COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2016 European Semester: Country-specific recommendations
Date: 2016-05-18
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, EU employment policy, European social policy, economic stabilisation, euro area, fiscal policy, investment policy, macroeconomics, stability programme, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 321 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK  2016 European Semester: Country-specific recommendations      
 
 
1. 

INTRODUCTION  

Supporting  investment,  pursuing  structural  reforms  and  preserving  responsible  public 
finances  is  essential  to  sustain  Europe's  recovery  and  modernise  its  economies.  
These  three  areas  for  priority  action  -  the  "virtuous  triangle"  -  were  confirmed  in  the  2016 
Annual  Growth  Survey  and  underpin  the  country-specific  recommendations  and  decisions 
under the Stability and Growth Pact that the Commission  is  presenting today. This package 
builds  on  the  assessment  of  the  national  programmes  presented  by  the  Member  States  in 
March and April 2016 as part of the European Semester of economic policy coordination and 
incorporates  the  data  from  the  latest  Commission  economic  forecast1.  In  parallel  to  this 
package, the Commission is also launching a formal consultation of the Contracting Parties to 
the  Treaty  on  Stability,  Coordination  and  Governance  on  the  transposition  of  the  Fiscal 
Compact. 

At  the  European  level,  the  Commission  is  working  hard  with  other  EU  institutions  to 
establish the right framework conditions for jobs and growth. Progress is being made on 
the  implementation  of  the  Commission  Work  Programme  for  2016.  The  Commission  will 
issue in the coming weeks a stocktaking of progress on the Investment Plan for Europe, the 
Capital  Markets  Union,  the  Digital  Single  Market  and  the  Single  Market  Strategy,  all  of 
which  are  essential  elements  in  stimulating  jobs  and  growth.  Efforts  at  EU  level  are 
underpinned  by  the  Better  Regulation  agenda.  At  national  level,  there  is  progress  but  it 
remains uneven. The onus is on the Member States to pursue the measures recommended by 
the  Council,  in  order  to  improve  the  situation  of  their  own  economies  and  also  of  the 
European Union as a whole. 

The  European  economy  is  pursuing  its  moderate  recovery  and  domestic  sources  of 
growth must gradually take over. Mainly driven by private consumption, economic output 
has  been  benefiting  from  the  support  of  low  oil  prices,  favourable  financing  conditions  and 
the euro's low exchange rate in recent times. As these supportive factors may soon have run 
their course, it is crucial to stimulate further domestic sources of growth, notably  productive 
investment in line with the Investment Plan for Europe, as it can step up today's demand and 
tomorrow's supply. Investment is still low compared to pre-crisis levels, from both private and 
public  sources,  but  it  is  gaining  traction  and  the  trend  is  now  clearly  reversing.  Further 
progress  requires  overcoming  a  combination  of  weak  demand,  high  private  debt,  a  difficult 
business environment in some countries and overall still fragile private sector confidence.  

The  structure  of  global  growth  is  changing  with  the  international  environment, 
presenting both opportunities and challenges to the European Union. Growth in emerging 
economies  is  expected  to  remain  subdued  amid  more  volatility  in  the  financial  markets.  
More recently, growth in major advanced economies has also slowed down. These elements 
create  uncertainty  and  highlight  the  need  for  the  EU  to  strengthen  its  capacity  to  grow  and 
stimulate demand in its large integrated economy. 

1 See national programmes at: 
http://ec.europa.eu/europe2020/making-it-happen/country-specific-recommendations/index_en.htm  
and Commission Spring 2016 Economic Forecast of 3 May 2016 at: 
http://ec.europa.eu/economy_finance/eu/forecasts/2016_spring_forecast_en.htm  

2 

 
 
 
                                                 
Faster  progress  on  structural  reforms,  including  through  adequate  sequencing,  is 
necessary to boost recovery and raise the long-term growth potential of EU economies. 
This is particularly true given the legacy of the economic crisis, weak demographic trends and 
relatively  low  productivity  growth.  The  Commission  has  repeatedly  argued  that  all  policy 
tools  –  monetary,  fiscal  and  structural  –  are  needed  to  foster  confidence  and  strengthen  the 
recovery.  It  has  put  the  focus  of  its  action  on  promoting  upward  convergence  between 
Member  States,  to  foster  job  creation  and  reduce  poverty  and  social  exclusion.  Since 
accommodative  monetary  policy  alone  cannot  lead  to  sustained  and  balanced  growth  and 
fiscal  space  is  still  limited  in  many  Member  States,  structural  reforms  are  essential  to 
modernise  the  economy  and  to  deliver  the  range  of  objectives  set  down  in  the  EU  treaties, 
combining  balanced, 
social  progress.  
By  raising  productivity,  well-designed  and  sequenced  reforms  can  have  a  sizeable  positive 
medium-term  impact  on  the  potential  growth  of  the  economy  and  enhance  adjustment 
capacity.  Their  short-term  impact  on  growth  can  be  maximised  when  rapid  reform 
implementation  boosts  confidence  and  when  combined  with  complementary  measures  that 
support domestic demand, particularly investment.  

full  employment  and 

sustainable  growth, 

Social models have been put to a test during the crisis and need to be modernised and 
strengthened  by  combining  the  right  elements  of  flexibility  and  security,  including 
sustainable return and integration pathways into the world of work. While employment levels 
have  risen  since  2013  by  over  5.5  million  people  and  unemployment  is  decreasing 
significantly to its lowest levels in years, most of the Member States are still facing the acute 
social legacy from the crisis. Long-term unemployment is still high at 10.5 million people in 
the  EU  and  122  million  people  are  considered  to  be  at  risk  of  poverty  or  social  exclusion2. 
Household  real  income  per  capita  is  still  below  the  2008  level  in  the  euro  area.  Moreover, 
looking ahead, the effects of an ageing population call for further modernisation in long-term 
care, pensions and health care, covering not only the extent of their provision but also their 
financing. To help address some of these issues and encourage convergence towards the best 
performers, the Commission has initiated work on the establishment of a European Pillar of 
Social  Rights3,  which  is  part  of  the  broader  efforts  to  deliver  a  deeper  and  fairer  Economic 
and Monetary Union. 

