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 2017 European Semester: Country-specific recommendations
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, European social policy, economic stabilisation, employment policy, euro area, fiscal policy, investment policy, macroeconomics, stability programme, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 500 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   2017 European Semester: Country-specific recommendations  
 
 
1. 

INTRODUCTION  

The European economy has proven resilient in the face of significant challenges. 
In 2016, both the EU and euro area economies grew by nearly 2%. Employment in the 
EU  reached  232.9  million  people,  the  highest  number  ever  recorded.  The  European 
Commission’s spring 2017 economic forecast1 shows that public finances continue to 
improve: the general government deficit in the euro area, which was above 6% a few 
years ago, is expected to be 1.4% this year, and the debt-to-GDP ratio, after years of 
sharp  increase,  is  expected  to  decrease  slowly  to  go  just  below  90%  next  year. 
Economic  growth  is  benefitting  from  the  resilience  of  domestic  drivers,  supportive 
economic  policies,  including  accommodative  monetary  policy  and  non-restrictive 
fiscal  policies,  a  gradual  improvement  in  world  trade  and  the  euro’s  relatively 
favourable  exchange  rate.  However,  economic  developments  remain  burdened  by 
weak  underlying  productivity  and  by  the  legacies  of  the  crisis,  including  persistent 
inequalities  and  disparities  across  countries.  Uncertainty  stemming  mostly  from 
external factors remains high and potential growth needs to be boosted.  

To  strengthen  the  positive  trends  and  convergence  within  the  EU,  economies 
need  to  be  more  competitive,  resilient,  inclusive  and  innovative.  This  is  the 
objective  of  the  recommendations  made  under  the  European  Semester  of  economic 
policy  coordination.  Reforms  are  made  easier  in  a  supportive  environment  and  they 
are very necessary to sustain the current positive economic and social trends, as well 
as  to  support  the  modernisation  of  our  economies.  Well-designed  and  appropriately 
sequenced reforms, which also take into account distributional impacts, should serve 
to empower EU citizens and business to contribute to and benefit from growth, foster 
convergence and minimise any adverse effects of change. Implementing these reforms 
will  also  help  to  increase  convergence  within  the  EU  and  the  euro  area,  also  by 
strengthening their resilience. 

Reforms  need  to  take  due  account  of  the  specific  socio-economic  situation  and 
challenges  in  each  Member  State.  Significant  labour  market  reforms  have  been 
adopted since 2010, notably in some of the countries hardest-hit by the crisis. These 
reforms  have  helped  to  increase  the  adjustment  capacity  of  their  economies,  restore 
competitiveness and increase employment. Other reforms have sought to improve the 
business environment and the way financial and product markets function. Recently, 
attention  has  been  increasingly  paid  to  shifting  taxation  away  from  labour  and  to 
modernising  social  policies  and  labour  market  parameters  to  improve  their 
functioning  and  deliver  a  fair  distribution  of  the  benefits  of  growth  across  society. 
However,  further  efforts  have  to  be  made,  in  particular  in  reforming  product  and 

1 See national programmes at: 

https://ec.europa.eu/info/2017-european-semester-national-reform-programmes-and-stability-
convergence-programmes_en    and  Commission  Spring  2017  Economic  Forecast  of  11  May 
2017 
https://ec.europa.eu/info/business-economy-euro/economic-performance-and-
forecasts/economic-forecasts/spring-2017-economic-forecast_en  

at: 

2 

 
 
                                                            
services markets and in modernising public administration, which are important areas 
for facilitating investment and for increased trade integration and competitiveness.  

The reforms also  need to  ensure  the  longer term sustainability  of  the economic 
recovery and improve resilience to future economic and societal challenges. This 
requires  more  focus  on  reforms  that  facilitate  investment  in  social  infrastructure, 
education,  early  childhood  education  and  care  and  lifelong  learning.  There  is  also  a 
need  for  more  reforms  promoting  research  and  innovation  capacity  and  improving 
productivity.  Such  reforms  could  benefit  catching-up  Member  States  that  are  under 
increasing  pressure  to  shift  towards  specialising  in  knowledge-intensive  industries. 
They could also help countries with chronically low productivity growth. In addition, 
specific attention should be given to the overall efficiency of welfare and tax-benefit 
systems. In countries with excess savings and low investment, additional investment 
is  needed  to  ensure  future  economic  success,  particularly  given  the  ageing  of  the 
population.  

There  are  still  many  restrictions  that  weigh  on  business  activities.  Inflows  of 
foreign  direct  investments  remain  low  and  trade  integration  and  diversification  in 
some parts of the EU economy are still weak. Restrictions in professional services and 
disproportionate  regulatory  requirements  and  burdensome  administrative  procedures 
in  some  services  sectors  continue.  The  fragmentation  and  inefficiencies  of  public 
procurement markets persist. These factors continue to hamper trade integration in the 
internal market and slow down the value chain integration of businesses by imposing 
additional  costs  or  restricting  their  access  to  markets.  Boosting  innovation  and 
productivity  and  reducing  disparities  in  economic  performance  across  firms,  sectors 
and  regions  creates  space  for  dynamic  wage  developments  and  improvements  in 
disposable household incomes. 

