COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS 2013 EUROPEAN SEMESTER: COUNTRY-SPECIFIC RECOMMENDATIONS MOVING EUROPE BEYOND THE CRISIS
Date: 2013-05-29
Institutions: European Commission
Subjects: EU Member State, EU statistics, banking system, budgetary equilibrium, economic growth, economic recession, economic reform, economic statistics, job creation

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 350 final 

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

2013 EUROPEAN SEMESTER: COUNTRY-SPECIFIC RECOMMENDATIONS 

MOVING EUROPE BEYOND THE CRISIS 

EN 

   EN 

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

2013 EUROPEAN SEMESTER: COUNTRY-SPECIFIC RECOMMENDATIONS 

MOVING EUROPE BEYOND THE CRISIS 

1. 

INTRODUCTION 

Once  a  year  the  Commission  reviews  the  economic  and  social  performance  of  each  EU 
Member State and makes country-specific recommendations to guide national policies in the 
coming  year.  Against  the  background  of  a  deep  economic  and  financial  crisis,  which  is 
causing  social  hardship  for  many,  and  recent  forecasts  which  show  that  the  EU  is  slowly 
recovering from a protracted recession, this year's recommendations will receive particularly 
close scrutiny.  

The purpose of regular surveillance by the Commission is: 

•  To identify  the major  economic  and  social challenges for the EU and the Euro area, 

reflecting the growing interdependence between our economies. 

•  To  assess  progress,  pick  up  warning  signs  of  problems  earlier  than  in  the  past  and 
through recommendations to guide Member States to implement their policies in ways 
that  help  the  EU  to  adjust  and  grow  sustainably,  providing  jobs  and  decent  living 
standards for all its citizens. 

The Commission's analysis presented alongside the 2013 recommendations shows that the EU 
is making lasting changes and is tackling the serious structural problems that built up over the 
last decade. These changes are taking place against a global backdrop of the need for reform 
in  the  most  advanced  economies  and  strong  economic  development  in  the  emerging 
economies. Member States are engaging in necessary reforms and working hard to get public 
finances  under  control.  The  pace  and  impact  of  these  efforts  varies  across  countries  – 
adjustment  is  particularly  noticeable  in  the  programme  countries  and  the  more  vulnerable 
Member  States.  The  challenge  is  to  implement  agreed  reforms,  sometimes  with  greater 
urgency and more ambition. Where the Commission feels that stronger measures are needed, 
these are set out in the recommendations. 

Over  the  last  five  years,  efforts  have  been  concentrated  on  crisis  management,  restoring 
financial  stability  and  securing  the  Euro  as  the  prerequisites  for  future  growth.  In  the  short 
term, recovery is hampered by the high levels of debt – both public and private – accumulated 
in  many  Member  States  and  because  the  repair  of  the  banking  sector  is  slow  to  bear  fruit. 

3 

 
 
 
 
Moreover,  the  size  and  urgency  of  the  imbalances  built  up  over  several  years  have  led  to 
significant adjustments which now have to be carried out simultaneously across Europe, with 
a strong interdependence between the EU economies.  

Finding  a  more  sustainable  growth  path  takes  more  time  than  is  desirable.  The  impact  on 
society  of  several  years  of  low  or  no  growth  is  far-reaching,  with  very  high  levels  of 
unemployment and rising poverty in several parts of Europe. The level of inequalities and the 
issue of fairness are now at the centre of public debate, showing that to be successful policies 
need not only to be well designed but to have political and social support. The dim prospect 
for labour market improvements in the short term will be a further test for the welfare systems 
of  the  Member  States.  It  will  take  time  for  the  positive  effects  of  today's  decisions  to  work 
their way through into a more dynamic, growing, job-creating economy. 

Europe needs fiscal consolidation – sustainable growth cannot be built on unsustainable debt 
– and Europe needs real growth so that people can find sustainable employment. The issue of 
youth unemployment requires specific and urgent action. Since the current crisis is structural 
as  well  as  cyclical,  the  pace  of  reforms  needs  to  be  stepped  up  across  the  EU  to  secure 
recovery and ensure the rebalancing of the economy. "Deficit" countries need to boost their 
competitiveness and "surplus" countries need to remove the structural obstacles to the growth 
of their domestic demand.  

Structural reforms can be difficult but they help to spread the burden of adjustment and the 
benefits more evenly across society. Reducing red tape for business helps to foster a business-
friendly  environment,  reducing  the  cost  of  services  helps  low  income  groups  and  more 
efficient public administration delivers better quality, more affordable social services. There is 
a  need  for  much  stronger  support  measures  for  the  unemployed,  notably  the  long-term 
unemployed,  to  help  them  get  the  skills  or  guidance  needed  to  get  new  jobs,  as  well  as  for 
youth, to help them succeed in the transition from education to work. There is a need to find 
solutions for businesses with solid business plans that cannot get financing. There is a need 
across all Member States for greater investment in the performance of the education system, 
in  equipping  people  with  the  skills  needed  for  the  twenty  first  century  economy  and  for 
boosting innovation and competitiveness.  

The ECB's action has decisively contributed to removing perceived risks to the stability of the 
Euro  area.  However,  the  transmission  of  lower  interest  rates  and  the  restoration  of  normal 
lending to the economy, especially in the periphery of the EU are still impaired. Completing 
the  architecture  of  the  Economic  and  Monetary  Union  (EMU),  particularly  the  Banking 
Union,  will  be  essential  for  underpinning  future  sustainable  growth  and  preventing  the  re-
emergence of imbalances. 

The Commission's analysis of national reform programmes clearly shows that Member States 
could do more to help themselves get back to growth and move Europe beyond the crisis. To 
varying degrees, failure to remove obstacles and to seize opportunities, resistance to change 
and the lack of a sense of urgency in some countries all contribute to an environment which 
does not help business to flourish and to create jobs. Delays in tackling necessary reforms will 
only increase their ultimate financial, economic and social costs. The scale of these challenges 
calls for all stakeholders, including the social partners and civil society, to work together to 
develop  and  implement  the  right  responses.  Preserving  and  deepening  the  European  single 
market will be essential to achieving these common goals. 

4 

 
 
2. 

OVERALL ASSESSMENT  

The  challenges  the  Union  is  facing  are  complex  and  can  only  be  met  by  a  comprehensive 
response 
levels  of  policy-making  and 
the  EU  and  national 
implementation. This is a major objective of the European Semester process. 

that  brings 

together 

The detailed analysis which underpins this package shows that: 

•  A rebalancing of the EU economy is taking place. Wide-ranging reforms have 
been pursued or initiated in recent years – to correct past imbalances and shift the 
economy  onto  a  more  sustainable  path.  The  large  and  persistent  current  account 
deficits  witnessed  in  several  countries  have  been  significantly  reduced,  lowering 
the  risk  of  sudden  interruptions  in  the  external  financing  of  these  economies. 
While  some  of  these  reforms  will  take  time  to  produce  their  full  effects, 
improvements  are  already  visible  across  Europe,  for  instance  in  terms  of  export 
performance or the interest rates paid on sovereign debt.  

•  Unemployment,  including  youth  and  long-term  unemployment,  has  reached 
unacceptably high levels and it is likely to remain high in the near future, calling 
for  determined  and  urgent  action.  Reforms  have  been  undertaken  to  improve  the 
resilience and flexibility of the labour market in several parts of Europe but they 
will take time to deliver new jobs across the economy. 

•  Fiscal  consolidation  is  on-going  and  is  helping  to  bring  public  finances  back 
under  control.  Still,  the  ageing  profile  of  many  Member  States  represents  a 
challenge  to  their  future  financial  sustainability  in  terms  of  pensions  and  health 
care, so action is needed now in order that Europeans can continue to enjoy high 
standards of living in the future.  