The high influx of refugees and migrants over the past year has a number of social and 
economic consequences for the EU. In the short run, the inflow of refugees is set to require 
additional  public  expenditure  and  increase  domestic  demand,  with  positive  effects  on  GDP. 
The medium-term effect on employment and growth hinges on the successful labour market 
and social integration of refugees, including via educational support.  

A skilled workforce is crucial for the EU to compete globally, foster social inclusion and 
sustain its high living standards. A more skilled workforce would raise productivity. In turn, 
higher  productivity  growth  would  allow  for  higher  wages  and  purchasing  power  for 
Europeans.  Urgent  action  is  needed  to  make  sure  that  the  EU  workforce  has  the  necessary 
skills  to  keep  pace  with  a  fast-changing  labour  market.  While  some  employers  have 
difficulties finding people with the right skills, more than four million young people are still 

2According to the data of EU-Statistics and Living Conditions (EU SILC): 
http://ec.europa.eu/eurostat/web/income-and-living-conditions/overview 
3 COM(2016) 127 final of 8 March 2016. 

3 

 
 
 
                                                 
unemployed and matching today's and tomorrow's needs of the world of work is a challenge 
across the board. This is also critical in view of demographic developments.  

The  European  Fund  for  Strategic  Investments  (EFSI)  has  started  to  deliver  results  on 
the  ground.  So  far,  the  European  Investment  Bank  (EIB)  has  approved  57  projects  for 
financing  under  the  EFSI,  which  represent  a  volume  of  financing  of  EUR  7.8  billion.  
More projects are being selected for financing each month. Of the projects approved so far, 
around half support renewable energy, energy and resource efficiency and other investments 
that  contribute  to  low-carbon  growth.  The  others  include  R&D  and  industrial  innovation, 
digital and social infrastructure, transport, as well as access to finance for smaller businesses. 
The  European  Investment  Fund  (EIF)  has  approved  more  than  165  SME  financing 
agreements, with total financing under the EFSI of EUR 3.4 billion. Some 136,000 SMEs and 
midcaps  are  expected  to  benefit.  Together,  these  operations  are  expected  to  trigger  total 
investment of EUR 82.1 billion. 

Another  major  source  of  EU  support  to  investment  is  provided  through  the  European 
Structural and Investment Funds (ESIF) with planned EU investment of EUR 454 billion 
up  to  2020  targeted  on the  drivers of  jobs  and  growth.  With  the  closure  in  late  2015  of  the 
previous  generation  of  programmes,  2016  will  see  the  acceleration  in  delivery  of  the  2014-
2020  ESIF  programmes.  The  Commission,  together  with  the  Members  States,  will  keep 
implementation of these programmes under close review. 

2. 

IMPLEMENTATION OF THE NEW ELEMENTS IN THE EUROPEAN SEMESTER 2016  

Better integration of the euro area and national dimensions 

The 2016 European Semester is the first policy cycle in which the Commission proposed 
recommendations  for  the  euro  area  together  with  the  Annual  Growth  Survey.  These 
were  subsequently  adopted  by  the  Council  ahead  of  the  country-specific  recommendations. 
The  five  recommendations  highlight  the  policy  actions  for  the  euro  area  in  the  areas  of 
structural  reforms,  fiscal  policy  and  financial  markets.  These  have  provided  a  coherent 
benchmark for the preparation of the country-specific recommendations, ensuring a stronger 
integration of the euro area dimension in domestic policies and reforms. The country-specific 
recommendations  proposed  by  the  Commission  are  thus  geared  towards  supporting  the 
implementation  of 
in  particular,  concerns 
recommendations  linked  to  the  overall  fiscal  stance,  current  account  surpluses,  labour 
markets, non-performing loans and insolvency frameworks.  

the  euro  area  recommendations4.  This, 

More focused country-specific recommendations 

Country-specific recommendations set the policy objectives for the next 12 to 18 months.  
In  order  to  increase  the  ownership  of  reforms  and  to  contribute  to  better  reform 
implementation,  in  2015,  the  Commission  introduced  greater  focus  by  significantly 
decreasing  the  number  of  recommendations,  only  covering  key  priority  issues  of  macro-
economic  and  social  relevance 
immediate  attention.  
The  recommendations  also  put  the  focus  on  what  to  achieve,  instead  of  prescribing  how  to 

that  require  Member  States' 

4 Council document 5134/16. 

4 

 
 
                                                 
achieve it, in order to guide Member States while leaving the necessary room for manoeuvre. 
The 2016 recommendations consolidate this approach. They also take into account the intense 
dialogue  with  the  other  EU  institutions  and  with  national  authorities  and  stakeholders 
following the publication of the country reports in February 20165. 

The  Commission  will  continue  to  monitor  a  wide  range  of  economic  and  social  policy 
developments. While the country reports cover a broader range of topics and challenges with 
economic and social relevance for the Member States, the country-specific recommendations 
maintain  a  narrower  focus,  as  a  way  to  guide  and  steer  reform  efforts.  At  the  same  time, 
adequate  differentiation  between  Member  States  is  ensured,  depending  on  the  nature  and 
extent  of  the  challenges.  This  is  reflected  both  in  the  number  of  country-specific 
recommendations and their degree of specificity.  