Social  priorities  must  be  a  key  part  of  the  reform  efforts.  As  pointed  out  in  the 
White  Paper  on  the  future  of  Europe  and  in  the  reflection  paper  on  the  social 
dimension of Europe by 2025, the recovery is still unevenly distributed across society 
and  regions.  Addressing  the  legacy  of  the  crisis,  from  long-term  unemployment  to 
high levels of public and private debt, remains an urgent priority. Structural reforms 
are  needed  to  foster  social  justice,  mitigate  income  inequalities  and  support 
convergence  towards  better  outcomes.  Social  priorities  and  consequences  should  be 
taken into account when designing and implementing the reform agenda. 

To  help  address  some  of  these  issues  and  guide  further  convergence,  the 
Commission  has  presented  its  proposal  for  a  European  Pillar  of  Social  Rights. 
The aim of the pillar is to set out essential principles to support well-functioning and 
fair  labour  markets  and  welfare  systems.  The  pillar  is  designed  as  a  compass  for  a 
renewed process of convergence. The analysis and recommendations of the European 
Semester  will  reflect  and  promote  the  principles  enshrined  in  the  illar  by  assessing, 
them. 
the  progress  made 
monitoring  and  comparing 

implementing 

towards 

3 

 
 
Benchmarking and exchange of best practices will be conducted in a number of areas. 
A social scoreboard will help to track progress. 

The  European  Semester  and  country-specific  recommendations  provide  annual 
guidance  for  the  Member  States’  reforms.  While  the  recommendations  to  the 
Member States are adjusted every year to reflect the progress made and the changing 
environment,  they  are  firmly  anchored  in  the  wider  priorities  outlined  in  the 
Commission President’s State of the Union address and the Annual Growth Survey. 
For the euro area countries, they also reflect the recommendations for the economic 
policy of the euro area. Coherence and consistency between the recommendations for 
the euro area and the country-specific recommendations is essential to ensure that the 
appropriate  policy  mix  is  achieved  at  euro  area  level  and  that  spillovers  within  the 
euro  area  are  appropriately  reflected  in  the  policy-making  process.  The  wider  and 
longer-term  vision  of  the  Europe  2020  strategy  and  the  2030  Sustainable 
Development Goals are important to guide action on an annual basis and are  key to 
guide action on an annual basis and are fully integrated in the European Semester.  

The  Commission  has  taken  concrete  steps  to  improve  and  support  the 
implementation and ownership of reforms by the Member States. As in previous 
years, the recommendations are based on a comprehensive multi-level dialogue with 
the  European  Parliament,  national  parliaments,  Member  States'  public  authorities, 
social  partners,  civil  society  and  other  key  stakeholders.  For  the  first  time,  the 
Commission  consulted  the  Member  States  on  the  draft  country  reports  published  in 
February,2 thus strengthening common understanding of the key economic and social 
priorities. The Commission also holds regular consultations with social partners at EU 
and  national  levels  and  has  invited  Member  States  to  pay  greater  attention  to  the 
contribution of national social partners. This includes involving them more closely in 
the  elaboration  of  National  Reform  Programmes  and  consulting  then  on  key 
milestones  of  the  Semester.  In  its  proposals  for  this  year's  country-specific 
recommendations,  the  Commission  also  focuses  on  the  issues  that  require  the  most 
urgent attention.  

2. 

OVERALL PROGRESS IN REFORMS AND CORRECTING IMBALANCES  

The  experience  of  the  past  few  years  confirms  that  the  Member  States  are 
committed  to  pursuing  structural  reforms  actively.  The  evolution  of  progress 
towards  implementing  each  country-specific  recommendation  can  be  seen  most 
clearly  by  looking  at  the  whole  period  since  its  adoption.  The  large  majority  of 
reforms  have  seen  substantive  progress,  while  the  pace  and  depth  with  which  they 
have  been  implemented  by  Member  States  varies.  To  facilitate  Member  States’ 
ownership  of  reforms  and  contribute  to  their  improved  implementation,  the 

2 See https://ec.europa.eu/info/publications/2017-european-semester-country-reports_en    

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Commission  has  shifted  focus  towards  key  priority  issues  of  macro-economic  and 
social  relevance.  Over  recent  cycles  of  the  European  Semester,  recommendations 
have  become  more  focused  on  reform  steps  that  can  be  implemented  within  12-18 
months.  While  this  is  important  to  produce  momentum  and  initiate  first  steps,  this 
timeframe  is  limiting  for  a  true  assessment:  experience  shows  that  reforms  often 
happen  incrementally  over  a  longer  period  of  time  and  their  impact  needs  to  be 
measured over several years.  

