COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Annual Growth Survey 2017
Date: 2016-11-16
Institutions: European Commission, Secretariat-General
Subjects: EU investment, budgetary equilibrium, economic convergence, economic growth, economic recovery, economic reform, employment aid, fiscal policy, job creation, structural policy

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 16.11.2016  COM(2016) 725 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN  PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK  Annual Growth Survey 2017  
 
 
Introduction  

The  Annual  Growth  Survey  2017  outlines  the  most  pressing  economic  and  social 
priorities  on  which  the  European  Union  and  its  Member  States  need  to  focus  their 
attention in the coming months. The President’s State of the Union address of 14 September 
2016 underlined the need for Europe to strengthen its economic recovery and invest strongly 
in its youth and jobseekers, as well as in its start-ups and SMEs. The Letter of Intent signed 
by the President and the First Vice-President on the same day, and addressed to the Presidents 
of the European Parliament and  of  the Council, highlights the  need to achieve  an economic 
recovery which benefits all, notably the weaker parts of our societies, and strengthens fairness 
and the social dimension of our single market. It identifies a number of ways in which we can 
create more jobs, growth and investment for the Union, which is the number one priority of 
the Commission.1 Ensuring a promising economic future for all, safeguarding our way of life 
and providing better opportunities for young people were also highlighted as priorities in the 
"Bratislava  roadmap"  endorsed  by  the  Heads  of  State  or  Government  of  27  Member  States  
on 16 September 2016. 

The  policy  guidance  provided  in  this  Annual  Growth  Survey  is  accompanied  by  a 
specific recommendation for a Council recommendation on the economic policy for the 
euro area2, a  Communication  on a positive fiscal stance for the  euro  area,3 and a thorough 
analysis of economic,4 labour market and social conditions.5 It builds on the economic policy 
strategy  of  the  virtuous  triangle  of  investment,  structural  reforms  and  responsible  public 
finances,  which  this  Commission  has  pursued  since  the  start  of  its  mandate,  as  part  of  its 
overall  agenda  for  jobs,  growth,  fairness  and  democratic  change.  It  has  also  benefited  from 
discussions in the European Parliament, the Council and the other EU institutions following 
the  State  of  the  Union  Address.  Moreover,  the  views  expressed  by  social  partners  in  the 
established dialogues have also been taken into account.  

There  are  a  number  of  positive  developments  in  the  EU,  signalling  the  resilience  and 
recovery of the European economy, despite the broader uncertainty worldwide. All Member 
States  are  growing  again.  Investment  has  started  to  pick  up.  8  million  new  jobs  have  been 
created  since  2013.  The  employment  rate  has  also  increased.  If  current  trends  continue,  the 
Europe  2020  employment  rate  target  of  75%  could  in  fact  be  reached.  The  rise  in  activity 
rates over the years, in spite of the crisis, is a further testimony of structural improvements in 
the performance of labour markets. The average public deficit level, which was over 6% for 
the euro area a few years ago, is below 2% this year and will continue to reduce. Levels of 
government debt have stabilised and are expected to decrease.  

However,  there  is  no  scope  for  complacency  as  the  recovery  remains  fragile.  Growth, 
employment and investment are still held back by legacies inherited from the crisis, as well as 
by  structural  deficiencies  dating  back  to  the  pre-crisis  years.  Despite  recent  improvements, 
unemployment remains far too high in many parts of Europe and the prolonged period of high 
unemployment  is  taking  its  social  toll  on  many  Member  States.  Moreover,  GDP  and 
productivity  growth  rates  remain  below  full  potential  and  investment  levels  remain  below  
pre-crisis levels. Furthermore,  there are still significant imbalances and broader risks  within 
the euro area  and the  EU  more generally, with convergence among  and within the Member 
States stalled in many cases.  

1 http://ec.europa.eu/priorities/state-union-2016_en 
2 COM(2016) 726  
3 COM(2016) 727  
4 COM(2016) 728  
5 COM(2016) 729  

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Box 1. Key economic and social developments 2014-2016 

Since this Commission has taken office, there have been a number of positive developments: 

• 

For  a  few  years  now,  the  EU  and  euro  area  economy  have  returned  to  moderate  growth  which  is 
forecast to continue in the coming years. The GDP of the EU is now higher than before the crisis. 
•  The  recovery  is  increasingly  job-intensive,  also  thanks  to  recent  structural  reforms  in  a  number  of 
Member States. 8 million new jobs have been created since 2013, out of which almost 5 million since 
the beginning of the mandate of this Commission.  

•  The EU unemployment rate kept falling and stood at 8.6% in September 2016, reaching its lowest level 

since 2009.  

•  At the same time, the employment rate in the age group 20-64 is above that observed in 2008 for the 
first time, at 71.1% (second quarter of 2016). This means that the 75% employment rate target set by 
the Europe 2020 strategy may be within reach, if the current trend continues. 

•  Total investment has started to grow again in the EU since 2014 and is forecast to continue to increase 

• 

(EU: 2014: +1.2%; 2015: +2.2%; 2016: +2.0%; 2017: +2.1% 2018: +2.8%). 
Public  deficits  in  the  euro  area  have  decreased  from  an  average  6%  of  GDP  a  few  years  ago  to  well 
below 2% this year, and this reduction is expected to continue. This allowed a number of countries to 
exit the Excessive Deficit Procedure in recent years. 

•  Government  debt  in  the  EU  and  euro  area  is  set  to  continue  to  decrease  from  its  2014  peak  and  is 
expected to stand at 86.0% in 2016 (91.6 % in the euro area) and to continue to diminish slightly over 
the coming two years. 

However, there is no room for complacency: 

•  The tailwinds that have supported the recovery so far are fading (falling oil prices, a depreciating euro), 
and  there  are  risks  to  the  outlook,  including  from  the  global  environment,  but  also  as  a  result  of  the 
uncertainty created by the UK referendum.  

•  The  recovery  has  been  greatly  helped  by  the  monetary  policy  of  the  European  Central  Bank  (ECB), 

including the resulting low interest rates, so far.  

•  Growth remains modest and is still held back by legacies inherited from the crisis, such as private debt, 
but also by structural deficiencies dating back to the pre-crisis years. The situation of the banking sector 
is a prominent example.  

•  There is still evidence of macroeconomic imbalances and limited convergence, notably within the euro 

area. 

•  Ageing puts pressure on the financial sustainability and adequacy of social protection systems. 
•  There are very high levels of debt in certain countries, with seven euro area Member States with a debt 

• 

close or above 100% of GDP.  
Structural  reforms  remain  incomplete  in  many  Member  States  and  delivery  on  the  country-specific 
recommendations  is  too  often  patchy.  The  modernisation  of  products,  services  and  labour  markets 
remains a priority in many Member States. 