•  Structural reforms are essential to kick-start growth and serve the dual goal of 
reducing  unemployment  and  restoring  the  sustainability  of  public  finances. 
Restoring  competitiveness  at  home  is  also  key  to  seizing  growth  opportunities 
world-wide. 

A number of policy lessons can be drawn from the analysis: 

•  Further  measures  are  needed  to  address  high  levels  of  public  and  private  debt  in 
many Member States, and the process of deleveraging of over-indebted economies 
must be pursued and carefully managed. As the lending surveys of the ECB show, 
improving the health of the banking sector further so that it can channel  funding 
into the productive parts of the economy, in particular to SMEs, is a priority. New 
schemes  which  provide  financing  to  the  real  economy,  developed  by  the 
Commission  and  the  EIB  with  the  involvement  of  the  ECB,  could  play  an 
important role here. Investment funding from the EU's structural funds will play a 
crucial role in parts of the EU in the coming years. Promoting alternative sources 
of financing and reducing companies' traditional dependence on bank financing is 
also essential to restore normal lending to the economy.  

•  Member  States  with  high  levels  of  unemployment  need  to  step  up  active  labour 
market  measures,  such  as  training  and  employment  services.  Further  reforms  to 

5 

 
 
the  cost  of 

labour  and  combat 

facilitate access to employment, prevent early withdrawals from the labour market, 
reduce 
labour  market  segmentation  are 
recommended. The social partners have a key role to play in helping to shape and 
deliver  these  policies.  The  situation  of  unemployed  young  people  is  particularly 
worrying and action is recommended along the lines of the EU Youth Guarantee 
proposed by the Commission and now agreed by the EU Member States. 

•  Member States need to do more to boost the competitiveness of their economies. 
Labour  costs  play  an  important  role  and  must  be  kept  in  line  with  productivity 
growth  and  will  continue  to  be  under  close  scrutiny.  Greater  competition  in 
product and services markets is also essential to enhance the productivity levels of 
the  economy  and  lower  prices.  At  the  same  time,  Europe  cannot  and  will  not 
compete in the global economy merely on costs. Prior to and during the crisis the 
necessary  investment  has  not  been  made  across  all  Member  States  in  education 
and skills, research and innovation and resource efficiency. Lack of the right skills, 
products and services poses a serious threat to Europe's future growth prospects so 
rapid, remedial action is needed in these areas, in line with the Europe 2020 goals.  

•  Greater  efforts  are  urgently  needed  to  create  conditions  that  favour  business 
development, the consumer environment and employment creation – for example, 
substantial improvements are still needed in the functioning of network industries, 
competition  in  key  service  sectors,  such  as  retail,  the  need  to  provide  for  easier 
access  to  certain  professions  and  activities,  as  well  as  on  the  effectiveness  of 
public administration. 

•  Member States with current account surpluses and sufficient fiscal space could do 
more  to  reduce  the  high  taxes  and  social  security  contributions  that  they  levy  on 
low  wages.  Recent  wage  developments  in  "surplus"  countries  are  contributing  to 
sustaining demand and also have a positive spill-over elsewhere in the EU. These 
Member  States  could  also  boost  domestic  demand  by  opening  up  their  services 
sector through the removal of unjustified restrictions and barriers to entry, thereby 
making  services  more  affordable  for  lower  income  groups  and  promoting  new 
investment opportunities. 

• 

In the light of the real progress made in reducing budgetary deficits, the degree of 
consolidation  that  has  already  taken  place  and  weaker-than-expected  economic 
activity, the Stability and Growth Pact allows for additional time to be granted to 
Member  States,  in  certain  cases,  to  reach  a  deficit  level  below  3%  of  GDP. 
However,  backtracking  on  necessary  consolidation  is  not  an  option  and  some 
Member States still face significant adjustment needs. For a number of them, the 
Commission is proposing extra time to correct their excessive deficits. This extra 
time  is  not  being  proposed  to  relax  efforts  –  on  the  contrary,  it  is  to  be  used  to 
reduce  the  structural  budgetary  deficit,  intensify  reforms  and  pave  the  way  for 
sustainable recovery.  

•  More can and should be done to improve the efficiency of public expenditure and 
the  fairness  and  effectiveness  of  the  tax  system  as  part  of  medium-term  fiscal 
strategies.  The  inefficiency  that  is  built  into  the  design  of  some  national  tax 
systems  (for  example  some  reduced  rates  and  other  tax  exemptions)  needs  to  be 

6 

 
 
tackled.  Stepping  up  the  fight  against  tax  fraud  and  evasion  is  also  necessary. 
While priorities differ, several lines of action are recommended to this effect. 

•  Fairness is essential for the sustainability and effectiveness of reforms. The crisis 
has  already  had  a  lasting  impact  on  the  most  disadvantaged  within  our  society, 
with the share of people at risk of poverty increasing in many countries. Member 
States  need  to  invest  in  their  human  capital  and  in  providing  their  citizens  with 
adequate services. There is a need for greater attention to the distributional impact 
of reforms to ensure that they produce lasting results for the benefit of all. Several 
Member States need to pay more attention to combating different forms of poverty 
–  child  poverty,  homelessness,  in-work  poverty  and  over-indebtedness  of 
households – and to ensure the effectiveness of the welfare systems that deal with 
those affected. 

Decisions  already  taken  at  EU  level  have  contributed  to  Member  States'  reform  efforts  but 
further urgent action is needed: 

•  Member  States,  which  experienced  major  financial  distress,  could  make  use  of 
financial  backstops  newly  created  at  EU  level1.  Where  EU/IMF  financial 
assistance  was  granted,  it  is  subject  to  strong  conditionality.  The  implementation 
of these programmes is on track and is closely monitored. 

•  Several pending proposals for EU legislation have the potential to unlock growth 
and  job  opportunities,  for  instance  in  the  field  of  services  and  by  exploiting  the 
digital  economy.  The  Commission  will  report  on  progress  made  as  part  of  the 
Compact for Growth and Jobs at the June 2013 European Council.  

•  The  Commission  proposed  a  Youth  Employment  Package  in  December  2012 
which includes the setting up of a European Alliance for Apprenticeships.  It also 
proposed a Youth Guarantee to ensure that all young Europeans get a good quality 
job  offer,  further  education  or  training,  an  apprenticeship  or  a  traineeship  within 
four  months  of  leaving  school  or  becoming  unemployed.  This  Youth  Guarantee 
was  adopted  by  the  Council  in  April  2013.  As  part  of  the  next  multi  annual 
financial  framework  EUR  6  bn  has  been  earmarked,  to  work  alongside  the 
European  Social  Fund,  through  a  Youth  Employment  Initiative  to  support  the 
Youth  Guarantee.  Since  2012  the  Commission  has  been  working  through  Youth 
Employment Action  Teams  to help  the  Member States with  the highest levels of 
youth unemployment to reprogramme EU structural funding to target it on young 
people. It is also leading a multi-stakeholder partnership to tackle the lack of ICT 
(information  and  communications  technologies)  skills  in  the  EU  and  to  fill  the 
projected several hundred thousand vacancies for these skills. 

•  EU  economic  governance  has  been  strengthened  through  recent  legislation.  Its 
implementation  will  enhance  the  credibility  of  the  on-going  reform  process.  The 
Treaty  on  stability,  coordination  and  governance  in  the  EMU  is  now  applicable. 
The  Stability  and  Growth  Pact  was  reinforced  and  the  new  Macroeconomic 
Imbalances  Procedure  is  in  place  ("six-pack").  New  legislation  strengthening  the 

1  

First the EFSM and EFSF and subsequently the ESM 

7 

 
 
                                                 
coordination of policies within the Euro area ("two-pack") will enter into force on 
30 May 2013. 

