COMMUNICATION FROM THE COMMISSION TO THE COUNCIL providing supplementary information to the Commission Report on the exception clause of 13 July 2011
Date: 2011-11-24
Institutions: European Commission
Subjects: economic recession, economic situation, pay cut, public debt, regulations for civil servants, social situation, unemployment

EUROPEAN COMMISSION 

Brussels, 24.11.2011 
COM(2011) 829 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

providing supplementary information to the Commission Report on the exception clause 
of 13 July 2011 

 
 
 
 
  
 
1. 

INTRODUCTION 

Article 10 of Annex XI to the Council Regulation laying down the Staff Regulations 
for EU officials is an exception clause which is subject to legal conditions. In order 
to  make  use  of  the  clause  –  which  would  lead  to  a  legislative  procedure  based  on 
Article 336 TFEU -, it must be analysed if these legal conditions are met or not. In 
case the conditions are not met, the use of the clause can be contested in Court by all 
individuals and institutions concerned or simply possibly affected which can lead in 
case  of  successful  litigation  to  an  additional  obligation  for  the  EU  budget  to  pay 
interest  for  the  late  payment  in  places  of  employment  where  the  salary  or  pension 
adjustment is positive. 

It is important to underline that the fact that the conditions for using Article 10 (in 
combination  with  Article  336  TFEU)  are  not  met,  still  allows  using  Article  336 
TFEU  directly  in  order  to  modify  the  Staff  Regulations  if  this  is  considered  to  be 
politically appropriate. 

As  explained  in  the  Report  on  the  exception  clause  submitted  in  July  2011,  the 
exception clause sets the following conditions that have jointly 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,  

–  it must be assessed in the light of objective data provided by the Commission; 

–  and 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.  Indeed,  the  Court  found  that,  firstly,  the  exception  clause  can  be 
applied only "in an extraordinary situation" (paragraph 74 of the Court of Justice 
judgment in Case C-40/10) and, secondly, it "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). 

In  the  framework  of  the  2010  annual  adjustment  the  Council  requested  the 
Commission to submit, on the basis of the exception clause, appropriate proposals in 
order for the European Parliament and the Council to adopt them before the end of 
2011. The draft Commission report on the exception clause was informally presented 
to the Council working group on 30 June 2011 and the Report was formally adopted 
by the Commission on 13 July 2011, in line with the time frame set by the Council. 

The  Commission  Report  on  the  exception  clause  of  13  July  2011  used  a  large 
number of economic and social indicators to assess whether it is necessary to use the 
exception clause in 2011 and was based on the Spring European Economic Forecasts 
released by DG ECFIN on 13 May 2011. This Report concluded that there had 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. 

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In  order  to  address  the  request  of  the  Council  of  4  November  2011,  the  present 
document takes into account the latest developments in the European Union since the 
Spring European Economic Forecast until now. 

The  Forecast  released  by  DG  ECFIN  on  10  November  2011  shows  less  optimistic 
trends  for  2011  than  the  Spring  Forecast  as  regards  both  economic  and  social 
indicators.  The  recovery  has  come  to  a  standstill  and  the  outlook  for  the  European 
economy  has  worsened.  Deteriorating  confidence  and  intensified  financial  turmoil 
are  affecting  investment  and  consumption,  while  urgent  fiscal  consolidation  is 
weighing  on  domestic  demand  and  weakening  global  economic  conditions  are 
holding  back  exports.  The  recovery  in  the  past  two  years  has  entailed  only  slow 
employment growth. 

However,  despite  the  short-term  indicators  pointing  to  an  ongoing  slowdown  of 
economic activity in the EU, the overall growth performance for the current year is 
still relatively strong owing to a good start in the first quarter and the GDP growth is 
expected at 1.6%.  

Although a strong slowdown is expected, the economic and social conditions cannot 
be  qualified  as  extraordinary  with  regard  to  the  method,  which  would  justify 
applying  measures  going  beyond  the  method.  Indeed,  the  gloomy  picture  has  also 
affected  salaries  in  the  public  sector  of  the  Member  States,  in  particular  due  to  the 
need of financial consolidation in the Member States, and modest salary increases for 
public  sector  workers  are  expected  compared  to  the  increases  in  compensation  of 
employees in total economy this year (3%). The loss of purchasing power of national 
officials in central government until July 2011 through the application of the method 
equally  applies  to  EU  officials  and  will  result  in  a  1.8 %  cut  of  real  salaries  in  all 
places of employment of EU civil servants. The worsening economic outlook has not 
resulted  in  circumstances  under  which  the  ‘normal  method’  could  not  function  and 
could not reflect the decisions taken by Member states for national officials. 