Around  two  thirds  of  the  country-specific  recommendations  issued  until  2016 
have been implemented with at least ‘some progress’. Since 2011, the Council has 
annually issued a set of recommendations to each Member State. The targeted reforms 
are often far reaching and require time to prepare and implement in line with national 
practices. Governments, national parliaments, social partners, other stakeholders and 
individual  citizens  need  to  invest  time,  hold  discussions  and  carry  out  analysis  to 
come  to  the  best  outcomes  for  the  issues  addressed  by  the  recommendations.  These 
generally  require  compromise  solutions  that  strike  a  balance  between  different 
economic, social, institutional and political considerations.  

in 

implementing  the  recommendations  from  previous  years 

Progress 
is 
considerably  greater  than  for  those  made  less  than  one  year  ago.  This  confirms 
that  implementing  reforms  takes  time  and  that  it  is  important  to  assess  the  process 
over  the  medium  term  and  not  only  the  short  term  perspective.  From  a  multiannual 
perspective, reform progress has been greatest in the policy areas that concern fiscal 
policy and fiscal governance and in financial services. This largely reflects the efforts 
made  in  overcoming  the  economic  and  financial  crisis,  as  the  high  debt  and  deficit 
levels  had  to  be  addressed  and  the  financial  sector  stabilised.  Significant  measures 
have been taken in many countries to improve the sustainability of pension systems. 
Areas  in  which  progress  has  been  slower  are  health  and  long-term  care,  broadening 
the tax base, improving the business environment, access to finance and competition 
in services. Some of these are longer-term priorities that will become more pressing 
due to increasing demographic challenges and could be heightened if growth remains 
moderate. Since the start of the European Semester in 2011, the pace of progress - as 
assessed  one  year  after  the  adoption  of  the  recommendations  -  has  been  slightly 
decreasing. This might partly be because politically easier reforms were done first and 
because  of  the  greater  sense  of  urgency  during  the  crisis.  Yet,  this  trend  has  been 
halted with the implementation of the 2016 country-specific recommendations. 

5 

 
 
 
Figure 1: Implementation of country-specific recommendations: yearly assessment in each consecutive 
year since 2011  

Figure 2: Overall implementation of 2011-2016 CSRs to date (multiannual assessment) 

Full 
Implementation 
9% 

No Progress 
5% 

Substantial 
Progress 
15% 

Limited Progress 
28% 

Some Progress 
43% 

Since  the  adoption  of  last  year’s  country-specific  recommendations,  Member 
States have made most significant progress in the areas of fiscal policy and fiscal 
governance, as well as in active labour market policies. Steps have been taken in 
taxation  policies  (reducing  the  tax  burden  on  labour),  the  labour  market  and  social 
policies  (notably  poverty  reduction,  social  inclusion  and  childcare)  and  financial 
services.  The  areas  showing  least  progress  include  the  long-term  sustainability  of 
public  finances,  competition  in  services  and  the  business  environment.  The  overall 

6 

 
 
 
 
 
picture  that  emerges  is  that  Member  States  continue  to  make  efforts  to  implement 
reforms,  but  the  degree  of  progress  ranges  between  ‘limited’  and  ‘some’  for  most 
policy areas identified in the 2016 country-specific recommendations. This means that 
there is still work to do before the reforms are fully implemented and deliver results 
for citizens and companies. 

Figure 3: Assessment of progress on 2016 country-specific recommendations by policy area 

Addressed to 1-5 Member States 

Addressed to 6-10 Member States 

Addressed to 11+ Member States 

The  correction  of  macroeconomic  imbalances  continues,  reflecting  progress  in 
implementing relevant reforms, but it remains largely asymmetric across the EU, 
in  the sense that  it is  countries with external  deficits  or  debt  that  have made further 
progress.  At  the  same  time,  large  current  account  surpluses  persist  in  some  other 
countries.  The  ensuing  persistent  current  account  surplus  of  the  euro  area  reflects 
aggregate demand dynamics that continue to lag behind economic activity. Moreover, 

7 

 
 
 
  
  
  
 
  
  
  
 
 
core  inflation  has  been  at  historically  low  levels.  This  provides  a  challenging 
environment for countries that need to reduce domestic and foreign debt. As a result, 
private  and  public  debt  deleveraging  is  progressing  at  a  slow  and  uneven  pace, 
hampered  by  low  nominal  growth.  Boosting  price  and  non-price  competitiveness 
would help external rebalancing in the euro area. Member States with current account 
deficits  or  high  external  debt  can  contribute  to  the  euro  area  rebalancing  by 
introducing  measures  that  help  raise  productivity.  Those  with  large  current  account 
surpluses can contribute to the euro area’s rebalancing by structural reforms and other 
measures that make it easier to channel excessive savings into domestic demand. This 
can be done, in particular by strengthening investment and promoting stronger wage 
growth.  The  current  environment  of  low  interest  rates  also  provides  additional 
opportunities to do this, notably in countries with significant fiscal space. 

A  number  of  imbalances  remain  to  be  addressed.  Levels  of  private,  public  and 
external  debts  remain  very  high  in  some  countries.  Keeping  these  debts  on  a  solid 
declining  path  is  essential  to  reduce  vulnerabilities,  also  in  view  of  a  foreseen 
recovery  in  inflation  and  interest  rates.  Capital  buffers  in  the  financial  sector  have 
been  strengthened,  but  challenges  arise  from  low  profitability,  coupled  with  high 
levels  of  non-performing  loans.  Labour  market  conditions  are  improving  across  the 
board,  although  persistently  high  unemployment  and  inequality  remain  sources  of 
social  distress  and  weigh  on  economic  performance  in  some  Member  States.  In  a 
growing  number  of  Member  States,  challenges  are  linked  to  strong  house  price 
movements.  

