COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK ACTION FOR STABILITY, GROWTH AND JOBS
Date: 2012-05-30
Institutions: European Commission
Subjects: economic growth, economic integration, economic reform, economic stabilisation, integrated development, job creation, single market

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 299 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN 
CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, 
THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT 
BANK 

ACTION FOR STABILITY, GROWTH AND JOBS 

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1. 

INTRODUCTION 

The  crisis  now  affecting  so  many  parts  of  Europe  has  shaken  trust  in  the  ability  of 
Europe’s  political  and  economic  system  to  deliver  on  the  EU  Treaty’s  ambition  of 
“sustainable development… based on balanced economic growth.” Many of our citizens 
are angry and bewildered by the speed at which a long period of rising living standards 
has  turned  into  a  huge  financial  crisis,  heavy  job  losses  and  the  prospect  of  high  debt 
levels for many years to come. The debts, deficits and imbalances now facing the EU did 
not happen overnight but built up over many years and the social consequences are far 
reaching.  This  is  a  testing  time  for  national  governments  and  for  the  EU.  Part  of  our 
current difficulties was imported into the EU through the financial crisis. Part was home-
made. What matters now is the quality and effectiveness of our response. 

The  financial  and  economic  crisis  has  underlined  the  interdependence  between  all  EU 
economies,  and  between  the  EU  and  other  world  economies.  It  has  also  revealed 
important gaps, shortcomings and imbalances in global, EU and national policy-making. 
Since  the  onset  of  the  crisis,  the  EU  and  its  Member  States  have  been  working  to 
overhaul the EU’s economic model and restore its competitiveness. As the Commission 
put it in its October 2011 Roadmap to stability and growth1 this has meant: 

•  Frontloading stability and growth enhancing policies so that the EU can return to 

sustainable growth and high levels of employment. 

•  Building  a  more  robust  and  integrated  economic  governance  so  that  imbalances 
are picked up and corrected much earlier, putting national policies under stronger 
EU level surveillance to reflect the reality that the future strength and prosperity 
of each Member State is tied to all the others. 

•  Strengthening the banking system, by insisting that banks show the full extent of 
their  indebtedness,  deal  with  bad  debts  and  restructure  their  business  models  so 
that  they  are  able  to  lend  to  business  and  households  in  the  future  without  the 
need for tax payer funded bail outs. 

•  Giving a decisive response to the problems of Greece through two huge financial 
support  packages  and  intensive  support  for  a  growth  oriented  recovery 
programme. 

•  Enhancing  the  Euro  area’s  financial  backstops  by  creating  new  ways  of 
supporting  Member  States  with  very  high  debt  levels  while  they  restore  their 
public  finances,  balancing  revenue  and  spending  so  that  they  can  pay  for  social 
services, healthcare, pensions, education and public infrastructure in the future. 

By  following  this  Roadmap  we  have  made  solid  but  uneven  progress.  There  is  clear 
evidence of rebalancing in our economy, following the slowdown in economic activity, a 
narrowing of the large current account deficits that built up since 2007/8, adjustment of 
wages  upwards  in  “surplus”  and  downwards  in  “deficit”  countries  and  house  prices  in 
several  Member  States  returning  to  levels  more  in  line  with  underlying  economic 

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conditions. Supported by the new EU economic governance system a new, stronger EU 
economy will emerge from the painful process of stabilisation and reform. 

Lasting, sustainable growth and higher living standards can only be built on sound public 
finances,  deep  structural  reform  and  targeted  investment.  But  the  challenges  that  these 
present can only be met if there is sufficient growth to support this process. There is no 
contradiction  between  stability  and  growth;  they  are  the  two  sides  of  the  same  coin. 
Member States need to confront the current lack of confidence in the economy with bold 
reforms that reverse the decline in our competitiveness. We need to act now to reduce the 
alarming  gaps  in  competitiveness  inside  the  EU  and  inside  the  euro  area.  Although  the 
EU as a whole has been able to keep its share of world trade, we also need to tackle the 
decline in international competitiveness and loss of market share which is clearly visible 
in the performance of a number of Member States. 

In  the  short  term  people  need  hope  and  a  perspective  of  a  better  future.  Without  this 
perspective  we  will  face  increasing  political  and  social  difficulties  in  making  the 
necessary reforms which in turn will delay the recovery. We need to build consensus and 
confidence in the need for change and in the choices to be made. The social partners will 
play an important role in this dialogue. 

That is why the EU needs to enhance the growth part of its overall strategy. This must be 
based on combining what the Member States can do at national level with action at EU 
level,  anchoring  these  efforts  in  the  Europe  2020  strategy  and  in  our  new  governance 
structures. Some of the key components of this growth initiative are already in place - but 
need to be fully implemented. Others will require vision, courage and leadership if their 
potential  is  to  be  unlocked  -  but  the  challenges  facing  the  EU  today  call  for  bold  and 
effective action. 

In  this  Communication  the  Commission  proposes  a  number  of  elements  that  can  form 
part of a growth initiative built on two mutually reinforcing pillars: 

•  An EU level pillar drawing on the strength and synergies of working together at 

EU level. 

•  A Member State level pillar based on releasing the growth potential of structural 

reforms identified as part of the European semester. 

Following the informal meeting of the European Council on 23 May and in the run up to 
the  June  European  Council  the  Commission  will  continue  to  work  on  all  possible 
elements that can help deliver stronger growth and competitiveness. 

2. 

THE ROLE OF THE EU IN A NEW GROWTH INITIATIVE 

At EU level we have agreed on the Europe 2020 strategy2 which is designed to deliver a 
smart, sustainable and inclusive Europe. This is the platform for a new growth initiative.  
The  Europe  2020  targets  on  employment,  energy,  education  and  training,  research  and 
poverty alleviation  have been agreed by  all Member States.  They are indicators of the 

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in  Europe.  Implementing 

way  reforms  should  be  pursued 
them  will  boost 
competitiveness  and  help  convergence,  putting  the  EU  onto  a  higher  growth  path.  
Committing  more  actively  to  our  R&D  target  of  investing  3%  of  GDP  in  R&D  could 
create 3.7 million jobs and boost EU GDP by €800 billion by 2020. Meeting our climate 
change and energy targets by 2020 would generate up to 5 million jobs, increase Europe's 
energy security and help meet our climate change goals. Lifting at least 20 million people 
out of poverty would not only improve their lives, but will also bring economic benefits 
for the society as a whole. These figures show that it is possible to create new jobs and 
business  opportunities  across  the  EU,  significantly  reducing  unemployment  and 
providing a better, greener future for our citizens. 

2.1. 

Tapping into the growth potential of the Economic and Monetary Union 

Much  has  been  done  in  recent  years  to  put  in  place  the  strong  economic  surveillance 
mechanisms that are needed to support our Economic and Monetary Union. How the EU 
and its Member States implement this new system will determine policy effectiveness as 
well as confidence on the  markets.  Over a longer time frame  there is a  need  to deepen 
integration to complete our Economic and Monetary Union. A strong EU needs a stable 
currency. This benefits all Member States, whether or not they are in the Euro area. The 
credibility of the Euro in international markets affects Europe’s ability to borrow funds at 
reasonable rates and to repay them out of a strong economy.  

•  The  reinforced  Stability  and  Growth  Pact  gives  the  EU  the  rules-based,  strong 
policy instruments it needs to ensure sound public finances. For most Member States 
the priority is now to correct the excessive deficits. Apart from the recently proposed 
"two  pack"  there  is  no  immediate  need  to  change  the  recently  agreed  rules.  The 
existing  rules  provide  scope  for  judgement  and  for  differentiation  between  Member 
States according to their fiscal space and macroeconomic conditions, while ensuring 
long term sustainability of public finances. Central to the implementation of the rules 
is the assessment of the budgetary measures taken by the Member States in particular 
in  structural  terms.  The  Commission  will  monitor  the  impact  of  tight  budget 
constraints  on  growth  enhancing  public  expenditure  and  on  public  investment.    If 
necessary it will give guidance on the scope for possible action within the boundaries 
of the EU and national fiscal frameworks.  In the coming months it will issue a report 
on the quality of public spending which will deal with these issues.  