The economic growth in the EU is expected to come to a standstill in the last quarter 
of  2011  and  very  modest  economic  growth  is  expected  in  2012.  If  the  economic 
situation continues deteriorating further and triggers actions by the Member States at 
national level which could not be covered fast enough by the normal application of 
the method, the Commission, in accordance with the principle of loyal cooperation as 
underlined by the Court of Justice, will propose to use the exception clause to take 
due account of the measures at national level and also to reduce the time lag between 
these measures coming into force and the next annual adjustment in one year. 

The Commission would like to recall that the austerity measures and reforms that are 
recommended, planned or implemented in the Member States are reflected in its draft 
proposal for a Review of the Staff Regulations which is based directly on Article 336 
TFEU  and  which  would  generate  considerable  savings  of  more  than  one  billion 
Euros during the next Multiannual Financial Framework and over one billion a year 
in a long term perspective. 

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2. 

2011 AUTUMN EUROPEAN ECONOMIC FORECAST 

2.1. 

EU has experienced economic growth in 2010 and 2011 

The  recession  ended  in  autumn  2009  and  set  the  scene  for  a  recovery  in  2010. 
Overall,  GDP  increased  by  2.0%  in  the  EU  and  by  1.9%  in  the  Euro  area  for  the 
whole of 2010.1 

The 2011 Autumn European Economic Forecast shows that short-term indicators are 
pointing  to  an  ongoing  slowing  of  economic  activity  in  the  EU,  the  Forecast  also 
confirms, however, that EU economy will continue to grow in 2011 owing to a good 
start in the first quarter. As the Spring Forecast for 2011 (1.6 % growth in euro area 
and  1.8 %  in  EU)  were  revised  downwards,  the  economic  growth  in  Europe  is 
expected  to  continue  in  2011  along  a  trend  of  around  1.5%  (euro  area)  and  1.6% 
(EU)  in  2011.  In  the  last  quarter  of  2011,  the  GDP  growth  is  forecasted  to  be  at  a 
standstill while economic growth will only gain some modest traction in late 2012.  

The slowdown in the economic recovery in 2011 is however not comparable to the 
turmoil  that  affected  the  Union  in  2008  and  2009,  when  the  economic  growth 
decreased  from  3.2%  in  2007  to  0.3%  in  2008  and  then  quickly  moved  into  the 
largely negative zone, i.e. -4.2% in 2009. 

Figure 1:  GDP growth  and dec omposit ion wit hin  th e EU- 27 (annual %  ch an ge )

4,0
3,0

2,0
1,0

0,0
-1,0

-2,0
-3,0
-4,0
-5,0

GDP growth

3,2

0,3

2,0

1,6

2007

2008

-4,2

2009

GDP growth

2010

2011

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

2.2. 

Labour-market situation remains stable in 2010 and in 2011 

The  2011  Autumn  European  Economic  Forecast  pointed  out  that  headcount 
employment  started  to  rise  slowly  in  late  2010,  as  soon  as  the  growth  of  hours 
worked began to level off. The delayed response of employment to the recovery was 
the  counterpart  to  labour  hoarding  during  the  recession  and  entailed  a  considerable 
rebound in labour productivity. Despite the pick-up in economic growth in the EU, 
job creation has been weak and insufficient to bring about a significant reduction in 

1 

The figures for the past may appear slightly different due to periodic revisions carried out by Eurostat. 

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the unemployment rate. In both the euro area and the EU, the unemployment rate in 
2010 and 2011 fluctuated only marginally.  

Although  slightly  revised  upwards,  the  unemployment  rate  within  the  EU  is 
projected to remain stable in 2011 at the same level of 9.7% as in 2010 according to 
the  Autumn  Forecast  (see  Figure  below).  These  figures  remain  in  line  with  the 
Spring  Forecast  that  projected  the  unemployment  rate  within  the  EU  to  decrease 
slightly in 2011 and to reach a level of 9.5 %.  

It  is  in  this  regard  especially  noticeable  that  employment  growth  is  expected  to  be 
positive within the EU in 2011 (0.4%) after decreasing for two years (-1.8% in 2009 
and -0.5% in 2010). 