•  High levels of inequality reduce the output of the economy and the potential for sustainable growth, and 

risks of poverty and social exclusion remain very high, although they are decreasing. 

•  Although unemployment diminishes, it remains very high in some Member States. 

In  addition,  globalisation,  demographic  and  technological  developments  are  important 
sources  of  change,  which  need  to  benefit  all.  These  developments  can  and  must  not  be 
reversed but may need to be complemented, in particular by efforts to ensure that benefits of 
globalisation  and  technological  change,  including  digitisation,  are  distributed  fairly  across 
different  groups  in  society,  notably  young  people.  Concerns  for  equality,  fairness  and 
inclusiveness call for raising awareness at all levels about the impact of policies and reforms 
on income distribution.  

As  underlined  by  the  European  Parliament,6  the  real  success  of  the  economic  policy 
coordination  under  the  European  Semester  can  only  be  assessed  through  the 
implementation  of  the  key  reforms  outlined  in  the  country-specific  recommendations. 
While 
in  Member  States,  overall 
implementation is still disappointing in some areas and varies across countries. Thanks to the 
streamlining  of  the  Semester,  the  recommendations  are  now  focused  towards  the  key 
challenges  of  each  Member  State.  Moreover,  benchmarking  and  peer  review  activities  have 

the  Semester  has  prompted  significant  reforms 

6 European semester for economic policy coordination: implementation of 2016 priorities, 2016/2101(INI). 

3 

 
 
 
                                                            
been stepped up in the various Council formations. The implementation of commonly agreed 
priorities remains a priority.   

While  the  EU  should  provide  an  appropriate  enabling  environment  in  terms  of  better 
regulation  and  policy  orientation,  as  illustrated  by  the  priorities  of  the  Commission 
Work  Programme,7  it  is  up  to  the  Member  States  to  deliver  the  bulk  of  the  policy 
response.  The  EU  has  made  concrete  proposals  to  strengthen  the  recovery  and  increase 
resilience  against  future  shocks.  For  example,  the  Council  recommendation  on  National 
Productivity Boards, which was adopted in September, encourages Member States to reflect 
on  a  comprehensive  notion  of  competitiveness,  with  a  focus  on  raising  productivity  and 
growth.  Faster  progress  on  the  adoption  of  reforms  in  line  with  the  country-specific 
recommendations addressed to each Member State, together with an appropriate sequencing 
and  implementation,  is  necessary  to  raise  growth  potential  and  foster  economic,  social  and 
territorial cohesion. Member States should introduce these reforms in a manner that takes full 
account  of  the  short  and  medium  term  impact,  including  its  distributional  effects  and  costs 
over time.  

Box 2. Summary of key areas for action at EU level 

At the level of the European Union, this Commission has been committed to:  

  Pursuing an economic policy based on the virtuous triangle of boosting investment, pursuing structural 
reforms, and ensuring responsible fiscal policies. It has revamped the European Semester accordingly, 
also by giving more time for dialogue with the Member States and mainstreaming social considerations 
alongside economic goals. 

  Applying the rules of the Stability and Growth Pact, including by using the flexibility built within to 
take better account of the economic cycle and to facilitate reforms and investment, through the so-called 
"investment" and "structural reforms" clauses.  

  Deploying an Investment Plan for Europe to fill the investment gap, including through the extension of 
the European Fund for Strategic Investments, a strengthened impact of EU funds in support of the Plan, 
efforts  to  tackle  barriers  to  investment  and  new  sources  of  funding  for  the  real  economy,  through  a 
Capital Markets Union. 

  Taking  the  necessary  measures  to  deepen  the  Single  Market  in  the  field  of  services  and  products,  as 
well as infrastructure, to complete the Energy Union and to establish a true Digital Single Market, to 
expand opportunities for EU businesses through trade agreements, as well as to ensure a system of fair 
taxation across the EU. 

  Prioritising investment in human capital by launching a new Skills Agenda, boosting the roll-out of the 

Youth Guarantee and benchmarking performances in education and training. 

  Completing  Europe's  Economic  and  Monetary  Union,  through  "deepening  by  doing",  including  by 
supporting EU social dialogue, but also through initiatives to complete the Banking Union and to take 
better account of euro area priorities as a whole.  

The Commission Work Programme for 2017 summarises its priorities for next year. 

All  policy  tools  –  monetary,  fiscal  and  structural  –  need  to  be  used  individually  and 
collectively to strengthen job creation, growth, investment and financial stability. In the 
current  environment  of  low  inflation,  low  growth  and  low  interest  rates,  together  with  a 
supportive  monetary  policy  stance,  the  onus  is  on  other  policy  areas  to  safeguard  the 
economic  recovery.  In  a  global  context  marked  by  increased  uncertainties,  it  is  critical  to 
mobilise all internal growth drivers through an appropriate policy mix. 

7 COM(2016) 710  

4 

 
 
 
 
 
 
                                                            
In  this  light,  the  Commission  calls  on  Member  States  to  redouble  their  efforts  on  the 
three elements of the virtuous triangle of economic policy, and in so doing, put the focus 
on social fairness to deliver more inclusive growth: 

– boosting investment; 

– pursuing structural reforms;  

– and ensuring responsible fiscal policies. 

1. Boosting investment  

1.1 Improving the functioning of the financial sector 

Access to finance is crucial for businesses so that they can grow and innovate. In some 
Member States, the proportion of SMEs identifying access to finance as the most important 
challenge is still high (30% in Greece and 25% in Cyprus). The problem of financing is also 
reported by  the smallest companies (12% of  micro enterprises), relatively young companies 
(13%  of  those  established  within  the  last  two  to  five  years)  and  young,  high  growth 
companies  (14%  of  companies  with  annual  growth  rates  of  20%  or  more  -  gazelles).8  As 
SMEs  rely  primarily  on  the  banking  sector  for  financing,  their  access  to  credit  remains  a 
concern,  especially  in  countries  with  banking  systems  undergoing  adjustment.  In  order  to 
support and reform the venture capital framework that is vital for high-growth companies, in 
particular,  and  help  financial  markets  provide  more  credit  to  the  economy,  the  Commission 
proposed  amendments  to  the  European  Venture  Capital  Funds  and  the  European  Social 
Entrepreneurship Funds regulations, marking another step towards the creation of the Capital 
Markets Union.   

