COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Annual Growth Survey 2016 Strengthening the recovery and fostering convergence
Date: 2015-11-26
Institutions: European Commission, Secretariat-General
Subjects: EU investment, budgetary equilibrium, economic convergence, economic growth, economic reform, employment aid, fiscal policy, job creation, modernisation of industry, structural policy

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 26.11.2015  COM(2015) 690 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN  PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Annual Growth Survey 2016  Strengthening the recovery and fostering convergence  
 
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN  
PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE 
EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF 
THE REGIONS AND THE EUROPEAN INVESTMENT BANK 

Annual Growth Survey 2016 

Strengthening the recovery and fostering convergence 

2 

 
 
INTRODUCTION 

The  European  Union’s  economy  is  experiencing  a  moderate  recovery.  The  pace  of 
activity is expected to accelerate gradually. Unemployment has been falling but remains at 
a historically high level. The recovery benefits from temporary positive factors including low 
oil  prices,  a  relatively  weak  euro  and  accommodative  monetary  policies.  It  also  reflects  the 
first effects of reforms implemented in the last few years. At the same time, security concerns 
and geopolitical tensions have intensified and the global economic outlook is becoming more 
challenging, in particular in emerging economies.  

Economic performance and social conditions, as well as reform implementation, remain 
uneven across the EU. Many economies still face the far-reaching challenges of high long-
term and youth unemployment. Productivity growth remains slow, affecting competitiveness 
and  living  standards.  High  private  and  public  debt  levels  contribute  to  holding  back 
investment. Growth and employment are also constrained by the persistence of a number of 
macroeconomic  imbalances.  These  are  highlighted  in  the  Alert  Mechanism  Report  2016 
adopted alongside this Annual Growth Survey.1  

The  unprecedented  inflow  of  refugees  and  asylum  seekers  over  the  last  year  has 
represented a significant new development in some Member States. This development has 
an immediate impact in terms of additional public expenditure in the short run. In the medium 
and longer term, it may also have a positive impact on labour supply and growth, provided the 
right policies are in place to access to the labour market and to the integration process.  

In  this  context,  policies  should  be  directed  at  consolidating  the  recovery  and  fostering 
convergence  towards  the  best  performers.  Member  States  should  take  advantage  of  the 
current "tailwinds" to effectively implement ambitious reforms and pursue responsible fiscal 
policies. A renewed process of upward economic and social convergence is needed in order to 
tackle the economic and social disparities between Member States and within societies.  

Key findings of the Commission's 2015 autumn forecast 

  For the EU as a whole, real GDP growth is expected to rise from 1.9% in 2015 to 2.0% in 2016 

and 2.1% in 2017.  

  Employment  in  the  EU  is  set  to  increase  by  1.0%  in  2015  and  by  0.9%  in  2016  and  2017. 
Unemployment  rate  is  expected  to  fall  from  9.5%  in  2015  to  9.2%  and  8.9%  in  2016  and  2017 
respectively. 

  Annual inflation is to rise from 0% in the EU in 2015, to 1.1% next year, and to 1.6% in 2017. 

  The aggregate deficit-to-GDP ratio for the EU as a whole is forecast to decline from an estimated 
2.5%  this  year  to  1.6%  in  2017,  while  the  debt-to-GDP  ratio  is  expected  to  fall  from  87.8% 
expected this year to 85.8% in 2017. 

Throughout  its  first  year,  the  Commission  has  delivered  on  its  announcements  and 
presented  ambitious  initiatives  to  support  jobs  and  growth,  reinforce  economic 
convergence and strengthen social fairness. The Commission's EUR 315 billion Investment 
Plan  for  Europe  to  kick-start  jobs  and  growth  is  up  and  running.  The  Commission  has  also 
made a series of concrete proposals to put in place the building blocks of the Single Market, 

1 COM(2015) 691. 

3 

 
 
 
                                                 
Strategy,2 Capital Markets Union,3 Energy Union,4 and the Digital Single Market.5 Important 
steps were taken to ensure fair and efficient corporate taxation.6 The Commission ensured a 
swift follow-up to the roadmap for deepening of the Economic and Monetary Union (EMU) 
set  out  in  the  Five  Presidents'  Report.  7  Finally,  the  Commission  continues  to  work 
consistently and continuously on promoting a coordinated European response to the refugee 
and migration issues. 

This Commission set out its jobs and growth strategy last year when presenting its 2015 
Annual Growth Survey. Today it puts forward the priorities for the coming year with its 
2016  Annual  Growth  Survey.  Bringing  recovery  to  a  sustainable  path  and  reviving  the 
convergence  process  can  only  be  achieved  if  all  EU  Institutions  and  Member  States  act 
together.  This  requires  close  involvement  of  the  European  and  national  Parliaments,  social 
partners, national, regional and local authorities and the civil society at large. In line with its 
proposal set out in the Communication on completing the EMU, the Commission has engaged 
with  the  European  Parliament  prior  to  the  presentation  of  this  Annual  Growth  Survey.8 The 
European Parliament will continue to play its guiding role and provide political orientation on 
economic  and  social  priorities.  The  role  of  national  Parliaments  is  particularly  valuable  to 
strengthen democratic accountability, transparency and promote ownership of the reforms. 

