EN    EN  
 EUROPEAN  
COMMISSION 
Brussels, 28.11.2014  
COM(2014) 902 final 
  
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE 
EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF 
THE REGIONS AND THE EURO PEAN INVESTMENT BANK 
Annual Growth Survey 2015 
 
 
2 COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE 
EUROPEAN ECONOMIC AND SOCIAL  COMMITTEE, THE COMMITTEE OF 
THE REGIONS AND THE EURO PEAN INVESTMENT BANK 
Annual Growth Survey 2015 
 
      
 
3  INTRODUCTION 
Having come through the worst financial and econo mic crisis in generations, the EU has done 
a lot to create the foundations for more sound and sustainable growth in the future.  But 
despite national and European efforts, recovery  is weaker than expected one year ago. The 
momentum began to slow in spring 2014. The economic crisis triggered an ongoing social 
crisis and the slow recovery is hampering effort s to reduce the high levels of unemployment.   
While the global economic environment explains  some of the current slowdown, specific 
domestic factors are preventing faster growth in the EU. There are large variations between 
Member States. Growth continues to be held back by the fragmentati on of financial markets 
as a result of the financial and sovereign debt  crisis; the need to reduce company, household 
and government debt; incomplete adjustment  of macroeconomic imbalances; and shaky 
confidence, due to uncertainty about the econom ic outlook and commitment to structural and 
institutional reforms. Low productivity gains, low levels of investment and high structural 
unemployment limit Europe's growth prospects. 
At the same time the EU and its Member States must deal with a rang e of long-term trends 
affecting job creation and grow th, notably linked to societ al and demographic change, 
globalisation, productivity and technological developments, pressure on resources and 
environmental concerns as well as generally  weaker growth in emerging and developing 
countries.  
The arrival of a new Commission, with an amb itious agenda for "Jobs, Growth, Fairness and 
Democratic Change"1, is the right moment for a fresh start. It is urgent to revitalise growth 
across the EU and to generate a new momentum  for change. This Annual Growth Survey, 
together with the documents accompanying it, sets out the Jobs, Growth and Investment 
Package announced as a first priority in the Political Guidelines for this Commission. 
 
Box 1.  Key findings of the Commission's autumn 2014 forecast2 
• Real GDP growth is expected  to reach 1.3 % in the EU an d 0.8% in the euro area for 
2014 as a whole. This should rise slowly  in 2015, to 1.5 % and 1.1% respectively, as 
foreign and domestic demand improve. For 2016, an acceleration of economic activity 
to 2.0% and 1.7% respectively is expected.  
• Unemployment reached 24.6 million peopl e in August 2014 – 5 million are aged 
between 15 and 24. Long-term unemploym ent is very high. Unemployment rates 
strongly vary across Member States, from 5.1% in Germany and 5.3% in Austria to 
24.8% in Spain and 26.8% in Greece in 2014. 
• The low inflation trend is expected to co ntinue this year, with lower commodity 
prices, in particular for energy and food, and the weak er-than-expected economic 
outlook. The gradual recovery  of economic activity over  the forecast horizon is 
expected to lead to an increase in infla tion in the EU, from 0.6% in 2014 to 1.0% in 
2015 and 1.6% in 2016. 
                                                 
1  Cf. Political Guidelines for the new Commission of 15 July 2014: http://ec.europa.eu/about/juncker-
commission/docs/pg_en.pdf   
2  Commission's autumn 2014 forecast, 4 N ovember 2014: 
http://ec.europa.eu/economy_finance/publications/european_economy/2014/pdf/ee7_en.pdf  
 
 
4 • The deficit-to-GDP ratios are se t to decrease further this year, albeit more slowly than 
in 2013, from 4.5% in 2011 to respectively 3. 0% for the EU and 2.6% for the euro 
area. Government deficits are forecast to continue falling over the next two years, driven by strengthening economic activity. The debt-to-GDP ratios of the EU and the 
euro area are expected to peak next y ear at 88.3% and 94.8% re spectively and remain 
high in a number of countries. 
 In this Annual Growth Survey for 2015, the Commission which took office on 1 November 
2014 outlines the main features of its new jobs  and growth agenda. Reviving growth can only 
be achieved if the EU Institutions and the Member  States work together to deliver on Europe's 
social market economy. This Annual Growth Survey  thus sets out what more can be done at 
EU level to help Member States return to higher growth levels and make progress towards 
sustainable development. Maki ng it happen will require a determined commitment to change 
and to doing things differently at national level. 
 
1. AN INTEGRATED APPROACH 
Today, the risk of persistent low growth, close to zero inflat ion and high unemployment has 
become a primary concern. The impact of the cris is has not only been cyclical, as highlighted 
by the weakness in aggregate demand, but also ha s a significant structural component which 
has lowered the potential gr owth of EU economies.  
Structural, fiscal and monetary policies have to  be combined in an integrated, growth-friendly 
approach to tackle this challenge effectiv ely, acting both on the dema nd and supply sides of 
our economies. This requires actio n at all levels of government from globa l, notably in the 
context of the G20, to EU, nationa l, regional and local levels.  
Meanwhile, within its mandate and in full inde pendence, the European Central Bank (ECB) 
will continue to play a key role in the overall policy setting of the euro area. The ECB has the exclusive responsibility for monetary policy in  the Euro area. It ha s taken a number of 
important measures to ease the monetary policy stance and enhance its transmission to broader financial conditions, not ably through its Asset Backed Securities (ABS) purchase 
programme which started last October. Combin ed with the covered bond programme and the 
Targeted Longer-Term Refinanc ing Operations (TLTRO) progr amme, the overall impact of 
these three measures on the balance sheet of the ECB will be significant. It is expected that the size of the balance sheet will steer towa rd the size reached at the beginning of 2012. These 
measures should support economic activity as they work their way through the economy. 
It is time for public authoritie s at all levels to take resp onsibility. Given the differences 
between Member States, the righ t approach will inevitably va ry from country to country, 
whilst nevertheless remaining part of a co mmon, integrated approach. The Commission 
recommends three main pillars for the EU's economic and social policy in 2015:  
• A coordinated boost to investment : alongside this Annual Growth Survey, the 
Commission is putting forward an Investment  Plan for Europe which should mobilise 
at least EUR 315 billion of additional public and private investment over the period 2015-2017 and improve significantly the ove rall investment environment.  
 
