Recommendation for a COUNCIL RECOMMENDATION on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro
Date: 2011-06-07
Institutions: European Commission
Subjects: aid for restructuring, economic growth, financial institution, job creation, stability programme

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 828 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the implementation of the broad guidelines for the economic policies of the  
Member States whose currency is the euro 

{SEC(2011) 737 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the implementation of the broad guidelines for the economic policies of the  
Member States whose currency is the euro 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 136 in combination with Article 121(2) thereof, 

Having regard to the recommendation of the European Commission1, 

Having regard to the conclusions of the European Council, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

On  […]  the  Euro  Group  held  a  discussion  on  the  implementation  of  the  broad 
guidelines  for  the  economic  policies  of  Member  States  whose  currency  is  the  euro 
area,  recognising  the  need  further  to  strengthen  within  the  Euro  Group  the  policy 
coordination  and  the  monitoring  of  the  implementation  of  the  recommendations 
addressed to the Member States whose currency is the euro. 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission's 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies  of  the  Member  States and the Union (2010 to 2014).  Member 
States  and,  where  relevant,  the  European  Union  were  invited  to  take  the  guidelines 
into account in their economic policies. 

On  12  January  2011,  the  Commission  adopted  the  first  Annual  Growth  Survey, 
marking  the  start  of  a  new  cycle  of  economic  governance  in  the  EU  and  the  first 
European semester of ex-ante and integrated policy coordination, which is anchored in 
the Europe 2020 strategy.  

(5) 

On  25  March  2011,  the  European  Council  endorsed  the  priorities  for  fiscal 
consolidation  and  structural  reform  (in  line  with  the  Council’s  conclusions  of  15 

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(6) 

(7) 

(8) 

(9) 

February and 7 March 2011 and further to the Commission’s Annual Growth Survey). 
It  underscored  the  need  to  give  priority  to  restoring  sound  budgets  and  fiscal 
sustainability,  reducing  unemployment  through  labour  market  reforms  and  making 
new efforts to enhance growth. It requested Member States to translate these priorities 
into  concrete measures to be included  in their Stability or Convergence Programmes 
and National Reform Programmes. 

On 25 March 2011, the European Council also invited the Member States participating 
in  the  Euro  Plus  Pact  to  present  their  commitments  in  time  to  be  included  in  their 
Stability or Convergence Programmes and their National Reform Programmes. 

In  April  and  May  2011  the  euro  area  Member  States  submitted  their  2011  Stability 
Programmes  covering  the  period  2011-2014  and  their  2011  National  Reform 
Programmes. These programmes have been assessed at the same time. 

The experience of the first decade of the euro generally underlined the many benefits 
of  the  single  currency.  However,  the  global  crisis  resulted  in  a  deep  contraction  in 
2009, which sent euro area GDP below its 2006 level. While 2010 saw that GDP grow 
again,  output  still  remains  below  that  of  2007.  As  a  consequence,  euro  area 
unemployment rose from 7.6% in 2007 to 10.1% in 2010. Public finances in the euro 
area deteriorated, triggering a significant reassessment of sovereign debt risks in some 
Member  States  and  bringing  about  risks  to  macro-financial  stability.  Growth  is  now 
recovering,  with  divergences  between  Member  States  reflecting  both  structural  and 
cyclical  differences.  The  crisis  triggered  reduction  in  macroeconomic  imbalances 
which had developed before the crisis. However, it remains to be seen whether this is 
sufficient and sustainable. 

General government balances in the euro area have, on average, begun to improve in 
2010.  Based  on  the  Commission  spring  forecast,  assuming  unchanged  policies,  they 
are  expected  to  continue  improving  in  2011.  However,  public  debt  will  continue  to 
grow  until  2012.  If  not  corrected  in  the  years  to  come,  it  may  jeopardise  long-term 
fiscal sustainability  given  the  combination of low potential growth and unfavourable 
demographic developments. In 2010, the euro area deficit decreased to 6.0% of GDP, 
while  the  debt  ratio  increased  to  85.1%  of  GDP.  According  to  the  2011  Stability 
Programme targets, the euro area deficit would fall to 1.3% of GDP in 2014 and the 
debt ratio would begin to decline again to below 85% of GDP in 2014, after peaking in 
2012.  Such  a  path  of  fiscal  consolidation  for  the  euro  area  as  a  whole  would  be 
broadly compatible with the strengthening of the recovery. The planned emphasis of 
consolidation  on  expenditure  reduction  relative  to  tax  increases  enhances  the 
likelihood  of  its  success.  Still,  a  concern  remains  in  a  number  of  countries  as  to  the 
effective  implementation  of  the  plans.  Moreover,  several  euro  area  Member  States 
have recently implemented new fiscal rules or announced the strengthening of existing 
ones,  but  these  will  in  some  Member  States  require  additional  measures  to  be  fully 
effective.  In  view  of  ageing  populations,  reforms  of  pensions  and  social  security 
systems are not yet sufficient to ensure fiscal sustainability. 