1. Policy priorities 

The  economic  and  social  priorities  of  the  2015  Annual  Growth  Survey  remain  valid,  but 
policy  efforts  need  to  be  strengthened  to  set  the  recovery  on  a  sustainable  path,  unlock 
investment, strengthen the adjustment capacity of EU Member States, foster productivity and 
accelerate the process of convergence. In this light, the Commission proposes to focus efforts 
on the three following priorities for 2016: 

–  Re-launching  investment  –  (i)  the  progress  made  on  mobilising  private  and  public 
investments and the selection of the strategic projects under the Investment Plan for Europe 
need  to  be  accompanied  by  an  improved  investment  and  regulatory  environment  at  the 
national  as  well  as  the  European  level;  (ii)  the  Banking  Union  needs  to  be  completed  to 
reinforce financial stability in the euro area and beyond; work on the Capital Markets Union 
needs  to  be  accelerated,  so  that  companies  have  access  to  increased  and  more  diversified 
sources of funding and the financial sector can fully support the real economy; stocks of debt 
holding  back 
to  be  addressed;  
(iii)  investment  priorities  must  go  beyond  traditional  infrastructure  and  extend  to  human 
capital and related social investment. 

investment  decisions  also  need 

financing  and 

– Pursuing structural reforms to modernise our economies – (i) reforms must be based on 
effective coordination between the Member States and aim at higher productivity and upward 
to  balance  flexibility  and  security 
convergence;  (ii) 
considerations; a particular focus should be on tackling youth and long term unemployment, 

labour  market  policies  need 

2 COM(2015) 550. 
3 COM(2015) 468. 
4 COM(2015) 080. 
5 COM(2015) 192.  
6 COM(2015) 302. 
7 COM(2015) 600. 
8 Including at the plenary session on 11 November 2015. 

4 

 
 
                                                 
(iii)  more  integrated  and  competitive  product  and  services  markets  should  stimulate 
innovation and job creation. 

– Responsible fiscal policies – (i) there is a need to continue to support growth- and equity-
friendly fiscal consolidation in many countries, (ii) tax systems need to address disincentives 
to  employment  creation  and  be  made  fairer  and  still  more  effective,  (iii)  social  protection 
systems  should  be  modernised  to  efficiently  respond  to  risks  throughout  the  lifecycle  while 
remaining fiscally sustainable in view of the upcoming demographic challenges. 

These priorities support the roadmap set out by the Five Presidents for the completion 
of  the  Europe's  Economic  and  Monetary  Union.  They  also  include  a  stronger  focus  on 
employment and social performance. 

Building on the experience of the last year, from now on the European Semester will be 
sequenced  in  two  successive  phases  distinguishing  more  clearly  between  a  European 
phase  (from  November  to  February)  and  a  national  phase  (from  February  to  June). 
Beyond the necessary enhanced coordination and stronger surveillance of economic policies 
and  budgetary  processes  of  all  euro  area  Member  States,  there  is  a  need  to  monitor  and 
analyse closely the aggregate economic, social and fiscal situation of the euro area as a whole 
and to consider this analysis in the formulation of national policies. To better take account of 
challenges  to  the  whole  euro  area  early  on,  the  Commission  now  publishes  its  proposal  for 
recommendations for the euro area together with this Annual Growth Survey. 9 

The Europe 2020 Strategy – better implementation and monitoring 

Launched in 2010 as the EU strategy to deliver smart, sustainable and inclusive growth for Europe, the Europe 
2020  Strategy  set  out  five  ambitious  targets  in  the  fields  of  employment,  research  and  development,  climate 
change  and energy,  education  and  the  fight  against poverty  and  social  exclusion  to  be  achieved by  the  EU  by 
2020.  While  we  are  on  track  for  reaching  the  targets  on  climate  change,  energy  and  education,  the  crisis  has 
derailed  progress  on  the  other  targets,  in  particular  for  poverty  and  social  exclusion  where  the  situation  has 
worsened.  The  Europe  2020  strategy  has  served  as  a  reference  framework  for  activities  at  EU  level,  in  the 
Parliament and various Council formations, but also at the national and regional levels: Member States have set 
national  targets  in  response  to  the  EU  targets;  reporting  on  these  targets  has  taken  place  in  the  context  of  the 
annual  National  Reform  Programmes;  Eurostat  has  regularly  published  comprehensive  reports  detailing  the 
progress  made.10 The  Europe  2020  strategy  has  guided  the  strategic  choices  of  the  Commission's  work.  These 
strategic  choices  are  also  guiding  the  EU's  expenditure:  they  provided  direction  in  preparing  the  2014-2020 
Multiannual Financial Framework (MFF), in programming the European Structural and Investment Funds, and 
in launching new funding programmes at the EU level. A good example is the creation of the HORIZON 2020 
programme for research, innovation and technological development, which funding benefited from a substantial 
increase, in spite of overall scarce budgetary resources at EU level.  

In 2014-15, approaching the halfway mark towards the 2020 horizon, the Commission carried out a review of 
the Europe 2020 Strategy, starting with a Communication "Taking stock of the Europe 2020 strategy for smart, 
sustainable and inclusive growth". A public consultation was carried out as a part of this process, which showed 
that the Europe 2020 Strategy is still seen as an appropriate framework to promote jobs and growth at the EU 
and  national  levels.  While  not  delivering  in  all  areas,  it  has  added  value  and  has  generated  positive  effects 
notably by triggering action at the European level and in Member States in a number of areas that represent key 
drivers for jobs and growth. However, the consultation also showed that that the strategy is not yet sufficiently 
embraced by the Member States, and that it requires deeper involvement on the ground. 

Following this review, the Commission will make the best use of the existing strategy and its tools by improving 
its implementation and monitoring in the context of the European Semester. On this basis, the Commission has 
adjusted the guidance to Member States on the preparation of their National Reform Programmes to make sure 
that the Europe 2020 strategy continues to play a prominent role.  

9 COM(2015) 692 and SWD(2015) 700. 
10 Smarter, greener, more inclusive? Indicators to support the Europe 2020 strategy, Eurostat 2015. 

5 

 
                                                 
In parallel, next year the Commission will start a process for developing a longer term vision going beyond the 
horizon  of  the  year  2020,  also  in  the  light  of  the  new  Sustainable  Development  Goals  agreed  by  the  United 
Nations for 2030.  The lessons of the Europe 2020 review mentioned above will be taken into account in this 
exercise. 

