COMMISSION STAFF WORKING DOCUMENT Report on the Euro Area Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic policy of the euro area
Date: 2015-11-26
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU employment policy, Economic and Monetary Union, banking, economic disparity, economic growth, economic recovery, euro area, financial market, fiscal policy, structural adjustment

EUROPEAN 
COMMISSION 

Brussels, 26.11.2015  
SWD(2015) 700 final 

COMMISSION STAFF WORKING DOCUMENT 

Report on the Euro Area 

Accompanying the document 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic policy of the euro area 

{COM(2015) 692 final} 

EN 

   EN 

 
 
 
 
  
 
 
REPORT ON THE EURO AREA 

CONTENTS 

Executive summary .................................................................................................................... 3 

1.  

2. 

3.  

4. 

Structural reform policy and rebalancing..................................................................... 6 

Fiscal policy ............................................................................................................... 10 

Financial sector policy ............................................................................................... 13 

Economic Governance ............................................................................................... 17 

2 

 
 
 
 
EXECUTIVE SUMMARY  

The  economic  recovery  continues  at  a  moderate  pace  in  the  euro  area.  Real  GDP  is 
expected to grow by 1.6% in 2015, gradually picking up to 1.9% in 2017, and the output gap 
is expected to progressively close. All euro area countries except Greece are forecast to record 
positive  growth  rates  and  almost  all  will  see  growth  above  1%  in  2016  and  2017,  with 
differences across Member States. However, downside risks to the outlook have widened due 
to  the  downward  revision  of  the  growth  forecast  for  the  world  economy,  in  particular  for 
emerging economies. The continued deleveraging in the private sector remains a constraint on 
growth. 
A coordinated approach to macroeconomic policies remains warranted. As argued also in 
the  2016  Annual  Growth  Survey,  in  view  also  of  the  high  interconnections  among  the 
economies  in  EMU  sustaining  and  strengthening  this  recovery  requires  continued  and 
determined policy efforts. Structural, fiscal, financial and monetary policies, combined in an 
integrated, growth-friendly approach, will help to provide the most support to the recovery, to 
make  the  euro  area  more  resilient  to  adverse  shocks  and  to  enhance  positive  cross-border 
spillovers through trade, financial and institutional linkages. Moreover, as confidence effects 
have  also  proven  to  be  an  important  transmission  mechanism,  a  coordinated  approach  in 
tackling  macroeconomic  imbalances  and  legacies  of  the  crisis  will  support  the  recovery  by 
continuing to build trust in our economic system and monetary union. 
Challenges remain in the following interrelated areas: 

•  Unlocking  growth  potential  and  tackling  high  unemployment.  Unlocking  growth 
potential  in  the  euro  area  would  help  to  remove  growth  bottlenecks  and  contribute  to 
support confidence in the sustainability of high levels of debt. Given the linkages between 
sectors,  reforming  the  services  sector,  including  by  completing  the  single  market,  and 
removing barriers to investment, would play an important role in tackling this challenge. 
Moreover, high levels of unemployment and the persistence of long-term unemployment 
have a negative impact on GDP growth via lower employment and lower productivity and 
are closely linked to the increase in poverty observed after the crisis. Reforms can help to 
establish  modern  and  flexible  labour  markets  and  social  security  that  facilitate  faster 
transitions back into employment. Also more progress in reducing the high tax wedge on 
labour can contribute to foster job creation.  

•  External  and  internal  rebalancing  within  the  euro  area.  The  high  current  account 
surplus  in  the  euro  area  is  largely  the  result  of  weak  domestic  demand  and  reflects  an 
inappropriate  savings-investment  balance.  It  also  reflects  an  asymmetric  adjustment 
whereby large external deficits have been largely corrected, while large surpluses continue 
to accumulate in Member States without significant deleveraging needs. The asymmetric 
adjustment has weighed on recovery at the euro area aggregate level and there is the risk 
that the slow growth becomes protracted. Such risk should be addressed through a better 
combination  of,  on  the  one  hand,  structural  reforms  that  raise  productivity,  foster 
competitiveness and facilitate active deleveraging in high-debt countries, and on the other 
hand, policies that boost investment and foster a more efficient use of excessive savings in 
high surplus countries. 

•  Private debt overhang and investment weakness. Euro area countries whose capacity to 
sustain demand is constrained by debt overhang and a high level of non-performing loans 
face the challenge of having to implement growth enhancing reforms while ensuring at the 
same time an orderly deleveraging in the private sector to address the stocks of non-viable 
debt  and  reallocate  capital  more  efficiently.  In  some  euro  area  countries  that  have  been 

3 

 
 
heavily hit by the crisis, investment has fallen sharply and is still being hampered by debt 
overhang,  despite  some  recent  recovery  in  private  investment.  These  countries  also  face 
limited access to credit and limited fiscal space.  

•  Ensuring  an  appropriate  fiscal  stance  for  the  euro  area  as  a  whole.  Responsible 
national  fiscal  policies  that  ensure  debt  sustainability  and  the  effectiveness  of  fiscal 
stabilisers,  in  full  respect  of  the  common  fiscal  rules,  are  essential  for  the  proper 
functioning  of  the  monetary  union.  At  the  same  time,  it  is  important  to  ensure  an 
appropriate fiscal stance for the euro area as a whole, as complementary to national fiscal 
stances,  to  ensure  the  stabilisation  of  cyclical  positions  at  times  of  large  shocks.  This  is 
particularly  needed  when  monetary  policy  is  constrained  by  the  zero-lower  bound  in 
interest rates.  The assessment of the euro area fiscal stance has to be carried out against 
the  twin  objectives  of  long-term  sustainability  of  public  finances  and  short-term 
macroeconomic  stabilisation.  This  implies  that  the  required  fiscal  adjustment  is 
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 spillovers across euro area countries. Effective national fiscal frameworks are 
key  to  achieving  the  appropriate  aggregate  fiscal  stance.  Efforts  are  still  necessary  to 
improve the composition of public expenditure and revenues.  

•  The  adjustment  of  the  banking  sector.  Banks  and  sovereigns  in  the  euro  area  are  still 
significantly  interlinked.  Banks'  limited  capital  and  provision  buffers,  the  limited  legal 
capacity to facilitate the resolution of non-performing loans (NPLs) and small transaction 
volumes  in  secondary  markets  for  NPLs  constitute  further  obstacles  to  making  bank 
business models more resilient to shocks. Remaining challenges include how to ease the 
debt-servicing  burden  on  the  private  sector  and  how  to  ensure  the  adoption  of  new  and 
more harmonised approaches to business failure and insolvency. 