•  Further steps to deepen the EMU, notably through the establishment of a Banking 
Union  and  completing  the  toolbox  of  financial  backstops  provided  by  the 
European  Stability  Mechanism,  will  strengthen  the  EU  framework  further. 
Discussions are also taking place on ways to reinforce the social dimension of the 
EMU. 

•  As  soon  as  agreement  can  be  reached  on  the  next  EU  multi-annual  financial 
framework, a new generation of EU financial instruments – such as Horizon 2020 
for  research  and  the  Connecting  Europe  Facility  for  infrastructure  –  can  be 
launched  in  support  of  the  Europe  2020  Strategy  for  smart,  sustainable  and 
inclusive  growth.  Greater  targeting  of  the  EU  structural  funds  on  growth, 
competitiveness  and  employment  can  produce  a  powerful  growth  stimulus  in 
several Member States, where a large part of public investment is co-financed by 
the  EU  budget.  This  year's  country  specific  recommendations  are  particularly 
important  because  Member  States  and  regions  are  now  defining  their  investment 
priorities for cohesion policy 2014-2020. 

3. 

KEY ACTION STRANDS  

The European Semester starts with the publication by the Commission of its Annual Growth 
Survey. For 2013 the Commission maintained the same five priorities as for 2012: 

•  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. 

The  European  Council  endorsed  these  priorities  in  March  2013  and  set  the  framework  for 
Member States' action in these areas. Annex 1 provides an overview of the recommendations 
for  each  Member  State  as  part  of  this  package.  Annex  2  summarises  progress  towards  the 
Europe  2020  targets.  More  background  information  is  available  in  the  staff  working 
documents and comparative thematic fiches published on the Europe 2020 website.  

The  Commission  has  also  made  recommendations  for the Euro area. The  Eurogroup  should 
play  an  active  role  in  strengthened  surveillance  of  the  Euro  area  by  ensuring  a  coherent 
overall policy stance and the implementation of reforms needed for the stability and growth of 
its  economy.  The  Eurogroup  will  also  play  a  particular  role  in  discussing  and  coordinating 
policy  reforms  "ex  ante"  in  future,  as  well  as  in  the  rapid  delivery  of  essential  policy 
decisions, such as those required for the transition to the Banking Union. 

8 

 
 
This  package  of  recommendations  also  builds  on  the  in-depth  reviews  published  by  the 
Commission  on  10  April  2013  as  part  of  the  Macro-economic  Imbalances  Procedure.  The 
country-specific  recommendations  proposed  for  the  13  Member  States  covered  by  this 
procedure take these imbalances into account. 

Pursuing differentiated, growth-friendly fiscal consolidation 

Fiscal  consolidation  is  not  an  end  in  itself  but  a  means  for  public  authorities  to  regain  their 
fiscal sovereignty to be able to invest in sustainable growth. Against the background of high 
public deficits and rising debt levels, the Commission has been advocating the need for fiscal 
consolidation,  which  should  take  place  in  a  differentiated  and  growth-friendly  manner, 
specific to each couuntry.  

Fiscal displine and growth are mutually supportive provided that the right measures are taken. 
A  recent  example  is  provided  by  the  Baltic  countries:  following  deep  recessions, Lithuania, 
Latvia and Estonia are now registering the highest economic growth rates in the EU at 3.6%, 
5.6%  and  3.2%  in  2012  respectively.  These  three  countries  have  frontloaded  fiscal 
consolidation  and  rebalanced  their  economies  in  a  very  uncertain  environment.  The  marked 
improvements  in  their  competitiveness  positions  are  now  bearing  fruit,  helping  them  to 
consolidate their public finances and reduce unemployment further, although the high levels 
of risks of poverty and social exclusion remain sources of concern. 

Fiscal consolidation is progressing all across Europe. The EU deficit declined from a peak of  
-6.9% in 2009 to -4% in 2012 and is expected to fall to -3.4% in 2013, with a growing number 
of Member States having corrected their excessive deficits. The consolidation paths towards 
the  deficit  and  debt  targets  which  can  take  Member  States  out  of  the  excessive  deficit 
procedure  are  based  on  deficits  measured  in  structural  terms.  Therefore  if  a  significant 
deterioration  of  the  economic  outlook  leads  to  missing  the  nominal  target  in  spite  of 
implementing  the  required  structural  effort,  the  deadine  for  correcting  the  excessive  deficit 
may be postponed. In line with the agreed EU framework, the pace of fiscal consolidation was 
already adjusted in the recent past for Greece, Spain and Portugal, giving them more time to 
correct their excessive deficits. The Commission is now updating its recommendations based 
on the latest information and having assessed the effectiveness of the measures being taken by 
the Member States (Box 1).  

9 

 
 
Box  1.  Situation  of  Member  States  with  regard  to  the  Stability  and  Growth  Pact, 
as recommended by the Commission on 29 May 2013  

No excessive deficit procedure 

BG, DE, EE, FI, LU, SE 

Abrogation of the excessive deficit procedure  

HU, IT, LT, LV, RO 

On-going excessive deficit procedures with 2013 deadlines 

AT, DK, CZ, SK 

On-going  excessive  deficit  procedures  with  other  deadlines  -  2015  or 
2016 

EL, IE, CY, UK 

Proposed  extension  of  deadlines 
new deadlines of 2014, 2015 or 2016 

to  meet 

fiscal  objectives  – 

ES, FR, NL, PL, SI, PT 

First step towards the opening of an excessive deficit procedure 

Insufficient  action  to  correct  excessive  deficit  by  2012  –  excessive 
deficit procedure stepped up 

MT 

BE 

Thanks  to  action  taken  at  EU  level  and  the  efforts  of  a  number  of  Member  States,  interest 
rates  on  sovereign  debt  have  gone  down  and  several  countries  once  threatened  by 
unsustainably high refinancing costs are now able to finance their debt at a much lower rate 
than a year ago. However, given already high levels of debt and the costs associated with an 
ageing population, their fiscal and financial situation remains fragile.  

Against  this  backdrop,  giving  more  time  for  certain  Member  States  to  meet  their  agreed 
objectives  is  designed  to  enable  them  to  accelerate  efforts  to  put  their  public  finances  into 
order and carry out overdue reforms. Reform efforts must be stepped up to credibly produce 
the required outcomes within the new deadlines and excessive deficits must be corrected. The 
Commission  will  monitor  the  situation  closely  and  use  the  strengthened  fiscal  governance 
arrangements for  the Euro area countries. Fiscal institutions should be strengthened,  at both 
national  and  sub-national  levels,  by  implementing  credible  and  effective  medium-term 
budgetary frameworks. 

The  nature  of  the  fiscal  consolidation  also  matters.  In  many  cases,  taxes  have  been  raised 
instead  of  expenditure  being  reduced.  This  is  generally  more  damaging  to  growth  than  the 
reverse,  especially  in  countries  with  already  high  levels  of  taxation.  The  Commission 
recommends ways of making fiscal adjustment more growth-friendly, by acting on both the 
revenue and spending sides of national budgets. 

On the revenue side, the structure of tax systems, and particularly the shifting of the tax base 
from labour to other sources, is an essential aspect of on-going reforms. A priority for many 
Member States is to limit labour taxation in order to raise incentives to work and reduce the 
relatively  high  cost  of  labour,  in  particular  for  low-skilled  workers  (see  Box  2).  Obviously 
these  much  needed  reforms  must  then  be  compensated  for  financially  by  other  sources  of 
revenue.  Increases  in  recurrent  property  taxation  meet  with  political  objections  in  several 
Member States but  can  be  designed  to be effective and  fair ways of  raising  public  revenue. 
Another  facet  of  tax  shift  is  towards  environmental  taxes,  for  example  by  taxing  sources  of 

10 

 
 
 
pollution  and  greenhouse  gas  emissions.  These  can  stimulate  the  development  of  new 
technologies, promote resource efficiency and the creation of "green" jobs, but the impact of 
high  energy  prices  on  households  and  on  competitiveness,  including  on  energy  intensive 
industries,  also  needs  to  be  monitored  so  that  future  decisions  can  be  taken  on  the  basis  of 
sound evidence.  