 
5 • A renewed commitment to structural reforms : this is essential for countries to grow 
out of debt and to stimulate the creation of  more and better jobs. Progress at national 
and EU level in areas like services, energy, telecoms and the digital economy, as well 
as in improving conditions for business crea te new opportunities for jobs and growth. 
Cutting "red tape" at European and nationa l level as part of the Better Regulation 
Agenda is essential to create the right re gulatory environment and promote a climate 
of entrepreneurship and job creation. This requires nati onal ownership and 
commitment at the highest government le vel as well as by national Parliaments. 
Europeanising these efforts offers great potential.  
• Pursuing fiscal responsibility : despite considerable progress in fiscal consolidation, 
Member States still need to secure long term control over deficit and debt levels. 
Fiscal policies should be differentiated, depending on the situation of each country. Member States with more fiscal space s hould take measures to encourage domestic 
demand, with a particular emphasis on inve stment. Moreover, the quality of public 
finance should be raised by improving ex penditure efficiency and prioritising 
productive investment in government sp ending, by making the tax system more 
efficient and  supportive of investment. Addressing tax fraud and tax evasion is 
essential to ensure fairness and allows Member States to collect the tax revenues due to them.  
 
Graph 1. An integrated approach 
 
 
 
 
Simultaneous action in all three areas is critical  to restore confidence, reduce the uncertainty 
that is impeding investment and to maximise the strong mutually reinforcing effects of all 
three pillars working together. In particular, it is clear that a renewed commitment to 
structural reforms will be essential for the sust ainability of public finances and for mobilising 
investment. 
To implement the logic of the new integr ated approach, the Commission proposes to 
streamline and reinforce the European Semest er of economic policy coordination in support 
of the three pillars.  
 
6 To strengthen the link between structural reform s, investment and fis cal responsibility, the 
Commission will also provide further guidance on the best possible use of the flexibility that 
is built into the existing rules of  the Stability and Growth Pact.3 
 
2. BOOSTING INVESTMENT 
Weak investment hampers  Europe's recovery 
There is an urgent need to boost investment in Europe. Due to the crisis, the level of 
investment has fallen by about  EUR 430 billion since its peak in 2007 – a 15% drop. In some 
Member States, that dip is even more dramatic.4 The Commission's autumn forecasts show 
that weak investment is holding ba ck the EU's fragile recovery.   
 The aim is not to return to the peak of 2007 with the same kind of investments – some pre-
crisis investments were unsustainable. However, it is worrying to see that investment has not 
rebounded recently in Europe, in contrast to the U.S. In 2013, investment was still at 19.3% of 
GDP, roughly 2 percentage points below its hist orical average if one excludes the boom-bust 
years. This leaves Europe with an investme nt gap of EUR 230 to 370 billion below its long-
term trends. 
 
Graph 2. Recent investment trends in the EU 
(Real gross fixed capital formation, EU-28, 2013 prices, EUR billion) 
 
 
 
 At the same time, large investment needs ar e not being met. For example, households and 
companies need and want to benefit from the la test technologies and become more energy and 
resource efficient. Education and innovation systems are less well equipped and less funded 
than those of our key competitors. Our welfare systems need to be modernised to meet the challenges of the rapid ageing of our population. Our energy sector needs to upgrade its 
                                                
 
3 As announced in the Political Guidelines for the new Commission of 15 July 2014. 
4 This is notably the case for Italy (-25%), Portugal  (-36%), Spain (-38%), Ireland (-39%), and Greece  
(-64%). 
 
7 networks with the latest technologies, integrat e renewable sources of energy and diversify our 
sources of supply. Our transport sector must modernise its infrastructure, reduce congestion 
and improve trade connections. Our environmen t needs better waste, recycling and water 
treatment facilities. And we need far-reaching and faster broadband and smarter data centres 
across Europe.  These needs are acutely felt after so many years of  low or no growth, with a risk that Europe's 
productive capital stock shrinks and ages. This  would further reduce our competitiveness and 
growth potential, weighing on our produc tivity and capacity to create jobs. 
 There is no single or simple answer. This la cklustre investment performance has several 
sources: low investor confidence, subdued expe ctations of demand and high indebtedness of 
households, businesses and public authorities. In many regions, the uncertain outlook and 
credit risk worries have prevented SME's fr om getting finance for worthwhile projects. 
 There are substantial private se ctor savings and ample liquidity now, but this money is not 
finding its way to Europe's real economy. This is where public authorities at all levels have a 
role to play. 
 
A lot can be done at national and regional level 
 
National and regional authorities have a key role to play in promoting the necessary structural 
reforms, exercising fiscal responsibility and boosting investment in support of jobs and 
growth. Member States with fi scal room for manoeuvre need to invest more. All Member 
States, but in particular those with more limited fiscal space, should ensure an efficient use of 
resources, prioritise investment  and growth-related expenditure  in their budgets, getting more 
investment out of EU Funds at their disposal  and creating an environment more conducive to 
investment by private actors.   There is a unique window of oppor tunity for national and regiona l authorities in the coming 
months to make the best possible use of  the EU budget for the period 2014-2020, since new 
tools and instruments are becoming available.  The EU budget amounts to EUR 960 billion for 
this seven-year period, corresponding to EUR 140 billion per year, the e quivalent of 1% of 
EU GDP. Key EU programmes such as Hori zon 2020 (for innovation and research), the 
Connecting Europe Facility (for infrastructure)  and COSME (for SMEs finance) are coming 
on stream now.  This is also true for the new generation of Eu ropean Structural and Investment Funds, which 
will provide EUR 350 billion for new investme nt during 2014-2020. This will turn into 
investments of over EUR 600 billion when nati onal co-financing is included. The significance 
of the Funds varies across countries but they can play a very strate gic role everywhere, 
representing 10% of total public investment on average in the EU. 
 