•  Completion  of  banking  union  and  deepening  of  capital  markets.  The  banking  union 
continues  to  progress.  However,  the  Bank  Recovery  and  Resolution  Directive  (BRRD) 
remains  to  be  fully  transposed  in  order  to  ensure  that  the  EU  resolution  framework  is 
properly in place. The bridge financing arrangements for the SRF, to ensure its operational 
readiness from  January  2016, and a  common backstop for the SRF during the transition 
period  are  not  yet  fully  in  place.  Finally,  the  creation  of  a  common  European  deposit 
insurance,  in  parallel  to  further  measures  to  reduce  risk  in  the  banking  sector,  will 
complete  the  Banking  Union  alongside  single  bank  supervision  and  the  single  bank 
resolution mechanism. A series of review clauses included in the legislation establishing 
the  macro-prudential  framework,  and  its  piecemeal  construction,  call  for  a  revision  to 
ensure that the framework is effective. The diversification of corporate funding channels, 
the  deepening  of  European  capital  markets  and  the  removal  of  impediments  to  cross-
border  investment,  e.g.  those  related  to  inconsistent  insolvency  regimes,  are  challenges 
that the full implementation of the Capital Market Union should help to address.  

•  Completion of the EMU architecture. This includes the timely implementation of stage 
1 initiatives as laid out in the Five Presidents Report and the Commission Communication 
of  21  October.  In  particular,  to  ensure  that  the  national  Competitiveness  Boards  are 
operational by end-2016 and that progress is made towards a more unified representation 
of the euro area in international fora. At the same time, a broad consultation process will 
be launched in 2016 to consult and engage on completing EMU in Stage 2. The outcome 
of  this  consultation  and  the  work  of  the  expert  group  should  contribute  to  shaping  the 
more  fundamental  steps  ahead,  contributing  to  the  Commission's  White  Paper  in  Spring 
2017 and leading to a stronger legislative and institutional framework for EMU.  

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1.  

Structural reform policy and rebalancing 

1.1. Structural reforms 

Sustainable convergence requires a broad set of structural policies, at both the macroeconomic 
and microeconomic levels. In a monetary union, it is particularly important that economies can adjust 
effectively to asymmetric  shocks. Rigidities remaining, for example in the regulations of labour and 
product  markets,  inhibit  Member's  States  adjustment  capacity,  hindering  the  smooth  functioning  of 
EMU.  Supporting  a  balanced  adjustment  in  the  private  and  public  sectors  helps  the  euro  area 
economies to sustain growth and create more jobs.  

Reforms  aiming  at  opening  up  sheltered  sectors  and  completing  the  single  market  are 
particularly  relevant  for  the  adjustment  capacity  of  the  euro  area.  Given  the  linkages  between 
services  and  other  sectors  and  in  a  context  of  increased  fragmentation  of  production  processes, 
improvements  in  services'  performance  can  generate  substantial  gains  that  disseminate  to  the  rest  of 
the  economy  and  can  have  a  significant  impact  on  the  performance  of  the  tradable  sector.  Well-
functioning services can also play a specific role in the euro area countries, as they can contribute to 
the  rebalancing  process  and  facilitate  resource  reallocation.  Several  indicators  show  signs  of 
underperformance  in  the  services  sectors.  For  instance,  in  some  cases,  wage  growth  outperformed 
productivity  growth  and  some  sectors  show  relatively  high  average  mark-ups.  Such  trends  have 
negative implications for competitiveness and lead to welfare losses for consumers1. At the heart of it 
could be the high regulatory barriers that remain in the services sectors as well as large heterogeneity 
across  euro  area  countries,  hampering  the  well-functioning  of  the  Single  Market.  Despite  the 
importance of services, the pace of national reforms in the area of services slowed considerably over 
the last years2. 

Investment  in  the  euro  area  is  hampered  by  a  variety  of  barriers,  both  regulatory  and  non-
regulatory, which also differ in terms of their restrictiveness, complexity or predictability. Most 
frequent barriers to investment notably include product and labour markets distortions, unfavourable 
business environment, public-administration inefficiencies as well as barriers to access to finance both 
for SMEs and for long-term projects such as infrastructure. Euro area  countries have been  unevenly 
affected  by  the  crisis  and  are  characterised  by  different  investment  needs.  Removing  barriers  to 
investment  in  the  euro  area  is  needed  not  only  to  help  in  boosting  growth  potential,  but  also  to  lift 
demand and contribute to the rebalancing within the EMU. 

Labour markets continue to gradually improve, benefitting from strengthened economic activity 
and  reform  efforts  undertaken  in  recent  years.  While  employment  growth  was  stronger  in  2014 
than what could be expected in the light of the modest recovery, it seems to have slowed down in the 
first  half  of  2015.  Overall,  as  the  draft  Joint  Employment  Report3  shows,  the  employment  rate  has 
increased  by  1.8  percentage  point  in  the  euro  area  since  the  lowest  level  observed  in  2013,  but  at 
68.9% it is still 1.6 percentage points lower than the peak reached in mid-2008 (corresponding to some 
5 million people).  

Unemployment, including youth unemployment, continues the modest but steady decrease that 
had started in 2013. Over the year up to September 2015 it fell or remained stable in most Member 
States, with the highest decreases being recorded in the countries that had been the most severely hit 
by  the  crisis.  But  differences  among  euro  area  countries  are  still  at  historical  heights.  After  having 
increased from 2008 to 2013, long-term unemployment in the euro area has broadly stabilised at a very 

1 See Quarterly Report on the Euro Area (QREA), Vol.14, No.2 (2015). 
2 National services reforms in 2012-2014 are not expected to yield more than 0.1% EU GDP growth against a 
1.8% estimated potential from a more ambitious implementation of the Services Directive. This means that the 
EA  and  the  EU  are  missing  significant  economic  potential  that  could  be  achieved  through  more  ambitious 
national services reforms. See Report on "Single market strategy and competitiveness in the EU and its member 
states, 2015" accompanying the Communication (2015) 550 "Upgrading the Single Market: more opportunities 
for people and business". 
3 2016 Draft Joint Employment Report - COM(2015) 700. 