Greater efficiency and fairness of tax systems can be achieved by broadening the existing tax 
bases.  Most  tax  systems  contain  exemptions,  allowances,  reduced  rates  and  other  specific 
regimes,  known  as  "tax  expenditures".  These  are  not  always  justified  and  can  be  inefficient 
tools  for  achieving  their  social,  environmental  or  economic  objectives.  They  may  also 
introduce differentiated tax treatment between tax payers that is not always justified and thus 
reduce  the  fairness  of  the  system.  They  can  also  create  opportunities  for  manipulation  and 
make the system more complex and increase compliance and administrative costs. In several 
Member States, taxes have been increased but the Commission considers that more could be 
done to reduce tax expenditures and exemptions, including environmentally and economically 
harmful subsidies.  

For  example,  VAT  revenue  actually  collected  represents  only  half  the  amount  that  the  full 
application of the standard VAT rate would produce (Graph 1). The difference is a reflection 
of  the  extent  of  tax  breaks,  tax  loopholes,  lack  of  compliance  and  in  some  cases  poor  tax 
administration, which reduce the effectiveness of the VAT system. 

Graph 1. Actual VAT revenue in 2011 (% of theoretical revenue at standard rates) 

Source:  European  Commission.  The  VAT  revenue  ratio  consists  of  the  actual  VAT  revenues  collected  divided  by  the  product  of  the  VAT 
standard rate and the net final domestic consumption. The high value for Luxembourg is explained by the importance of the VAT collected on 
the sales to non-residents. 

Actions to improve tax compliance and fight fraud are essential to increasing the effectiveness 
and fairness of the taxation system2. National, EU level and global actions can all interact here 
to strengthen taxation systems. The Commission is determined to use all tools at its disposal 
to step up the fight against fraud and evasion and invites Member States to take measures at 
domestic and EU level in coordination with other Member States.   

2  

In December 2012, the Commission presented a comprehensive set of actions to combat tax fraud and 
evasion on a European and global scale. http://ec.europa.eu/taxation_customs/taxation/tax_fraud_evasion/index_en.htm  

11 

 
 
 
                                                 
Box 2. Examples of recent measures to shift the tax burden away from bases that are distortive 
to growth 

BE has taken some measures to decrease the social contributions for SMEs and for certain categories 
of  employees.  A  "work  bonus"  for  the  low-paid  has  been  introduced  and  reinforced  by  reducing 
employers' social contributions, coupled with a personal income tax credit. DK is gradually decreasing 
the  tax  burden  on  labour  to  boost  employment  and  growth.  HU  has  reduced  social  security 
contributions  for  selected  target  groups.  FI  has  increased  basic  allowances  to  ease  taxation  on  low 
income earners. CZ and EE have planned overall reductions of the tax burden on labour.  

On  the  expenditure  side,  the  Commission  is  of  the  view  that  public  investment  in  research, 
innovation  and  human  capital  should  be  given  priority,  including  through  greater  cost-
efficiency  of  spending.  There  is  cause  for  concern  in  some  Member  States  showing  low  or 
decreasing levels of investment in education (for example, BG, EL, IT, SK and RO). There is 
also scope to maintain or improve the coverage and effectiveness of employment services and 
active  labour  market  policies,  such  as  training  for  the  unemployed  and  youth  guarantee 
schemes,  as  well  as  to  improve  the  cost-effectiveness  of  public  spending  in  many  areas, 
including healthcare and long-term care. 

The  ageing  of  the  population  poses  a  challenge  to  the  sustainability  of  public  finances, 
through a potential rise in the cost of healthcare and of state-funded pensions. To help meet 
this challenge by taking action now, the Commission has been recommending increasing the 
minimum  statutory  retirement  age  in  line  with  the  increase  in  life  expectancy,  as  well  as 
phasing out early retirement schemes, in combination with efforts to sustain lifelong learning 
and the employment rate of older workers. Table 1 summarises recent and announced changes 
in the pensionable age by Member State.  

Table 1. Pensionable age* across the EU 

Pensionable age 
in 2009 

Pensionable age 
in 2020 

Further 
increases 
after 2020 

Pensionable age 
in 2009 

Pensionable age 
in 2020 

Further 
increases 
after 2020 

W = women  
(if different) 

W = women  
(if different) 

BE 

BG 

65 

63  W: 60 

65 

65 

W: 63 

CZ 

  62         W: 56y8m (1) 

63.8      W: 60y6m (1) 67+ (2) in 2044 

DK 

DE 

EE 

IE 

EL 

ES 

FR 

IT 

65 

65 

63  W: 61 

66 

65  W: 60 

65 

60(1) 

66 

65.7 

64 

66 

67 

66y4m 

62 (1) 

65y4m   W: 60y4m 

66y11m 

67+ (3) 

67 in 2029 

65 in 2026 

68 in 2028 

67+ (3) 

67+ (3) 

67+ (3) 

Source: European Commission 
* Age at which people can first draw full benefits without actuarial 
reduction for early retirement. Information based on legislation adopted 
by 30 April 2013. 
(1) Minimum age, varies depending on conditions such as number of 

SI 

SK 

FI 

12 

W = women  
(if different)  

W = women  
(if different) 

CY 

LV 

LT 

LU 

HU 

MT 

NL 

AT 

PL 

PT 

65 

62 

62y6m 

W: 60 

65 

62 

61 

65 

65 

65 

65 

W: 60 

W: 60 

W: 60 

RO 

63y4m  W: 58y4m 

63 

W: 61 

65+ (3) 

63y9m 

64 

65 

64 

63 

66y8m 

65 

67 

65 

65 

65 

65 in 2025 

W: 63 

65 in 2026 

65 in 2022 

65 in 2026 

67+ (3) 

W: 60 

65 in 2033 

W: 62 

67 in 2040 

W: 61 

65 / 63 (W) 
in 2030

62       W: 57y6m (1) 

62+ (3) 

62+ (3) 

63-68 (4) 

63-68 (4) 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SE 

61-67 (4) 

61-67 (4) 

UK 

65 

W: 60 

66 

67 in 2028 

In the area of health and long term care the challenge is to balance the need for universal care 
with increasing demand from an ageing population, technological developments and growing 
patient  expectations  in  all  age  groups.  Over  70%  of  the  projected  increase  in  age-related 
public  spending  is  due  to  health  and  long  term  care.  Reforms  are  needed  to  achieve  more 
efficient use of limited public resources and access to high quality care. 

Restoring normal lending to the economy 

Lending conditions, notably in countries under financial stress, remain tight and the supply of 
credit is limited despite the massive support provided by governments and the accommodative 
monetary  policy  of  the  ECB.  The  situation  has  worsened  particularly  in  Greece,  Ireland, 
Portugal  and  Slovenia  but  also  in  France,  Italy  and  the  UK.  Germany  is  the  only  country 
where SMEs are reporting a positive improvement in bank loan availability. Credit to SMEs 
in  some  countries  is  affected  by  investors'  concerns  regarding  the  weak  economic  and 
financial  environment.  Moreover,  the  on-going  repair  of  the  banking  system  is  not  yet 
complete. The cleaning of bank balance sheets remains a priority in several Member States to 
restore normal lending to  the most productive parts of the economy.  

Graph 2. Credit conditions remain tight and credit markets are fragmented  

Credit conditions in the euro area  
ECB Bank Lending Survey 

Interest rate spread between smaller and  
larger loans to non-financial corporations 

Given  the  previous  levels  of  unsustainable  public  and  private  indebtedness,  the  ongoing 
correction in the financial sector is necessary. However, the adjustment should not overshoot 
what  is  necessary  or  be  made  worse  by  badly  functioning,  fragemented  markets.  Therefore 
public  policy  should  work  to  reinforce  the  banking  sector,  helping  to  remove  obstacles  to 
corporate financing and investment in infrastructure. 