Figu re 2: Employment  growth and u nemploymen t rate  within t he E U-27 (2006 – 2011)

1,6%

8,3%

1, 8%

7, 2%

1,0%

7,1%

9,0%

9,7%

9,7%

0,4%

-0,5%

-1,8%

12,0%

10,0%

8,0%

6,0%

4,0%

2,0%

0,0%

2006

2007

2008

2009

2010

2011

Employment growth (left axis)

Unemployment rate (right axis)

Figure 3: Employme nt e xp ectations within t he e uro-area in  2010 – 2011 ( balanc e)

Source: Eurostat (2006-2010) and DG ECFIN (2011)

2,5%

2,0%

1,5%

1,0%

0,5%

0,0%

-0,5%

-1,0%

-1,5%

-2,0%

-2,5%

10,0

5,0

0,0

-5,0

-10,0

-15,0

-20,0

2010Q1

2010Q2

2010Q3

2010Q4

2011-Jan

Manufacturing

Services

LTA (manufacturing)

LTA (services)

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Source : DG ECFIN

   EN 

 
 
 
2.3. 

Compensation  of  employees  in  the  private  sector  and  in  the  total  economy  is 
increasing in 2010 and in 2011 

The  Commission  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 contributions2, both in the public 
sector (general government sector3) and in the total economy.  

The  2011  Autumn  European  Economic  Forecast  expected  the  compensation  of 
employees in the total economy to increase at annual rates of 2-3% in the upcoming 
years.  

In the previous years the compensation of employees in the total economy increased 
by 5.2 % in 2007 and 4.4 % in 2008 but dropped by 0.3 % in 2009 at the heart of the 
financial turmoil, while GDP fell by 4.2 %. For 2011, the compensation of employees 
in  total  economy  is  expected  to  increase  to  3.0%,  which  is  above  the  figure 
forecasted in spring (2.4%). 

The  annual  increase  in  compensation  of  employees  in  the  public  sector  fell  from 
3.4 %  in  2009  to  1.2 %  in  2010.  According  to  the  Autumn  Forecast  this  trend  is 
expected to continue in 2011 (0.6 %). In real terms, the compensation for employees 
in  the  public  sector  is  expected  to  be  -2.2%,  which  is  in  line  with  the  loss  of 
purchasing power of national officials measured by the method (-1.8%), which is to 
be applied to EU civil servants.  

2 

3 

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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Figure  4: Ch an ge s in  compensation of emp loyees with in the  EU-27, total economy versus gene ral 
gove rnment (2007 – 2011)

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

Compensation in total economy (nominal)

Compensation in general government (nominal)

Economic growth

Unemployment rate

Figure  5: Cu mu lative ch anges in compen sation of employee s in  the  EU, total ec on omy ver sus 
ge neral government  (2004 – 2011)

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

135 

130 

125 

120 

115 

110 

105 

100 

2004

2005

2006

2007

2008

2009

2010

2011

Compensat ion in total economy (nominal; 2004 = 100)
Compensat ion in general government (nominal; 2004 = 100)

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

2.4. 

Public finances are a matter of concern 

2011 marks the change from stabilisation to consolidation of public finances. After 
decreasing  from  6.9%  in  2009  to  6.6%  in  2010,  general  government  deficit  within 
the EU is therefore projected to decrease further. Fiscal deficit outcomes for 2011 are 
now  projected  at  4.7%  of  GDP  in  the  EU  and  4.1%  in  the  euro  area.  Further 
consolidation measures that are likely, but not yet enacted, have been disregarded in 
the Autumn Forecast.  

Costly  interventions  of  Member  States  have  significantly  impacted  public  finances 
although the origin of public debts in most Member States dates back before the last 
crisis.  Overall,  public  debt  reached  80.3 %  of  GDP  in  2010  within  the  EU  and  is 
expected  to  remain  at  a  similar  level  in  2011  (82.5%  of  GDP)  according  to  the 
Autumn Forecast (see Figure below). Public debt figures have remained the same as 
in the Spring Forecast (82.3% of GDP in 2011). 

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Figure 6: Ge neral governmen t balance and p ublic de bt with in the  EU-27, in  %  of G DP (2007 – 2011)

20,0

15,0

10,0

5,0

0,0

-5,0

-10,0

-15,0

-20,0

80,3

-6,6

74,7

-6,9

82,5

-4,7

-0,9

59,0

-2, 4

62,5

90

85

80

75

70

65

60

55

50

2007

2008

2009

2010

2011

Government  balance

Government debt

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

All in all, the issue of public finances remains a major concern for the EU and the 
Euro  area  in  particular.  This  concern  stems  from  at  least  2007,  with  measures  to 
adjust public finances  under way. Although these measures have led to the gradual 
improvement  of  the  general  government  balance,  recent  developments  showed  that 
the impact of rising debt on the sustainability of public finances and their knock-on 
effect on sovereign debt markets are the key challenge. The weaker economic growth 
led to a deterioration of budgets and shifted attention to the sustainability of public 
finances. This is the main reason for expecting salary freezes or only modest salary 
increases in the public sector of the European Union. 