An Investment Plan for Europe  
 
The Investment Plan for Europe that the Commission is presenting alongside this Annual 
Growth Survey will complement and boost existi ng efforts. It will mob ilise at least EUR 315 
billion between now and end 2017 in additional public and privat e investment. In the first 
instance, this can be done through a joint effort  of the EU institutions and the European 
Investment Bank (EIB) by setting up a new Eu ropean Fund for Strategic Investments. 
However, the impact of the Plan will be mu ltiplied going beyond the EUR 315 billion as more 
 
8 stakeholders join in with additional volun tary contributions: Me mber States, National 
Promotional Banks (NPBs), regional authorities and private investor s all have a central role to 
play. Importantly, in the context of the assessm ent of public finances under the Stability and 
Growth Pact, the Commission will take a favour able position towards capital contributions 
into the new Fund.  This additional money should be focused on infrastructure, notably energy and broadband 
networks; as well as transport infrastructure in particular in indus trial centres; education, 
research and innovation; renewa ble energy and energy efficienc y. These are areas where clear 
needs exist and where progress is expected to  bring large economic and societal returns. 
 As it is deployed, the Investment Plan will se rve three related policy objectives: to reverse 
recent downward investment trends and provide an additional boost to job creation and the recovery of the EU econ omy; to take a decisive step towa rds meeting the long-term needs of 
our economy by boosting its competitiveness in st rategic areas; to stre ngthen the European 
dimension of our human capital and physical infrastructure, with a special focus on the 
interconnections that are vital to our single market. 
 
This Investment Plan has been developed taking account of national governments' limited 
fiscal space to avoid weighing on  national public finances. Fisc al responsibility is part of 
restoring the confidence which Europe needs to r ecover from the crisis. This is why the Plan 
is built on solutions available at EU level. and on established bodies and procedures that will 
help to speed delivery, as well as rigorous execution and accountability.  
  
Box 2. Main features of the Investment Plan for Europe  
The Investment Plan for Europe is base d on three mutually reinforcing strands: 
 The mobilisation of at least EUR 315 billio n in additional investment finance between 
now and end 2017. 
 Targeted initiatives to make sure that investment reaches the needs of the real economy. 
 Measures to improve the investment envir onment, making investment in Europe more 
attractive. 
 
Mobilising at least EUR 315 billion additional  finance for investment at EU level 
 
 A new European Fund for Strategic Investments will be set up, in close partnership with 
the EIB, to support strategic investments of European significance and risk finance for 
SMEs and mid-cap companies across Europe.  
 The European Structural and Investment Funds will be fully exploited. This means 
making sure EU funds remaining in the 2007- 2013 programming period are used to best 
effect. This also means increasing the le verage of the 2014-2020 EU funds by overall 
doubling the share of innovative financial inst ruments and maximising the use of private 
co-financing. 
 
Making finance reach the real economy 
 
 A transparent pipeline of proj ects ripe for investment will be established at EU level, 
based on the December 2014 report of a Task Force of the Commission, the EIB and the 
Member States.  
 
9  Sources of expertise and technical assistan ce will be brought together into a single 
investment advisory "Hub" for project prom oters, investors and managing authorities. 
 The Commission and the EIB, together with nati onal and regional author ities, will engage 
with project promoters, investors and inst itutional stakeholders to facilitate key 
investment projects. 
 
Improving the investment environment 
 
 Measures to improve the regulat ory framework, at national as well as European level, to 
make it clear and predictable, a nd to incentivise investment.  
 Measures to develop new and alternative sour ces of long-term financing for the economy 
and to move towards a Capital Markets Union. 
 Measures to complete the single market in key sectors such as energy, transport and the 
digital economy.  
 
3. RENEWED COMMITMENT TO STRUCTURAL REFORMS  
Making the European economy more competi tive and ensuring the right regulatory 
environment for long-term investment is crucia l for growth. Structural reforms can help to 
attract private productive investment, par ticularly in network industries and smart 
manufacturing where investment needs are high. At EU level, this requires further deepening 
of the single market and avoi ding unduly burdensome regulations , particularly for small and 
medium sized enterprises, improving access to fi nance and ensuring the quality of investment 
in research and innovation. At Me mber State level, these effort s have to be complemented by 
an ambitious implementation of structural refo rms of product, services  and labour markets.  
REMOVING KEY BARRIERS AT EU LEVEL 
Implementing the single market in  goods and services is a priority . With more than 500 
million consumers, the European single market remains the most powerful engine of growth 
at EU level. This will requi re a strong focus on further in tegration of se rvices and goods 
markets where the potential for jobs, growth, a nd innovation is significant, online and off-line. 
In doing this, it is important to exploit the s ynergies between a well-functioning single market 
and industry. Consumers should be able to bene fit from an integrated single market which 
offers the same possibilities as their home markets. A deeper single market will create benefits also on the external scene. It will reinforce the position of European companies in global value chains, attract investment and put th e Union in a better posit ion to create stronger 
links with new centres of global growth thr ough trade agreements that enhance regulatory 
convergence with our major trading partners.  
The Digital Single Market is essent ial for jobs, growth and innovation . The global 
economy is transforming into a digital one. Information and Communications Technology is 
not only a sector but the founda tion of a modern innovative economy. A connected Digital 
Single Market could generate up to EUR 260 billion in efficiency gains per year.
5 Digital 
technology introduces new ways of producing goods and delivering services from cars and 
chemicals to retail distributi on and energy, reshaping the way we  work and learn. Being well-
positioned in the digital economy will determine th e EU's future competitiveness and pathway 
to renewed growth. Digital servi ces are vital for the efficiency and security of Europe's key 
                                                 
5  "Mapping the Cost of Non-Europe 2014-19", study published by the European Parliament in July 2014.  
 
