***** Following the abrogation of the Excessive Deficit Procedure on 19 September 2017 and the completion of the ESM stability support programme on 20 August 2018, Greece is subject to the preventive arm of the Stability and Growth Pact and should preserve a sound fiscal position which ensures compliance with the primary surplus target set by Decision (EU) 2017/1226 on 30 June 2017 of 3.5% of GDP for 2018 and over the medium term. Since Greece was exempt from submitting Stability Programmes while it was under the programme, the Greek authorities have not yet established a medium-term budgetary objective. Greece is expected to nominate its medium-term objective in its 2019 Stability Programme.

**** Spain is currently under the corrective arm of the Stability and Growth Pact, but could move to the preventive arm as from 2019 if the excessive deficit is corrected in a timely and sustainable manner. Spain's Draft Budgetary Plan was submitted without the concurrent submission of a draft budget act to the national parliament.

** The Commission issued a report on 23 May 2018 in accordance with Article 126(3) TFEU in which it concluded that the analysis is not fully conclusive as to whether the debt criterion is or is not complied with.

* The Commission issued a report on 23 May 2018 in accordance with Article 126(3) TFEU in which it concluded that the debt criterion should be considered as currently complied with. Italy's particularly serious non-compliance identified by the Commission with the recommendation addressed to it by the Council on 13 July 2018 represents a material change in the relevant factors analysed by the Commission on 23 May 2018. That calls for revisiting the Commission's assessment.

2019: MTO respected taking into account the allowances for which a temporary deviation is granted, while risk of significant deviation from the expenditure benchmark requirement based on 2018 and 2019 taken together.

2018: MTO respected taking into account the allowances for which a temporary deviation is granted, while risk of significant deviation from the expenditure benchmark requirement, compliance with the debt reduction benchmark;

2018: close to the MTO while risk of significant deviation from the expenditure benchmark requirement; 2019: close to the MTO while risk of significant deviation from the expenditure benchmark requirement

2019: risk of a significant deviation from the adjustment path towards the MTO based on 2018 and 2019 taken together, prima facie non-compliance with the transitional debt reduction benchmark.

Finally, the Commission has preliminarily assessed the degree of progress with the implementation of the fiscal-structural reforms outlined in the Council Recommendations of 13 July 2018. The assessment of the Draft Budgetary Plans is summarised in the following five broad categories: no progress, limited progress, some progress, substantial progress and fully addressed. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the 2019 country-specific recommendations to be adopted by the Council in 2019.

The Commission, in consultation with the Member States, has continued to use the plausibility screening tool to signal cases where the output gap estimates according to the agreed methodology could be interpreted as being subject to a high degree of uncertainty. The Commission takes the same approach as it took in previous surveillance rounds. Based on the screening tool, the output gaps for 2018 may be subject to a high degree of uncertainty in the case of five Member States (Cyprus, Croatia, Luxembourg, Slovenia and Spain). As Cyprus, Croatia and Luxembourg are expected to remain above their medium-term objective, no further assessment has been carried out. For Slovenia and Spain, an assessment of the uncertainty surrounding the output gap estimates was already carried out in spring 2018, which indicated that the output gap estimate for 2019 based on the common methodology was subject to a high degree of uncertainty. On that basis, the required adjustment for those Member States for 2019 had already been reduced from 1% to 0.65% in the context of the Council Recommendations of 13 July 2018. The autumn assessments confirm the high degree of uncertainty in both cases.

One Member State, Belgium, has requested additional flexibility in line with the "Commonly agreed position on flexibility within the Stability and Growth Pact" endorsed by the Council on 12 February 2016. In particular, the Belgian Draft Budgetary Plan includes a request for a temporary deviation from the adjustment path towards the medium-term objective as of 2018 in view of the implementation of major structural reforms with a positive impact on the long-term sustainability of public finances. At this stage, the Commission considered that if Belgium were to continue to respect the minimum benchmark in 2019, Belgium appears to qualify for the requested temporary deviation of 0.5% of GDP in 2019 for structural reforms. A final assessment of the request for flexibility will take place within the normal European Semester cycle in the context of the assessment of the 2019 Stability Programme.

The Commission's forecast for 2019 projects a significant deviation from the medium-term objective or the required adjustment path towards it, and/or non-compliance with the debt reduction benchmark, where applicable.

·Risk of non-compliance: According to the Commission's forecast for 2019, the Draft Budgetary Plan is not expected to ensure compliance with the Stability and Growth Pact rules.

The Commission's forecast for 2019 projects those Member States to be close to their medium-term objective, where relevant taking into account the allowances linked to the implementation of structural reforms. At the same time, the expenditure benchmark currently points to a risk of a significant deviation from the requirements, which will need to be taken into account in future assessments if the structural balance is no longer projected to be close to the medium-term objective, taking into account any allowances where relevant. These Member States are assessed to comply with the debt criterion.

·Compliant: according to the Commission's 2018 autumn forecast, there is no need to adapt the budgetary plans within the national budgetary procedure to ensure that the 2019 budget will be compliant with the Stability and Growth Pact rules.

Tables 2 summarises the assessments of individual Member States' Draft Budgetary Plans as per the Commission's Opinions adopted on 21 November 2018 together with the assessment of progress with fiscal-structural reforms. Those assessments are based on the Commission 2018 autumn forecast. In order to facilitate comparison, the assessment of the plans that were not found to be in particularly serious non-compliance is summarised in three broad categories. As no Member State is currently expected to remain in Excessive Deficit Procedure in 2019, for all Member States the compliance assessments for 2019 are made against the requirements of the preventive arm, notably the Council Recommendations of 13 July 2018:

While no other case of particularly serious non-compliance has been established, some Draft Budgetary Plans also give rise to concerns. In particular, the Commission sent letters to Belgium, France, Portugal, Slovenia and Spain on 19 October 2018 asking for further information and highlighted a number of preliminary observations related to their Draft Budgetary Plans. The Member States concerned replied by 22 October 2018. The Commission took the information contained in their letters into account in its assessment of budgetary developments and risks.

The Draft Budgetary Plan submitted by Italy on 16 October 2018 plans an obvious significant deviation of the recommendations adopted by the Council under the Stability and Growth Pact, which is a source of serious concerns. The Commission raised those concerns in a letter to the Italian government on 18 October 2018. First, the Commission noted that both the fact that the Draft Budgetary Plan plans a fiscal expansion of close to 1% of GDP, while the Council has recommended a fiscal adjustment of 0.6% of GDP, and the size of the deviation (a gap of around 1.5% of GDP) are unprecedented in the history of the Stability and Growth Pact. Second, the Commission emphasised that while Italy’s government debt stands around 130% of GDP, the plans would not ensure compliance with the debt reduction benchmark. In that regard, the Commission referred to past reports under Article 126(3) TFEU, which considered broad compliance with the preventive arm of the Stability and Growth Pact as a key relevant factor, and noted that the conclusions of the report from 23 May 2018 may need to be reviewed if such broad compliance can no longer be established. The Commission noted that those factors would seem to point to a particularly serious non-compliance with the budgetary policy obligations laid down in the Stability and Growth Pact as set out in Article 7(2) of Regulation (EU) No 473/2013. The Commission invited the Italian government to present its views on the matter by 22 October 2018, to be taken into account before coming to a final assessment of the Draft Budgetary Plan. In its letter of 22 October 2018, the Italian government recognised that the budgetary plans do not fulfil the rules of the Stability and Growth Pact as regards the structural adjustment debt reduction, provided further explanation on the budgetary plans, and addressed the non-endorsement of the macroeconomic forecast by the Parliamentary Budget Office. On 23 October 2018, the Commission adopted an Opinion on Italy’s Draft Budgetary Plan, in conjunction with a letter to the Italian government, concluding that the Commission had identified a particularly serious non-compliance with the Council recommendation of 13 July 2018. In in accordance with Regulation (EU) No 473/2013, the Commission requested Italy to submit a revised Draft Budgetary Plan as soon as possible, and within three weeks at the latest. Italy submitted a revised Draft Budgetary plan on 13 November 2018. Based on an assessment of the government plans in the revised 2019 Draft Budgetary Plan and on the Commission 2018 autumn forecast, the Commission confirms the existence of a particularly serious non-compliance with the recommendation addressed to Italy by the Council on 13 July 2018.