The Capital Markets Union can provide the conditions for equal access to finance for all 
firms  across  Member  States,  thus  encouraging  investment  and  innovation  free  from 
distortions. Financing conditions and models differ significantly across Member States, thus 
distorting the main function of the financial sector to act as an efficient intermediary between 
sources of capital and investment opportunities. A fully-fledged Capital Markets Union will 
provide alternative sources of financing, through equity and bond markets, to complement the 
banking system on the one hand, and facilitate proper risk assessment and allocation of capital 
in  the  financial  system  on  the  other  hand.  Indeed,  capital  must  flow  to  areas  of  higher 
productivity  growth,  highly  productive  activities  and  innovations.  Deeper  integrated  capital 
markets  would  also  provide  a  buffer  against  economic  shocks  through  private  sector  risk-
sharing. Beyond the need to ensure rapid adoption of the measures already proposed by the 
Commission,  additional  changes  to  the  legislative  framework  applicable  to  investments  by 
insurance  companies  and  banks  in  infrastructure  assets  and  small  and  medium-sized 
enterprises will  help to  increase  the  financing of  the  economy.  In  addition, inefficiencies  in 
national insolvency frameworks lead to uneven conditions for access to credit in the Member 
States. The Commission will soon present a proposal on preventive restructuring frameworks, 
second chance, and measures to improve insolvency procedures. 

Member States also need  to  address remaining  vulnerabilities in the banking sector to 
foster investment and facilitate the financing of the European economy. The high level of 
non-performing  loans  remains  a  serious  challenge  in  a  number  of  Member  States.  Non-
performing  loans  and  operational  inefficiencies  in  combination  with  a  low  interest  and  low 
growth environment, weigh on banks’ profitability, which in turn, weighs on banks' ability to 
generate  or  raise  new  capital  in  support  of  new  lending  and  therefore  on  their  ability  to 

8 Survey on the access to finance of enterprises (SAFE), http://ec.europa.eu/growth/safe 

5 

 
 
                                                            
support the economic recovery. Breaking this vicious loop requires relieving the banks from 
this  burden,  without  having  an  impact  on  the  public  purse.  Effective  out-of-court  and 
insolvency frameworks, including preventive restructuring, are crucial in this context and the 
adopted reforms should be implemented fully. Servicing by, and sale of non-performing loans 
to non-bank specialised institutions should be possible and encouraged in all Member States, 
in line with the relevant legislation.  

Banks  should  be  encouraged  to  continue  enhancing  their  operational  efficiency.  
Cyclical  and  structural  factors  –  including  new  regulatory  requirements  and  the  low  yield 
environment – have had an impact on banks' profitability. The adjustment of banks’ business 
models to the new operating environment requires further efforts, which can include further 
reduction of over-capacity and sector consolidation. Outstanding regulatory initiatives should 
be agreed quickly in order to ensure legal clarity and certainty, while avoiding undue impact 
on  the  financing  of  the  real  economy.  Additional  initiatives  envisaged  at  international  level 
should not lead to significant overall increases of capital requirements.   

Progress  towards  completing  the  Banking  Union  should  be  swift  and  requires  parallel 
improvements  on  further  risk  reduction  and  risk  sharing.  The  resilience  of  the  banking 
sector  has  increased  considerably  in  recent  years.  Nevertheless,  bank  stock  prices  have 
suffered episodes of acute stress in 2016, also due to developments in international markets, 
such as turbulence in China or following the outcome of the UK referendum. It is essential to 
safeguard and continue to rebuild confidence in the banking sector. The Bank Recovery and 
Resolution Directive, together with EU State Aid rules, provide the framework to safeguard 
financial stability while protecting taxpayers. The work on a common backstop for the Single 
Resolution Fund should be accelerated. Discussions on a European Deposit Insurance Scheme 
(EDIS)  should  continue,  with  the  aim  of  reaching  an  agreement  by  the  co-legislators  as 
rapidly as possible, and adoption on the forthcoming risk–reduction proposals should also be 
given priority. 

1.2 Increasing the impact of EU funds in support of the Investment Plan for Europe 

The Investment Plan for Europe has proven a useful tool for delivering concrete results 
and  encouraging  a  sustainable  increase  in  investment  in  Member  States.  The  European 
Fund  for  Strategic  Investments  (EFSI)  has  mobilised  close  to  EUR  138  billion  across  27 
Member  States  in  just  over  one  year.  During  the  same  period,  almost  300,000  SMEs  are 
expected  to  have  benefitted  from  the  EFSI.9  The  Investment  Plan  for  Europe,  through  its 
various  facets  (financial  instruments,  technical  assistance  and  measures  improving  the 
business  environment),  is  making  a  real  difference  in  a  range  of  sectors  by  supporting 
innovative projects that contribute to job creation and growth in local communities, as well as 
to tackling youth unemployment. These projects are critical for the future of the EU economy 
and  target  key  areas  such  as  support  to  SMEs,  innovation  and  R&D,  renewable  energy, 
energy efficiency, digital and transport infrastructure. 

More projects in more Member States will be able to benefit from the Investment Plan. 
The Commission has proposed to extend the EFSI (proposal for an "EFSI 2.0") and double its 
amount  to  reach  EUR  630  billion  by  2022,  while  at  the  same  time  improving  geographical 
and sectorial coverage. A swift adoption of this proposal is essential.10 

9 COM(2016) 359 and COM(2016) 581  
10  European  Council  conclusions,  October  2016:  The  European  Council  calls  on  the  Council  to  agree  its 
negotiating position on the Commission's new EFSI proposal at its meeting on 6 December, taking into account 
the independent external evaluation that will be delivered in November. 

6 

 
                                                            
In  addition  to  the  extension  of  the  EFSI,  geographical  coverage  will  improve  further 
through additional and simplified possibilities of combining the EFSI with the European 
Structural  and  Investment  Funds  (ESIF),  coupled  with  enhanced  technical  assistance 
across Europe. The new programming period of the ESIF, which contribute 454 billion euro 
to  investment  in  the  Member  States  over  the  period  2014-2020,  has  increased  focus  on  the 
effective  and  efficient  use  of  EU  resources  by  requiring  programmes  to  clearly  identify  the 
intended results and translate them into quantifiable targets. Furthermore, Member States are 
required to work towards the creation of the legislative and structural conditions enabling the 
sectors receiving the funds to effectively achieve the targets. For the future, the Commission 
has proposed to increase the possibilities for blending between the EFSI and the ESIF, as well 
as with the Connecting Europe Facility.   

Sustainable  investments  boost  productivity  across  the  economy  through  enhanced 
resource  and  energy  efficiency  and  reduced  input  costs,  whilst  reducing  external  costs 
and impacts. More particularly, support for the transition towards a low-carbon and circular 
economy will create new jobs in services such as innovative, maintenance and repair services 
and in designing and making new, more sustainable products. Specific areas where the macro-
economic relevance of the circular economy and improved resource efficiency is potentially 
significant include green public procurement, investments in waste and water infrastructure, 
sustainable construction, critical raw materials, biofuels and biochemicals, as well as energy 
and climate related investment. 