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high  level  of  close  to  50%  of  total  unemployment  and  6%  of  the  labour  force.  High  levels  of 
unemployment  and  the  persistence  of  long-term  unemployment  have  a  negative  impact  on  GDP 
growth via lower employment and lower productivity. Long-term unemployment also leads to a loss 
of skills and is found to be one of the factors most closely linked to the increase in poverty after the 
crisis. At the same time, large and persisting cross-country disparities in the labour market adjustment 
capacity and social performance pose a challenge to the smooth functioning of the euro area. There is 
notably  a  risk  of  important  market  inefficiencies  in  terms  of  matching  of  unemployed  people  with 
vacant posts and that unemployment becomes entrenched with possible spill-over effects.  

Euro  area  countries  that  have  implemented  labour  market  reforms  have  performed  relatively 
well.  Those  that  have  not,  or  done  so  later,  have  faced  particularly  great  challenges,  and  generally 
negative labour market impacts. In order to significantly improve labour market outcomes in the euro 
area it is key to strike the right balance between 1) flexible and reliable contractual arrangements; 2) 
comprehensive lifelong learning strategies; 3) effective active labour market policies; and 4) modern 
social security systems providing adequate income support during employment transitions.  

Tax  systems  should  become  more  growth-friendly  and  supportive  of  job  creation.  High  labour 
taxes  increase  labour  costs  to  employers  and  reduce  net  take-home  pay  of  employees,  negatively 
impacting both labour demand and labour supply.  Shifting taxes away from labour can contribute to 
increasing employment and activity rates in the euro area by increasing incentives to hire and to look 
for,  and  take  up,  work.  Targeted  labour  tax  reductions,  rather  than  across-the-board  cuts,  can 
specifically  contribute  to  increased  inclusion  of  groups  at  the  margin  of  the  labour  market,  such  as 
low-income earners and the long-term unemployed while limiting revenue losses.  

Although some countries have reduced the tax burden on labour in recent years, particularly for 
low income earners, the overall level remains high. Over the past few years, some Member States 
implemented  measures  to  reduce  labour  taxes,  focussing  in  particular  on  low-income  earners. 
However,  these  measures  were  often  relatively  minor.  The  GDP-weighted  euro  area  average  tax 
wedge on labour for low income earners (i.e. for a single person earning 50% of the average wage) 
showed  a  relevant  drop  in  the  period  2010-2014  while  the  tax  wedge  on  labour  for  a  single  person 
earning the average wage rose slightly with increases in 12 out of 19 Member States. Overall the tax 
burden on labour in many euro area Member States remains very high.  
The most recent data shows that the overall at risk-of-poverty rate has slightly deteriorated to 
17.1% in 20144. Severe  material deprivation stands at 7.3% of the total population5. Growth in real 
gross disposable household income in the euro area has slowly accelerated in the year to the second 
quarter of 2015 mainly due to an increase in income from work but also to a rise in social benefits. 
Despite this progress, financial distress is still well above the levels seen in the previous decade. 

Adequate,  well-designed  and  sustainable  benefits  and  income  support  systems  can  support 
(re)employment.  Unemployment  benefit  and  minimum  income  schemes  linked  to  activation  allow 
those out of work to invest in job search and training, maintain the incentive to work for those able to 
do so while decreasing the pressure to find other subsistence means at any price - for instance through 
undeclared  work.  Broad  reforms  in  education  and  training  systems  continue  to  be  pursued,  raising 
their quality, job market relevance and inclusiveness and allowing learners to engage in more flexible, 
individual  pathways,  will  be  key.  This  requires  a  close  cooperation  between  Public  Employment 
Services, education and training systems, and social partners. 

4 The at-risk-of-poverty rate is the share of people with an equivalised disposable income (after social transfer) 
below the at-risk-of-poverty threshold, which is set at 60% of the national median equivalised disposable income 
after social transfers. 
5 Material deprivation measures the percentage of the population that cannot afford at least three of the following 
nine items: (i) to pay their rent, mortgage or utility bills; (ii) to keep their home adequately warm; (iii) to face 
unexpected  expenses;  (iv)  to  eat  meat  or  proteins  regularly;  (v)  to  go  on  holiday;  (vi)  a  television  set;  (vii)  a 
washing  machine;  (viii)  a  car;  (ix)  a  telephone.  Severe  material  deprivation  rate  is  defined  as  the  enforced 
inability to pay for at least four of these items. 

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1.2. Rebalancing 

External rebalancing in the euro area is progressing, although with some asymmetry. The euro 
area  currently  has  one  of  the  world's  largest  current  account  surpluses  in  value  terms,  with 
approximately EUR 390bn, or 3.7% of GDP, expected in 2015. The high current account surplus in 
the euro area reflects an inappropriate savings-investment balance, which is linked to weak domestic 
demand (see Figure 1). It also reflects an asymmetric adjustment whereby external deficits have been 
largely  corrected  in  vulnerable  Member  States  while  surpluses  continue  to  accumulate  in  some 
countries.  The  bulk  of  the  surplus  is  accounted  for  by  Germany  and  the  Netherlands,  whose 
contribution  represents  2.5  and  0.7  percentage  points  respectively,  and  by  Italy  (0.4%  percentage 
point). Former deficit countries are in general also recording balanced or surplus positions which are 
needed  in  order  to  ensure  the  sustainability  of  their  external  positions.  As  argued  in  the  Alert 
Mechanism  Report  2016,  the  fall  in  oil  prices  observed  since  mid-last  year,  as  well  as  the  recent 
developments in the euro exchange rate have contributed to the widening in current account surpluses 
in the euro area.  

Government budget deficits are being reduced and deleveraging is ongoing in others sectors of 
the economy. Simultaneous deleveraging processes reinforce each other, contributing to low inflation 
and a marked widening of the euro area current account surplus. The growing gap between the actual 
current account surplus and the level implied by fundamental characteristics (e.g. ageing profile, levels 
of  income  per  capita)  for  some  of  the  high  surpluses  countries  point  to  an  overall  lack  of  domestic 
demand  in  these  countries.  Looking  forward,  policies  put  in  place  at  the  EU  level  (e.g.  the  ECB's 
Public Sector Purchase Programme and the Investment Plan launched by the Commission) are meant 
to support credit and investment, even though the effect on the real economy might take some time to 
materialise.  