In  February  2017,  the  Commission  identified  imbalances  in  12  Member  States; 
appropriate  follow-up  forms  part  of  the  country-specific  recommendations, 
where  challenges  identified  in  the  macroeconomic  imbalance  procedure  are  referred 
to.  In-depth  reviews  were  carried  out  for  13  Member  States.  It  was  concluded  that 
Finland is no longer experiencing imbalances, while six are experiencing imbalances 
(Germany,  Ireland,  Spain,  the  Netherlands,  Slovenia  and  Sweden)  and  six  are 
experiencing  excessive  imbalances  (Bulgaria,  France,  Croatia,  Italy,  Cyprus  and 
Portugal).  For  Cyprus,  Italy  and  Portugal,  the  Commission  announced  in  February 
that it would review its assessment, taking into account the level of ambition of their 
National Reform Programmes.  

Box 1. Assessment of National Reform Programmes of Italy, Cyprus and Portugal 

In February 2017, the Commission announced that  Italy, Cyprus, and Portugal were 
experiencing  excessive  imbalances  and  that,  in  the  light  of  persistent  structural 
weaknesses emerging from the analysis in the in-depth reviews, it would review this 
assessment in May. The Commission has continued to monitor developments in these 
three  countries,  notably  the  policy  commitments  outlined  in  their  National  Reform 
Programmes, which they submitted in April.  

8 

 
 
Cyprus’s  programme  details  the  policy  initiatives  envisaged  over  the  short  and 
medium  term  to  tackle  other  economic  and  structural  challenges.  These  will  be 
addressed notably by making the public sector more efficient, making the functioning 
of the insolvency framework function better, streamlining the issuance and transfer of 
title  deeds  and  modernising  the  justice  system.  The  programme  also  presents  policy 
measures to improve competitiveness and remove barriers to investment, in particular 
by  continuing  to  implement  the  action  plan  for  growth.  Although  many  reform 
commitments  appear  sufficiently  ambitious  to  tackle  Cyprus’s  challenges,  details  of 
when they will be adopted and implemented are generally lacking. 

Italy’s  2017  reform  programme  presents  short  and  medium  term  commitments,  in 
continuity  with  previous  such  programmes.  Measures  to  be  taken  by  mid-2017 
include final adoption of the pending laws on competition, reform of criminal process 
and the statutes of limitation, and implementation of the anti-poverty law. Measures 
related to firm-level bargaining, tax shift and privatisation are also planned. Over the 
medium term, the programme targets in particular public finance, taxation, the labour 
market, the banking and the credit system, competition, the public administration and 
the  justice  system,  and  investment.  Although  many  reform  commitments  appear 
sufficiently  ambitious  to  tackle  Italy's  challenges  appropriately,  their  credibility 
hinges on being implemented in practice. 

The  2017  reform  programme  for  Portugal  presents  a  medium  term  economic  and 
social strategy in continuity with the 2016 programme. The measures proposed aim to 
raise the skills level of the labour force; address labour market segmentation, improve 
the business environment and increase the competitiveness of Portuguese firms; tackle 
corporate debt and unemployment; modernise the public administration and improve 
social protection. Although many reform commitments appear sufficiently ambitious 
to  tackle  Portugal's  challenges  appropriately,  the  document  lacks  details  as  well  as 
concrete implementation plans in some key areas such as reducing private and public 
debt. Portuguese authorities provided further details on measures and timing in a letter  
on 14 May 2017. 

As a result of these assessments, and taking into account all the available information, 
the  Commission  has  concluded  that  there  are  currently  no  analytical  grounds  for 
stepping  up  the  macroeconomic  imbalance  procedure,  provided  that  these  Member 
States  swiftly  and  fully  implement  the  reforms  set  out  in  their  country-specific 
recommendations. The Commission will continue to monitor these three countries, as 
it does all countries with excessive imbalances, notably through ‘specific monitoring’. 

The  Commission  has  strengthened  the  monitoring  of  policy  implementation 
under the macroeconomic imbalance procedure. In line with the decision taken last 
year  to  streamline  the  categories  of  Member  States  under  the  macroeconomic 
imbalance  procedure,  the  process  of  ‘specific  monitoring’  has  been  applied  to  all 
countries  with  imbalances  or  excessive  imbalances.  The  depth  of  the  monitoring 
process  reflects  the  scope  of  the  challenges  and  the  severity  of  the  imbalances.  The 

9 

 
 
aim  is  to  contribute  to  a  swifter  and  more  comprehensive  policy  response  to  the 
imbalances  identified  by  intensifying  dialogue  between  the  Commission  and  the 
national authorities.  

3. 

KEY OBJECTIVES OF THE 2017-2018 RECOMMENDATIONS 

social 

taking  account  of 

The overall objective of the recommendations is to deliver more jobs and faster 
growth,  while 
fairness  considerations.  The 
recommendations  are  chosen  following  broad  policy  analysis  and  engagement  with 
key  stakeholders.  They  are  based  on  the  issues  identified  in  the  Annual  Growth 
Survey, the macroeconomic imbalance procedure, surveillance under the Stability and 
Growth  Pact,  country  visits,  Member  States’  consultations,  the  Tripartite  Social 
Summit, the annual convention for inclusive growth  with civil society, and  the euro 
area recommendations.  