•  We made important progress in reinforcing our financial backstops. The European 
Stability  Mechanism  is  scheduled  to  come  into  effect  on  1  July  2012  –  one  year 
ahead of schedule - as the permanent mechanism for financing crisis management in 
the  euro  area.  Taking  the  European  Stability  Mechanism,  the  European  Financial 
Stability Mechanism and other crisis funding together, we now have a total lending 
capacity of €800 billion. Together with the  recently agreed increase in IMF resources 
the  European  financial  backstops  significantly  contribute  to  global  financial  safety 
nets. But how we use our backstops is also crucially important. For those who ratify 
the Fiscal Treaty, the European Stability Mechanism has a range of new instruments 
which  will  enable  the  EU  to  respond  effectively  to  crisis  situations.  In  this  regard, 
flexibility and speed of action will be of the essence. 

•  A  stronger  EU  banking  sector:  a  financial  meltdown  was  avoided  and  the 
supervision  of  the  financial  sector  has  been  completely  overhauled.  Cross  border 

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banks are now supervised by colleges of supervisors and three new EU supervisory 
authorities  are  in  place.  In  addition,  the  European  Systemic  Risk  Board  has  been 
established  as  macro-prudential  supervisor  at  the  EU  level.  There  is  still  a  need  to 
complete the recapitalisation of certain banks, as part of the strategy now being co-
ordinated  by  the  European  Banking  Authority.  Although  some  banks  are  already 
repaying the public loans they received during the crisis the cost to the taxpayer has 
been enormous. To ensure that the private sector pays its fair share in any future bail 
outs, the Commission  will  propose legislation in June on a common framework  for 
the recovery and resolution of banks and investment firms. This will provide a set of 
tools  allowing  for  the  managed  resolution  of  systemically  important  institutions 
where necessary. 

•  Deepening  of  Economic  and  Monetary  Union:  Looking  beyond  the  immediate 
horizon, a longer term perspective on the future of the EU's economic and monetary 
union  is  needed.  The  Commission  will  advocate  an  ambitious  and  structured 
response.  The  EU's  growth  prospects  are  heavily  affected  by  the  current  lack  of 
confidence in the euro area.  As long as some key uncertainties, such as the situation 
in Greece, are not overcome, the confidence needed for investment and job creation 
will continue to elude us.  Building on what has been achieved to date a process will 
be  needed  to  map  out  the  main  steps  towards  full  economic  and  monetary  union. 
Showing  our  clear  determination  to  go  further,  demonstrating  the  political 
commitment of Member States to the euro will be part of restoring confidence in the 
euro  area  and  our  ability  to  overcome  current  difficulties.  This  will  require  a  wide 
ranging  process  that  will  take  account  of  legal  issues.  It  must  include  a  political 
process  to  give  democratic  legitimacy  and  accountability  to  further  integration 
moves.  Mapping  out  the  main  building  blocks  could  include,  among  other,  moving 
towards  a  banking  union  including  an  integrated  financial  supervision  and  a  single 
deposit  guarantee  scheme.    The  Commission  has  already  made  public  its  ideas  on 
how the euro area can move to joint issuance of debt in its Green Paper3 of November 
2011.  The  pace  and  sequencing  of  these  developments  will  need  to  be  worked  out, 
including  a  roadmap  and  a  timetable,  but  an  early  confirmation  of  the  steps  to  be 
taken will underscore the irreversibility and solidity of the euro.   

2.2. 

Tapping into the potential of the Internal Market 

By  and  large  the  internal  market  for  goods  is  working  but  the  same  cannot  be  said  for 
services or for the on line single market. Getting more out of the Internal Market is one 
of  the  most  effective  ways  of  boosting  growth  across  the  EU.  An  immediate  boost  for 
innovative companies would come from a decision to finally adopt the EU patent. After 
so many years it is now time to decide. 

In  June  the  Commission  will  propose  measures  to  improve  the  implementation  of  the 
Services  Directive.  Many  Member  States  have  chosen  to  keep  barriers  and  restrictions 
which deny them and other Member States the full benefits of the Directive in terms of 
competitiveness  and  growth.  The  Commission’s  analysis  shows  that  if  all  restrictions 
were abolished an additional gain of up to 1.8% of GDP could be added to the estimated 
0.8% already gained from the partial implementation of the directive. It also shows that 
reducing  or  eliminating  barriers  has  a  positive  effect  on  trade  flows  and  foreign  direct 

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investment  as  well  on  productivity  levels  inside  each  Member  State.    This  would  also 
contribute to rebalancing between "surplus" and "deficit" countries. 

Later in the year it will propose a Single Market Act II designed to complete the Single 
Market  in  key  areas  such  as  digital  and  network  industries,  where  the  EU  is  currently 
underperforming. Equipping the EU with the physical and virtual infrastructure it needs 
to  tackle  21st  century  challenges  can  unleash  growth  and  jobs.  New  technologies  and 
networks can reduce congestion in our skies and on Europe’s roads, help to put in place 
smart electricity grids that can use renewable energies and power electric cars and make 
productivity enhancing technology available at lower cost to all businesses through cloud 
computing. The EU needs to invest in key enabling technologies such as biotechnology, 
nano  and  micro  technologies  to  maintain  its  future  industrial  competitiveness,  by 
developing  new  goods  and  services  and  restructuring  industrial  processes  to  modernise 
its industry. 

The Commission has consistently emphasised the importance of tackling cross-border tax 
barriers in the Internal Market. Progress at EU level can support and facilitate the actions 
of individual Member States in the pursuit of their respective growth strategy objectives 
and  help  to  provide  a  solid  overall  framework  for  strengthening  revenue  collection, 
fighting  fraud,  and  ensuring  fair  and  sound  conditions  of  competition.    In  this  context, 
action is required in the Council to unblock the Commission proposals on savings and in 
relation to mandates for cooperation with third countries. Later this year the Commission 
will  issue  a  Communication  outlining  options  for  dealing  with  tax  haven  issues  and 
aggressive tax planning. The Commission considers that predatory tax planning has to be 
tackled  in  parallel  with  action  against  fraud.  This  requires  detailed  technical  work  and 
clear  political  commitment  but  the  benefits  could  be  substantial  in  terms  not  only  of 
increased revenues but also in fairness and better competitive conditions. 

A clear example of the positive relationship between EU and Member State level actions 
is in the area of energy taxation. Here the Commission's proposal restructuring the way in 
which  energy  is  taxed  would  support  the  objective  of  moving  to  a  low-carbon  and 
energy-efficient  economy  while  at  the  same  time  reducing  distortions  coming  from  the 
different  taxation  of  similar  products  used  for  the  same  purpose.  Strengthening  tax 
neutrality and rewarding greener energy sources would help to meet the EU’s targets on 
CO2 reduction, energy efficiency and renewable energy. 

2.3. 

Tapping into the potential of human capital 

In  its  recent  employment  package,  the  Commission  has  proposed  a  set  of  concrete 
measures for a job-rich recovery across the EU. Cooperation between the Commission, 
the Member States, the social partners as well as public and private stakeholders will be 
needed to implement the specific actions proposed to tap into the job creation potential of 
key  sectors  as  ICT  (information  and  communication  technologies),  healthcare  and  the 
green  economy.  The  enhanced  monitoring  of  national 
the 
benchmarking  and  scoreboard  proposed  by  the  Commission  will  further  strengthen  the 
impetus for job creating reforms, which should also benefit from the closer link between 
the  country  specific  recommendations  and  the  use  of  structural  funds,  in  particular  the 
European Social Fund, as proposed by the Commission for the next programming period 
(2014-2020). 

job  plans 

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With more than three millions jobs vacancies across the EU, higher investment in skills 
is  needed  to  address  skills  mismatches.  EU  level  programmes  such  as  Erasmus  and 
Leonardo play an important role in helping people study, train and get work experience 
in  other  Member  States.  New  EU  level  instruments,  such  as  the  skills  panorama  and 
skills passport, will help to enhance recognition of skills acquired in one Member State in 
all other Member States. The Commission is working to improve labour mobility and to 
help match available labour, skills and vacancies. Much more can be done by removing 
legal  and  practical  obstacles  to  the  free  movement  of  workers,  in  particular  concerning 
the  portability  of  pensions  and  the  coordination  of  social  security  provisions  and  by 
improving  the  matching  of  jobs  with  job-seekers  by  transforming  EURES  into  a  true 
European placement and recruitment tool. 