(10)  The EU policy response has brought improvements to the functioning and stability of 
the  financial  system.  Challenges  in  the  financial  sector  in  several  euro  area  Member 
States include banks' exposure to further losses on their asset holdings or a tightening 
of conditions on refinancing markets, the continuation of banking sector restructuring 

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(11) 

(12) 

and  recapitalisation,  while  public  sector  support  to  the  banking  sector  is  still  to  be 
phased out.  

Improvements in productivity and competitiveness are needed to increase the growth 
potential  of  the  euro  area  and  to  address  the  macroeconomic  imbalances  within  the 
euro area. In this respect, euro area Member States announced a number of structural 
reforms in their National Reform Programmes. However, there are still shortcomings 
on  measures  needed  to  improve  the  functioning of their product and labour markets, 
notably  regarding  service  sectors,  growth-friendly  fiscal  consolidation,  and  the  wage 
setting systems.  

In order to ensure the proper functioning of EMU, euro area Member States are under 
a  particular  obligation  to  regard  their  economic  policies  as  a  matter  of  common 
concern due to the potential for spillover effects among countries sharing a common 
currency.  Therefore,  a  more  comprehensive  and  permanent  overhaul  of  economic 
policy coordination at the EU and euro area level proved necessary in light of the crisis 
and the current challenges. The integrated annual surveillance cycle enshrined in the 
'European  Semester',  the  strengthened  economic  governance  framework  as  proposed 
by  the  Commission,  the  creation  of  the  European  Systemic  Risk  Board  and  the 
European  supervisory  agencies,  and  the  European  Stability  Mechanism  are  essential 
elements  some  of  which  remain  to  be  fully  adopted  and/or  implemented.  The  'Euro 
Plus Pact' further reinforces this framework.  

(13)  The  Commission  has  assessed  the  Stability  Programmes  and  the  National  Reform 
Programmes of the euro area Member States2, taking into account the need to reinforce 
the overall economic governance of the euro area. It considers that strict adherence to 
budgetary targets, with a reinforcement in some Member States, and further measures 
to strengthen fiscal rules and sustainability are required. Additional steps should also 
be taken to improve financial stability, incentives to work, wage setting mechanisms, 
the efficiency of service sectors, and euro area governance, 

RECOMMENDS  that  Member  States  whose  currency  is  the  euro  should  take  action  within 
the period 2011-2012 to: 

(1) 

(2) 

(3) 

(4) 

Strictly adhere to the budgetary targets set out in their 2011 Stability Programmes as 
well  as  the  Memoranda  of  Understanding  in  Member  States  receiving  EU/IMF 
financial assistance and, where applicable, reinforce consolidation efforts in line with 
the opinion delivered by the Council. 

Ensure fiscal discipline at both national and sub-national levels by introducing fiscal 
rules supported by a sufficiently strong and binding legal framework. 

Implement  reforms  to  social  security  systems  that  ensure  fiscal  sustainability  with 
due  regard  to  the  adequacy  of  pensions  and  social  benefits,  notably  by  aligning 
pension systems with the national demographic situation. 

Improve  the  functioning  and  stability  of  the  financial  system,  following  up 
immediately  on  the  forthcoming  EU-wide  stress  tests  to  ensure  that  the  banking 
sector  becomes  resilient  to  possible  further  losses  or  funding  constraints  and  that 

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non-viable  financial  institutions  are  able  to  restructure  or  exit  the  market  without 
creating undue tensions on financial markets.  

Pursue further tax reforms which give priority to growth-friendly sources of taxation 
while  preserving  overall  tax  revenues,  in  particular  by  lowering  taxes  on  labour  to 
make work pay; when reducing public expenditure, protect growth-enhancing items 
such  as  spending  on  research  and  development,  education  and  energy  efficiency; 
where  necessary  adjust  wage  setting  arrangements  and  indexation  mechanisms  in 
consultation with social partners, so as to ensure that wages are evolving in line with 
productivity and competitiveness.  

Introduce  further  reforms  in  service  sectors,  in  particular  by  removing  unjustified 
restrictions on professional services, retailing and network industries. 

Fully  implement  the  commitments  made  in  the  Euro  Plus  Pact  so  as  to  enhance 
growth, competitiveness and employment within the area. 

(5) 

(6) 

(7) 

Done at Brussels, 

For the Council 
The President 

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