REPORT FROM THE COMMISSION TO THE COUNCIL on the exception clause (Article 10 of Annex XI to the Staff Regulations)
Date: 2011-07-13
Institutions: European Commission
Subjects: civil servant, monetary crisis, regulations for civil servants, remuneration of work

EUROPEAN COMMISSION 

Brussels, 13.7.2011 
COM(2011) 440 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

on the exception clause (Article 10 of Annex XI to the Staff Regulations) 

 
 
 
 
  
 
REPORT FROM THE COMMISSION TO THE COUNCIL 

on the exception clause (Article 10 of Annex XI to the Staff Regulations) 

EXECUTIVE SUMMARY 

During  the  discussions  on  the  2010  annual  adjustment  of  the  remuneration  and 
pensions of EU staff the Council stated that the latest financial and economic crises 
had  resulted  in  a  serious  and  sudden  deterioration  of  the  economic  and  social 
situation  within  the  EU  and  requested  the  Commission  to  submit  appropriate 
proposals on the basis of Article 10 of Annex XI to the Staff Regulations. 

In  the  judgment  rendered  on  24  November  2010  in  Case  C-40/10,  the  Court  of 
Justice  stressed  that  the  exception  clause  enables  account  to  be  taken  of  the 
consequences  of  a  deterioration  in  the  economic  and  social  situation  which  is  both 
serious and sudden where, under the ‘normal method’, the remuneration of officials 
would  not  be  adjusted  quickly  enough.  The  Court  clarified  that  the  procedure  laid 
down in Article 10 of Annex XI to the Staff Regulations constitutes the only means 
of  taking  account  of  an  economic  crisis  in  the  adjustment  of  remuneration  and 
therefore of disapplying the criteria laid down in Article 3(2) of that Annex. 

The method thoroughly measures, through the  principle of parallelism,  the relevant 
economic and social situation within the Union, as reflected in decisions of Member 
States  on  the  salaries  of  national  civil  servants.  The  legislator  carefully  chose  the 
criteria  to  be  taken  into  account  for  the  adjustment  of  remuneration  and  pensions; 
these criteria can be applied during both an upswing and a downturn in the economy.  

The exception clause is not an economic cycle clause: it is therefore to be used when 
there  are  extreme  developments  in  the  EU  and  only  if  the  method  is  not  able  to 
measure them. It is not to be used whenever the EU is in the downward phase of the 
economic cycle. 

The Commission has used 15 indicators to assess whether it is necessary to use the 
exception clause in 2011. In line with the European Economic Forecasts released by 
DG  ECFIN  on  13  May  2011,  they  show  that  the  economic  recovery  in  the  EU 
continues to make headway. 

The report concludes that there has been no serious and sudden deterioration in the 
economic and social situation within the Union during the reference period of 1 July 
2010  to  mid-May  2011,  and  that  it  is  not  appropriate  to  submit  a  proposal  under 
Article 10 of Annex XI to the Staff Regulations.  

However, on 29 June 2011, the Commission took note of a draft proposal for a new 
method, including possible amendments to the mechanism of the exception clause, in 
order to render its application automatic under specific conditions in the future. 

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1. 

INTRODUCTION 

During  the  discussions  on  the  2010  annual  adjustment  of  the  remuneration  and 
pensions  of  EU  officials  and  other  servants,  the  Council  made  the  following 
statement:  

The  Council  notes  that  the  latest  financial  and  economic  crises  that  have  occurred 
within  the  EU  and  that  result  in  substantial  fiscal  adjustments  and  increased  job 
uncertainty  in  several  Member  States  create  a  serious  and  sudden  deterioration  of 
the economic and social situation within the EU. In this context, the Council requests 
the  Commission,  in  conformity  with  Article  241  TFUE,  to  submit,  on  the  basis  of 
Article  10  of  Annex  XI  of  the  Staff  Regulations  and  in  the  light  of  objective  data 
supplied  by  the  Commission,  appropriate  proposals  in  time  for  the  European 
Parliament and the Council to examine and adopt them before the end of 2011. 

Under  Article  241  TFEU,  the  Council,  acting  by  simple  majority,  may  request  the 
Commission  to  undertake  any  studies  the  Council  considers  desirable  for  the 
attainment of the common objectives, and to submit to it any appropriate proposals. 
If  the  Commission  does  not  submit  a  proposal,  it  must  inform  the  Council  of  the 
reasons. 

This  report  complies  with  the  Council’s  request  and  with  Article  241  TFEU.  It 
covers  the  period  starting  from  the  effective  date  of  the  last  annual  adjustment  of 
remuneration and pensions (1 July 2010) until the moment when the latest data were 
made available for the purposes of this report (mid-May 2011). 

2. 

LEGAL BACKGROUND 

Under Article 65 of the Staff Regulations, ‘… [t]he Council shall each year review 
the remuneration of the officials and other servants of the Union. This review shall 
take place in September in the light of a joint report by the Commission based on a 
joint  index  prepared  by  the  Statistical  Office  of  the  European  Union  in  agreement 
with the national statistical offices of the Member States; the index shall reflect the 
situation as at 1 July in each of the countries of the Union.  

During  this  review  the  Council  shall  consider  whether,  as  part  of  economic  and 
social  policy  of  the  Union,  remuneration  should  be  adjusted.  Particular  account 
shall  be  taken  of  any  increases  in  salaries  in  the  public  service  and  the  needs  of 
recruitment.’ 

Pursuant to Article 65a of the Staff Regulations, the rules for implementing Articles 
64 and 65 are set out in Annex XI. 

Article 3(1) and (2) of Annex XI to the Staff Regulations states: 

1. Under Article 65(3) of the Staff Regulations, the Council, acting on a Commission 
proposal and on the basis of the criteria set out in Section 1 of this Annex, shall take 
a  decision  before  the  end  of  each  year  adjusting  remuneration  and  pensions,  with 
effect from 1 July. 

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2.  The  amount  of  the  adjustment  shall  be  obtained  by  multiplying  the  Brussels 
International Index by the specific indicator. The adjustment shall be in net terms as 
a uniform across-the-board percentage. 