2.4. 

Tapping into external sources of growth 

While the EU's external trade is balanced overall, the Commission’s country by country 
analysis shows a worrying loss of export market shares by some Member States over a 
prolonged  period.  But  it  also  shows  that  the  best  performing  Member  States  have  used 
their export growth to drive their economies. Moreover, two thirds of the EU’s imports 
are  re-exported  with  a  higher  value,  showing  that  the  EU  has  everything  to  gain  from 
stepping up its engagement in trade and investment relations with key partners. A large 
part  of  future  global  growth  will  come  from  the  emerging  economies  which  have  high 
growth  potential.    The  EU  needs  to  tap  into  this  growth  by  concluding  bilateral  and 
regional  trade  and  investment  agreements  with  key  partners.    The  free  trade  agreement 
with Korea, which recently entered into force, is already showing its benefits in a 20 % 
increase  in  EU  exports  during  2011.  The  EU  is  actively  negotiating  several  free  trade 
agreements  and  others  are  in  the  pipeline.  If  the  huge  benefits  they  offer  are  to  be 
realised, we need to step up the pace of negotiation and ratification. 

2.5. 

Tapping into the potential of EU funding of the growth that Europe needs 

There is a need for targeted public spending and investment even in times of strict fiscal 
consolidation.  The  Commission  has  been  encouraging  growth-friendly  consolidation, 
urging  Member  States  to  protect  spending  on  research,  education,  sustainable 
management of natural resources, energy and social services. Even though the EU budget 
is small at only 1% of the EU’s GDP it offers huge added value and can be a catalyst for 
growth across Europe. 

•  The multi-annual financial framework 2014-2020: the Commission has presented 
proposals  for  a  growth  and  investment  budget  for  the  EU  for  the  next  financial 
period.  The  Commission’s  proposals  link  the  country  specific  recommendations  for 
structural reform with the support of the EU budget to help Member States make the 
necessary  changes  and  investments.  The  proposals  include  innovative  ideas  for 
research  and  innovation  funding,  for  connecting  Europe  in  transport,  energy  and 
broadband  links,  as  well  as  for  modernising  agricultural  policy  and  a  stronger  rural 
development. Over €600 bi llion of the budget proposed by the Commission would go 
to  fund  research,  trans-European  networks,  investment  in  human  capital,  cohesion 
policy and rural development. When this amount is combined with the leverage effect 
of national co-financing and the use of innovative financial instruments it represents 
a major budget for smart, sustainable and inclusive growth. 

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The  Commission  has  proposed  to  use  project  bonds  to  fund  certain  infrastructure 
projects and to make the grant funding of the EU budget go further. Project bonds are 
designed  to  establish  debt  capital  markets  as  an  additional  source  of  financing  for 
infrastructure projects and to stimulate investment in key strategic EU infrastructure 
in transport, energy and broadband. The aim is to attract institutional investors to the 
capital market financing of commercially viable projects with stable and predictable 
cash  flows  by  enhancing  the  credit  quality  of  project  bonds  issued  by  private 
companies. In order to test this approach the Commission has proposed pilot project 
bonds  for  the  period  2012-2013.  The  co-legislators  are  acting  quickly  to  enable  the 
EIB to roll out pilot projects this year. 

•  The 2013 EU budget: the Commission has proposed a necessary increase of 7% in 
payment  appropriations  to  be  able  to  meet  the  expected  payment  requests  of  the 
Member  States.  This  increase  remains  under  the  ceiling  for  payment  appropriations 
agreed  under  the  current  EU  financial  framework.  All  of  these  payments  will  go  to 
supporting  productive  investment,  employment  and  training  support  and  research 
funding  in  the  Member  States.  In  some  Member  States  EU  funds  co-finance  more 
than  50%  of  total  public  investment  so  being  able  to  honour  EU  commitments 
represents an important way of promoting growth. 

•  Targeting  the  Structural  Funds  on  growth  and  convergence  in  2012-2013:  on 
average EU cohesion policy mobilises €65 bi llion a year for investments that support 
growth and job creation. To better respond to needs arising from the crisis €17 billion 
have  been  reprogrammed  in  a  marked  shift  of  funds  in  favour  of  research  and 
innovation,  support  for  SMEs  and  labour  market  measures  for  vulnerable  people 
together with investments in infrastructure and energy efficiency. These efforts will 
continue.  More than €7 billion has been  reprogrammed more recently as part of the 
Commission’s  pilot  action  team  effort  to  increase  support  for  combating  youth 
unemployment and access to finance for SMEs. 

•  Increasing the paid in capital of the European Investment Bank (EIB): in order 
to comply with sound banking practice the EIB needs an increase in its paid in capital 
if it is to maintain its current high level of annual lending activity around €65 billion 
a  year.  As  the  Commission  has  proposed,  a  € 10  billion  increase  in  paid  in  capital 
should  be  agreed  by  its  Member  State  shareholders  as  part  of  a  new  EU  growth 
initiative. This would substantially increase overall lending by up to €180 billion. The 
additional lending that such a capital increase would permit should be spread across 
the EU,  including in the  most vulnerable countries. It should be directed to  helping 
the SME sector, including in areas such as energy efficiency and housing renovation 
which can generate much needed employment in the hard hit construction sector and 
help the EU meet its climate and energy goals. If such a capital increase is agreed, the 
Commission will work with Member States to help them use part of their structural 
fund allocations to share the EIB loan risk and to provide loan guarantees for SMEs. 
This  combination  of  financial  instruments  could  boost  economic  activity  across  all 
sectors  and  regions  and  help  overcome  the  lack  of  access  to  credit  currently 
hampering SMEs. 

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•  Financial transaction tax: the Commission has proposed the creation of a financial 
transaction  tax.  In  line  with  its  proposal4,  the  proceeds  of  such  a  tax  (estimated 
around  €57  billion)  could  be  used  to  finan ce  growth  enhancing  investment  and/or 
bank recapitalisation. The Commission has proposed that some of the receipts going 
to  the  EU  budget  should  be  used  to  reduce  Member  States  contributions  to  the  EU 
budget. 

3. 

THE ROLE OF THE MEMBER STATES IN A NEW GROWTH INITIATIVE 

3.1. 

Tapping into the potential of the 2012 European Semester 

To  bring  us  closer  to  the  goals  of  the  Europe  2020  strategy,  the  Commission  has 
transmitted  focused  recommendations  to  the  Council  for  each  Member  State  under  the 
2012  European  Semester  and  the  much  strengthened  Stability  and  Growth  Pact.  These 
recommendations  are  built  on  deep  analysis  of  the  situation  of  each  Member  State,  on 
their implementation of the recommendations of the 2011 European semester5 and how 
the  guidance  of  the  2012  Annual  Growth  Survey6  has  been  taken  up  in  the  Member 
States. Every Member State has  its  specificities and the  Commission’s country-specific 
recommendations are tailored to take account of their strengths, weaknesses and capacity 
to  tackle  challenges.  However,  the  economies  of  all  Member  States  are  inextricably 
linked  –  not  only  by  political  choice,  history  and  geography,  but  also  by  the  dynamics 
unleashed  by  new  technologies  that  integrate  markets  faster  than  ever  before.  It  is  the 
cumulation  of  national  situations  that  makes  up  the  overall  direction  of  the  EU.  There 
will inevitably be positive and negative spillovers from national actions (or inaction) on 
the  rest  of  the  EU,  hence  the  need  for  an  EU  wide  economic  governance  system 
implemented through the European Semester (see annex 1). 