All euro-area Member States submitted their Draft Budgetary Plans in due time, in line with Article 6 of Regulation (EU) No 473/2013. In accordance with the provisions of the Two-Pack Code of Conduct, the outgoing governments of Latvia and Luxembourg submitted no-policy-change Draft Budgetary Plans due to the holding of national elections in October 2018. As soon as the governments take office and as a rule at least one month before the draft budget law is planned to be adopted by the national parliament, the authorities are invited to submit to the Commission and the Eurogroup an updated Draft Budgetary Plan. The government of Slovenia, which took office on 13 September 2018, submitted a Draft Budgetary Plan without new policy measures for 2019, due to a delay in the budgetary process. The Commission highlighted the importance of the submission of an updated Draft Budgetary Plan in its letter of 19 October 2018. Spain submitted its Draft Budgetary Plan without the concurrent submission of the draft budget act to the national parliament which is required by Article 4 of Regulation (EU) No. 473/2013. As a result, the Draft Budgetary Plan did not give a complete picture of the planned measures. In its letter of 19 October 2018, the Commission invited Spain to submit all the necessary information on the various measures and, should there be substantial differences between the Draft Budgetary Plan and the draft budget act finally submitted to Parliament, to provide the Eurogroup and the Commission with an updated Draft Budgetary Plan.

The Commission Opinions on the Draft Budgetary Plans focus on compliance with the Stability and Growth Pact and the recommendations issued on that basis. For Member States in the Excessive Deficit Procedure (EDP), the Commission Opinions take stock of progress made in correcting the excessive deficits, with respect to both headline deficit and structural effort targets. For Member States in the preventive arm of the Stability and Growth Pact (SGP), the Commission Opinions assess adherence to, or the progress towards, the country-specific medium-term budgetary objectives (MTOs), as well as compliance with the debt rule, in order to verify whether the plans are in line with the Stability and Growth Pact and the fiscal country-specific recommendations contained in the Council Recommendations of 13 July 2018.

Overall, fiscal policies are insufficiently differentiated, resulting in an overly expansionary fiscal stance for the euro area as a whole. The full implementation of the Draft Budgetary Plans would equally result in a mild, pro-cyclical, expansion for the euro area as a whole. On the other hand, a combination of some fiscal expansion, as planned by Member States with fiscal space, combined with compliance with the Stability and Growth Pact by Member States with consolidation needs would result in a broadly neutral to mildly restrictive fiscal stance for the euro area (see Annex IV Graph 6a and 6b). Moreover, such a differentiation between Member States would contribute to a broadly balanced overall policy mix in the euro area, given the continued support to the economy from monetary policy.

Note: Based on European Commission 2018 autumn forecast. Good (bad) economic times are measured by the output gap in 2019, in % of potential GDP, calculated according to the commonly-agreed methodology. The consolidation needs or fiscal scope are measured by the Commission's S1 indicator of risks to sustainability, in % of GDP, based on 2018 autumn forecast calculations and using 2018 as the base year.

On the other hand, some large net external creditor Member States with ample fiscal space and large current account surpluses plan to use some of their fiscal space. In line with past recommendations, Germany and the Netherlands plan to implement expansionary fiscal policies in 2019 (Annex IV Graph 10). However, those plans are only partly oriented towards public investment. An increase in public investment by these Member States would boost their potential growth and generate positive spill-overs to the rest of the euro area. Long-term GDP effects would exceed the short-term impact as public investment would raise the productivity of private capital and labour over a sustained period of time.

Those Member States that face the highest sustainability challenges plan either a limited fiscal adjustment or, in the case of Italy, a fiscal expansion in 2019 (Annex IV Graph 9). The planned fiscal policies of these Member States take insufficient advantage of favourable macroeconomic conditions and accommodative monetary policy to rebuild fiscal buffers. A stronger reduction in public debt in those Member States would reduce their vulnerability to shocks and contribute to the future proper functioning of automatic stabilisers. Failure to reduce public debt increases the risk of heightened market pressure on countries with high public debt, which could have negative spill-over effects on the public debt markets of other euro-area Member States.

Member States have very different fiscal positions in terms of debt and sustainability challenges. An updated fiscal sustainability risk assessment has been undertaken on the basis of the Commission 2018 autumn forecast (Graph 2 and Annex IV Table 10). That assessment takes into account, inter alia, current debt levels, the current primary balance and expected costs of ageing. Only Cyprus faces short-term fiscal sustainability risks, with the S0 indicator being just above its critical threshold. The short-term sustainability of Italian public finances appears, however, vulnerable to further increases in the cost of debt issuance. Those risks are in particular captured by a value of the S0 fiscal sub-index, which is above its critical threshold. According to the S1 indicator, Belgium, Spain, France, Italy and Portugal appear to face high medium-term risks. While Cyprus is reported to have some fiscal scope on the basis of the S1 indicator, it is worth recalling that it faces significant risks related to contingent liabilities.

While economic growth in the euro area is projected to slow, the overall macroeconomic performance remains robust. All euro-area Member States are now either in "normal" or "good" economic times (Graph 2) and the degree of economic slack has diminished in recent years. The output gap is expected to be positive in all Member States (except Greece) in 2019. Unemployment rates are forecast to fall steadily, reaching pre-crisis levels in all Member States except Greece, Spain and Italy. That ongoing economic expansion, coupled with accommodative monetary policy, provides an opportunity for Member States to rebuild fiscal buffers.

The fiscal stance should take due consideration of the monetary stance, which is expected to remain supportive of the euro-area economy in the coming years. While the European Central Bank has started to gradually withdraw some stimulatory measures, it has stated that its key interest rates will remain at their current levels at least through the summer of 2019 and in any case for as long as is necessary to ensure the convergence of inflation to levels consistent with its mandate. As such, the monetary policy stance is expected to remain supportive in 2019. That approach can be seen in Graph 1, which shows the joint orientation of monetary and fiscal policies by comparing the evolution of financing conditions (the real long-term interest rate) with a measure of the fiscal effort (the Discretionary Fiscal Effort). Forward rates suggest a continued gradual rise in nominal long-term rates in the coming years, which should translate into higher real long-term rates. However, they are expected to remain negative, with long-term inflation expectations expected to increase at a much slower pace. Financing conditions are, therefore, expected to remain very supportive. On the fiscal side, as discussed above, the Commission 2018 autumn forecasts a mildly expansionary fiscal stance in 2019.

The cyclically-adjusted expenditure ratio is projected to remain unchanged between 2018 and 2019, according to the Commission 2018 autumn forecast, corresponding to total expenditure growth of 3.3%. While the ratio is expected to fall slightly between 2017 and 2018, it is forecast to remain at 46.9% of potential GDP in 2019 (Table 1). The Draft Budgetary Plans also target an unchanged cyclically-adjusted expenditure ratio between 2018 and 2019 but at a slightly higher level (47.1% of potential GDP), while total expenditure is expected to grow at 3.5%. The cyclically-adjusted primary expenditure ratio is also forecast to remain unchanged (Annex IV Table 8), although that stability hides some variation between Member States. Indeed, a number of them are expected to have quite large increases in their cyclically-adjusted primary expenditure ratios in 2019 (Spain, Italy, Cyprus, Luxembourg and the Netherlands), while others are expected to have large declines (Latvia, Malta, Austria and Slovakia). While interest expenditure is expected to continue its recent trend decline as a percentage of GDP, the decline between 2018 and 2019 is smaller than in recent years (3 basis points, according to the Commission 2018 autumn forecast). On average, the implicit interest rate underlying the Commission's forecast is expected to remain at 2.1% in 2018 and 2019, similar to the assumption of the Draft Budgetary Plans.