Article 10 of Annex XI to the Staff Regulations (the exception clause) stipulates: 

If  there  is  a  serious  and  sudden  deterioration  in  the  economic  and  social  situation 
within the Union, assessed in the light of objective data supplied for this purpose by 
the  Commission,  the  latter  shall  submit  appropriate  proposals  on  which  the 
European Parliament and the Council shall decide in accordance with Article 336 of 
the Treaty on the Functioning of the European Union. 

The  relationship  between  Article  3  of  Annex  XI  and  the  exception  clause  was 
analysed  by  the  Court  of  Justice  in  its  judgment  in  Case  C-40/10  Commission  v 
Council. The Court pointed out that the exception clause ‘… makes it possible, in an 
extraordinary  situation,  to  disregard  on  an  ad  hoc  basis  the  method  laid  down  in 
Article 3 of Annex XI to the Staff Regulations, without amending it or repealing it for 
the following years’ (paragraph 74, underlining added). 

In addition, the Court explained that ‘… as the Commission considered in its report 
of  27  June  1994  on  the  applicability  of  the  exception  clause  (SEC(94)  1027  final, 
point II.3, pp. 5 and 6), that clause enables account to be taken of the consequences 
of  a  deterioration  in  the  economic  and  social  situation  which  is  both  serious  and 
sudden where, under the ‘normal method’, the remuneration of officials would not be 
adjusted quickly enough’ (paragraph 75, underlining added). 

The Court of Justice made it clear that: ‘… the procedure laid down in Article 10 [of 
Annex XI to the Staff Regulations] constitutes the only means of taking account of an 
economic crisis  in  the adjustment  of remuneration and therefore of disapplying the 
criteria laid down in Article 3(2) of that annex' (paragraph 77, underlining added).  

That  finding  cannot  be  invalidated  by  the  fact  that  the  application  of  Article  10  of 
Annex XI to the Staff Regulations is dependent on a proposal from the Commission. 
It is clear inter alia from Article 17(2) TEU that that situation is consistent with the 
institutional  balance  envisaged  by  the  Treaties  which,  in  principle,  grant  the 
Commission,  in  respect  of  legislative  procedures,  the  sole  power  to  initiate 
proposals’ (paragraph 78). 

3. 

THE OBJECTIVES AND THE UNDERLYING PRINCIPLES OF THE METHOD 

The Commission considers it appropriate to recapitulate the principles underlying the 
method  for  salary  and  pension  adjustments,  which  were  already  explained  in  the 
Commission Report on Annex XI to the Staff Regulations (COM(2008) 443). 

The provisions of the current method for adjusting remuneration and pensions apply 
from 1 July 2004 until 31 December 2012 and are laid down in Articles 64, 65 and 
65a of and Annex XI to the Staff Regulations. 

The main objectives of the method are: 

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–  automatic  salary  adjustment  in  order  to  avoid  that  the  work  of  all  Union 
Institutions and agencies is disrupted by annual negotiations and possibly strikes; 

–  transparent,  efficient,  relatively  straightforward  rules 

to  determine  salary 

adjustments for officials and other servants of all EU Institutions. 

In order to ensure that the method functions properly, the following principles have 
been laid down: 

–  equality of purchasing power among EU civil servants in different duty stations; 

–  parallelism with national officials in terms of changes in purchasing power. 

Two aspects of the method should be examined more closely: 

–  the principle of parallelism; 

–  the time-lag. 

3.1. 

The principle of parallelism 

In  accordance  with  Article  1(4)  of  Annex  XI,  the  (global)  specific  indicator  is 
calculated to reflect the average change in the net remuneration of national officials 
in  central  government  in  real  terms,  i.e.  after  taking  account  of  inflation  in  the 
country where they work. Then, as laid down in Article 3(2) of Annex XI, consumer 
price inflation in Brussels, which is the reference location where most EU officials 
work,  is  measured  by  the  Brussels  International  Index  (BII).  Finally,  the  BII  is 
multiplied by the global specific indicator to calculate the nominal annual adjustment 
to the basic salaries of EU officials, which may be either positive or negative. 

Therefore, the change in the purchasing power of EU officials is fully determined by 
the  global  specific  indicator,  which  ensures  equivalence  with  developments  in  the 
purchasing power of national officials. This is the principle of parallelism. 

3.2. 

The time-lag inherent in the method 

In line with Articles 1(2) and (4) of Annex XI to the Staff Regulations, the Brussels 
International  Index  is  to  take  into  account  the  changes  in  consumer  prices  between 
June  of  the  previous  year  and  June  of  the  current  year,  and  Eurostat  is  to  calculate 
specific  indicators  reflecting  changes  in  the  real  remuneration  of  civil  servants  in 
central government, for the countries in the sample, between 1 July of the previous 
year  and  1  July  of  the  current  year.  Under  Article  3(1)  of  Annex  XI  to  the  Staff 
Regulations,  the  Council,  acting  on  a  Commission  proposal,  has  to  take  a  decision 
before  the  end  of  each  year  adjusting  remuneration  and  pensions,  with  effect  from 
1 July. Therefore, the annual adjustment applies with a maximum delay of one year. 
There  is  then  a  further  delay  of  up  to  six  months  until  adoption  of  the  salary 
is  applied 
adjustment 
retrospectively. 

required  before  31  December,  which 

regulation, 

The legislator considered that the method could function with this time-lag, and EU 
officials and other staff would be able to bear the impact of yearly inflation. That is 
why  Article  65  lays  down  only  one  annual  deadline  for  the  adjustment  of 

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remuneration. There is, however, the possibility to make an intermediate adjustment 
of remuneration, provided for in Articles 4-8 of Annex XI to the Staff Regulations, if 
there is a substantial change in the cost of living between June and December. 

4. 