2. Re-launching investment  

In  the  context  of  low  interest  rates,  ample  liquidity  in  financial  markets  and 
deleveraging by public and private actors, investment levels remain low. This highlights 
the need for the Investment Plan for Europe: concerted action on investment to maintain 
competitiveness  and  to  spur  economic  activity.  The  plan  targets  stimulating  finacing  for 
investment, removing barriers, increasing innovation and deepening the Single Market.  

Implementation of the Investment Plan for Europe 

A year ago, the Commission proposed an Investment Plan, aimed at mobilising at least 
EUR 315 billion of additional investment over three years and bringing investment back to 
sustainable  pre-crisis  levels.  The  aim  of  the  Investment  Plan  is  to  mobilise  additional 
investments  in  Europe  with  both  existing  and  new  tools,  creating  a  better  environment  for 
investment and further strengthening the Single Market. 

Thanks  to  the  swift  support  of  the  European  Parliament  and  the  Council,  and  the 
operational  work  of  the  European  Investment  Bank,  the  Investment  Plan  is  now 
operational.  The  European  Fund  for  Strategic  Investments  (EFSI),  proposed  by  the 
Commission in January, is up and running to support higher risk, higher return projects that 
would struggle to find financing otherwise. The European Investment Advisory Hub, aimed at 
supporting  investors  and  project  promoters,  has  become  operational.  The  European 
Investment  Project  Portal  will  be  launched  early  next  year:  this  will  serve  to  advertise 
potential  investment  projects  to  investors  based  on  reliable  and  simple  reference  criteria.  A 
large number of Member States have also committed substantial financial contributions to the 
Fund's activities through their National Promotional Banks or otherwise.  

To build on this progress, Member States are encouraged to continue raising awareness 
about  the  EFSI,  support  development  of  private  and  public  investment  projects  and  
co-investment platforms for submission to the European Investment Bank for potential EFSI 
financing and to the European Investment Project Portal, in order to attract potential investors. 
The  services  of  the  European  Investment  Advisory  Hub  could  be  used  to  build  better 
investment  projects  and  access  EU  funding  opportunities.  Moreover,  the  Member  States 
which have not yet committed resources to the Investment Plan are encouraged to do so.  

Furthermore,  Member  States  should  make  full  use  of  the  possibility  to  combine  the 
EFSI with other EU funds under Horizon 2020, the Connecting Europe Facility and the 
European Structural and Investment Funds, especially as EU programmes under the 2014-
2020 Multiannual Financial Framework are now ramping up and are increasingly supporting 
investments  on  the  ground  across  Europe,  in  infrastructure,  innovation  and  knowledge. 
Specific barriers, administrative or regulatory, hindering the swift delivery of funding should 
be identified and tackled by Member States. The Commission will also examine the progress 
made  with  the  use  of  EU  funds  in  the  context  of  the  ongoing  review  of  the  Multiannual 

6 

 
 
 
Financial Framework to simplify and streamline their implementation and increase synergies 
with national funds and private financing, maximising leverage on national investments. 

Progress on the EFSI11: Member State contributions and projects approved  

Nine  Member  States  have  pledged  contributions  to  the  Investment  Plan,  in  most  cases  through  their  national 
promotional  banks:  Bulgaria  (EUR  100  million),  Germany  (EUR  8  billion),  Spain  (EUR  1.5  billion),  France 
(EUR  8  billion),  Italy  (EUR  8  billion),  Luxembourg  (EUR  80  million),  Slovakia  (EUR  400  million),  Poland 
(EUR 8 billion) and the United Kingdom (EUR 8.5 billion/GBP 6 billion).  

As  regards  SME  and  Midcap  companies,  through  the  'SME  window',  the  EFSI  has  allowed  the  European 
Investment  Fund  (EIF)  to  strengthen  operations  under  COSME  and  HORIZON  2020  programmes  and  boost 
growth in the SME sector. So far, the EIF has approved 69 projects with financial intermediaries in 18 countries: 
Belgium, Bulgaria, Czech Republic, Denmark, Estonia, France, Germany, Hungary, Ireland, Italy, Luxembourg, 
Netherlands,  Poland,  Portugal,  Romania,  Slovenia,  Sweden  and  the  UK.    The  EIF  has  already  signed  56 
operations, with total financing under EFSI of around EUR 1.4 billion, which is expected to trigger more than 
EUR  22  billion  of  investments.  Around  71,000  SMEs  and  Midcaps  are  expected  to  benefit,  including  in 
Belgium,  Bulgaria,  Czech  Republic,  France,  Germany,  Italy,  Luxembourg,  Netherlands,  Poland,  Portugal, 
Slovenia and UK.  

Moreover, the European Investment Bank has approved 32 projects in the 'infrastructure and innovation window' 
for  which  it  requested  the  EU  guarantee  under  the  EFSI.  These  projects  are  located  in  the  following  Member 
States: Austria, Belgium,  Denmark, France, Finland, Germany, Ireland, Italy, Netherlands, Slovakia, Spain and 
the  UK.  Around  half  of  these  projects  support  renewable  energy,  energy  efficiency  and  other  investment  that 
contribute  to  the  move  towards  a  low-carbon  economy.  Others  are  in  the  fields  of  R&D  and  industrial 
innovation, digital and social infrastructure, transport, as well as access to finance for smaller businesses.  

Based on the progress made so far under these two windows, the Investment Plan will have triggered more than 
EUR  44 billion  of  additional  financing  in  the  EU.  The  EIB  recently  announced  that  EFSI  is  expected  to have 
mobilised around EUR 50 billion of investments in Europe by the end of 2015. 

In addition, there is an urgent need to focus on improving the investment environment: 
by  providing  greater  regulatory  predictability;  by  improving  and  diversifying  sources  of 
finance;  and  by  reinforcing  the  level  playing  field  in  the  European  Union  and  removing 
barriers  to  investment  from  within  the  EU  as  well  as  from  outside  the  EU.  Several  work 
strands have been launched at EU level, as laid out in the Single Market Strategy, the Energy 
Union and the Digital Single Market. This EU effort needs to be accompanied by an effort at 
national level.  

