COMMUNICATION FROM THE COMMISSION

GENERAL REPORT ON THE ACTIVITIES OF THE EUROPEAN UNION -

Chapter 1

Towards political union

In 2013, Europe started to overcome the financial and economic crisis. The European Union emerged from recession in the second quarter of the year as the reform push began to produce results. The nascent recovery is fragile and major work is still necessary to strengthen it, in particular to bring down high levels of unemployment, in particular among young people, and to restore bank lending to households and companies, but the firm support for the Union and the euro shown by political leaders and the EU institutions, including the European Central Bank (ECB), is starting to bear fruit.

The way to a deep and genuine economic and monetary union

While the immediate difficulties thrown up by the crisis have been tackled, the EU has also continued with the major project of rebuilding its economic and financial architecture. Several programmes have been set up to support Member States in financial distress, in exchange for reforms, culminating in the creation of the European Stability Mechanism, a permanent financial firewall. In order to promote economic growth and prevent crises in the future, economic and fiscal policies are being coordinated much more closely at European level. In parallel, a banking union is being built, with a common system for supervising and resolving banks in the euro area, based on rules created for all 28 Member States – and open to all of them. This is indispensable because, as the crisis has clearly demonstrated, Europe’s economies are fundamentally interdependent.

These efforts are important not just for Europe but for the world at large. The EU, with its 507 million inhabitants, accounts for 7.3 % of the world’s population but over 23 % of global gross domestic product (GDP). The EU’s combined GDP is greater than that of the United States and twice that of China.

The EU is endowed with many assets, from excellent human capital to world-class companies, top-quality research and development and higher-education institutions that attract almost half of the world’s internationally mobile students. Europe’s model of governance reconciles national sovereignty with cooperation — including within European institutions, some of them supranational — and promotes political integration. The European model is an inspiration to many neighbouring countries. This model continues to serve the continent well, as in the past, but is being refined based on the experience gained from the crisis.

The fact that the EU was awarded the Nobel Peace Prize in 2012 highlights the great example that Europe is setting in terms of reconciliation, peace and democracy. But if Europe is to maintain its leading role, there is a need to improve governance and to ensure that institutions and decision-making become more democratic and transparent. This is indispensable, as more and more decisions which directly affect the daily lives of citizens are taken at European level.

On their own, Member States, even the biggest ones, are no longer capable of facing up to, or adequately responding to, some of the challenges of a globalised economy. By pooling sovereignty Member States are stronger and they can wield more influence in the world.

Economic integration in Europe is a unique process. The creation of economic and monetary union (EMU) was, undoubtedly, one of the major milestones of European integration. The euro is one of Europe’s defining symbols at home and across the globe. However, while some of the great aspirations of the EMU have been realised, others have still to be achieved.

The fundamental response to the crisis aimed at restoring confidence in the achievements of the single market and the single currency, proving that they are irreversible. While focusing on individual economic and institutional reforms, we need to keep the bigger picture firmly in mind; we need to mobilise the political will to move forward on the road to completing the EMU, leading ultimately to a full political union.

A continuing push for integration

Two events in 2013 showed clearly that, despite the challenges posed by the crisis, the EU and the euro area are determined to continue the push for closer integration.

First, Croatia became a Member State on 1 July 2013 — a strong signal of hope and trust less than 20 years after the end of the Balkan wars.

Croatia applied for EU membership in 2003, and was in active negotiations from 2005 until 2011. In December 2011, leaders from the EU and Croatia signed the accession treaty. The European Commission’s final monitoring report on Croatia’s preparations for accession ([1]) was published in March 2013, confirming Croatia’s readiness to join the Union.

Throughout the interim period until its accession, Croatia had active observer status in the EU institutions, which allowed it to become familiar with the working methods of the institutions and to be involved in the decision-making process.

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The occasion of accession was marked in Croatia’s capital Zagreb by a ceremony attended by President Martin Schulz for the European Parliament, President Herman Van Rompuy for the European Council and President José Manuel Barroso for the European Commission, as well as Commission Vice-President Viviane Reding and Commissioner Štefan Füle, for the EU institutions, and President Ivo Josipovic and Prime Minister Zoran Milanovic, for Croatia, along with thousands of Croatian citizens.

To coincide with accession, a new representation of the European Commission and a European Parliament information office were inaugurated in the European Union House in the centre of Zagreb.

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Second, the euro area prepared to welcome its 18th member, with Latvia adopting the euro as its currency on 1 January 2014. Preparations for the adoption of the euro were finalised over the course of 2013. In March, Latvia formally asked the Commission and the ECB to deliver convergence reports to assess whether the country met the economic and legal criteria for joining the euro, as defined in the Maastricht Treaty.

In June, the Commission’s convergence report ([2]) concluded that Latvia was ready to adopt the euro. The ECB’s convergence report ([3]) concluded that, while the longer-term sustainability of its economic convergence remained a concern, all in all Latvia was within the reference values of the convergence criteria.

The Eurogroup’s recommendation of 21 June led to the European Council’s endorsement on 28 June, with the Council’s formal approval in July paving the way for Latvia to adopt the common currency from the beginning of 2014.

A debate on the future of Europe

The European Commission presented its ideas for the future of the euro area in its blueprint for a deep and genuine economic and monetary union ([4]) in 2012, in order to launch a public debate. The blueprint sets out a political vision and the concrete proposals needed in the short, medium and long term to underpin the stability of the euro and the EU as a whole.

This comprehensive approach to deepening the euro area is based on key principles, as follows.

First, moves towards further integration should be made within the institutional and legal framework of the treaties, according to the Community method. Second, full use should be made of the potential of EU-wide instruments rather than those in place for the euro area alone. Third, reforms should be enacted primarily through secondary legislation, with treaty change contemplated only if necessary.

The Commission’s vision balances increases in economic and budgetary responsibility with more solidarity and financial support. The blueprint also says that any transfer of power to the EU should be matched by more democratic legitimacy and accountability at the EU level. The blueprint has a strong social dimension and ensures that the EU progresses on all these fronts at the same time. The subtitle of the blueprint is ‘launching a European debate’, and 2013 saw the start of one. Members of the European Parliament, national parliamentarians, governments, journalists, academics and citizens came together in Brussels for a conference in May 2013 to discuss what the ideas in the blueprint mean for the citizens of Europe. The European Council also held several meetings to discuss common principles and proposals to build a genuine EMU.

A truly Europe-wide debate is necessary to prepare the ground for a deep political union, which is the end point of fiscal and economic integration. The EU’s democratic legitimacy and accountability need to keep pace with its increasing role and power. That is why, in his 2013 State of the Union address ([5]), President Barroso confirmed his intention to present further ideas on how best to consolidate and deepen the Community method before the European Parliament elections. The intention is to set out the principles and orientations that are necessary for a true political union so they can be subject to a real European debate.

Engaging citizens in the debate

And 2013 was a year in which the EU took the debate on the future of Europe to the citizens. In fact, 2013 was designated the European Year of Citizens, to mark the 20th anniversary of the establishment of European citizenship under the Maastricht Treaty. The aim was to give Europeans the opportunity to learn more about their rights and the opportunities open to them thanks to EU citizenship.

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A series of citizens’ dialogues, launched in 2012, continued throughout 2013 and will run until March 2014. There will be a total of some 50 events in all Member States, with the active involvement of the Commission president and the majority of commissioners. To show that this is about a wider debate, many dialogues were held jointly with national, regional and local politicians, as well as MEPs.

The aim is to boost the creation of a true European public space in which European issues are discussed from a European point of view.

The debates are structured around three main themes:

overcoming the economic crisis; citizens’ rights and other immediate concerns; the future of Europe.

The citizens’ dialogues in 2013 were accompanied by thousands of events linked to the European Year of Citizens (see Chapter 4 for further details).

REACHING OUT ACROSS THE EU

1. Map displaying the citizens’ dialogues held in 2013

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A new narrative for Europe

In recent years, new challenges have profoundly affected the European project, citizens’ beliefs and societal values. There is an urgent need for citizens to regain trust in Europe and to commit to and engage with the project that was started over 60 years ago by six countries in a divided and devastated continent.

The post-war leitmotif ‘peace through a common market’ needs a new ‘version 2.0’ that can stand the test of time. A new, all-encompassing narrative should recall why the European integration process was a necessary response to the Second World War and how it continues to be relevant in the present time. It should take into account the evolving reality of the European continent and highlight the idea that the EU is not solely about the economy and growth, but also about cultural unity and common values in a globalised world.

The ‘new narrative for Europe’ is a project proposed by the Parliament and implemented by the Commission following President Barroso’s call for ‘more and better Europe’, which he made in his State of the Union address in 2012. The goal of this initiative is to invite artists, writers, thinkers, scientists and men and women of culture to join the debate and come up with a vision of Europe that reconnects European citizens to the process of building the European Union in the present and in the future. In his 2013 State of the Union address, President Barroso made a rallying call to ‘all those who care about Europe, whatever their political or ideological position, wherever they come from, to speak up for Europe’.

The ‘new narrative’ project was launched by President Barroso in April 2013. To implement it, the Commission has set up a cultural steering group to collect the different contributions into a final document. In July, Warsaw hosted the first general assembly on ‘Forms of imagination and thinking for Europe’, which was followed in December by a second assembly in Milan, each time associating the respective Head of State or Government of the country where it took place. A third and final general assembly should follow at the beginning of 2014.

Preparing for the 2014 European Parliament elections

Inviting citizens to the centre of the debate also served to prepare the ground for the 2014 European Parliament elections. These elections will be special for two reasons.

Firstly, they will be the first under the provisions of the Lisbon Treaty, which enhances the role of EU citizens as political actors in the EU. It also strengthens the powers of the Parliament, consolidating its role as co-legislator and giving it additional responsibilities, including the right to elect the president of the Commission on the basis of a proposal by the European Council, taking into account the results of the European elections.

Secondly, the upcoming elections are crucial in order to determine the future course of Europe. With the profound changes set in motion during the crisis, the EU is at a crossroads. The European Parliament elections provide the platform for citizens to decide which road they want the Union to take and what kind of Europe they want for the future.

As part of the preparations for the Parliament elections and the choice of a Commission president, the Commission published a communication ([6]) and a recommendation ([7]) calling for stronger links between citizens and the EU by way of the following measures:

before and during elections, national political parties should make clear to which European political party they are affiliated; Member States should agree on a common day for the European elections; political parties should make known which candidate they support for the presidency of the Commission; political parties should inform voters during the campaign about their candidate for Commission president and his or her programme.

These proposals were endorsed by the Parliament in July 2013, with the date for the elections set for between 22 and 25 May 2014.

Chapter 2

Towards economic, fiscal and banking union

The major transformation of economic and budgetary coordination in the EU continued in 2013, demonstrating that the EU is making lasting changes and tackling the serious budgetary and structural problems that built up over the last decade or more. The third European semester — the EU’s integrated cycle for economic and budgetary coordination — allowed Member States’ economic policies to be assessed in a comprehensive and timely manner, with due attention paid to interdependencies and spillovers across countries. Furthermore, the introduction of the ‘two-pack’ legislation strengthened budgetary surveillance in the euro area.

Member States worked hard in 2013 to get public finances under control and succeeded in halving the EU’s overall budget deficit from its peak in 2009. They also engaged in structural reforms — the fundamental economic reforms to pension and tax systems, labour laws or product and service markets. These have changed the way economies function and can enhance Member States’ potential to grow and create jobs. Ireland became the first country to exit its economic adjustment programme.

In addition to reinforced capital requirements for banks, which entered into force on 1 January 2014, the EU has made significant progress towards the completion of a banking union in the euro area in order to increase financial stability and protect taxpayers’ interests. The banking union is open to all Member States, also to non-euro area countries. Only a common system will succeed in breaking the vicious cycle in which sovereigns and their banks reinforce each other’s difficulties. One central pillar of the banking union — the Single Supervisory Mechanism (SSM) — was agreed in 2013 and will become fully operational in 2014. It will be complemented by a second pillar, the Single Resolution Mechanism (SRM), on which the Parliament and the Council adopted their respective positions in December 2013 with a view to swift trilogue negotiations in 2014. These two mechanisms, underpinned by a single banking rule book common to all 28 EU Member States, will make banks more stable and avoid the prospect of taxpayers picking up the bill for failing banks in the future.

Enhancing European economic governance and reinforcing Europe’s growth agenda

The European semester

A key instrument in the European Union’s economic governance system is the European semester, which entered its third year in 2013. The semester process ensures the close coordination of Member States’ budgetary policies under the Stability and Growth Pact and economic policies in line with the Europe 2020 strategy, the EU’s long-term growth and jobs plan.

The purpose of the European semester is:

to identify the major economic and social challenges for the EU and the euro area, reflecting the growing interdependence between Member States; to assess policy progress, detect new policy challenges early on and, through country-specific recommendations (CSRs), guide Member States to implement their policies in ways that help the EU to adjust and grow sustainably, providing jobs and decent living standards for all.

THE EUROPEAN SEMESTER PROCESS

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Based on the guidance given by the Commission in its 2013 annual growth survey, the March 2013 European Council set EU-wide reform priorities for the year ahead. These priorities remain unchanged from the previous year, partly because major economic challenges require sustained policy attention, but mainly because the evidence shows that the EU’s strategy is working. The priorities are:

pursuing differentiated, growth-friendly fiscal consolidation; restoring normal lending to the economy; promoting growth and competitiveness for today and tomorrow; tackling unemployment and the social consequences of the crisis; modernising public administration.

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Country-specific recommendations

These priorities informed the Member States’ economic and fiscal plans over the course of 2013. In April, Member States submitted their medium-term budgetary plans (stability or convergence programmes) and planned economic reforms (national reform programmes) to the Commission for assessment. Based on an integrated analysis covering fiscal, macroeconomic and structural policies, the Commission proposed concrete policy advice for each country, or CSRs, at the end of May. The CSRs were discussed by the Member States, and subsequently endorsed by the June European Council and adopted by the Council of the European Union in July. Policy advice was thus given to Member States before they started to finalise their draft national budgets and reform plans for 2014. The Commission closely monitored the implementation of the CSRs during the second half of 2013. The Commission also took action to ensure that EU cohesion policy complemented fiscal consolidation and structural reforms, by supporting investment in growth and jobs and the implementation of CSRs.

COUNTRY-SPECIFIC RECOMMENDATIONS PER MEMBER STATE

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Assessment of euro area draft budget plans

In May 2013, the ‘two-pack’ budgetary legislation for the euro area entered into force. October 2013 marked the first concrete instance of the new rules in action, as euro area Member States submitted their draft national budgetary plans to the Commission for its views. The Commission’s overall assessment of these budgetary plans on 15 November was relatively positive. Most plans were found to be broadly in line with the debt and deficit commitments made by euro area countries, including those under the excessive deficit procedure (the EU’s strengthened monitoring system for countries with deficits over 3 % of GDP). However, in some countries, the Commission found there was little room for manoeuvre.

The Commission’s opinions and the draft budgetary plans themselves were carefully scrutinised and discussed by finance ministers in the Eurogroup in November. They found that compliance with the rules of the Stability and Growth Pact was at risk for a number of countries, but ministers also manifested their full commitment to addressing this risk. It was agreed that Member States should focus on the quality and composition of any further fiscal adjustments so as to ensure these are as growth friendly as possible.

The ‘two-pack’ enters into force

The two regulations constituting the ‘two-pack’ ([8]) complement the Stability and Growth Pact but apply only to euro area Member States. They entered into force on 30 May 2013 and were applied for the first time with the start of the new European semester in autumn. They address the need for reinforced budgetary coordination resulting from the close interconnectedness of the Member States of the currency union. One of the most important features of this is that the European Commission assesses national draft budgetary plans and issues recommendations where necessary. They also create a Union framework for dealing with countries with financial difficulties. The ‘two-pack’ integrates commitments made in the Treaty on Stability, Coordination and Governance in the EMU into EU law.

The main features of the ‘two-pack’ are as follows.

1. Tighter monitoring and closer coordination of budgetary policy within the euro area, including a common assessment of draft budgetary plans in autumn and continuous surveillance of excessive deficits in the euro area.

2. Increasing accountability and responsibility in national policy setting. In this regard, national independent forecasts will form the basis for national budgets, thereby increasing reliability and credibility, while national independent institutions will monitor compliance with national fiscal rules, thus strengthening ownership of European budgetary commitments.

3. Enshrining monitoring principles used in the granting of financial assistance into the Union framework. This establishes new enhanced surveillance, entailing closer monitoring than under the normal surveillance processes, and means that the obligations of countries under a macroeconomic adjustment programme are placed within the EU framework and that a regime for post-programme surveillance is introduced.

Early detection of economic risks

The macroeconomic imbalances procedure, which came into force in 2011, provides for ongoing analysis of all 28 Member States’ economic policies throughout the year, allowing for risks such as bubbles forming in housing markets or losses in competitiveness to be flagged early, before they become a problem for the wider economy and other Member States.

Monitoring takes place through a scoreboard of statistical indicators, which is published every autumn in the alert mechanism report (AMR). This is followed up with more in-depth analysis if needed.

In 2013, the Commission concluded that Member States were making progress in correcting the imbalances that built up before the crisis. A number of Member States have reduced their deficits and achieved significant improvements in cost competitiveness. However, further progress is needed to reduce excessive debt and improve the net international investment position of the most indebted economies. In the 2014 AMR ([9]), published in November 2013, the Commission recommended an in-depth review of developments in 16 Member States facing various macroeconomic challenges and potential vulnerabilities that could spill over to the rest of the euro area and the wider EU. The country-specific in-depth reviews will conclude in spring 2014, in time for the Commission to consider whether to propose any specific action in the subsequent CSRs as part of the European semester cycle.

Economic priorities beyond 2013

The annual growth survey found that the biggest challenge facing the Union and its Member States in 2014 will be to nurture and boost the recovery that got underway in 2013. The survey showed that Member States made progress on the five priorities identified in 2013 and have begun correcting the imbalances that developed before the crisis.

Signs of economic improvement should, therefore, be taken as an encouragement to pursue efforts with determination, avoiding risks of fall-back, complacency or ‘reform fatigue’. Fairness considerations and clarity about the goals to be achieved will be essential to make sure that the efforts made at national and European level bring tangible results in the medium and long term, and that they are accepted by citizens.

European Stability Mechanism

The European Stability Mechanism (ESM) saw its first full year of operation in 2013. It is a vital element for safeguarding financial stability within the euro area. Equipped with a lending capacity of €500 billion, the ESM is a key financial backstop, providing financial assistance to euro area Member States experiencing or threatened by financing difficulties. The ESM has already provided financial assistance to Spain, to help recapitalise its financial sector, and to Cyprus, to assist in implementing its macroeconomic adjustment programme. Programmes for Ireland, Greece and Portugal continued to be funded jointly by the European Financial Stabilisation Mechanism (EFSM), the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF).

The establishment of the ESM is not a stand-alone response to the sovereign debt crisis, but complements a series of reforms undertaken at national, euro area and EU levels. The efforts being made by Member States with respect to fiscal consolidation and structural reforms, along with EU and intergovernmental initiatives such as the strengthened Stability and Growth Pact, the Treaty on Stability, Coordination and Governance in the EMU (including a fiscal compact), the European semester and the banking union, are critically important for eradicating the roots of the crisis and preventing possible future crises. If, however, a euro area Member State does require financial assistance, the ESM will have the capacity and resources to act as a financial backstop and apply a lending instrument that will bridge the financing needs of that country until sovereign bond market access is re-established. To fulfil its purpose, the ESM raises funds by issuing money market instruments as well as medium- and long-term debt with maturities of up to 30 years. ESM issuance is backed by paid-in capital of €80 billion and the binding obligation of ESM Member States to provide their contribution to the ESM’s authorised capital stock.

The social dimension of economic and monetary union

The Commission communication on strengthening the social dimension of EMU ([10]) proposes to establish a new scoreboard of five key employment and social indicators to help to detect and draw attention to major employment and social challenges in the EMU that need to be addressed in the collective interest. The indicators are: unemployment; youth unemployment and inactivity rate; gross household disposable income; at-risk-of-poverty rate; and income inequalities (ratio of top 20 % and bottom 20 %). The scoreboard was included within the 2014 annual growth survey package (joint employment report) and will feed into the European semester process, potentially shaping CSRs, but without any sanctions.

OVERVIEW OF THE RESULTS OF THE LATEST FLASH EUROBAROMETER (NO 368) IN THE 17 EURO AREA COUNTRIES

57 % (+ 2 %) of EU citizens living in the euro area say that it is a good thing. In 2011 this was 56 %; this number then dropped by 1 percentage point to 55 % in 2012 and is now up to 57 %.

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Financial assistance: details of programmes for Ireland, Greece, Spain, Cyprus and Portugal

Ireland

Ireland became the first country to successfully exit its economic adjustment programme in December 2013. The programme had been formally agreed in December 2010. It included a joint financing package of €85 billion and covered the period 2010–13.

On 21 November 2010, Ireland officially requested financial assistance from the EU and the IMF. The economic adjustment programme for Ireland included contributions from the EU/EFSM (€22.5 billion); euro area Member States/EFSF (€17.7 billion); bilateral contributions from the United Kingdom (€3.8 billion), Sweden (€0.6 billion) and Denmark (€0.4 billion); and funding from the IMF (€22.5 billion). Moreover, there is an Irish contribution through the treasury cash buffer and investments of the National Pension Reserve Fund.

The programme’s objectives were:

immediate strengthening and comprehensive overhaul of the banking sector; ambitious fiscal adjustment to restore fiscal sustainability, with correction of the excessive deficit by 2015; growth-enhancing reforms, in particular on the labour market, to allow a return to a robust and sustainable growth.

(GR05)->(TABLE1) Disbursement figures for Ireland

Review || Date || EFSF || EFSM || IMF || Bilateral || Total

1st || Q1 2011 || 3.6 || 8.4 || 5.8 || 0.0 || 17.8

2nd || Q2 2011 || 0.0 || 3.0 || 1.4 || 0.0 || 4.4

3rd || Q3 2011 || 3.0 || 2.5 || 1.5 || 0.5 || 7,4

4th || Q4 2011 || 2.7 || 1.5 || 3.9 || 0.5 || 8,6

5th || Q1 2012 || 2.8 || 3.0 || 3.2 || 0.7 || 9,7

6th || Q2 2012 || 0.0 || 2.3 || 1.5 || 0.5 || 4,2

7th || Q3 2012 || 0.0 || 1.0 || 0.9 || 0.7 || 2,6

8th || Q4 2012 || 0.8 || 0.0 || 0.9 || 0.5 || 2,2

9th || Q1 2013 || 1.6 || 0.0 || 1.1 || 0.7 || 3,43

10th || Q2 2013 || 1.0 || 0.0 || 1.0 || 0.5 || 2,4

11th || Q3 2013 || 2.3 || 0.0 || 0.76 || 0.25 || 3,31

12th || Q4 2013 || 0.0 || 0.8 || 0.6 || 0.0 || 1,4

Total disbursements || 17.7 || 22.5 || 22.5 || 4.8 || 67.5

‘The successful conclusion of the Irish programme is a strong signal that our common response to the crisis is delivering results’ — Olli Rehn, Commission Vice-President responsible for Economic and Monetary Affairs and the Euro.

Ireland exits programme

Euro area finance ministers endorsed the 12th and final review of the Irish adjustment programme in December 2013. The endorsement was based on the Commission’s draft compliance report released in November 2013. The Commission supported the Irish government’s decision to exit the adjustment programme in December as planned, and without a pre-arranged precautionary credit facility. The Eurogroup commended the Irish authorities for their steadfast implementation of the programme and noted that the then imminent completion of the Irish programme was proof that the EU’s strategy for responding to the crisis was delivering results. Final disbursements to Ireland by the EFSF, the EFSM and the IMF are ongoing.

Greece

Since May 2010, the euro area Member States and the IMF have been providing financial support to Greece through a Greek Loan Facility (GLF) in the context of a sharp deterioration in Greece’s sovereign financing conditions. The aim is to support the Greek government’s efforts to restore fiscal sustainability and to implement structural reforms in order to improve the competitiveness of the economy, thereby laying the foundations for sustainable economic growth.

On 14 March 2012, euro area finance ministers approved financing for a second economic adjustment programme for Greece. The euro area Member States and the IMF committed the undisbursed amounts of the first programme (GLF) plus an additional €130 billion for the years 2012–14. Whereas the financing of the first programme was based on bilateral loans, it was agreed that — on the side of euro area Member States — the second programme would be financed by the EFSF, which had been fully operational since August 2010.

In total, the second programme provides for financial assistance of €164.5 billion by the end of 2014. Of this amount, the euro area commitment amounts to €144.7 billion, to be provided via the EFSF, while the IMF contributes €19.8 billion. This is part of a 4-year €28 billion arrangement under the Extended Fund Facility for Greece that the IMF approved in March 2012.

Additionally, when launching the second programme it was agreed that there should be private sector involvement to improve the sustainability of Greece’s debt. The high participation in Greece’s debt exchange offer in spring 2012 made a significant contribution to this aim. Out of a total of €205.6 billion in bonds eligible for the exchange offer, approximately €197 billion, or 95.7 %, were exchanged.

(GR06)->(TABLE2) Disbursement figures for Greece

Disbursement || Date || EFSF || IMF || Total

1 || March–June 2012/1 || 74 || 1.6 || 75.6

2.1 || December 2012/2 || 34.3 || — || 34.3

2.2 || January 2013/3 || 7.2 || — || 7.2

2.3 || January 2013 || 2.0 || 3.24 || 5.24

2.4 || February 2013 || 2.8 || — || 2.8

2.5 || May 2013 || 2.8 || — || 2.8

3.1 || May 2013/4 || 4.2 || 1.74 || 5.94

3.2 || June 2013 || 3.3 || — || 3.3

4.1 || July 2013/5 || 2.5 || 1.8 || 4.3

Total disbursements || 133.1 || 8.38 || 141.48

Portugal

The economic adjustment programme for Portugal was agreed in May 2011. It includes a joint financing package of €78 billion and covers the period 2011 to mid 2014.

On 7 April 2011, Portugal requested financial assistance from the EU, the euro area Member States and the IMF. The economic adjustment programme for Portugal includes a joint financing package of €78 billion (EU/EFSM €26 billion; euro area/EFSF €26 billion; IMF about €26 billion). It contains reforms to promote growth and jobs, fiscal measures to reduce the public debt and deficit and measures to ensure the stability of the country’s financial sector.

The programme’s objectives are:

structural reforms to boost potential growth, create jobs, and improve competitiveness; a fiscal consolidation strategy, supported by structural fiscal measures and better fiscal control over public–private partnerships and state-owned enterprises, aimed at putting the gross ratio of public debt to GDP on a firm downward path in the medium term and reducing the deficit below 3 % of GDP by 2014; a financial sector strategy based on recapitalisation and deleveraging, with efforts to safeguard the financial sector against disorderly deleveraging through market-based mechanisms supported by backstop facilities.

(GR07)->(TABLE3) Disbursement figures for Portugal

Review || Date || EFSF || EFSM || IMF || Total

Approval || Q2 2011 || 5.9 || 6.5 || 6.3 || 18.7

1st || Q3 2011 || 0.0 || 7.6 || 4.0 || 11.6

2nd || Q4 2011 || 3.7 || 1.5 || 2.9 || 8.1

3rd || Q1 2012 || 5.2 || 4.5 || 5.2 || 14.9

4th || Q2 2012 || 2.6 || 0.0 || 1.4 || 4.0

5th || Q3 2012 || 0.8 || 2.0 || 1.5 || 4.3

6th || Q4 2012 || 0.8 || 0.0 || 0.9 || 1.7

7th || Q1 2013 || 2.1 || 0.0 || 0.7 || 2.8

8th (*) || Q2 2013 || 1.8 || 0.0 || 1.0 || 2.8

9th (*) || Q3 2013 || 1.9 || 0.0 || 0.9 || 2.8

10th || Q4 2013 || — || — || — || 0.0

11th || Q1 2014 || — || — || — || 0.0

12th || Q2 2014 || — || — || — || 0.0

Total disbursements || 24.8 || 22.1 || 24.8 || 71.7

(*) 8th and 9th review were merged.

Cyprus

The economic adjustment programme for Cyprus was formally agreed in May 2013. It aims to address the financial, fiscal and structural challenges facing the economy in a decisive manner and should allow Cyprus to return to a sustainable growth path.

Following a request by Cyprus on 25 June 2012, the Commission, the European Central Bank (ECB) and the IMF agreed an economic adjustment programme with the Cypriot authorities on 2 April 2013 for the period 2013–16. The financial package will cover up to €10 billion, of which the ESM will provide up to €9 billion and the IMF is expected to contribute around €1 billion.

The programme’s objectives are:

to restore the soundness of the Cypriot banking sector and rebuild depositors’ and market confidence by thoroughly restructuring and downsizing financial institutions, strengthening supervision and addressing expected capital shortfalls; to continue the ongoing process of fiscal consolidation in order to correct the excessive general government deficit as soon as possible; to implement structural reforms to support competitiveness and sustainable and balanced growth, allowing for the unwinding of macroeconomic imbalances, in particular by reforming the wage indexation system and removing obstacles to the smooth functioning of services markets.

(GR08)->(TABLE4) Disbursement figures for Cyprus

Review || Date || ESM || IMF || Total

1st || Q2 2013 || 2.0 || 0.1 || 2.1

2nd || Q3 2013 || 1.0 || || 1.0

3rd || Q4 2013 || 1.5 || 0.1 || 1.6

4th (*) || Q1 2014 || 0.1 || 0.1 || 0.2

5th || Q2 2014 || — || — || 0.0

6th || Q3 2014 || — || — || 0.0

7th || Q4 2014 || — || — || 0.0

8th || Q1 2015 || — || — || 0.0

9th || Q2 2015 || — || — || 0.0

10th || Q3 2015 || — || — || 0.0

11th || Q4 2015 || — || — || 0.0

12th || Q1 2016 || — || — || 0.0

Total disbursements || 4.6 || 0.3 || 4.9

(*) 4th review not yet formally completed.

Spain

Spain requested financial assistance on 25 June 2012. The financial-sector-specific policy conditions contain measures to increase the long-term resilience of the banking sector, thus restoring its market access, and to deal effectively with the legacy stock of assets stemming from the bursting of the real-estate bubble. The agreement was endorsed at the Eurogroup meeting in Brussels on 20 July 2012.

The agreement concluded with Spain includes both bank-specific measures, in line with state aid rules, and horizontal wider macroeconomic reforms and adjustment. The financial assistance was provided for the period from July 2012 to December 2013. However, the restructuring of the banks receiving public support under the state aid rules is expected to take up to 5 years.

The bank-specific measures have three main components:

firstly, a comprehensive diagnostic as regards the capital needs of individual banks, based on a comprehensive asset quality review and valuation process, and bank-by-bank stress tests; secondly, the segregation of impaired assets from the balance sheet of banks receiving public support and their transfer to an external asset management company; thirdly, the recapitalisation and restructuring of viable banks and the orderly resolution of ultimately non-viable banks, with private-sector burden sharing as a prerequisite.

The loans have been provided to the Fondo de Reestructuración Ordenada Bancaria (FROB), the bank recapitalisation fund of the Spanish government, and then channelled to the financial institutions concerned. The funds were disbursed in two tranches amounting to €41.3 billion ahead of the planned recapitalisation dates. No further disbursements are planned.

(GR09)->(TABLE5) Disbursement figures for Spain (*)

Review || Date || ESM || Total

1st || Q4 2012 || 39.5 || 39.5

2nd || Q1 2013 || 1.9 || 1.9

3rd || Q2 2013 || 0.0 || 0.0

4th || Q3 2013 || 0.0 || 0.0

5th (**) || Q4 2013 || 0.0 || 0.0

Total disbursement || 41.3 || 41.3

(*) IMF only observer due to nature of programme, did not contribute to financing.

(**) 5th review still ongoing, no disbursement foreseen.

Strengthening economic and monetary union for the future

The Commission’s blueprint for a deep and genuine EMU, referred to in Chapter 1, sets out the steps needed to strengthen the single currency over the short, medium and long term ([11]). Some reforms are already possible under existing secondary legislation, while some will require further discussion and possible treaty change. The EU has already started delivering on many on the actions set out in the blueprint, as shown below.

In March 2013, the Commission published two communications to flesh out its ideas on the prior (ex ante) coordination of Member States’ major economic reform plans ([12]) and on a Convergence and Competitiveness Instrument (CCI) ([13]) to encourage and support priority reforms. The ‘two-pack’ legislation is in force as of May 2013 (see above). The SSM has been agreed upon and the ECB has begun its independent valuation of banks’ assets before it takes up its supervisory role in 2014. The SRM is on its way to being adopted following agreement in the Council in December 2013 on the general approach towards the SRM, including on the establishment and phasing in of a single resolution fund and the creation of a single resolution board and with the Parliament also adopting its negotiation position.. In July 2013, the Commission clarified how to treat certain public investments for accounting purposes under the Stability and Growth Pact (so-called investment clause). Following an agreement with the Parliament, the Commission set up an expert group to look into a debt redemption fund and eurobills, two ideas contained in the blueprint. In October the Commission published a communication on the social dimension of the EMU (as mentioned above) in response to a call by the December 2012 European Council.

EU leaders at the December European Council agreed on the main features of a system of mutually agreed contractual arrangements and associated solidarity mechanisms to facilitate and support Member States’ reforms in areas which are key for growth, competitiveness and jobs. Herman Van Rompuy, President of the European Council, in close cooperation with José Manuel Barroso, President of the European Commission, has been asked to carry work forward on the basis of these features and report to the October 2014 summit.

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A strong financial framework for Europe and a banking union for the euro area

The financial crisis highlighted the need for better regulation and supervision of the financial sector. This is the reason why the Commission has since 2010 proposed around 30 sets of rules to ensure that all financial actors, products and markets are appropriately regulated and efficiently supervised. These rules are common to all 28 Member States and underpin a properly functioning single market for financial services.

The euro area crisis has added an extra dimension to the EU’s work, highlighting the potentially vicious circle between banks and sovereigns. For that circle to be broken, a more robust financial sector is not enough. In particular for countries which share a currency, a deeper, more integrated approach is necessary, basically ensuring centralised delivery and enforcement in the euro area of rules common to all 28 Member States.

This is why EU Heads of State or Government committed to a banking union in June 2012. The vision was further developed in the Commission’s blueprint for deep and genuine EMU in November 2012.

Why a banking union for the euro area?

Uncoordinated national responses to the financial crisis have reinforced the link between banks and sovereigns and led to a worrying fragmentation of the single market in lending and funding. This fragmentation is particularly damaging within the euro area, where monetary policy transmission is impaired and the ring-fencing of funding impedes efficient lending to the real economy and thus growth.

Swift progress towards a banking union is indispensable in order to ensure financial stability and growth in the euro area. Building on the strong regulatory framework common to the 28 members of the single market (single rulebook), the Commission has therefore taken a holistic approach and proposed a roadmap for the banking union with different steps, potentially open to all Member States but mandatory for the 18 Member States currently within the euro area. This roadmap continues to be followed, with concrete elements coming into force from 2014 onwards.

The Single Supervisory Mechanism is now set up

Europe’s banks are in a much better place today than they were 2 years ago. They have raised substantial amounts of capital on the markets, so that levels of capital for big European banks are now equivalent to those for American banks. However, more needs to be done to create a thriving, yet more responsible banking sector, particularly in the euro area.

On 4 November 2013, slightly over a year after the Commission had proposed to set up a Single Supervisory Mechanism (SSM) for banks in the euro area, the SSM regulation ([14]) entered into force. This mechanism will be fully operational in 2014.

In the meantime, the ECB is preparing to take up its new role as supervisor. It is currently carrying out a comprehensive assessment of all banks that will be under its direct supervision, including a risk assessment, an asset quality review and a stress test. In parallel, it will have to recruit high quality supervisory staff and build up a new supervisory structure that integrates national supervisors before it commences its activities.

The main features of the SSM are as follows.

It confers new supervision powers on the ECB over the euro area banks: the licensing of all banks in Europe and the coherent and consistent application of the single rulebook in the euro area; the direct supervision of systemically relevant banks, including all banks having assets of more than €30 billion or constituting at least 20 % of their home country’s GDP (around 130 banks); and the monitoring of the supervision conducted by national supervisors for smaller banks. Although large banks of systemic importance are at the heart of the European supervisory framework, recent experience shows that relatively smaller banks can also pose a threat to financial stability. It is therefore essential that the supervisory tasks conferred on the ECB can be exercised over all those banks. The ECB shall ensure the coherent and consistent application of the single rulebook in the euro area. The SSM is open to all non-euro area Member States. For cross-border banks active both within and outside Member States participating in the SSM, existing home/host supervisor coordination procedures will continue to exist as they do today. The governance structure of the ECB will consist of a separate supervisory board supported by a steering committee, the ECB Governing Council, with the right to object to supervisory decisions from the board, and a mediation panel. Danièle Nouy has been appointed as first chair of the SSM board. Clear separation between the ECB’s monetary tasks and supervisory tasks is fully ensured.

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Single Resolution Mechanism

In July 2013, the Commission proposed a Single Resolution Mechanism (SRM) for banks to complement the SSM. It will apply the substantive rules of the draft bank recovery and resolution directive ([15]) in a coherent and centralised way ensuring consistent decisions for the resolution of banks, and common resolution financing arrangements.

The SRM would ensure that — notwithstanding stronger supervision — if a bank subject to the SSM faces serious difficulties, its resolution can be managed efficiently. In case of cross-border failures, it would be more effective than a network of national resolution authorities and avoid risks of contagion.

The SRM would take over if the ECB, as the banking supervisor, were to flag a bank which needed to be resolved in the euro area or in a Member State participating in the banking union. Member States reached a political agreement on 19 December, and the SRM should be finally agreed by the co-legislators before the end of the mandate of the current Parliament in spring 2014.

Common recovery and resolution tools

In December 2013, a political agreement between the Parliament and the Council was reached on the bank recovery and resolution directive. This is a fundamental step towards the completion of the banking union. The new rules provide authorities with the means to intervene decisively, either before problems occur or early on in the process if they do. If, despite these preventive measures, the financial situation of a bank deteriorates beyond repair, the new framework ensures that the shareholders and creditors of the bank have to pay their share. If additional resources are needed, these will be taken from the national, prefunded resolution funds, which will be financed by the banking industry and which each Member State will have to establish and build up so they reach a level of 1 % of covered deposits within 10 years. All banks will have to pay in to these funds but contributions will be higher for banks which take more risks.

Strengthening deposit guarantee schemes

A second strand of a more robust financial sector is ensuring bank deposits in all Member States are guaranteed up to €100 000 per depositor per bank if a bank fails. From a financial stability perspective, this guarantee prevents depositors from making major withdrawals from their banks that can precipitate a bank run, thereby preventing severe economic consequences.

The Commission proposed to strengthen existing rules in this area in 2010 ([16]). While the €100 000 guarantee remains appropriate, the reform would ensure faster payouts (a reduction in the payout delay from the current 20 working days to 7 calendar days) and strengthened financing, notably through ex ante funding of deposit guarantee schemes (with a target level of at least 1.5 % of eligible deposits to be reached over 10 years). A political agreement was reached in December 2013 between the Parliament and EU Member States on the new rules on deposit guarantee schemes. A final agreement is expected in 2014.

Stronger prudential requirements

The package on capital requirements and liquidity management rules for banks, the so-called ‘CRD IV’ which transfers, via a regulation ([17]) and a directive ([18]), the new global standards on bank capital (commonly known as the Basel III agreement) into the EU legal framework, was published in the Official Journal of the European Union on 27 June, 2013.

The new rules, which apply from 1 January 2014, tackle some of the vulnerabilities faced by the financial institutions during the crisis, namely insufficient levels of capital, both in terms of quantity and in quality, which resulted in the need for unprecedented support from national authorities. The timely implementation of the Basel III agreement is one of the commitments made by the EU in the G20.

CRD IV sets stronger prudential requirements for banks, requiring them to keep sufficient capital reserves and liquidity. This new framework will make EU banks more solid and will strengthen their capacity to adequately manage the risks linked to their activities, and absorb any losses they may incur in doing business.

Furthermore, these new rules will strengthen the requirements with regard to the corporate governance arrangements and processes of banks. For example, a number of requirements are introduced in relation to diversity within management, in particular as regards gender balance. In addition, in order to tackle excessive risk-taking, the framework imposes tough rules on variable remuneration.

Legislation for credit rating agencies now in force

Credit rating agencies (CRAs) are major players in today’s financial markets. Ratings have a direct impact on the actions of investors, borrowers, issuers and governments. For example, a corporate downgrade can have consequences on the capital a bank must hold and a downgrade of sovereign debt can make a country’s borrowing more expensive. Despite the adoption of European legislation on credit rating agencies in 2009 and 2010, the developments in the context of the euro debt crisis have shown the need for the regulatory framework to be strengthened. As a result, in November 2011 the Commission put forward proposals to reinforce the regulatory framework and deal with outstanding weaknesses. The new rules entered into force in June 2013.

Restoring benchmark confidence

The manipulation of the London interbank offered rate (LIBOR) and the Euro interbank offered rate (Euribor) resulted in multimillion euro fines on several banks in Europe and the US. Allegations of manipulation of commodity (e.g. oil, gas and biofuel) and exchange-rate benchmarks are also under investigation. The prices of financial instruments worth trillions of euros depend on benchmarks, and millions of residential mortgages are also linked to them. As a result, benchmark manipulation can cause significant losses to consumers and investors, distort the real economy and undermine market confidence.

That is why, in September 2013, the Commission proposed draft legislation to help restore confidence in the integrity of benchmarks. A benchmark is an index (statistical measure), calculated from a representative set of underlying data, that is used as a reference price for a financial instrument or financial contract, or to measure the performance of an investment fund. The new rules will enhance the robustness and reliability of benchmarks, facilitate the prevention and detection of their manipulation and clarify responsibility for and the supervision of benchmarks by the authorities. They complement the Commission’s proposals, agreed by the Parliament and the Council in June 2013, to make the manipulation of benchmarks a market abuse offence subject to strict administrative fines.

All the aforementioned proposals aim at adapting EU rules to the new market reality, notably by extending their scope to include all financial instruments which are traded on organised platforms and over the counter (OTC) and adapting rules to new technology. Since the sanctions currently available to supervisors often lack a deterrent effect, sanctions will be tougher and more harmonised. Possible criminal sanctions were the subject of a separate but complementary proposal on which negotiations between the Parliament and the Council concluded at the end of 2013. This political agreement is due to be confirmed by the Parliament in plenary in 2014.

State aid

The restoration of a healthier financial sector capable of financing the real economy is indispensable for Europe’s recovery. In 2013, the Commission continued to use state aid control to help rebuild a sound financial sector. Even when banks have relied heavily on state aid, they can be allowed to remain in business when there is a realistic prospect that they can return to viability and function without public support in the future. This means these banks have to reduce their size considerably and change their business model substantially to become viable again. The Commission continued in 2013 to ensure that bank support through taxpayers’ money is kept to a minimum, that the banks’ owners bear a sufficient part of the burden of the restructuring and that distortions of competition created through state aid are minimised.

The special EU state aid crisis rules, in force since 2008, were materially revamped in August 2013 and have been applied since then. The new rules introduce three main changes: firstly, before resorting to taxpayers’ money, banks should tap internal resources and ask for contributions from shareholders, holders of hybrid securities (which combine characteristics of equity and debt) and junior debt holders; secondly, bank recapitalisations or asset relief measures will in general only be allowed after Commission approval of the bank’s restructuring plan; thirdly, a cap on executive pay for all banks in receipt of aid aims to set the right incentives for management to implement the restructuring in good time and avoid the need for state support, as well as to implement agreed restructuring plans.

In 2013, the Commission adopted 50 decisions. For example, the Commission approved the restructuring plans of Caixa Geral de Depósitos, BPI and Millenium BCP (all Portugal) ([19]); the liquidation plans of Hypo Alpe Adria Group (Austria) ([20]) and ATE (Greece) ([21]); the restructuring plans of several Slovenian banks ([22]); and the new Portuguese scheme ([23]) providing state guarantees for banks that guarantee EIB loans granted to companies in Portugal.

Shadow banking

Shadow banking is the system of credit intermediation that involves entities and activities that are outside the regular banking system. Shadow banks are not regulated like banks, yet engage in bank-like activities. The Financial Stability Board (FSB) has roughly estimated the size of the global shadow banking system at over €50 trillion. This represents 25–30 % of the total financial system and half the size of total bank assets. Shadow banking is therefore of systemic importance for Europe’s financial system.

Since the beginning of the financial crisis, the Commission has been undertaking a comprehensive reform of the financial services sector in Europe. However, risks must not be allowed to accumulate in the shadow banking sector, particularly if new banking rules push certain activities into the less strictly regulated shadow banking sector.

As one key group of actors in the shadow banking system, money market funds are an important source of short-term funding for financial institutions, businesses and governments. In Europe, around 22 % of short-term debt securities issued by governments or by the corporate sector are held by money market funds. They hold 38 % of short-term debt issued by the banking sector. Because of this systemic interconnectedness of money market funds with the banking sector and with corporate and government finance, they have been at the core of international work on shadow banking.

As a follow-up to its 2012 Green Paper on shadow banking ([24]), in September 2013 the Commission adopted a communication on shadow banking ([25]) and proposed new rules for money market funds aimed at ensuring that they can better withstand pressure in stressed market conditions by enhancing their liquidity profile and stability.

Consumer protection in financial services

Mortgage credit directive

A proposal ([26]) for a directive aiming to create a responsible, efficient, healthy and competitive pan-European market for mortgage credit that works to the benefit of consumers was adopted by the Parliament and the Council in December 2013. The Commission had tabled it as a proposal in 2011.

The financial crisis has shown the damage that irresponsible lending and borrowing practices can do to consumers and lenders, as well as to the financial system and the economy at large. This is particularly important in today’s integrated EU marketplace. The now-adopted mortgage credit directive is aimed at ensuring that such practices are not repeated in the future and helping consumers to regain confidence in the financial system.

Upon its entry into force, borrowers will enjoy a higher level of protection through robust rules concerning advertising, pre-contractual information, advice, creditworthiness assessment and early repayment. The requirement for banks to provide personalised information to the consumer through a European standardised information sheet will allow consumers to compare mortgage conditions from different providers.

Bank accounts initiative

In today’s world, European citizens cannot fully participate in society without a basic bank account. Bank accounts have become an essential part of everyday life, facilitating among other things the payment of utility bills and online shopping.

Whilst single market legislation has ensured that banks can operate throughout the European Union and offer their services across borders, this mobility is not mirrored for citizens who are often unable to open an account in another Member State or to switch easily from one bank to another. Furthermore, consumers often pay over the odds for the services they receive from their bank and are charged banking fees that are not fully transparent.

It is in this context that the Commission published in May 2013 its proposal for a directive on the transparency and comparability of payment account fees, payment account switching and access to a basic payment account ([27]) in May 2013.

The Commission proposals tackle three areas:

comparability of payment account fees, by making it easier for consumers to compare the fees charged for payment accounts by banks and other payment service providers in the EU; payment account switching, by establishing a simple and quick procedure for consumers who wish to change from their payment account to one with another bank or payment service provider; access to payment accounts, by allowing EU consumers who want to open a payment account, without being residents of the country where the payment service provider is located, to do so.

Moreover, these provisions will allow all EU consumers, irrespective of their financial situation, to open a payment account that allows them to perform essential operations, such as receiving their salary, pensions and allowances, or payment of utility bills, etc.

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Long-term investment funds

Honouring its commitments announced in the Single Market Act II communication ([28]) in October 2012 and in the Green Paper on long-term financing of the European economy ([29]), the Commission proposed a new investment fund framework in June 2013 ([30]) designed for investors who want to put money into companies and projects for the long term ([31]). These private European long-term investment funds (ELTIFs) would only invest in businesses that need money to be committed to them for long periods of time.

The new funds would be available to all types of investor across Europe, subject to certain requirements set out in EU law. These requirements include the types of long-term assets and firms that the ELTIFs are allowed to invest in, for example infrastructure, transport and sustainable energy projects; how they have to spread their money to reduce risks; and the information they have to give to investors.

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Proposal to protect the euro and other currencies against counterfeiting

In February 2013, the Commission proposed to strengthen the protection of the euro and other currencies against counterfeiting through criminal law measures ([32]). These proposals include strengthening cross-border investigations and introducing minimum penalties, including imprisonment, for the most serious counterfeiting offences. The proposal will also enable the analysis of seized counterfeits during judicial proceedings in order to detect further counterfeit euros in circulation. The European Parliament's Committee on Civil Liberties, Justice and Home Affairs (LIBE) backed the proposal in December, paving the way for negotiations with the Council of Ministers which had reached agreement on the rules in October.

Financing the future: securing sustainable public revenue through improved tax policy coordination

Financial transaction tax under enhanced cooperation

Following the request of 11 Member States ([33]) to establish enhanced cooperation between them in order to apply a financial transaction tax (FTT), the Commission in February 2013 adopted a proposal for a Council directive implementing enhanced cooperation for an FTT ([34]).

When applied by the 11 Member States, it is estimated that this FTT will deliver revenues of €30–35 billion a year. The FTT would have low rates, a wide base and safety nets against the relocation of the financial sector.

There are three core objectives for the FTT: firstly, it would strengthen the single market by reducing the number of divergent national approaches to financial transaction taxation; secondly, it would ensure that the financial sector makes a fair and substantial contribution to public revenues; thirdly, it would support regulatory measures in encouraging the financial sector to engage in more responsible activities, geared towards the real economy.

Fairer taxation

The fight against tax fraud was very high on the Union’s political agenda in 2013. Developments fuelled by the outcome of the ‘offshore leaks’ affair confirmed the urgency for more and better action against tax evasion. The May 2013 European Council committed to accelerating work in the fight against tax fraud, tax evasion and aggressive tax planning.

Priority was given to promoting and broadening the scope of the automatic exchange of information at all levels. Within the EU, the Commission proposed in June to extend the automatic exchange of information between EU tax administrations. Under the proposal, dividends, capital gains, all other forms of financial income and account balances would be added to the list of categories which are subject to automatic information exchange within the EU. Following the December European Council, unanimous agreement on this proposal should be reached in early 2014. This paves the way for the EU to have the most comprehensive system of automatic information exchange in the world.

The issue of base erosion and profit shifting (BEPS), mechanisms under which companies shift their profits to low-tax jurisdictions, also received a lot of attention from EU and G20 ministers of finance in 2013. Work was carried out at EU level on the Commission’s recommendations on aggressive tax planning. A new platform, with members of EU tax authorities, businesses and civil society, was set up to monitor progress in this area. In September, the G20 ministers of finance fully supported the OECD action plan on BEPS ([35]). According to the G20 ministers of finance, ‘Profits should be taxed where economic activities deriving the profits are performed and where value is created. In order to minimise BEPS, we call on member countries to examine how our own domestic laws contribute to BEPS and to ensure that international and our own tax rules do not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions.’

Other initiatives were taken in 2013 for fairer taxation: the Council agreed in July on a quick-reaction mechanism to fight VAT fraud ([36]); following the mandate received by the Council in May, the Commission started talks on stronger savings tax agreements with our closest neighbours (Andorra, Monaco, Liechtenstein, San Marino and Switzerland); the debate on taxing the digital economy was launched at the European Council of October; and in November the Commission proposed amendments to the parent–subsidiary directive to safeguard against abusive tax planning ([37]).

Chapter 3

Towards economic recovery, growth and jobs

Europe’s economy emerged from recession in 2013, paving the way for a more robust recovery in 2014. Still, many Member States continued to grapple with severe unemployment, especially among young people.

To boost the economy and job creation beyond the immediate efforts to deal with the effects of the crisis, the EU redoubled its efforts in implementing Europe 2020, a comprehensive growth and jobs strategy. In a context where the economic and financial crisis has revealed and exacerbated some entrenched growth bottlenecks, Europe 2020 has identified three key levers on which to act at EU and national level, namely smart, sustainable and inclusive growth.

The strategy is supported by five headline targets for the EU and Member States to meet by 2020 in five areas: employment, research and development, climate change/energy, education and social inclusion, and a range of flagship initiatives. The ambition is to build solid conditions and foundations for growth.

At EU level, the stronger budgetary and economic rules that apply during the European semester will help to deliver the Europe 2020 targets. The EU’s next 7-year budget, the multiannual financial framework (MFF) 2014–20, will also be closely aligned with the goals of the strategy to support Member States as they strive to meet their targets.

At national level, wide-ranging economic reforms are being carried out in all five target areas. The reforms are monitored throughout the year by the European Commission, with country-specific recommendations made in spring each year to highlight the most pressing reforms.

While the Europe 2020 strategy draws on the strengthened economic governance and the reinforced coordination of economic policies described in Chapter 2, this chapter gives an overview of the actions taken to secure future growth in various policy areas and sectors from industry to fisheries. It also shows how we have been strengthening and deepening two major sources of growth — the single market and trade — and how the EU is using its financial resources to boost the economy over the coming years.

EU policies for growth – Europe 2020

EUROPEAN GROWTH MAP 2014

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Education and training

One of the goals of the Europe 2020 strategy is for 75 % of those aged 20–64 to be employed by the end of the decade. However, the crisis has resulted in high unemployment across Europe, with youth unemployment reaching 24 % across Europe and more than half of young people being unemployed in countries such as Greece and Spain. At the same time, there are some 2 million unfilled vacancies in Europe and it is clear that there is a skills mismatch. The Commission is addressing this in several ways, following on from the rethinking education initiative and the measures announced at the end of 2012 to fight youth unemployment (including the youth guarantee scheme) ([38]).

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The existing lifelong learning programme provides support for learning mobility through the Erasmus (higher education), Leonardo da Vinci (vocational education), Comenius (schools) and Grundtvig (adult education) schemes. Erasmus and Leonardo da Vinci together support around 140 000 job placements a year with companies and other organisations ([39]). Four million people, mostly young people, are due to receive grants under the new Erasmus+ ([40]) programme to study, train or volunteer abroad in 2014–20, compared with 2.5 million beneficiaries under existing EU mobility programmes. This international experience boosts skills and employability.

The Commission also launched the European Alliance for Apprenticeships ([41]) in July, to help fight youth unemployment by improving the quality, supply and image of apprenticeships. It will promote partnerships between countries and stakeholders so they can identify the most successful apprenticeship schemes in the EU and apply bespoke solutions.

The EU High-Level Group on the Modernisation of Higher Education published a report ([42]) outlining a broad range of practical and affordable recommendations for how teaching can be improved in higher education, including a proposal to establish a European academy of teaching and learning, which would act as a platform for the exchange of best practices for Member States and higher education institutions.

Making full use of the opportunities offered by information and communication technologies and by open educational resources is also essential for efficient educational systems. In September, the Commission published a communication on opening up education ([43]), thus paving the way for more innovative teaching and learning through the use of technologies and access to digital content to help deliver high-quality education and the digital skills which 90 % of jobs will require by 2020. In particular, massive open online courses (MOOCs) are a striking development in this context. The Commission helped to launch the first pan-European MOOCs, making 40 university courses available for free and enabling people to access quality education from their homes.

This initiative also ties in with the Grand Coalition for Digital Jobs ([44]), a multi-stakeholder platform tackling the lack of information and communication technology (ICT) skills and up to 900 000 unfilled ICT-related vacancies (see the ‘Employment and social inclusion’ section).

Employment and social inclusion

Youth employment

The Commission, together with the European Parliament, the Council of the European Union and stakeholders, has been working to tackle all aspects of youth employment and to build upon the youth employment package it proposed in December 2012.

Youth guarantee

The Commission has urged every Member State to put in place a youth guarantee ([45]). This seeks to ensure that all young people up to age 25 receive a quality offer of a job, continued education, an apprenticeship or a traineeship within 4 months of leaving formal education or becoming unemployed. For many Member States this will require structural reforms, including the development of vocational education and training systems. The youth guarantee should be rolled out in Member States from 1 January 2014.

Member States will receive help for funding this from the European Social Fund (ESF) — which is currently worth €10 billion every year. The ESF has provided targeted support for youth employment since long before the crisis, and has been essential in helping to tackle the current rise in youth unemployment, with 68 % of its budget going towards projects that can also benefit young people. The future ESF regulation ([46]) includes a dedicated ESF investment priority targeting the sustainable labour-market integration of young people not in employment, education or training (NEETs). Member States facing high youth unemployment rates are expected to identify NEETs as a specific target group for ESF funding and provide them with ways into the labour market. To make the youth guarantee a reality, Member States also need to prioritise youth employment measures in their national budgets.

BREAKDOWN OF YOUTH UNEMPLOYMENT RATE PER MEMBER STATE

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Youth employment initiative

To focus financial support still further on the regions and individuals struggling most with youth unemployment and inactivity, the European Council agreed in February 2013 to create a dedicated youth employment initiative (YEI) ([47]), to be supported by €3 billion from the ESF and €3 billion from the EU budget. The Commission has pressed for the €6 billion to be committed in 2014 and 2015 rather than over the 7-year period of the MFF. This will target individual NEETs and regions experiencing a youth unemployment rate above 25 %. The YEI supports the implementation of the youth guarantee. Member States that will benefit from the YEI were asked to put forward their plans for the implementing youth guarantees by the end of December 2013. All other Member States should submit their plans by spring 2014.

European Alliance for Apprenticeships

Aside from the youth guarantee, the Commission is developing a number of EU-level tools to help Member States tackle youth unemployment. As apprenticeships and work-based learning make it easier for young people to transition from education and training into work, the Council, the Commission and the European social partners launched the European Alliance for Apprenticeships ([48]) in July. The aim is to improve the quality and supply of apprenticeships across the EU and change mindsets towards apprenticeship-type learning.

The alliance is a platform that brings together public authorities, businesses, social partners, vocational education and training providers, youth representatives and other key actors, such as chambers of commerce, in order to coordinate and scale up different initiatives for successful apprenticeship-type schemes, as well as to promote national partnerships for dual-vocational training systems. The strands of action are: targeted knowledge transfer and support for reform of apprenticeship systems; promoting the benefits of apprenticeships; and making smart use of EU funding and resources.

Quality framework for traineeships

A current major concern is that some traineeships have a low learning component or misuse young people as a cheap labour force. In December, the Commission proposed guidelines to enable trainees to acquire high-quality work experience under safe and fair conditions and to increase their chances of finding a good quality job. The proposal for a Council recommendation on a quality framework for traineeships ([49]) calls on Member States to ensure that national law or practice respects the principles set out in the guidelines and to adapt their legislation where necessary. The guidelines require traineeships to be based on a written agreement covering learning content and working conditions, including whether trainees are paid or otherwise compensated and whether they qualify for social security.

Action teams

Further progress was made in 2013 by the Commission’s youth employment action teams. These teams, composed of national and Commission officials, were set up in February 2012 for the eight Member States with the highest levels of youth unemployment, Ireland, Greece, Spain, Italy, Latvia, Lithuania, Portugal and Slovakia. The action teams were tasked with mobilising EU Structural Funds (including from the ESF) that were still available for the 2007–13 programming period to support job opportunities for young people and to facilitate the access of small and medium-sized enterprises (SMEs) to finance. Work continued over summer 2013 to implement decisions and to readjust programmes where needed, for example in Spain and Lithuania.

As a result of the work done by the action teams, by the beginning of 2013 around €16 billion of EU funding (from the ESF and the European Regional Development Fund (ERDF)) had been targeted for accelerated delivery or reallocation. By November 2013, the ESF alone had reallocated €4.2 billion to specific actions expected to benefit more than 1 million young people.

EURES and ‘Your first EURES job’

With a view to boosting mobility and providing access to job opportunities, the Commission has launched a reform of the European Network of Public Employment Services (EURES) with the aim of establishing a true pan-European job placement and recruitment network. A EURES decision ([50]) was adopted in November 2012 to maximise the operational functioning of EURES. EURES aims in particular at facilitating transparency in vacancy handling, improving the interoperability of labour markets and skills-based matching processes, boosting services and enhancing cooperation between public and private service providers to increase the EURES outreach. The goal of the ‘Your first EURES job’ scheme is to assist young people to find their first job in any of the 28 Member States and to assist companies to recruit young people from another EU country. ‘Your first EURES job’ is a small-scale initiative with a budget of €12 million over 3 years. It aims at testing the effectiveness of tailor-made services for young mobile jobseekers aged 18–30, combined with some financial support.

Programme for employment and social innovation

In December, the Council of Ministers adopted the new EU programme for employment and social innovation (EaSI), which will make €920 million available for the 2014–20 period. It will support innovative social policies and promote labour mobility (for example by strengthening ‘Your first EURES job’), as well as facilitating access to microcredits and encouraging social entrepreneurship. EaSI integrates and extends the coverage of three existing financial instruments: the programme for employment and social solidarity (Progress), EURES and the European Progress Microfinance Facility.

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Posted workers

On 9 December, the Council agreed a general approach on the Commission’s March 2012 proposal ([51]) to improve enforcement of the safeguards for posted workers laid down in the 1996 posted workers directive ([52]), paving the way for a likely agreement by the Parliament and the Council before the European Parliament elections. The proposal would:

set more ambitious standards to raise the awareness of workers and companies about their rights and obligations; establish rules to improve cooperation between national authorities in charge of posting; clarify the definition of posting; define Member States’ responsibilities to verify compliance with the rules laid down in the 1996 directive; require posting companies to designate a contact person for liaison with the enforcement authorities and to keep basic documents available for the record; improve the enforcement of rights and the handling of complaints; ensure that administrative penalties and fines imposed on service providers by one Member State’s enforcement authorities for failure to respect the requirements of the 1996 directive can be enforced and recovered in another Member State.

Quality framework for restructuring

Best practices for anticipating company restructuring and minimising its impact on workers and social conditions were outlined by the Commission in December in the form of an EU quality framework for anticipation of change and restructuring (QFR). The quality framework offers guidance to companies, workers, trade unions, employers’ organisations and public administrations in order to facilitate the process of restructuring for businesses and workers via better anticipation and investment in human capital, while minimising the social impact. The Commission urges Member States to support and promote the implementation of the quality framework and to consider applying it to public sector employees. It also calls on all stakeholders to cooperate on the basis of these guidelines.

Public employment services

Effective public employment services are essential for the practical implementation of employment policies at national level. For example, public employment services are well placed to advise individual jobseekers on training, apprenticeships, traineeships and further education opportunities adapted to their situation and to employers’ requirements.

With a view to improving their efficacy, the Commission came forward with proposals ([53]) to create a network of public employment services that could:

compare the performance public employment services against relevant benchmarks; identify best practices; foster mutual learning.

The network would also provide support for the practical implementation by Member States of employment policies, such as the youth guarantee.

European Social Fund 2014–20

The regulation on the European social fund for the period 2014–20 ([54]), with its 19 investment priorities across four thematic objectives, provides a catalogue of concrete policy intervention areas, much more explicit than in the previous round (2007–13). The focus is on active labour market and inclusion measures, as well as on education and public administration reform. In addition, each Member State must ensure that at least 20 % of the ESF’s resources will be dedicated to social inclusion.

The ESF is fully aligned to support the Europe 2020 strategy and the implementation of the country-specific recommendations, and to contribute to the achievement of the headline targets on employment, education and poverty reduction. For this reason, the ESF in the next programming period will amount at least to 23 % of cohesion policy funding.

Thematic concentration should guarantee that the focus of the funding is placed on a few key policy priorities. In addition, a major effort has been made towards simplification of procedures and better spending to achieve more results.

Migration as a tool for growth

EU migration legislation, such as the blue card directive ([55]), which facilitates the entry and residence of non-EU nationals taking up highly qualified employment, contributes towards attracting certain categories of migrants. Co-legislators agreed on a compromise text on the seasonal workers’ directive ([56]), to be adopted in early 2014. Negotiations on the intra-corporate transferees’ directive ([57]) made progress, but further efforts are needed by the Parliament and the Council to agree. The Commission also hopes for swift progress on its proposal setting out rules for non-EU nationals coming to the EU for studies, scientific research and other exchanges ([58]). Above all, Member States must ensure that effective measures are in place to promote integration ([59]). Migrants should be able to develop their full potential in an environment where their fundamental rights are fully respected and where they can participate actively in society.

The correct implementation by Member States of the single permit directive ([60]), which gives certain equal rights to non-EU workers, will also be important.

Social investment package

The social investment package (SIP) was adopted by the Commission in February 2013. It sets out an integrated framework for social policy reforms that Member States need to undertake to modernise their welfare systems. The SIP provides policy guidance on how to ensure adequate standards of living, supported by adequate benefits and quality services, and on how to make social spending more effective and efficient. The SIP also stresses the importance of activating and enabling policies to improve social inclusion and access to the labour market. Preparing people to confront risks throughout their lives, rather than simply repairing the negative consequences, is the key to the social investment approach. The package provides policy guidance in a number of areas where targeted investment, notably from the ESF, can make a real difference.

Research, development, innovation

Innovation union

A report on the state of the innovation union 2012 ([61]) provided an update on progress on the 34 commitments made under the innovation union flagship, showing that more than 80 % of commitments were on track.

The innovation union is one of the seven flagship initiatives of the Europe 2020 strategy for smart, sustainable and inclusive growth, which contains 34 actions that aim at three goals:

making Europe a world-class performer in science; removing obstacles to innovation such as expensive patenting, market fragmentation, slow standard-setting and skills shortages, which currently prevent ideas getting quickly to market; and revolutionising the way the public and private sectors work together.

Following a request from the European Council, the Commission in September presented a new indicator of innovation output to benchmark national innovation policies and monitor the EU’s performance against its main trading partners. It measures the extent to which ideas stemming from innovative sectors are capable of reaching the market, providing better jobs and making Europe more competitive.

The 2013 innovation union scoreboard, published in March ([62]), showed that innovation performance in the EU has improved year on year, in spite of the economic crisis, but the innovation divide between Member States is widening. The ‘Innovation union competitiveness report 2013’ ([63]) was released in December and showed that Europe remains a main knowledge production centre of the world, but lags behind North America and Asia in fast-growing technologies of the future.

Support for research and innovation from EU cohesion policy

Research and innovation continued to benefit from investments under the EU’s Structural Funds in 2013 (approximately 25 % of available funding is currently invested in this area). The reform of cohesion policy agreed in December will require for the first time that all EU regions devote a minimum percentage of the funds available during 2014–20 to research and innovation, as well as developing ‘smart specialisation strategies’ for each region.

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Seventh framework programme

The seventh framework programme for research, technological development and demonstration activities (FP7), which was launched in 2007, concluded in December. Over its 7 years, it helped fund more than 22 000 research projects for an EU budget contribution exceeding €40 billion, including around 4 000 beneficiaries of European Research Council grants. The ‘Sixth FP7 monitoring report’ ([64]), published in August, showed that roughly 17 % of all participants were SMEs.

Horizon 2020

The legislation for Horizon 2020[65], the European Union’s programme for research and innovation for the period 2014–20, was adopted in December. With a budget of nearly €80 billion, some 30 % more in real terms than the previous framework programme (FP7), and with simpler rules for participation, Horizon 2020 is the biggest EU research programme yet, and one of the biggest publicly funded research programmes worldwide.

Horizon 2020 will help secure the future knowledge base of the European economy and make a long-term contribution to growth and jobs. Built on three pillars — excellent science, industrial leadership and societal challenges — it will fund all types of activities, from frontier science to close-to-market innovation.

The programme for the first time brings all EU-level funding for research and innovation under one roof with a single set of rules, and will radically slash red tape. The overarching goal of a more coherent, simpler programme should make it easier to participate, especially for smaller research organisations and small businesses.

Future emerging technology flagships

The future emerging technology (FET) flagships have been conceived to have a transformational impact on science, technology and society overall. They are highly ambitious and rely on cooperation between a range of disciplines, communities and programmes, requiring sustained support of up to 10 years. After very selective preparation, two initiatives — ‘Human Brain Project’ and ‘Graphene’ — were selected in 2013 within FP7 ([66]). Both initiatives have huge potential to create a revolution in the next generation of products and materials in many fields, providing a competitive advantage in a wide range of sectors including health and ageing, medicine, chemicals, electronics and ICT.

Destination Europe

With a view to attracting highly skilled researchers to Europe, the EU organised three ‘Destination Europe’ events in the United States in 2013. These events showcased the excellence of European research and innovation and raised awareness of the career and funding opportunities available through EU initiatives such as the European Research Council and the Marie Skłodowska-Curie actions, as well as Member States’ programmes.

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Innovation investment package

In July, the Commission adopted the innovation investment package, proposing to establish formal partnerships in research and innovation with industry and Member States in key strategic sectors, such as bioeconomy, aeronautics and electronics. Together, the six public–private partnerships and four public–public partnerships would have a proposed budget of some €22 billion, of which around €8 billion from Horizon 2020 would secure €10 billion from industry and €4 billion from Member States. The initiatives will boost the competitiveness of EU industry in sectors that provide high-quality jobs and will also find solutions to major challenges for society.

The digital agenda

The ‘connected continent’ legislative package: creation of a single telecommunications market in the EU

As the world moves rapidly towards an Internet-based economy — directly affecting everything from traditional services such as banking and insurance to new sectors such as online retail, and from industrial production to energy supply — ICT is increasingly seen as a source of the smart, sustainable and inclusive growth envisaged in Europe 2020 ([67]).

However, the EU lacks a genuine single market for electronic communications. The EU is fragmented into distinct national markets and as a result is losing out on a major source of potential growth, according to the Commission’s annual digital agenda scoreboard ([68]).

The Commission has adopted a legislative package for a connected continent ([69]), aimed at building a connected, competitive continent and enabling sustainable digital jobs and industries in response to a European Council request to create a single telecommunications market, in order to address the problems confirmed in the scoreboard.

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Less digging equals cheaper broadband

The Commission proposed new rules ([70]) to cut the cost of rolling out high-speed Internet by 30 %. Civil engineering, such as the digging up of roads to lay down fibre-optic cables, accounts for up to 80 % of the cost of deploying high-speed networks. This proposal may save companies €40–60 billion.

The objectives of the proposed regulation are to substantially reduce the civil engineering costs and the costs caused by unnecessary administrative burden, and to enhance the efficiency of deploying high-speed electronic communications infrastructure by scaling up existing best practices across the EU and improving the conditions for the establishment and functioning of the internal market in an area supporting the development of virtually all sectors of the economy.

E-invoicing

E-invoicing is an important step towards paperless public administration (e-government) in Europe — one of the priorities of the digital agenda — and offers the potential for significant economic as well as environmental benefits. The Commission estimates that the adoption of e-invoicing in public procurement across the EU could generate savings of up to €2.3 billion. To further foster the uptake of e-procurement in Europe, the Commission on 26 June presented a proposal for a directive on e-invoicing in public procurement ([71]). This initiative would eliminate the fragmentation of the internal market by promoting the use of e-invoicing in the public sector (business-to-government (B2G) e-invoicing) and enhancing the interoperability of national e-invoicing systems.

Support for the digital agenda from EU cohesion policy

ICT continued to benefit from investments under the EU’s Structural Funds in 2013. Around €14.6 billion has been invested since the start of the current programming period, helping to connect some 4.7 million more citizens to broadband. The reform of cohesion policy agreed in December will require for the first time that all EU regions devote a minimum percentage of the funds available during 2014–20 to investments linked to the EU’s digital agenda.

Industrial policy and SMEs

Small and medium-sized enterprises — unleashing Europe’s entrepreneurial potential

After 5 years of having to deal with an uncertain economic environment, 2013 was the first year since 2008 that SMEs displayed a combined increase in aggregated employment and value added. Viewed against the unparalleled depth and complexity of the crisis, such a turnaround demonstrated the resilience of the SME sector ([72]).

To return to growth and higher levels of employment, Europe needs more entrepreneurs. New companies, including SMEs, create more than 4 million new jobs every year — 85 % of all new jobs in the EU’s private sector. Recognising the integral role entrepreneurs play in economic recovery, in January the Commission launched the ‘Entrepreneurship 2020 action plan’ ([73]). A combination of investments, regulatory advances and educational opportunities, the action plan will assist the drive for growth and jobs.

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Moving forward to an industrial renaissance to overcome economic crisis

One lesson that has been learned from the crisis is that Europe needs to keep a strong industrial sector as a central part of its economy, as it is key to innovation, value creation and jobs. While industrial performance has stabilised, industry’s share of Europe’s gross domestic product (GDP) declined from 15.5 % in 2012 to 15.1 % in summer 2013 ([74]). The convergence between the EU’s industrially most competitive countries and the moderate performers is stalling. In this context, Europe must build upon its strengths.

EU industry remains a global leader in a range of manufacturing sectors, including the chemicals, machinery, metals and automotive sectors. The EU share of global exports has diminished in recent years, but overall has remained remarkably resilient despite the strong growth of China and other emerging economies.

Commission measures to help businesses overcome the crisis

Support for the steel industry

In June, the Commission proposed an action plan for the European steel industry ([75]). It proposes specific policy actions for the steel sector, which is facing serious challenges. One way is to support the demand for EU-produced steel both at home and abroad, by acting to ensure EU steel producers have access to non-EU markets through fair trade practices. Also, costs for the industry need to be reduced, including those arising from EU regulation. Innovation, energy efficiency and sustainable production processes are vital for the next-generation steel products that are essential for other key European industries. The action plan also provides for targeted measures to support employment in the sector and accompany the restructuring to ensure that highly skilled labour is retained in Europe.

Support for the construction industry

Construction companies wishing to expand their business to another EU Member State need to know the challenges they might face. Employment, environmental and safety requirements may differ, in the same way as those for construction materials and products. In 2013, the Commission launched several initiatives to help the construction industry. One example is the new construction products regulation ([76]), which entered into force in July. It will help enterprises overcome these difficulties, equipping construction companies with the information they need to be successful in other EU countries ([77]).

Support for the defence and security industry

The EU’s defence industry employs around 400 000 people and had a turnover of around €96 billion in 2012. It drives innovation and develops the capabilities which are needed to safeguard Europe’s security and defence. At the same time, the sector suffers from budget constraints and market fragmentation. In July, the Commission issued an action plan ([78]) including proposals for fostering innovation, growth and jobs through the promotion of civilian/military synergies and measures to support defence-related SMEs. This communication was discussed at the European Council in December 2013, together with the following three main themes: a genuine internal market for defence; a comprehensive industrial policy that creates opportunities for all Member States and industries of all sizes throughout the EU; and synergies between civil research programmes, Horizon 2020, and those coordinated by the European Defence Agency ([79]). On that basis, the European Council has identified a number of priority actions built around three axes: increasing the effectiveness, visibility and impact of the common security and defence policy; enhancing the development of capabilities; and strengthening Europe’s defence industry ([80]).

Reduced fees for SMEs under EU chemical legislation

The Commission lowered the fees and charges that SMEs have to pay to register chemicals. This step should help SMEs that produce or trade chemicals to remain competitive during the current difficult market situation. Depending on the size of the company, SMEs could benefit from reductions of 35–95 % in relation to standard registration fees and 25–90 % in relation to standard fees for authorisation requests.

Improving SMEs’ access to finance

Access to finance is still among the top concerns of the EU’s SMEs. Younger and smaller firms are the worst affected according to the 2013 access to finance survey ([81]). About one third of the SMEs surveyed did not manage to get the full financing they had planned for during 2013, and 15 % of survey respondents saw access to finance as a significant problem for their companies. Over the last few years, the Commission has been constantly working to improve their situation. With a budget of €1.1 billion