EXCEPTION CLAUSE 

Nevertheless, the legislator adopted an exception clause. This clause sets a number of 
conditions that have to be met before any action is taken: 

–  the  deterioration  has  to  be  both  serious  and  sudden,  it  must  affect  the  economic 
and social situation at Union level, and it must be assessed in the light of objective 
data provided by the Commission; 

–  the  deterioration  has  to  be  such  that  the  method  would  not  be  able  to  take  it 
properly  into  account  due  to  its  exceptional  nature  in  terms  of  timing  and 
magnitude. 

The  exception  clause  stipulates  that,  if  there  are  objective  reasons  for  it  to  be 
triggered,  the  Commission  is  bound  to  submit  appropriate  proposals  on  which  the 
European  Parliament  and  the  Council  are  to  decide  in  accordance  with  Article  336 
TFEU. 

4.1. 

Conditions for triggering the exception clause 

The wording of the exception clause should be carefully examined since, in order to 
trigger the clause, all the conditions laid down in Article 10 of Annex XI to the Staff 
Regulations must be met. 

‘Deterioration’  is  a  term  used  to  describe  a  worsening  of  the  economic  and  social 
situation. Whether a ‘serious’ deterioration of the economic and social situation has 
occurred should be determined with reference to both the magnitude and duration of 
the identified economic and social impacts. Whether a ‘sudden’ deterioration of the 
economic and social situation has taken place has to be considered with regard to the 
speed  and  predictability  of  the  economic  and  social  impacts.  In  this  context  it  is 
particularly important to distinguish normal fluctuations of the economic cycle from 
those caused by external events. 

Whether  the  above  conditions  are  met  should  be  assessed  by  using  a  variety  of 
objective  indicators,  covering  both  the  economic  and  the  social  domains.  These 
indicators  should  comply  with  the  following  set  of  relevant  and  widely  accepted 
principles1. 

–  An  indicator  should  capture  the  essence  of  the  problem  and  have  a  clear  and 

accepted normative interpretation. 

1 

Most  of  them  are  principles agreed  for  the  Open  Method of  Coordination  (OMC)  on  social  inclusion 
and  protection.  The  OMC  is  used  by  Member  States  to  support  the  definition,  implementation  and 
evaluation of their social policies and to develop their mutual cooperation. A tool of governance based 
on common objectives and indicators, the method supplements the legislative and financial instruments 
of  social  policy.  It  is  part  of  the  implementation  of  the  process  of  coordination  of  social  policies, 
particularly in the context of the Lisbon Strategy (and now Europe 2020). 

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–  An indicator should be robust and statistically validated. 

–  An indicator should be timely and susceptible to revision. 

–  The  focus  of  indicators  should  be  on  the  EU  as  a  whole  and  not  on  individual 

Member States. 

–  The indicators should be mutually consistent. 

–  The  set  of  indicators  should  be  as  transparent  and  accessible  as  possible  to  EU 

citizens. 

–  Recourse should be made to existing indicator sets wherever possible. 

In accordance with these principles, the following 15 indicators are appropriate:  

–  Economic  activity:  GDP  growth,  domestic  demand,  inventories,  net  exports, 
private consumption, public consumption, total investment, and inflation (HICP) 
within the Union; 

–  Public finances: general government balance and public debt within the Union; 

–  Labour  market:  total  employment,  unemployment  rate  and  compensation  of 

employees within the Union; 

–  Sentiment 

indicators:  Economic  Sentiment 

Indicator  and  employment 

expectations within the Union. 

In order to assess whether the criteria laid down in the exception clause are currently 
met, the analysis of the economic and social situation should be carried out for the 
period from July 2010 to mid-May 2011 (subject to the availability of relevant data 
or forecasts), as the 2010 annual adjustment already covered the period until 1 July 
2010.  This  is  in  line  with  the  definition  of  a  ‘sudden’  deterioration,  referred  to  in 
Article  10  of  Annex  XI  to  the  Staff  Regulations.  However,  a  longer  period  is 
presented to provide a global overview where appropriate. 

4.2. 

Retaining the principle of parallelism 

The method thoroughly measures, through the principle of parallelism, the relevant 
economic and social situation within the Union, as reflected in decisions of Member 
States  on  the  salaries  of  national  civil  servants.  The  legislator  carefully  chose  the 
criteria  to  be  taken  into  account  for  the  adjustment  of  remuneration  and  pensions; 
these criteria can be applied during both an upswing and a downturn in the economy.  

The  method  for  adjusting  remuneration  and  pensions  has  been  in  force  for  almost 
forty  years.  During  this  long  period  of  time,  the  EU  economy  has  experienced 
periods of rapid growth as well as periods of economic downturn. 

The principle of parallelism with national officials in terms of changes in purchasing 
power,  which  has  been  enshrined  in  the  Staff  Regulations  since  1962,  has  to  be 
maintained also at a time of economic downturn in the European Union. This is fully 

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in  line  with  Article  65,  which  states  that  particular  account  is  to  be  taken  of  any 
increases in salaries of the public service during the annual review. 

However, if there is a sudden and serious deterioration that the method would not be 
able  to  take  properly  into  account,  due  to  its  exceptional  nature  in  terms  of  either 
timing or magnitude, the exception clause should be used. 

A  different  interpretation  would  lead  to  incoherent  results:  despite  the  method’s 
ability to capture properly economic and social developments within the EU through 
their effect on salaries of national civil servants, the legislator would have to adopt 
exceptional  measures  with  respect  to  the  annual  adjustment  of  EU  civil  servants’ 
remuneration  and  pensions.  Such  an  interpretation  would  fall  outside  the  economic 
and  social  policy  of  the  European  Union,  as  referred  to  in  Article  65  of  the  Staff 
Regulations. 

The  same  applies  to  the  time-lag  inherent  in  the  method.  The  reference  period,  by 
definition, entails a maximum delay of one year in salary adjustments (although the 
delay  in  practice  is  likely  to  be  smaller).  While  the  legislator  considered  that  the 
method should work with this time-lag, the exception clause clearly makes it possible 
to decrease it, if Member States were to take extreme measures to adjust the salaries 
of national officials, which should be applied to EU civil servants without waiting for 
the following annual adjustment exercise. 