10 strategic infrastructures, such as energy and rail. And most importan tly, it offers enormous 
benefits to society – access to  goods and services and to info rmation, freedom of expression, 
creativity, better healthcare and public services. Yet, we do not have a Digital Single Market. 
Only 14% of SMEs use the Internet to sell  online. Only 12% of consumers shop across 
borders. Consumers are frustrated when they ar e unable to access digital services in another 
Member State because of restrictive business practices or legal impediments. Only when common European high-standard data protecti on rules are in place and when consumers' 
confidence is restored, will businesses be able to  tap the full potential of the digital sector. 
Further structural reforms in energy mark ets are necessary to achieve a resilient 
Energy Union with a forward-l ooking climate change policy , in line with the Europe 2020 
objectives and the 2030 climat e and energy framework agreed  by the European Council in 
October 2014, and to enhance security of en ergy supply and complete the internal energy 
market. This requires improving the energy mark et design, strengthening the existing market 
based instruments and modernising and extend ing energy infrastructure. This should allow 
energy to flow freely within the EU, to elimin ate energy islands and to integrate renewables 
into the network. Financing the investments needed will be a major challenge. While 
significant support will be provided by EU St ructural and Investment Funds, innovative 
financial mechanisms are needed to stimulate and leverage investments in energy 
modernisation and to incentivis e investment by private househol ds in energy efficiency.  
Ambitious action is required to ensure an EU  regulatory framework supportive of jobs, 
growth and investment . The Commission will prioritise the work it started in December 
2012 with the launching of the Regulatory F itness and Performance Programme (REFIT) – a 
general review of existing legi slation. It should make EU law lighter, simpler and less costly 
for the benefit of citizens and enterprises. The Commission will further strengthen its regulatory tools (impact assessment, evaluation), in close cooperation with the other European 
institutions, the Member States and stakeholders. 
The removal of the regulatory barriers me ntioned above should go hand in hand with the 
deployment of the new European Fund for Stra tegic Investments developed in partnership 
between the Commission and the EIB. 
STRUCTURAL REFORMS AT MEMBER STATE LEVEL 
Ultimately, reforming and modernising our economi es is needed to underpin our European 
social model. It is important that all members of  society, in particular the social partners, can 
play a role and proactively support change.  
Ambitious implementation of structural reform s in product, services and labour markets can 
contribute to increasing produc tivity, regaining competitiveness and improving the business 
environment, thereby also fostering investment. It can contribute to a durable rebalancing of 
our growth model, lessen the nega tive impact of the necessary fi nancial deleveraging from the 
private sector and contribute  to the prevention of harmfu l macroeconomic imbalances. 
Moreover, through the effects on growth, prod uctivity and employment, provided the right 
channels are in place, it can contribute to improving the overall social situation and reducing 
poverty, as well as the sustainabil ity of private and public debt.  
Despite the achievements of some Member St ates – particularly the more vulnerable –
additional reform efforts are needed in all Memb er States. Recent expe rience has given ample 
evidence that ambitious action brin gs clear results (see Box 3).  
 
11 Box 3. Examples of effective structur al reforms in the Member States  
• In Spain, in December 2013, the government approved a Law guaranteeing market unity 
in the interest of the freedom of movement  and establishment of persons and the free 
movement of goods. The law is an ambitious rationalisation of overlapping legislation in 
Spain, addressing the fragmentation of the do mestic market and increasing competition in 
product markets. According to the Spanish Aut horities, the reform is estimated to raise 
GDP by more than 1.5% over time.  
• Portugal enacted a number of labour market reforms between 2011 and 2013. The 
protection of workers under permanent and fi xed-term contracts was aligned. Working 
time legislation was made more flexible, and me asures were taken to better adapt wages to 
productivity at the firm level. Unemployment benefits were reformed and eligibility was 
extended. The Public Employment Service wa s reformed, existing Active Labour Market 
Policies were reviewed and new programmes introduced, including targeted to the youth. 
The unemployment rate declined by about 2 percentage points between 2013 and 2014.  
• Poland  initiated an ambitious refo rm facilitating access to regulated professions. Access to 
50 professions – including lawyers,  notaries, real estate agents  and taxi drivers – has been 
liberalised in the first wave of reform in  2013. Decisions covering a further 91 professions 
were adopted by the Polish Parliament in April 2014 and deregula tion of 101 additional 
professions is planned for early 2015. 
• Italy  implemented a set of measures in 2013 aimed at increasing competition and 
transparency in the gas and electricity ma rkets. The initiatives taken by the Italian 
government have helped to address the long-st anding issue of high energy prices in Italy 
and, according to estimates from the energy re gulator, have helped to reduce end-users 
prices. 
For 2015, the Commission recommends focusing attention on a number of key reforms. The 
areas chosen are relevant for all Member States  although the exact measures to be taken will 
vary from country to country. Within the euro area, particular atten tion should be paid to 
better co-ordination of some of these reforms to enhance positive synergies and to avoid negative spill overs. The areas for reform are the following: 
1. Improving the dynamics in labour ma rkets and tackling the high level of 
unemployment . The most competitive and resilient c ountries are those where companies and 
entrepreneurs value and invest most in cont inuous skills development and innovation is 
encouraged and where people are able to move  easily between occupa tions, sectors and/or 
regions. 
Employment protection rules a nd institutions should provid e a suitable environment to 
stimulate recruitment, while offering modern levels of protection to both those who are 
already in employment and thos e looking for a job. Member States must do more to remove 
obstacles to job creation, with the involvement of social part ners, including where necessary 
by reforming labour dispute resolution schemes. Reforms targeting labo ur tax reductions to 
help restore employment should be intensif ied. Reducing labour market segmentation should 
help to eliminate employment barriers fo r those who are currently unemployed, under-
employed or employed on a temporary contract, and facilitate upward professional mobility. 
 