The challenges vary considerably across Member States. In some Member States, 
for  instance  those  experiencing  excessive  imbalances,  the  challenges  identified 
require comprehensive and sometimes urgent policy action, In others where economic 
performance  is  overall  satisfactory  and  challenges  are  more  specific,  more  targeted 
policy  action  is  recommended.  These  differences  are  reflected  in  the  number  of 
recommendations addressed to each Member State and in their scope and formulation. 
The  Member  States  are  expected  to  take  action  to  address  all  of  the  challenges 
identified by the comprehensive analysis in the country reports published in February, 
even  if  these  are  not  reflected  in  the  country-specific  recommendations.  Particular 
attention  should  be  paid  to  sequencing  the  reforms  appropriately  and  to  taking 
accompanying measures where relevant, based on the assessment of the distributional 
impacts of the reforms.  

Labour market 

Many Member States have implemented reforms to strengthen the performance 
of  labour  markets,  but  further  efforts  are  necessary  to  address  high  levels  of 
unemployment.  Past  reforms  are  bearing  fruit  in  terms  of  creating  jobs  and 
improving  labour  market  conditions.  However,  youth  and  long-term  unemployment 
remain urgent priorities and more efforts are needed to promote resilient and inclusive 
labour markets. These include tackling labour market segmentation and increasing the 
effectiveness  of  active  labour  market  policies  (for  example  in  Belgium,  Bulgaria, 
Ireland,  Italy,  Lithuania,  Hungary,  Portugal  and  Romania)  and  social  policies  (for 
example  in  Bulgaria,  Lithuania  and  Spain).  Likewise,  there  is  a  need  to  develop 
collective bargaining systems that are more conducive to creating jobs and to raising 
productivity  growth.  In  some  countries  that  are  at  or  close  to  full  employment,  real 
wage  increases  could  accelerate,  with  related  positive  effects  on  aggregate 

10 

 
 
 
consumption.  This  could  contribute  to  reducing  large  current  account  surpluses  in 
Germany and the Netherlands.  

Labour market segmentation is hampering productivity and the development of 
human  capital.  Structural  changes  in  employment  have  resulted  in  an  increase  in 
temporary  forms  of  employment.  New  forms  of  employment  can  increase  work 
opportunities and boost business development. However, they  may also limit access 
to  social  protection,  training  and  employment  services,  weaken  job  security  and 
undermine the objective of creating quality jobs.  

More  needs  to  be  done  to  improve  participation  in  the  labour  market.  Despite 
continuous increases in the labour market participation of women and some measures 
to improve work-life balance, gender employment gaps and gender pay gaps remain 
significant. The Commission therefore continues to propose that Member States act in 
this area. Additional efforts are also needed to improve the integration of migrants and 
people  with  a  migrant  background  into  the  labour  market  (for  example  in  Belgium, 
France, the Netherlands, Austria and Finland).  

A combination of pension reforms, labour market policies, lifelong learning and 
health  policies  is  required  to  support  a  more  active  older  population.  Older 
workers  have  seen  their  labour  market  participation  increase  but  in  many  countries 
their  employment  rates  remain  low.  In  view  of  the  ageing  population  and  higher 
dependency  ratios,  getting  older  people  involved  in  the  labour  market  is  crucial  to 
ensuring  that  the  social  protection  systems  are  sustainable  and  adequate.  Remaining 
active and healthy is also important for the well-being of older people. This is why the 
Commission has proposed a number of recommendations in these areas where action 
has  been  more  limited  and  where  the  challenges  are  more  pressing  (for  example  in 
Germany, Croatia, Luxembourg, Austria, Poland and Slovenia). Member States have 
successfully undertaken relevant reforms of their healthcare systems. However, there 
are Member States where healthcare performance, sustainability and accessibility are 
hampered  by  persistently  low  funding,  inefficient  allocation  of  resources,  over-
reliance on hospital care, large out-of-pocket payments and staff shortages. A number 
of  recommendations  address  these  issues  (for  example  in  Latvia,  Austria  and 
Romania). 

The contribution of social dialogue is important. It is crucial to ensure that social 
partners  are  empowered  to  play  their  role  fully  in  collective  bargaining  in  line  with 
national  practices.  Besides  a  well-functioning  social  dialogue,  the  involvement  and 
constructive  engagement  of  social  partners  in  the  design  and  implementation  of 
relevant  policies  and  reforms 
their  ownership  and 
effectiveness.  

is  essential 

increase 

to 

Social protection systems and inequality 

11 

 
 
Social  protection  systems  must  provide  enabling  services  to  all  and  adequate 
income  support  to  those  in  need,  while  fostering  employment  and  participation 
in the labour market for those who can. An appropriate balance is needed between 
adaptability and security, including an adequate level, coverage and duration of social 
protection. Reforms that make work pay are also needed to encourage transitions into 
employment.  