Therefore,  the  appropriate  proposals,  where  necessary,  should  be  such  as  to  reflect 
the  exceptional  developments  that  have  not  been  properly  captured  by  the  method. 
These  proposals  should  not  go  beyond  the  implementing  rules  laid  down  in 
Annex XI to the Staff Regulations: there is no objective reason to apply criteria other 
than  the  change  in  purchasing  power  in  the  Member  States’  civil  services,  because 
that  would  undermine  the  effects  of  the  method  and  would  impose  additional 
measures on EU staff which had not been applied to staff in the Member States. 

Lastly, the exception clause is not an economic cycle clause. As explained above, the 
legislator carefully chose the economic and social criteria to be taken into account for 
salary and pension adjustments; these criteria can be applied at a time of economic 
growth  as  well  as  at  a  time  of  economic  downturn.  The  method  can  be  applied 
equally when salaries in Member States increase or decrease, and the gain or loss in 
the  purchasing  power  of  national  civil  servants  will  be  directly  reflected  in  the 
salaries and pensions of EU civil servants. Hence, the exception clause is to be used 
when there are extreme developments in the EU and only if the method is not able to 
measure them. It is not to be used whenever the EU is in the downward phase of the 
economic cycle. 

5. 

THE ECONOMIC AND SOCIAL SITUATION IN THE EU 

Like most financial stress-driven crisis episodes, the recent crisis was preceded by a 
relatively long period of rapid credit growth, low risk premiums, soaring asset prices 
and above all the development of bubbles in the real estate sector. Failure by some 
banks to value their investment funds already in the summer of 2007 confirmed the 
suspicion that a financial crisis could occur, due to the heavy exposure of banks to 

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American subprime mortgage loans, a few months before the crisis truly broke out in 
2008. 

Public  authorities  still  perceived  the  emerging  crisis  as  a  liquidity  problem  and 
systemic collapse was deemed unlikely, until the events of September 2008 led them 
to react vigorously so as to rapidly restore calm in the financial markets. 

In  the  meantime,  appropriate  macroeconomic  policy  responses  helped  limit  the 
duration of the crisis and set the scene for the economic recovery2. 

In order to determine whether the chosen reference period (1 July 2010 to mid-May 
2011)  is  the  most  appropriate  for  assessing  whether  the exception clause should be 
applied, the developments prior to this period should be briefly examined. 

5.1. 

The preceding period  

5.1.1.  Annual adjustments in 2009 and 2010 

Over  the  period  July  2008–July  2009,  the  global  specific  indicator  showed  a  2.7 % 
increase in the purchasing power of national civil servants in central government (see 
Table 1). This increase and the Brussels International Index (BII) (0.9 %) added up to 
a 3.7 % adjustment value for July 2009–July 2010, due to the time-lag inherent in the 
method  (see  Table  2).  Through  parallelism,  the  increase  in  purchasing  power  of 
European officials over July 2009–July 2010 equals that of national officials over the 
preceding one-year period (2.7 %). 

Over the period July 2009–July 2010, six out of the eight Member States used in the 
sample  adopted  increases  in  nominal  salaries  (see  Table  3).  On  average,  these 
amounted more or less to a freeze on nominal salaries (-0.6 % including the French 

2 

Source: Economic crisis in Europe: Causes, consequences and responses, July 2009, DG ECFIN. 

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correction; -0.3 % in reality3). Mainly due to inflation (1.7 %), this resulted in a fall in 
purchasing  power  of  national  officials  (-2.2 %).  Through  parallelism,  it  was 
automatically  reflected  in  the  2010  review  when  the  remuneration  of  European 
officials was also frozen4 (see Table 4). 

The  Member  States  making  up  the  sample  adopted  salary  adjustments  during  the 
period  2007-2010  which  cannot  be  reasonably  considered  as  likely  to  produce 
excessive  results  given  the  time-lag  built  into  the  method:  these  adjustments  led  at 
most to a 2.2 % decrease in purchasing power over the period July 2009–July 2010. 
At the same time, other Member States, in particular the new ones, made salary cuts 
(see Table 5). Overall, the specific indicator for 27 Member States would amount to -
2.0 %, which would have resulted in an even higher adjustment value for EU salaries. 
According to Eurostat’s March 2011 estimates, a further decline of 1.3 % is projected 
for the period July 2010–July 2011. 

If  salary  cuts  had  been  implemented  by  many  Member  States,  representing  a 
significant proportion of EU GDP and therefore, by definition, reflected in the global 
specific  indicator,  the  Commission  would  have  submitted  appropriate  proposals  in 
order to bring forward the loss of purchasing power for EU officials. 

3 

4 

The impact of an error in the French figures related to the 2009 adjustment was taken into account in 
the  2010  adjustment,  as  the  correction  of  the  2009  adjustment  was  not  possible  due  to  the  need  to 
comply with the judgment in Case C-40/10. 
A slight increase in basic salaries of 0.1 %, which, after taking into account the increase in the pension 
contribution rate and in the special levy, resulted in a cut in net salaries. 

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However,  the  time-lag  effect  that  occurred  over  this  period  was  not  deemed 
excessive. The amplitude of the time-lag effect can be assessed by determining the 
difference between the change in purchasing power of national officials and that of 
EU officials, in a given year. This gap was equal to -4.0 % over the period July 2008–
July 2009: that is to say that the change in purchasing power of national officials was 
4.0  points  greater  than  that  of  EU  officials.  The  purchasing  power  of  national 
officials indeed increased by 2.7 % over this period, while the purchasing power of 
EU officials decreased by 1.3 %. Over the period July 2009–July 2010, roughly the 
opposite  occurred,  with  a  gap  equal  to  4.9 %,  as  EU  officials  benefited,  through 
parallelism, from the increase in purchasing power that had been granted to national 
officials over the preceding period (see Table 6). 