12 The EU needs a skilled work force in growi ng sectors such as the digital economy, green 
sectors and health care. Education has a key role to play to ensure the responsiveness of skills 
to labour market signals. Vocational training and dual education systems should be upgraded 
to provide young people with th e necessary skills sets. Life long learning should become a 
central priority, through the mobilisation of both public and private actors, with broader 
access at all ages and for those most in need . A better assessment of the skills needs at 
regional and sectoral leve ls is also necessary. 
The situation of young people and the long- term unemployed in particular requires 
determined action. Benefit systems should co mbine adequate income replacement with 
activating and enabling services, targeted at individual needs and de livered through one-stop 
shops. Fiscal disincentives to seeking employ ment must be remove d. The Youth Guarantee 
represents an ambitious effort combini ng different instruments to address youth 
unemployment effectively. However, the availa ble funds, including the EUR 6.4 billion of the 
Youth Employment Initiative, should be used faster and more effici ently by Member States, 
and enhanced by national means. Only three re levant Operational Programmes worth a total 
of EUR 1.6 billion have been adopted for Fran ce, Italy and Lithuania allowing pre-financing 
payments to be made to these countries. In orde r to be able to adopt most of the relevant 
Operational Programmes by the end of the year, Member States must address the 
Commission's observations as soon as possible. 
On average, there are more than 2 million unfill ed vacancies in the EU. While there are limits 
to geographic mobility, it appears that work ers are not using the opportunities of free 
movement to the full. Removing barriers will re quire increasing the scope of portability of 
pension rights across the EU and helping work ers make an informed choice about mobility, 
for example through the EURES network. At the sa me time, steps must be taken against the 
abuse of existing rules and to pr event a permanent brain drain fr om certain regions. Enhanced 
EU cooperation in exchange of informa tion and good practices will be essential. 
A high level of employment requires real  wages to move in line with productivity 
developments, including at indus try and firm level. Some Me mber States still need to 
complete the correction of pre-crisis trends, w ith wages outpacing product ivity gains. The role 
of social partners is crucial. Collective agreements should allow a certain degree of flexibility 
for differentiated wage increases across sector s and within sectors, according to specific 
productivity developments.  
2. Pension reforms.  Across the EU there is a need to ensure both sustainability and adequacy 
of pension systems. A majority of Member Stat es have reformed their public pension systems 
in recent years so as to put them on a sounder footing as European society ages. However, as 
mirrored in the 2014 country-specific recommen dations, in many cases further reforms are 
necessary to increase the efficiency and financia l sustainability of pensio ns. At the same time, 
the adequacy of pension systems needs to be pres erved, so that a decent level of income after 
retirement is ensured. Given the trend of in creasing longevity, in many countries a more 
dynamic view on the age at which people can retir e needs to be established, including linking 
statutory retirement ages to life expectancy more  systematically to ensu re an adequate balance 
between life spent working and spent in retirement. 
3. Modernising social protection systems.  Social protection mechan isms should be efficient 
and adequate at all stages of a person's life. Th ere is a need for simplified and better targeted 
social policies complemented by affordable quality childcare and education, prevention of 
early school leaving, training a nd job assistance, housing support and accessible health care. 
 
13 Healthcare systems need to be reformed to provide quality health care through efficient 
structures, including eHealth. 
4. Improving the flexibility of product and services markets. Modernising the functioning 
of network industries, upgradi ng infrastructure capacity and further opening services sectors 
remains a challenge for most Member States, as shown the country-specific recommendation 
issued to the Member States  in 2014, which put the focus on measures to improve the 
functioning of their network i ndustries and to enhance competition in product and services 
sectors, notably as regards regulated prof essions. Effective enforcement of consumer 
legislation can also increase trust an d create demand in the single market. 
EU legislation provides a framework for modern isation at national le vel, and for making 
Europe more attractive and competitive as a whole. Member States have undertaken 
numerous reforms in the services sector following the entry into force of the Services Directive in 2006, but progress has been more uneven recently. The full implementation of 
the Services Directive would significantly impr ove the functioning of the single market for 
services and could lead to an economic gain of up to 1.6% of EU GD P in the long run on top 
of the 0.8% of EU GDP under the current level of implementation.
6 The overall persistence of 
a high number of exceptions to the general principles foreseen by the Directive, together with 
lengthy reform processes in a number of Memb er States, are still weighing on the full 
implementation of the Directive and thus do not  allow reaping its full benefits. Stepping up 
national reforms should focus on removing the following barriers: (i) disproportionate and 
unjustified authorisatio n requirements in some Member States, notably legal form and 
shareholding requirements; (ii) l ack of clarity of domestic legisl ation as to the rules applicable 
to businesses providing cross-border services; (iii) lack of mutual  recognition; (iv) 
cumbersome administrative procedures, with  scope for improving the performance of the 
Points of Single Contact; (iv) uneven pr ogress on the ongoing mu tual evaluation of 
professional regulations and refo rms of regulated professions; (v) remaining obstacles to the 
free movement of goods. The Commission will con tinue to work closely with the Member 
States to remove these barriers.7  
5. Improving framework conditi ons for business investment . Efforts to strengthen the 
business environment to make it more invest ment-friendly is key to bring in private 
investment, in particular in Member States with limited fiscal space for public investment. Public private partnerships a nd governance of state owned en terprises will need to be 
carefully designed to make public spending and private investment more efficient. Public 
procurement contracts should be op ened further, in particular us ing EU legislati on. This also 
implies that the administrative capacity of proc uring authorities to plan and implement is 
strengthened, in particular through e-procuremen t. In many cases, improved efficiency of 
procedures and greater transparency are also required. Well-functioning insolvency 
frameworks are also crucial for an efficient reallocation of resources. 
6. Improving the quality of research  and innovation (R&I) investment.  Investment in 
R&I at national and regional level has a critical role to play in kick-starting sustainable 
growth. Member States should continue to prio ritise public investment in research and 
innovation, ensuring its efficiency and leverage with regard to private investment. Member 
States should focus on the quality of R&I institutions, on their strategy development and 
                                                
 
6 J. Monteagudo, A. Rutkowski, D. Lorenzani, The economic impact of the Services Directive: A first 
assessment following implementation, Economic Papers 456, June 2012, 
http://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_456_en.pdf 
7 COM(2012) 261 of 8 June 2012. 
 