A stronger macroeconomic imbalances procedure 

The  nature  of  macroeconomic  imbalances  that  Member  States  experience  has  been 
made  clearer  and  has  been  better  communicated.  As  indicated  in  its  Communication 
following the country reports6, the Commission has taken steps to improve the transparency 
of  the  macroeconomic  imbalances  procedure  and  the  categorisation  of  Member  States' 
imbalances.  The  findings  of  the  in-depth  reviews  of  the  relevant  Member  States  under  the 
procedure  have  been  presented  more  clearly  and  effectively  in  the  country  reports.  This 
strengthens  the  link  from  challenges  to  the  policy  response  and  the  identification  of 
the  categories  of 
outstanding  policy  gaps.  The  streamlining  and  stabilisation  of 
macroeconomic  imbalances  from  six  to  four  (no  imbalance,  imbalances,  excessive 
imbalances, and excessive imbalances with corrective action) also contributes in this regard. 
As  in  previous  cycles,  the  severity  and  scope  of  identified  imbalances  are  reflected  in  the 
proposals for country-specific recommendations where, in particular, countries with excessive 
imbalances have more targeted country-specific recommendations.  

Monitoring of the main economic and policy developments to address imbalances will be 
broadened. With the streamlining of the European Semester, it was also decided that, as from 
the  forthcoming  cycle,  there  would  be  specific  monitoring  for  all  Member  States  with 
identified  macroeconomic 
imbalances. 
 As  in  previous  cycles,  this  aims  to  contribute  to  a  swifter  and  more  comprehensive  policy 
response  to  the  imbalances  identified,  through  an  intensified  dialogue  between  the 
Commission and the national authorities, supported by expert missions and regular progress 
reports.  Such  contacts  will  also  help  the  monitoring  of  the  implementation  of  the  country-
specific  recommendations  in  the  Member  States  concerned.  The  monitoring  will  vary 
according to the gravity of the underlying challenges. 

imbalances  and  excessive  macroeconomic 

The  European  Semester  now  has  a  stronger  focus  on  employment  and  social 
performance.  The  assessment  and  advice  in  the  Semester  systematically  takes  into  account 
employment  and  social conditions.  The  inclusion  of  three  new  employment  variables  in  the 
scoreboard of the  macroeconomic imbalances procedure is a reflection of the Commission's 
commitment to broaden its analysis of macroeconomic imbalances. The indicators are added 

5See the country reports at:  
 http://ec.europa.eu/europe2020/making-it-happen/country-specific-recommendations/index_en.htm 
6 See COM(2016) 95 final/2 of 7 April 2016. 

5 

 
 
                                                 
in  order  better  to  capture  the  employment  and  social  dimension  of  adjustment  processes. 
Greater attention is paid to the social fairness of macroeconomic adjustment programmes. 

More systematic use of cross-examination and benchmarking 

Further  cross-country  comparison  tools  are  being  developed.  Convergence  can  be 
promoted  by  benchmarking  and  pursuing  best  practices.  The  Commission  has  progressively 
started  suggesting  benchmarks  and  cross-examination  exercises  across  policy  or  thematic 
areas, to foster a common understanding of challenges and policy  responses and to increase 
reform implementation. Several useful discussions have taken place or started at political and 
committee  level  within  the  Council  formations  and  will  be  further  expanded  in  the  next 
European  Semester  round.  Cross-country  analyses  have  thus  become  an  important  tool  to 
support  the  Commission's  policy  advice  given  in  the  country-specific  recommendations, 
facilitating  a  transparent  discussion  of  best  practices  and  results  in  various  policy  areas. 
Building on the experience of EU Member States in the European Semester, the Commission 
is  also  strengthening  its  support  to  improving  economic  governance  and  competitiveness  in 
enlargement countries.  

More support to reforms through EU funds and technical assistance 

There is by now an explicit link between the use of the EU budget in the Member States and 
the promotion of policy reforms. In accordance with the legal framework covering the European 
Structural and Investment (ESI) Funds7, the programmes co-financed by ESI Funds for the period  
2014-2020 address all relevant country-specific recommendations in the context of the European 
Semester.  The  operational  programmes  have  been  closely  aligned  with  past  country-specific 
recommendations  and  their  approval  has  been  subject  to  the  implementation  of  a  number  of 
reforms (ex ante conditionalities) in order to facilitate the use and effectiveness of ESI Funds. The 
Commission will closely monitor and report on progress towards the agreed objectives by 2017. It 
also  intends  to  discuss  with  Member  States  the  effectiveness  of  programming  in  support  of 
reforms  to  ensure  full  alignment  over  time,  in  line  with  the  macroeconomic  conditionality 
provisions of the ESI Funds. It will engage Member States in more detailed discussion of their 
technical  assistance  needs  and  ensure  that  the  EUR  5  billion  of  ESI  Funds  dedicated  to 
administrative capacity building is mobilised to support necessary reforms. 

Effective  reform  implementation  is  also  being  supported  through  the  roll-out  of  technical 
assistance  by  the  Commission's  recently  established  Structural  Reform  Support  Service. 
Building on the experience of the support offered to Cyprus and Greece, a legislative proposal for 
funding technical support to the Member States that may request it was tabled in November of last 
year  and  is  currently  being  negotiated  with  the  co-legislators.  The  proposed  Structural  Reform 
Support  Programme  (SRSP)  will  provide  a  dedicated  EU  instrument  to  provide  comprehensive 
and  targeted  support  to  Member  States,  at  their  request,  to  assist  them  with  the  design  and 
implementation of institutional, structural and administrative reforms.  