Table 6: Time-lag effect

Gap

Change in 
pur chasing 
power of EU 
officials (%)

(B)
(cid:122)

(C=B-A)

-1,2

0,0

0,2

0,0

-1,3

2,7

-2,2

-
-1,2

-0,2

0,2

1,3

-4,0

4,9

-

Source : Eurostat

2004

2005

2006

2007

2008

2009

2010

2011

Change in 
purc hasing 
power of 
national officials 
(%)

(A)

-1,2

0,0

0,2

0,0

-1,3

2,7

-2,2

-

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The application of the method in 2009 led to an annual adjustment of 3.7 % for EU 
officials,  which  the  Council  deemed  inappropriate  at  that  time.  However,  this 
increase  resulted  from  the  principle  of  parallelism  (as  salaries  in  the  national  civil 
services  had  increased),  and  the  time-lag  effect,  though  noteworthy,  was  still 
reasonable and unlikely to impede the proper functioning of the method. Therefore, 
there was no need to apply the exception clause in 2009. 

5.1.2.  Departure from the principle of parallelism 

In order to apply the principle of parallelism laid down in the method for adjusting 
the  remuneration  of  EU  officials,  the  change  in  the  salaries  of  national  officials  is 
monitored, and the average change in their purchasing power is applied to determine 
developments in the purchasing power of EU officials’ salaries. However, the annual 
adjustment calculated by reference to a given 12-month period is taken into account 
to  adjust  salaries  in  the  EU  civil  service  during  the  following  year.  Therefore,  the 
purchasing power of EU officials follows the average purchasing power of national 
officials  within  the  Member  States  making  up  the  representative  sample,  with  a 
systematic time-lag inherent in the method (see Figure 1, Table 7 and Table 8). 

Figure 1: Change in purchasing power of EU officials compared to national officials in central 
government (2003 – 2011)*

101,0 

100,0 

99,0 

98,0 

97,0 

96,0 

95,0 

2003

2004

2005

2006

2007

2008

2009

2010

2011

National officials (2003=100)

EU officials (2004=100)

*The curve for EU officia ls is similar to the curve for national officials, shifted by one year to the right, due to the time-lag. Over 
2005 – 2007, the two curves look superimposed because of small values for the specific indicator (close to 0%). Yet, there is still 
a one-year lag.

Source : Eurostat

EN 

11 

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Table 7: Annual percentage change in purchasing power of national and EU officials*

Year

2004

2005

2006

2007

2008

2009

2010

2011

Annual % change in 
purchasing power of 
national officials

-1,2 

0,0

0,2

0,0

-1,3 

2,7

-2,2 

-

Annual % change in 
purchasing power of EU 
officials
(cid:11)

-1,2 

0,0

0,2

0,0

-1,3 

2,7

-2,2 

Source : Eurostat

*Changes in pension contributions and spec ial levy are not taken into acc ount

Table 8: Changes in purchasing power of national and EU officials*

Year

2003

2004

2005

2006

2007

2008

2009

2010

2011

Changes in purchasing 
power of national officials

Changes in purchasing 
power of EU officials

(2003=100)

100,0

98,8

98,8

99,0

99,0

97,7

100,3

98,1

-

(2004=100)
(cid:11)

100,0

98,8

98,8

99,0

99,0

97,7

100,3

98,1

Source : DG HR

*Changes in pension contributions and spec ial levy are not taken into acc ount

Nevertheless,  as  already  pointed  out  by  the  Commission  in  20085,  the  principle  of 
parallelism is partially invalidated, at the potential expense of EU officials, for two 
reasons.  Although  their  salaries  are  affected  by  changes  in  national  social 
contributions via the specific indicator, the social contributions paid by EU officials 
are  periodically  adjusted  on  an  independent  basis.  The  special  levy,  which  is  an 
additional  deduction  from  the  remuneration  of  EU  officials,  introduces  another 
element  of  double-counting.  In  order  to  make  a  proper  comparison  between  the 
purchasing  power  of  national  and  EU  officials,  these  items  should  be  taken  into 
account (see Figure 2, Table 9 and Table 10). 

5 

Report from the Commission to the European Parliament and to the Council on Annex XI to the Staff 
Regulations, COM(2008) 443 final, 10.7.2008. 

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12 

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Figure 2: Changes in purchasing power of EU officials compared to national officials in central 
government (2003 – 2011) including pension contributions and special levy

101,0 

100,0 

99,0 

98,0 

97,0 

96,0 

95,0 

2003

2004

2005

2006

2007

2008

2009

2010

2011

National officials (2003=100)

EU officials (2004=100)

Source : Eurostat

Table 9: Annual percentage change in purchasing power of national and EU officials including the combined 
effect of increases in pension contributions and special levy

Year

2004

2005

2006

2007

2008

2009

2010

2011

Annual % change in 
purchasing power of 
national officials

Annual % change in 
pension contributions and 
special levy

-1,2 

0,0

0,2

0,0

-1,3 

2,7

-2,2 

-

0,3

0,5

0,2

0,2

0,5

0,4

0,3

-

Annual % change in 
purchasing power of EU 
officials
(cid:11)

-1,5 

-0,5 

0,0

-0,2 

-1,8 

2,3

-2,5 

Source : Eurostat

Table 10: Evolution of purchasing power of national and EU officials including the combined effect of 
increases in pension contributions and special levy

Year

2003

2004

2005

2006

2007

2008

2009

2010

2011

Evolution of purchasing 
power of national officials

Cumulative impact of 
increases in pension 
contributions and special 
levy

Evolution of purchasing 
power of EU officials

(2003=100)

(2003=100)

100,0

98,8

98,8

99,0

99,0

97,7

100,3

98,1

-

13 

100,0

100,3

100,8

101,0

101,2

101,7

102,1

102,4

-

(2004=100)
(cid:11)

100,0

98,5

98,0

98,0

97,8

96,1

98,3

95,8

Source : Eurostat & DG HR

   EN 

EN 

 
 
 
 
As  a  consequence,  the  cumulative  purchasing  power6  of  national  officials  fell  by 
1.8 % between 2004 and 2010, while that of EU officials fell by 4.3 % over the same 
period. 