The projected deterioration in the euro-area aggregate structural balance in 2019 is largely driven by a fall in the cyclically-adjusted revenue ratio. While total government revenues are expected to grow by 2.9% in 2019 (according the Commission 2018 autumn forecast), the cyclically-adjusted revenue ratio is expected to fall from 46% of potential GDP in 2018 to 45.7% of potential GDP in 2019 (Table 1 and Annex IV Table 8). Social contributions, which are expected to grow at a lower rate than nominal GDP, are the largest contributor to the projected fall in the cyclically-adjusted revenue ratio (Annex IV Graph 14). The projected fall reflects the impact of reported revenue measures, which are expected to increase the headline deficit by 0.1% of GDP in 2019, and revenue shortfalls, which are also expected to increase the deficit by around 0.1% of GDP (Annex IV Table 9). The Draft Budgetary Plans target a similar decline in the revenue ratio in 2019, while revenues are expected to grow at the slightly higher rate of 3.1%.

According to the Commission forecast, ten Member States are expected to have debt-to-GDP ratios above 60% in 2019. Greece and Italy are expected to have the highest ratios of all Member States, above 120%, while Portugal is expected to reduce its debt-to-GDP ratio below 120% in 2019. Belgium, France, Cyprus and Spain are expected to still have ratios close to 100% in 2019. Some highly-indebted Member States are expected to make no structural effort (Spain, Belgium and Portugal) or to undertake an expansion (Italy and Cyprus) in 2019, according the Commission 2018 autumn forecast, indicating that they have scope to reduce the debt burden more rapidly (Annex IV, Graph 9). Prima facie, Italy is expected to have large deviations from the debt reduction benchmark in 2018 and 2019, with its debt-to GDP ratio projected to remain broadly stable at around 131%. To a lesser extent, Belgium is also projected to not be compliant with the debt reduction benchmark in both years. Since the abrogation of their Excessive Deficit Procedures in 2016 and 2017, respectively, Portugal and France have been subject to the transitional debt rule. Portugal is projected to meet the transitional debt rule in 2018 but not in 2019, while France is not projected to meet it in either year. If Spain makes a durable correction to its excessive deficit in 2018, it will become subject to the transitional debt rule in 2019 and is currently not projected to meet the required adjustment.

All Member States apart from Lithuania are expected to reduce their debt-to-GDP ratios between 2018 and 2019, although the reductions are expected to be negligible in the cases of France and Italy. All Member States but Italy are expected to benefit from a debt-reducing snowball effect in 2019 while positive primary balances also have a downward impact, with the exceptions of France and Latvia (Annex IV Graph 8). Differences between the forecasts contained in the Commission 2018 autumn forecast and the Draft Budgetary Plans are limited, with the Commission projecting somewhat higher ratios for Greece, Italy, Cyprus, and Malta, and somewhat lower ratios for Germany, Latvia and Luxembourg.

The public debt-to-GDP ratio is expected to continue its declining path in 2018 and 2019. The euro-area general government debt-to-GDP ratio has been on a declining path since 2014, when it peaked at 94½%. According to the Commission 2018 autumn forecast, it is expected to fall to around 85% in 2019. The ongoing reduction in the euro-area aggregate debt-to-GDP ratio is mainly driven by projected primary surpluses in 2018 and 2019 (Annex IV Graph 8). A positive 'snowball effect', reflecting the projection that nominal interest rates will be lower than nominal GDP growth, is also expected to have a debt-reducing impact. In contrast, stock-flow adjustments are expected to put upward pressure on the euro-area aggregate debt-to-GDP ratio in 2019. The Draft Budgetary Plans target a similar reduction in the euro-area debt-to-GDP ratio, although the level of the ratio is expected to be higher 2018 (87½%). In both years, the planned debt-to-GDP ratios are higher than those contained in the 2018 Stability Programmes, driven largely by upward revisions for France, Italy, Latvia, Malta, the Netherlands and Slovenia (Annex IV Table 7).

The number of Member States at or above their medium-term budgetary objectives is expected to increase between 2018 and 2019. According to the Commission 2018 autumn forecast, seven euro-area Member States are expected to be above their medium-term objectives in 2018 (Germany, Ireland, Cyprus, Lithuania, Luxembourg, Malta and the Netherlands) (Annex IV Table 5). All of them are projected to remain at or above their medium-term objectives in 2019, although Germany, Cyprus, and the Netherlands plan to use some of their fiscal space (Annex IV Graphs 7a and 7b). Austria is also expected to be slightly above its medium-term objective in 2019. A number of Member States are expected to remain notably far below their medium-term objectives in 2019, according the Commission 2018 autumn forecast, i.e. Spain (-3.1 pps.), Italy (-3 pps.) and France (-1.9 pps.) (Annex IV Table 6 and Graphs 7a/7b). Of those Member States that are not yet at their medium-term objective, the Commission forecasts that Italy and Slovenia will move even further away from their medium-term objectives in 2019. By contrast, Estonia, France and Finland are expected to make some adjustment towards their medium-term objectives in 2019, while Belgium, Spain, Latvia, Portugal and Slovakia are expected to remain in an unchanged position.

The Discretionary Fiscal Effort points to an expansionary euro-area fiscal stance in both 2018 and 2019. The DFE is conceptually close to the expenditure benchmark. On the basis of the Commission 2018 autumn forecast, the Discretionary Fiscal Effort points to a fiscal expansion of around 0.4% of GDP in both 2018 and 2019. The Discretionary Fiscal Effort calculated on the basis of the Draft Budgetary Plans points to a slightly smaller expansion in 2019 (0.3% of potential GDP), in line with the fiscal policy orientation indicated by the change in the structural balance (Annex IV Graph 4).

In contrast to the 2018 Stability Programmes, the implementation of the Draft Budgetary Plans would result in a slightly expansionary fiscal stance for the euro area (as measured by the change in the structural balance) in 2019. Both the Commission 2018 autumn forecast and the (recalculated) Draft Budgetary Plans project a broadly unchanged aggregate structural balance in 2018 (Table 1). This is also broadly in line with the 2018 Stability Programmes, although it masks some changes in individual Member States (Annex IV Tables 4 and 5). The structural balance is forecast to deteriorate by 0.3% of potential GDP in 2019, in both the (recalculated) Draft Budgetary Plans and the Commission 2018 autumn forecast. That deterioration is in contrast to the 2018 Stability Programmes, which envisaged an improvement in the aggregate euro-area structural balance by 0.3% of potential GDP in 2019. The deterioration in the structural balance is in particular driven by a projected increase in Italy's structural deficit by 1.2% of potential GDP. Expansionary fiscal policies expected in Member States with fiscal space, notably Germany and the Netherlands, also contribute to the change in the aggregate euro-area figure. Excluding Italy, the projected aggregate euro-area fiscal stance in 2019 would be broadly neutral, with the structural deficit expected to increase by 0.1% of potential GDP. The projected change for the euro area as whole is in line with the change in the (recalculated) structural balance in the Draft Budgetary Plans (Annex IV Graph 3).

The euro-area aggregate primary balance, obtained by removing interest expenditures from the headline balance, is expected to remain in surplus in 2018 and 2019. According to both the Commission 2018 autumn forecast and the Draft Budgetary Plans, the euro-area aggregate primary balance is forecast to increase from 1% of GDP in 2017 to 1.2% of GDP in 2018 (Table 1). That level represents a significant upward revision compared to the 2018 Stability Programmes. Only Spain, France and Latvia are expected to have negative primary balances in 2018 (Annex IV Table 3). The aggregate euro area primary balance is expected to fall slightly to 1% of GDP in 2019, according to both the Draft Budgetary Plans and the Commission 2018 autumn forecast. Germany and Italy are expected to have particularly large reductions in their primary balances in 2019. France and Latvia are expected to still have negative primary balances in 2019. In both years, differences between Member States' and the Commissions' projections are overall limited, although the Commission expects the primary balances of Spain, Latvia and Portugal to be more than 0.3% of GDP lower in 2019 compared to the Draft Budgetary Plans.