To accelerate change in these areas and to boost the attractiveness of Member States for 
investment, country-specific information about key challenges to investment at national 
level  is  published  alongside  this  Annual  Growth  Survey 12.  This  preliminary  analysis  of 
investment  obstacles  in  each  Member  State  confirms  that  there  is  a  great  deal  of  diversity 
across Member States in investment patterns and barriers to investment. There is no one-size-
fits-all  solution.  As  part  of  the  revamped  European  Semester,  the  Commission  intends  to 
engage  in  a  dialogue  with  the  Member  States  on  the  identification  of  these  challenges  and 
their  possible  removal,  including  through  thematic  discussions  at  the  Council.  These 
challenges will be further analysed in the context of the Country Reports foreseen in February 
2016.  

Improving financing conditions for the real economy 

11 Situation as per 18 November 2015. 
12 SWD(2015) 400. 

7 

 
 
 
 
 
 
                                                 
Lending conditions have substantially improved but differences between Member States 
persist. Companies continue to face varying financing conditions depending on their location. 
There  is  therefore  a  need  to  continue  pushing  ahead  with  policies  aimed  at  restoring 
affordable funding conditions in all Member States. 

Moreover, many Member States face the challenge of private debt overhang and a high 
level  of  non-performing  loans  that  impede  the  functioning  of  financial  intermediation  and 
hold back investment decisions in the corporate sector. In some Member States, the limited 
capacity  to  facilitate  the  resolution  of  non-performing  loans  are  an  obstacle  for  banks  to 
restart lending.  

Further  challenges  include  the  need  to  ease  the  debt-servicing  burden  on  the  private  
sector.  This  requires  having  in  place  modern  and  effective  frameworks  to  deal  with 
insolvency and business failure. Well-functioning insolvency frameworks are crucial for the 
investment  decisions  since  they  define  rights  of  creditors  and  borrowers  in  the  event  of 
financial difficulties. 

The  Banking  Union  is  a  major  achievement  to  strengthen  the  financial  stability  of  the 
Economic  and  Monetary  Union.  All  Member  States  need  to  transpose  all  the  relevant 
legislation  as  rapidly  as  possible.  In  particular,  swift  implementation  of  the  Bank  Recovery 
and  Resolution  Directive  and  the  latest  revisions  to  the  Directive  on  Deposit  Guarantee 
Schemes  is  essential.  In  parallel,  the  Commission  has  put  forward  additional  measures  to 
complete  the  Banking  Union  by  proposing  a  European  Deposit  Insurance  Scheme. 13 In 
parallel, work will continue to further reduce risks in the banking sector. 

Work  is  also  needed  to  remove  obstacles  to  the  free  movement  of  capital  in  the  Single 
Market and to diversify and expand sources of financing for the real economy. To this 
end, the Commission has presented an ambitious roadmap to deliver a Capital Markets Union 
by 2019. Some of the measures necessary to achieve this are of a legal nature and need to be 
agreed  at  the  European  level.  However,  such  EU  initiatives  must  be  complemented  with 
actions  at  the  national  level,  for  example  by  efforts  to  reduce  administrative  burden  or  by 
avoiding  adding  additional  requirements  when  transposing  Directives  into  national  law 
("gold-plating"), such as tax barriers to cross-border investment.  

Investing in human capital  

Smart  investments  in  Europe's  human  capital  and  performance-oriented  reforms  of 
education  and  training  systems  are  part  of  the  necessary  efforts  to  restore  jobs  and 
sustainable  growth.  Equipping  people  with  relevant  skills  drives 
innovation  and 
competitiveness;  it  is  the  basis  for  high  productivity  and  it  is  the  best  way  to  prevent 
individuals  becoming  unemployed,  as  well  as  to  reduce  the  risk  of  poverty  and  social 
exclusion.  While  the  EU  is  a  major  producer  of  skills  and  knowledge,  its  education  and 
training  systems  do  not  perform  as  well  as  they  should  internationally.  About  20%  of  the 
working-age population has only very basic skills such as literacy or numeracy, and 39% of 
companies have difficulty finding staff with the required skills. These difficulties have been 
accentuated both as a result of years of crisis and of the fast evolving pattern of work in the 
digital  economy:  unemployment  has  struck  particularly  among  the  low-skilled.  Skills 
mismatches have increased in many sectors or regions.   

13 COM(2015) 586. 

8 

 
 
                                                 
In addition, it is essential that Member States promote social investment more broadly, 
including  in  healthcare,  childcare,  housing  support  and  rehabilitation  services  to 
strengthen people's current and future capacities to engage in the labour market and adapt. A 
lot  can  be  done  with  the  support  of  EU  programmes,  such  as  the  European  Structural  and 
Investment Funds. Social investment offers economic and social returns over time, notably in 
terms of employment prospects, labour incomes and productivity, prevention of poverty and 
strengthening of social cohesion. Social infrastructure should be provided in a more flexible 
way,  personalised  and  better  integrated  to  promote  the  active  inclusion  of  people  with  the 
weakest link to the labour market. 

3. Pursuing structural reforms to modernise our economies 

Effective  implementation  of  reforms  to  ensure  a  sound  regulatory  and  institutional 
environment  and  a  smoothly-functioning  economy  is  crucial  in  encouraging  investment, 
fostering  new  employment,  raising  living  standards  and  promoting  convergence  in  the 
European Union.  

All  Member  States  should  use  the  current  favourable  momentum  to  strengthen  their 
efforts to ensure well-functioning labour, product and capital markets, quality education and 
training systems, modern and efficient social security systems and to promote innovation and 
entrepreneurship.  