The  principle  of  parallelism  should  be  maintained  through  economic  cycles.  This 
stems from the assumption that Member States would take appropriate measures in 
respect of their national civil servants, which would have a direct impact on salaries 
of  EU  officials.  Despite  this  principle,  the  remuneration  of  EU  officials  has 
significantly diverged from the remuneration of national officials since 2004, at the 
expense of the EU civil service. 

5.2. 

Assessment of the EU economic and social situation during the reference period  

5.2.1.  Economic recovery in the EU is on the way 

The recession ended in autumn 2009 and set the scene for a recovery boosted by a 
strong  upturn  in  the  second  quarter  of  2010,  with  economic  activity  expanding  by 
1 %  (on  a  quarter-on-previous-quarter  basis  in  the  euro  area),  broadly  due  to  an 
export-led rebound in industry. As the pace of growth eased in the third and fourth 
quarters  (0.3 %),  the  EU  recovery  slowed  down  in  the  second  half  of  2010,  as  the 
world economy went through a soft patch and the bad weather conditions in Europe 
hit investment growth in 2010Q4. Overall for the whole of 2010, GDP increased by 
1.8 % both in the euro area and in the EU. DG ECFIN’s spring forecast confirms the 
continuing recovery of the EU economy7. Economic growth in Europe is expected to 
continue along a trend at around 1.7 % (euro area) and 1.8 % (EU) in both 2011 and 
2012 (see Figure 3). 

Figure 3: GDP growth and decomposition within the EU-27 (annual % change)

3,0

0,5

1,8

1,8

1,9

-4,2

4

3

2

1

0

-1

-2

-3

-4

-5

2007

2008

2009

2010

2011

2012

Domestic demand

Inventories

Net exports

GDP growth

After  reaching  its  lowest  value  since  1990  in  March  2009  (66.9),  the  Economic 

Source : Eurostat (2007-2010) and DG ECFIN (2011-2012)

6 
7 

This is computed by compounding the year-on-year change in purchasing power from 2004 to 2010. 
In the following sections the 2011 and 2012 figures come from DG ECFIN’s 2011 spring forecast. 

EN 

14 

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Sentiment Indicator8 overtook its average value over 1990–2010 in April 2010 (100 
by  definition).  Since  then,  it  increased  steadily  up  to  107.4  in  March  2011,  but  it 
declined  somewhat  in  April  and  May  2011  (see  Figure  4).  This  significant  rise 
observed since March 2009 is mainly due to sentiment in industry9. 

Figure 4: Economic sentiment index within the EU-27 (Average since 1990 = 100)

110

105

100

95

90

85

80

75

70

65

60

n
a
J

b
e
F

r
a
M

r
p
A

y
a
M

n
u
J

l

u
J

g
u
A

p
e
S

t
c
O

v
o
N

c
e
D

n
a
J

b
e
F

r
a
M

r
p
A

y
a
M

n
u
J

l

u
J

g
u
A

p
e
S

t
c
O

v
o
N

c
e
D

n
a
J

b
e
F

r
a
M

r
p
A

y
a
M

2009

2010

2011

ESI

Average since 1990

The ongoing economic recovery has been driven by exports, which surged by 4.4 % 
(q-on-q) in the second quarter of 2010 before slowing somewhat to 2.2 % and 1.8 % 
in Q3 and Q4 respectively. The main contributors to GDP growth in the second half 
of 2010 were net exports, while developments in investment failed to take over from 
exports  as  the  main  engine  of  growth.  Inventories  contributed  negatively  to  GDP 
growth  in  the  first  half  of  2010,  while  during  the  last  quarter  of  2010  private 
consumption showed some encouraging signs (see Figure 5). 

Source : DG ECFIN

Public  finances  in  the  EU  have  deteriorated  sharply  in  recent  years.  The  aggregate 
general government budget deficit grew from less than 1 % of GDP in 2007 to almost 
7 %  of  GDP  in  2009.  This  has  led  to  a  strong  rise  in  the  debt-to-GDP  ratio  for  the 
EU. However, the deterioration in fiscal positions is not only due to cyclical factors 
but  dates  back  well  before  the  sharp  fall  in economic  activity  in  2008-09.  In  2010, 
the budgetary outturn will not deteriorate further and may even improve slightly as a 
result  of  better-than-expected  economic  growth  and  as  the  effect  of  the  fiscal 
stimulus to support growth comes gradually to an end. 

8 

9 

Business and consumer surveys provide monthly judgments and expectations concerning diverse facets 
of economic activity in the different sectors of the economy: industry, services, construction and retail 
trade, as well as consumers. For each of the five surveyed sectors, ‘confidence indicators’ are produced 
to reflect overall perceptions and expectations at the individual sector level in a one-dimensional index. 
In order to be able to track overall economic activity, the broader Economic Sentiment Indicator (ESI) 
has been calculated since 1985, as a weighted sum of these five indicators. 
Source: Business and consumer survey results, May 2011, DG ECFIN. 

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15 

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Figure 5: Main features within the EU-27 (annual % change)

12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14

2007

2008

2009

2010

2011

2012

Private consumption

Public consumption

Total investment

Exports

GDP growth

Source : Eurostat (2007-2010) and DG ECFIN (2011-2012)

5.2.2.  Public finances start to adjust 

The EU’s response to the downturn was swift and decisive. Aside from intervention 
to stabilise, restore and reform the banking sector, the European Economic Recovery 
Plan  (EERP)  was  launched  in  December  2008.  The  objective  of  the  EERP  was  to 
restore confidence and bolster demand through a coordinated injection of purchasing 
power into the economy along with strategic investments and measures to shore up 
business and labour markets. These costly interventions have significantly impacted 
public  finances:  the  debt-to-GDP  ratio  of  the  four  largest  European  economies 
exceeds 75 %, far above the threshold provided for in the Stability and Growth Pact. 
Overall, public debt reached 80.2 % of GDP within the EU and is expected to remain 
on an upward trend over the forecast horizon (2011–2012), reaching 83.3 % of GDP 
in 2012 (see Figure 6). 