Investments  also  need  to  focus  on  human  capital  and  social  infrastructure.  The 
development  of  long-term  care  services  and  affordable  and  flexible  childcare  facilities  is 
particularly  important  to  decrease  care  obligations  towards  the  elderly  and  children, 
frequently  affecting  women.  Sustained  investment  efforts  are  also  needed  in  education  and 
life-long learning in order to support employability and redress the risk of gaps in wages and 
working conditions between high-skilled and low-skilled workers.  

Member  States  will  benefit  from  clearer  guidance  on  public  accounting  rules  (ESA 
2010),  particularly  in  the  area  of  public-private  partnerships.  A  guide  to  the  statistical 
treatment  of  public  and  private  partnerships,  produced  by  Eurostat  in  cooperation  with  the 
European Investment Bank and addressed mainly to private stakeholders, was released on 29 
September 2016.11 This publication is being followed up by an active outreach campaign. In 
addition,  the  Commission  is  closely  monitoring  the  impact  of  the  interpretation  of  public 
accounting rules on the creation of public and private partnerships in different sectors and will 
consider further action where it is appropriate. 

1.3 Tackling barriers to investment  

The  EU  and  its  Member  States  have  taken  steps  to  tackle  barriers  to  investment,  but 
more needs to be done. While the Commission will continue with its efforts to improve the 
overall  investment  environment  at  EU  level,  including  by  deepening  the  single  market, 
Member  States  should  step  up  their  efforts  to  remove  obstacles  to  investment  at  national, 
regional and local level.  

Sustainable  investments  require  a  solid  and  predictable  business  environment.  The 
Commission has already put forward initiatives to facilitate the financing of the real economy, 
such as the lowering of capital charges for insurance and reinsurance companies with regard 
to infrastructure investments and the adoption of practical guidance on the application of state 
aid rules on the public funding of infrastructure.12 In addition, work on the Energy Union, the 

11 Eurostat / EPEC / European Investment Bank, 'A Guide to the Statistical Treatment of PPPs', September 2016. 
12 C/2016/2946 

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Capital  Markets  Union,  the  Single  Market  Strategy,  the  Digital  Single  Market  Strategy,  the 
circular economy package and international trade and investment agreements covers specific 
measures that will help to remove barriers, promote innovation and improve the environment 
for  investment,  when  fully  implemented.  For  example,  as  part  of  the  Energy  Union,  there 
should be a governance process building on national energy and climate plans for 2030 and 
beyond, providing  predictability  for businesses,  investors and society at large. There  should 
also be increased ex ante certainty on public accounting for specific sectors, such as energy 
efficiency.  Full  deployment  of  5G,  the  fifth  generation  of  mobile  communication  systems, 
across the European Union by 2025 has the potential to create two million jobs. In addition, 
the  recent  re-launch  of  the  Common  Consolidated  Corporate  Tax  Base13  will  contribute  to 
make  the  EU  a  more  attractive  place  to  invest  by  offering  companies  predictable  rules,  a 
level-playing field and reduced compliance costs. It will also support innovation in Europe by 
making  sure  that  costs  of  R&D  investment  are  tax  deductible  and  addressing  the  bias  in 
taxation towards debt financing instead of equity. 

The importance of investment in knowledge, innovation, education and ICT as drivers 
of  growth  is  also  high  on  the  agenda.  In  several  Member  States,  the  significant  fall  in 
investment  in  equipment  and  machinery  partly  explains  the  drop  in  productivity  after  the 
crisis.  At  the  same  time,  higher  investment  in  intangible  assets  such  as  R&D,  ICT  and 
training,  will  be  needed  to  push  up  growth  of  total  factor  productivity  and  crowd-in 
investment. Member States need to ensure that capital is as efficiently allocated as possible. In 
the past, total factor productivity, which includes a number of factors such as innovation and a 
more efficient allocation of resources, contributed less to growth and productivity in the EU 
than  in  the  United  States.  Structural  issues  affecting  product,  services,  capital  and  labour 
markets  are  responsible  for  this  subdued  performance  in  Europe.  Improving  the  interaction 
between university research and business development of products and services is crucial to 
boost  competitiveness  and  growth.  In  the  same  vein,  the  creation  of  national  platforms  on 
digitising industry would help leverage the EU funds committed to this to deliver significant 
investments that will also strengthen the competitiveness of our economy. 

Member States need to step up their efforts to implement the necessary reforms aimed 
at removing obstacles to investment that were identified in the context of the European 
Semester. Despite action taken by some Member States, in particular by euro area countries 
heavily hit by the crisis,  progress  to  address  barriers  to  investment has been overall uneven 
and more needs to be done. This concerns areas such as insolvency, public procurement, the 
efficiency and transparency of public administration or sector-specific regulations, as well as 
the functioning of labour and product markets. In particular, efficient and transparent public 
administration  and  effective  justice  systems  are  necessary  to  support  economic  growth  and 
deliver  high  quality  services  for  firms  and  citizens.  In  some  Member  States,  barriers  to 
investment  may  also  include  a  high  level  of  taxation  and  overly  complex  taxation  systems, 
corruption,  weak  research  and  innovation  frameworks,  as  well  as  difficulties  in  access  to 
the  country-specific 
finance,  particularly 
recommendations are necessary to sustain and increase investment levels in Member States, 
taking into account national specificities.    

for  SMEs.  These 

identified 

reforms 

in 

1.4 Opportunities for EU businesses to benefit from global markets and investment 

Exports to the rest of the world have become an increasingly significant source of jobs 
for  Europeans.  Thanks  to  our  companies'  international  competitiveness,  more  than  30 
million jobs are now supported by exports outside the EU — two thirds more than 15 years 
ago  —  meaning  exports  now  support  almost  one  in  seven  jobs  in  Europe.  These  jobs  are 

13 COM(2016) 685 

8 

 
                                                            
highly  skilled  and  better  paid  than  average.  They  are  spread  across  all  EU  Member  States,  
and are both directly and indirectly linked to exports outside the EU. For example, 200,000 
jobs in  Poland,  140,000 in Italy, and 130,000 in the United  Kingdom  are linked to German 
exports  outside  the  EU.  French  exports  outside  the  EU  support  150,000  jobs  in  Germany, 
50,000  in  Spain  and  30,000  in  Belgium.  As  a  result,  the  benefits  of  trade  are  spread  much 
more widely than is often realised, including considerable benefits for European consumers. 
Against the backdrop of first signs of trend reversals in global trade, there is a need to uphold 
openness  and  to  facilitate  the  further  integration  of  EU  companies  in  global  value  chains, 
notably for service providers and SMEs. 

The EU is well placed to use trade and investment policy to contribute to this objective 
and  benefit  companies,  consumers  and  workers  alike.  The  EU  is  the  world’s  largest 
exporter  and  importer  of  goods  and  services  taken  together.  This  scale  makes  the  EU  the 
largest  trading  partner  of  about  80  countries  and  the  second  most  important  partner  for 
another  40.  The  EU  should  use  this  strength  to  benefit  both  its  own  citizens  and  people  in 
other parts of the world, particularly those in the world’s poorest countries.  