Better coordination of and support to structural reforms  

Member  States  are  pursuing  their  efforts  to  modernise  their  economies  and  address 
macroeconomic  imbalances  identified  in  previous  years14 but  areas  of  concern  remain 
and  new  challenges  are  emerging.  This  is  shown  in  the  Alert  Mechanism  Report  2016, 
published alongside this Annual Growth Survey, where a number of countries are identified 
for an in-depth review within the framework of the Macroeconomic Imbalances Procedure.  

Even  though  convergence  has  restarted,  the  performance  of  Member  States  varies 
significantly  in  some  areas  that  are  crucial  for  productivity  and  convergence.  The 
Commission intends to engage in discussion with Member States and key stakeholders about 
the challenges faced and the optimal policy responses, by encouraging convergence towards 
the  best  performers.  Benchmarking, 
the  cross-examination  against  a  particular 
benchmark15 of  indicators  related  to  economic  and  social  performance  and  policies  in  each 
Member State, can be a useful tool to identify underperformance and the need for action at an 
early stage, to monitor progress and to effectively communicate the results of policy action. It 
can contribute to increasing the ownership of the structural reforms by the Member States and 
towards ensuring their implementation.  

i.e. 

The Commission will progressively suggest developing benchmarks and the exchange of 
best practices across policy areas, building on the existing thematic analysis developed with 
the  Member  States  in  various  fora.  As  indicated  in  the  Five  Presidents'  Report  on 
"Completing  Europe's  Economic  and  Monetary  Union",16 common  standards  can  serve  the 

14 COM(2015) 691. 
15 Typically, the indicators are evaluated against one or several relevant values, for instance the average, the top 
quarter, the best in class, a neighbouring country, or just a country whose performance one wants to emulate.  

16 Report of 22 June 2015. See also COM(2015) 600. 

9 

 
 
                                                 
convergence  process  towards  more  resilient  economic  structures.  The  Report  suggests  that 
such common standards should focus primarily on labour markets, competitiveness, business 
environment and public administrations, as well as certain aspects of tax policy. 

In addition, EU funding can play a vital role in supporting reform implementation and 
injecting  investment  directly  into  the  real  economy,  if  targeted  wisely  and  effectively 
applied. In this context, the priorities set out in recent country-specific recommendations have 
been  factored  into  the  programming  of  the  European  Structural  and  Investment  Funds  for 
2014-2020. To support structural reforms, the Commission will seek to enhance the use of the 
European Structural and Investment Funds in support of the implementation of the country-
specific recommendations, including through the use of the measures linking effectiveness of 
these Funds to sound economic governance. Member States should make all efforts to ensure 
that EU funding is used to its full potential. In the meantime, reform implementation will be 
supported through relevant EU funding programmes in their policy fields and the progressive 
roll-out  of  technical  assistance  offered  by  the  Commission's  Structural  Reform  Support 
Service. This Annual Growth Survey is accompanied by a proposal for funding for technical 
assistance to the Member States.17   

Fostering employment and inclusive social policies  

Job  creation  must  remain  a  key  focus  of  reform  efforts.  Unemployment  has  started  to 
decrease against the backdrop of a gradual recovery. Supportive macroeconomic policies and 
the impact of structural reforms  have played a role in these positive developments. Yet,  for 
too  many  job  seekers  it  remains  difficult  to  find  a  job  as  demand  remains  low  and  as  their 
skills might not match those required for vacant jobs.  

As highlighted in the draft Joint Employment Report,18 unemployment remains far too 
high,  with  23  million  Europeans  unemployed  in  August  2015.  Moreover,  about  half  of  the 
people  unemployed19 have  been  so  for  more  than  one  year.  Long  term  unemployment  has 
almost  doubled  since  2008 20  with  large  variations  between  Member  States.  Youth 
unemployment,  although  declining  overall,  still  remains  very  high,  at  above  20%  in  most 
Member  States.  National,  regional  and  local  authorities  should  advance  the  work  on  youth 
unemployment in line with the Youth Guarantee through systemic changes to school-to-work 
transitions, activation policies and well-functioning public employment services.    

Persistent  long-term  unemployment  has  implications  for  society  as  a  whole,  with  dire 
social  consequences  for the persons concerned and a negative impact on growth and public 
finances.  Long-term unemployment is one of the factors linked to the increase in poverty in 
the EU since  the  start of  the crisis. In  2014,21 a quarter of the EU population was at  risk of 
poverty or social exclusion. 

Member States should step up efforts to tackle long-term unemployment in line with the 
guidance  proposed  in  the  Recommendation  on  the  integration  of  the  long-term  unemployed 

17 COM(2015) 701. 
18 COM(2015) 700. 
19 More than 12 million. 
20 Reaching 5.1% in the EU and 6.1% in 2014 in the euro area. 
21 Latest available data. 

10 

 
 
                                                 
into the labour market.22 In particular, job integration agreements and a single point of contact 
should  be  pursued  to  ensure  that  the  long-term  unemployed  benefit  from  an  individualised 
approach, simplified access and more transparent support.  

Policy  action  must  continue  to  address  the  disincentives  to  entrepreneurship  and  job 
creation inherent in the different national systems. In particular, taxation related to labour 
and  benefit  systems  should  be  designed  and  implemented  to  encourage  investment  and 
employment. In September 2015, the Eurogroup issued common principles that should guide 
euro area Member States' efforts to reduce the tax wedge on labour. The Eurogroup agreed to 
benchmark  euro  area  Member  States'  tax  burden  on  labour  against  the  GDP-weighted  EU 
average. The ongoing benchmarking exercise, combined with an exchange of best practices, 
should  provide  a  new  impetus  for  labour  tax  reform  at  national  level  and  support  Member 
States  in  their  efforts  to  reduce  total  employment  costs  by  lowering  the  tax  wedge. 23 In 
addition, Member States should take measures to stimulate innovative 'start-up' activity and to 
facilitate job creation notably in SMEs.  