For  the  first  time  the  Commission  has  also  done  in  depth  reviews  based  on  the 
macroeconomic  imbalances  procedure7.  This  procedure  has  been  designed  to  favour 
overall  macroeconomic  stability  and  growth  and  to  provide  a  lever  for  greater 
competitiveness. Using the procedure, the first alert mechanism report was published in 
February.  In  line  with  the  findings  of  that  report,  the  first  set  of  in-depth  reviews  was 
conducted covering twelve countries (Belgium, Bulgaria, Denmark, Spain, France, Italy, 
Cyprus,  Hungary,  Slovenia,  Finland,  Sweden  and  the  United  Kingdom)8.  These 
confirmed the existence of imbalances that are not excessive but which require attention; 
including  the  continuation  of  the  rebalancing  now  underway  between  "surpluses"  and 
"deficit"  countries..  Preventive  recommendations  are  included  in  the  country  specific 
recommendations  covering  policies  to  support  competitiveness  and  labour  market 
adjustment, deleveraging by private and public sectors as well as stable developments in 
asset markets. . 

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7  
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COM (2011)594 and COM (2011) 510 
COM (2011) 400  
COM (2011) 815  
Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances. 
The  "programme  countries"  (Greece,  Ireland,  Portugal  and  Romania)  were  not  included  in  the 
exercise. 

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3.2. 

Commission assessment and recommendations 

The  overall  assessment  of  the  Commission  is  that  Member  States  are  taking  the 
necessary  action  to  correct  imbalances  in  their  public  finances  and  to  ensure  fiscal 
sustainability,  but  not  always  in  the  most  growth-friendly  direction.  Unemployment, 
particularly among the young, is a severe problem that can only be resolved over time but 
immediate  action  is  needed  to  increase  employment  and  productivity  and  to  provide 
stronger  job  and  skills  matching  and  training,  to  help  people  get  back  to  work  in  well 
functioning  labour  markets.  More  generally,  the  negative  social  impact  of  the  crisis, 
including on poverty levels, must be addressed. 

Several  Member  States,  particularly  the  countries  under  a  structural  adjustment 
programme  and  those  under  close  market  scrutiny,  are  undertaking  major  structural 
reforms, including of their labour markets. These efforts are essential to sustain recovery 
and lasting growth and contribute to the overall reduction of macro-economic imbalances 
within  Europe.  Much  greater  action  across  the  EU  is  needed,  however,  to  unlock  our 
growth potential, to open up opportunities for business development and tap the potential 
of  new  sources  of  jobs,  for  instance  in  the  green  economy,  services,  energy  sectors, 
tourism, and in the digital economy as well as to raise the skills and innovation levels. 
Action is urgently needed to sustain recovery and living standards and to help tackle the 
challenges of ageing. 

The Commission is concerned to see that the level of commitments taken by the Member 
States  would  not  allow  the  EU  to  meet  its  headline  targets  for  2020  in  essential  areas 
such  as  employment  rates,  R&D,  education  and  the  fight  against  poverty.  Yet  meeting 
these targets is essential to Europe’s future. 

How can the Member States unlock their own growth potential? 

In  its  2012  Annual  Growth  Survey  the  Commission  indicated  that  in  2012  efforts  at 
national and at EU level should concentrate on five priorities: 

•  Pursuing differentiated growth-friendly fiscal consolidation. 

•  Restoring normal lending to the economy. 

•  Promoting growth and competitiveness for today and tomorrow. 

•  Tackling unemployment and the social consequences of the crisis. 

•  Modernising public administration. 

This  section  summarises  the  main  findings  of  the  Commission's  country  by  country 
analysis, based on Member States' Stability or Convergence programmes, national reform 
programmes and, where relevant, Euro Plus Pact commitments. The text box at the start 
of  each  section  summarises  the  main  country  specific  recommendations  and  indicates 
how their implementation can contribute to national growth prospects. 

Pursuing differentiated growth-friendly fiscal consolidation 

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Country  specific  recommendations  on  growth-friendly  fiscal  consolidation  aim  to 
ensure that, over time, all Member States implement sound fiscal policies. They are in 
line with differentiated fiscal strategies taking into account the specificities of Member 
States, in particular existing fiscal and macro-financial risks. In reducing government 
deficits  and  debt  levels  Member  States  are  advised  to  preserve  public  investment  in 
research  and  innovation,  education,  energy  and  to  make  social  protection  systems 
including pensions more sustainable and effective. There are several recommendations 
on taxation designed to shift the burden from labour to environment and consumption, 
to  increase  efficiency  by  removing  multiple  exemptions  (including  reduced  rates)  as 
well  as  to  fight  tax  evasion  and  the  shadow  economy.  It  is  also  recommended  to 
Member States to ensure budgetary discipline at sub-national levels. 

Under  the  Stability  and  Growth  Pact,  23  Member  States  are  currently  subject  to  the 
excessive  deficit  procedure.  For  them,  the  country-specific  recommendations  in  this 
package  reflect  the  need  for  adherence  to  the  corrective  recommendations  previously 
issued  by  the  Council.  In  the  cases  of  Germany  and  Bulgaria,  the  Commission  has 
separately  decided  on  30  May  to  propose  the  abrogation  of  their  excessive  deficit 
situation. In addition, following the assessment of action taken by Hungary, and in line 
with  the  provisions  of  the  EU  Cohesion  Fund  regulation,  the  Commission  has  also 
adopted  a  proposal  for  a  Council  decision  to  lift  the  March  2012  suspension  of  the 
Cohesion Fund commitments. For the Member States that are not in the excessive deficit 
procedure, the country-specific recommendations encourage the authorities to implement 
fiscal  plans  that  are  both  growth-friendly  and  aimed  at  achieving  and  maintaining 
budgetary positions that ensure the long term sustainability of public finances, including 
the costs of ageing. 

The  Commission's  analysis  shows  that  Member  States  are  broadly  on  track  with  their 
fiscal consolidation efforts, reducing their government deficits. These deficits are set to 
decline  from  4.5%  in  2011  to  3.5%  in  2012.  However,  the  government  debt  ratio 
continues to rise, reaching 86% of GDP in 2012, which is also due to lower growth. The 
Commission  considers  it  is  essential  to  stick  to  agreed  deadlines  for  the  correction  of 
excessive  deficits  and  to  move  swiftly  towards  the  medium-term  fiscal  objectives 
specified  by  the  Council.  Such  fiscal  adjustments  should  be  carried  out  in  a  way  that 
supports more sustainable economic growth, as described below. This is in line with the 
Stability and Growth  Pact, which allows the  working  of  automatic  stabilisers  along the 
structural adjustment path leading to the correction of excessive deficits and the eventual 
achievement of the medium-term objectives. At the same time it highlights the need for 
Member  States  facing  most  intense  market  scrutiny  to  pursue  ambitious  consolidation 
even in the face of a worse-than-expected macroeconomic environment. Using available 
fiscal  space  for  growth-enhancing  investment  is  also  recommended  to  those  countries 
that are exiting the excessive deficit procedure. Strengthened national fiscal frameworks 
are  being  introduced,  as  required  by  EU  legislation.  However,  particular  efforts  are 
needed to ensure that fiscal discipline at central government level is matched by similarly 
effective  action  to  keep  public  finances  under  control  also  at  the  sub-national  levels. 
This represents a particular challenge in several federal or regionalised countries. 

It will be important to improve the quality of public finances, by prioritising expenditure 
on Europe 2020 targets and ensuring that such expenditure is as efficient as possible. EU 
state  aid  control  helps  to  promote  quality  spending  and  minimises  distortions.  The 
Commission has recently launched an ambitious state aid modernisation proposal and 

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Member  States  will  need  to  ensure  better  compliance  with  the  rules  and  better  internal 
co-ordination of state aid interventions at national level. 

Pension systems are being adapted to meet the challenges of an ageing population, with 
major  reforms  being  implemented  in  several  countries  with  the  common  feature  of 
prolonging working life. These reforms are essential to contain financial costs and ensure 
the  long-term  financial  sustainability  of  adequate  welfare  systems.  In  parallel,  it  is 
necessary to attract and maintain older workers in employment beyond current retirement 
patterns, in line with improvements in life expectancy, and to consider the adequacy of 
the level of pensions, to prevent poverty in old age. Less progress has been made in the 
area  of  healthcare  systems,  where  the  need  for  access  to  healthcare  and  long-term  care 
must  be  balanced  with  increasing  financial  pressure  resulting  from  demographic 
developments.  

