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  
COM(2015) 692 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic policy of the euro area 

{SWD(2015) 700 final} 

EN 

   EN 

 
 
 
 
  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic policy of the euro area 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 136 in conjunction with Article 121(2) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas:  

(1) 

(2) 

The economic recovery continues at a moderate pace in the euro area3. Sustaining and 
strengthening  growth  in  the  euro  area  requires  continued  policy  efforts  to  support  a 
balanced adjustment in the private and public sectors, improve the adjustment capacity 
and  increase  the  economy's  competitiveness  and  growth  potential  in  the  medium  to 
long term. The pace of growth is hampered by legacies of the most recent economic 
and financial crises, including ongoing external rebalancing, high levels of public and 
private debt, high unemployment, as well as persistent structural rigidities in national 
labour and product markets. Investment remains weak on account of these factors but 
also  of  other  bottlenecks,  such  as  unfavourable  business  environments,  public-
administration inefficiencies as well as obstacles to access to finance. 

The implementation of ambitious structural reforms that raise productivity and boost 
growth potential needs to be bolstered in line with the policy priorities set out in the 
2016 Annual Growth Survey for all EU Member States4. If carried out jointly across 
Member  States,  structural  reforms  can  offer  benefits  to  the  euro  area  as  a  whole 
through  positive  spillover  effects,  notably  through  trade  and  financial  channels. 
Despite  some  progress  with  reforms  to  improve  the  resilience  of  labour  markets, 

1 
2 
3 
4 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
Commission 2015 Autumn Economic Forecast. 
Annual Growth Survey 2016. 

EN 

2 

   EN 

 
 
 
                                                 
(3) 

(4) 

(5) 

significant divergence persist across the euro area, especially as regards long-term and 
youth unemployment rates. Those Member States that pursued comprehensive labour 
market and social protection reforms prior to the crisis have been able to better support 
employment  and  preserve  fairness  during  the  economic  downturn.  Such  reforms 
encompass  flexible  and  reliable  contractual  arrangements,  comprehensive  lifelong 
learning  strategies,  effective  active  labour  market  policies,  and  modern  social 
protection  systems.  Also,  reducing  the  tax  wedge  on  labour,  in  particular  for  low-
income earners, and ensuring equitable tax systems can improve outcomes.  

An  appropriate  design  and  swift  implementation  of  reforms  can  help  in  addressing 
existing  imbalances  in  the  euro  area  and  to  prevent  the  build-up  of  new  ones.  The 
thematic  discussions  by  the  Eurogroup,  with  increased  focus  on  benchmarking, 
pursuing  best  practices  and  peer  pressure,  can  contribute  to  promoting  convergence 
towards  best  performance.  The  Eurogroup  should  therefore  further  strengthen  the 
thematic discussions on reforms in areas that are essential for the functioning of EMU 
and regularly monitor the implementation of reforms by euro area Member States as 
well  as  the  progress  made  with  the  correction  of  imbalances  in  the  context  of  the 
Macroeconomic Imbalances Procedure.  

Fiscal  policies  are  a  matter  of  vital  common  interest  in  the  Economic  and  Monetary 
Union.  Responsible  national  fiscal  policies  that  respect  the  common  fiscal  rules  are 
essential  to  ensure  debt  sustainability  and  allow  the  fiscal  stabilisers  to  operate  and 
cushion  country  specific  shocks.  In  addition,  in  light  of  the  spillovers  between  euro 
area  Member  States,  it  is  essential  also  to achieve  an  appropriate  fiscal  stance  at  the 
level of the euro area as a whole and to avoid pro-cyclical fiscal policies. This calls for 
a  reinforcement  of  the  coordination  of  fiscal  policies  within  the  euro  area  in  full 
respect of the Stability and Growth Pact. In this context, the broadly neutral aggregate 
fiscal  stance  in  the  euro  area  expected  in  2016  appears  appropriate  in  light  of  the 
overall  macroeconomic  conditions  and  downside  risks  to  growth.  As  regards  2017, 
based on the forecast of a gradually closing output gap, fiscal policies should balance 
the need of avoiding pro-cyclicality and reducing public debt to restore fiscal buffers. 
This  should  be  reflected  in  the  preparations  of  the  up-dated  Stability  Programmes  in 
Spring  2016,  taking  into  account  the  latest  economic  and  fiscal  developments.  The 
composition of fiscal strategies is not yet sufficiently growth-friendly. As highlighted 
in  the  recommendations  to  the  euro  area  Member  States  in  summer  20155,  Member 
States  should  hold  thematic  discussions  on  improvements  in  the  quality  and 
sustainability of public finances.   