Income  inequality  and  poverty  need  to  be  addressed  when  designing  policy 
reforms and monitoring their implementation.  As outlined in the Annual Growth 
Survey and further supported by the analysis in the country reports, critical new socio-
economic developments have been identified in some Member States. These concern 
income inequalities or socio-economic inequalities in education and health outcomes. 
These need to be considered when designing economic policies. In addition, Member 
States with the greatest levels of inequality tend to have higher poverty rates. Tackling 
income  inequality  and  poverty  requires  a  comprehensive  set  of  preventive  and 
mitigating policies. These include equal access to education and health care, improved 
labour  market  opportunities  and  earnings  prospects,  affordable  quality  services  and 
well-designed tax and benefit systems.  

Tax  and  benefit  systems  combined,  through  the  progressiveness  of  tax  systems, 
good tax collection and the provision of adequate social benefits, can contribute 
to steering employment and reducing income inequalities and poverty. While the 
design  of  national  tax  systems  is  a  prerogative  of  the  Member  States,  experience 
shows  that  a  low  tax  progressivity,  combined  with  poor  tax  collection  and  a  weak 
social  safety  net,  is  damaging  to  society  and  economic  growth.  In  this  context,  a 
number of recommendations have been made to improve the adequacy and coverage 
of  safety  nets  (for  example  regarding  minimum  income)  and  the  transparency  and 
coordination of social benefits.  

Education  

Better skills are essential for improving people’s prospects in the labour market 
and sustaining innovation and productivity growth. Workers who are low-skilled 
have  lower  employment  rates  and  make  up  a  large  proportion  of  the  long-term 
unemployed.  Investing  in  skills  and  supporting  transitions  from  lower-skilled  to 
higher-skilled  employment  and  career  opportunities  is  also  crucial  to  mastering 
technological  progress,  sustaining  productivity  growth  and  addressing  ageing. 
Reforms need  to  include steps to  up- or  re-skill the population  with basic skills  and 
improve the labour market relevance of education, vocational education and training, 
tertiary  education  and  life-long  learning.  Efforts  should  also  focus  on  reducing 
inequalities in access to quality education, in particular for disadvantaged groups such 
as Roma and students with a migrant background. All these measures also highlight 
the  important  role  of  the  social  partners  in  providing  high-skill,  high-productivity 
work  and  lifelong  learning  opportunities.  Recommendations  concerning  education-

12 

 
 
related  issues  are  proposed  this  year  for  Austria,  Belgium,  Bulgaria,  Spain,  France, 
Lithuania,  Cyprus,  Croatia,  Hungary,  Austria,  Romania,  Slovakia  and  the  United 
Kingdom.  

Financial sector 

Fixing remaining vulnerabilities in the banking sector would help to support the 
recovery and strengthen the financing of European business. While the process of 
repairing  bank  balance  sheets  has  progressed  in  Member  States  over  recent  years, 
high  levels  of  non-performing  loans,  inefficiencies  in  business  models  and 
overcapacity weigh on banks' profitability and limit their ability to provide lending to 
the  real  economy.  The  Commission  has  presented  a  comprehensive  legislative 
package to reduce risks further and strengthen the resilience of the EU banking sector 
in  particular.  The  Commission  will  also  present  a  mid-term  review  of  the  Capital 
Markets Union action plan in June 2017. 

High  levels  of  non-performing  loans  are  a  legacy  of  the  overlending  before  the 
crisis  and  a  result  of  the  protracted  period  of  sluggish  growth  since  then.  The 
pick-up in economic growth and domestic policy actions have helped put the level of 
these  loans  on  a  decreasing  path  in  some  Member  States  (Ireland,  Croatia  and 
Slovenia). However, in a number of other countries, the recovery itself continues to be 
hindered by the constrained bank lending resulting from the high level of bad loans. 
Decisive  policy  actions  in  these  countries  to  promote  the  resolution  of  these  loans 
could help to break such vicious circles. 

There is a need to act both on the high level of existing non-performing loans and 
on preventing their renewed build-up in the future. With economic and financial 
systems that are highly interconnected in the EU, high ratios of non-performing loans 
in  several  Member  States  have  broader  spillover  effects.  Although  policy  tools  are 
largely  in  the  hands  of  Member  States,  an  EU-level  strategy  could  promote  a  more 
comprehensive  approach  and  concerted  action  at  both  national  and  European  level. 
The  euro  area  recommendation  calls  for  an  effective  area-wide  strategy  to  address 
viability risks within the banking sector.  

insolvency  frameworks,  notably 

Effective 
including  effective  out-of-court 
restructuring,  are  crucial  for  supporting  the  workout  of  non-performing  loans 
and increasing recovery rates. These measures include increasing transparency and 
disclosure,  strengthening  data  infrastructures  to  ease  transactions,  and  servicing  by 
and  sale  to  specialised  non-bank  institutions.  To  deal  with  large  existing  stocks  of 
non-performing  loans,  options  should  be  considered  for  facilitating  accelerated 
balance sheet repair. These should include more proactive use of supervisory powers, 
as  well  as  making  it  easier  to  sell  such  assets.  The  Commission  has  recommended 
taking measures to Bulgaria, Ireland, Italy, Cyprus, Portugal and Slovenia.  