The focus has shifted from raising capital to removing vulnerabilities in the banking sector. 
EU wide harmonised asset quality reviews should be pursued as part of restoring trust in EU 
banks  and  provide  transparency  on  banks’  assets  and  liabilities.  This  should  allow  the 

13 

 
 
 
 
 
 
identification of any remaining pockets of vulnerability and reinforce confidence in the sector 
as a whole.  

Putting  a  European-level  Banking  Union  in  place,  with  a  single  supervisor  and  a  single 
resolution mechanism, will be an important part of completing the overhaul of the financial 
sector and restoring normal lending. The recapitalisation of those banks that need it should be 
completed rapidly so that the new single supervisory mechanism can become fully operational 
and be subsequently complemented by a single resolution mechanism.  

Developing  alternative  sources  of  financing  of  the  economy,  less  dependent  on  bank 
financing,  must  be  a  priority.  There  are  indications  of  a  gradual  shift  in  firms'  financing 
towards capital markets, but the trend is too slow to produce a near term impact. Moreover, 
SMEs often do not have direct access to capital market financing. Initiatives such as new EU 
frameworks for investment in venture capital and in social entrepreneurship funds have been 
agreed and will ease the situation. Moreover, the paid-in capital of the EIB has been increased 
by  EUR  10  billion,  which  should  help  to  unlock  up  to  EUR  180  billion  of  additional 
investment  across  the  EU.  This  additional  funding  will  allow  significant  extra  lending  to 
SMEs  and  which  should  cover  a  wide  geographic  and  sectoral  spread.  The  pace  of  EIB 
lending, in particular for SMEs, must be stepped up as a matter of urgency.   

A number of other measures should be prepared at EU and Member State level to facilitate 
SMEs' access to bank and non-bank financing, such as improving the framework for venture 
capital,  dedicated  markets  for  SMEs  and  SME  pooling,  new  securitisation  instruments  for 
SMEs,  setting  up  standards  for  credit  scoring  assessments  of  SMEs  and  promoting  non-
traditional sources of finance such as leasing, supply chain finance or crowd funding.  

The  European  Compact  for  Growth  and  Jobs  of  June  2012  highlighted  the  importance  of 
investing in infrastructure and pointed to the role of the EU's structural funds and the EIB in 
this area. The Project Bond initiative launched in November 2012 can play a useful role in re-
opening debt capital markets in Europe to infrastructure finance. It now needs to be expanded 
and  developed  together  with  other  debt  instruments  under  the  Connecting  Europe  Facility 
(2014-2020).  In  March  2013  the  Commission  also  launched  a  Green  Paper  on  long  term 
financing3 inviting stakeholders to submit their views on how to improve financing of the real 
economy and remove obstacles to long term investment. 

Box 3. Examples of recent efforts to facilitate access to finance for businesses 

To  address  tight  lending  conditions  DK  has  taken  initiatives,  including  creating  a  state  investment 
fund (Danish Growth Capital) and a development and credit package. Another scheme provides credit 
guarantees  for  smaller  bank  loans  2013-2015.  The  Estonian  government  is  supporting  company 
financing through the KredEx, Enterprise Estonia and the Estonian Development Fund. Poland put a 
new SME guarantee and created a new growth fund of funds with the European Investment Fund and 
BGK to stimulate investment in venture capital, private equity and mezzanine funds. In Italy recourse 
to non-bank funding has been encouraged including through allowances for new corporate equity, the 
creation of a Fund for Sustainable Growth and the introduction of crowd funding for innovative start-
ups.  The  UK  has  established  the  Funding  for  Lending  Scheme,  in  which  banks  are  able  to  borrow 
more  cheaply  from  the  Bank  of  England  providing  that  they  use  some  of  the  money  to  lend  to 
businesses. EU structural funds and the action of the EIB are supporting several of these schemes. 

3  

COM (2013) 150 

14 

 
 
                                                 
Member  States,  such  as  Sweden,  the  Netherlands  and  the  UK,  need  to  manage  the  level  of 
private  debt  and  the  vulnerability  of  households  faced  with  possible  shifts  in  the  real  estate 
market4. Some measures have been taken, for instance on the regulatory side and on reducing 
tax  incentives  towards  indebtedness,  such  as  tax  reliefs  on  mortgage  interest  payments. 
Measures  to  address  imbalances  caused  by  high  household  indebtedness  and  high  house 
prices  are  also  producing  positive  results  by  reducing  the  impact  of  risky  loans.  Member 
States  should  also  address  the  bias  that  currently  exists  in  the  majority  of  corporate  tax 
systems in favour of indebtedness.  

Promoting growth and competitiveness for today and tomorrow 

Many Member States are experiencing a reduction in public and private investment5 and an 
increase in savings rates, driven by the desire of companies and households to reduce existing 
debt  levels  and/or  increase  asset  holdings.  While  necessary  on  the  part  of  individual 
companies  and  households,  this  tends  to  reduce  aggregate  demand  and  calls  for  a 
comprehensive set of reforms in product and labour markets to reduce the negative impact on 
growth and to boost longer term growth potential. 

Frontloading  growth  and  regaining  competitiveness  is  essential  for  a  successful  and  lasting 
recovery. As shown by the recent export performance in Ireland, Spain and Portugal, major 
adjustments  to  improve  cost  and  non-cost  competitiveness  are  producing  positive  effects, 
already in the short term.  

"Deficit" Member States need to reallocate resources, away from non-tradable sectors (such 
as  housing)  to  tradable  sectors.  They  need  to  reinforce  competition  in  general,  opening 
services  and  non-market  services  including  network  services.  "Surplus"  Member  States  can 
and  should  boost  domestic  demand,  for  example  by  reducing  the  high  taxes  and  social 
security contributions they levy on low wages. Recent wage developments and resilient labour 
markets in "surplus" countries will contribute to boosting domestic demand and also have a 
positive spill over effect elsewhere in the EU. These Member States could do more to open up 
their  services  sector  by  removing  unjustified  restrictions  and  barriers  to  entry,  increasing 
investment, making services more affordable for lower income groups. 

In the recent past, the competitiveness of a number of Member States has been hampered by 
wage  increases  which  outstripped  productivity  trends.  For  these  Member  States,  the 
Commission  had  recommended  reviewing  wage-setting  mechanisms  to  align  wages  with 
productivity developments, and efforts have been made in this direction. Some Member States 
have  undertaken  legislative  reforms  or  introduced  incentives  to  make  such  a  link.  In  other 
cases  wage  indexation  schemes  have  been  partially  reformed  or  their  application  has  been 
frozen  but  the  structural  reforms  needed  to  link  wage  developments  with  productivity  on  a 
permanent  basis  are  still  missing.  While  country-specific  recommendations  have  been 
maintained for 2013, they have been reformulated to take account of changes that are being 
made. 

Europe clearly needs to step up its innovation efforts and continue to shift production patterns 
towards  high  value  added  activities.  According  to  the  latest  edition  of  the  Commission's 

4  

5  

Imbalances for these countries have been identified in this area under the Macro-economic Imbalances 
Procedure. 
In  2013  Member  States  have  started  to  obtain  new  revenues  from  the  auction  proceeds  of  emission 
trading allowances which can be used for financing low-carbon innovative projects 

15 

 
 
                                                 
Innovation  Union  scoreboard,  there  is  still  a  significant  gap  between  those  Member  States 
with the weakest innovation performance (BG, RO, LV, PL) and those with the strongest (SE, 
DE, DK, FI). This places the EU as a whole behind some of its key competitors. 