To  sustain  fiscal  consolidation,  several  Member  States  are  raising  taxes.  The 
Commission has called for a shift in taxation away from labour towards environmentally-
harmful practices, consumption and real estate, while ensuring that the burden does not 
fall  disproportionately  on  the  poorest  sections  of  society.  While  a  number  of  Member 
States have significantly increased consumption taxes and started to reverse the decline 
in environmental taxation, there is no evidence of an overall reduction in labour taxation.  
Some  efforts  are  being  made  and  should  be  pursued  to  eliminate  tax  exemptions  and 
subsidies,  as  well  as  reduced  rates,  for  instance  for  VAT.  Action  is  being  taken  to 
improve  tax  compliance  but  much  stronger  action  is  needed  to  fight  the  shadow 
economy. 

Restoring normal lending to the economy 

To help restore normal lending to the economy the country specific recommendations 
focus on completing the  restructuring  of the  banking  sector  while avoiding  excessive 
deleveraging.  

Efforts  are  being  made  to  pursue  the  restructuring  of  the  financial  sector  and 
strengthen its supervisory framework, in line with EU legislation and recommendations. 
The  situation  of  banks  having  been  most  exposed  to  the  crisis  and  still  presenting 
vulnerabilities  remains  a  source  of  concern.  This  explains  calls  for  more  restructuring 
and precautionary measures in the recommendations of certain countries. 

Re-establishing a normal level of credit flows to the real economy remains a challenge 
in  many  countries,  particularly  for  SMEs.  While  this  is  partially  explained  by  the 
weakness of corporate balance sheets and prospects, the lack of appropriate channels to 
reach  out  to  SMEs  have  also  played  an  important  role.  New  pools  of  capital  for  firms 
should be promoted, including access to peer-to-peer lending, private equity and venture 
capital.  The  EU  structural  funds  can  play  an  important  role  in  this  context  in  some 
Member States, by funding loans and guarantees through specific instruments.  

Many  SMEs  are  suffering  from  late  payments  by  public  authorities.  This  problem  is 
being addressed with the new late payments Directive that will enter into force in March 
2013.  Additional  efforts  by  public  authorities  may  be  needed  to  clear  the  backlog  of 
arrears that has built up before the Directive enters into force 

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Promoting growth and competitiveness for today and tomorrow 

To  help  promote  growth  and  competitiveness  the  country  specific  recommendations 
focus  on  improving  the  business  environment,  including  by  reducing  administrative 
burden, and opening up the network industries such as energy, railways and telecoms 
to  competition  to  deliver  better  services  at  better  prices  for  business  and  citizens.  In 
some cases they recommend greater independence for the regulators. They address the 
implementation  of 
through  removing  unjustified  or 
disproportionate restrictions on providing services, including discrimination based on 
nationality  or  residence.  They  also  deal  with  ongoing  restrictions  in  the  retail  sector. 
Other  recommendations  deal  with  strengthening  research  and  innovation,  improving 
resource  efficiency,  and  linking  education  more  closely  to  the  requirements  of  the 
labour market. 

the  Services  Directive 

In  many  Member  States  there  is  insufficient  access  to  a  number  of  services.    A  more 
ambitious  implementation  of  the  Services  Directive  would  help,  as  would  steps  to 
enhance  competition  and  competitiveness  in  the  retail  sector,  reducing  barriers  for  the 
entry  and  exit  of  firms  and  eliminating  unjustified  restrictions  for  business  and 
professional services, legal professions, accounting or technical advice, health and social 
sectors.  Opening  up  public  procurement  markets  by  actively  seeking  cross  border 
tenders would also stimulate new opportunities, processes and innovation. 

The performance of key network industries - transport, energy and broadband – need to 
be substantially improved. Investment in infrastructures is necessary in several countries 
to  improve  interconnections,  broaden  supply  and  allow  price  competition.  Given  the 
limited  fiscal  room  for  manoeuvre,  innovative  forms  of  funding  combining  private  and 
public  sources,  such  as  the  EU  project  bonds,  should  be  used.  Levels  of  competition 
remain low on many markets and the EU-wide regulatory framework is not yet fully in 
force:  half  of  the  Member  States  have  not  yet  transposed  the  Internal  Energy  Market 
Directives or failed to transpose them correctly. In several Member States there is a need 
for  greater  competition  between  energy  providers,  the  removal  of  regulated  prices  and 
greater independence of the regulator. In transport, further efforts are necessary to reduce 
the  regulatory  burden  and  barriers  to  entry  in  rail  in  large  or  transit  Member  States. 
Average  penetration  of  broadband  remains  low  and  there  is  considerable  scope  for 
improving services and securing the use of e-commerce. 

Improvements  in  resource  efficiency  and  moving  towards  a  low  carbon  economy  are 
essential  to  further  develop  Europe's  competitiveness  in  the  light  of  growing  resource 
scarcity  and  price  volatility,  as  well  as  ongoing  climate  change.  More  efficient  use  of 
resources and better management of natural resources will open up significant economic 
opportunities  for  future  growth  and  jobs,  leading  to  improved  productivity,  lower  costs 
and greater innovation. 

High levels of R&D and innovation are essential to maintain Europe’s competitiveness. 
Even if some of its Member States stand today among the world leaders in many areas, 
overall  Europe  is  losing  ground  over  time.  Public  expenditure  on  research  has  been 
affected by fiscal consolidation in many Member States instead of being ring-fenced or 
increased. Additional private R&D investment is clearly needed and if necessary should 
be  encouraged  through  public  incentives.  Research  outputs  should  be  brought  closer  to 
market  through  pre-commercial  procurement.  More  generally,  there  is  an  obvious  need 

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for  more  partnerships  between  education  and  lifelong  learning  institutions,  research 
bodies and business, making full use of available EU instruments.  

Tackling unemployment and the social consequences of the crisis 

Many  recommendations  deal  with  creating  the  conditions  for  higher  levels  of 
employment, increasing participation and keeping people in the labour market. There 
is  a  particular  focus  on  fighting  youth  unemployment,  reducing  early  school  leaving 
and improving training, including vocational training and developing apprenticeships.  
in  several 
Poverty  alleviation  and  helping  vulnerable  groups 
recommendations.  There  are  also  recommendations  on  strengthening  and  providing 
more  individualised  support  for  job  seekers  and  promoting  full  time  female 
participation. Member States are also recommended to ensure that their wage setting 
mechanisms  appropriately  reflect  productivity  developments  and  stimulate  job 
creation. 

is  addressed 

The  crisis  has  led  to  a  significant  increase  in  unemployment  and  has  significantly 
worsened job prospects for many people, who risk withdrawing from the labour market. 
High levels of unemployment are likely to remain for some time given the lag between 
economic  recovery  and  improvements  in  the  labour  market.  Active  labour  market 
policies  -  such  as  training  for  the  unemployed  and  guidance  from  public  employment 
services - are being mobilised but often suffer from weak targeting and low effectiveness. 

The social consequences of the crisis are increasingly being felt. Poverty and the risk of 
poverty  are increasing and pressures on public spending leads to difficult trade-offs for 
the provision of social services and benefits. 

Youth unemployment has increased dramatically, with young people twice as likely to 
be unemployed as the adult population. Across the EU, youth unemployment is at 22% 
and  is  as  high  as  50%  in  some  Member  States.  There  are  some  promising  experiences 
with  youth  guarantees  which  could  be  implemented  more  widely  across  the  EU, 
including with support from the European Social Fund.  

Progress  in  expanding  affordable  childcare  and  dependent  care  facilities,  reducing  pay 
gaps  and  improving  the  fiscal  treatment  of  second  earners  has  been  insufficient  to 
increase significantly the participation of women in the labour market. There is still not 
enough  emphasis  on  active  ageing  strategies,  including  modernisation  of  working 
arrangements  and  broader  access  to  lifelong  learning,  which  are  essential  to  increase 
labour participation, particularly for older workers. 