Figure 1: Euro area trade surplus: the difference between GDP and domestic demand 
Source: European Commission 

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The adjustment in external flows continues to reduce external indebtedness. Since the correction 
of  the  large  current  account  deficits  in  the  euro  area  over  the  past  few  years,  the  net  international 
investment  positions  (NIIPs)  expressed  as  a  percentage  of  GDP  have  not  significantly  improved  in 
former deficit countries, as a result of an unfavourable contribution of nominal growth and valuation 
effects.  In  the  majority  of  the  economies  with  highly  negative  positions,  higher  current  account 
surpluses than those currently observed would be needed in order to reduce their net external liabilities 
in  a  timely  fashion.  Consolidating  improvements  in  export  competitiveness  remains  therefore 
essential, as well as policies aimed at attracting FDI.  

Private  sector  debt  remains  high  in  most  Member  States  with  a  reduction  in  the  debt-to-GDP 
ratios mainly resulting from negative credit flows. According to Eurostat data, in 2014, debt stocks 
in  consolidated  terms  represented  59.7%  and  79.5%  of  euro  area  GDP  for  households  and  non-
financial corporations, while they amounted to 63.1% and 81.9% of GDP respectively in 2009. These 
aggregate figures mask a wide range of levels across Member States. In 2014, household and corporate 
debt ranged from  around 20% and 30% of GDP in Lithuania, to nearly 130% and 220% of GDP in 
Cyprus.  Since  debt  levels  peaked,  progress  in  deleveraging  has  been  mixed,  with  reductions  of 
indebtedness  mostly  observed  in  the  corporate  sector.  The  latest  developments  show  a  very  uneven 
deleveraging  picture  across  countries  and  sectors.  Both  the  euro  area  and  the  United  States 
experienced a surge in corporate indebtedness in the years preceding the global financial crisis and in 
its early stages. The ratio of debt to gross value added by non-financial corporations (NFCs) rose by 
about 40 pp between 2005 and 2009. Although both regions saw similar steep rises in corporate debt 
in  the  pre-crisis  years,  balance  sheet  adjustment  since  the  crisis  has  been  significantly  slower  in  the 
euro area than in the United States. The more rapid adjustment in the United States can be explained 
by  a  stronger  cyclical  recovery,  more  supportive  profitability  developments  and  reduced  dividend 
payment ratios. In the euro area, profitability has been hindered by a combination of lower flexibility 
in the labour markets and slow wage adjustment6.  

Looking  forward,  further  adjustment,  although  to  varying  degrees,  is  likely  in  a  number  of 
Member  States.  This  places  constraints  on  the  economy  and  on  credit  demand  as  the  weight  of 
existing  debt  held  by  households  or  corporates  may  affect  new  investment  decisions  and  slow  the 
recovery  in  consumption.  In  this  context,  dealing  with  still  elevated  levels  of  non-performing  loans 
and following common principles in well-working insolvency frameworks constitute a key element of 
a successful and growth-friendly deleveraging process. 

6 See Quarterly Report on the Euro Area (QREA), Vol.13, No.1 (2014). 

8 

 
 
                                                            
2. 

Fiscal policy 

The  euro  area  headline  deficit  is  expected  to  decrease  further  on  the  back  of  continued  albeit 
moderate economic recovery. The decrease in the aggregate euro area headline deficit is planned to 
continue through 2017 down from 2% of GDP in 2015. The number of euro area countries under an 
excessive deficit procedure has decreased to 7 in 2015 from 177 in 2011 and debt levels should slightly 
decrease  after  peaking  at  94.5%  of  GDP  in  2014.  The  euro  area’s  debt-to-GDP  ratio  is  forecast  to 
gradually fall to 91.3% in 2017 according to Commission 2015 Autumn Forecast. The improvement 
on the fiscal side reflects mostly past effort and the moderate recovery. The structural fiscal position is 
set to remain broadly unchanged as from 2015, which suggests a broadly neutral fiscal stance in the 
euro area in 2016. While debt stabilization is welcome, the level of government debt remains high and, 
when  coupled  with  high  private  indebtedness,  can  make  an  economy  more  vulnerable  to  adverse 
shocks and can act as a drag on growth (see Figure 2).  

Figure 2: Sustainability and stabilisation; debt levels and the output gap forecast for 2016 

Source: Autumn 2015 European Economic Forecast, European Commission. 

7 Including Latvia and Lithuania, which were not in the euro area at that time yet. 

9 

 
 
 
 
                                                            
Figure 3: The fiscal stance; structural adjustment and the output gap. 

Note: A positive change in the structural balance reflects a tightening of the fiscal stance. 
Source: Autumn 2015 European Economic Forecast, European Commission. 

A  reinforcement  of  the  coordination  of  fiscal  policies  within  the  currency  union  is  needed  to 
ensure an appropriate fiscal stance for the euro area as a whole, within the obligations under the 
Stability and Growth Pact. The large spillovers from fiscal policy decisions in the euro area and the 
current  constraints  on  the  single  monetary  policy  related  to  the  low  level  of  interest  rates  call  for 
strengthened  attention  to  the  aggregate  fiscal  stance  at  the  euro  area  level.  The  Two-Pack 
acknowledged  the  necessity  for  enhanced  coordination  of  fiscal  policies  and  introduced  the  legal 
requirement  for  the  Commission  to  assess  and  for  the  Eurogroup  to  discuss  the  overall  budgetary 
situation  and  prospects  in  the  euro  area  on  the  basis  of  the  draft  budgetary  plans  (DBPs).  These 
discussions have proved useful in providing a unifying context for the analysis of the DBPs and have 
been  a  valuable  tool  of  coordination  of  fiscal  policies  in  the  euro  area.  As  the  process  of  DBPs 
assessment  takes  place  once  a  year,  there  is  a  case  to  consider  making  the  discussions  of  euro  area 
aggregate stance more frequent, outside the DBP assessment process and repeat them, for instance, in 
time for the preparation and the assessment of the stability programmes. A discussion on the aggregate 
euro area fiscal stance could again provide a valuable background for the assessment of fiscal plans of 
euro area Member States.  

The  euro  area  fiscal  stance  needs  to  be  assessed  against  the  twin  objectives  of  long-term 
sustainability of public finances and short-term macroeconomic stabilisation. The former requires 
that public debt is put and maintained on a sustainable path, while the latter aims at bringing output 
growth in line with its potential, i.e. ensuring that the output gap closes at an appropriate pace in the 
short to medium term.  