EN 

16 

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Figure  6: Ge neral gover nm ent balance  and public de bt within the  E U-27, in %  of GDP (20 07 –  2012 )

2 0,0

1 5,0

1 0,0

5,0

0,0

-5,0

-1 0,0

-1 5,0

-2 0,0

80 ,2

8 2,3

8 3,3

74, 4

-6,8

-6,4

-4, 7

-3 ,8

-0 ,9

59,0

-2,4

62, 3

9 0

8 5

8 0

7 5

7 0

6 5

6 0

5 5

5 0

20 07

2 008

2 009

2010

201 1

201 2

G ov ernme nt  balanc e

Go ve rn me nt d ebt

S ourc e : Eu ros tat (2 0 07 -20 1 0) a nd DG  EC FIN (2 01 1 -2 012 )

In  this  context,  governments  have  already  started  to  push  public  finances  towards 
fiscal  adjustments  and  structural  reforms:  more  than  half  of  the  Member  States  are 
set  to  post  a  lower  general  government  deficit  in  2010  than  in  2009;  general 
government  deficit  within  the  EU  is  projected  to  decrease  from  6.4 %  of  GDP  in 
2010 to 4.7 % in 2011 and 3.8 % in 2012. Persistent high levels of debt could indeed 
undermine the economic recovery, mainly through three channels: higher savings by 
households,  the  financing  of  deficits  via  distortionary  taxation  and  increases  in 
government risk premia. Also, the credibility effect may offset the negative impact of 
consolidating,  which  entails  a  contractionary  effect.  The  main  concern  is  to  avoid 
renewed turbulence in sovereign-debt markets as experienced in early 2010. 

All in all, the economic recovery in the EU appears to be taking hold, with measures 
to adjust public finances under way, while inflation remains broadly contained10. 

5.2.3. 

Inflation remains subdued 

Despite  high  debt  ratios,  inflation  remains  subdued:  HICP  inflation  is  expected  to 
average  2.1 %  in  2010  within  the  EU  and  to  rise  to  3.0 %  in  2011  before  falling  to 
2.0 % in 2012 (see Figure 7). 

10 

Source: European Economic forecast — spring 2011, DG ECFIN. 

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17 

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Figure 7: Harmonised index of consumer prices within the EU-27 (annual % change)

3,7

2,4

4,0

3,5

3,0

2,5

2,0

1,5

1,0

0,5

0,0

3,0

2,1

2,0

1,0

2007

2008

2009

2010

2011

2012

HICP

Sourc e : Eurostat (2007-2010) and DG ECFIN (2011-2012)

In this context, no inflationary spiral scenario is expected to occur in the near future. 
Nevertheless, fears of disruptions to oil supply from developments in the Middle East 
and Northern Africa are putting pressure on commodity prices. 

Second-round  effects  from  commodity  price  increases  on  inflation  would  occur  if 
price setters and wage earners are unwilling to absorb the full cost increase. As price 
setters  pass  on  some  of  the  cost  to  production  costs  and  as  wage  earners  demand 
higher  salaries  (to  compensate  for  a  larger  energy  bill),  a  wage-price  spiral  could 
begin.  In  this  way  the  initial  shock  in  the  commodity  prices  would  be  perpetuated. 
Moreover,  this  mechanism  would  lead  to  a  simultaneous  increase  in  inflation 
expectations,  influencing  both  the  pricing  strategy  of  companies  and  wage 
negotiations.  

However, at the current juncture we observe no signs of second-round effects in the 
European  economy  and  the  European  Central  Bank,  which  is  monitoring  the 
situation,  is  ready  to  tighten  monetary  policy  in  an  effort  to  keep  inflation  close  to 
target. Indeed, at the moment inflation expectations are close to the target, and wage 
settlements and price setting outside the food and energy markets are not a matter of 
concern.  No  sign  of  excessive  wage  claims  is  present  in  the  most  recent  wage 
negotiations within the EU. 

The probability of the resurgence of second-round effects in the coming months may 
not be very high. The situation the EU economy is facing in the near future is very 
different from that prevailing at the time of the oil shocks in the 1970s, when it took 
only  a  year  for  the  original  shock  to  energy  prices  to  spill  over  to  core  inflation. 
Monetary  policy  is  now  more  credible,  wage  earners  face  greater  flexibility  in  the 
labour market, and sellers of goods and services face more competition. The existing 
slack in the European economy will also help in keeping inflation under control. 

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18 

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5.2.4.  The labour-market situation has started to stabilise 

Job shedding came to an end in the second quarter of 2010. After a peak at 9.6 %, the 
unemployment rate within the EU is projected to slightly decrease in 2011, to 9.5 %, 
and more significantly in 2012, reaching 9.1 % (see Figure 8). 

Figure 8: Employment growth and unemployment rate within the EU-27 (2006 – 2012)

1,5%

8,2%

1,7%

7,2%

0,9%

7,1%

2,5%

2,0%

1,5%

1,0%

0,5%

0,0%

-0,5%

-1,0%

-1,5%

-2,0%

-2,5%

9,0%

9,6%

9,5%

9,1%

10,0%

12,0%

0,7%

0,4%

8,0%

6,0%

4,0%

2,0%

0,0%

-0,5%

-1,9%

2006

2007

2008

2009

2010

2011

2012

Employment growth (left axis)

Unemployment rate (right axis)

Sourc e : Eurostat (2006-2010) and DG ECFIN (2011-2012)

More  particularly,  the  euro-area  labour  market  appeared  surprisingly  resilient 
through  the  recession  in  comparison  with  historical  experience,  notably  as  policy 
measures taken during the crisis succeeded in keeping older and female workers in 
employment.  Employment  expectations  have  followed  an  upward  trend  since  the 
beginning of 2010, especially in the manufacturing sector but also in services, where 
the long-term average (LTA) is about to be overtaken (see Figure 9). 