Some  Member  States  have  introduced  far-reaching  reforms  of  their  wage-setting  and 
indexation  systems  to  ensure  that  wage  developments  better  reflect  productivity 
developments  over  time.  Limited  progress  has  been  made  in  other  countries  where  the 
functioning of certain wage indexation systems has been identified as a possible threat to 
competitiveness.  These  countries  will  need  to  find  ways,  in  consultation  with  social 
partners,  to  reduce  this  handicap  in  future.  In  countries  with  current  account  surpluses, 
some  rebalancing  in  favour  of  domestic  demand,  including  through  wage  increases  is 
noticeable and should continue. A balance should be struck between ensuring that wage 
levels are not too high to discourage the recruitment of the young and the low-skilled in 
particular but not as low as to risk creating in–work poverty traps. 

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Whereas  some  Member  States  have  started  far-reaching  reforms  of  their  labour 
legislation to enable more flexible forms of contract and working arrangements, in other 
cases the  process  of  reform appears slow in comparison  to the  urgency of  the situation 
and to the risks of labour market segmentation, with a large share of the population still 
in  precarious  work  or  outside  the  labour  market.  Short  time  working  arrangements  and 
other  internal  flexibility  practices  proved  effective  in  several  countries  in  preserving 
employment  at  the  peak  of  the  crisis,  particularly  in  the  manufacturing  sector.  To  help 
support job creations, the Commission has made proposals to encourage Member States 
to strengthen employment policies9 to seize the job opportunities in the green economy, 
the  healthcare  sector  and  in  ICT  where  it  estimates  that  over  20  million  jobs  could  be 
created.  In  addition  improved  mobility  between  Member  States,  matching  skills  and 
vacancies across borders can be supported by the EURES job vacancies' system. 

On-going efforts to address the high levels of early school leaving, including preventive 
measures,  and  reforms  in  the  education  and  vocational  training  systems  including  to 
boost  apprenticeships,  need  to  be  accelerated.  This  is  essential  for the  employability  of 
the new generations but also for the overall competitiveness of the economy, as the EU is 
lagging behind its main trade partners. Moreover, the demographic shift creates new risks 
of  skills  mismatches  and  shortages,  with  additional  pressure  to  work  longer  and  more 
productively. Several countries have to make particular efforts to reduce the high number 
of  early  school  leavers,  to  improve  young  people’s  chances  on  the  labour  market  and 
reduce  youth  unemployment.  More  generally  educational  performance,  including 
vocational training and university level, need to be improved across the board. In many 
Member States there is scope for developing  apprenticeship schemes. In general, much 
more  needs  to  be  done  to  link  and  anticipate  education  and  training  with  future  labour 
market needs to facilitate the school to work transition. 

Modernising public administration 

Country  specific  recommendations  on  public  administration  deal  with  services  to 
business, tackling delays in the legal system and the use of e government to facilitate 
contact with citizens and business.  The issue of strengthening administrative capacity 
to deal with the EU  funds is also covered in several recommendations. 

Currently,  public  administrations  are  under  pressure  across  the  EU:  not  only  do  they 
face  cut  backs  in  budgets  and  staff  levels  but  they  also  have  to  adapt  to  increasingly 
demanding  societal  and  business  expectations.  As  political  and  economic  integration 
moves  forward,  they  also  need  to  implement  more  and  more  sophisticated  and 
demanding  EU  rules.  Weak  administrations  in  different  Member  States  pose  problems 
ranging from difficulties of doing business to poor implementation of EU funds and poor 
transposition of EU law. The challenge of ensuring high quality public services requires 
technological  and  organisational  innovation,  such  as  a  resolute  move  towards  e-
government. A number of administrations could benefit from a more intensive exchange 
of  best  practice.  The  efficiency  of  civil  justice  systems  needs  to  be  improved  in  many 
countries,  in  particular  by  reducing  backlogs,  speeding  up  judicial  proceedings  and 
introducing alternative forms of dispute resolution.  

Given the pressure on public finances, EU funds are an essential lever to stimulate the 
economy and finance growth-enhancing projects on the ground in many countries. There 

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is a need to strengthen the governance of public institutions by further professionalising 
the  civil  service,  improving  management  of  human  resources,  enhancing  analytical 
capacities  and  ensuring  continuity  and  stability  of  competent  staff.    Rules  have  been 
simplified  at  EU  level  and  the  Commission  is  assisting  Member  States  in  their  re-
programming efforts to adjust funding further to growth needs. 

Many Member States need to step up their efforts to deal with tax fraud and evasion. All 
Member  States  have  "shadow  economies"  some  of  which  are  highly  developed.  The 
problems  posed  by  tax  fraud  and  evasion  must  be  tackled  at  different  levels  through: 
Member  State  efforts  to  make  their  own  tax  collection  more  effective;  reinforced  and 
effective  co-operation  between  Member  States;  clear  and  coherent  EU  policy  vis-à-vis 
third countries to ensure that adequate measures can be taken to target fraud and evasion 
that  build  on  the  use  of  certain  non-EU  jurisdictions  that  do  not  apply  equivalent 
standards; and co-ordinated and effective policy in relation to third countries. 

4. 

CONCLUSIONS 

The crisis revealed deep rooted imbalances and failure to make necessary reforms across 
the EU. Just as it took time for these problems to make themselves felt, it will take time 
to  put  the  EU  economy  back  on  a  sound  footing.  The  analysis  done  for  the  2012 
European semester shows that the new economic governance of the EU is beginning to 
work, helping Member States to focus on essential reforms that will deliver sustainable 
growth and jobs. It is also evident that Member States are not always choosing the most 
growth-friendly paths in their fiscal consolidation decisions. 

Overall there is a need to give more prominence and urgency to growth measures in the 
coming twelve months, while continuing with fiscal consolidation and stabilisation of the 
financial sector. This needs to be done in a co-ordinated way at national and at EU level 
to get the most out of policy measures and reforms. 

Through the proposals contained in this Communication and in its more detailed country 
specific recommendations the Commission is proposing concrete measures that can help 
return  the  EU  to  growth  and  to  create  jobs  that  will  help  to  raise  living  standards, 
the  future.  These 
alleviate  poverty  and  ensure  more  sustainable  growth  for 
recommendations need to be implemented as a priority. The Commission will use all the 
instruments  of  the  new  governance  framework  to  monitor  and  assess  progress  in  the 
coming year. 

At  the  same  time,  the  Commission  will  continue  to  focus  strongly  on  the  full 
implementation of the October 2011 Roadmap to ensure a balanced approach to help the 
EU emerge from the crisis. 

The  Commission  will  work  intensively  with  the  Member  States  and  the  European 
Institutions  to  implement  its  growth  initiative  and  to  develop  the  building  blocks  and 
time horizon for the completion of Economic and Monetary Union. 

Annex 1: 

The European semester  

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Annex 2: 

Results of the in depth reviews and the excessive deficit procedures 

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ANNEX 1: THE EUROPEAN SEMESTER OF POLICY COORDINATION 

In  March  2010,  the  Commission  proposed  and  the  European  Council  endorsed  the 
Europe  2020  strategy.  This  is  the  EU’s  growth  strategy  for  the  coming  decade.  It  has 
five  headline  targets  in  the  areas  of  employment,  R&D,  climate  and  energy,  education 
and  the  fight  against  poverty.  Twenty-three  Member  States  also  agreed  the  Euro  Plus 
Pact in March 2011 to step up coordination of reforms in areas not fully covered at EU 
level (see box).  

The  Commission  also  proposed  and  the  EU  co-legislators  agreed  a  “six-pack”  of 
legislation  on  economic  governance,  which  entered  into  force  on  13  December  2011. 
This new legislation has given the EU new and effective tools to deepen monitoring of 
Member  States'  economic  and  fiscal  policies  and  to  enforce  the  rules.  Through  it,  the 
Stability and Growth Pact was amended to strengthen collective surveillance of public 
finances.  Much  greater  emphasis  is  placed  on  the  debt  ratio  criterion  included  in  the 
Treaty, and new enforcement mechanisms (including sanctions) have been introduced in 
both its preventive and corrective arm.  