The Structural Reform Support Programme will allow the mobilisation of technical support 
for  a  broad  range  of  key  reform  areas.  In  the  case  of  general  administrative  reform,  support 
can,  for  example,  be  provided  to  improve  governance,  efficiency  and  quality,  including  on 
measures to fight corruption and fraud. Support in the domain of fiscal policy could encompass, 

7 Regulation (EU) No 1303/2013. 

6 

 
 
                                                 
for  example,  help  with  the  improvement  of  public  finance  management,  as  well  as  support  to 
ensure  the  more  efficient  collection  of  tax  and  social  security  contributions.  Reform  of  the 
business  environment  could  benefit  from  assistance  in  the  process  of  simplification  of  the 
regulatory  system,  the  rollout  of  policies  for  promoting  innovation,  entrepreneurship,  foreign 
direct investment and exports. Support in the domain of financial markets may include assistance 
in  the  design  and  implementation  of  individual  and  corporate  insolvency  legislation  and 
securitisation  frameworks  in  the  context  of  the  Capital  Markets  Union.  Technical  assistance  for 
reforms  in  the  areas  of  labour  market  and  social  policy  could  be  mobilised,  for  example  to 
increase  the  efficiency  and  effectiveness  of  social  welfare  systems  in  the  light  of  long-term 
sustainability risks. 

Democratic legitimacy and accountability 

Effective democratic legitimacy and accountability is crucial for strengthening ownership of 
the  European  Semester  process.  The  dialogue  with  national  stakeholders  (governments, 
parliaments,  social  partners,  civil  society)  and  the  European  Parliament  at  key  points  of  the 
Semester  process  has  been  significantly  strengthened,  both  at  technical  and  political  level.  
The early publication of the country reports provided more time to engage in in-depth discussions 
before  the  Commission  publishes  its  proposals  for  the  country-specific  recommendations. 
Member States also increasingly involve national parliaments and social partners. The role of the 
national  parliaments  should  be  further  strengthened,  with  enhanced  interaction  in  the  debate  on 
the  country-specific  recommendations  addressed  to  the  Member  States  and  within  the  annual 
budgetary  procedure.  The  Commission  took  an  active  part  in  national  debates,  at  both  political 
and  technical  levels,  throughout  the  year.  These  contacts  intensified  after  the  publication  of  the 
country reports, in the run-up to the national programmes and today's package. 

The  close  involvement  of  social  partners  at  all  levels  in  the  design  and  implementation  of 
reforms  is  important  in  ensuring  successful  outcomes.  The  involvement  of  social  partners  is 
well-established at European level, while there is a room for increasing the involvement of social 
partners  in  the  design  of  reforms  at  national  level.  The  Commission  has  continuously  called  on 
Member States to consult closely national social partners when preparing their National Reform 
Programmes. Member States have consulted the national social partners on the National Reform 
Programmes and some of them submitted the social partners' positions to the Commission. 

EU  institutions  have  helped  to  steer  the  European  Semester.  The  European  Parliament 
adopted resolutions on three separate reports on the European Semester, covering the issues of 
the  Annual  Growth  Survey  20168,  employment  and  social  aspects9,  and  single  market 
governance10. In the Council, in-depth discussion in various formations preceded the adoption 
of  the  euro  area  recommendations  and  their  endorsement  by  the  European  Council  in 
February.  On  17  March,  the  European  Council11  endorsed  the  policy  priority  areas  of  the 
Annual  Growth  Survey  and  noted  that  Member  States  would  reflect  the  priorities  in  their 
forthcoming National Reform Programmes and stability or convergence programmes.  

8 A8-0030/2016. 
9 A8-0031/2016. 
10 A8-0017/2016. 
11 EUCO 12/1/16 REV1. 

7 

 
 
                                                 
3. 

OVERALL PROGRESS IN REFORMS AND CORRECTING IMBALANCES  

The  Member  States  have  advanced  reforms  over  the  last  year,  but  the  pace  of  such 
progress needs to be accelerated. Overall, the Member States made limited to some progress 
in addressing the issues identified in the country-specific recommendations issued in 201512. 
Progress  thus  stayed  at  a  similar  level  during  the  last  year,  compared  to  the  year  before.  
The implementation of country-specific recommendations varies across policy areas. This can 
be  due  to  the  complexity  of  the  reforms  to  be  undertaken,  such  as  reforms  of  labour  and 
product markets, pensions systems and banking sectors. Most significant progress is observed 
with  regard  to  recommendations  in  the  areas  of  financial  services  and  active  labour  market 
policies.  In  contrast,  more  progress  could  have  been  expected  in  generating  a  business  and 
labour  market 
employment  friendly  and  regulatory  environment, 
participation and reducing barriers in the services sector. More progress in the implementation 
of  country-specification  recommendations  is  identified  for  Member  States  experiencing 
imbalances than for Member States without imbalances, presumably due to the larger need for 
reform, stronger policy dialogue and, in some cases, in response to stronger market pressure.  

increasing  female 

Member  States  are  making  progress  in  addressing  imbalances  in  their  economies,  in 
spite  of  a  challenging  environment.  In  countries  with  high  external  liabilities,  the  large 
current account deficits of the pre-crisis period have been considerably reduced or even turned 
into  surpluses.  In  some  other  Member  States,  surpluses  persist  and  remain  very  large.  Cost 
competitiveness  has  generally  improved  and  there  is  evidence  of  structural  adjustment  in 
terms  of  resources  shifting  to  the  tradable  sector.  Unemployment  is  declining,  albeit  to 
different  degrees  across  the  Member  States.  In  most  countries,  the  process  of  balance-sheet 
repairs is progressing, with deleveraging ongoing in the household and corporate sectors, and 
bank  capitalisation  improving.  In  most  countries,  deleveraging  is  mainly  linked  to  reduced 
spending,  while  in  some  countries,  the  relative  level  of  debt  has  gone  down  due  to  robust 
growth.  In  this  context,  vulnerabilities  associated  with  persisting  debt  overhang  in  some 
sectors remain a source of concern, while the financial sector is affected by low profitability 
coupled  with  high  levels  of  non-performing  legacy  loans  and  the  need  to  adjust  to  a  more 
demanding regulatory environment. 