The  gender  gap  in  terms  of  employment  rate  remains  particularly  wide  in  several 
Member States. Despite the fact that women tend to outperform men in terms of educational 
attainment, they continue to be underrepresented in the labour market. Member States should 
have  a  comprehensive  approach  to  improving  the  work-life  balance,  including  through  care 
facilities,  leave  and  flexible  working  time  arrangements,  as  well  as  tax  and  benefit  systems 
free  of  disincentives  for  second  earners  to  work  or  to  work  more.  Particular  attention  is 
needed to single parents and people with caring responsibilities.  

Achieving  both  flexibility  and  security  in  the  world  of  work  requires  comprehensive 
reform  efforts  that  tackle  at  the  same  time  labour  market  segmentation,  adequate  wage 
developments, well-designed income support systems, policies to ease transitions to new jobs, 
equip  jobseekers  with  the  right  skills  and  better  match  them  with  vacancies.  This  approach 
will only be successful if based on strong involvement of social partners.24  

To ensure high employment levels throughout the EU and to advance convergence, real 
wages must continue to move in line with productivity over the medium term. The role of 
social  partners  is  crucial  in  this  process.  Wage  setting  frameworks,  including  collective 
agreements  should  allow  a  certain  degree  of  flexibility  for  differentiated  wage  increases 
across  and  within  sectors,  so  that  real  wages  and  productivity  developments  are  properly 
aligned over time. In this context, it is important that workers' representation is well ensured 
and  that  there  is  effective  coordination  of  bargaining  modalities  between  and  across  the 
various levels.  

Member  States  should  continue  to  modernise  and  simplify  employment  protection 
legislation, ensuring effective protection of workers and the promotion of labour market 
transitions between different jobs and occupations. Stable and predictable work relationships 
and  in  particular  more  permanent  types  of  contracts  induce  employers  and  employees  to 
invest more in skills and life-long learning. They allow individuals to plan for their future by 
providing  sustainable  prospects  of  career  and  earnings  progression.  In  recent  years,  the 

22 Proposal  for  a  Council  recommendation  on  the  integration  of  the  long-term  unemployed  into  the  labour 

market, COM(2015) 462 

23 Eurogroup  statement  on  structural reform  agenda  –  thematic  discussions  on  growth  and jobs: benchmarking 

the tax burden on labour, 638/15, 12/09/2015. 

24 The employment guidelines (Council Decision 11360/15 of 5 October 2015) invite Member States to follow 
national practices of social dialogue and allow the necessary policy space for a broad consideration of socio-
economic issues, when pursuing labour market reforms, including the national wage-setting mechanisms. 

11 

 
                                                 
increase in overall employment has been driven mainly by an increase in temporary contracts 
which is not unusual in the early stages of a recovery. The more general move towards more 
flexible  labour  markets  should  facilitate  employment  creation  but  should  also  enable 
transitions  towards  more  permanent  contracts.  It  should  not  result  in  more  precarious  jobs. 
Member States should also step up efforts to combat undeclared work. 

More  effective  social  protection  systems  are  needed  to  confront  poverty  and  social 
exclusion, while preserving sustainable public finances and incentives to work. Any such 
development  will  have  to  continue  to  ensure  that  the  design  of  in-work  benefits, 
unemployment  benefits  and  minimum  income  schemes  constitutes  an  incentive  to  enter  the 
job market. Adequate and well-designed income support, such as unemployment benefits and 
minimum  income  schemes,  allow  those  out  of  work  to  invest  in  job  search  and  training, 
increasing their chances to find adequate employment that matches their skills. 

Finally, comprehensive integration measures are required for those further away from 
the labour market and especially in response to the recent arrival of a large number of 
refugees. Integration of migrants and especially refugees calls for a comprehensive approach 
to facilitate their access to the labour market and more generally their participation in society. 

Further improve product and services markets and the business environment 

Improving  the  functioning  of  product  and  services  markets  remains  a  challenge  for 
many Member States. Challenges differ between Member States but include improving the 
flexibility of product and services markets, improving the quality of research and innovation, 
reducing  regulatory  and  administrative  burden,  strengthening  public  administration  and 
improving  the  judicial  system  and  insolvency  frameworks.  Given  their  uneven  and  often 
unambitious  implementation  of  the  Services  Directive  in  the  period  2012-2014,  many 
Member  States  have  only  been  able  to  tap  part  of  the  benefits  while  significant  gains  still 
remain to be made. 

Open and competitive product and services markets are necessary to encourage efficient 
allocation  of  resources  and  to  facilitate  investment.  More  flexible  regulation  of  services 
markets  would  lead  to  higher  productivity  and  could  ease  the  market  entry  of  new  players, 
reduce  the  price  for  services  and  ensure  wider  choices  for  consumers.  In  addition,  the 
productivity  of  business  services  is  critical  for  the  competitiveness  of  certain  economic 
sectors,  for  example  manufacturing.  Barriers  to  entry  in  these  markets  are  high  in  some 
Member States. The national reform efforts should focus on eliminating disproportionate and 
unjustified  authorisation  requirements.  The  Commission  will  continue  to  work  closely  with 
the Member States to remove these barriers. 

Retail  plays  an  important  role  in  the  EU  economy  (9.6%  of  value  added  and  13.1%  of 
employment).  The  lack  of  dynamism  in  this  sector  results  in  high  retail  prices,  effectively 
reducing  consumers’  purchasing  power.  Research  indicates  that,  to  some  degree,  these  high 
retail prices are due to entry barriers and other restrictions that reduce the level of competition 
in the retail sector in certain Member States. Low productivity in the retail sector hampers the 
efficiency of the overall economy.  

Increasing  transparency,  efficiency,  and  accountability  in  public  procurement,  which 
accounts  for  19%  of  EU  GDP,  is  crucial  for  investment.  Member  States  should  ensure 
adequate  administrative  capacity  and  focus  on  the  increased  use  of  e-procurement  (digital 
tools) and on tackling corruption. 

