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European Semester in 2016

November

Annual growth survey 2017

The annual growth survey for 2017 proposes that the EU member states intensify their efforts on the following priorities:

  • re-launching investment
  • pursuing structural reforms 
  • ensuring responsible public fiscal policies

The emphasis this is also placed on ensuring social fairness as a way to stimulate more inclusive growth and on the need to strengthen competitiveness, innovation and productivity.

Joint employment report

The joint employment report concludes that the employment and social situation in the EU is improving against the backdrop of a moderate economic recovery. Most labour market indicators saw an improvement in 2016. The unemployment rate kept falling and in September 2016 stood at 8.6% (10% in the euro area). Youth unemployment and long-term unemployment also continued to decline, although they remain high in several member states.

Alert mechanism report 

The alert mechanism report by the European Commission provides analysis of the situation against the background of a continuing but still fragile economic recovery. 

The Commission intends to carry out  in-depth reviews in 13 member states to assess whether they may be experiencing imbalances: Bulgaria, Croatia, Cyprus, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden.

For member states that benefit from financial assistance, the surveillance of their imbalances and monitoring of corrective measures take place in the context of their assistance programmes. This year this concerns Greece.

Draft euro area recommendation for 2017

The draft recommendation for 2017, among other measures, proposes that the euro area should deliver an overall positive fiscal stance, implement growth-supporting policies, agree on a European deposit insurance scheme and look into other measures to strengthen the Economic and Monetary Union.

October

Council discusses lessons learned from the 2016 European Semester

On 11 October, the Council discussed the lessons learned from the 2016 European Semester and the areas for improvement for the next European Semester cycle.

The discussion has become an annual exercise at the Council with the aim of continuously improving the functioning of the Semester. The exchange of views was based on a letter from the Economic and Financial Committee.

The Committee highlighted two areas where more work is needed following the 2016 European Semester: national ownership and the implementation of the country-specific recommendations.

To bring about improvements in these two aspects, the Committee recommends giving the process more publicity and encouraging more bilateral dialogues between the member states as well as peer reviews among them.

It also advocates better coordination and consistency between the recommendations from the European Commission to the member states, especially between recommendations targeting fiscal issues and the fiscal stance and recommendations for structural reforms.

July

European Council endorses country-specific recommendations

On 12 July 2016 the Council approved country-specific recommendations and opinions (CSRs). It also provided explanations in cases where the Council had amended the recommendations proposed by the Commission. To avoid duplication there are no CSRs for Greece, as the country is subject to macroeconomic adjustment programmes.

June 

Council adopts final country-specific recommendations, completes the 2016 European Semester

The Council formally adopted recommendations to EU member states, following their endorsement by the European Council in June. This is the final step in the 2016 European Semester cycle.

The recommendations focus on member states' economic, fiscal and employment policies and structural reforms, depending on each country's situation. The governments are expected to implement these recommendations over the course of 2016.

Recommendations for Spain and Portugal were slightly updated in line with the appropriate steps to be taken in the framework of the excessive deficit procedure.

The new European Semester cycle begins in late autumn of 2016.

Decisions on excessive deficit procedure

On 12 July the Council adopted decisions establishing that Portugal and Spain have not taken effective action in response to the Council recommendation of 21 June 2013, which provided advice for correcting their government deficits by 2015 and 2016 respectively.

Following the Council decisions and in line with the rules of the excessive deficit procedure, the European Commission is expected to present a proposal for sanctions within 20 days. Sanctions may include fines to a maximum of 0.2% of GDP and a partial suspension of funding available from the EU Structural and Investment Funds. 

Decisions on sanctions will be deemed to be adopted unless the Council decides otherwise within the 10 days following the Commission proposal.

Spain and Portugal may send a reasoned request to reduce or cancel the sanctions within 10 days.

European Council endorses country-specific recommendations

At its meeting on 28 June, the European Council endorsed the country-specific recommendations, following their analysis and approval by various Council configurations.

Council approves 2016 country-specific recommendations

On 17 June, the Economic and Financial Affairs Council approved the country-specific recommendations for 27 member states for 2016. There is no recommendation for Greece, because its economic policies are monitored under a macroeconomic adjustment programme.