For the first time since the creation of the euro, no euro area Member State is forecast to have a deficit above the 3% reference value in 2018. Spain is expected to correct its excessive deficit in 2018, with the headline deficit projected to fall to 2.7% in the Commission 2018 autumn forecast, the same as the target contained in Spain's Draft Budgetary Plan (Annex IV Table 2). Of those Member States forecast to have a deficit in 2019, six are expected to have a deficit below 2% of GDP. Nine Member States are expected to have a surplus in 2018. According to the Commission forecast, that group is expected to increase to ten Member States in 2019, with Austria moving to a balanced position. Overall, there are limited differences between Member States' projected fiscal balances in 2019 as per the Draft Budgetary Plans and the Commission 2018 autumn forecast (Annex IV Graphs 1 and 2), although non-negligible negative differences are evident for Italy, Spain and Portugal.

The aggregate euro-area headline deficit is expected to continue its recent declining trend in 2018 but to increase in 2019. The euro-area headline deficit is expected to fall to 0.6% of GDP in 2018, according to both the Commission 2018 autumn forecast and the Draft Budgetary Plans (Table 1). That level is lower than the deficit projected in the Commission 2018 spring forecast and the 2018 Stability Programmes. Country developments are mixed, with Spain and Italy expected to have larger deficits (compared to the Commission 2018 spring forecast), while Estonia, Cyprus, Luxembourg and the Netherlands are expected to have larger surpluses (Annex IV Table 2). The aggregate euro-area deficit is projected to increase to 0.8% of GDP in 2019, according to both the Commission autumn 2018 forecast and the Draft Budgetary Plans. That level represents an increase compared to the Commission 2018 spring forecast (+0.2% of GDP) and the 2018 Stability Programmes (+0.5% of GDP), mainly driven by higher expected deficits in Belgium, Spain, France and Italy, and a lower surplus in Germany. It would represent the first increase in the aggregate euro-area headline deficit since its peak in 2009.

Overall, GDP in the euro area is expected to enter a less dynamic period after five years of continuous growth. Support for economic activity is set to continue on the back of strong fundamentals behind private consumption and investment. At the same time, waning momentum for foreign trade, slower employment growth and a general increase in uncertainty are expected to weigh on growth. According to the Commission autumn 2018 forecast, the balance of risks is tilted to the downside. Overheating in the USA could alter the risk attitude of investors with detrimental effects on the USA economy, given the high level of corporate leverage, and on emerging market economies, resulting in negative spillovers to advanced economies. Furthermore, disruptive sovereign-bank loops could re-emerge in some high-debt euro area Member States, which could raise financial stability concerns in an environment of overall risk repricing and monetary policy normalisation.

Headline inflation is expected to move closer to the European Central Bank's definition of price stability in 2018 and to remain broadly unchanged in 2019. The Commission expects headline inflation to reach 1.8% in 2018, mostly driven by higher energy prices. In their Draft Budgetary Plans, most Member States have increased their 2018 forecasts for headline inflation, giving rise to an aggregate euro-area forecast of 1.7% (an increase of 0.3 percent points compared to the Stability Programmes). Both the Draft Budgetary Plans and the Commission expect headline inflation to remain around the same level in 2019.

Despite the expected mild slowdown in economic growth, the aggregate euro-area output gap is forecast to have turned positive in 2018 and to widen in 2019. With the exceptions of Greece and Italy, the Commission autumn 2018 forecast projects positive output gaps for all Member States in 2018. That conclusion is also the case for the recalculated output gaps on the basis of the Draft Budgetary Plans. While the aggregate positive output gap is expected to widen further in 2019, developments in individual Member States are mixed, both on the basis of the Commission 2018 autumn forecast and the (recalculated) Draft Budgetary Plans. Only Greece is expected to maintain a negative output gap in 2019, although it is forecast to narrow considerably.

The euro area's growth outlook, while remaining positive, has weakened since the spring assessment round. According to the Commission's autumn 2018 forecast, aggregate real GDP growth in the euro area is expected to fall from 2.4% in 2017 to 2.1% in 2018 and 1.9% in 2019, similar to the macroeconomic assumptions contained in the Draft Budgetary Plans (Table 1). The forecast for 2018 has been reduced by 0.2 percentage points compared to the Commission 2018 spring forecast and 0.3 percentage points compared to the Stability Programmes, and the forecast for 2019 has been revised lower by 0.1 percentage points compared to spring. The macroeconomic scenarios contained in the Draft Budgetary Plans are generally very similar to Commission forecasts for individual Member States, partly reflecting the fact that all Member States are required to base the draft budgets on independently endorsed or produced macroeconomic forecasts. For Germany, the macroeconomic forecast was endorsed for the first time by the Joint Economic Forecast project group, as part of a new forecasting arrangement. The macroeconomic assumptions underlying the Italian Draft Budgetary Plan have not been endorsed by the Member State's independent fiscal institution. Moreover, the Belgian Draft Budgetary Plan is not based on the most recent independent forecast of the Federal Planning Bureau. The Commission projects notably lower growth than the Draft Budgetary Plans for Greece and Luxembourg and Malta (Annex IV Table 1).

The objective of this Communication is twofold. Firstly, it provides an aggregate picture of budgetary policy at the level of the euro area, building on a horizontal assessment of the Draft Budgetary Plans. That exercise mirrors the horizontal assessment of Stability Programmes that takes place in the spring, but with a focus on the forthcoming year rather than on medium-term fiscal plans. Secondly, it provides an overview of the Draft Budgetary Plans at Member State-level, explaining the Commission's approach in assessing them, specifically for compliance with the requirements of the Stability and Growth Pact. The assessment is differentiated according to whether a Member State is in the preventive or the corrective arm of the Stability and Growth Pact and also takes into account the requirements relating to the level and dynamics of government debt.

In November 2017, the Commission proposed an updated Recommendation on the economic policy for the euro area, which was discussed in Council and endorsed by EU leaders at the European Council meeting on 22 March 2018. That recommendation is an anchor for the Commission's assessment.

While respecting Member States' budgetary competence, the Commission's Opinions provide objective policy advice, in particular for national governments and parliaments, to facilitate the assessment of the draft budgets' compliance with Union fiscal rules. Regulation (EU) No 473/2013 provides for a comprehensive toolbox to treat economic and budgetary policy as a matter of common concern within the euro area, as intended by the Treaty.

In line with the indications of the Two-Pack Code of Conduct, Luxembourg and Latvia submitted no-policy change Draft Budgetary Plans due to the holding of national elections in October. The government of Slovenia, which took office on 13 September 2018, also submitted a no-policy change plan. Those governments are expected to submit full Draft Budgetary Plans as soon as possible. Italy submitted its Draft Budgetary Plan on 16 October 2018 and, following the Commission Opinion of 23 October 2018 which identified a particularly serious non-compliance, submitted a revised Draft Budgetary Plan on 13 November 2018. Following the completion of the European Stability Mechanism stability support programme on 20 August 2018, Greece has submitted its first Draft Budgetary Plan this autumn.

The Commission is also required to provide an overall assessment of the budgetary situation and prospects for the euro area as a whole.

Those plans summarise the draft budgets that governments submit to national parliaments. On each plan, the Commission provides an Opinion, assessing whether it is compliant with the Member State's obligations under the Stability and Growth Pact.

EU legislation requires that euro-area Member States submit Draft Budgetary Plans for the following year to the Commission by 15 October with the aim of improving coordination of national fiscal policies in the Economic and Monetary Union.

-for Spain, which could become subject to the preventive arm from 2019 onwards if a timely and sustainable correction of the excessive deficit is achieved, the Draft Budgetary Plan is found to be at risk of a non-compliance with the requirements for 2019 under the Stability and Growth Pact, as the Commission 2018 autumn forecast projects a significant deviation from the required adjustment path towards the medium-term budgetary objective and non-compliance with the transitional debt reduction benchmark in 2019.