The  moderate  pace  of  the  recovery,  coupled  with  widening  downside  risks  and  elevated  debt 
levels point to challenges for fiscal policy going forward. The Commission 2015 Autumn Forecast 
projects the aggregate fiscal stance to be broadly neutral for both 2015 and 2016. The change in the 
structural  balance  is  expected  to  be  close  to  zero  for  both  2015  and  2016,  following  substantial 
adjustment  in  the  period  2011-2013.  In  view  of  the  growth  pattern  and  the  downside  risks  to  it,  the 

10 

 
 
 
 
broadly  neutral  aggregate  fiscal  stance  appears  appropriate,  despite  elevated  debt  levels,  (see  Figure 
3).  For  2017,  the  Commission  Forecast  projects  the  continuation  of  the  moderate  recovery  and  the 
gradual  closing  of  the  output  gap.  Public  finances  should  be  consolidated  in  periods  of  growth  to 
benefit  from  favourable  circumstances  to  reduce  debt  levels  and  to  avoid  the  need  for  pro-cyclical 
consolidations  in  subsequent  slowdowns.  However,  recent  developments  suggest  that  some  of  the 
downside  risks  identified  in  Commission  2015  Spring  Forecast  have  materialised  and  the  downside 
risk to the current outlook have widened. 

Compliance  with  the  Stability  and  Growth  Pact  is  instrumental  to  ensure  building  up  fiscal 
buffers and reduce debt levels. The SGP foresees taking into account country-specific circumstances 
in  defining  the  adjustment  path.  The  required  fiscal  adjustment  will  need  to  be  differentiated  across 
Member States, in order to reflect the country-specific challenges in terms of sustainability needs, and 
not  least  ensure  the  stabilisation  of  the  cyclical  position.  Thus,  the  insufficient  differentiation  of 
planned efforts across euro area countries is a point of concern. In its Opinions on the Draft Budgetary 
Plans  the  Commission  provided  further  orientation  for  the  conduct  of  fiscal  policy  and  the 
implementation in the respective budgetary processes for 20168.  

Effective  national  fiscal  frameworks  are  key  to  achieving  an  appropriate  fiscal  stance.  Robust 
fiscal  rules  and  multi-annual  budget  planning  support  counter-cyclical  fiscal  policies  and  long-term 
sustainability. Independent fiscal institutions help contain the deficit bias and promote transparency of 
fiscal  policy,  whereas  transparent  budgeting  allows  identifying  feasible  options  to  pursue  growth-
enhancing policies. To fully tap into this potential and based on EU fiscal governance requirements9, 
euro area Member States have introduced an ambitious raft of reforms aiming to enhance the quality 
and strength of their fiscal frameworks. Looking forward, Member States are expected to ensure the 
effective functioning of the newly-established or upgraded fiscal frameworks, so that they can support 
in earnest the conduct of a responsible fiscal policy domestically, in line with SGP obligations. They 
could also underpin efforts to pursue an appropriate fiscal stance for the euro area as a whole.  

Growth-friendly expenditure plans, increasing the efficiency of spending and prioritising public 
investment can support the recovery. In a context where tax ratios remain high, cutting expenditures 
and  improving  the  quality  of  public  finances  and  of  public  spending  are  key.  Even  if  the  planned 
reduction  in  the  expenditure  ratio  by  0.6  percentage  points  in  2016  is  mostly  due  to  cyclical 
conditions, this goes in the right direction. It is also positive that, in the aggregate, euro area countries 
plan  cuts  for  next  year  and  2017  in  relatively  less  productive  expenditure  items  such  as  the  public 
sector wage bill and government purchases of goods and services. During the crisis years, the quality 
of public expenditures in the EU has suffered from a drop in public investment. While the plans would 
be favourable to medium-term growth prospects, more growth-friendly choices can be considered, in 
particular  by  maintaining  or  increasing  public  investment  amid  the  important  efforts  of  expenditure 
reduction. Two expenditure items are particularly relevant when discussing long-term sustainability of 
government finances: pension and health expenditures. 

There  has  been  considerable  progress  towards  reforming  pension  systems,  in  recent  years.  A 
majority of Member States have adopted sustainability-enhancing reforms so as to better withstand the 
fiscal  impact  of  future  demographic  changes.  Pension  policy  also  needs  to  ensure  the  adequacy  of 
pensions, so as to provide for a decent level of income after retirement. Given the trend increases in 
life expectancy, a dynamic view on the age at which people can retire needs  to be established. This 
includes linking retirement ages to life expectancy more systematically, as a number of Member States 
have  done  in  recent  years.  A  review  of  excessive  early  exit  possibilities  from  the  labour  market  is 
necessary. 

A large share of expenditure on health systems in the euro area is borne by public means, which 
raises the issue of long-term sustainability of health systems and public finances at large. At the 

8 http://europa.eu/rapid/press-release_MEMO-15-6068_en.htm 
9  The  six-pack's  Directive  on  requirements  for  budgetary  frameworks,  the  two-pack's  regulation  on  enhanced 
monitoring of budgetary plans and the Fiscal Compact 

11 

 
 
                                                            
same  time,  preserving  and  restoring  good  health  of  the  population  supports  economic  prosperity 
through improving labour market participation and labour productivity, and will therefore be crucial in 
the  context  of  an  ageing  society.  A  challenge  is  therefore  to  balance  the  need  to  provide  universal 
health  care,  meet  an  increasing  demand  related  to  an  ageing  population,  as  well  as  growing  patient 
expectations  due  to  technological  development  in  the  coming  decades  with  the  need  to  ensure  the 
financial  sustainability  of  the  health  care  and  long-term  care  systems.  This  highlights  the  need  to 
assess their performance carefully. 

A well-designed tax system can contribute to sustainable public finances, boost economic growth 
and  employment,  and  improve  social  fairness.  As  mentioned  in  the  previous  section,  a  particular 
concern in this regard is the very high tax burden on labour. Shifting the tax burden away from labour 
to more "growth-friendly" tax bases (e.g. consumption, property and environmental taxes) can boost 
employment.  Simplifying  tax  systems  and  addressing  tax  fraud  and  tax  avoidance  are  essential  to 
make tax systems more efficient and fairer.  

3.  