14 policy-making processes, and on programmes. At the same time, they need to keep up the 
pace of reforms to ensure an investment-frie ndly environment, which is a necessary condition 
for business investment in R&I and for fast growing innovative SMEs. 
7. Improving efficiency in public administration. Public administrations across the EU 
continue to face the challenge of  delivering "better w ith less", i.e. meeting public needs in 
times of tighter budgets, improvi ng the business environment by al leviating the administrative 
and regulatory burden for firms and citizens, and adapting to the needs of the digital economy. 
This remains a challenge in the vast majority of Member States. A number have embarked on 
institutional or territorial reforms, with th e two-fold objective of achieving savings through 
the rationalisation of their organisation, and ensuring smooth decision-making and 
implementation of reforms through a clarific ation of the competences of the various 
institutional or government layers.  
In addition, similar to the regu latory fitness and performance programme (REFIT) carried out 
at EU level, most Member States need to pursu e simplification and a more digital approach to 
public administration. Removing red tape and regulatory obstacles sh ould lead to higher 
quality, simpler and more accessible legislatio n and pave the way for a more business- and 
citizen-friendly environment, which in turn fost ers investment. In this respect, enhancing the 
efficiency and securing the fairness of indepe ndent judicial systems is also an important 
prerequisite. There is a clear need to tackle issues such as the length of proceedings, the 
number of pending cases, the insu fficient use of ICT, the prom otion of alternative dispute 
resolution mechanisms and the independence of judicial systems. 
 
4. PURSUING FISCAL RESPONSIBILITY  
Given the sharp increase in deficit and debt le vels across the EU during the financial crisis, a 
significant degree of fiscal consolidation wa s necessary to restore confidence in the 
sustainability of Member States' public fina nces and break the vicious circle between 
sovereign debt developments a nd financial instability. The si gnificant adjustments undertaken 
in recent years have succeeded in reducing defic its and stabilising debt levels in the EU. The 
strong decrease in the number of countries unde r an excessive deficit procedure – down to 11 
in 2014 from 24 in 2011 – reflects these fiscal imp rovements. According to the latest forecast, 
the fiscal stance in the EU is now expected to remain neutral in the coming years, which 
means that fiscal policy will not weigh on growth going forward.  
Nevertheless, public debt remains very elevat ed and this, coupled with high external 
indebtedness, makes economies more vulnerable to  adverse shocks and can act as a drag on 
growth. Such imbalances can also represent a th reat to the smooth functio ning of the euro area 
as a whole. The growth in government debt must still be reversed in the years to come, in line with Member States' obligations under the Stab ility and Growth Pact. This can be achieved 
through a combination of responsib le fiscal policies and economi c growth. First, the pace of 
fiscal adjustment should be differentiated accord ing to the fiscal challenges faced by different 
Member States. While those with sustainabilit y challenges should con tinue consolidating, 
Member States with fiscal space should use it to support growth. Memb er States should also 
make full use of recently enhanced national fisc al frameworks to lay down and stick to the 
right fiscal trajectory. Second, th e composition of fiscal strategi es needs to be designed in a 
growth-friendly manner. In se veral countries, provided it  remains consistent with 
consolidation requirements, an emphasis on expend iture restraint, possibl y coupled with cuts 
in the most distortive taxes, can help raise growth and investment. 
 
15  
Box 4. Responsible growth-friend ly fiscal consolidation  
The way Member States have gone about fiscal consolidati on has not been very growth-
friendly. It has been excessively concentrated on tax hikes, which are not optimal in most 
Member States where the tax burden is alread y high. On the expenditure side of national 
budgets, public investment was the main item ta rgeted for cuts, in spite of its growth-
enhancing potential among budgetary expenditures. At the same time, in some Member States 
both the size of the necessary fiscal adjustme nt and the dynamics of the financial crisis 
required a resort to rapid solutions.  
With the financial crisis abating and the c onsolidation pace moderating, the composition of 
budgetary measures has started to  improve. This has already b een visible in 2014 and can be 
seen in the draft budgets for 2015 as well. The fa ll in investment expenditure has been halted, 
while the composition of revenues has become mo re growth-friendly. In particular, the draft 
budgets for 2015 feature some positive tax meas ures reducing tax burden on labour, although 
the level of ambition still falls short of meeting the challenges. 
On the revenue side, it is important to ensure  an efficient and growth-friendly tax system. 
Employment and growth can be stimulated by shifting the tax burden away from labour 
towards other types of taxes which are less detr imental to growth, such as recurrent property, 
environment and consumption taxes, taking into account the potential di stributional impact of 
such a shift. The high tax burden on labour has been a long-standing problem in Europe with differences of 40% between Member States in the cost of employing a worker at the average 
wage and worker's take-home pay. Broadeni ng tax bases, simplification and enhanced 
transparency can also help increase the e fficiency of the tax system and improve tax 
compliance as well as the fight against aggressive tax planning. 
On the expenditure side, productive public inve stment and more growth-friendly items of 
current expenditures should be prioritise d – and quick decisions on the Commission's 
proposed Investment Plan for Europe will help  to support these priorities. Welfare systems 
should play their role to combat poverty and fost er social inclusion. The efficiency of existing 
expenditure programmes in achie ving their targets should be enhanced by the adoption of 
reforms and other measures, such as spending reviews. At least eight Member States are 
currently or were recently engaged in one form or another of spending review: the United Kingdom, the Netherlands, France, Italy, Irel and, Denmark, Spain and Sweden. Sharing the 
results and experience gained from these reviews more widely should be part of the overall 
governance system. 
The Stability and Growth Pact provides the ri ght framework to deliver long-term growth in 
the context of sustainable public finances, including flexibility where required. It puts emphasis on budgetary developments in structural terms and not just on the nominal deficit. 
This allows developments outside the control of government to be filtered out, whether they 
are negative (e.g. asymmetric shocks) or positive (e.g. windfall revenues). This means we get a better idea of the underlying budgetary position. Each Member State is assessed individually, taking into account their particular economic situ ation and national challenges 
posed by ageing, including in the areas of pens ion and health care policies, and the public 
debt level.  
 