Fewer Member States than last year are considered to have macroeconomic imbalances 
as  the  MIP  categorisation  of  imbalances  was  streamlined  and  MIP  surveillance  was 
more focused. For six Member States examined in an in-depth review, it was concluded that 
there  are  no  imbalances  in  terms  of  the  MIP.  Seven  Member  States  were  found  still  to 
experience  imbalances  and  six  Member  States  to  experience  excessive  imbalances.  For 
Croatia and Portugal, which have excessive imbalances, the Commission announced in March 
that it would review its assessment, taking into account the level of ambition of their National 
Reform  Programmes.  Based  on  the  assessment  of  the  policy  commitments  of  both  Member 
States,  the  Commission  concludes  that  there  is  no  need  at  this  stage  to  step  up  the 
macroeconomic imbalances procedure, provided that there is swift and full implementation of 
the reforms set out in their country-specific recommendations. 

12 A comprehensive assessment of the implementation of the country-specific recommendations adopted in July 
2015 was presented in the country reports published on 26 February 2016.  

8 

 
 
 
                                                 
4. 

KEY OBJECTIVES OF THE 2016 RECOMMENDATIONS 

A  coherent  policy  framework  is  an  important  stabilisation  factor.  To  strengthen  the 
recovery  and  foster  upward  economic  and  social  convergence,  the  Commission  builds  its 
proposals  for  country-specific  recommendations  on  the  three  main  pillars  identified  in  the 
2016  Annual  Growth  Survey.  These  recommendations  and  the  decisions  taken  under  the 
Stability and Growth Pact and the Macroeconomic Imbalances Procedure form an integrated 
policy package that brings together various economic governance tools, hence providing for a 
more effective coordination of policies. Additionally, the recommendations for the euro area 
also serve as an important guide for the euro area Member States.  

The  longer-term  vision  set  out  in  the  Europe  2020  strategy  is  firmly  anchored  in  the 
European  Semester.  The  Europe  2020  strategy  has  always  provided  the  long-term 
perspective in the drive for jobs and growth. The key principles of the Europe 2020 strategy 
remain as valid as ever. They set the direction of the country-specific recommendations and 
they  have  also  provided  a  basis  for  the  multiannual  financial  framework  and  the  European 
Structural  and  Investment  Funds.  Table  2  attached  to  this  Communication  provides  an 
overview of progress made towards the targets of the Europe 2020 Strategy. 

Removing barriers to financing and supporting public and private investment 

Financing  opportunities  need  to  be  ensured  for  a  wider  range  of  businesses.  In  many 
Member  States,  high  levels  of  private  debt  and  the  high  ratio  of  non-performing  loans  still 
prevent  stronger  recovery  in  credit.  The  Capital  Markets  Union  should  be  used  by  the 
Member States as a tool to develop European markets for SME asset-backed securities, so that 
improved financing conditions together with  credit  growth  can be felt  by a large number of 
businesses.  In  addition,  the  markets  for  other  forms  of  capital  market  financing,  such  as 
venture  capital,  should  be  further  developed,  including  by  reviewing  the  regulatory 
environment  in  the  Member  States.  The  Commission  recommends  action  in  this  area  to 
Germany, Cyprus, Portugal and Slovenia. 

The cleaning up of bank balance sheets helps to create the conditions for better access to 
finance.  Banks  have  made  substantial  progress  in  adjusting  their  balance  sheets  and  most 
banking  institutions  are  well  capitalised  and  liquid.  However,  the  banking  sector  in  some 
countries  is  still  recording  a  high  share  of  non-performing  loans  and  bad  assets.  If 
unaddressed, these weaknesses may result in subdued credit growth. Moreover, the protracted 
refinancing  of  non-performing  debt  implies  that  fewer  resources  are  available  for  new 
projects,  resulting  in  suboptimal  credit  allocation.  In  certain  countries,  reforms  in  the 
insolvency framework may help to speed up the resolution of bad debt, contributing to a more 
rapid  clean-up  of  bank  balance  sheets,  including  by  creating  better  conditions  for  the 
securitisation of non-performing loans. For these reasons, the Commission has recommended 
further  action  to  reduce  non-performing  loans,  including  with  the  help  of  insolvency 
framework  reforms,  to  countries  such  as  Bulgaria,  Ireland,  Croatia,  Italy,  Cyprus,  Portugal 
and Slovenia. 

Unlocking investment goes well beyond increasing financing. Investment has so far failed 
to  emerge  as  a  strong  driver  of  the  recovery.  Where  available,  for  example  in  Germany, 
Member States should use their fiscal space to increase public investment in areas conducive 

9 

 
 
to  growth,  such  as  infrastructure,  education  and research.  At  the  same  time,  Member  States 
are  encouraged  to  ensure  an  environment  that  is  conducive  to  productive  investment.  A 
stocktaking exercise of the national barriers to investment by the Commission shows that the 
highest number of barriers is related to bottlenecks, such as the low degree of efficiency and 
transparency  of  public  administration,  ineffective  judicial  systems  and  weaknesses  in  the 
business environment. These include high regulatory and administrative burden, the lack of a 
predictable regulatory framework and sector-specific regulations (involving cumbersome and 
lengthy approval procedures), which can hamper investment in large infrastructure projects.  

There  are  remaining  inefficiencies  in  taxation  systems,  public  procurement,  judicial 
systems  and  insolvency  frameworks.  For  example,  the  Commission  recommends  to 
Hungary to remove distortive sector-specific taxes and to Latvia, Lithuania, Poland, Romania 
and  Slovakia  to  improve  tax  compliance.  Italy  should  reduce  the  length  of  civil  justice 
proceedings  by  enforcing  reforms  and  through  effective  case  management  and  should 
improve  the  framework  for  insolvency  and  debt  collection.  Belgium  could  simplify  the  tax 
system  and  remove  distortive  tax expenditures.  In  addition,  reforms  are  necessary  to  enable 
access  to  increased  and  more  diversified  sources  of  funding  and  there  is  a  need  to  extend 
priorities  beyond  traditional  infrastructure  to  include  more  intangible  items,  human  capital 
and  related  social  investment.  Increasing  the  responsiveness  of  labour  and  product  markets 
also  plays  a  role.  Progress  also  means  reinforcing  the  single  market,  identifying  a  stable 
pipeline of projects, both national and cross-border, and ensuring coordination and planning at 
all levels of the administration. In parallel, the Commission is taking initiatives to unlock the 
full potential  of investment  in Europe by implementing  the Investment Plan  for Europe and 
further reinforcing the Single Market.  