- for four Member States (Belgium, France, Portugal, and Slovenia), the Draft Budgetary Plans pose a risk of non-compliance with the requirements for 2019 under the Stability and Growth Pact. The implementation of the Draft Budgetary Plans of those Member States might result in a significant deviation from the adjustment paths towards their respective medium-term budgetary objectives. For Belgium, France, and Portugal non-compliance with the (transitional) debt reduction benchmark is also projected.

- for three Member States (Estonia, Latvia, and Slovakia), the Draft Budgetary Plans are found to be broadly compliant with the requirements for 2019 under the Stability and Growth Pact. For those Member States, the implementation of the plans might result in some deviation from their medium-term budgetary objective, taking into account any allowances where relevant. If the structural balance is no longer projected to be close to the medium-term budgetary objective in future assessments, the overall assessment of compliance will need to take into account the extent of the deviation from the requirement set by the Council.

- for ten Member States (Germany, Ireland, Greece, Cyprus, Lithuania, Luxembourg, Malta, the Netherlands, Austria, and Finland.), the Draft Budgetary Plans are found to be compliant with the requirements for 2019 under the Stability and Growth Pact. For Austria and Finland, that finding is dependent on the projected achievement of the medium-term budgetary objective, taking into account any allowance where relevant. If such a projection is not confirmed in future assessments, the overall assessment of compliance will need to take into account the extent of the deviation from the requirement set by the Council.

For the other Member States, the Commission has in some cases identified risks that the planned fiscal adjustment falls short of what is required by the Stability and Growth Pact.

The revised Draft Budgetary Plan of Italy is still found to be in particularly serious non-compliance with the requirements of the Stability and Growth Pact as it plans for 2019 a significant deviation from the recommended adjustment path towards the medium-term budgetary objective, given the large projected deterioration in the structural balance and a growth rate of government expenditure, net of discretionary revenue measures and one-offs, well above the reference rate. Moreover Italy’s independent fiscal monitoring institution has not endorsed the macroeconomic forecast underlying the 2019 Draft Budgetary Plan, because of the significant downside risks to the projections.

10.Due to the lack of fiscal adjustment in some highly-indebted Member States, fiscal policies are insufficiently differentiated, resulting in a slightly expansionary and pro-cyclical fiscal stance for the euro area as a whole. Compliance with the Stability and Growth Pact, along with the partial use of the fiscal space in some Member States, would result in a broadly neutral to mildly restrictive fiscal stance for the euro area as a whole in 2019. Such a fiscal stance would contribute to a broadly balanced overall policy mix, given the continued support to the economy from monetary policy, and would reduce the risks of financial instability.

9.At the same time, some Member States with fiscal space and large current account surpluses plan to use some of their fiscal space in 2019, as confirmed by the Commission 2018 autumn forecast. In particular, Germany and the Netherland plan fiscal expansions in 2019. That approach is in line with the Commission's past fiscal policy recommendations. An increase in public investment in these Member States would generate positive spill-overs to the rest of the euro area. However, the fiscal expansions planned by those Member States are only partly oriented towards public investment.

8.Member States continue to have very different fiscal positions in terms of debt and sustainability challenges. Only Cyprus faces short-term fiscal sustainability risks, with the Commission's S0 indicator being just above its critical threshold. The short-term sustainability of Italian public finances appears vulnerable to further increases in the cost of debt issuance. Some highly-indebted Member States face high medium-term risks, based on factors such as current debt levels, the current primary balance, and projected ageing-related costs. Several of those Member States plan either a rather limited fiscal adjustment (Belgium, Spain, France and Portugal) or a fiscal expansion (Italy) in 2019. In the cases of Belgium, Spain and Portugal, the Commission forecasts no fiscal adjustment in 2019, while the expansion in Italy is expected to be larger than the one included in the Draft Budgetary Plan. These Member States do not sufficiently take advantage of the prevailing favourable macroeconomic conditions and an accommodative monetary policy to rebuild fiscal buffers. Failure to reduce public debt increases the risk of heightened market pressure on Member States with high public debt, which could have negative spill-over effects on the public debt markets of other euro-area Member States.

7.Regarding the composition of the euro-area fiscal adjustment, the Commission expects the increase in the structural deficit in 2019 to be driven by a fall in the cyclically-adjusted revenue-to-GDP ratio. That expectation is similar to the Draft Budgetary Plans and is due to the impact of reported discretionary revenue cuts and expected revenue shortfalls. The cyclically-adjusted expenditure ratio is expected to remain unchanged in 2019 in both the Commission 2018 autumn forecast and the Draft Budgetary Plans, despite a further, albeit small, decline in interest expenditure between 2018 and 2019. Windfalls from lower interest expenditure should be used to accelerate debt reduction.

6.In contrast to the 2018 spring forecast, which projected an ongoing reduction in the euro-area aggregate structural deficit, the Commission now projects the structural deficit to increase by 0.3% of potential GDP in 2019. That increase is in particular driven by a projected increase in Italy's structural deficit by 1.2% of potential GDP. Expansionary fiscal policies expected in Member States with fiscal space, notably Germany and the Netherlands, also contribute to the change in the aggregate euro-area figure. Excluding Italy, the projected aggregate euro-area fiscal stance in 2019 would be broadly neutral. The projected change for the euro area as a whole is in line with the change in the (recalculated) structural balance in the Draft Budgetary Plans. The structural primary balance, which does not include interest expenditure, points to a similarly expansionary stance. The Discretionary Fiscal Effort, an indicator that is close to the expenditure benchmark of the Stability and Growth Pact, points to a somewhat more expansionary stance (0.4% of potential GDP) in 2019, according to the Commission 2018 autumn forecast.

5.The number of Member States at or above their medium-term budgetary objectives is projected to increase from seven to eight between 2018 and 2019, according to the Commission 2018 autumn forecast, with Austria moving just above its medium-term objective in 2019. Spain, Italy and France are forecast to remain notably far below their medium-term objectives in 2019. Of those Member States that are not yet at their medium-term objectives and that have submitted a full Draft Budgetary Plan, the Commission currently projects that Italy will move even further away from its medium-term objective in 2019. By contrast, Estonia and France are expected to make some adjustment towards their medium-term objectives, while others are expected to remain in broadly unchanged positions.

4.The Commission forecasts the euro-area debt-to-GDP ratio to continue its declining trend of recent years and to fall from around 87% in 2018 to around 85% in 2019. This is thanks to planned primary budget surpluses, favourable macroeconomic conditions, and continued low interest rates. The Draft Budgetary Plans target a similar reduction in the euro-area debt-to-GDP ratio. Prima facie, Italy is expected to have large deviations from the debt reduction benchmark in 2018 and 2019, with its debt-to GDP ratio projected to remain broadly stable at around 131%. To a lesser extent, Belgium is also projected not to be compliant with the debt reduction benchmark in both years. Since the abrogation of their Excessive Deficit Procedures in 2016 and 2017, respectively, Portugal and France have been subject to the transitional debt rule. Portugal is projected to meet the transitional debt rule in 2018 but not in 2019, while France is not projected to meet it in either year. If Spain makes a durable correction of its excessive deficit in 2018, it will become subject to the transitional debt rule in 2019 and is currently not projected to meet the required adjustment.

3.For the first time since the creation of the euro, no euro area Member State is forecast to have a deficit above the 3% of GDP reference value in 2019, according to the Commission 2018 autumn forecast. Of those Member States that are forecast to have a deficit in 2019, six are expected to have a deficit below 2% of GDP. Ten Member States are expected to have a surplus in 2019.

2.The Commission 2018 autumn forecast projects the aggregate euro-area headline deficit, which has been on a continuous downward trend since 2010, to fall to 0.6% of GDP in 2018 but then to increase to 0.8% of GDP in 2019. It would be the first increase in the euro-area aggregate deficit since its peak in 2009. The Draft Budgetary Plans target the same path for the headline deficit.