The  ratification  of  the  Paris  climate  change  agreement  will  create  further  new 
opportunities  for  EU  business.  The  agreement  creates  policy  and  investment  certainty  for 
EU companies operating in low carbon and low emissions sectors, not only in Europe but in 
the  rest  of  the  world.  The  EU  and  its  Member  States  are  the  biggest  contributors  of  public 
climate  finance  to  developing  countries.  Together  they  provide  around  a  third  of  public 
funding  available  for  action  to  tackle  climate  change  and  account  for  almost  half  of  the 
pledges in the Green Climate Fund. In the period 2014-2020, at least 20% of the EU budget 
will be spent  on climate-related action. The  EU funds the Global  Climate  Change Alliance, 
one  of  the  world’s  largest  climate  initiatives.  To  scale  up  support  for  the  poorest  and  most 
vulnerable, the EU has launched a new phase, with an expected commitment of around EUR 
350  million  for  2014-2020.  This  will  support  least  developed  countries  and  small  island 
developing  states  in  adapting  to  the  impacts  of  climate  change.  The  EU  and  the  Member 
States last year provided EUR 17.6 billion to help developing countries tackle climate change. 
This  demonstrates  the  EU’s  determination  to  contribute  its  fair  share  of  the  goal  set  by 
developed  countries  to  provide  USD  100  billion  in  annual  finance  to  developing  countries 
from various sources by 2020.  

The  EU’s  attractiveness  as  an  investment  destination  for  both  foreign  and  domestic 
investors needs to be increased. The EU share of global foreign direct investment flows fell 
from about 50% before the crisis to 20% in 2014. While foreign direct investment flows are 
driven  by  global  developments  and  events  largely  exogenous  to  EU,  inflows  respond  to  a 
range of country-specific location factors, firm-specific factors and sector-specific factors that 
affect the investment climate and that can be directly affected by policy makers in the short 
and medium term.  

2. Pursuing structural reforms  

2.1. Creating jobs and enhancing skills 

Member States need to invest more in creating supportive conditions for greater labour 
market  participation,  more  quality  jobs  and  effective  training  and  upskilling.  
Well-functioning, flexible, labour markets must be matched with enhanced skills and income 

9 

 
 
 
support  during  work  transitions,  and  welfare  systems  firmly  anchored  in  strong  social 
standards.  Those  Member  States  that  pursued  comprehensive  labour  market  and  social 
protection  reforms  prior  to  the  crisis  have  been  better  able  to  support  employment  and 
preserve  fairness  during  the  economic  downturn.  Such  reforms  encompass  flexible  and 
reliable contractual arrangements that promote labour market transitions and avoid a two-tier 
labour  market,  comprehensive  lifelong  learning  strategies,  effective  active  labour  market 
policies, and modern social protection systems. Other Member States have introduced reforms 
in  this  direction  during  the  crisis,  contributing  to  the  increased  job  intensity  of  the  current 
recovery.  

In  many  Member  States,  the  working-age  population  and  the  labour  force  continue  to 
shrink, notably as a result of low birth rates, ageing, emigration and health-related exits 
from the labour market. Precariousness, segmentation of the labour market and their impact 
on productivity growth need to be addressed in this context to reduce their negative impact on 
internal demand and productivity growth. Moreover, equality of opportunities is key for social 
fairness. Increasing  female labour market  participation,  closing unjustified gender pay gaps, 
improving the work-life balance of men and women, making further progress in the inclusion 
of disadvantaged groups and addressing discrimination of persons with a migrant background, 
are examples of how growth and social fairness go hand in hand. In this light, Member States 
need  to  ensure  access  to  quality  services  and  in-kind  benefits,  such  as  childcare,  housing, 
healthcare  and  long-term  care,  education  and  training.  Quality  services  and  in-kind  benefits 
contribute  to  increased  labour  market  participation,  notably  for  women,  and  to  social 
inclusion.  Housing  policies  also  deserve  attention  as  they  can  remove  obstacles  to 
geographical  mobility  at  national  levels,  through  targeted  allowances  or  social  housing 
programmes.  

A  number  of  Member  States  will  need  to  put  in  place  adequate  structures  for  dealing 
with the influx of migrants including refugees beyond the immediate short-term needs. 
While there are clear economic and fiscal impacts, they are neither unmanageable nor sizeable 
from a macroeconomic point of view. The strategic challenge lies in a smooth welcome into 
hosting societies in the short term in a way that also addresses the longer term challenges to 
labour market and education policies and institutions and social systems. The ability to adjust 
policies  and  develop  incentives  and  skills-building  that  promote  labour  market  integration 
will  have  a  direct  bearing  on  the  long-term  sustainability  of  public  finances.  For  instance, 
several Member States have developed strategies to facilitate the integration of migrants with 
previous  experience  and  entrepreneurship  abilities.  These  Member  States  have  provided 
migrants  with  support  to  help  them  to  adapt  their  skills  and  experience  to  local  market 
conditions14.  

Despite  recent  progress  more  action  is  needed  from  the  Member  States  to  fight  youth 
unemployment. 9 million young people have benefitted from the EU Youth Guarantee so far, 
a  framework  to  improve  school-to-work  transitions,  invest  in  young  people’s  employability 
and prevent the risk of social exclusion. However, Member States need to pursue the roll-out 
of the Youth Guarantee and enhance its effectiveness in order to reach out to the young and 
regions  most  in  need.  The  Commission  will  mobilise  all  its  instruments,  has  proposed 
additional funding for the Youth Guarantee and will come with a new youth initiative shortly. 
Moreover, almost four million students have already benefitted from the Erasmus programme. 
One in three young Erasmus beneficiaries has been offered a job by the companies in which 
they trained.  

14 A recently published Commission Guidebook including 22 good practice case studies and an interactive Self-
Assessment Tool (http://ec.europa.eu/DocsRoom/documents/18421) to support service providers in improving 
their actions targeting migrant entrepreneurs and would-be entrepreneurs. 

10 

 
                                                            
Member States need to focus on labour market relevance of skills as forecasts indicate a 
future shortage of people with vocational and training qualifications. For too many young 
people, initial vocational education and training remains a second choice and only a minority 
of  workers  are  offered  opportunities  for  further  skills  development.  Modernising  vocational 
education and training, including by promoting flexible learning pathways, will help people to 
develop  the  appropriate  transferable  skills  throughout  their  lives.  This  requires  close 
partnerships with the business, higher education and research sectors. The active involvement 
of  social  partners  can  lead  to  the  development  of  apprenticeships  in  new  areas  covering 
various skills levels, which can be expected to address skills mismatches. At the EU level, the 
revision of the Blue Card directive aims at harmonising and clarifying the legal framework to 
attract high skilled third country nationals, while the Skills Guarantee underlines the need to 
assess specific needs for third country nationals. 