The  Banking  Union  needs  to  be  fully  implemented.  First,  the  Bank  Recovery  and 
Resolution Directive must be fully transposed by 30 November 2015 as required for 
all 28 Member States. Second, as regards bank resolution, appropriate bridge financing 
arrangements need to be put in place without delay so that the Single Resolution Fund 
(SRF)  will  be  able  to  face  any  potential  financing  needs  as  of  1  January  2016.  In 
addition, a fiscally neutral backstop to the SRF should be agreed as soon as possible 
during the transition period. Finally, as part of the further development of the Banking 
Union,  the  Commission  has  proposed  on  24  November  2015  the  creation  of  a 
European deposit insurance scheme for the euro area Member States6.  

(6) 

Financial  market  conditions  remain  overall  favourable  in  the  euro  area,  against  the 
background  of  an  accommodative  monetary  policy  stance.  However,  the  still  weak 

5 
6 

OJ C 272, 18.8.2015, p. 98. 
COM(2015) 586 final, 24.11.2015. 

EN 

3 

   EN 

 
                                                 
(7) 

economic fundamentals and high leverage in the private sector continue to weigh on 
demand for bank lending and thereby economic growth. Banks' balance sheets remain 
under pressure from high levels of non-performing loans, hampering lending activity. 
Diverse  and  sometimes  inadequate  insolvency  regimes  in  the  EU  contribute  to 
delaying the reduction of private sector debt, holding back investment.  

Notwithstanding the recent achievements in strengthening the EMU architecture, work 
must continue to complete it. The Five Presidents' Report of June 2015 maps the way 
ahead  to  complete  EMU  by  2025  at  the  latest7.  On  21  October  2015,  the  European 
Commission  adopted  a  first  set  of  follow-up  proposals  to  the  report8.  The  euro  area 
Member States should take collective ownership and move ahead in a timely way with 
the implementation of the short and medium term initiatives towards the completion of 
Economic and Monetary Union. With a view to further facilitate convergence across 
the euro area, the proposals include measures to strengthen the euro area dimension of 
the  European  Semester  by,  inter  alia,  earlier  publication  of  the  euro  area 
recommendations, with a view to identify common challenges early in the process and 
to  inform  the  formulation  of  Country  Specific  Recommendations  for  the  euro  area 
Member States to be adopted later in the European Semester, 

HEREBY  RECOMMENDS  that  euro  area  Member  States  take  action,  individually  and 
collectively, within the Eurogroup in the period 2016-2017 to:  

1. 

2. 

3. 

4. 

7 

8 

Pursue policies that support the recovery, foster convergence, facilitate the correction 
of  macroeconomic  imbalances  and  improve  adjustment  capacity.  To  this  end, 
Member  States,  particularly  those  with  large  stocks  of  private  and  foreign  debt, 
should  implement  reforms  that  enhance  productivity,  foster  job  creation,  raise 
competitiveness  and  improve  the  business  environment.  Member  States  with  large 
current  account  surpluses  should  implement  as  a  priority  measures  that  help 
channelling  excess  savings  toward  the  domestic  economy  and  thereby  boost 
domestic investment. 

Implement  reforms  that  combine  (i)  flexible  and  reliable  labour  contracts  that 
promote  labour  market  transitions  and  avoid  a  two-tier  labour  market;  (ii) 
comprehensive  lifelong  learning  strategies;  (iii)  effective  policies  to  help  the 
unemployed  re-enter  the  labour  market,  (iv)  modern  social  protection  systems  that 
support  those  in  need  and  provide  incentives  for  labour  market  integration  and,  (v) 
open and competitive product and services markets. Reduce the tax wedge on labour, 
particularly on low-earners, in a budgetary-neutral way to foster job creation. 

Maintain  the  planned  broadly  neutral  fiscal  stance  in  2016.  With  a  view  to  2017, 
reduce  public  debt  to  restore  fiscal  buffers  while  avoiding  pro-cyclicality,  in  full 
respect of the Stability and Growth Pact. Differentiate the fiscal effort by individual 
Member  States 
the 
requirements under the SGP and their stabilisation needs, as well as spillovers across 
euro  area  countries.  To  this  end,  discuss  the  euro  area  fiscal  stance  in  time  for  the 
preparation  and  presentation  of  the  Stability  Programmes  and  the  Draft  Budgetary 
Plans. 

their  respective  position  vis-à-vis 

into  account 

taking 

Facilitate  the  gradual  reduction  of  banks'  non-performing  loans  and  improve 
insolvency proceedings for businesses and households. In Member States with large 

Completing  Europe's  Economic  and  Monetary  Union,  Report  by  Jean-Claude  Juncker  in  close 
cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz. 
http://ec.europa.eu/priorities/economic-monetary-union/docs/single-market-strategy/communication-
emu-steps_en.pdf 

EN 

4 

   EN 

 
                                                 
stocks of private debt, promote an orderly deleveraging, including by facilitating the 
resolution of unviable private debt. 

Done at Brussels, 

For the Council 
The President 

EN 

5 

   EN