Recognising the importance of forcefully tackling macro-economic imbalances of a non-
fiscal  nature,  the  surveillance  framework  was  also  broadened  through  a  new 
macroeconomic imbalance procedure. It aims to prevent the emergence of imbalances 
that  pose  a  risk  to  economic  stability.  Where  imbalances  persist,  the  procedure  will 
ensure that corrective actions are taken. The new procedure includes a sanctions regime 
for  repeated  non-compliance  with  agreed  actions.  Using  this  new  procedure,  the 
Commission's first alert mechanism report was published in February 2012.  In line with 
the findings of that report, the first in-depth reviews were conducted on twelve countries 
(Belgium, Bulgaria, Denmark, Spain, France, Italy, Cyprus, Hungary, Slovenia, Finland, 
Sweden and the United Kingdom)10. 

To deliver collectively on these objectives and bring together all of these commitments,  
to  ensure  better  ex-ante  co-ordination  and  follow-up  of  decisions,  the  Member  States 
agreed  and  implemented  for  the  first  time  in  2011  a  new  way  to  coordinate  national 
policies, the European semester of policy coordination. 

The  cycle  starts  with  the  publication  of  an  Annual  Growth  Survey  (AGS)  by  the 
European Commission, reviewing economic challenges and setting out priorities for the 
EU as a whole. The Annual Growth Survey is presented to the European Parliament and 
serves as the reference for discussion by Heads of State or Government at their  Spring 
European  summit.  On  the  basis  of  their  guidance,  Member  States  present  Stability  or 
Convergence Programmes (looking at the situation of their public finances) and National 
Reform Programmes (looking at measures to boost growth and jobs) in April, so that the 
Commission  can  assess  them  simultaneously.  The  Commission’s  assessment  takes  the 
form  of  proposals  for  annual  country  specific  recommendations,  which  are  then 
discussed  by  Council  formations,  endorsed  by  the  European  Council  by  early  summer 
before  final  adoption  by  the  Council.  In  the  second  part  of  the  year,  Member  States 
finalise  national  budgets  and  reform  strategies,  and  the  Commission  and  relevant  EU 
bodies discuss and monitor performances and progress. 

10 

The  "programme  countries",  Greece,  Ireland,  Portugal  and  Romania  were  not  included  in  the 
exercise. 

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18 

   EN 

 
                                                 
Today’s package paves the way for the conclusion of the second European semester of 
policy  coordination  at  the  June  2012  European  Council.  Compared  to  last  year,  the 
effectiveness of the process and the impact of the guidance given are reinforced by the 
lessons drawn from the implementation of the 2011 recommendations, by the findings of 
the  in-depth  reviews  carried  out  for  12  Member  States  and  by  the  greater  automaticity 
which should follow in the adoption of the proposed recommendations for action. 

The Euro Plus Pact 

Those Member States that have joined the Euro Plus Pact –  all Euro area Member 
States as well as Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania – have 
committed themselves to far-reaching reforms in the four areas covered by the Pact: 
fostering  competitiveness,  fostering  employment,  enhancing  the  sustainability  of 
public finances and reinforcing financial stability. They are also committed to engage 
in  structured  discussions  on  tax  policy  issues.  The  commitments  of  the  participating 
Member  States  are  reflected  in  their  Stability  or  Convergence  Programmes  and 
National Reform Programmes. 

In 2011, a first  series of national commitments was announced and the Commission 
reported  on  them  when  issuing  last  year’s  recommendations.  Looking  at  the  2012 
national  programmes,  the  degree  of  implementation  of  past  commitments  varies 
considerably across the Member States and policy areas. In many cases, governments 
have made first steps by proposing legislation which is not yet adopted and its impact 
is  still  uncertain.  Member  States  took  seriously  their  commitments  regarding  the 
sustainability  of  public  finances  and  put  forward  legislative  proposals  regarding 
pension  systems  and  national  fiscal  rules.  In  many  cases,  however,  the  adoption  of 
new  legislation  is  delayed,  postponing  the  implementation.  Progress  was  also  made 
with regard to the commitments in fostering employment, particularly with reforms to 
increase labour participation, as well as with reforms fostering competitiveness, with 
a major focus on improving business environment.  

The Commission provides its assessment in the Staff Working Documents attached to 
this package and will continue to monitor the implementation of the commitments in 
the context of the European semester.  

EN 

19 

   EN 

 
 
 
TABLE 1: OVERVIEW OF COUNTRY-SPECIFIC RECOMMENDATIONS FOR 2012-2013* 

Public finances

Financial sector

Growth enhancing structural reforms

Labour market

Sound public 
finances

Pension and 
health systems

Fiscal framework

Taxation

Banking

Housing market

Access to 
finance

Network 
industries

Competition in 
service sector

Public services 
and regulation

R&D and 
innovation

Resource 
efficiency

Labour market 
participation

Active labour
market policy

Wage setting 
mechanisms

 Flexicurity

Education

AT

BE

BG

CY

CZ

DE

DK

EE

ES

FI

FR

HU

IT

LT

LU

LV

MT

NL

PL

SE

SI

SK

UK

* For Ireland, Greece, Portugal and Romania, the only recommendation is to implement existing commitments under EU/IMF financial assistance programmes.  

 
 
 
The symbol "*" is added when a national target is expressed with an indicator different than the EU headline target indicator. 

TABLE 2: OVERVIEW OF EUROPE 2020 TARGETS

11  

Member 
States 
targets 

EU headline 
target 

Estimated 
EU 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

Employment 
rate (in %) 

R&D in % of 
GDP 

75% 

3% 

73.70-74% 

2.65-2.72% 

77-78% 

3.76% 

73.2% 

76% 

75-77% 

75% 

77% 

80% 

3.0% 

1.5% 

0.5% 

1% (public 
sector only) 

3% 

3% 

Emissions 
reduction 
targets 
(compared to 
2005 levels)12 
-20% 
(compared to 
1990 levels) 
-20% 
(compared to 
1990 levels) 

-16% 

-15% 

20% 

-5% 

9% 

-14% 

-20% 

Renewable 
energy 

20% 

20% 

34% 

13% 

16% 

13% 

13% 

18% 

30% 

Energy efficiency – 
reduction of 
energy 
consumption in 
Mtoe13 
20% increase in 
energy efficiency 
equalling 368 Mtoe 

Early school 
leaving in % 

Tertiary education 
in % 

Reduction of population at risk of poverty 
or social exclusion in number of persons 

10% 

40% 

20 000 000 

206.5 

10.3-10.5% 

37.6-38.0%14 

7.16 

9.80 

3.20 

0.46 

n.a. 

38.30 

0.83 

9.5% 

9.5% 

11% 

10% 

5.5% 

<10% 

<10% 

38% (including ISCED 
4a, which  in 2010 was  
at about 12%) 
47% 

36% 

46% 

32% 

42% (including 
ISCED4 which in 2010 
was   at 11.4%) 

At least 40% 

235 000 

380 000 

   260 000* 

  27 000 

Maintaining the number of persons at risk of 
poverty or social exclusion at the level of 
2008 (15.3% of total population) with efforts 
to reduce it by 30 000 

320 000 (long-term unemployed)* 

22 000 (persons living in households with 
very low work intensity)* 

11 
12 

13 
14 

The national targets as set out in the National Reform Programmes in April 2012. 
The national emissions reduction targets defined in Decision 2009/406/EC (or "Effort Sharing Decision") concern the emissions not covered by the Emissions Trading System. 
The  emissions  covered  by  the  Emissions  Trading  System  will  be  reduced  by  21%  compared  to  2005  levels.  The  corresponding  overall  emission  reduction  will  be  -20% 
compared to 1990 levels. 
It should be noted that the national projections also vary as to the base year(s) against which savings are estimated. 
Calculation does not include ISCED 4 (Germany, Austria) , and the UK, result with ISCED 4: 40.0-40.4%. 