Modernising  education  and  training  is  necessary  to  equip  people  with  better  skills, 
ranging from basic skills in numeracy and literacy to entrepreneurial and digital skills. 
Educational  attainment  indicators  kept  improving  in  2015  and  the  early  school  leaving  rate 
has declined in most Member States, reaching 11%. Yet, early school leaving rates are higher 
for  Roma  pupils  and  those  with  a  migrant  background,  particularly  foreign-born  pupils. 
Tertiary education attainment has also been consistently and significantly increasing, standing 
at  38.7%  in  2015,  with  17  Member  States  above  the  Europe  2020  headline  target  of  40%. 
Still,  by  international  standards,  too  many  Europeans  acquire  only  a  low  level  of  basic  and 
digital  skills.  This  puts  Europe  at  a  competitive  disadvantage  in  a  fast-changing  global 
economy. Nurturing skills is essential to drive upward convergence and sustain the European 
social model, while fostering greater entrepreneurship and innovation capabilities. The New 
Skills  Agenda  for  Europe15  puts  a  particular  emphasis  on  supporting  adults  who  have  not 
reached upper secondary with the opportunity of assessing their skills level, providing them a 
new training opportunity and validating the skills acquired. 

Effective social dialogue is crucial for a well-functioning social market economy. Better 
performing  Member  States  tend  to  have  a  more  strongly  established  social  dialogue.  
The success of social dialogue is dependent on a number of factors, including the willingness 
and capacity of different partners to engage and work towards solutions, for example where it 
concerns wage setting.16 The engagement of social partners at EU and national level is crucial 
for striking the right balance when designing and implementing economic and social policies 
in a comprehensive and forward-looking manner.  

Member States should, together with social partners, and in line with national practices, 
make  sure  that  their  wage-setting  systems  are  effective  in  delivering  both  job  creation 
and  real  income  increases,  and  for  that  adjust  better  to  changes  in  productivity  over 
time.  In  a  number  of  Member  States,  developments  in  wages  do  not  sufficiently  follow 
productivity  developments.  This  may  lead  either  to  an  erosion  of  competitiveness  or,  in  the 
case  of  too  modest  wage  developments,  to  weaker  aggregate  demand  and  growth.  
This  may  also  discourage  productivity  gains,  research,  development  and  innovation  and 
investment  in  human  capital  aimed  at  improving  skills.  It  may  also  distort  incentives  for 
resource  reallocation  towards  sectors  with  higher  value  added  and  thus  hinder  further 
structural  change  of  the  EU  economies  to  make  them  more  competitive.  It  is  important  to 
ensure  that  differences  in  skills  and  divergences  in  economic  performance  across  regions, 

15 COM(2016) 381 
16 On 24 October 2016, a first tri-partite multilateral surveillance on social dialogue in Member States took place 
in the Employment Committee, on the basis of the Employment Guidelines, confirmed by the EPSCO Council 
on  13  October  2016.  It  was  conducted  together  with  national  representatives  from  trade  unions  and  business 
associations. 

11 

 
 
                                                            
sectors  and companies are into  account.  When setting  minimum wages,  Member States and 
social  partners  should  consider  their  impact  on  in-work  poverty,  job  creation  and 
competitiveness. 

2.2. Social policy as a productive factor – modernising the welfare state 

Member  States  need  to  redesign  their  social  protection  systems  to  improve  the 
promotion  of  labour  market  participation  and  provide  adequate  employment  security 
and income replacement. The percentage of people at risk of poverty or social exclusion in 
the  EU  decreased  further  in  2015  but  remains  very  high17.  Even  if  the  EU  is  still  far  from 
achieving its  Europe  2020 target of lifting at least  20 million people from  poverty or social 
exclusion by 2020, the number of people at risk of poverty or social exclusion is now again 
approaching the level of 2008, the reference year for which the Europe 2020 target was set. 
Social  protection  accounts  for  a  large  share  of  Member  States'  public  expenditure,  also  on 
account of the increases in spending in recent years, but there is scope for better targeting.  

Tax and benefits schemes should provide adequate social support and work incentives. 
Improving  the  adequacy  and  coverage  of  income  support  schemes  (unemployment  benefits; 
social assistance including minimum income; pensions) is crucial to prevent social exclusion 
and,  in  the  case  of  unemployment  benefits,  can  increase  both  macro-economic  stability  and 
labour market attachment whilst reducing precariousness. Unemployment benefits should be 
sufficient  in  terms  of  duration,  eligibility  and  levels,  and  be  accessible  to  all  employees 
irrespective  of  their  contract,  while  preserving  incentives  to  work  and  including  activation 
requirements  as  regards  job  search  and  participation  in  active  measures.  Furthermore, 
adequate minimum income benefits should be ensured for those who lack sufficient resources 
for  a  decent  standard  of  living.  For  those  of  working  age,  these  benefits  should  include 
requirements  for  participation  in  active  support  to  encourage  labour  market  (re)integration, 
thus contributing to the sustainability of these support systems. This may call in some cases 
for  setting  one-stop  shops  in  charge  of  both  the  short-term  and  long-term  unemployed.  Tax 
and benefit reforms aimed at improving work incentives and making work pay should also be 
promoted. Tax systems can also contribute to combating income inequalities and poverty.  

National pension systems should better reflect growing life expectancy. Pension systems, 
in coordination with labour market measures, should enable and encourage men and women 
to remain in employment until a higher age, reflecting growing life expectancy, and restrict 
early  retirement  pathways  to  those  genuinely  unable  to  work  longer.  Longer  and  more 
fulfilling  working  lives  also  depend  on  adequate  skills,  lifelong  learning  opportunities  and 
enabling  working  environments,  including  flexible  task  allocations  and  working  time 
schedules. To facilitate work-life balance in working age and help reduce the gender pension 
gap, pension systems could credit care duties, taking due account of fiscal positions and future 
expenditure  implications.  Broad  coverage  of  supplementary  pensions  can  play  a  key  role in 
retirement income provision, in particular where the adequacy of public pensions might be a 
challenge, and should be promoted by appropriate means, depending on the national context. 

Health  policies  should  support  and  reinforce  social  safety  nets  and  active  inclusion 
strategies,  through  preventive,  but  also  curative  and  rehabilitation  policies.  Member 
States  therefore  need  to  continue  to  reform  their  health  systems,  thus  ensuring  universal 
access to cost effective public health and healthcare services. Protecting the population from 
falling into poverty or social exclusion due to ill-health and related expenditure is essential, 
both from a social and economic view-point. This is also relevant for the activation of persons 

17 In 2015, around 119 million people were at risk of poverty or social exclusion, around 3.5 million people less 
than in 2014. 