12 

 
 
Modern and efficient public administration is necessary to ensure fast and high-quality 
services  for  firms  and  citizens.  Enhancing  the  quality,  independence  and  efficiency  of 
Member  States'  justice  systems  is  a  prerequisite  for  an  investment  and  business  friendly 
environment. It is necessary to ensure swift proceedings, address the court backlogs, increase 
safeguards  for  judicial  independence  and  improve  the  quality  of  the  judiciary,  including 
through better use of ICT in courts and use of quality standards. 

Moreover,  the  deployment  of  new  technologies  and  business  models  can  open  up 
additional sources of growth and lead to significant job creation. To make the best use of 
these sources, Member States should create an appropriate and accommodating business and 
regulatory  environment,  and  strengthen  partnerships  between  businesses  and  universities, 
notably for the digital transformation of industry and services, big data applications and the 
collaborative economy. 

Furthermore,  Member  State  action  is  necessary  to  improve  efficiency  in  the  use  of 
resources  and  bringing  forward  a  much  more  circular  economy.  The  circular  economy 
approach25 aims to preserve and maintain the value of products, materials and resources in the 
economy  for  as  long  as  possible,  while  minimising  the  creation  of  waste.  A  more  circular 
economy and improving resource efficiency will contribute towards stimulating investments 
with both short-term and long-term benefits for the economy, environment and employment. 

4. Responsible fiscal policies  

Budget  deficits  are  being  reduced  and  government  debt  appears  to  have  peaked.  The 
economic  recovery  and  lower  interest  rates,  as  well  as  continuing  consolidation  efforts  in 
some countries, are supporting a fall in headline budget deficits. Government debt in the EU 
and euro area is set to decrease marginally in 2015, after several consecutive years of strong 
rises. The falling number of countries under an excessive deficit procedure reflects the efforts 
made  over  the  past  years.  Nevertheless,  public  debt  remains  very  high  in  many  Member 
States. This acts as a drag on growth and makes them more vulnerable to adverse shocks. 

The  Stability  and  Growth  Pact  provides  the  right  framework  to  ensure  that  public 
finances are brought to and maintained on a sustainable path, while making full use of 
the available fiscal space. The Commission just issued its Opinions on the Draft Budgetary 
Plans of euro area Member States.26 In applying the Stability and Growth Pact, as confirmed 
as  part  of  this  package,  the  Commission  will  take  into  account  the  budgetary  impact  of  the 
exceptional inflow of refugees. The information provided by the Member States will be used 
when assessing (ex-post) possible temporary deviations from the SGP  requirements in 2015 
and 2016. 

The fiscal stance for this and next year is broadly neutral both in the euro area and in 
the  EU  as  a  whole.  This  appears  appropriate  against  the  twin  objectives  of  long-term 
sustainability of public finances and short-term macroeconomic stabilisation.  

At Member States’ level responsible fiscal policies that respect the common fiscal rules 
should be maintained. This is key to reduce public debt and to restore necessary fiscal 

25 As foreseen in its Work Programme, the Commission will present a circular economy package at the end of 

2015. 

26 For more details, see COM(2015) 800. 

13 

 
 
                                                 
buffers while avoiding pro-cyclical policies. The fiscal effort should be differentiated across 
Member States, in order to reflect country-specific challenges in terms of reducing public debt 
and  stabilisation  of  the  cyclical  position,  while  taking  into  account  the  spill-overs,  in 
particular across euro area countries. Progress is being made towards stronger national fiscal 
frameworks,  which  are  key  to  achieving  and  maintaining  appropriate  fiscal  policies.  The 
Commission  intends  to  publish  its  report  on  the  incorporation  of  the  Fiscal  Compact  into 
national law as foreseen in Article 8 (1) TSCG early in 2016,  

The  composition  of  fiscal  strategies  should  further  prioritise  growth-friendly 
expenditure and preserve productive public investment. The largest spending cuts planned 
by  euro  area  Member  States  for  next  year  are  affecting  the  public  sector  wage  bill  and 
government  purchases  of  goods  and  services.  The  planned  adjustment  would  probably  not 
affect  medium-term  growth  prospects,  though there  may  be  scope  for  more  growth-friendly 
choices  in  the  composition  of  expenditures.  In  addition,  the  efficiency  of  Member  States' 
existing expenditure programmes in achieving their targets should be systematically reviewed 
and, where appropriate, enhanced by the adoption of reforms. 

Increasing the effectiveness and fairness of the tax systems  

On the revenue side, it is important to ensure efficient and growth-friendly tax systems. 
This includes shifting taxes away from labour. This can contribute significantly to increasing 
employment and adaptability of the labour market.  

Moreover, debt bias in taxation needs to be addressed. In stimulating access to finance and 
therefore  investment,  the  preferential  tax  treatment  of  debt,  resulting  from  the  tax 
deductibility of interest rate payments, is one of the reasons for the preference for debt against 
equity. At the level of the Member States, this debt bias in business finance can be addressed 
by  removing  the  distortions  from  differential  taxation.  As  part  of  the  broader  work  being 
carried  out  to  bring  forward  the  Common  Consolidated  Corporate  Tax  Base  (CCTB),  the 
Commission will examine ways to address this "debt bias". It will present a new proposal in 
2016. 

In  addition,  Member  States  should  focus  on  reducing  aggressive  tax  planning  and 
fighting  tax  fraud  and  tax  evasion.  This  will  help  to  secure  revenues  e.g.  for  public 
investment  or  for  lowering  taxes.  Member  States  can  fight  tax  evasion,  tax  fraud  and  tax 
avoidance through enforcement, increasing transparency and cooperation between the various 
national tax administrations. The Commission presented an Action Plan in June aimed at re-
establishing  the  link  between  taxation  and  the  location  of  economic  activity,  tackling  base 
erosion  and  profit  shifting  by  certain  multinational  companies  and  increasing  tax 
transparency.  Likewise,  in  March,  the  Commission  proposed  a  package  of  measures  to 
enhance tax transparency, a key element being the introduction of the automatic exchange of 
information between Member States on their tax rulings27 related to any corporate entity.  