1.The euro area growth outlook, while remaining positive, has weakened since the spring assessment round, with the Commission and Member States revising their 2018 growth projections downwards and growth expected to ease again in 2019. While the economy is forecast to grow above its potential in both 2018 and 2019, and inflation is expected to stand close to 2%, the euro-area economy is entering a less dynamic period after five years of continuous GDP growth. The outlook is clouded by numerous uncertainties and subject to large and interconnected downside risks.

The overall assessment of the 2019 Draft Budgetary Plans and the aggregate fiscal stance for the euro area can be summarised as follows:

This Communication summarises the Commission's assessment of the 2019 Draft Budgetary Plans submitted by euro-area Member States, including no-policy change plans submitted by the governments of Latvia and Luxembourg, which held national elections in October, and Slovenia, where a new government took office on 13 September 2018. Italy submitted its Draft Budgetary Plan on 16 October 2018 and, following the Commission Opinion of 23 October 2018 which identified a particularly serious non-compliance, submitted a revised Draft Budgetary Plan on 13 November 2018. Following the completion of the European Stability Mechanism stability support programme on 20 August 2018, Greece has submitted its first Draft Budgetary Plan this autumn. In line with Regulation (EU) No 473/2013, the Commission has assessed those plans and the overall budgetary situation and fiscal stance in the euro area as a whole.

EUROPEAN COMMISSION Brussels, 21.11.2018 COM(2018) 807 final ANNEXES

to the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, AND THE EUROPEAN CENTRAL BANK 2019 Draft Budgetary Plans: Overall Assessment



ANNEX I: Country-specific assessment of DBPs Member States under the preventive arm of the SGP Plans compliant with the Member State’s obligations Overall, the Commission is of the opinion that the Draft Budgetary Plan of Germany is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to implement the 2019 budget. Germany’s favourable budgetary situation provides scope to undertake additional expenditure for achieving a sustained upward trend in public and private investment, and in particular on education, research and innovation at all levels of government, in particular at regional and municipal levels, as recommended by the Council in the context of the European Semester. The Commission is also of the opinion that Germany has made some progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and invites the authorities to make further progress. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Ireland is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to implement the 2019 budget. The Commission is also of the opinion that Ireland has made some progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and invites the authorities to make further progress. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Greece is compliant with the provisions of the Stability and Growth Pact. Greece is considered to comply with the 3.5% of GDP primary surplus target monitored under the enhanced surveillance framework. The Commission therefore invites the authorities to implement the 2019 budget. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Cyprus is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to implement the 2019 budget. The Commission is also of the opinion that Cyprus has made no progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate implementation. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Lithuania is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to implement the 2019 budget. The Commission is also of the opinion that Lithuania has made some progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and invites the authorities to make further progress. A comprehensive description of progress made with the implementation of the CSRs will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, while acknowledging the no-policy-change nature of those projections, the Commission is of the opinion that the Draft Budgetary Plan of Luxembourg is compliant with the provisions of the Stability and Growth Pact. The Commission is also of the opinion that Luxembourg has made limited progress with regard to the structural part of the fiscal recommendation contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate its implementation. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be adopted by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Malta is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to implement the 2019 budget. The Commission is also of the opinion that Malta has made no progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate implementation. A comprehensive description of progress made with the implementation of the CSRs will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of the Netherlands is compliant with the provisions of the Stability and Growth Pact. The Commission invites the authorities to implement the 2019 budget. The Commission is also of the opinion that the Netherlands has made substantial progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and invites the authorities to complete implementation. A comprehensive description of progress made with the implementation of the CSRs will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Austria is compliant with the provisions of the Stability and Growth Pact. However, this assessment is dependent on the current projection that Austria will respect the MTO taking into account the allowance linked to unusual events. If such a projection is not confirmed in future assessments, the overall assessment of compliance will need to take into account the extent of the deviation from the requirement set by the Council. The Commission invites the authorities to implement the 2019 budget. The Commission is also of the opinion that Austria has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to make further progress. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Finland is compliant with the provisions of the Stability and Growth Pact. However, this assessment is dependent on the current projection that Finland will respect the MTO taking into account the allowances linked to unusual events and the implementation of structural reforms. If such projection is not confirmed in future assessments, the overall assessment of compliance will need to take into account the extent of the deviation from the requirement set by the Council. The Commission invites the authorities to implement the 2019 budget. The Commission is also of the opinion that Finland has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the 2018 European Semester and invites the authorities to make further progress. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Plans broadly compliant with the Member State’s obligations Overall, the Commission is of the opinion that the Draft Budgetary Plan of Estonia is broadly compliant with the provisions of the Stability and Growth Pact. However, this assessment is dependent on the current projection that Estonia will be close to its MTO. If such a projection is not confirmed in future assessments, the overall assessment of compliance will need to take into account the extent of the deviation from the requirement set by the Council. The Commission therefore invites the authorities to stand ready to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP rules. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, while acknowledging the no-policy-change nature of the current projections, the Commission is of the opinion that the Draft Budgetary Plan of Latvia is broadly compliant with the provisions of the Stability and Growth Pact. However, this assessment is dependent on the current projection that Latvia will be close to its medium-term budgetary objective, taking into account the allowance linked to the implementation of structural reforms. If such a projection is not confirmed in future assessments, the overall assessment of compliance will need to take into account the extent of the deviation from the requirement set by the Council. The Commission invites the authorities to stand ready to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP. The Commission is also of the opinion that Latvia has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate progress. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. As soon as a new government takes office and as a rule at least one month before the draft budget law is planned to be adopted by the national parliament, the authorities are invited to submit to the Commission and the Eurogroup an updated Draft Budgetary Plan. Overall, the Commission is of the opinion that the Draft Budgetary Plan of Slovakia is broadly compliant with the provisions of the Stability and Growth Pact. However, this assessment is dependent on the current projection that Slovakia will be close to its medium-term budgetary objective in 2019. If such a projection is not confirmed in future assessments, the overall assessment of compliance will need to take into account the extent of the deviation from the requirement set by the Council. The Commission invites the authorities to stand ready to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP rules. The Commission is also of the opinion that Slovakia has made some progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and invites the authorities to make further progress. A comprehensive description of progress made with the implementation of the CSRs will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019.Plans at risk of non-compliance with the Member State’s obligations Overall, the Commission is of the opinion that the DBP of Belgium is at risk of non-compliance with the provisions of the SGP. In particular, the Commission projects a risk of significant deviation from the required adjustment towards the MTO for 2018 and 2019. Additionally, Belgium is not projected to comply with the debt reduction benchmark in 2018 and 2019. Therefore, the Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP and to use windfall gains to accelerate the reduction of the government debt-to-GDP ratio. The Commission is also of the opinion that Belgium has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate progress. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2019 Country Report and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, the Commission is of the opinion that the Draft Budgetary Plan of France is at risk of non-compliance with the provisions of the Stability and Growth Pact. In particular, the Commission projects a risk of significant deviation from the required adjustment towards the medium-term budgetary objective for 2018 and 2019 taken together. Moreover, France is not expected to make sufficient progress towards compliance with the debt reduction benchmark in 2018 and 2019. The Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP and to use windfall gains to accelerate the reduction of the government debt-to-GDP ratio. The Commission is also of the opinion that France has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate progress. A comprehensive description of progress made with the implementation of the CSRs will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019.