 
16 5. STREAMLINING OUR GOVERNANCE SYSTEM TO MAKE IT MORE 
EFFECTIVE AND TO INCREASE OWNERSHIP 
This Annual Growth Survey launches the a nnual cycle of economic governance known as the 
European Semester. It combines fiscal, macroe conomic and structural policy surveillance at 
EU level before national budgets and decision s are prepared for the following year. Since 
2011, the European Semester has been used to  initiate and guide important fiscal and 
structural reforms in the Me mber States. Accompanying this  Annual Growth Survey, the 
Commission has carried out a review of the "six pack" and "two pack" legislation  which 
reinforced the EU's economic governance.8  
The European Semester has become an important vehicle for delivering reforms at the 
national and the EU levels, by ensuring that the EU and its Member States coordinate their economic policies and their efforts to promote jobs, growth and investment. However, the 
monitoring by the Commission
9 has shown that there is still a lack of ownership resulting in 
an unsatisfactory level of implementation of  the country-specific recommendations, in 
particular in the area of structural reforms. In the face of Europe's economic challenges, the 
Commission considers that now is the right time to streamline and reinforce the European 
Semester  to make it more effective by giving it greater  focus, clarity and political role for the 
future, in line with the integrated approach  presented in this Annual Growth Survey. A 
reformed European Semester should aim to increase the effectiveness of economic policy 
coordination at the EU level through an incr eased accountability and an improved ownership 
by all actors (see Annex). 
The aim of streamlining of the Semester is to  increase political owne rship, accountability and 
acceptance of the process, to strengthen its credibility and comparability across Member 
States and to help improve the implementa tion of the country-specific recommendations. 
The discussion on the European Semester is also important in view of the  mid-term review 
of the Europe 2020 strategy, which will be presen ted in time for discussion at the spring 
2015 European Council . Following the stock-taking Comm unication on the implementation 
of the Europe 2020 strate gy released last March10 and based on the outcome of the public 
consultation, the summary of the debates in the Council and the inputs received from 
interested parties, the Commission is working on the mid-term review of the Europe 2020 
strategy and will present its ideas early in 2015.  
For the EU to succeed in meeting its jobs a nd growth challenge, ther e is a need for broad 
consensus on the right policy direction and strong  stakeholder support for reform efforts. This 
means that national Parliaments, the social partne rs and civil society at large all need to be 
more involved in the implementation of polic ies decided at EU and national levels. To 
associate national Parliaments more closely to the process, every year, national Parliaments 
and the European Parliament meet during the Parliamentary week to debate the European 
Semester with the involve ment of the Commission.  
                                                 
8 COM (2014) 905 of 28 November 2014. 
9 The assessments by the Commission are presented in  the yearly staff working documents accompanying 
the country-specific recommendationshttp://ec.europa.eu/europe2020/making-it-happen/country-
specific-recommendations/index_en.htm 
10  COM(2014) 130 final, "Taking stock of the Europe 2020 strategy for smart, sustainable and inclusive 
growth", http://ec.europa.eu/europe2020/pdf/europe2020stocktaking_en.pdf  and 
http://ec.europa.eu/europe2020/pdf/europe2020stocktaking_en.pdf  
 
17 There is also a clear need to monitor social progress and the impact of reforms over time. 
Work has already started to reinforce the soci al dimension of the Economic and Monetary 
Union. In particular, employme nt and social indicators ar e being introduced into the 
macroeconomic imbalances procedure and should be fully used to gain a better understanding of the labour market and social developments an d risks. The Commission will also make sure 
that European social partners are better asso ciated to the European Semester process. 
While first ideas will be tested and implem ented for the 2015 European Semester, further 
proposals will be elaborated in the months to come as part of  the work on the deepening of 
economic governance, coordinate d by the President of the Co mmission, together with the 
Presidents of the European Council, of the European Cent ral Bank and of the Eurogroup.
11 
 
6. CONCLUSION 
There is an urgent need for a fresh start in EU economic pol icy making. In its Annual Growth 
Survey for 2015, the Commission proposes that th e EU pursue an integrated approach to 
economic policy built around three main pillars, all of which must act together – boosting 
investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal 
consolidation.  
As a matter of priority, Member States shoul d endorse the EUR 315 billion Investment Plan 
proposed as part of this Annual Growth Su rvey. They should commit to concluding the 
necessary legislative changes re quired to create the proposed new Fund by the end of June 
2015. Member States should also commit to at least an overall doub ling of the use of 
innovative financial instruments used to impl ement projects under the European Structural 
and Investment Funds in the coming three years. 
Depending on the situation of each Member State,  the proposed integrated  approach should be 
implemented at national level by ad dressing rigidities in  the labour market so  as to tackle high 
levels of unemployment, by pu rsuing pension reforms, by m odernising social protection 
systems, by improving the flexibility of product and services markets, by improving framework conditions for business investment, by improving the quality of investment in 
research, innovation, education and training and by improving the efficiency of public 
administration. The social partners are invite d to actively contribute to domestic reform 
agendas.  
An increased involvement of national Parliament s, social partners an d stakeholders in the 
European Semester is necessary to strengt hen national ownership and accountability. The 
streamlining of the 2015 European Semester will be a first step in this direction. 
The proposed integrated approach calls for polit ical leadership from the Member States, the 
European Parliament and the European Council. The Commission will work  with all actors to 
ensure that Europe is put back on the path of a sustainable economic recovery.  
 