Weak productivity results partly from limited competition in products and services markets, 
but  also  from  poor  performance  in  education  and  research,  and  the  inability  to  transfer 
research results into goods and services for the market place. A significant share of publicly 
funded private R&D is done through direct grants. Alternative ways of supporting innovation 
capacities,  such  as  tax  incentives  to  boost  private  funding  and  the  strategic  use  of  public 
procurement, should be developed. 

The  large  economic  and  jobs  potential  of  the  services  sector  remains  untapped.  The 
Commission estimates that EU GDP could be boosted by between 0.8% and 2.6% if Member 
States  were  to  remove  restrictions  on  the  provision  of  services  in  line  with  the  Services 
Directive. Under the most ambitious scenario, the highest gains would be obtained in CY, ES, 
UK,  LU,  NL,  DK,  AT,  SE  and  FR6.  Concrete  measures  are  recommended  to  improve 
competition in the services sector, by removing barriers in retail and excessive restrictions in 
professional services and regulated professions in particular. The full  implementation  of the 
EU Services Directive can play an important role in the development of cross-border services 
and help to increase productivity on domestic markets. 

Improving the business environment, more generally, is a priority and several positive steps 
have been taken (see Box 4). Some of these good practices could be taken up more widely. 

Box 4. Examples of measures taken to develop economic activities in the services sector 

Regulations prescribing company form or requiring capital ownership have been made less stringent in 
Poland, Germany, France, Cyprus and Italy since the Services Directive came into force. The need for 
prior authorisation to set up businesses has now been abolished for a number of services in Italy and 
several in France. In the retail market, it is no longer necessary to undergo an economic test to open 
certain  premises  in  Spain  and  Germany.  Malta  has  also  abolished  compulsory  tariffs  for  regulated 
professions, allowing businesses to set their own prices.  

A supportive business environment is needed to encourage new start-ups and allow existing 
firms  to  grow  and  attract  investment.  While  some  improvements  have  been  made  in  the 
business  environment  in  the  last  five  years  the  situation  still  varies  widely  across  Member 
States.  Spain  has  an  ambitious  plan  to  reduce  administrative  burden  –  if  the  draft  law  on 
Market  Unity  is  implemented  as  proposed  it  could  add  1.28%  to  GDP  in  the  first  year.  A 
major  simplification  plan  has  been  announced  in  France  and  significant  progress  has  been 
made on e-procurement in Portugal and Lithuania. 

The  quality,  coverage  and  affordability  of  network  industries  are  essential  for  the 
competitiveness  of  the  economy.  Several  recommendations  relate  to  the  development  of 
broadband,  improved  functioning  of  the  energy  market  and  improvements  in  the  transport 
sector  (railway,  airport,  ports,  road  transport).  The  development  or  refurbishment  of  major 
infrastructures, in line with EU priorities, should remain an important source of activities. The 
railway market is most open in Denmark, Sweden and the UK which have all seen a growing 
market share for rail. 

6  

See: http://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_456_en.pdf 

16 

 
 
                                                 
The  job  creation  potential  of  the  green  economy  is  not  fully  tapped.  Resource  efficiency 
makes  economic  and  environmental  sense  and  is  an  integral  aspect  of  our  future 
competitiveness.  Member  States  should  step  up  these  investments  as  part  of  modernising 
production  methods  in  a  more  sustainable  way.  Energy  efficiency  measures  are  lagging 
behind, in spite of their positive impact in terms of jobs and financial savings for businesses 
and  households7.  Reducing  CO2  emissions,  notably  from  the  transport  and  construction 
sectors, remains a clear priority, in line with EU commitments. The potential of the waste and 
recycling sector should be taken up. It has been estimated that the full implementation of EU 
waste legislation would save EUR 72 billion a year, increase the annual turnover of the sector 
by EUR 42 billion and create over 400,000 jobs by 20208. 

Tackling unemployment and the social consequences of the crisis  

The  crisis  has  had  a  severe  and  lasting  impact  on  levels  of  unemployment  and  the  social 
situation in many parts of Europe. Social protection systems have helped to cushion the worst 
social consequences of the crisis although some of them are now coming under strain due to 
the  duration  of  the  crisis.  Yet,  as  shown  in  Table  2  below,  there  is  an  increasing  disparity 
across Member States. In several of them unemployment levels have increased sharply, and 
the  numbers  of  unemployed  reach  very  high  levels.  The  unemployment  situation  of  young 
people (with an unemployment rate of 23.5% on average but 55.9% and 62.5% in ES and EL 
respectively) and the increasing proportion and number of long-term unemployed (from 4.1% 
in 2011 to 4.6% of the labour force in 2012) are particularly worrying. 

However  some  Member  States  display  a  robust  employment  performance.  Austria  has  the 
lowest unemployment rate in the EU, at 4.7 % in March 2013, while its overall participation 
rate has slightly increased to over 75%. In Germany, unemployment decreased from over 8% 
to  5.4%  in  just  a  few  years.  In  the  UK,  the  overall  unemployment  rate  has  decreased  from 
8.2% in 2011 to 7.7% in February 2013. 

Major  labour  market  reforms  aiming  at  improving  the  resilience  of  the  labour  market, 
introducing  more  internal  and  external  flexibility,  reducing  segmentation  and  facilitiating 
transition  between  jobs  have  been  introduced  in  several  Member  States,  sometimes  in 
consultation with social partners. This is particularly the case in countries under programmes. 
Such reforms should gradually produce their effects. It is important that they take account of 
the need to build-up rights for the future and ensure the employability of workers. 

Given  the  EU's  demographic  situation,  reforms  also  need  to  focus  on  increasing  the  labour 
participation of women and older workers by making sure the tax and benefit systems provide 
the  right  incentives  to  return  and  stay  in  work.  Developing  early  childhood  education  and 
care,  usually  referred  to  as  childcare,  addressing  child  poverty  and  preventing  early  school-
leaving are key instruments to this end. The quality, affordability and accessibility of related 
services play a crucial role. 

In the short term, the capacity of public employment services to cope with the rising number 
of  unemployed  people  is  being  heavily  tested.  More  effective  job-search  assistance  and 
training opportunities, including support to mobility schemes, is needed in several countries. 

7  

8  

Two Member States have not communicated their indicative energy efficiency targets as required under 
articles 3 and 24 of the Energy Efficiency Directive (2012/27/EU) and nine Member States have made 
incomplete communications. 
See: http://ec.europa.eu/environment/waste/studies/pdf/study%2012%20FINAL%20REPORT.pdf 

17 

 
 
                                                 
All  the  evidence  shows  that  personalised  support  produces  better  results;  yet,  action  in  this 
direction  is  not  being  taken,  or  not  fast  enough,  in  several  Member  States  with  the  highest 
levels  of  unemployment.  Confronted  with  increasing  requirements  public  employment 
services should seek to increase their effectiveness and enhance their cooperation. 

The  fundamental  right  of  free  movement  enshrined  in  the  Treaty  provides  employment 
opportunities.  It  is  one  of  the  possibilities  to  address  the  skills  and  job  mismatch.  Labour 
market mobility also represents an adjustment mechanism in the EMU. The Commission will 
build  on  the  European  Employment  Service  (EURES),  intensifying  and  broadening  its 
activities including by promoting youth mobility. 