Improving the business environment and productivity 

Long-term  growth  is  dependent  on  productivity  increases.  This  requires  the  EU  to 
increase its investment in areas such as technology, innovation and human capital. A subdued 
level of investment over several years has produced a significant accumulated lag, especially 
in  information  and  communication  technologies  (ICT).  Productivity  and  competitiveness 
would  benefit  from  structural  reforms  that  would  enable  a  more  efficient  allocation  of 
resources, the faster adoption of new technologies, the promotion of a more circular economy 
and the introduction of innovative business models. 

transparency, 

A  more  business-  and  employment-friendly  regulatory  environment  would  encourage 
private  investment.  Improving  public  administration  practices,  eliminating  corruption, 
introducing 
increasing 
competitiveness,  growth  and  job  creation.  For  example,  the  Commission  recommends  to 
France  to  continue  its  simplification  programme,  to  Italy  to  implement  the  reform  of  the 
public  administration  and  to  Austria  to  reduce  administrative  and  regulatory  barriers  for 
investments, in particular in the area of services. 

light  and  predictable  regulations  contribute 

to 

The  fast-changing  economy  requires  flexible  allocation  of  resources.  Qualitative  aspects 
of  the  reforms  are  important  for  success.  An  efficient  allocation  of  resources  towards  more 
productive firms would increase productivity and growth rates. Furthermore, it would increase 
investment by more efficient firms, strengthening the long-term growth potential of Member 
States’  economies.  Reforms  in  product,  services  and  labour  markets  take  time  to  deliver 

10 

 
 
results but they trigger this reallocation of resources, activating investment and modernising 
the productive base of the EU economy. 

Growth  potential  would  be  increased  by  improving  the  performance  of  business 
services.  The  number  of  restrictions  in  services  sectors  remains  high  in  many  EU  Member 
States, with detrimental impact on investment, growth and employment. The contribution of 
the business services sector to the productivity of manufacturing and other sectors is essential 
for  the  modernisation  of  EU  economies.  The  range,  level  and  number  of  restrictions 
prevailing  in  business  services  and  regulated  professions,  especially  in  engineering, 
accounting,  architecture  and  legal  services,  warrant  special  attention.  In  this  regard,  the 
Commission  proposes  recommendations  to  Member  States,  including  Belgium,  Germany, 
Luxembourg and Austria. Stepping up reforms to reduce regulatory barriers in the retail and 
construction sectors would also have a considerably positive impact in several Member States. 

There is a need for much closer cooperation between business and academia. Innovation 
is  a  driver  for  modernising  the  economy,  increasing  productivity,  attracting  investment  and 
supporting  economic  growth.  Creating  conditions  for  innovation  requires  a  combination  of 
financial incentives, supportive regulatory frameworks and a stronger link between business 
and  academia.  The  link  between  academia,  research  and  business  innovation  needs  to  be 
strengthened in many Member States, such as the Czech Republic, Denmark, Estonia, Spain 
and Portugal.  The Commission  recommends  to  Belgium to  foster investment in  knowledge-
based  capital  and  boost  its  general  innovation  capacity.  Estonia  and  Latvia  should  promote 
private investment in research, development and innovation.  

Adapting public finances to make them more supportive of growth 

The current aggregated euro area fiscal stance is broadly appropriate. Overall, the fiscal 
policy  stance  in  the  euro  area  is  expected  to  become  slightly  expansionary  in  2016.  When 
assessed against the double objective of the long-term sustainability of public finances and the 
need to support the economic recovery, in particular to shift from external to domestic sources 
of economic growth, the expected fiscal policy stance in the euro area on aggregate this year 
can be assessed as broadly appropriate in the context of persistently very low inflation. At the 
same  time,  the  fiscal  stance  in  individual  Member  States  does  not  always  strike  the  right 
balance between the two objectives above. 

The Commission has also taken a number of steps under the Stability and Growth Pact. 
First, the Commission recommends that Cyprus, Ireland and Slovenia should now exit the 
excessive  deficit  procedure.  This  would  leave  six  Member  States  under  the  corrective  arm 
after  this  Semester  round,  down  from  24  Member  States  in  2011.  Second,  the  Commission 
adopted  reports  for  Belgium,  Italy  and  Finland  under  Article  126(3)  TFEU,  in  which  it 
reviews their compliance with the debt criterion of the Treaty. While these countries appear to 
be at variance with the debt reference value, and the benchmark pace of reduction towards it, 
the  reports,  after  analysing  the  relevant  factors,  suggest  that  the  Stability  and  Growth  Pact 
should  be  considered  as  currently  complied  with.  For  Italy,  the  Commission  will  review  its 
assessment of the relevant factors in a new report by November as further information on the 
resumption  of  the  adjustment  path  towards  the  medium-term  budgetary  objective  for  2017 
becomes available.   

11 

 
 
 
 
As regards Portugal and Spain, the Commission recommends to the Council to recommend a 
durable  correction  of  the  excessive  deficit  in  2016  and  2017  respectively,  by  taking  the 
necessary structural measures and by using all windfall gains for deficit and debt reduction. In 
line  with  its  duty  to  monitor  the  implementation  of  the  excessive  deficit  procedure  under 
Article  126  of  the  Treaty,  the  Commission  will  come  back  to  the  situation  of  these  two 
Member States in early July. 