21 

 
 
 
                                                 
EE 

EL 

ES 

FI 

FR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

76% 

70% 

74% 

78% 

75% 

75% 

69-71% 

67-69% 

72.8% 

73% 

73% 

62.9% 

80 % 

71% 

75% 

70% 

3% 

No target 
available 

3% 

4% 

3% 

1.8% 

approx.2% 
2.5% of GNP) 

1.53% 

1.9% 

2.3-2.6% 

1.5% 

0.67% 

2,5 % 

1.7% 

3% 

2% 

11% 

-4% 

-10% 

-16% 

-14% 

10% 

-20% 

-13% 

15% 

-20% 

17% 

5% 

-16% 

14% 

1% 

19% 

SE 

Well over 80% 

Approx. 4% 

-17% 

SI 

SK 

UK 

75% 

72% 

3% 

1% 

No target in 
NRP 

No target in 
NRP 

4% 

13% 

-16% 

0.71 

2.70 

25.20 

4.21 

34.00 

2.96 

2.75 

27.90 

1.14 

0.19 

0.67 

0.24 

n.a. 

 13.6 

6.00 

10.00 

12.80 

n.a. 

1.65 

n.a. 

25% 

18% 

20% 

38% 

23% 

14.65% 

16% 

17% 

23% 

11% 

40% 

10% 

14% 

15.48% 

31% 

24% 

49% 

25% 

14% 

15% 

22 

9.5% 

 under 10% 

15% 

8% 

9.5% 

10% 

8% 

40% 

32% 

44% 

42%  
(narrow national 
definition) 

50% 

30.3% 

60% 

15-16% 

26-27% 

<9% 

<10% 

13.4% 

29% 

<8 % 

4.5% 

10% 

11.3% 

<10% 

5% 

6% 

40% 

66% 

34-36% 

33% 

>40% 
45% expected in 2020 
45% 

40% 

26.7% 

40-45% 

40% 

40% 

61 860 people out of risk-of-poverty* 

450 000 

1 400 000 - 1 500 000 

150 000 

Reduction of the anchored at-risk-of-poverty 
rate by one third for the period 
2007-2012 or by 1 600 000 people* 

450 000 

   200 000* 

2 200 000 

170 000 

6 000 

   121 000* 

6 560 

   93 000* 

1 500 000 

200 000 

580 000 

Reduction of the % of women and men who 
are not in the labour force (except full-time 
students), the long-term unemployed or those 
on long-term sick leave to well under 14%* 

40 000 

170 000 

No target in 
NRP 

No target in NRP 

Existing numerical targets of the 2010 Child 
Poverty Act* 

 
ANNEX 2: RESULTS OF THE IN DEPTH REVIEWS  

On  14  February  2012,  the  European  Commission  presented  its  first  Alert  Mechanism 
Report, prepared in accordance with Regulation (EU) No. 1176/2011 on the prevention 
and  correction  of  macroeconomic  imbalances.  The  Alert  Mechanism  Report  examined 
the situation of all Member States, with the exception of the four programme countries 
(Greece,  Ireland,  Portugal  and  Romania).  On  the  basis  of  an  economic  reading  of  the 
early warning scoreboard, the Commission concluded that further in-depth analysis of the 
macroeconomic  developments  in  the  following  twelve  Member  States  was  warranted: 
Belgium,  Bulgaria,  Denmark,  Spain,  France,  Italy,  Cyprus,  Hungary15,  Slovenia, 
Finland, Sweden and the United Kingdom.  

For each of these countries the Commission services carried out country specific in-depth 
analysis.  These are published as Staff Working Documents as part of this package. In the 
preparation of this analysis, specific fact finding missions took place, as foreseen in the 
legislation.16 This Communication fulfils the requirements stipulated in the article 5.3 of 
Regulation (EU) No. 1176/2011 according to which the Commission should inform the 
Council and the European Parliament about the results of the in-depth reviews and make 
them public.  

On the basis of (i) the in-depth reviews undertaken in the accordance with Article 5 of 
Regulation  (EU)  No.  1176/2011  the  Commission  has  concluded  that  these  imbalances 
need to be adressed, some urgently:  

•  Belgium is experiencing imbalances. In particular, macroeconomic developments 
in the areas of external competitiveness of goods and indebtedness, especially the 
high  level  of  public  debt,  deserve  further  attention  so  as  to  reduce  the  risk  of 
adverse effects on the functioning of the economy.  

•  Bulgaria is experiencing imbalances. In particular, the level of external indebtedness 
as  well  as  certain  macroeconomic  developments  related  to  corporate  sector 
deleveraging  and  the  labour  market  adjustment  process  deserve  attention  so  as  to 
reduce the risk of adverse effects on the functioning of the economy. 

•  Denmark  is  experiencing  imbalances.  In  particular,  certain  macroeconomic 
developments, notably underlying its external competitiveness and potential risks 
related  to  household  indebtedness,  deserve  attention  so  as  to  reduce  the  risk  of 
adverse effects on the functioning of the economy. 

•  Spain  is  experiencing  very  serious  imbalances.  In  particular,  macroeconomic 
developments,  notably  related  to  the  significant  level  of  private  sector  debt,  the 
large  negative  external  debt  position  and  the  financial  sector,  which  were 
influenced by housing market developments, require close monitoring and urgent 

15 

16  

The  Hungarian  government  formally  requested  precautionary  financial  assistance  from  the  EU 
and the IMF in November 2011.  
In accordance with Articles 5.1 and 13 of Regulation (EU) No. 1176/2011, the in-depth reviews 
shall be undertaken in conjunction with surveillance missions. The missions took place at service 
level between March and April. 

 
 
 
 
 
 
 
 
 
                                                 
economic policy attention in order to avert any adverse effects on the functioning 
of the economy and of economic and monetary union. 

•  France is experiencing serious imbalances. In particular, certain macroeconomic 
developments  in  the  areas  of  export  performance  and  competitiveness  deserve 
attention  so  as  to  reduce  the  risk  of  adverse  effects  on  the  functioning  of  the 
economy.  

•  Italy is experiencing serious imbalances. In particular, high public indebtedness 
and  macroeconomic  developments  in  the  area  of  export  performance  deserve 
attention  as  Italy  has  been  losing  external  competitiveness  since  euro  adoption. 
Given the high level of public debt, enhancing the growth potential should be a 
key priority so as to reduce the risk of adverse effects on the functioning of the 
economy.  

•  Cyprus  is  experiencing  very  serious  imbalances.  In  particular,  macroeconomic 
developments as reflected in the current account, public finances and the financial 
sector require close monitoring and urgent economic policy attention in order to 
avert any adverse effects on the functioning of the economy and of economic and 
monetary union.  

•  Hungary 

serioust 

imbalances. 

is  experiencing 

In  particular,  certain 
macroeconomic  developments  such  as  the  highly  negative  size  of  the  net 
international investment position and public debt deserve very close attention so 
as  to  reduce  the  important  risks  of  adverse  effects  on  the  functioning  of  the 
economy.  .  Further  to  the  assessment  of  effective  action,  and  in  line  with  the 
provisions of the EU Cohesion Fund regulation, the Commission has also adopted 
a  proposal  for  a  Council  decision  to  lift  the  March  2012  suspension  of  the 
Cohesion Fund commitments. 

•  Slovenia  is  experiencing  serious  imbalances.  In  particular,  macroeconomic 
developments  related  to  corporate  sector  deleveraging  and  banking  stability  and 
unfavourable  but  less  pressing  development  in  external  competitiveness  deserve 
to be closely monitored, so as to reduce the important risks of adverse effects on 
the functioning of the economy.  

•  Finland is experiencing imbalances. In particular, macroeconomic developments 
relating  to  competitiveness  deserve  attention  so  as  to  reduce  the  risk  of  adverse 
effects on the functioning of the economy.  

•  Sweden  is  experiencing  imbalances.  In  particular,  certain  macroeconomic 
developments  regarding  private  sector  debt  and  the  housing  market  deserve 
attention  so  as  to  reduce  the  risk  of  adverse  effects  on  the  functioning  of  the 
economy.  

•  The UK is experiencing imbalances. In particular, macroeconomic developments 
in  the  areas  of  household  debt  and  the  housing  market  deserve  attention,  as  do 
unfavourable developments in external competitiveness, so as to reduce the risk 
of adverse effects on the functioning of the economy.  

24 

 
 
 
 
 
 
 
 
 
 
These imbalances will be followed up under the preventive arm of the Macroeconomic 
Imbalances  Procedure  and  are  integrated  in  the  Country  Specific  Recommendations 
under the European Semester. 

25