Overall, the Commission is of the opinion that the Draft Budgetary Plan of Portugal is at risk of non-compliance with the provisions of the Stability and Growth Pact. In particular, the Commission projects a risk of significant deviation from the required adjustment towards the medium-term budgetary objective for both 2018 and 2019. Moreover, Portugal is not expected to make sufficient progress towards compliance with the debt reduction benchmark in 2019. Therefore, the Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP and to use windfall gains to accelerate the reduction of the government debt-to-GDP ratio. The Commission is also of the opinion that Portugal has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate progress. A comprehensive description of progress made with the implementation of the CSRs will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. Overall, while acknowledging the no-policy-change nature of its projections, the Commission is of the opinion that the Draft Budgetary Plan of Slovenia is at risk of non-compliance with the provisions of the Stability and Growth Pact. In particular, the Commission projects a risk of significant deviation from the required adjustment towards the medium-term budgetary objective for both 2018 and 2019. Therefore, the Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP. The Commission is also of the opinion that Slovenia has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate progress. A comprehensive description of progress made with the implementation of the CSRs will be made in the 2019 Country Reports and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. As soon as possible and as a rule at least one month before the draft budget law is planned to be adopted by the national parliament, the authorities are invited to submit to the Commission and the Eurogroup an updated Draft Budgetary Plan. Plans in particularly serious non-compliance with the Member State’s obligations The Commission Opinion of 23 October 2018 identified in Italy's 2019 Draft Budgetary Plan a particularly serious non-compliance with the recommendation addressed to Italy by the Council on 13 July 2018. Overall, based on an assessment of the government plans in the revised 2019 Draft Budgetary Plan and on the Commission 2018 autumn forecast, the Commission confirms the existence of a particularly serious non-compliance with the recommendation addressed to Italy by the Council on 13 July 2018. The Commission is also of the opinion that the measures included in the revised 2019 Draft Budgetary Plan indicate a risk of backtracking on reforms that Italy had adopted in line with past Country-Specific Recommendations, as well as with regard to the structural fiscal aspects of the recommendations addressed to Italy by the Council on 13 July 2018. Member States under the corrective arm of the SGP Plans at risk of non-compliance with the Member State’s obligations Overall, the Commission is of the opinion that the Draft Budgetary Plan of Spain is at risk of non-compliance with the provisions of the Stability and Growth Pact. In particular, the Commission projects a risk of significant deviation from the recommended adjustment path to Spain's medium-term budgetary objective. Moreover, Spain is not expected to make sufficient progress towards compliance with the debt reduction benchmark. Therefore, the Commission invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2019 budget will be compliant with the SGP and to use windfall gains to accelerate the reduction of the government debt-to-GDP ratio. The Commission is also of the opinion that Spain has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of 13 July 2018 in the context of the European Semester and thus invites the authorities to accelerate progress. A comprehensive description of progress made with the implementation of those recommendations will be made in the 2019 Country Report and assessed in the context of the country-specific recommendations to be proposed by the Commission in May 2019. In light of the fact that the Draft Budgetary Plan was submitted without a draft Budget Law being submitted to the national parliament in parallel, the national authorities are invited to submit to the Commission and the Eurogroup an updated Draft Budgetary Plan in the event that the draft Budget Law that eventually is submitted to the parliament differs significantly from the Draft Budgetary Plan submitted on 15 October 2018.

ANNEX II: The methodology and assumptions underpinning the Commission autumn 2018 forecast According to Article 7(4) of Regulation (EU) No 473/2013, "the methodology and assumptions of the most recent economic forecasts of the Commission services for each Member State, including estimates of the impact of aggregated budgetary measures on economic growth, shall be annexed to the overall assessment". The assumptions underlying the Commission 2018 autumn forecast, which is produced independently by Commission staff, are explained in the forecast document itself. Budgetary data up to 2017 are based on data notified by Member States to the Commission before 1 October 2018 and validated by Eurostat on 22 October 2018. Eurostat has made no amendments to the data reported by Member States during the autumn 2018 notification round. Eurostat is withdrawing the reservation on the quality of the data reported by France in relation to the sector classification of the Agence Française de Développement. Eurostat is also withdrawing the reservation on the treatment of the capital injection into AREVA with an impact on the deficit, for an amount of EUR 2.5 billion (0.1% of GDP) in 2017. In the October 2018 EDP Notification the recording has been changed and is now treated as a capital transfer. For the forecast, measures in support of financial stability have been recorded in line with the Eurostat Decision of 15 July 2009. Unless reported otherwise by the Member State concerned, capital injections known in sufficient detail have been included in the forecast as financial transactions, i.e. increasing the debt, but not the deficit. State guarantees on bank liabilities and deposits are not included as government expenditure, unless there is evidence that they have been called on at the time the forecast was finalised. Note, however, that loans granted to banks by the government, or by other entities classified in the government sector, usually add to government debt. For 2019, budgets adopted or presented to national parliaments and all other measures known in sufficient detail are taken into consideration. In particular, all the information included in the Draft Budgetary Plans submitted by mid-October is reflected in the autumn forecast. For 2020, the 'no-policy-change' assumption used in the forecasts implies the extrapolation of revenue and expenditure trends and the inclusion of measures that are known in sufficient detail. European aggregates for general government debt in the forecast years 2018-2020 are published on a non-consolidated basis (i.e. not corrected for intergovernmental loans). To ensure consistency in the time series, historical data are also published on the same basis. General government debt projections for individual Member States in 2018-20 include the impact of guarantees to the EFSF, bilateral loans to other Member States, and the participation in the capital of the ESM as planned on the cut-off date of the forecast. According to the Commission 2018 autumn forecast, the budgetary measures reported in the Draft Budgetary Plans for 2018 are marginally deficit-increasing on aggregate (impact of less than 0.1% of GDP). Expenditure-increasing measures are expected to have a slightly more negative impact than the positive impact of revenue-increasing measures. Overall, the mechanical impact on GDP growth in the short-term is projected to be negligible. It is important to be prudent in interpreting that estimate: ·Not acting on fiscal imbalances could heighten financial-asset fragility and lead to higher spreads and lending rates, with a negative impact on growth. ·Regulation (EU) No 473/2013 aims at evaluating the effect of the measures taken in the Draft Budgetary Plans. Therefore measures taken and having entered into force before the Draft Budgetary Plans are not included in the assessment (even if they can have an additional impact on the public finance projections for 2019). ·The impact of reported measures is expressed against a baseline at unchanged policy. The fiscal policy orientation of that baseline is not necessarily neutral. For example, the trend increase of some expenditure items could be above or below potential growth, there might be an additional impact of earlier measures in the baseline or measures taken earlier might cease in 2019. The expansionary nature of the basline scenario is illustrated by the fact that the aggregate fiscal stance in 2019 is more expansionary than the deficit-increasing impact of reported measures.