Financial sector policy 

Financial market conditions remain overall favourable in the euro area, against the background 
of  an  accommodative  monetary  policy  stance.  ECB  monetary  policy,  including  most  recently  the 
expanded  asset  purchase  programme,  continued  to  stabilise  financial  markets.  Interest  rates  have 
continued to decline and have thereby fostered confidence. Moreover, bank funding costs have been 
systematically  declining.  This  has  further  strengthened  the  access  of  companies  and  households  to 
credit and lowered lending rates (see Figure 4).  However, the still weak economic fundamentals and 
high  leverage  in  the  private  sector  continue  to  weigh  on  demand  for  bank  lending  and  thereby 
economic growth. 

Further important policy measures have been taken to reinforce the supervisory framework of 
the  European  banking  sector.  This  is  another  important  factor  supporting  investor  confidence  in 
financial markets. The ECB Single Supervisory Mechanism (SSM) is now fully responsible for direct 
supervision  of  the  most  significant  euro-area  banks  and  undertook  the  2015  SREP  exercise  using  a 
common  methodology  for  all.  The  SSM  has  also  launched  a  project  to  harmonise  the  exercise  of 
options  and  national  discretions  (ONDs)  by  Member  States  in  the  Capital  Requirement  Regulation 
(CRR)  and  the  Capital  Requirements  Directive  (CRD).  In  line  with  the  SSM  Regulation,  the 
Commission  is  carrying  out  the  first  SSM  review  on  the  functioning  of  the  SSM  with  a  view  to 
publishing the report in 2016. 

Efforts are being made to strengthen the macro-prudential framework. This framework is meant 
to ensure that financial stability risks are addressed in the most appropriate way at a national level, in 
line  with  divergent  economic  cycles  and  country-specific  economic  structures.  A  series  of  review 
clauses  included  in  the  legislation  establishing  this  framework,  and  the  fact  that  the  framework  has 
been constructed in a piecemeal manner, call for a revision to ensure that the framework is effective. 
The review is aimed to address potential inconsistencies among the policy tools on which it relies, to 
streamline the tools and the activation mechanisms related to their use, and clarify the role of the SSM 
and  ESRB.  Whilst  focusing  on  the  banking  sector,  the  review  of  the  macro-prudential  framework 
should also reflect an assessment of the risks emanating from the more opaque and less regulated, non-
bank parts of the financial system. 

The  establishment  of  the  Single  Resolution  Board  (SRB)  is  progressing  and  the  elaboration  of 
bank resolution plans for the euro area countries remains on track. As of January 2016, following 
the  ratification  of  the  Intergovernmental  Agreement  of  the  Single  Resolution  Fund  (SRF)  by  the 
participating  Member  States  by  30  November  2015,  the  SRB  and  the  SRF  will  become  fully 
operational and have all resolution powers, including bail-in. In this respect, infringement proceedings 
by  the  Commission  are  ongoing  to  ensure  that  all  Member  States  transpose  the  Bank  Recovery  and 
Resolution  Directive  (BRRD)  and  the  Deposit  Guarantee  Schemes  Directive  (DGSD)  as  soon  as 
possible,  and  that  the  EU  resolution  and  depositors'  protection  framework  is  properly  in  place.  It 
remains important that an appropriate bridge financing is in place by 1 January 2016. Work progresses 
to  establish  bridge  financing  arrangements  for  the  SRF  and  to  ensure  its  operational  readiness  from 

12 

 
 
January 2016. A common backstop for the SRF, which would be used as a last resort and would be 
fiscally neutral over the medium term, during the transition period still remains to be established. As a 
follow up of the Five Presidents’ Report of June 2015 the Commission will make a proposal regarding 
a European deposit insurance scheme in the euro area, thereby aiming at establishing the third leg of 
the  Banking  Union,  and  will  in  parallel  set  out  measures  to  further  reduce  risks  and  ensure  a  level 
playing  field  in  the  banking  sector  and  limit  the  bank-sovereign  loop.  The  recent  crisis  and  the 
significant negative spillovers which were transmitted through financial channels have emphasised the 
importance of completing banking union for the euro area.   

Figure 4: Credit to Non-Financial Corporations in the euro area. 
Source: ECB 

13 

 
 
 
 
 
 
Figure 5: Gross non-performing loans, as a % of total debt instruments 
Source: European Central Bank 

Still, challenges remain and the adjustment of the banking sector is not yet complete. Banks and 
sovereigns in the euro area are still significantly interlinked, and bank business models can be made 
even  more  resilient  to  shocks,  for  example  by  enhancing  the  stability  and  diversification  of  bank 
funding  sources.  Moreover,  some  banks'  balance  sheets  remain  under  pressure  from  high  levels  of 
non-performing loans (NPLs), hampering lending activity (see Figure 5). Historically, debt overhangs 
were  corrected  by  a  combination  of  inflation  and  economic  growth,  but  these  mechanisms  are 
currently very  weak  in  the  environment  of  low  growth  and  low  inflation.  Banks'  limited  capital  and 
provision buffers, the limited legal capacity to facilitate the resolution of NPLs and small transaction 
volumes in secondary markets for NPLs constitute  further obstacles. Against these challenges, work 
has  started  on  identifying  possible  bank-level  or  system-wide  approaches  to  handle  distressed  loans. 
Remaining  challenges  include  how  best  to  ease  the  debt-servicing  burden  on  the  private  sector,  for 
example via debt-equity swaps, in order to facilitate new credit demand.  

In parallel to strengthening the banking sector, efforts continue to diversify corporate funding 
channels and deepen European capital markets. Following the adoption by the Commission of the 
Capital  Markets  Union  Action  Plan  on  30  September,  its  gradual  implementation  is  progressing, 
focusing  on  priority  actions  for  2016  and  preparatory  work  for  longer-term  initiatives.  Progress  is 
made  by  the  co-legislators  on  the  adoption  of  the  proposal  for  simple,  transparent  and  standardised 
securitisation.  The  Commission  will  present  a  legislative  proposal  for  revising  the  Prospectus 
Directive to simplify prospectus requirements and facilitate access to public capital markets by the end 
of the year. The Commission is also preparing a Green Paper on retail financial services and insurance, 
a  report  on  crowd-funding  for  Q1  2016  and  a  consultation  on  the  main  barriers  to  the  cross-border 
distribution of investment funds in Q2 2016. Furthermore, preparatory work is underway for actions 
around  personal  pensions,  SME  information  systems,  corporate  bond  market  liquidity  and  post-
trading. The Commission has also started to engage with Member States in a dialogue on remaining 
national barriers to the free movement of capital. Insolvency frameworks continue to vary significantly 
by  Member  State  and  the  2014  Commission  Recommendation,  which  includes  a  series  of  common 
principles for national insolvency procedures for businesses, remains to be implemented. As regards 
the impediments to cross-border investing related to insolvency regimes, preparatory work has started 

14 

 
 
 
 
and  consultations  are  gearing  up  towards  a  legislative  proposal  for  principles-based  minimum 
harmonisation  of  business  insolvency  including  both  the  issues  addressed  in  Recommendation 
C(2014)1500 on a new approach to business failure and insolvency and further issues emerged from 
the CMU consultation. 