The Council recommendations cover national reform programmes submitted by the member states earlier this year and include Council opinions on the national stability and convergence programmes. The recommendations also contain advice stemming from the macroeconomic imbalances procedure.

The Council also approved a document explaining the changes it made to the draft country-specific recommendations proposed by the European Commission. 

Some parts of the national reform programmes were examined by the Employment, Social Policy, Health and Consumer Affairs Council configuration on 14 June 2016.

Excessive deficit procedure

On 17 June, the Economic and Financial Affairs Council decided that the excessive deficit situation in Cyprus, Ireland and Slovenia has been corrected. It therefore abrogated the respective Council decisions on the existence of excessive deficit in those countries. The decisions were taken based on the analysis and recommendations by the European Commission.

May

Council conclusions on 2016 in-depth reviews and on the implementation of 2015 country-specific recommendations

The Council adopted the conclusions at the Ecofin meeting on 25 May. 

The Council agrees with the results of the in-depth reviews carried out by the Commission in 19 member states, as well as with the Commission's classification of the situation of macroeconomic imbalances in those countries which, according to the criteria, may range from non-existing to excessive (imbalances).

Among other issues, the Council emphasises the need for policy action and strong commitment to structural reforms in all member states, particularly in cases where the imbalances affect the smooth functioning of the euro area. 

As for implementation of the country-specific recommendations issued in the context of the 2015 European Semester, the Council concluded that the results are uneven across policy areas and between member states and that only in a few cases has substantial progress been made. In this context, there is an urgent need to improve investment conditions in order to attract more private investment in the real economy.

Draft country-specific recommendations

On 18 May the European Commission proposed draft country-specific recommendations setting out tailored advice on economic policy for EU member states for the upcoming 12 to 18 months in order to boost growth. 

The 2016 draft recommendations focus on three priority areas to strengthen member states' economic recovery: structural reforms, investment and responsible fiscal policies. 

This year, the draft country-specific recommendations have among other things added a greater focus on euro area challenges and the interdependence between the euro area's economies, in line with the agreed recommendation on the economic policy of the euro area. 

Recommendations for Portugal and Spain include specific references to the correction of their excessive deficits in 2016 and 2017 respectively. 

The Council will analyse the proposed recommendations with a view to adopting them in June 2016.

Macroeconomic imbalances procedure

The Commission identified that Croatia and Portugal are experiencing macroeconomic imbalances which require action and would normally warrant the opening of the excessive imbalances procedure.

If the two countries implement their ambitious and broadly adequate national reform programmes in a rigorous and timely manner, it may not be necessary to open the macroeconomic imbalances procedure, however. 

Excessive deficit procedure

The Commission recommends that the Council end the excessive deficit procedure for Cyprus, Ireland and Slovenia.

In early July, formal decisions in the context of the excessive deficit procedure may be adopted on the basis of an assessment on action taken by Spain and Portugal in response to the Council recommendations currently in force. 

In addition, the Commission concluded that Belgium, Italy and Finland currently comply with the stability and growth requirements, in particular the debt criterion. The assessment of the situation in Italy will be reviewed in November 2016.

March

European Council endorses policy priorities

On 17 March, the European Council endorsed the policy priority areas of the annual growth survey for 2016: 

  • re-launching investment
  • pursuing structural reforms to modernise our economies
  • conducting responsible fiscal policies

These priorities will guide the member states' national reform programmes and stability or convergence programmes for 2016.

The European Council also noted the Commission consultation on social issues and stressed the importance of well-functioning labour markets and welfare systems.

Country reports and in-depth reviews of macroeconomic imbalances

On 8 March the European Commission published a communication summarising the results of its recent 26 country reports, which include in-depth reviews of the macroeconomic situation for 18 member states: Austria, Belgium, Bulgaria, Croatia, Estonia, Finland, France, Germany, Hungary, Ireland, Italy, the Netherlands, Portugal, Romania, Slovenia, Spain, Sweden and the United Kingdom. 