Table  2.  Unemployment  rates  and  number  of  persons  unemployed,  overall  and  young  people 
(under 25) – March 2013* 

* March 2013 or latest available data 
Source: European Commission 

A more fundamental assessment is also needed of how to make the provision of education and 
training  more  transparent  and  efficient,  how  to  achieve  a  better  match  between  skills  and 
available  jobs  and  how  to  reinforce  synergies  between  the  different  training  providers.  The 
share  of  early  school  leavers,  particularly  for  people  with  a  disadvantaged  or  migrant 
background,  remains  unacceptably  high  in  several  Member  States  and  the  provision  of 
lifelong learning opportunities is sub-optimal. Early school leaving is above the EU average 
in  MT,  ES,  PT,  IT,  RO  and  UK9,  while  BG,  RO,  EL,  HU  and  SK  have  the  lowest 
participation  rates  in  lifelong  learning10.  These  problems  existed  before  the  crisis  but  are 
especially problematic now in view of the breadth of economic adjustments taking place, and 
the prospect of longer working lives. Skills mismatches and bottlenecks in many regions and 
sectors are a further illustration of the inadequacy of certain education and training systems. 

Several  Member  States  have  initiated  reforms  of  their  vocational  education  and  training 
systems to adapt skills and competences of young people to labour market needs. A number 

9  
10  

See: http://ec.europa.eu/europe2020/pdf/themes/21_early_school_leaving.pdf 
See: http://ec.europa.eu/europe2020/pdf/themes/22_quality_of_education_and_training.pdf 

18 

 
 
 
 
 
                                                 
of  Member  States  have  established  the  bases  for  high  quality  apprenticeships  and  dual 
vocational training (EL, ES, IT, LV, PT, SK), although the process is still in initial phases and 
will need close involvement of social partners in order to be successful. Others have initiated 
reforms to increase the efficiency of their higher education systems to reduce drop-outs and to 
adapt them to labour market needs (AT, IT, PL) and increasingly use innovative performance 
based funding models to achieve these objectives (CZ, HU, SK, UK). 

Young people have been particularly affected by the rise in unemployment. Important efforts 
have been initiated at EU level to support national and regional strategies (Box 5).  

Box 5. Implementing the EU Youth Guarantee 

Following  a  proposal  from  the  Commission,  Member  States  have  agreed  to  put  in  place  a  Youth 
Guarantee  to  give  every  young  person  under  the  age  of  25  a  good-quality  offer  of  employment, 
continued education, an apprenticeship or a traineeship within four months of becoming unemployed 
or leaving formal education. 

Finland has launched a guarantee offering each young person under 25 (under 30 for recent graduates) 
a  job,  a  traineeship,  on-the-job  training,  a  study  place,  or  a  period  in  a  workshop  or  rehabilitation 
within 3 months of becoming unemployed. In Austria, a “Job and Training Guarantee” is in place for 
young people aged between 19 and 24. Unemployed young people are offered employment, targeted 
training  or  subsidised  employment  within  the  first  six  months  of  their  registration  with  the  public 
employment  service.  In  Sweden,  the  approach  is  to  empower  the  young  registered  unemployed, 
starting  with  three  months  of  intensified  support  for  job  seeking,  followed  by  an  active  matching 
process combined with an apprenticeship or further education.  

The Commission has proposed and the European Council has agreed to launch a Youth Employment 
Initiative.  This  Initiative  will  make  EUR  6  billion  available  during  the  next  Multi-annual  Financial 
period (2014 to 2020) to support young people not in employment, education or training (NEETs) in 
regions  which  have  a  youth  unemployment  rate  of  over  25%.  The  Initiative  can  play  a  key  role  in 
supporting the implementation of the Youth Guarantee. 

The  severe  social  impact  of  the  crisis  is  causing  poverty  levels  to  rise  in  several  Member 
States. Some are accelerating efforts to tackle poverty and social exclusion, but there is more 
to be done to strengthen social safety nets and enhance the adequacy and cost-effectiveness of 
benefits, including through better targeting, administrative simplification and greater take-up 
of  rights.  The  long-term  unemployed  should  be  supported  to  reconnect  with  the  labour 
market, and better links between social assistance and activation measures are essential to this 
effect. 

Modernising public administration  

The  crisis  has  shown  that  weaknesses  in  public  administration  can  impair  the  capacity  of 
Member States to implement modern, reform oriented economic and social policies. From the 
need to overhaul certain public employment services to a lack of economic analytical capacity 
to  design  and  implement  structural  reforms,  to  improve  the  management  and  increase  low 
levels  of  absorption  of  EU  structural  funds,  the  need  to  modernise  Member  State  public 
administrations is clear.  

19 

 
 
 
 
strengthening 

administration 

and 
requires 
Modernising  public 
implementation: ministries and public authorities at national, regional and local levels should 
improve their capacities to define key challenges, identify the main priorities to address these 
challenges, assess the economic, social and environmental impact of interventions, and design 
appropriate action plans with clear milestones. However, an integrated approach is crucial: in 
order to avoid a proliferation of strategies on public administration reform, the development 
and  implementation  of  such  strategies  should  be  closely  coordinated  across  all  relevant 
departments.  

strategic  design 

A modern public administration is an essential factor to underpin the design and delivery of 
policies  promoting  jobs,  growth  and  competitiveness.  The  development  of  an  SME  friendly 
environment, for instance, requires i.a. a reduction of the administrative burden related to the 
establishment of new businesses and an administrative framework promoting innovation. This 
requires  in  turn  strengthening  the  administrative  capacity  of  the  public  authorities,  and 
supporting online services and modern information infrastructures.  

A skilled public administration workforce is important, particularly in times of crisis with its 
ensuing squeeze on public financing. What matters is not only the capacity to attract but also 
to  retain  good  staff,  thereby  safeguarding  the  attractiveness  of  public  administration.  This 
requires  first  and  foremost  solid  recruitment  policies,  promotion  and  career  development 
schemes, the promotion of leadership, through inter alia learning and training.  

Some  Member  States  are  reducing  public  sector  employment  and  others  are  investing  in  e-
government  to  increase  efficiency  and  cost-effectiveness.  The  crisis  has  also  revealed  the 
negative economic impact of slow and outdated legal systems and the relevance of the quality, 
independence and efficiency of the judiciary for maintaining or regaining investor confidence. 
Some  Member  States  are  now  taking  steps  to  overhaul  insolvency  laws,  to  increase  the 
efficiency  of  their  court  systems  (Portugal  and  Spain)  but  in  others  (Malta,  Romania,  Italy, 
Slovakia,  Hungary,  Latvia  and  Bulgaria)  the  Commission  has  made  recommendations  for 
faster  and  more  effective  action  and/or  for  measures  to  strengthen  the  independence  of  the 
judiciary. Efforts to reform tax administrations and legislation are also necessary to improve 
taxpayers' compliance and reduce administrative and compliance costs.  

Box 6. Examples of recent measures to address tax compliance and improve the efficiency of tax 
administration 

To  improve  tax  compliance,  countries  are  implementing  both  voluntary  compliance  measures  and 
enforcement  policies.  The  mix  varies  depending  on  national  circumstances.  BE  has  quadrupled  the 
penalties  for  tax  fraud  and  tax  authorities  have  been  granted  increased  access  to  personal  data.  BG 
introduced  additional  e-services  and  expanded  the  communication  channels  with  the  Information 
Centre of the National Revenue Agency, increasing the use of third party information.  CZ continued 
working on streamlining the organisation of its tax authority (moving towards an Integrated Revenue 
Agency) and enhanced its risk management capacity by introducing the concept of "unreliable VAT 
taxpayer". IT on the one hand increased controls and made sanctions stricter, while at the same time 
increasing the information obligations for taxpayers. On the other hand, the country also took a certain 
number  of  simplification  measures.  LT  enhanced  its  compliance  strategy,  increased  the  assistance 
provided to taxpayers while also boosting controls,  in particular for cash-based transactions. SK has 
improved  its  risk  management  techniques  with  a  focus  on  VAT  fraud  and  took  measures  to  fight 
evasion by mandating electronic payments above a certain limit. 

20 

 
 
 
4. 