However, the consequences of the turmoil in public finances will continue to be felt 
for a long time by civil servants in the Member States, because of the need to make 
significant  fiscal  retrenchments  in  the  coming  years.  This  will  without  any  doubt 
have  a  direct  impact  on  the  salaries  of  EU  officials,  which  will,  through  the 
application of the method, precisely follow any salary changes for national officials. 

2.5. 

Inflation remains subdued 

Headline  HICP  inflation  accelerated  in  the  first  half  of  2011,  mainly  driven  by  the 
pass-through of high energy and food commodity prices. As commodity prices have 
peaked  in  the  first  half  of  2011,  and  oil  futures  prices  point  to  a  gradual  further 
decrease  going  forward,  headline  inflation  is  expected  to  gradually  abate,  falling 
back  below  2%  in  the  course  of  2012.  As  for  the  underlying  price  pressures, 
persistent output gaps, which are expected to widen slightly in most Member States 
in 2012, will continue to hold back inflation, while wages are expected to grow only 
moderately in view of high unemployment. 

HICP is expected to rise to 3.0 % in 2011 according to the Autumn Forecast (in line 
with the Spring Forecast). 

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Figure  7 : Harmonised  inde x of  consumer prices within the EU-27 (ann ual % 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

1,0

2007

2008

2009

2010

2011

HICP

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

2.6. 

Economic Sentiment Indicator has declined 

This  indicator  is  extremely  volatile.  Indeed,  after  reaching  its  lowest  value  since 
1990 in March 2009 (66.9), the Economic Sentiment Indicator4 overtook its average 
value over 1990–2010 in April 2010 (100 by definition). It reached a peak in March 
2011 (107.4), but showed strong declines in the past months (93.8 in October 2011), 
although remaining well above the lowest values experienced in 2009. 

4 

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. 

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Figure  8: E conomic se ntime nt ind ex within t he E U-27 (Average since 1990 = 100)

110

105

100

95

90

85

80

75

70

65

60

n
a
J

b
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F

r
a
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r
p
A

y
a
M

n
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J

l

u
J

g
u
A

p
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S

t
c
O

v
o
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c
e
D

n
a
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b
e
F

r
a
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u
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g
u
A

p
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S

t
c
O

2009

2010

2011

ESI

Average  since 1990

Source : DG ECFIN

3. 

CONCLUSIONS 

In accordance with the exception clause laid down in Article 10 of Annex XI to the 
Staff  Regulations,  the  Commission  is  to  examine  whether  there  is  a  sudden  and 
serious deterioration in the economic and social situation within the Union assessed 
in the light of objective data. 

Moreover,  according  to  the  judgment  of  the  Court  of  Justice  in  Case  C-40/10,  the 
Commission  must  assess  whether  the  above  economic  and  social  data  is  to  be 
qualified  as  "an  extraordinary  situation"  "where  under  the  normal  method  the 
remuneration of officials would not be adjusted quickly enough". 

As the Commission assessed in its Report of the 13 July 2011, ‘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. 

The forecasts released by DG ECFIN on 10 November 2011 show worsening trends 
for  2011  as  compared  to  the  Forecast  released  in  spring  both  as  regards  economic 
and  social  indicators  and  that  the  European  economy  is  currently  experiencing  a 
turmoil.  

However, despite short-term indicators pointing to an ongoing slowing of economic 
activity  in  the  EU,  the  overall  growth  performance  for  this  year  is  still  relatively 

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strong. In particular, GDP is forecasted to continue to grow in 2011 along a trend at 
around 1.6% similar to the level of 2010 (2.0%) while, as a matter of comparison, it 
decreased  by  4.2%  in  2009.  The  forecasted  standstill  in  the  last  quarter  of  2011  is 
expected to be limited to that quarter with a modest GDP growth being expected for 
the first quarter 2012. 

In  addition,  the  unemployment  rate  remains  stable  in  2011  at  the  same  level  as  in 
2010 (9.7%) while employment growth is expected to be positive for the first time in 
2011 (0.4%) after decreasing for two years (-1.8% in 2009 and -0.5% in 2010). 