13 

 
 
Investment and business environment  

Economic  stability  and  the  implementation  of  reforms  have  contributed  to  the 
recovery  in  investment,  which  has  exceeded  pre-crisis  levels  in  some  Member 
States.  However,  further  efforts  are  needed  to  increase  the  stocks  of  capital 
equipment, intangible capital and infrastructures and to compensate for the investment 
gap accumulated since the outbreak of the crisis. The Commission’s assessment of the 
progress made in addressing national barriers to investment and the priority reforms 
underway confirms that a significant proportion of country-specific recommendations 
in these areas are not fully implemented. Member States should take advantage of the 
favourable prevailing macroeconomic conditions to step up public investment in order 
to accelerate the pace of reforms  and create opportunities for private investment. At 
the same time, Member States, in particular those with fiscal space, should sustain the 
upward trend in public investment. 

The  rate  of  public  investments  in  education,  infrastructure  and  research  and 
innovation should grow in those countries where there is room to increase public 
expenditure. Improved public infrastructure with an impact on productivity, such as 
broadband  networks,  communications  or  innovation,  are  needed  in  a  number  of 
Member States. Investment in public housing, education, health and social services is 
needed  in  many  others.  In  all  cases,  applying  procurement  procedures  transparently 
and  appropriately  should  help  to  maximise  efficiency  in  the  use  of  public  sector 
budget resources. 

However,  the  speed  and  strength  of  the  recovery  hinges  on  a  more  determined 
upturn  in  private  investment.  The  implementation  of  the  Investment  Plan  for 
Europe  is  helping  to  ensure  optimal  use  of  public  investment  and  is  acting  as  a 
catalyst of private investment. This reinforces the impact of the European Structural 
and  Investment  Funds  in  many  parts  of  Europe.  Structural  reforms  are  helping  to 
create  a  business  environment  that  is  conducive  to  encouraging  private  sector 
investments  in  Member  States.  Administrative  reforms  have  been  accelerated  in 
countries  where  they  were  most  needed.  However,  much  more  work  remains  to  be 
done. A stable pipeline of projects in key sectors is still being developed.  

Further efforts are needed to improve the effectiveness of justice systems and to 
prevent and fight corruption. These are key issues in a number of Member States, 
hampering  investment,  efficient  resource  allocation,  economic  performance  and 
growth.  Addressing  these  challenges  is  essential  for  improving  business  confidence 
and  the  investment  climate,  enhancing  the  efficiency  of  public  spending,  promoting 
fairness and supporting economic, social and territorial cohesion. The situation calls 
for  continued,  persistent  and  coherent  action  particularly  in  the  sectors  that  remain 
most vulnerable to corruption: public procurement, public administration, the business 
environment,  healthcare.    Remaining  challenges  include:  fragmented  corruption 
prevention  frameworks  and  inadequate  control  mechanisms;  gaps  in  the  anti-

14 

 
 
corruption  legal  framework  or  enforcement  of  existing  anti-corruption  rules; 
insufficient  initiatives  on  whistleblowing  and  letterbox  companies;  insufficient 
prosecution  of  high-level  corruption;  informal  payments  in  healthcare;  lack  of 
competition and transparency in public procurement operations. 

Product and services markets 

Reforms in product and services markets are still making insufficient progress in 
most  countries.  Reforms  should  be  undertaken  in  Member  States  that  have  not 
tackled them yet. In most cases, reforms have been tabled or announced but they still 
need  to  be  stepped  up,  enacted  and  implemented  with  resolve.  Where  reforms  have 
been adopted and are in the process of being implemented, measures must be taken to 
ensure  the  implementation  is  unwavering  and,  most  importantly,  to  consolidate  the 
reforms to avoid potential backtracking. 

Reforms  are  particularly  important  in  business  services  and  retail distribution, 
given the impact that these sectors have on the productivity of other services and 
manufacturing  sectors.  Specific  sectoral  initiatives  have  been  launched  in  these 
areas  and  in  past  Semester  cycles  it  has  been  recommended  that  Member  States 
introduce reforms in these sectors. Finding complementary ways to implement these 
measures and reforms alongside other efforts to increase competition in these markets 
will be essential for fostering productivity growth in the service sectors as well as in 
other sectors using these services as inputs. This would help improve competitiveness 
across primary and user sectors. Greater competition and lower prices of professional 
services would be of particular benefit for SMEs. These reforms should also allow for 
the development of new business models and innovation. 

Public finance 

Public finances are expected to continue improving in both the euro area and the 
EU  as  a  whole.  Benefiting  from  the  ongoing  moderate  economic  expansion  and 
exceptionally low interest rates, the general government deficit and debt continued to 
decline in 2016 in the euro area and the EU (deficit respectively at 1.5% and 1.7% of 
GDP,  and  debt  respectively  at  91.3%  and  85.1%  of  GDP).  The  general  government 
deficit is expected to continue to decline in both areas in 2017 and 2018, and to reach 
in 2018 1.3% of GDP in the euro area and 1.5% in the EU, under a no-policy-change 
assumption. General government debt is also projected to continue declining in 2017 
and 2018 in the euro area and the EU. It is forecast to reach, in the euro area, 90.3% in 
2017 (84.7% in the EU) and 88.8% in 2018 (83.6% in the EU). These are the lowest 
levels  since  2012.  Debt  reduction  can  be  ascribed  mainly  to  primary  surpluses, 
reduced interest expenditure, real GDP growth  (albeit modest) and the expected rise 
in inflation.     