                                                
 
11  As agreed at the Euro area summit of 24 October 2014. 
 
18 ANNEX 
Streamlining and reinforcing  the European Semester  
 
The European Semester refers to the annual cycle of economic and budgetary policy 
coordination in which guidance is provided to Member States  before they take policy 
decisions at national level. The guidance is provided in the context of the Stability and Growth Pact and the Macroeconomic Imbalances  Procedure. The European Semester also 
serves to implement the Europe 2020 strategy.  
The European Semester starts every year w ith the publication by the Commission of the 
Annual Growth Survey. It outlines general economi c priorities for the EU. It is debated by the 
other institutions and feeds the discussion l eading to the spring European Council. Member 
States present national programmes in the spri ng of each year. The Com mission then proposes 
country-specific policy recommendations to each  Member State, based on its assessment of 
national economic situations and programmes. All relevant polic y areas are covered: fiscal, 
macro-economic and structural reforms. The recommendations are discussed in the Council 
and endorsed by the June European Council, be fore being finally adopted by the Council. 
Member States are expected to reflect the recommendations in their budgetary and policy 
plans for the subsequent year and to implement them in the coming 12 months. 
While the European Semester has reinforced economic policy coordination at EU level, the 
limited and sometimes lack of implementation of key country-specific recommendations has 
put its effectiveness into ques tion. A streamlined and reinfor ced European Semester should 
build on the existing strengths of the process and address its weaknesses, by simplifying the 
various stages and their output s, by improving cooperation and di alogue with Member States, 
by limiting reporting requirements, by enhancing the multilateral nature of the process and by strengthening ownership at all levels. 
Simplifying Commission outputs and allo wing for more feedback on Commission 
analysis.  The practice of presenting the Annual Growth Survey and the Alert Mechanism 
Report jointly in the autumn works well, as th e two documents complement each other and set 
out the overall EU approach for the coming y ear. However, the two main country-specific 
documents produced later in the process, the staff working documents accompanying the 
country-specific recommendations and the In-depth Reviews presented as a follow-up to the Alert Mechanism Report, are currently presented at  two different points in time in the spring. 
A comprehensive single economic assessment pe r Member State which provides the basis for 
the recommendations to be addressed to the Me mber States would improve the coherence of 
the process and reduce administrative burden. An earlier publication date of these documents 
– for instance in March – would also allow fo r greater transparency and possible feedback on 
the Commission's analysis. 
Streamlining reporting requirements of Member States : The reporting requirements 
placed on the Member States should be proportionate and have a clear added value. They should follow a "tell only once" approach, wher eby available information gathered through 
documents and missions on the ground is effectiv ely shared and re-used, while the focus of 
the work at European level is put on analys ing and updating it. National Reform Programmes 
can play an important communication and owners hip role at national level if they are 
refocused, to provide a more targeted national in put into the Commission analysis at an earlier 
stage and national Parliaments and social pa rtners are involved in their formulation. 
 
19 Enhancing the multilatera l nature of the process : Ownership of the European Semester by 
Member States is overall still too weak at natio nal level, but also at European level. This 
limits the quality of the discussion and subs equent implementation of the country-specific 
recommendations. In areas where surveillance t ools are stronger, such as public finance and 
fiscal frameworks, the implementation record is significantly higher. A streamlined process 
should allow more time to exam ine and discuss EU guidance. The early presentation of the 
Commission's country-specific anal ysis would also help in this  respect. Moreover, together 
with the Council Presidency, it should be po ssible to enhance cross-examination of 
performance and policies throughout the year. Im proved comparability of policy actions and 
outcomes across Member States would also help  peer pressure and inform further such 
multilateral thematic discussions. Exchanging vi ews on the Commission's monitoring of the 
delivery of reforms is particularly important in  the context of the pr eparation of the Council 
discussion of the draft recommendations and in view of the debate at  the June European 
Council.  
Opening up the process and increasing engagement with other actors : The democratic 
legitimacy of the European Semester process has sometimes been called into question. In 
recent years, the Commission has gradually established deeper and more permanent dialogue with the Member States, through bilateral mee tings, more targeted discussion in the Council 
committees and more widespread technical missi ons. There have also been improvements in 
parliamentary involvement. As regards the Eu ropean Parliament, a close involvement has 
been made possible through the Economic Dialogue , introduced by the Si x-Pack legislation, 
that provides for discussions between the Eu ropean Parliament on the one hand, and Member 
States, the Council, the Commission, the Euro pean Council and the Eurogroup on the other 
hand. In addition, the Parliament hold important political debates at cr ucial moments of the 
European Semester. The awareness of national Parliaments about the European Semester has 
increased throughout the years, th anks to the implemen tation of the Two-Pack legislation and 
more direct involvement of the Commission thr ough presentations and debates. In spite of 
such positive developments, there is room for wi der dialogue, not only with the Parliaments, 
but also with the social partners. For exampl e, the Commission could in the future engage 
with the European Parliament and the social partners at European level before the Annual 
Growth Survey is presented and continue the debate following its adoption. Based on its 
country-specific analysis, the Commission could al so engage with the Eu ropean Parliament to 
discuss emerging horizontal aspects and, as relevant , with social partners to receive feedback 
on topical country-specific issues. 
 
20