forward a convincing National Reform Programme, but the Commission says that what is key is its timely and rigorous implementation.

Slovenia, a country struggling to avoid a bailout, is now decisively addressing the excessive imbalances identified in the in-depth review in April, the Commission says. The new government has taken measures to improve cost-competitiveness and started a determined clean-up of the banking sector. According to Rehn, the reforms undertaken should help to end the recession in Slovenia.

Even Germany gets recommendation

Germany, the EU’s leading economy, is not exempt of recommendations. These include raising the wages to support domestic demand, as well as reducing high taxes and social security contributions, especially for low wage earners in Germany.

Also, the Commission recommended that Germany consider wage increases, address taxation issues and open up its services market to more competition. As Barroso put it, Germany should “avoid any kind of complacency”. “We need a strong German economy at the centre of Europe”, he said, describing Germany as an “anchor of stability”.

Positions

In the European Parliament, the Greens political group said the Commission had started to “wake up to the counter-productive nature” of “one-sided austerity” as the solution to the crisis.

Sven Giegold, a Green German MEP, added however that the policy shift might come too late for some countries like Greece as “serious damage” has already been inflicted to them.

The Greens also regretted “the failure of the Commission to do more to link its recommendations” to broader EU policy goals related to employment, education, R&D and climate change, saying such an approach would have given “a more comprehensive assessment of measures taken towards sustainable development and socially-responsible policies”.

Background

The European Commission has set up a yearly cycle of economic policy coordination called the European Semester.

Each year it undertakes a detailed analysis of EU member states' programmes of economic and structural reforms and provides them with recommendations for the next 12-18 months. The European semester starts when the Commission adopts its Annual Growth Survey, usually towards the end of the year, which sets out EU priorities for the coming year to boost growth and job creation.

  • In March, EU Heads of state and government issue EU guidance for national policies on the basis of the Annual Growth Survey. The Spring meeting of the European Council –provides policy orientations.
  • In April, member states submit their plans for sound public finances  and reforms and measures to make progress towards smart, sustainable and inclusive growth, in areas such as employment, research, innovation, energy or social inclusion.
  • In May/June, the Commission assesses these programmes and provides country-specific recommendations as appropriate. The Council discusses and the European Council endorses the recommendations.
  • Finally, end of June or in early July, the Council formally adopts the country-specific recommendations. Where recommendations are not acted on within the given time-frame, policy warnings can be issued. There is also an option for enforcement through incentives and sanctions in the case of excessive macroeconomic and budgetary imbalances.  

Timeline

  • 20 June: Employment Ministers meeting (EPSCO Council)
  • 21 June: Finance Ministers meeting  (ECOFIN Council)
  • 25 June: Foreign affairs ministers meeting (GAC Council)
  • 27-28 June: EU heads of states summit to endorse the recommendations
  • July: Council of Ministers to formally adopt the recommendations

Further Reading

EU Institutions:

Commission: Olli Rehn, speaking points at European Semester Press Conference

Press articles: