Communication for the spring European Council - Driving European recovery - Volume 1
Date: 2009-03-04
Institutions: European Commission
Subjects: European Community, anti-crisis plan, austerity policy, economic aid, economic recession, reflation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 4.3.2009 
COM(2009) 114 final 

COMMUNICATION FOR THE SPRING EUROPEAN COUNCIL 

Driving European recovery 

VOLUME 1 

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COMMUNICATION FOR THE SPRING EUROPEAN COUNCIL 

Driving European recovery 

1. 

INTRODUCTION  

The  past  six  months  have  seen  unprecedented  pressure  in  Europe  from  a  global  economic 
crisis.  The  EU's  reaction  has  been  a  test  of  resilience  and  of  our  speed  of  reaction.  This 
situation has also presented challenges of co-ordination and reinforced the need for solidarity 
among  the  27  Member  States.  Last  autumn,  the  EU  took  the  action  needed  to  prevent  a 
meltdown in financial markets. In December, it agreed to put in place a European Economic 
Recovery  Plan  (EERP)  to  arrest  the  pace  of  the  downturn  and  create  the  conditions  for  an 
upturn.  The  Commission  and  Member  States  have  responded  positively  to  the  need  to  take 
measures to deal with the crisis and prepare for recovery. 

Now that they are being implemented, the need for greater co-ordination in order to maximise 
the positive cross border impacts of these measures is beginning to be felt. The purpose of this 
Communication  is  to  set  out  the  next  steps  in  dealing  with  the  crisis  and  leading  the  EU  to 
recovery.  It  contains  an  ambitious  programme  of  financial  sector  reform,  reviews  the 
measures being taken to sustain demand, boost investment and retain or create jobs and sets 
out a process for preparing the Employment Summit in May. It also places the EU's internal 
efforts  in the wider context of the  upcoming  G20  Summit,  where  the  EU  should  present  an 
ambitious agenda for reforming the international financial governance system. 

As  the  global  economy  has  continued  to  slide,  falling  demand  and  lost  jobs  are  hitting 
businesses, families and communities throughout the EU. Confidence in the financial sector 
remains  frail.  New  weaknesses  are  coming  to  light  and  require  a  co-ordinated  response. 
Cleaning up the banking system is a prerequisite for a return to normal credit conditions. A 
major mobilisation of efforts is necessary, because recovery will take time. 

The stabilisation of the financial markets has not yet fed through to loosen the credit crunch 
and get lending flowing again to companies and households. It is also why the EU must keep 
up the pace of financial sector reform, implementing reforms to regulation, and looking ahead 
to a supervisory regime more in tune with today's cross-border realities. 

As long as lending remains scarce, efforts to boost demand and consumer confidence will be 
held back. Since the Recovery Plan was adopted in December, implementation of the agreed 
stimulus package has begun. Although it will take time for the positive effects to work their 
way through the economic system, the size of the fiscal effort (around 3.3% of EU GDP or 
over €400 billion) will generate new investment , support workers and their families and boost 
demand. Action is also coming on stream which targets efforts on the long-term objective of 
building  a  competitive  and  sustainable  EU  economy,  as  set  out  in  the  Lisbon  strategy  for 
growth  and  jobs.  This  ensures  that  the  EU  not  only  tackles  the  immediate  downturn,  but 
prepares to make the most of future opportunities. 

At  the  same  time,  the  impact  on  jobs  has  spread.  Targeted  action  is  needed  to  limit  the 
hardship for individuals and prevent the loss of precious skills. Steps can and should be taken 

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to keep people in employment through the downturn and to use creative solutions to maintain 
the goal of developing a more highly-skilled workforce. 

This is a global crisis, and recovery will not be complete until the major players of the world 
economy are once again growing and trading together. The steps taken in the EU have served 
as  inspiration  for  global  partners,  and  have  helped  to  build  a  consensus  for  action  which 
should be reflected in concrete action at the forthcoming G20 meeting in London. 

As  the  crisis  has  unfolded,  the  importance  of  the  EU  dimension  has  become  increasingly 
clear.  The  single  market  has  provided  the  bedrock  of  EU  economic  growth  for  the  past  15 
years, a driver of growth that has created millions of jobs, making Europe more competitive 
and more efficient. It has shaped an unprecedented interdependence which means that traders, 
suppliers, manufacturers and consumers are linked as never before. All Member States trade 
more  with  each  other  than  with  the  rest  of  the  world.  Therefore,  the  best  way  to  boost  the 
economy  is  to  work  with  the  grain  of  this  interdependence,  avoiding  any  attempt  to  put 
artificial constraints on the impact of recovery measures. 

This  puts  the  spotlight  on  the  importance  of  coordination.  While  recognising  that  there  are 
clear  differences  in  the  social  and  economic  situations  of  Member  States,  each  has  a  wide 
range of levers at their disposal to address their particular circumstances. These levers will be 
most effective if they are used within a clear EU framework. For example, national actions to 
boost  demand  will  often  have  a  positive  cross  border  effect  on  goods  and  services  in  other 
Member States and thus feed through into a virtuous circle of recovery for Europe as a whole. 

The EU economy has huge long-term strengths. By maintaining its strong position in world 
export  markets,  it  has  shown  that  it  has  the  competitiveness  to  succeed  in  the  age  of 
globalisation. It has a highly skilled workforce and social models that are proving their worth 
at  a  time  of  extreme  pressure,  protecting  the  most  vulnerable  in  our  society.  The  EU  is 
particularly well placed to make the transformation to a low-carbon economy and take up the 
technological  challenge  of  tackling  climate  change.  Tackling  the  challenge  of  the  crisis 
together in a spirit of solidarity is the best way for Europe to exploit these strengths to arrest 
the downturn and return to growth. 

2. 

RESTORING AND MAINTAINING A STABLE AND RELIABLE FINANCIAL SYSTEM 

2.1. 

Rebuilding confidence and lending 

A  stable  financial  sector  is  a  prerequisite  for  building  sustainable  recovery.  Last  autumn, 
coordinated European action to recapitalise and guarantee banks across the EU prevented the 
meltdown  of  the  European  banking  industry  and  helped  restore  some  liquidity  in  interbank 
markets.  

Now it is time to move to monitoring these financial sector support packages to ensure that 
they  are  effectively  implemented.  Both  home  and  host  country  authorities  of  cross-border 
financial institutions have a strong mutual interest in preserving macro-financial stability by 
guaranteeing the funding and stability of local banking systems and adhering to the principle 
of free movement of capital. 

The Commission has  already presented legislative proposals to improve protection for bank 
depositors, make credit ratings more reliable, get the incentives right in securitisation markets, 
and reinforce the solidity and supervision of banks and insurance companies. Adjustments to 

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the  accounting  rules  were  rapidly  agreed  to  put  European  financial  institutions  on  a  level 
playing  field  with  their  international  competitors.  These  measures  are  part  of  building  a 
stronger, more reliable system for the future. 

But  confidence  in  the  banking  industry  remains  low.  Banks  and  other  financial  players  are 
still in process of deleveraging and have not resumed their usual roles in either wholesale or 
retail markets. They are maintaining a very restrictive approach to lending. Restoring the flow 
of  credit  to  the  real  economy  is  therefore  a  key  priority,  to  prevent  a  further  reduction  in 
economic growth. 

It is time for action to break the cycle of declining confidence and unwillingness to lend. In 
some cases, this means dealing directly with the asset side of banks’ balance sheets, putting an 
end to uncertainty about the valuation and location of future losses. To restore confidence in 
the  banking  sector  as  a  whole,  banks  with  impaired  assets  should  disclose  them  to  the 
competent authorities. 

financial 

recapitalise 

Building  on  the  guidance  already  given  on  the  application  of  state  aid  rules  to  measures  to 
institutions1, 
support  and 
the  Commission  has  presented  a 
Communication2  to  help  Member  States  design  measures  for  dealing  with  impaired  assets. 
Options include state purchase, state guarantees, swapping or a hybrid arrangement. It is for 
Member States to decide whether to use these tools and how they are designed. But a common 
and  coordinated  European  framework,  based  on  the  principles  of  transparency,  disclosure, 
valuation  and  burden-sharing,  will  help  ensure  asset  relief  measures  have  the  maximum 
effect. 

The framework will ensure a level playing field between banks, facilitate compliance with the 
state  aid  rules  and  limit  the  impact  on  public  finances  and  prepare  for  the  necessary 
restructuring of the sector. The Commission will shortly provide more detailed guidance  on 
its approach to the assessment of restructuring and viability plans of individual banks under 
the  state  aid  rules.  It  will  make  a  case-by-case  assessment,  taking  into  account  the  total  aid 
received through recapitalisation, guarantees or asset relief, to ensure long-term viability and 
a return to normal functioning of the European banking sector. 

To  improve  credit  conditions,  the  ECB  and  other  central  banks  have  been  providing 
considerable liquidity. They have already cut interest rates and the ECB has flagged that there 
could be scope for further reductions. By creating demand for loans, the impact of the fiscal 
stimulus  can  also  be  expected  to  increase  bank  confidence  and  willingness  to  lend.  Credit 
flows  should  therefore  be  monitored  very  closely  in  the  coming  months  to  ensure  that 
extensive  public  intervention  in  the  financial  sector  really  does  result  in  relief  for  European 
households and businesses. 

2.2. 

Responsible and reliable financial markets for the future 

The  crisis  has  exposed  unacceptable  risks  in  the  current  governance  of  international  and 
European  financial  markets  which  have  proved  real  and  systemic  in  times  of  serious 
turbulence. The unprecedented measures being taken to restore stability in the sector must be 
matched by robust reform to remedy known weaknesses, identify and prevent the emergence 
of new vulnerabilities in the future. European businesses and citizens need to be able to trust 
financial institutions as reliable partners for translating their deposits into the investment that 

1 
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OJ C 270, 25.10.2008, p. 8, and OJ C 10, 15.1.2009, p. 2.  
C(2009) 1345 (not yet published). 

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is so central to the long-term health of the economy. Market surveillance and enforcement of 
contractual  and  commercial  practices  will  play  an  important  role  in  restoring  consumer 
confidence in retail banking. 

Over the course of 2009, the Commission will propose the ambitious reform of the European 
financial system which is set out below and in more detail in Annex I. The reform will set a 
clear course for the EU to lead and shape the process of global change in particular through 
the work of the G-20. In parallel, the Commission will continue to apply the framework for 
urgent rescue relief as well as long-term restoration of viability in application of the existing 
state aid guidance. 

The reform will ensure that all relevant actors and all types of financial instrument are subject 
to  appropriate  regulation  and  oversight.  It  is  grounded  in  the  values  of  responsibility, 
integrity, transparency and consistency. 

Last  year  in  November,  the  Commission  mandated  a  High  Level  Group  chaired  by  Mr 
Jacques de Larosière to propose recommendations for this reform, with a particular focus on 
supervision. The Commission welcomes the report presented on 25 February 2009 and shares 
the  Group's  analysis  of  the  causes  of  the  financial  crisis.  The  Group's  31  recommendations 
offer a comprehensive set of concrete solutions for regulatory, supervisory and global repair 
action.  

Many  of  the  Group's  recommendations  for  regulatory  repair  contribute  to  a  growing 
consensus  about  where  changes  are  needed,  reflecting  issues  raised  by  key  actors  including 
the European Parliament. The Commission has already taken concrete initiatives in areas such 
as  credit  rating  agencies;  insurance;  revision  of  capital  requirements  under  Basel  II; 
securitised  products;  mark-to-market  accounting  rules  and  addressing  pro-cyclicality  of 
regulatory  measures.  Industry  has  acceded  to  the  Commission's  request  to  move  Credit 
Default  Swaps  on  European  entities  and  on  indices  of  European  entities  onto  a  central 
clearing platform established,  regulated and supervised in Europe by 31 July 2009. In other 
areas,  such  as  the  regulation  of  hedge  funds  and  other  non-bank  investment  actors, 
transparency  of  derivatives  markets  and  improved  accounting  rules,  Commission  proposals 
will be brought forward as a matter of priority in the coming months.  

The Group's recommendation on the need to develop a harmonised core set of standards to be 
applied  throughout  the  EU  is  of  particular  interest.  Key  differences  in  national  legislation 
stemming  from  exceptions,  derogations,  additions  made  at  national  level  or  ambiguities  in 
current directives should be identified and removed. The Commission will therefore launch an 
important new initiative in this sense. The Group's findings on sanctions regime also point to 
the need for a new push on this front.  

In the supervisory sphere, nationally-based supervision models are lagging behind the market 
reality  of  more  and  more  banks  and  insurance  companies  operating  across  borders.  The 
Commission  has  already  proposed  establishing  colleges  of  supervisors  to  facilitate 
cooperation  between  supervisors  for  cross-border  bank  and  insurance  firms.  Coordination 
within the three Committees of European Supervisors has been a significant step forward but 
is  not  without  limitations.  The  Commission  has  modified  the  Committees’  mandates  which 
will improve their efficiency and effectiveness, introduce qualified majority decision-making 
and  a  “comply  or  explain”  approach.  A  proposal  to  give  the  Committees  better  funding  for 
their activities is currently before the budgetary authority. 

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The  de  Larosière  Group's  report  highlights  the  existing  gaps  in  preventing,  managing  and 
resolving crises and the difficulties caused by a lack of cooperation, coordination, consistency 
and  trust  between  national  supervisors.  For  businesses,  complying  with  numerous  different 
regimes brings additional administrative and regulatory burdens. The Commission agrees with 
the  Group's  finding  that  recent  experience  has  exposed  important  failures  both  in  the  way 
supervisors look at particular cases, and in their approach to the financial system as a whole. 

Regarding macro-prudential supervision, the Commission particularly welcomes the Group's 
idea for a new European body, under the auspices of the ECB and involving the Commission 
and the Committees of European Supervisors, to gather and assess information on all risks to 
the  sector  as  a  whole,  across  all  sectors  of  finance.  Such  a  body  would  be  well  placed  to 
identify systemic risks at European level and issue risk warnings. Mandatory follow-up and 
monitoring  tools,  and  the  possibility  to  refer  issues  to  global  early  warning  mechanisms, 
would be essential.  

In terms of supervising individual companies, the Group has recommended the establishment 
of a European System of Financial Supervision (ESFS). In a first phase the three Committees 
of European Supervisors as well as national supervisors would be strengthened, and a more 
harmonised  set  of  supervisory  powers  and  sanctioning  regimes  would  be  introduced.  In  a 
second  phase,  the  Committees  would  be  transformed  into  Authorities  carrying  out  certain 
tasks at European level, whilst relying on colleges of supervisors and national supervisors for 
the  day-to-day  supervision  of  individual  companies.  A  review  after  three  years  would 
consider the need for further consolidation of the ESFS. 

The Commission agrees with the Group's finding that the structure of the existing Committees 
–  whose  role  has  reached  the  limits  of  what  is  legally  possible  -  is  not  sufficient  to  ensure 
financial stability in the EU and its Member States, and that the inefficiencies in the present 
structure need to be resolved as swiftly as possible. The Commission also considers that there 
are  merits  in  a  system  which  combines  certain centralised responsibilities at  European level 
with  maintaining  a  clear  role  for  national  supervisors  who  are  closest  to  the  day-to-day 
operation of companies.  

The Commission considers that action is urgently needed and will propose to accelerate the 
implementation of the Group's findings. By combining the two phases proposed by the Group, 
it  should  be  possible  to  move  more  quickly  to  both  improve  the  quality  and  coherence  of 
supervision in Europe, and to transform the three existing Committees into authorities within 
a European financial supervision system. The feasibility of whether to combine one or more 
of  these  authorities  should  be  examined  with  a  view  to  ensuring  maximum  supervisory 
coherence and enhancing consistency and interaction between banking, insurance and markets 
supervisory experts.  

The  authorities  could  be  charged  with  oversight  and  ultimate  decision-making  powers 
regarding  colleges  of  supervisors  for  cross-border  groups;  ensuring  consistency  and  good 
practice  through  setting  common  high  standards  and  providing  common  interpretations  of 
requirements for supervisory activities; and a key role in early warning mechanisms and crisis 
management, working with the body set up to look at the overall picture. 

Building on the recommendations of the de Larosière Group, the Commission will now move 
forward  in  developing  proposals  to  establish  a  new  European  financial  supervision  system. 
Drawing  on  views  expressed  by  Member  States,  the  existing  Committees,  the  European 
Parliament, the ECB and other stakeholders, the Commission will prepare its proposals on the 
basis of an impact assessment, in line with its better regulation principles.  

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To  deliver  responsible  and  reliable  financial  markets  for  the  future,  the  Commission  will 
propose an ambitious new reform programme, with five key objectives: 

(1) 

To provide the  EU  with  a supervisory framework that detects potential  risks  early, 
deals  with  them  effectively  before  they  have  an  impact,  and  meets  the  challenge  of 
complex  international  financial  markets.  The  Commission  will  present  a  European 
financial supervision package before the end of May 2009, for decision at the June 
European Council. The legislative changes to give effect to these proposals will follow 
in  the  autumn  and  should  be  adopted  in  time  for  the  renewed  supervisory 
arrangements  to  be  up  and  running  in  the  course  of  2010.  The  package  will  include 
two elements:  

–  Regarding macro-prudential supervision, measures to establish a European body 

to oversee the stability of the financial system as a whole 

–  Regarding  micro-prudential  supervision,  proposals  on  the  architecture  of  a 

European financial supervision system 

(2) 

To  fill  gaps  where  European  or  national  regulation  is  insufficient  or  incomplete, 
based on a 'safety first' approach. The Commission will propose:  

–  A  comprehensive  legislative  instrument  establishing  regulatory  and  supervisory 
standards  for  hedge  funds,  private  equity  and  other  systemically  important 
market players(April 2009) 

–  A White Paper on tools for early intervention to prevent a crisis (June 2009)  

–  On  the  basis  of  a  report  on  derivatives  and  other  complex  structured  products 
(June 2009), appropriate initiatives to increase transparency and ensure financial 
stability 

–  Legislative  proposals  to  increase  the  quality  and  quantity  of  prudential  capital 
for  trading  book  activities  and  tackle  complex  securitisation  (June  2009)  and  to 
address liquidity risk and excessive leverage (Autumn 2009) 

–  A  rolling  programme  of  actions  to  establish  a  far  more  consistent  set  of 

supervisory rules (to be launched in 2009) 

(3) 

To  ensure  that  European  investors,  consumers  and  SMEs  can  be  confident  about 
their  savings,  access  to  credit  and  their  rights  as  concerns  financial  products,  the 
Commission will come forward with: 

–  A Communication on retail investment products to strengthen the effectiveness 

of marketing safeguards (April 2009) 

–  Further  measures  to  reinforce  bank  depositor,  investor  and  insurance  policy 

holder protection (Autumn 2009) 

–  Measures on responsible lending and borrowing (Autumn 2009) 

(4) 

To  improve  risk  management  in  financial  firms  and  align  pay  incentives  with 
sustainable performance. To this end, the Commission will: 

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–  Strengthen its 2004 Recommendation on remuneration of directors (April 2009) 

–  Bring  forward  a  new  Recommendation  on  remuneration  in  the  financial 
services  sector  (April  2009)  followed  by  legislative  proposals  to  include 
remuneration schemes within the scope of prudential oversight (Autumn 2009) 

(5) 

To  ensure  more  effective  sanctions  against  market  wrongdoing.  To  this  end,  the 
Commission intends to: 

–  Review the Market Abuse Directive (Autumn 2009) 

–  Make proposals on how sanctions could be strengthened in a harmonised manner 

and better enforced (Autumn 2009) 

The Commission invites the Spring European Council to endorse this reform ahead of the G-
20 London Summit. This will demonstrate the European Union's willingness and commitment 
to  take  ambitious  measures  to  implement  the  G-20  Washington  action  plan.  The  European 
Parliament  and  the  Council  should  be  invited  to  give  due  priority  to  the  Commission's 
forthcoming proposals. 

3. 

SUPPORTING THE REAL ECONOMY 

The  global  economy  is  in  the  midst  of  the  worst  recession  in  decades.  World  trade  has 
contracted  at  a  rapid  pace.  Industrial  production  declined  rapidly  towards  the  end  of  2008. 
Both  the  US  and  Japan  have  seen  a  marked  decline  in  GDP,  whilst  China  had  its  lowest 
growth performance since 2001 reflecting the dramatic decline in world trade. 

The EU economy could not escape this worldwide downturn. Both the euro area and the EU 
are now in a serious recession. Output in manufacturing and construction has been especially 
hard-hit with an estimated loss of € 150 billion  in full-year terms. The automotive sector alone 
fell by 32.3%, which triggered deterioration in many other sectors. EU manufacturing exports 
to  non-EU  countries  dropped  by  5.8%  in  November/  December  2008,  while  intra-EU  trade 
was 13.7% lower than the previous year.  

But whilst real GDP is expected to fall by nearly 2% in 20093, it should recover gradually to 
around ½% in 2010 in part due to the effects of policy measures being taken at European and 
national level under the European Economic Recovery Plan (EERP). 

3.1. 

Implementing the European Economic Recovery plan 

In December 2008, on the basis of proposals from the Commission, an ambitious European 
Economic  Recovery  Plan  (EERP)  was  agreed.  At  its  core  was  a  combined  effort  to  give 
Europe's economy an immediate fiscal boost, while targeting this investment at strengthening 
the  European  economy  for  the  long-term  challenges  ahead.  It  recognised  that  the  fall  in 
private demand made the role of public expenditure even more important in the short term.  

The full impact of the EERP will only become clear in the coming months, but the early signs 
are  positive,  both  in  terms  of  volume  of  the  stimulus  and  the  direction  of  reforms.  Most 

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According to the Commission's January forecast. 

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Member  States  have  now  adopted  or  announced  fiscal  stimulus  measures.  Over  the  period 
2009  and  2010,  fiscal  policy  is  providing  support  to  the  economy  in  the  region  of  3.3%  of 
GDP,  equivalent  to  more  than  € 400  billion,  a  potentially  huge  support  to  growth  and  jobs 
across the EU.  

A  large  share  of  this  support  comes  from  the  operation  of  automatic  stabilisers  which  are 
particularly  strong  in  the  EU.  It  also  comes  from  discretionary  fiscal  stimulus  packages  of 
Member States in the region of 1.2% of GDP called for in the EERP, although the scale varies 
widely according to the Member States' room for fiscal manoeuvre. A further € 30 billion or 
0.3%  of  GDP  has  been  made  available  from  EU  sources4.  The  Commission  has  proposed  a 
targeted investment to the tune of € 5 billion to  address the challenge of energy security and to 
bring  high-speed  internet  to  rural  communities,  as  well  as  through  additional  advance 
payments  under  cohesion  policy  amounting  to  € 11  billion,  of  which  € 7  billion  for  new 
Member States. Moreover, the European Investment Bank (EIB) has boosted its SME lending 
possibilities by € 15 billion. 

Most  of  the  measures  Member  States  are  taking  are  well  targeted  to  stimulate  demand: 
support for households, business, and employment, directly increasing demand through public 
investment  and  the  modernisation  of  infrastructure  (see  Annex  II  for  details).  And  most  of 
these  measures  are  consistent  with  the  longer-term  objectives  identified  in  the  country-
specific recommendations under the Lisbon strategy  for growth and jobs – such as building 
Europe's knowledge base, boosting energy security and adapting to a low-carbon economy.  

An effective and rapid implementation of these measures will be critical, and will need to be 
complemented  by  action  to  improve  business  conditions.  The  EU  has  every  interest  in 
maintaining a strong and competitive industrial base as it moves towards a knowledge-based 
and  low  carbon  economy.  Given  the  complex  nature  of  modern  industrial  production,  the 
economies of scale and opportunities for diversification offered by the Single Market, the EU 
has  developed  a  policy  of  horizontal  support  for  industry  in  recent  years.  At  both  EU  and 
national level this means that R&D, innovation, new and environmental technologies as well 
as  training  can  all  be  funded  as  support  and  development  measures.  These  horizontal 
measures can be implemented in different sectors of the EU economy, as recently illustrated 
in the EU framework for the automotive industry, issued by the Commission on 25 February5.  

Member States are also giving priority to the needs of SMEs due to their huge contribution to 
overall  employment  in  the  EU  and  are  invited  to  speed  up  implementation  of  the  Small 
Business Act. The Commission will shortly table a legislative proposal to tackle the issue of 
late payments more effectively. Moreover, the potential of better regulation should be used to 
the full, notably via the reduction of administrative burdens. 

Action  to  raise  skills,  to  boost  investment  in  research,  to  promote  the  conditions  for 
innovation,  to  spread  high-speed  Internet,  to  renew  existing  transport  and  energy 
infrastructure,  including  through  increased  use  of  public  private  partnerships,  to  upgrade 
energy efficiency and to increase renewable energy all fit squarely into the objectives of the 
EERP.  Such  action  will  be  facilitated  by  rapid  adoption  of  the  proposed  modification  of 
cohesion  policy  legislation.  Member  States  are  encouraged  to  make  full  use  of  the 
possibilities offered by these modifications to speed up key investments. 

4 
5 

Including a number of new public private partnerships. 
COM(2009) 104, 25.2.2009. 

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Understanding  and  managing  the  long-term  impact  of  the  crisis  on  public  finances  -  and 
managing the consequences for pension and healthcare systems - will be vital. Budget deficits 
should return to positions consistent with the need to ensure long-term sustainability of public 
finances as soon as economic conditions allow, notably in view of the future cost stemming 
from an aging population. Long-term sustainability should be ensured within the framework 
of the Stability and Growth Pact. 

Some  Member  States  are  now  in  a  process  of  reducing  their  budget  deficit  to  reduce  their 
dependence on external flows of credit. The support facility for medium term assistance to the 
balance of payments of non euro area Member States has been strengthened following timely 
support to Hungary and Latvia. 

The EERP is part of the Lisbon Strategy for Growth and Jobs in the current crisis. It provides 
the  right  balance  to  combine  an  immediate  stimulus  with  the  long-term  perspective  needed. 
As a result, Europe should come out of the crisis better prepared to meet the challenges of a 
world economy geared towards low-carbon and innovative activities.  

The  Commission  will  closely  monitor  the  impact  of  the  measures  taken,  together  with  the 
Member States, and report on progress made ahead of the June European Council.  

3.2. 

The Single Market as a lever for recovery 

Europe's successful economic recovery will depend on our ability to make the most of both 
internal  and  global  markets.  The  Single  Market  has  been  the  motor  of  economic  and  social 
prosperity and job creation in the EU6. It offers economies of scale, efficiency gains, and the 
chance to harness the EU's strengths. It can act as one of the key drivers for recovery provided 
it is closely coordinated at European level.  

Helping to coordinate the response to the crisis, the Commission has ensured that in designing 
demand support measures, Member States can take full advantage of the flexibility available 
under  existing  Community  rules.  The  use  of  the  accelerated  public  procurement  procedure 
means  public  investment  contracts  can  be  signed  within  one  month.  The  temporary 
framework for state aid measures helps companies to access finance in the face of restrictive 
bank  lending.  Member  States  can  provide  additional  export  credit  insurance  through  public 
entities  where  such  insurance  is  no  longer  available  from  the  private  sector  owing  to  the 
financial crisis.  

At  the  same  time,  the  EU  needs  to  continue  its  own  work  to  improving  the  business 
environment, to support the small and medium sized enterprises likely to lead the way when 
recovery  comes.  The  Commission  has  recently  presented  proposals  to  reduce  accounting 
burdens  on  microenterprises,  with  potential  savings  for  business  of  around  € 6  billion 7,  and 
will continue to carefully weigh the burden of new initiatives. The timely transposition of the 
Services  Directive  this  year  will  present  a  further  means  to  promote  new  economic  activity 
and employment opportunities. 

Upholding the benefits of the Single Market, and promoting the same values outside Europe, 
will  give  the  EU  a  unique  launch  pad  for  the  return  to  growth.  Protectionism  and  a  retreat 

6 

7 

The  Internal  Market  has  raised  EU  prosperity  by  2.15%  of  EU  GDP  year  on  year  and  added  2.75 
million extra jobs between 1992 and 2006. Intra-EU trade relative to GDP rose by 30% between 1995 
and 2005. 
COM(2009) 83, 26.2.2009. 

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towards national markets can only lead to stagnation, a deeper and longer recession, and lost 
prosperity.  

Member  States'  action  to  address  the  crisis  must  take  the  Single  Market  dimension  into 
account. Most, if not all, Member States will intervene to support economic activity on their 
territory during this crisis. The intelligent use of national levers in a European context is the 
best way to ensure that action will be effective. 

National measures can be most effective if Member States act in the knowledge that they are 
working with the grain of the single market. Working in partnership with Member States, the 
Commission  stands  ready  to  provide  assistance  with  the  design  and  implementation  of 
concrete measures, promoting the exchange of good practices and sharing policy experience. 
This coordination can ensure that positive spill-overs are maximised. It should include sharing 
information on measures taken as well as joint assessments of the impact of these measures. 
Annex III provides further guidance on how Member States can design recovery measures in 
order to ensure their compatibility with the most relevant Community legislation.  

3.3. 

Renewing the European economy beyond the crisis 

There  is  no  doubt  about  the  real  pain  that  this  twofold  crisis  –  financial  and  economic  –  is 
causing to European households and businesses. The road to recovery will be gradual and will 
require  a  major  mobilisation  of  efforts  by  all  involved  to  accelerate  implementation  of 
structural reforms under the Lisbon Strategy. By pooling our efforts and by making the most 
of  our  competitive  advantages,  especially  our  Single  Market,  we  can  ensure  that  Europe 
comes out of this recession more quickly. 

By keeping our sights firmly on our shared principles and our longer term policy goals, the 
measures we are taking to get through the present crisis will prepare the ground for a smooth 
transition to the European economy of the future. In particular, we should maintain the pace 
of our efforts to shift to a low carbon economy: when the upturn starts green technologies and 
products  should  be  the  lead  markets.  We  need  to  launch  work  now  on  how  to  improve  the 
structures we have to deal with the recovery: companies will restructure, some will diversify 
and some may leave the market. The process of returning nationalised companies to private 
ownership  and  generally  returning  the  level  of  state  intervention  in  our  economies  to  more 
normal levels will need careful management. Community competition policy can support this 
vital process, steering it towards open, efficient and innovative outcomes. 

The  lessons  of  the  crisis  will  also  need  to  be  taken  into  account  in  renewing  the  European 
structural  reform  agenda.  Drawing  on  the  lessons  of  recent  experience,  the  Commission 
intends to launch a debate on the Integrated Guidelines for Growth and Jobs under the Lisbon 
Strategy,  which  guide  the  Member  States  and  the  Community  in  the  preparation  of  their 
respective programmes for structural reform.  

The  Commission  will  work  closely  with  Member  States  and  other  Lisbon  strategy 
stakeholders  to  take  account  of  the  outcome  of  this  debate  in  the  design  of  the  post-2010 
Lisbon Strategy. This process will start with a general review of the revised Lisbon Strategy 
under  the  Swedish  Presidency  in  preparation  of  decisions  to  be  taken  in  the  spring  of  2010 
under the Spanish Presidency. 

EN 

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The full impact of the EERP will only become clear in the coming months, but the early signs 
are positive both in terms of the volume of the stimulus and the direction of reforms: 

–  Most  Member  States  have  now  adopted  or  announced  fiscal  stimulus  packages,  meeting 
the  overall  target  of  1.5%  of  the  Union's  GDP.  Taking  into  account  the  effects  of  the 
automatic stabilisers, fiscal support of some 3.3% of GDP has been made available for the 
recovery. This amounts to more than € 400 bill ion, a huge stimulus to growth and jobs. 

–  Most of the Member States' measures are targeted to stimulate demand and consistent with 
longer-term  objectives  such  as  raising  skills,  enhancing  investments  in  innovation, 
promoting high-speed internet, renewing existing transport and energy infrastructure.  

–  The Commission has ensured that in designing demand support measures Member States 
can  take  full  advantage  of  the  flexibility  available  under  Community  rules.  For  instance, 
The Commission has recently presented guidance on measures for the automotive industry 
to help Member States as they provide support for the restructuring of this sector.  

Through the Single Market all Member States will benefit directly and indirectly from orders 
for goods and services placed as result of this stimulus package. Member States should pay 
particular  attention  to  maximising  the  positive  spill-over  effects  from  the  Single  Market, 
which has been and will remain the motor of economic and social prosperity and job creation 
in the EU. 

To this end, the following principles should shape Member States' actions to support the real 
economy: 

–  Maintaining openness within the internal market, continuing to remove barriers and avoid 

creating new ones. 

–  Ensuring non-discrimination by treating goods and services from other Member States in 

accordance with EU rules and Treaty principles. 

–  Targeting  interventions  towards  our  longer  term  policy  goals:  facilitating  structural 
change, enhancing competitiveness in the long term and addressing key challenges such as 
building a low carbon economy. 

–  Taking full account of the crucial importance of SMEs by applying the "think small first" 

principle. 

–  Sharing  information  and  best  practice  to  maximise  the  overall  positive  impact  through 

effects of scale. 

–  Pooling efforts and designing measures so that they generate synergies with those taken by 

other member states. Stronger co-operation at European level is key in this respect. 

–  Using  the  flexibility  provided  by  the  renewed  Stability  and  Growth  Pact  responsibly, 
allowing  for  return  of  government  deficits  to  positions  consistent  with  sustainable 
public finances as soon as possible, whilst vigorously tackling the causes behind macro-
economic imbalances. 

–  Keeping  the  Single  Market  open  to  our  trade  partners  and  respect  international 

commitments, in particular those made in the WTO. 

EN 

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In line with the EERP, Member States must now ensure that the fiscal stimulus packages are 
accompanied  by  an  acceleration  of  structural  reforms  in  the  areas  highlighted  in  the  Lisbon 
strategy country-specific recommendations. It is the best way to ensure that expenditure now 
will  be  most  cost-effective,  raising  future  potential  growth  and  least  damaging  to  the  long-
term  fiscal  outlook  for  the  future.  It  is  an  essential  prerequisite  for  Europe  also  to  seize  the 
opportunities offered by this crisis and come out best prepared for meeting the challenges of a 
new world economy, geared towards low-carbon, innovation, ICT and skills. 

The Commission will monitor progress regularly and report in due time for the next European 
Council meetings. Taking into account the results of the EERP, the Commission also intends 
to start preparing the post 2010 Lisbon Strategy. 

4. 

SUPPORTING PEOPLE THROUGH THE CRISIS 

The impact of the slowdown on households and workers is now mounting. Having performed 
well in recent years, the labour market situation is now deteriorating rapidly and significantly. 
The Commission forecasts that employment growth will be negative for the next two years. 
Unemployment is expected to rise steeply. Although the picture varies across Member States, 
overall employment is expected to contract by 1.6% this year - some 3.5 million jobs – and 
unemployment in the EU could reach 10% in 2010.  

Some  adjustments  on  the  labour  market  reflect  the  impact  of  successful  past  structural 
reforms. While this should facilitate a quicker improvement when the economy rebounds, it 
remains  clear  that  the  short-term  pain  will  be  high.  Young  people,  those  with  short-term 
contracts, and migrant workers are likely to be the worst hit.  

4.1. 

Alleviating the human cost of the crisis 

Most  Member  States  have  introduced  employment  and  social  measures  in  order  to  support 
people and alleviate the human cost of the crisis. Whilst Member States are in the forefront of 
tackling these challenges, European policies add value by helping them design and implement 
effective responses to the jobs and social cohesion challenge. 

Member States have focused their measures on four broad types of priorities:  

–  Measures  aiming  at  maintaining  existing  jobs:  short-time  working  allowances,  reduced 

social security contributions, wage subsidies and support to SMEs; 

–  Measures to ensure rapid (re-) integration into the labour market: vocational training 
and  support  for  the  disadvantaged,  changes  in  sickness  or  disability  benefits,  and  new 
eligibility rules for unemployment benefits; 

–  Measures to support the most vulnerable: increase in minimum income/wage, extended 
coverage or duration of unemployment benefits, higher housing or family allowances, tax 
rebates or exemptions, and measures against over-indebtedness or repossession;  

–  Measures 

to  strengthen  social  protection  and 

in  social  and  health 
infrastructure: 
long-term  care 
infrastructure  and  schools,  and  actions  to  help  pension  funds  meet  their  long  term 
liabilities. 

in  housing,  hospitals,  primary  care, 

investments 

invest 

EN 

13 

   EN 

The employment and social impact of the crisis is still unfolding, and it is more severe than 
expected when most initial measures were put in place. Therefore, efforts need to be stepped 
up at all levels in order to tackle unemployment, and to adapt and modernise social assistance, 
healthcare  and  public  health  schemes.  Income  support  combined  with  active  measures  will 
stimulate demand, facilitate the transition back to work and avoid social exclusion.  

To  support  Member  States  in  their  efforts  to  address  the  crisis  and  implement  the  recovery 
measures, the available financial instruments are being strengthened. Renewing the European 
Globalisation Adjustment Fund8 will allow it to be quickly activated to support workers hit 
by significant job cuts and their communities. 

The current European Social Fund (ESF) programmes support 9 million workers each year; 
€ 10.8 billion in grants are available through  the ESF in 2009 alone. The Fund can respond to 
crisis-driven  needs,  e.g.  to  improve  matching  of  labour  demand  and  supply,  support  joint 
initiatives  by  social  partners,  promote  social  innovation  and  employment  partnerships,  or 
strengthen public employment services. The simplification of the rules for the ESF9 will allow 
an immediate increase of advance payments of € 1.8 billion. In all cases where there is a need 
to  adapt  the  ESF  programming  to  the  needs  of  the  crisis,  the  Commission  will  ensure  that 
programme changes are completed in the shortest possible time.  

While  further  measures  to  support  employment  have  to  be  tailored  by  Member  States,  in 
cooperation with the Social Partners, to their specific economic conditions and labour market 
situation,  it  is  important  that  they  remain  consistent  with  long-term  structural  reform  needs. 
Measures  should  facilitate  the  long-term  restructuring  process  of  the  most  affected  sectors, 
enhance their competitiveness and human capital. They should also help to address key long-
term challenges such as the impact of demographic ageing on labour supply and to seize the 
opportunities of the low-carbon economy.  

In  order  to  maximize  positive  spill-over  effects,  and  to  better  address  collectively  the 
unprecedented  challenges  of  the  crisis,  the  Commission  will  promote  mutual  learning  and 
exchange of good practices across the Member States. 

The  following  elements  can  help  Member  States  in  the  design  of  appropriate  and  effective 
measures: 

–  Keeping  people  in  employment,  notably  by  providing  financial  support  to  temporary 
flexible  working-time  arrangements.  Temporary  adjustment  of  working  hours  ("short-
time") in line with production needs can be an important source of labour input flexibility. 
By  preventing  mass  lay-offs,  this  may  mitigate  the  social  impact  of  the  crisis,  save 
considerable firing and (re)hiring costs for firms, and prevent loss of firm-specific human 
capital.  Such  action  needs  to  be  combined  with  measures  supporting  employability  and 
guiding  people  towards  new  jobs,  empowering  workers  to  take  advantage  of  new 
opportunities  when  the  upturn  comes.  These  measures  need  to  be  coordinated  to  avoid 
negative spill-overs in other Member States. 

–  Reinforcing activation and providing adequate income support for those most affected 
by the economic slowdown, making full use of social protection benefits, in line with the 
flexicurity approach. In those countries where unemployment insurance is strictly limited 

8 
9 

COM(2008) 867, 16.12.2008. 
COM(2008) 813, 26.11.2008.  

EN 

14 

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in time, consideration should be given to its temporary expansion and/or a reinforcement of 
minimum  income  provisions.  Back  to  work  incentives  should  be  kept  intact,  and 
vulnerable groups supported in line with the active inclusion strategy. 

–  Investing in re-training and skills upgrading particularly for workers on short time and 
in  sectors  that  are  declining.  Preference  should  be  given  to  training  targeted  at  future 
labour  market  needs,  such  as  green  jobs.  Anticipation  of  future  skills  needs  should 
therefore be promoted.  Employment  Services should be enhanced to cope with increased 
unemployment.  

–  Mitigating  the  direct  impact  of  the  financial  crisis  on  individuals  through  specific 
measures  to  prevent  over-indebtedness  and  maintain  access  to  financial  services.  In 
countries with larger pre-funded schemes in their pension systems, the recovery of pension 
funds will be essential to protect the current and future income of pensioners.  

–  Ensuring  the  free  movement  of  workers  within  the  Single  Market  which  will  be  the 
source  of  new  opportunities.  It  can  help  address  the  persistence  of  mismatches  between 
skills  and  labour  market  needs,  even  during  the  downturn.  In  this  context,  the  Posted 
Workers  Directive  serves  to  facilitate  free  movement  of  workers  in  the  context  of  cross-
border provision  of services,  whilst effectively safeguarding against social dumping. The 
Commission  will  work  with  the  Member  States  and  Social  Partners  on  a  shared 
interpretation  of  the  Directive  to  ensure  that  its  practical  application  -  in  particular 
administrative cooperation between Member States - works as intended. 

–  Considering  supporting  measures  such  as  lowering  non-wage  costs  for  low-skilled 
workers.  Wage  developments  and  fiscal  measures  should  take  account  of  each  Member 
State's competitive position and productivity growth. 

–  Providing  sufficient  support  to  tackle  youth  unemployment  and  early  school  leavers. 
Time spent out of education or employment while young can have lasting effects. Member 
States  should  prepare  for  and  encourage  an  increase  in  demand  for  education  and 
training, as existing students stay on and displaced workers seek to re-skill. In this respect, 
future labour market growth areas such as 'green jobs' can already be anticipated.  

–  Integrating  measures  aimed  at  revising  employment  protection  legislation  within  a 
flexicurity  approach  covering  all  its  components  so  as  to  reduce  segmentation  and 
improve the functioning of labour markets.  

4.2. 

An Employment Summit for Europe 

A  European  approach  can  add  value  to  Member  States'  efforts  to  meet  the  employment 
challenge, whilst avoiding distortive effects. The European Employment Summit in May will 
provide  the  opportunity  to  take  stock  of  the  developing  situation,  and  to  agree  on  further, 
concrete measures. It will be prepared together with the Social Partners and will build on the 
progress made on the Renewed Social Agenda over the last year. 

The Summit should deliver three objectives: 

–  It should help accelerate recovery by focusing on structural reform to create more flexible, 

secure and inclusive labour markets. 

–  It should agree a concerted approach to reduce the social impact of the crisis. 

EN 

15 

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–  And it should launch a new consensus with Social Partners and stakeholders about how to 

modernise social policies to the mutual benefit of both employees and employers.  

Particular focus could be given to measures to counter unemployment, with an emphasis on 
the integration of younger and more vulnerable workers into the labour market. The Summit 
should  look  at  how  EU  policies  can  better  support  Member  States'  efforts,  in  particular  in 
addressing the structural weaknesses of labour markets in line with the recommendations of 
the Lisbon Strategy for Growth and Jobs. 

The  Summit  will  be  prepared  together  with  the  Social  Partners  and  in  consultation  with  all 
stakeholders.  To  collect  input  for  the  themes  and  possible  outcomes  of  the  Summit,  the 
Commission will organise a series of workshops in a number of different Member States to 
bring together the European Parliament, the Social Partners, NGOs and civil society. This will 
complement the ongoing exchanges the Commission has with the Member States and with the 
Social  Partners  in  the  European  social  dialogue.  This  broad  and  open  preparatory  process 
should serve as a sound basis for building an ambitious consensus around a series of concrete 
deliverables in May. 

5. 

PROMOTING  GLOBAL  RECOVERY:  THE  EUROPEAN  CONTRIBUTION  TO  THE  G-20 
SUMMIT 

This  is  a  global  crisis.  The  scale  and  speed  at  which  a  shock  in  one  systemically  important 
financial  market  soon  affected  the  financial  system  and  spilled  over  to  real  economies 
worldwide have shown just how interdependent the world has become.  

The  EU  played  a  leading  role  in  building  recognition  that  global  solutions  are  needed. 
Following  the  EU's  initiative,  the  G-20  Washington  Summit  in  November  2008  agreed  an 
action  plan  to  renew  the  international  financial  architecture  to  bring  it  up  to  date  with  the 
realities of globalisation. 

The EU must continue to speak with one voice at the G-20 London Summit of 2 April. We 
can  be  a  strong  and  influential  partner  in  this  work,  given  our  long-standing  and  successful 
experience of regional market integration and effective institution-building.  

As  implementation  of  the  European  Economic  Recovery  Plan  gains  momentum,  against  the 
background  of  an  ambitious  reform  of  European  financial  markets,  the  European  Union  is 
particularly  well-placed  to  take  the  lead  in  proposing  concrete  solutions  that  can  deliver 
effective results at global level.  

These  efforts  should  be  consistent  with  the  need  for  global  solutions  in  the  area  of  climate 
change. The transition to a low-carbon economy should create new opportunities for growth 
not  only  in  Europe  but  worldwide.  The  London  Summit  should  therefore  reaffirm  its 
commitment  to  an  ambitious  global  outcome  to  the  UN  Climate  Change  negotiations  in 
Copenhagen in December 2009. 

We  should  also  ensure  that  the  London  Summit  projects  clear  messages  about  the  need  to 
keep global markets open. Whilst there is a global recognition that the historical experience of 
protectionism  in  a  downturn  is  disastrous,  domestic  pressures  to  apply  restrictive  measures 
can be strong. An unequivocal message is essential to hold off these threats. 

EN 

16 

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Potential EU candidates and neighbouring countries are also feeling the impact of the crisis. 
The  Commission  remains  committed  to  working  with  European  and  international  financial 
institutions  to  support  their  economic  stability  and  development.  The  Commission  has 
welcomed  the  action  plan  developed  by  the  European  Bank  for  Reconstruction  and 
Development (EBRD), the EIB and the World Bank, to deploy assistance to strengthen banks 
and support lending in some Central and Eastern European economies.  

Finally,  given  the  far-reaching  effects  of  the  global  crisis  and  resulting  slowdown  on 
developing countries, we must uphold our commitment to help them through the crisis, out of 
poverty  and  into  sustainable  growth.  Supporting  them  in  pursuing  the  Millennium 
Development Goals is essential to global recovery in a sustainable open economy.  

The EU must respect its Overseas Development Assistance (ODA) commitments, so that this, 
along with other available means, can be used to stimulate growth, investment, trade and job 
creation.  Through  the  different  Commission,  Member  States  and  EIB  instruments,  the  EU 
should focus on activities such as agriculture, climate change and infrastructure where a direct 
counter-cyclical  impact  can  be  achieved.  These  efforts  should  be  matched  by  strong 
responsibility  by  developing  countries  in  ensuring  good  macroeconomic  and  fiscal 
governance.  

At  the  London  Summit,  consistent  with  its  ongoing  internal  decisions,  the  EU  should 
promote  agreement  on  a  comprehensive  set  of  concrete  deliverables.  The  Summit  should 
deliver firm commitments to  improve the global financial and regulatory system, so that 
all relevant actors and instruments are subject to appropriate regulation and oversight, by: 

–  Improving  transparency  and  accountability:  Banking  prudential  rules  as  well  as 
accounting standards should be improved by building in counter-cyclical mechanisms and 
properly  addressing  fair  value.  Bank  capital  requirements  should  better  reflect  liquidity 
risks  and  realign  incentives  on  securitisation.  The  governance  structures  of  the 
International Accounting Standards Board should be improved. 

–  Enhancing  sound  regulation:  Regulation  and  supervision,  and  in  particular  the  Basel 
Committee's  prudential  standards,  should  be  extended  to  all  relevant  systemic  actors  – 
hedge  funds,  private  equity,  and  other  non-regulated  credit  institutions.  Credit  rating 
agencies should be subject to tough requirements to ensure the quality and transparency of 
ratings  and  that  they  are  free  from  conflict  of  interest.  Remuneration  policies  should  be 
realigned to avoid short-term excessive risk-taking and to be subject to supervision. 

–  Promoting integrity in financial markets: A list of uncooperative jurisdictions should be 
drawn  up  together  with  a  toolbox  of  joint  measures  for  use  against  them  in  the  areas  of 
supervision,  anti-money  laundering,  terrorism  financing  and  taxation.  Banks  should  be 
dissuaded from operating in off-shore centres10 through increased prudential requirements 
and  tougher  transparency  rules.  The  rules  on  holding  and  transferring  intermediated 
securities should be harmonised at global level.  

–  Strengthening  international  supervisory  cooperation:  Global  colleges  of  supervisors 
should  be  set  up  and  given  the  powers  they  need  to  be  effective.  Supervisors  should 
exchange good practice and promote global convergence of practices.  

10 

The  Commission  will  shortly  make  proposals  on  information  exchange  and  transparency  on  taxation 
matters within the EU and with third countries. 

EN 

17 

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–  The Financial Stability Forum (FSF) should be enlarged ahead of the 2 April Summit, to 

include all major emerging countries and the European Commission. 

–  Reforming  the  governance  of  the  international  financial  institutions:  the  London 
Summit  should  agree  to  a  timetable  for  further  reforms  of  the  governance  of  the 
International Monetary Fund (IMF) and the World Bank. The system for top appointments 
to these two institutions should be reviewed. 

–  Strengthening  the  IMF:  Member  States  should  present  a  joint  contribution  to  the 
temporary  doubling  of  IMF  resources.  The  IMF  should  strengthen  its  surveillance,  by 
deepening the coverage of financial sector issues, reinforcing multilateral surveillance, and 
ensuring  multilateral  consultations  including  the  orderly  reversal  of  global  imbalances. 
Cooperation  with  the  FSF  should  be  enhanced  and  effective  joint  early  warning 
mechanisms established. FSF members and other systemically relevant countries should be 
assessed  regularly  by  the  IMF  and  vulnerabilities  identified  should  feed  into  the  early 
warning  mechanism.  Reforms  should  include  internal  procedures  and  should  ensure  that 
the  key  conclusions  of  IMF  surveillance  are  fed  into  the  International  Monetary  and 
Financial Council. 

–  Developing  the  World  Bank  and  Regional  Development  Banks:  The  banks  should 
implement the instruments at their disposal in a flexible manner to frontload assistance to 
mitigate  the  effects  of  the  crisis,  particularly  for  vulnerable  populations.  Adequate 
financing should be assured for their activities. 

The Summit should support balanced growth in global markets, by:  

–  Advancing  global  recovery  through  continued  international  coordination  of  fiscal 
measures  and  their  real  impact.  The  EU  is  doing  its  part  in  the  global  effort  to  restore 
growth.  International  cooperation  should  ensure  that  the  current  fiscal  measures  are 
consistent  with  long-term  fiscal  sustainability.  Moreover  they  should  provide  sufficient 
levels of investment in long-term policies, such as innovation, education, energy efficiency 
and  the  low-carbon  economy.  Once  the  recovery  takes  hold,  an  orderly  and  coordinated 
reversal of macro-economic stimuli is warranted. 

–  Promoting  open  trade  as  a  complement  to  the  fiscal  stimulus.  G-20  countries  should 
strive  for  further  global  market  opening.  An  early  conclusion  of  the  Doha  round  on  the 
basis  of  the  existing  negotiating  texts  on  agriculture  and  industrial  goods  is  key.  The 
London  Summit  should  reaffirm  a  strong  common  stance  against  protectionism,  in  line 
with  the  standstill  commitment  agreed  at  Washington  and  the  effective  monitoring 
mechanism  established  under  the  WTO.  G-20  partners  should  express  their  collective 
determination implement this commitment at the highest political level. 

–  Launching  a  multilateral  initiative  on  trade  finance  that  would  reinforce  the  efforts  of 
the World Bank Group and other relevant multilateral development agencies in expanding 
their trade finance activities.  

–  Promoting global development as part of the solution to the global crisis and a basis for 
peace  and  stability  worldwide.  The  London  Summit  should  reaffirm  the  commitment  to 
supporting developing countries' efforts to generate growth and the fight against poverty, 
in particular by delivering on the Millennium Development Goals. To facilitate the active 
participation of developing countries in international trade, the G-20 should meet their aid-

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for-trade  pledges  and  give  duty-free  and  quota-free  access  to  their  markets  for  least 
developed countries.  

6. 

CONCLUSION 

This Communication sets out how the European Union can build on the steps already taken to 
address  the  financial  and  economic  crisis.  The  EU  is  now  entering  a  new  phase  of 
implementation of its Recovery Plan, with a need for effective co-ordination of the measures 
being  taken  to  ensure  that  they  work  to  best  effect  to  help  businesses,  households  and 
communities across Europe. This Communication echoes the discussion of the Heads of State 
and Government on 1 March 2009 and underlines that the road to recovery will be eased if 
measures in one Member State are shaped to spark an upturn in others. Effective coordination 
will make the single market a springboard for recovery. 

The Commission invites the Spring European Council to: 

•  Agree  on  the  need  for  a  new  package  of  financial  sector  reform  measures 
including a new supervisory framework for the EU's financial sector, based on the 
work of the de Larosière group, and to decide on the main elements of this new 
framework at the June European Council, on the basis of further proposals from 
the  Commission;  and  to  invite  the  Council  and  European  Parliament  to  give 
priority  to  the  adoption  of  the  proposals  on  financial  services  regulation  to  be 
proposed by the Commission in the coming months; 

•  Invite  Member  States  to  take  the  necessary  action  to  ensure  long-term  financial 
stability  as  soon as economic conditions allow, in line with the revised Stability 
and Growth Pact; 

•  Invite  Member  States  to  expedite  the  implementation  of  their  national  recovery 

plans and structural reforms;  

•  Invite Member States to apply the common principles set out in section 3.2 when 

designing and implementing measures to strengthen the real economy;  

•  Invite Member States to effectively support people through the crisis, drawing on 

the elements for action outlined in this Communication; 

•  Endorse the process for the preparation of the European Employment Summit in 

May; 

•  Approve the joint European position for the G-20 Summit in London. 

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