The  compensation  in  total  economy  is  forecasted  to  remain  at  a  high  level  in  2011 
(3.0%), while in the public sector the figure is much lower (0.6%) and in line with 
the loss of purchasing power for EU officials as calculated by the method (-1.8% in 
2011). 

General government deficit within the EU is projected to decrease further from close 
to 7% in both 2009 and 2010 to 4.7 % in 2011 according to the Autumn and Spring 
Forecasts.  Fiscal  consolidation  is  forecasted  to  progress  with  public  deficits  set  to 
decline, even though EU public debt remains a constant concern for the EU economy 
at least since 2007. 

Even  though  the  Autumn  Forecast  for  2011  clearly  describes  a  less  favourable 
economic and social context than the Spring Forecast, it follows from the criteria set 
out in Article 10 of Annex XI to the Staff Regulations as interpreted by the Court of 
Justice that the EU is not facing an extraordinary situation with regard to the method 
as defined by the Court, where, under the ‘normal method’, the remuneration of EU 
officials would not be adjusted quickly enough to take account of measures taken by 
the Member states for national civil servants. In addition, although there would be a 
relatively  high  increase  in  the  compensation  of  employees  in  total  economy,  the 
increase in the compensation of employees in the general government is expected to 
be modest which will be reflected by the application of the method. 

As  regards  the  projection  of  the  compensation  of  employees  in  the  general 
government, this parameter is properly reflected by the application of the method in 
2011.  The  workers  of  public  sector  are  expected  to  lose  2.2%  of  their  purchasing 
power, which is in line with the figures supplied by the Member States about national 
officials  in  central  government  (1.8%  loss  in  purchasing  power).  This  loss  in 
purchasing  power  would  through  the  method  be  applied  to  EU  civil  servants  in  all 
places of employment, and their real salaries would be cut by the same percentage. 

The  loss  in  purchasing  power  of  national  and  EU  officials  appears  in  line  with  the 
current  economic  and  social  situation,  and  this  situation  does  not  justify  any 
measures going beyond that loss. Therefore, the Commission is not in a position to 
trigger  the  exception  clause  without  breaching  Article  10  of  Annex  XI  to  the  Staff 
Regulations and the case law of the European Court of Justice.  

This does not exclude, however, to perform structural reforms in the European civil 
service based on Article 336 TFEU directly. Therefore, the Commission would like 
to recall its draft proposal for the Review of the Staff Regulations which proposes i.a. 
a 5% reduction of staff in all institutions and agencies, an increase of the mandatory 
weekly  working  time  for  EU  civil  servants  to  40h  without  compensatory  wage 

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adjustments, an increase of the normal retirement age to 65, a significant restriction 
of  early  retirement  rules  as  well  as  measures  related  to  rules  on  careers  like  a 
significant  lowering  of  salaries  for  certain  functions.  This  is  in  line  with  measures 
taken  or  discussed  for  national  civil  services  and  would  generate  considerable 
savings of over one billion Euros during the next Multiannual Financial Framework 
and of even higher amounts beyond 2020.  

More  specifically  in  order  to  address  the  recent  financial  turmoil  and  the  on-going 
concerns  of  realising  savings  in  national  administrations  and  cutting  national 
budgets,  the  Commission  has  decided  to  propose  an  additional  increase  of  the 
proposed  solidarity  levy  up  to  6%.  If  adopted  by  the  co-legislators,  this  additional 
increase  would  impact  salaries  of  EU  civil  servants  until  the  end  of  the  proposed 
revised method of salaries and pension adjustments in 2022.  

The Commission will table this proposal formally in December 2011 as soon as the 
obligatory  formal  consultation  of  the  Staff  Regulations  committee  has  been 
concluded. 

Finally,  the  Commission  would  like  to  come  back  to  the  fact  that  the  economic 
growth in the EU is expected to come to a standstill in the last quarter of 2011 and 
very  modest  economic  growth  is  expected  in  2012.  If  the  economic  situation 
continues deteriorating further and triggers actions by the Member states at national 
level  which  could  not  be  covered  fast  enough  by  the  normal  application  of  the 
method,  the  Commission,  in  accordance  with  the  principle  of  loyal  cooperation  as 
underlined by the Court of Justice, will use the exception clause to take due account 
of  these  measures  at  national  level  and  also  to  reduce  the  time  lag  between  these 
measures coming into force and the next annual adjustment. 

EN 

12 

   EN