CONCLUSION 

The short-term economic outlook for Europe is still weak, but many of the actions now being 
taken  by  Member  States  are  helping  to  move  the  EU  beyond  the  crisis.  Current  account 
imbalances are being reduced in the euro area, and its current account is moving into surplus. 
Efforts to rebalance the economy must continue  in all Member States: deficit countries need 
to boost their competitiveness, while surplus countries need to remove obstacles to the growth 
of their domestic demand. 

Structural  reforms  should  be  pursued  more  intensively,  as  this  is  no  ordinary  cyclical 
downswing.  But  it  often  takes  time  before  the  benefits  become  concrete  and,  based  on  past 
experience,  the  employment  situation  will  only  react  with  a  time  lag.  Active  labour  market 
policies  are  crucial,  especially  in  combatting  youth  unemployment.  The  additional  time 
proposed  for  fiscal  consolidation  for  some  Member  States  should  be  used  for  the 
implementation  of  ambitious  structural  reforms  to  increase  adjustment  capacity  and  boost 
growth  and  employment.  Greater  urgency  is  needed,  including  the  acceleration  of  decisions 
and  the  mobilisation  of  funding  at  national  level,  to  fight  youth  unemployment.  The  Youth 
Guarantee Scheme, proposed by the Commission and now adopted by the Member States, is 
an  important  element  in  this  respect  and  should  be  activated  rapidly  at  national  level. 
Finalising  agreement  on  the  next  multi  annual  financial  framework,  which  will  provide  
additional, dedicated funding for tackling youth unemployment, must also be a high priority. 

Restoring the financial sector's ability to channel savings to their most productive uses will be 
important to boost investment levels particularly for southern Europe.  All possible ways and 
means at the disposal of the EU institutions, including the European Investment Bank, should 
be  geared  to  this  effort,  in  particular  with  regard  to  SME  access  to  finance.  It  is  equally 
important for the EU economy to adopt and implement the Multi-annual Financial Framework 
2014-2020.  The  Commission  calls  upon  the  European  Parliament  and  the  Council  to  reach 
agreement without delay. In parallel, Member States should accelerate their preparations for 
the  next  Multi-annual  Financial  Framework  so  that  EU  co-funding  of  investments  and  job 
support  measures  can  be  made  available  from  the  beginning  of  2014  to  support  the 
implementation of the reforms called for in the country-specific recommendations. In parallel, 
rapid progress on the Banking Union is necessary to reinforce confidence. In the short term 
we need to ensure that banks' balance sheets are adequately capitalised to enable them to play 
their  role  in  financial  intermediation  and  to  contribute  to  strengthening  Europe's  growth 
potential. 

the  same 

time  developing  synergies  across  countries, 

The European Semester process is now well established and is working to deliver more co-
ordinated policy making across the EU. It takes the specificity of each country into account 
while  at 
the 
interdependence between members of the EU. For the 2013 exercise the Commission stepped 
up its political and technical contacts with Member States and many Member States made a 
greater  effort  to  involve  national  parliaments,  the  social  partners  and  civil  society  in 
developing  and  discussing  their  national  reform  programmes.  National  ownership  of  the 
reform process will be crucial to its succcess. 

recognising 

Europe  is  undertaking  a  wave  of  reforms  which  will  enable  new,  sustainable  and  job-rich 
growth to emerge. We cannot lower our guard in responding to these challenges at national 
and at EU-level. Implementing structural reforms will be Europe's joint agenda for the coming 

21 

 
 
months.  Acting  together  at  EU  and  national  level  we  can  move  Europe  beyond  the  current 
crisis and onto a path of smart, sustainable and inclusive growth. 

22 

 
 
 
 
ANNEX 1 - OVERVIEW OF COUNTRY-SPECIFIC RECOMMENDATIONS FOR 2013-2014 

Note: Commission's recommendations presented on 29 May 2013 for 2013-2014. Cyprus, Greece, Ireland and Portugal should implement commitments under EU/IMF financial assistance 
programmes. More information at : http://ec.europa.eu/europe2020/index_en.htm  

 
 
 
*Countries that have expressed their national target in relation to an indicator different than the EU headline target indicator 

ANNEX 2 – OVERVIEW OF EUROPE 2020 TARGETS

11 

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% 

76% 

70% 

3.0% 

1.5% 

0.5% 

1% (public 
sector only) 

3% 

3% 

3% 

0.67% 

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% 

11% 

-4% 

Renewable 
energy 

Energy efficiency13 

Early school 
leaving in % 

Tertiary education 
in % 

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

20% 

20% 

34% 

13% 

16% 

13% 

13% 

18% 

30% 

25% 

18% 

20% 

10% 

40% 

20,000,000 

n.a 

31.5 

2.8 

251.0 

17.8 

6.5 

27.1 

10.3-10.5% 

37.6-38.0%14 

9.5% 

9.5% 

11% 

10% 

5.5% 

<10% 

<10% 

9.5% 

 under 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% 

40% 

32% 

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)* 

61,860 people out of risk-of-poverty* 

450,000 

The national targets as set out in the National Reform Programmes in April 2013. 
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. 
The Energy Efficiency Directive 2012/27/EU sets out in article 3(1)(a) that the European Union 2020 energy consumption has to be of no more than 1474 Mtoe primary energy or 
no more than 1078 Mtoe of final energy. All but two Member States (the Czech Republic and Luxembourg) have set their targets by 30 April 2013, but not all expressed these 
targets in primary and final energy level as requested by the Directive. This explains why data for some Member States and the EU level estimate are missing. This table only 
reports on primary energy consumption levels in 2020 expressed in Mtoe. '*' indicates that the target is preliminary. 
Calculation does not include ISCED 4 (Germany, Austria). 

Member 
States 
targets 

EU headline 
target 

Estimated 
EU 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

EL 

11 
12 

13 

14 

 
 
 
 
 
 
                                                 
ES 

FI 

FR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

74% 

78% 

75% 

75% 

69-71% 

67-69% 

72.8% 

73% 

73% 

62.9% 

80 % 

71% 

75% 

70% 

2% 

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% 

-10% 

-16% 

-14% 

10% 

-20% 

-13% 

15% 

-20% 

17% 

5% 

-16% 

14% 

1% 

19% 

20% 

38% 

23% 

14.65% 

16% 

17% 

23% 

11% 

40% 

10% 

14% 

15.48% 

31% 

24% 

121.6 

35.9 

236.3 

26.6 

13.9 

158.0 

5.23* 

0.825 

. 

96.4 

22.5 

15% 

8% 

9.5% 

10% 

8% 

44% 

42%  
(narrow national 
definition) 

50% 

30.3% 

60% 

15-16% 

26-27% 

<9% 

<10% 

13.4% 

29% 

<8 % 

4.5% 

10% 

11.3% 

40% 

66% 

34-36% 

33% 

>40% 
45% expected in 2020 

45% 

40% 

26.7% 

1,400,000-1,500,000 

150,000 

No new target for the time being  
(the target was valid until 2012) * 

450,000 

200,000* 

2,200,000 

170,000 

6,000 

121,000* 

6,560 

93,000* 

1,500,000 

200,000 

580,000 

SE 

Well over 80% 

Approx. 4% 

-17% 

49% 

36.7-66.0 

<10% 

40-45% 

SI 

SK 

UK 

HR15 

75% 

72% 

No target in 
NRP 

59% 

3% 

1.2% 

No target in 
NRP 

1.4% 

4% 

13% 

-16% 

+26% 

25% 

14% 

15% 

20% 

16.2 

177.6. 

5% 

6% 

No target in 
NRP 

4% 

40% 

40% 

No target  
in NRP 

35% 

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% by 
2020* 

40,000 

170,000 

Existing numerical targets of the 2010 Child 
Poverty Act* 

100,000 

15 Croatia submitted a list of preliminary national 2020 targets. Given their preliminary nature, they are not included in the EU-wide estimates.