It concluded that, compared to 2015, the EU member states are making progress in addressing imbalances in their economies. They have also advanced in carrying out the country-specific recommendations issued by the Council last year, although to varying degrees across countries and policy areas. 

The purpose of the in-depth reviews is to better understand the macroeconomic situation in the countries identified as possibly having macroeconomic imbalances in the 2016 alert mechanism report. The reviews help to determine whether imbalances exist, their severity, and whether it is necessary to initiate the excessive imbalances procedure.

To simplify the application of the macroeconomic imbalances procedure, in 2016 the categorisation of macroeconomic imbalances has been reduced from six categories to four: no imbalances, imbalances, excessive imbalances and excessive imbalances with corrective action.

In March the Commission has concluded that the economies of 6 countries are not experiencing economic imbalances according to the criteria of the macroeconomic imbalances procedure, 7 countries are experiencing imbalances and excessive imbalances were identified in 5 countries.

Cyprus completed its financial adjustment programme on 31 March 2016, and is now subject to the regular cycle of European economic policy coordination, including the macroeconomic imbalance procedure. The European Commission adopted an in-depth review for Cyprus on 7 April 2016. It deems Cyprus to experience excessive imbalances, which increased the number of countries experiencing excessive imbalances to 6. 

None of the countries are experiencing excessive imbalances which would require launching an excessive imbalance procedure. 

European Semester 2016: macroeconomic imbalances and government deficits

Greece is currently implementing macroeconomic adjustment programme, and for this reason it is not subject to the economic governance processes in the European Semester, including the macroeconomic imbalances procedure.

Social dimension of the semester

At their meeting on 7 March 2016, employment ministers held a policy debate on the employment and social policy aspects of the 2016 European Semester exercise. The debate was centred on implementation of the country-specific recommendations (CSRs), having as a case study labour market segmentation and contractual arrangements. 

Ministers highlighted that: 

  • a shared awareness of challenges and widespread support and consensus were crucial for any reform agenda
  • social partners need to play an important role and should be closely involved
  • public support (from civil society) and political support are also necessary
  • information, good communication and increased transparency are also key
  • structural reforms need to be inclusive, paying attention to specific groups (young, long-term unemployed)
  • reforms need to be based on a long-term vision

Ministers agreed that CSRs need to be grounded on accurate and balanced evidence as well as on the practice of member states.

February

European Council meeting

At the European Council meeting on 18 and 19 February, the EU leaders endorsed the recommendation on the economic policy of  the euro area.

January 

Council conclusions on the annual growth survey and the alert mechanism report for 2016

On 15 January, the Council adopted conclusions on the annual growth survey and the alert mechanism report for 2016. 

The Council broadly agrees with the Commission's analysis and proposals. The priorities for 2016 are:

  • re-launching investment
  • pursuing structural reforms
  • ensuring responsibility

The Council conclusions on the alert mechanism report for 2016 broadly agree with the Commission's analysis and welcome proposals intended to improve the macroeconomic imbalance procedure (MIP). The Council, however, believes that the new additional employment indicators added to the scoreboard were unnecessary for the MIP.

Council approves recommendation on the economic policy of the euro area

On 15 January the Ecofin Council approved the draft recommendation on the economic policy of the euro area. This is a new procedure in the European Semester, where the euro area recommendation precedes the country-specific recommendations. This should help to better reflect common challenges in country-specific recommendations and actions. The recommendation is expected to be adopted by the Ecofin Council in March, following endorsement by the European Council in February.

In the period 2016-2017 the Council recommends that the euro area pursue policies which:

  • support recovery
  • encourage convergence
  • facilitate the correction of macroeconomic imbalances
  • improve adjustment capacity

It also recommends that the euro area implement a number of labour, product and services market reforms.

In addition, it is recommended to pursue fiscal policies in full respect of the Stability and Growth Pact, with the objective of a broadly neutral aggregate fiscal stance in the euro area in 2016, and with a view to reduce public debt in 2017.

Recommendations also include addressing banks' non-performing loans and improving insolvency proceedings for businesses and households. The euro area is also expected to seek completion of the Economic and Monetary Union. 

European Semester in previous years

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