12 

 
 
                                                            
with disabilities. Despite the action taken at EU level, lack of equal opportunities in the labour 
market remains the most important challenge for persons with disabilities. Efforts should be 
enhanced to ensure focus on abilities instead of disabilities.  

2.3 Deepening the single market and making national markets bigger 

Member  States  should  make  full  use  of  the  instruments  available  at  the  EU  level  to 
unlock  the full  potential  of  investment  and  productivity in  Europe.  Productivity  growth 
has  slowed  down  in  recent  years,  but  this  has  not  affected  all  firms  to  the  same  degree.  In 
many  cases,  the  least  productive  firms  have  experienced  negative  productivity  growth. 
Member  States  must  introduce  reforms  and  policies  to  facilitate  the  diffusion  of  new 
technologies  to  ensure  that  their  benefits  can  spill  over  a  wider  range  of  firms.  The 
implementation  of  the  Single  Market  Strategy  will  create  new  business  opportunities  and 
remove existing regulatory and administrative barriers, notably for service providers seeking 
to expand across Europe. Work is ongoing on concrete proposals linked to the enforcement of 
single market rules as well as measures in the area of business services, including facilitating 
their  cross-border  provision,  business  restructuring  and  insolvency,  and  the  creation  of  a 
simple,  modern  and  fraud-proof  VAT  system.  The  Digital  Single  Market  Strategy  will 
enhance regulatory certainty in the digital sector. Better enforcement of consumer rules would 
ensure a level playing field across the Single Market, increases trust and contribute to unlock 
the full potential of the Digital Single Market. The Commission is also exploring the design of 
a single EU authorisation framework that would directly apply to large projects with a cross-
border dimension or major investment platforms that involve national co-financing. 

Public procurement is important for competitiveness as it can drive structural changes. 
Every year, public authorities in the EU spend around 14% of GDP on public procurement, 
which amounts to more than EUR 1.9 trillion spent annually in the EU18. This is especially 
true in sectors such as energy, transport, defence, IT or the provision of health services, where 
the  public  sector  is  a  key  source  of  demand.  Modern  public  procurement  systems  require 
public procurers who understand the economic implications of their work and whose integrity 
and  transparency  is  without  doubt.  Institutions  must  be  available  to  coordinate  procurement 
between  bodies  at  various  levels  to  attain  economies  of  scale,  manage  complaints  by 
companies, and audit public contracts.  Processes must be in place that prevent corruption and 
collusion between suppliers and address firmly instances of unfair procurement. In addition, 
in some Member States where state-owned enterprises exert tangible impact on the economy, 
it  is  important  to  ensure  appropriate  governance  structures  to  contribute  best  to  economic 
development.  

In  many  Member  States,  structural  change  implies  the  transfer  of  capital  and  labour 
resources  from  traditional  to  new  activities,  often  in  the  services  sector.  Labour 
productivity in this sector is lower and has been growing in the EU more slowly than in other 
advanced  economies,  in  particular  the  United  States.  Raising  productivity  in  this  growing 
sector  becomes  imperative  to  ensure  quality  jobs  and  high  wages.  Unfortunately,  the 
incomplete integration of the internal market for services and remaining barriers to access to 
some segments of these markets limits the expansion of intra-EU trade and the expansion of 
the  markets  for  those  services.  Enhanced  competition  in  more  integrated  services  markets 
would also benefit consumers and downstream producers, as mark-ups tend to fall in a more 
competitive environment, while the quality of products and services may improve. However, 
employees need to have the right skills and capacity to adjust to change, which can require an 
active  role  of  public  authorities  to  facilitate  this  process.  Problems  in  the  application  of 

18  This  is  the  latest  estimate  not  including  spending  by  utility  companies.  Former  estimates  including  utility 
procurement are around 19% of EU GDP, i.e. roughly EUR 2.3 trillion.   

13 

 
                                                            
mutual recognition and, in some cases, national marking requirements threaten the integrity of 
the  internal  market.  A  number  of  excessive  barriers  in  the  area  of  regulated  professions 
continue to impede the realisation of the full potential of the internal market. In the case of 
business services, professional services and retail, the impact of removing these barriers has a 
broader economic effect.  

Adopting legislative environments to new business models is particularly important for 
economic  dynamism,  but  must  not  come  at  the  expense  of  fairness.  The  EU  and  its 
Member States need to have an open mind to new ways of doing business in the context of the 
collaborative  economy.  At  the  same  time,  a  fragmented  approach  across  Europe  to  new 
business  models  creates  uncertainty  for  traditional  operators,  new  services  providers  and 
consumers  alike.  This  is  why  the  Commission  has  put  forward  guidance  on  how  existing 
Union  law  should  be  applied  to  this  dynamic  and  fast  evolving  sector19.  As  part  of  that 
guidance,  Member  States  should  assess  the  justification  and  proportionality  of  existing 
restrictions and use absolute bans only as measures of last resort; they should also ensure that 
consumers enjoy a high level of protection, while not imposing disproportionate obligations 
on private individuals who only provide services on an occasional basis. Moreover, Member 
States should continue simplifying and clarifying the application of tax and liability rules and 
labour  law  to  the  collaborative  economy.  By  cooperating  with  national  authorities  in  the 
recording of economic activity, collaborative economy platforms can contribute significantly 
to  facilitating  tax  collection.  All  together,  these  initiatives  should  contribute  to  stronger 
framework  conditions  for  innovation,  the  reduction  of  existing  market  fragmentation  and 
ultimately to job creation. 

Member  States  need  to  put  in  place  modern  tax  systems  that  can  support  growth  and 
fairness between businesses. EU initiatives will bring a new level of cooperation in the area 
of  taxation  in  the  fight  against  tax  abuse,  from  increasing  transparency  on  tax  rulings  and 
multinationals’ tax-related information, to securing common anti-abuse measures against the 
most pervasive tax avoidance schemes and the Commission Action Plan on VAT. The cross-
border  nature  of  tax  evasion  and  avoidance  and  the  integration  of  the  Member  States’ 
economies  call  for  a  coordinated  approach,  not  only  through  European  initiatives  but  also 
through  the  coordination  of  national  policies.  The  Commission’s  recent  proposal  on  the 
common consolidated corporate tax base and on double taxation dispute resolution will build 
a modern, fair and competitive tax framework for the EU. Growth-friendly activities such as 
R&D investment and equity financing will be incentivised, supporting the wider objectives of 
reviving growth, jobs and investment. Addressing inefficiencies in tax collection is relevant 
for  many  Member  States,  and  some  have  taken  measures.  Member  States  should  use  these 
opportunities also to lower taxation of labour. At the same time, Member States should pay 
particular attention to the distributive effects of their tax reforms.      