Fiscal  policy  remains  important  in  strengthening  the  recovery.  Deficit  levels  have  been 
successfully reduced in some Member States and the policy focus should mainly be on further 
progress  with  the  implementation  of  structural  reforms  to  lift  the  medium-term  growth 
potential.  At  the  same  time,  further  consolidation  efforts  are  still  needed  in  a  number  of 
Member  States  to  set  public  debt  ratios  firmly  on  a  downward  path,  especially  in  those 
countries  with  high  debt,  where  vulnerability  to  financial  market  swings  may  be  more 
accentuated.  

Revenue  and  expenditure  sides  of  public  finances  can  be  made  more  conducive  to 
growth  and  fairness.  In  the  current  context,  striking  an  appropriate  balance  between  the 
different components of public finances is crucial to preserving their growth-friendliness. On 
the  revenue  side,  although  some  decisive  steps  have  been  taken,  Member  States  could  still 
step  up  efforts  to  make  tax  systems  fairer,  more  transparent  and  effective  in  providing  the 
much-needed  incentives  for  job  creation.  Building  on  the  progress  made  on  fighting  tax 
evasion  and  improving  tax  administration,  further  efforts  are  needed  to  make  tax  systems 
fairer  and  more  effective,  to  address  disincentives  to  employment  creation,  to  prioritise 
growth-friendly expenditure and to preserve productive public investment. The Commission 
makes recommendations in this regard to Member States such as Italy, Poland and Sweden. 
On  the  expenditure  side,  Member  States  should  target  both  higher  efficiency  and  the 
performance  of  individual  expenditure  sources.  Enhanced  efficiency  may  create  room  to 
reduce overall expenditure, while still safeguarding the provision of adequate levels of social 
services and public goods. The ageing population calls for reforms in long term care, pensions 
and  health  care  that  ensure  the  sustainability  and/or  the  adequacy  of  the  social  security 
systems in Member States such as Malta, Austria and Slovenia.  

Improved public procurement practices can make a significant contribution to improve 
the  quality  of  public  expenditure  and  to  introduce  incentives  for  innovation  and  
cost-effectiveness.  In  addition,  Member  States  should  focus  on  the  sources  of  expenditure 
that will raise productivity capacity in the future and will have strong positive spill-overs on 
the  wider  economy  –  such  as  education,  research  and  development,  transport  and 
communications.  For  example,  Ireland  should  prioritise  government  capital  expenditure  in 
R&D  and  in  public  infrastructure.  The  Netherlands  also  needs  to  increase  efforts  to  shift 
public spending towards R&D. 

Member States should address the high tax wedge on labour. In particular, this concerns 
Belgium, the Czech Republic, Germany, France, Latvia, Lithuania and Hungary. The high tax 
wedge  weighs  on  labour  costs  and  reduces  the  net  take-home  pay  of  employees,  hindering 
both labour demand and labour supply. In spite of some reforms to reduce labour taxation in a 
number  of  Member  States,  the  tax  wedge  on  labour  remains  high  in  some  EU  countries, 
especially on low-income earners. 

12 

 
 
  
 
 
 
Improving employment, human capital, social inclusion and protection 

Labour  market  reform  efforts  have  brought  initial  positive  results.  Labour  market 
conditions  continue  to  improve,  with  employment  growing  and  unemployment  falling  at  a 
moderate  pace.  The  EU  has  also  witnessed  resilient  activity  rates  amid  increases  in  the 
participation  rate  of  women  and  older  workers,  which  is  a  positive  development.  Recent 
labour  market  reforms  in  many  Member  States,  such  as  more  flexible  work  arrangements, 
improved active labour market policies and decentralised wage bargaining have contributed to 
higher  labour  market  flexibility  and  the  better  alignment  of  wages  to  productivity 
developments,  thereby  underpinning  labour  demand.  Reform  efforts  are  still  needed  in  a 
number  of  countries  to  improve  the  functioning  of  their  labour  markets.  For  example, 
Belgium should ensure that wages can evolve in line with productivity. France and Romania 
should  ensure  that  minimum  wage  developments  are  consistent  with  the  objectives  of 
promoting  employment  and  competitiveness.  Finland  should  ensure  targeted  and  sufficient 
active labour market measures. 

Labour  markets  need  to  strike  the  right  balance  between  flexibility  and  security.  The 
persistence of unemployment is likely to continue weighing on the efficiency of labour market 
matching,  welfare  dependency  and  low-skills  traps.  In  spite  of  rising  skills  demands  on  the 
labour market, low-qualified workers tend not to take part in lifelong learning. The situation 
of  young  people  and  of  the  long-term  unemployed  was  flagged  as  requiring  particular 
attention by the Council13. 

There is a need to improve the capacity to create jobs and thereby to tackle high levels of 
unemployment. This is crucial to boost job creation, address distortions such as high levels 
of structural unemployment, segmentation, skills mismatches, and to improve social cohesion. 
Some Member States also need to adapt the role that public employment services play and to 
enhance  the  promotion  of  job  creation,  also  by  promoting  entrepreneurship  and  self-
employment.  The  availability  of  a  wide  range  of  well-targeted  and  designed  active  labour 
market  policies  is  also  important  in  reaching  higher  employment  rates.  Hungary  should 
facilitate  the  transition  from  the  public  works  scheme  to  the  primary  labour  market.  Long-
term  unemployment  needs  to  be  tackled  by  combining  effective  social  assistance  with 
measures to enhance the chances of finding employment, in particular in Bulgaria, Spain and 
Portugal.  The  labour  market  participation  of  older  workers  and  women  also  needs  to  be 
promoted  in  countries  such  as  the  Czech  Republic,  Germany,  Austria  and  Slovakia.  The 
segmentation  of  labour  markets  should  be  reduced  by  promoting  more  permanent  types  of 
employment in the Netherlands, Poland and Portugal. 