4. 

Economic Governance 

Work  is  ongoing  to  complete  the  EMU  architecture.  The  architecture  has  been  significantly 
strengthened  to  enhance  economic  governance  and  to  achieve  financial  stability.  Nevertheless,  the 
EMU's  resilience  needs  to  be  further  reinforced  and  EMU  completed.  The  Five  Presidents'  report10 
maps the way ahead to complete EMU, in two stages. In a first stage, which started on 1 July 2015, 
action  will  build  on  existing  instruments  and  make  the  best  possible  use  of  existing  Treaties.  In  a 
second stage, more fundamental reforms will be undertaken, moving to a medium- to long-term vision 
for  the  euro  area.  In  October  2015,  the  Commission  published  a  package  of  measures  towards  the 
deepening  of  EMU  in  stage  1.  Overall,  translating  the  Five  Presidents'  report  into  action  requires  a 
shared sense of ownership and of purpose among all euro area Member States and EU institutions.  

The Commission has recommended setting up national Competitiveness Boards. These should be 
operational by end 2016 and should track performance and policies in the field of competitiveness. In 
fulfilling  this  task,  these  independent  Boards  should  take  into  account  euro  area  and  EU  objectives. 
Through  this  channel,  the  Boards  will  help  to  improve  the  coordination  of  economic  policies.  The 
scope  of  competitiveness  aspects  to  be  monitored  should  reflect  a  comprehensive  notion  of 
competitiveness,  including  price  and  non-price  developments.  Competitiveness  in  the  euro  area 
requires  strong  attention  to  longer-term  drivers  such  as  productivity  and  innovation  but  also  to  the 
capacity  to  avoid  lasting  misalignments  in  costs  and  prices  vis-à-vis  trading  partners,  which  in  turn 
requires sufficient adjustment capacity in labour and product markets. It is important that these Boards 
have  the  capacity  to  conduct  high-quality  analysis  and  on  this  basis  formulate  public  advice  on  the 
appropriate  policies.  Their  advice  should  help  inspire  domestic  ownership  and  ensure  that  national, 
euro area and EU objectives are taken into account in national policies11.  

The  independent  European  Fiscal  Board  (EFB)  will  complement  the  fiscal  framework  of  the 
euro  area,  including  by  giving  advice  on  the  fiscal  stance.  Recently  established  by  Commission 
Decision12 and expected to become operational in the first half of 2016, the EFB will be instrumental 
in advising on the implementation of the EU fiscal framework and informing future policy discussions 
about  the  appropriateness  of  the  fiscal  stance.  Its  mandate  specifically  provides  for  an  economic 
judgement  on  the  appropriate  fiscal  stance  for  the  euro  area  that  is  consistent  with  the  SGP  rules. 
Moreover, the EFB will also assess ex-post how the EU fiscal framework has been implemented and 
may  also  make  suggestions  for  the  future  evolution  of  the  EU  fiscal  framework.  In  carrying  out  its 
mission,  the  EFB  will  cooperate  closely  with  national  fiscal  councils  across  the  EU  so  as  to  benefit 
from their expertise in fiscal matters and their country-specific knowledge. 

Work is underway to increase the effectiveness of the euro area voice in international financial 
institutions. The progress that the euro area has achieved on further internal integration is now to be 
reflected also in steps towards a unified external economic representation. This should allow the euro 
area to play a more active role in international financial institutions and to shape more effectively its 
future role in the global financial architecture. The Commission has recently proposed a roadmap for 
the  steps  ahead  and  a  Council  Decision  to  progressively  establish  unified  representation  of  the  euro 
area in the International Monetary Fund. This emphasises the need to strengthen coordination among 
the  euro  area  Member  States  via  a  regular  consultation  framework,  to  update  the  coordination 

10  'Completing  Europe's  Economic  and  Monetary  Union'  by  Jean-Claude  Juncker,  Donald  Tusk,  Jeroen 
Dijsselbloem, Mario Draghi and Martin Schulz. 
11http://ec.europa.eu/priorities/economic-monetary-union/docs/single-market-strategy/recommendation-
ncbs_en.pdf 
12  Commission  Decision  of  21  October  2015  establishing  an  independent  advisory  European  Fiscal  Board  - 
C(2015) 8000 final. 

15 

 
 
                                                            
infrastructure  and  existing  coordination  arrangements  in  IMF  matters  in  Brussels,  and  to  enhance 
coordination in Washington alongside an improved accountability towards the Council and European 
Parliament. Later steps include improving the representation of the euro area through a rearrangement 
of constituencies at the IMF and moving towards a unified representation for the euro area in a single 
seat by 2025.  

Preparation of the more fundamental reforms towards completion of EMU in stage 2 has been 
initiated. First and foremost, a broad debate on the measures required in stage 2 of completing EMU 
is  commencing,  including  through  consultation  with  the  European  Parliament,  national  Parliaments 
and stakeholders. This debate aims to flesh out the more fundamental reforms in stage 2. The outcome 
of  this  consultation  and  the  work  of  the  expert  group  should  contribute  to  the  Commission's  White 
Paper  in  Spring  2017  and  leading  to  a  stronger  legislative  and  institutional  framework  for  EMU.  