3. Responsible fiscal policies 

The  reduction  in  the  average  public  deficit  of  the  euro  area  and  in  the  number  of 
countries under an excessive deficit procedure reflect the efforts made in recent years. 
The  Commission  just  issued  its  Opinions  on  the  Draft  Budgetary  Plans  on  the  euro  area 
Member  States20.  The  aggregate  picture  hides  large  differences  across  the  Member  States. 
Challenges in terms of fiscal sustainability remain in a number of countries where public debt 
are  high,  which  may  be  a  source  of  vulnerability  to  adverse  shocks.  Some  other  countries 

19 COM(2016) 356 
20 COM(2016) 730 

14 

 
 
                                                            
have fiscal space. From an economic point of view, the fiscal stance has to be assessed against 
the double objective of the long-term sustainability of public finances and the need to support 
the economic recovery.21  

At this point in time, given the need to support the on-going recovery, more efforts are 
needed  to  bring  about  a  positive  fiscal  stance  for  the  euro  area  as  a  whole,  also  in 
support  of  the  monetary  policy  of  the  European  Central  Bank.22  This  was  already 
announced in the Letter of Intent of the President to the European Parliament and Council and 
it  is  now  reflected  in  the  proposed  Recommendation  on  the  economic  policy  of  the  euro 
area.23  Member  States’  fiscal  policy  should  be  supportive  to  growth  while  ensuring  longer 
term debt sustainability. The Member States where fiscal space exists should use the available 
scope to help stabilise demand. Member States where such space does not exist should deliver 
on  the  requirements  given  by  the  Stability  and  Growth  Pact,  and  use  every  opportunity  to 
boost reforms and improve the quality of their public finances in support of jobs and growth. 
They  need  to  focus  on  the  quality  and  the  composition  of  budgets  (both  revenues  and 
expenditures)  in  order  to  maximise  the  impact  on  growth.  Spending  reviews  are  widely 
recognised as a helpful tool to that effect. This would lead to a better distribution of the fiscal 
stances  across  countries  and  avoid  a  situation  where  macro-stabilisation  in  the  short  term 
would be achieved at the cost of increasing risks to sustainability in the medium-term.  

In  applying  the  rules,  the  Commission  will  continue  to  make  use  of  the  appropriate 
flexibility built into the Stability and Growth Pact24. The Commission will also take into 
account  the  budgetary  impact  of  the  exceptional  inflow  of  refugees  and  of  exceptional 
security  needs,  applying  its  current  methodology.  Considerable  flexibility  has  already  been 
provided  to  a  number  of  countries  that  made  use  of  the  structural  reforms  and  investment 
clauses. 

The  low  funding  cost  environment  makes  it  an  ideal  time  for  the  Member  States  to 
frontload public investments. In conjunction with gradually strengthening nominal growth, 
it also offers an opportunity to curb high debt ratios. This can be facilitated by cutting non-
future oriented spending and closing tax  loopholes. The Stability and  Growth Pact provides 
the right framework to guide fiscal policy under different circumstances. Fiscal surveillance 
tools  need  to  be  exploited  to  their  full  extent to  provide incentives  for good  policies  and  to 
strengthen the economic recovery.  

Pension  systems  have  been  reformed  in  a  majority  of  Member  States  to  enhance  their 
sustainability,  efficiency  and  adequacy,  but  additional  steps  are  needed  to  consolidate 
these  reform  efforts.25  To  this  end,  policy  actions  should  seek  to  complement  enacted 
pension  reforms  with  flanking  policies,  including  by  boosting  retirement  incomes  by 
extending working lives, for example by linking the retirement age to life expectancy and by 
supporting other complementary means of retirement incomes. Member States should also put 
in place resilience-enhancing measures to ensure that public pension system sustainability can 
be preserved, even under adverse conditions.  

21 COM(2016) 727  
22 COM(2016) 727  
23 COM(2016) 726  
24 COM(2015) 12  
25 See Economic Policy Committee (AWG) and European Commission (DG ECFIN), (2015), “The 2015 Ageing 
Report: economic and budgetary projections for the 28 EU Member States (2013 – 2060)”, European Economy, 
No.  3,  and  European  Commission  (DG  EMPL)  and  Social  Protection  Committee,  (2015),  “The  2015  Pension 
Adequacy Report: current and future income adequacy in old age in the EU", European Union”, Vol I and II.   

15 

 
 
                                                            
Driven  by  population  ageing  and  technological  developments,  public  expenditure  on 
health  care  and  long-term  care  is  expected  to  increase  significantly  in  the  coming 
decades.  To  safeguard  sustainable  health  systems  and  support  their  positive  contribution  to 
population health and economic prosperity, further policy action will be needed enabling the 
individual to stay healthy for longer, while making health systems more effective, accessible 
and resilient.26 

4. Next steps 

The Member States should step up implementation of the key reforms highlighted in the 
country-specific  recommendations  addressed  to  them.  At  the  same  time,  they  should 
make full use of the opportunities offered to them at EU level. The effects of the reforms 
take time, and the more they are delayed, the longer economies continue to grow below their 
potential. Member States are encouraged to make effective use of the tools available at the EU 
level,  for  example  the  European  Structural  and  Investment  Funds,  the  Structural  Reform 
Support Programme, as soon as it is adopted by the co-legislators, and the Investment Plan for 
Europe. The Commission is ready to assist, as necessary. The Commission will continue its 
constructive dialogue with the European Parliament and Council to ensure swift advances on 
the priority initiatives at EU.  

The Commission will also intensify the dialogue with the Member States in the run-up to 
the  national  programmes  and  country-specific  recommendations  next  spring.  This 
should  build  on  a  common  understanding  of  successful  reform  implementation  and 
sequencing, taking into account short- and medium-term impacts and distributional costs and 
benefits. Following the publication of the country reports during the winter, the Commission 
will  continue  to  discuss  with  Member  States  through  a  variety  of  channels,  including 
dedicated  visits  at  political  level  under  the  steer  of  the  responsible  Vice-President.  Member 
States will also have the possibility to provide their feedback on the Commission’s analysis 
during  the  second  round  of  bilateral  meetings,  and  in  the  national  reform  programmes  and 
stability and convergence programmes. In all these contacts, the Commission will put a strong 
focus on the implementation of country-specific recommendations adopted by the Council. 

To  prepare  the  national  programmes,  the  Communication  calls  for  a  strong  role  of 
national  Parliaments  and  a  stronger  involvement  of  social  partners.  The  inclusive 
preparation  of  these  programmes  contribute  to  their  ownership  and  to  the  broader  reform 
support, and the Commission stands ready to facilitate contacts at all levels. 

26 COM(2014) 215  

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