Investing in human capital  contributes to  greater  convergence.  Structural  and  long-term 
unemployment  is  fuelled,  in  part,  by  the  high  number  of  persons  who  are  not  employable 
because they have not acquired sufficient and relevant skills. These skill gaps and mismatches 
put  a  brake  on  Europe's  innovation  capacity  and  competitiveness.  For  example,  the 
Commission  recommends  to  the  United  Kingdom  to  address  skills  mismatches  and  provide 
for  skills  progression  and  to  France  to  reform  apprenticeship  and  vocational  training,  with 
emphasis  on  the low  skilled.  Member  States need  to  engage  in  a  process  of  evidence-based 
scrutiny  of  their  education  and  training  systems  and  reforms  to  improve  educational 

13 Council documents 15107/15 and 6154/16. 

13 

 
 
                                                 
outcomes,  especially  in  Hungary  and  Slovakia,  and  make  more  efficient  use  of  public 
expenditure. Several countries face a problem in including vulnerable groups in mainstream 
education,  particularly  Roma,  but  also  other  groups  such  as  students  with  a  migrant 
background.  

Social protection systems have been put to the test.  Social protection, including pensions 
and services such as healthcare, child care and long-term care, remain essential for balanced 
and  inclusive  growth.  They  can  support  longer  working  lives,  increase  employment  and 
reduce  the  gender  gap.  Promoting  social  dialogue  and  the  involvement  of  social  partners  in 
the development of employment and social policies should facilitate the implementation and 
increase the effectiveness of such policies. Reforms need to promote a modernisation of social 
protection and the promotion of activation policies, combining flexibility, security, adequacy 
and  sustainability.  This  also  requires  enhancing  the  capacity  of  unemployment  benefit  and 
social  assistance  to  ensure  adequate  incomes,  quality  enabling  services  and  effective 
activation. This can be achieved by broadening coverage and adequacy and also by ensuring 
sustainable  financing  and  improving  the  targeting  of  social  protection  spending,  as 
recommended, for example, to Italy. Balanced and inclusive growth can also be enhanced by 
reforms aiming at ensuring accessible, effective and sustainable health systems. 

5. 

CONCLUSION 

The  set  of  country-specific  recommendations  has  been  prepared  by  the  Commission,  with 
reference  to  the  euro  area  recommendations  and  in  the  light  of  bilateral  dialogue  with  the 
Member  States  after  the  publication  of  the  country  reports  and  after  examination  of  the 
national  reform  programmes  and  the  stability  or  convergence  programmes.  The  challenges 
identified and the recommendations proposed are those that the Commission considers to be 
the most urgent and necessary to keep Member States, and the European Union as a whole, on 
the path of reforms, job creation and growth. 

The  Commission  calls  on  the  Council  to  endorse  the  proposed  approach  for  the  2016-2017 
country-specific recommendations and related decisions under the Stability and Growth Pact, 
and on Member States to implement them fully and in a timely manner. The Commission will 
continue  to  engage  with  stakeholders  at  all  levels  to  ensure  broad  ownership  and  effective 
follow-up and implementation.  

14 

 
 
 
 
TABLE 1 - OVERVIEW OF ISSUES COVERED IN THE COUNTRY-SPECIFIC RECOMMENDATIONS FOR 2016-2017 

15 

Policy areasATBEBGCYCZDEDKEEESFIFRHRHUIEITLTLULVMTNLPLPTROSESISKUKFiscal policy & fiscal governanceLong-term sustainability of public finances, inc. pensionsReduce the tax burden on labourBroaden tax basesReduce the debt biasFight against tax evasion, improve tax administration & tackle tax avoidanceFinancial servicesHousing marketAccess to financePrivate indebtednessEmployment protection legislation & framework for labour contractsUnemployment benefitsActive labour market policiesIncentives to work, job creation, labour market participationWages & wage settingChildcareHealth & long-term carePoverty reduction & social inclusionEducationSkills & life-long learningResearch & innovationCompetition & regulatory frameworkCompetition in servicesTelecom, postal services & local public servicesEnergy, resources & climate changeTransportBusiness environmentInsolvency frameworkPublic administrationState-owned enterprisesCivil justiceShadow economy & corruption 
 
 
 
TABLE 2 - PROGRESS TOWARDS EUROPE 2020 STRATEGY TARGETS 

Europe 2020 strategy 
targets for the EU 
1. Increasing the 
employment rate of the 
population aged 20-64 to at 
least 75% 
2. Increasing combined 
public and private 
investment in R&D to 3% of 
GDP 
3a. Reducing greenhouse gas 
emissions by at least 20% 
compared to 1990 levels 
3b. Increasing the share of 
renewable energy in final 
energy consumption to 20% 
3c.Moving towards a 20 % 
increase in energy efficiency 

4a. Reducing school drop-
out rates to less than 10% 
4b. Increasing the share of 
the population aged 30-34 
having completed tertiary 
education to at least 40% 
5. Lifting at least 20 million 
people out of the risk of 
poverty and social exclusion 

2010 data 

Latest available data 

68.6% 

70.1% (2015) 

In 2020, based on recent 
trends 
Target uncertain to be 
met 

1.93% 

2.03% (2014) 

Target unlikely to be met 

14.3% reduction 

23% reduction (2014) 

Target likely to be met 

12.8% 

16% (2014) 

Target likely to be met 

5.6% increase 
(for primary 
energy 
consumption) 
13.9% 

15.7% increase (2014) 

Target likely to be met 

11.2% (2014) 

Target likely to be met 

33.8% 

38.7% (2015) 

Target likely to be met 

4.5 million increase 
(2014) 

Target unlikely to be met 

1.4 million 
increase 
(compared to 
the 2008 base 
year) 

For country-specific information, please see: 
http://ec.europa.eu/eurostat/web/europe-2020-indicators/europe-2020-strategy/headline-indicators-scoreboard  

16