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19 

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However,  we  can  observe  considerable  differences  in  unemployment  responses 
across countries, due to different situations and structures of national labour markets. 
Some countries have been particularly impacted, with unemployment rates exceeding 
10 % in nine Member States. 

5.2.5.  Compensation in the public sector versus the total economy 

The  Commission  also  considers  that  it  may  be  useful  to  compare  the  situation  of 
employees in the public sector to the total economy in the EU. For this purpose, we 
may consider the compensation of employees, which measures the total labour cost 
for all employees, defined as gross wages including overtime and bonuses, together 
with benefits received in kind and employer social contributions11, both in the public 
sector (general government sector12) and in the total economy. It should be noted that 
data  on  the  total  economy  include  those  for  the  public  sector.  The  weight  of  the 
public sector in the total economy is of the order of 22 %. 

We can generally observe that compensation in the private sector is highly correlated 
to  economic  cycles:  compensation  of  employees  in  the  total  economy  increased  by 
5.3 %  in  2007  and  4.3 %  in  2008  but  dropped  by  0.2 %  in  2009  at  the  heart  of  the 
financial turmoil, while GDP fell by 4.2 % (see Figure 11). 

11 

12 

As a consequence, it reflects changes in the employment rate and changes in welfare policy as well as 
the wage level. 
The public sector stands for general government throughout this section. The general government sector 
includes  all  institutional  units  which  are  other  non-market  producers  whose  output  is  intended  for 
individual  and  collective  consumption,  and  mainly  financed  by  compulsory  payments  made  by  units 
belonging  to  other  sectors,  and/or  all  institutional  units  principally  engaged  in  the  redistribution  of 
national income and wealth. Institutional units include general government entities and some non-profit 
institutions  and  autonomous  pension  funds.  The  general  government  sector  is  divided  into  four  sub-
sectors: central government, state government, local government and social security funds. 

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20 

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Nonetheless, although compensation in the public service may not necessarily follow 
economic  cycles,  the  annual  increase  in  compensation  of  employees  in  the  public 
sector fell from 3.7 % to 1.2 % in 2010. According to DG ECFIN forecasts, this trend 
is expected to continue in 2011 (0.6 %) and 2012 (1.3 %), while compensation in the 
total  economy  is  likely  to  increase  by  2.4 %  in  2011  and  3.2 %  in  2012  (see 
Figure 10). 

Furthermore,  while  the  economic  recovery  started  in  2010,  cumulative  changes  in 
compensation in the total economy from 2004 onwards are already about to overtake 
cumulative changes in compensation in the public sector over the same period (see 
Figure 11): from 2004 to 2010, compensation in the EU increased in nominal terms 
by 28 % in the public sector compared to 25 % in the private sector, mainly due to the 
downturn in economic activity. According to DG ECFIN forecasts, it is likely to rise 
to 31 % by 2012 (starting from 2004) in the public sector against 32 % in the private 
sector.  

Altogether, the impact of the crisis in the public sector was delayed and was less far-
reaching  than  in  the  private  sector.  However,  the  consequences  of  the  crisis  will 
continue to be felt for a long time by civil servants, both in the Member States and in 
the EU institutions, because of the need to make significant fiscal retrenchments in 
the coming years. 

Figure 10: Changes in compensation of employees within the EU-27, total economy versus general 
government (2007 – 2012)

6%

4%

2%

0%

-2%

-4%

-6%

12%

10%

8%

6%

4%

2%

0%

e
t
a
r

t
n
e
m
y
o
p
m
e
n
U

l

2007

2008

2009

2010

2011

2012

Compensation in total economy (nominal)

Compensation in general government (nominal)

Economic growth

Unemployment rate

Source: Eurostat (2007-2010) and DG ECFIN (2011-2012)

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21 

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Figure 11: Cumulative changes in compensation of employees in the EU, total economy versus 
general government (2004 – 2012)

135 

130 

125 

120 

115 

110 

105 

100 

2004

2005

2006

2007

2008

2009

2010

2011

2012

Compensation in total economy (nominal; 2004 = 100)

Compensation in general government (nominal; 2004 = 100)

Source: Eurostat (2004-2010) and DG ECFIN (2011-2012)

Table 11: Changes in compensation of employees in the EU (annual % change)

2004

2005

2006

2007

2008

General government

Total economy

4,1 

3,4 

4,3 

3,7 

3,9 

4,6 

3,4 

5,3 

4,6 

4,3 

2009

3,7 

-      

0,2 

2010

2011*

2012*

1,2 

1,3 

0,6 

2,4 

1,3 

3,2 

Sourc e : Eurostat (2004-2010) and DG ECFIN (2011-2012)  

6. 

CONCLUSION 

The  exception  clause  is  not  to  be  applied  during  every  downturn  in  economic 
activity.  The  legislator  carefully  chose  the  economic  and  social  criteria  to  be  taken 
into account for salary and pension adjustments; these criteria can be applied during 
both an upswing and a downturn in the economy. The method can be applied equally 
when  salaries  in  Member  States  increase  or  decrease,  and  the  gain  or  loss  in  the 
purchasing power of national civil servants will  be directly  reflected in  the salaries 
and  pensions  of  EU  civil  servants.  Hence,  the  exception  clause  is  to  be  used  when 
there  are  extreme  developments  in  the  EU  and  only  if  the  method  is  not  able  to 
measure them. It is not to be used whenever the EU is in the downward phase of an 
economic cycle. 

It  follows  from  the  foregoing  considerations  and  analysis  that  there  has  been  no 
serious  and  sudden  deterioration  in  the  economic  and  social  situation  within  the 
Union  during  the  reference  period  of  1  July  2010  to  mid-May  2011.  Moreover,  no 
event has been identified that has not been or could not be captured by the method. 
Therefore, the Commission considers that it is not appropriate to submit a proposal 
under Article 10 of Annex XI to the Staff Regulations. 

However, on 29 June 2011, the Commission took note of a draft proposal for a new 
method, including possible amendments to the mechanism of the exception clause, in 
order to render its application automatic under specific conditions in the future. 

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