ANNEX III: Sensitivity analysis

According to Article 7 of Regulation (EU) No 473/2013, "the overall assessment shall include sensitivity analyses that provide an indication of the risks to public finance sustainability in the event of adverse economic, financial or budgetary developments". This Annex therefore presents a sensitivity analysis of public debt developments to possible macroeconomic shocks (to growth, interest rates and the government primary balance), relying on results from stochastic debt projections . The analysis allows gauging the possible impact on public debt dynamics of downside and upside risks to nominal GDP growth, the effects of positive/negative developments on financial markets, translating into lower/higher borrowing costs for governments, and fiscal shocks affecting the government budgetary position. With stochastic projections the uncertainty in future macroeconomic conditions is featured in the analysis of public debt dynamics around a 'central' debt projection scenario, which corresponds respectively to the Commission's 2018 autumn forecast scenario and the DBPs' forecast scenario in the two panels of the graph below, reporting results for the euro area (in both cases the usual ‘no-fiscal policy change’ assumption is made beyond the forecast horizon) . Shocks are applied to the macroeconomic conditions (short-term and long-term interest rates on government bonds; growth rate; government primary balance) assumed in the central scenario to obtain the 'cone' (distribution) of possible debt paths presented in the graph below. The cone corresponds to a wide set of possible underlying macroeconomic conditions, with as many as 2000 shocks simulated on growth, interest rates and the primary balance. The size and correlation of the shocks reflect the variables' historical behaviour . This implies that the methodology does not capture real-time uncertainty. The resulting fan charts in the graph below therefore provide probabilistic information on debt dynamics for the euro area, taking into account the possible occurrence of shocks to growth, interest rates and the primary balance of a magnitude and correlation mirroring those observed in the past. The fan charts report the projected debt path under the central scenario (around which macroeconomic shocks are applied) as a dashed line, and the debt projection trajectory that divides into two halves the whole set of possible trajectories obtained by applying the shocks (the median) as a solid black line at the centre of the cone. The cone itself covers 80% of all possible debt paths obtained by simulating the 2000 shocks to growth, interest rates and the primary balance (as the lower and upper lines delimiting the cone represent respectively the 10th and the 90th percentiles of the distribution), thus excluding from the shaded area simulated debt paths (20% of the whole) that result from more extreme (less likely) shocks, or 'tail events'. The differently shaded areas within the cone represent different portions of the overall distribution of possible debt paths. The dark blue area (delimited by the 40th and 60th percentiles) includes the 20% of all possible debt paths that are closer to the central scenario. For both the Commission and the Draft Budgetary Plan forecast scenarios, accounting for both downside and upside risks to the government primary balance, growth and financial market conditions leads to a euro area debt in 2019 lying between around 82% and 88% of GDP with an 80% probability (as the cone represents 80% of all possible simulated debt paths). Lower and upper bounds of the debt ratio interval in 2019 would thus be fairly similar for the Commission scenario compared to the Draft Budgetary Plan scenario, due to a very small difference between the respective central forecasts to which shocks apply (a debt ratio at around 85% in the Commission scenario and the Draft Budgetary Plan scenario). Beyond 2019, the horizon of the current Draft Budgetary Plans, simulation results show that the difference in projected debt ratios under shocks between the Commission and the Draft Budgetary Plan scenarios remains fairly limited. At the end of the projection horizon considered in the fan charts (2023), there would be a 50% probability of a debt ratio higher than around 78% and 79% of GDP in the Draft Budgetary Plan and Commission scenarios respectively. That small difference is mainly due to the structural primary balance kept constant at a slightly higher last forecasted surplus in the Draft Budgetary Plan scenario compared to the Commission scenario. Note that since the size and correlation of the shocks reflect the variables' historical behaviour, the methodology does not capture real-time uncertainty, such as may exist in particular for assessing the output gap. Bearing in mind the past experience of significant revisions of output gap estimates, often in the direction of lower potential output than thought in real time, this uncertainty suggests an additional source of risks on future debt paths that is not reflected in the previous analysis. Graph III.1: Fan charts from stochastic public debt projections around the Commission's forecast scenario and the Draft Budgetary Plans' (DBP) forecast scenario



ANNEX IV. Graphs and Tables Table IV.1: Real GDP growth (%) according to the Stability Programmes (SP), the Draft Budgetary Plans (DBP) and the Commission 2018 autumn forecast (COM)



Table IV.2: Headline balance targets (% of GDP) according to the Stability Programmes (SP), the Draft Budgetary Plans (DBP) and the Commission 2018 autumn forecast (COM)



Graph IV.1: Comparison of 2019 headline government balance (% of GDP): Commission 2018 autumn forecast (COM) versus the Draft Budgetary Plans (DBP)

Note: Cyprus, which is forecast to have a surplus of over 3% of GDP in 2019, is not shown in this graph in order to improve its readability. Graph IV.2: Drivers of the difference in the headline government balance (% of GDP) in 2019 between the Commission 2018 autumn forecast and the Draft Budgetary Plans



Table IV.3: Headline primary balance targets (% of GDP) according to the Stability Programmes (SP), the Draft Budgetary Plans (DBP) and the Commission 2018 autumn forecast (COM)



Table IV.4: Changes in structural balance (% of potential GDP) according to the Stability Programmes (SP), the Draft Budgetary Plans (DBP) and the Commission 2018 autumn forecast (COM)



Table IV.5: Changes in structural primary balance (% of potential GDP) according to the Stability Programmes (SP), the Draft Budgetary Plans (DBP) and the Commission 2018 autumn forecast (COM)



Graph IV.3: Change in the 2019 structural balance (% of potential GDP): Draft Budgetary Plans (DBP) versus Commission 2018 autumn forecast (COM) Note: Greece, which is forecast to have a change in its structural balance of around -1.7% of potential GDP in 2019, is not shown in this graph in order to improve its readability. Graph IV.4: Discretionary Fiscal Effort in 2019 (% of potential GDP): Draft Budgetary Plans (DBP) versus Commission 2018 autumn forecast (COM) Graph IV.5a: Change in the 2018 structural balance (% of potential GDP) versus output gap from Commission 2018 autumn forecast (COM)

Graph IV.5b: Change in the 2019 structural balance (% of potential GDP) versus output gap from Commission 2018 autumn forecast (COM) Note: In a context of positive output gaps, "pro-cyclical" and "anti-cyclical" refer in these graphs to whether the change in fiscal policy (compared to the previous year) represents a support to or a drag on the economy. Malta is not shown in Graph IV.5a and Greece is not shown in either graph in order to improve readability.



Graph IV.6a: Fiscal stance scenarios - Structural balance (Commission 2018 autumn forecast) Graph IV.6b: Fiscal stance scenarios – Net Primary Expenditure growth (%) (Commission 2018 autumn forecast - COM) Note: The scenarios presented in these graphs relate to the aggregate euro-area fiscal stance, as measured by the change in the aggregate structural balance and the growth rate of net primary expenditure. The latter is calculated as total expenditure less interest, cyclical expenditure, discretionary revenue measures and oneoffs. The scenario "Strict SGP compliance" assumes that Member States that are still not at their medium-term objectives follow the full fiscal adjustment recommended in the 2018 Country-Specific Recommendations. The scenario "Strict SGP compliance and some use of fiscal space" assumes that Germany and the Netherlands use part of their fiscal scope in 2019 (an expansion of the structural balance by, respectively, 0.5% and 0.4% of GDP).



Table IV.6: Medium-Term Budgetary Objectives (MTOs), as set out in the 2018 Stability Programmes, and Minimum Benchmarks (MB) from 2018



Graph IV.7a: Member States' positions vis-à-vis their MTOs in 2019, according to the Commission 2018 autumn forecast (% of potential GDP) Graph IV.7b: Member States' positions vis-à-vis their MTOs in 2019, according to the 2019 Draft Budgetary Plans (% of potential GDP)

Table IV.7: Debt-to-GDP ratio (% of GDP) according to the Stability Programmes (SP), the Draft Budgetary Plans (DBP) and the Commission 2018 autumn forecast (COM)





Graph IV.8: Drivers of the change gross debt between 2018 and 2019 (% of GDP), based on the Draft Budgetary Plans (DBPs) Graph IV.9: Gross debt (% GDP) versus the change in the structural balance (% of potential GDP) in 2019, according to the Commission 2018 autumn forecast Note: the size of the bubbles reflects the nominal GDP of Member States.

Graph IV.10: Current account balance (% GDP) versus the change in the structural balance (% of potential GDP) in 2019 Note: Fiscal expansions (consolidations) are shown with a positive (negative) sign. The colours of the observations reflect the distance from the medium-term objective in 2019: red corresponds to countries that are more than 50bps below their medium-term objectives; yellow corresponds to those less than 50bps below their medium-term objectives; green coresponds to those above their medium-term objectives.



Table IV.8: Composition of fiscal consolidation in 2018 and 2019 according to the Stability Programmes (SP), the Draft Budgetary Plans (DBP) and the Commission 2018 autumn forecast (COM)



Graph IV.11: Projected changes in cyclically-adjusted expenditure ratios in the 2019 Draft Budgetary Plans (DBPs) and the Commission 2018 autumn forecast (COM) Graph IV.12: Projected changes in main types of expenditure (% of GDP) for 2019: Draft Budgetary Plans (DBP) versus Commission 2018 autumn forecast (COM) Note: The graph shows the contributions from the main components of expenditure to the projected changes in expenditure-to-GDP ratios.