27 Tax  ruling  refers  to  how  the  National  administration  determines  the  taxation  for  a  particular  structure  and 

business practice in that Member State. 

14 

 
 
 
 
                                                 
Responding to the demographic challenge  

Longer and healthier lives are a remarkable achievement for our societies. Responsible 
policies are now needed to ensure that pension, healthcare and long-term care systems 
are  financially  sustainable  and  can  provide  adequate  protection  for  all. There has been 
considerable  progress  in  the  reform  of  the  European  social  protection  models  in  the  last 
decade,  notably  in  the  field  of  pension.  A  majority  have  adapted  their  systems  to  better 
withstand the demographic impact that will become apparent within the next decade. This not 
only includes general increases in retirement ages, but also restrictions on early retirement.  

These sustainability-enhancing pension reforms in most Member States can lead to new 
challenges.  Generally,  reforms  went  hand  in  hand  with  a  streamlining  of  public  pension 
schemes. To ensure that these reforms will enjoy lasting support and success, other flanking 
measures are likely to be necessary to maintain retirement incomes such as extending working 
lives  and  providing  other  means  of  retirement  incomes  through  complementary  pension 
savings.  In  parallel,  Member  States  need  to  support  the  development  of  collective  and 
individual  pension  plans  to  complement  public  pension  schemes,  including  by  removing 
obstacles  at  European  level.  Social  partners  may  have  an  important  role  to  play  here, 
depending on national practices. 

Regarding health care and long-term care systems, reforms need to continue to enhance 
their cost-effectiveness and to ensure adequate access. The demographic challenge affects 
not  only  pensions  but  also  health  care  and  long-term  care  related  expenditure.  A  healthier 
population  will  also  improve  labour  market  participation  and  labour  productivity.  Member 
States  need  to  introduce  measures  to  ensure  a  sustainable  financing  basis,  encourage  the 
provision  of  and  access  to  effective  primary  health  care  services,  the  cost-effective  use  of 
medicines,  better  public  procurement,  improve  integration  of  care  through  up  to  date 
information  channels  (such  as  e-health),  assess  the  relative  effectiveness  of  health 
technologies and to encourage health promotion and disease prevention.  

5. Next steps 

The  EU  needs  to  act  ambitiously  and  collectively  to  overcome  its  economic  and  social 
challenges.  In  this  Annual  Growth  Survey,  the  Commission  proposes  that  this  takes  place 
based  on  the  integrated  pillars  of  re-launching  investment,  pursuing  structural  reforms 
and  modernising  public  finances, with a strong focus on job creation and social inclusion. 
The  Annual  Growth  Survey  launches  the  2016  European  Semester.  The  Commission  looks 
forward to the views of the European Parliament as well as stakeholders at all levels to enrich 
the discussion and focus priorities for action.  

Alongside discussions on euro area priorities outlined in the dedicated recommendation, 
the EU institutions should agree EU and euro area priorities for the coming year. These 
should  then  provide  orientation  for  Member  States'  National  Reform  and  Stability  or 
respective  country-specific 
Convergence  Programmes 
recommendations in May.  

in  April,  as  well  as 

the 

Success  requires  strong  commitment  from  the  Member  States  and  the  EU  institutions 
together. The Commission will continue to work with all actors to ensure that the recovery is 
set on a sustainable path, and that Europe can tap its full jobs and growth potential. 

15 

 
 
 
 
 
THE REVAMPED EUROPEAN SEMESTER  

The  Commission  has  substantially  streamlined  the  European  Semester  since  last  year, 
establishing  more  genuine  dialogue  with  the  Member  States,  for  instance  by  engaging  pro-
actively  with  stakeholders  at  all  levels,  focusing  the  guidance  provided  and  publishing 
Country  Reports  in  February,  leaving  more 
the  Country-Specific 
Recommendations.  As  announced  in  its  Communication  of  21  October  2015, 28 from  this 
Semester cycle, there will be further improvements:  

to  prepare 

time 

•  Better  integrating  the  euro  area and  national  dimensions.  A  well-performing,  robust  euro 
area  economy  is  vital  for  the  sound  functioning  of  the  entire  EU.  To  facilitate  such  co-
ordination, the 2016 Annual Growth Survey is accompanied by a set of recommendations 
for the euro area; this is an important change from the previous semester cycles where the 
euro  area 
the  country-specific 
recommendations towards the end of the semester.   

recommendations  were  proposed  along  with 

•  A stronger focus on employment and social performance. Employment and social aspects 
are  further  emphasised  in  the  Macroeconomic  Imbalances  Procedure.  Three  headline 
indicators  (activity  rate,  youth  unemployment,  long-term  unemployment)  are  used  in  the 
2016  Alert  Mechanism  Report  accompanying  this  Annual  Growth  Survey.  Greater 
attention is given to social fairness in the context of the new macroeconomic adjustment 
programmes.  The  draft  Joint  Employment  Report  summarises  challenges  and  priorities. 
The close involvement of social partners is promoted at all levels.  

•  Promoting 

convergence 

practices.  
The Commission will progressively suggest benchmarks and strengthen exchanges of best 
practices across policy or thematic areas.  

benchmarking 

pursuing 

best 

and 

by 

•  More focused support to reforms through EU funds and technical assistance. This Annual 
Growth  Survey  is  accompanied  by  a  proposal  for  funding  for  technical  assistance  for 
Member States.29  

In  addition,  as  proposed  on  21  October,  the  EU  economic  governance  will  be  improved 
through  practical  improvements  to  the  Macroeconomic  Imbalances  Procedure  and  to  the 
implementation  of  the  Stability  and  Growth  Pact,  as  well  as  by  the  establishment  of  an 
advisory European Fiscal Board and of a network of national Competitiveness Boards. 

28 COM (2015) 600. 
29 COM(2015) 701. 

16