16 

 
 
2015 Country specific recommendations (CSRs) for the euro area 

Summary assessment 

CSR1 

and 

debts 

support 

Use peer pressure to promote structural reforms 
that facilitate the correction of large internal and 
investment. 
external 
Regularly assess the delivery of reforms in those 
specific 
Member  States  which 
monitoring  within 
the 
Procedure. 
Macroeconomic 
Continue  the  regular  thematic  assessment  of 
structural 
take 
decisions  on  the  follow-up  to  the  coordination 
exercise  on  reducing  the  high  tax  wedge  on 
labour and on reforming services markets. 

reforms.  By  spring  2016, 

the 
Imbalances 

framework  of 

require 

CSR2 

Coordinate  fiscal  policies  to  ensure  that  the 
aggregate euro area fiscal stance is in line with 
sustainability risks and cyclical conditions. This 
is  without  prejudice  to  the  fulfilment  of  the 
requirements  of  the  Stability  and  Growth  Pact. 
By  spring  2016,  hold  thematic  discussions  on 
improvements  in  the  quality  and  sustainability 
of public finances, focussing in particular on the 
prioritisation  of 
intangible 
tangible 
investment  at  national  and  EU  levels,  and  on 
making  tax  systems  more  growth  friendly. 
Monitor the effective functioning of the recently 
strengthened national fiscal frameworks. 

and 

CSR3 

Ensure  the  timely  finalisation  of  the  follow  up 
of  the  Comprehensive  Assessment  carried  out 
by  the  European  Central  Bank,  implementation 
the  European 
of  Directive  2014/59/EU  of 
Parliament  and  of  the  Council  (Bank  Recovery 

The  euro  area  has  made 
addressing CSR 1: 

limited  progress 

in 

and  Economic 

•  Progress  in  delivering  reform  commitments  has 
been  promoted  at  the  euro  area  level,  via  i.a. 
in  Economic  Policy 
technical  discussions 
Committee 
and  Financial 
Committee and political discussion in Eurogroup 
and  ECOFIN.  Programme  countries'  reform 
progress,  as  well  as  discussion  on  reform 
progress 
in  member  states  with  excessive 
imbalances  or  imbalances  requiring  decisive 
action, has also taken place. 

•  The Eurogroup has held thematic discussions on 
reducing the high tax wedge on labour, inter alia 
agreeing on a benchmarking exercise, as well as 
on reforming services markets. 

The euro area has made some progress in addressing 
CSR 2: 

•  Assessments  of  the  euro  area  fiscal  stance  have 
been  carried  by  the  Eurogroup,  notably  by 
reviewing  the  implementation  of  the  Two-pack 
and  discussing 
the 
Commission  services'  autumn  2013  and  2015 
forecast for fiscal surveillance. 

implications  of 

the 

•  The Eurogroup has held thematic discussions on 

fiscal frameworks. 

• 

In  the  EMU  Package  on  21  October  2015,  the 
Commission  published  its  decision  to  set  up  an 
European  Fiscal  Board  to  act  as  an  independent 
advisory  body.  Its  mandate  will  include  to 
evaluate  how  fiscal  governance  framework  was 
implemented,  to  advise  on  the  euro  area  fiscal 
stance  and  to  cooperate  with  the  national  fiscal 
councils. 

•  Some  progress  has  been  made  on 

the 
coordination of fiscal policies, in particular in the 
context of the assessment of the draft budgetary 
plans,  to  the  extent  that  fiscal  outlook  for  the 
euro  area  as  a  whole  has  improved  and  the 
fiscal  stance  seems  appropriate. 
aggregate 
However,  the  distribution  of  the  fiscal  stance 
remains sub-optimal.  

The  euro  area  has  made  substantial  progress  in 
addressing CSR 3: 

•  The ECB Single Supervisory Mechanism (SSM) 
became  fully  operational  and  responsible  for 
direct  supervision  of  the  most  significant  euro-
area  banks.  The  asset  quality  review  (the 

17 

 
 
 
 
and  Resolution  Directive),  completion  of  the 
ratification of the Intergovernmental Agreement 
on  the  Single  Resolution  Fund  and  make  the 
Fund  fully  operational  as  from  January  2016. 
Promote  measures  to  deepen  market-  based 
finance, to improve access to finance for SMEs 
and  to  develop  alternative  sources  of  finance. 
Encourage 
national 
insolvency frameworks. 

reforms 

further 

of 

comprehensive  assessment)  of  130  banks  was 
completed  and  the  SSM  started  work  towards 
further  harmonisation  of  bank  supervisory  and 
regulatory treatment across the euro area.  

•  The  establishment  of  the  Single  Resolution 
Board (SRB) and of the Single Resolution Fund 
(SRF)  advanced  according  to  plans  in  2015. 
Work  also  progressed  towards  agreeing  bridge 
financing arrangements for the SRF and towards 
the establishment of a common backstop for the 
SRF during the transition period.  

•  On  30  September  2015 

the  Commission 
launched  the  Capital  Markets  Union  (CMU) 
Action Plan, aiming at boosting business funding 
and  investment  financing  by  building  a  single 
market  for  capital  across  the  EU.  This  initiative 
will  enable 
the  development  of  alternative 
sources  of  finance  complementary  to  bank-
financing  and  to  break  down  barriers  blocking 
cross-border 
the  EU.  CMU 
should  be  particularly  beneficial  to  SMEs  and 
start-ups.  Preparatory  work  has  started  and 
consultations are gearing up towards a legislative 
proposal 
principles-based  minimum 
harmonisation of business insolvency. 

investments 

for 

in 

CSR4 

to 

Take forward work on deepening Economic and 
Monetary  Union,  and  contribute 
the 
improvement  of 
the  economic  surveillance 
framework  in  the  context  of  the  report  on  the 
next steps on better economic governance in the 
euro  area,  prepared  by  the  President  of  the 
European Commission, Jean-Claude Juncker, in 
close  cooperation  with  the  President  of  the 
European  Council,  Donald  Tusk,  the  President 
of the European Parliament, Martin Schulz, the 
President of  the  European  Central  Bank,  Mario 
Draghi,  and  the  President  of  the  Eurogroup, 
Jeroen Dijsselbloem, and its follow-up. 

The euro area has made some progress in addressing 
CSR 4: 

•  On  21  October  2015  the  Commission  adopted  a 
package  of  measures  to  further  strengthen  and 
deepen  the  Economic  and  Monetary  Union.  It 
followed  up  on  the  Five  Presidents'  Report 
published  in  June,  which  was  based  on  a  wide 
consultation with the Member States.  

its  euro  area  dimension, 

•  The  package  proposals  included  measures  to 
revamp  the  EU  Semester,  in  particular  by 
strengthening 
it 
presented  proposals  for  an  improved  toolbox  of 
a 
economic 
recommendations 
national 
Competitiveness  Boards  and  a  proposal  for  a 
more  consistent  external  representation  of  the 
euro area. 

governance, 

including 

establish 

to 

18