15 

 
 
After several years of budgetary consolidation, the fiscal policy stance in the euro 
area  and  the  EU  remained  broadly  neutral  in  2016  and  is  set  to  remain  so  in 
2017.  With  the  proposed  country-specific  recommendations,  the  fiscal  adjustment 
required  for  Member  States  under  the  preventive  arm  not  yet  at  their  medium-term 
budgetary  objective  is  consistent  with  the  Stability  and  Growth  Pact.  For  Member 
States under the corrective arm, the proposed recommendations reiterate the need to 
comply with the requirements of the Excessive Deficit Procedure. Setting public debt 
ratios firmly on a downward path is especially important in those countries with high 
debt  and  where  vulnerability  to  financial  market  swings  may  be  more  accentuated. 
Overall,  these  adjustments  to  comply  fully  with  the  Pact  would  imply  a  slightly 
restrictive aggregate fiscal stance for the euro area as a whole in 2018.  

Within  the  existing  rules  of  the  Stability  and  Growth  Pact,  euro  area  Member 
States  that  have  fiscal  scope  are  therefore  recommended  to  use  it  to  support 
domestic demand, notably investment in infrastructure, research and innovation. 
This  would  strengthen  their  growth  potential  and  lead  to  a  better  distribution  of  the 
fiscal adjustment across the euro area. It would also contribute to achieving a broadly 
more  appropriate  fiscal  stance  for  the  area  as  a  whole  in  2018.  This  would  be 
important  to  strike  the  right  balance  between  attaining  public  finance  sustainability 
and  safeguarding  the  ongoing  recovery  in  economic  activity  and  in  employment. 
Moreover,  when  taking  policy  measures  to  achieve  the  recommended  budgetary 
adjustments under the preventive arm of the Pact, Member States should consider the 
need to support the recovery and the potential impact on employment. In carrying out 
its future assessments, the Commission stands ready to use its margin of appreciation 
in  cases  where  the  impact  of  large  fiscal  adjustment  on  growth  and  employment  is 
particularly significant.  In  that  context,  it will make use  of  any updated information 
regarding  the  projected  position  in  the  economic  cycle  of  each  Member  State  and 
work  closely  with  the  Council  to  that  effect.  This  is  consistent  with  the  approach 
already set out by the Commission in its Communication of January 2015 on making 
the best use of the flexibility within the rules of the Stability and Growth Pact and in 
its Communication of November 2016 on a positive fiscal stance for the euro area. 

In order to find resources to finance medium-to-long term investment projects, 
Member  States  should  focus  on  enhancing  the  composition  of  their  public 
finances.  Close  attention  should  be  paid  to  an  appropriate  allocation  of  public 
revenues and expenditures across the various policy areas, resulting in a combination 
that  can  be  more  conducive  to  growth.  Further  efforts  are  needed  to  improve  the 
efficiency  and  effectiveness  of  public  taxation  and  expenditure  at  all  levels  of 
government.  This  may  be  instrumental  in  containing  further  the  overall  cost  of  the 
public sector, and may provide space to support policies that help boost growth and 
productivity and social inclusion, for example by investing in social infrastructure and 
upgrading  workers’  skills.  Business  activity  and  social  fairness  would  both  benefit 
from  the  provision  of  an  effective,  well-functioning  public  administration  and  an 
adequate level of social services and public goods. 

16 

 
 
Box 2. Update on surveillance under the Stability and Growth Pact  

Based  on  the  assessment  of  the  2016  Stability  and  Converge  Programmes,  the 
Commission has also taken a number of steps under the Stability and Growth Pact. 

The  Commission  recommends  that  the  excessive  deficit  procedure  is  closed  for 
Croatia and Portugal. This would leave only four Member States under the corrective 
arm of the Pact.  

The  Commission  adopted  reports  for  Belgium  and  Finland  under  Article  126(3) 
TFEU, in which it reviews their compliance with the debt criterion of the Treaty. In 
both cases, the conclusion is that the debt criterion should be considered as currently 
complied with. In the case of Belgium, additional fiscal measures are to be taken in 
2017 to ensure broad compliance with the adjustment path towards the MTO in 2016 
and  2017  together.  In  the  case  of  Finland,  it  is  noted  that  the  swift  adoption  and 
implementation of structural reforms increasing productivity and supply of labour are 
key  to  enhance  growth  prospects  in  the  medium  term  and  improve  fiscal 
sustainability. 

Furthermore, the Commission addressed a warning to Romania on the existence of a 
significant  deviation  from  the  adjustment  path  toward  the  medium-term  budgetary 
objective  in  2016  and  recommends  the  Council  to  adopt  a  recommendation  for 
Romania  to  take  appropriate  measures  in  2017  with  a  view  to  correcting  this 
significant  deviation.  It  is  the  first  time  that  this  procedure  of  the  EU  economic 
governance framework  is  applied.  It  provides  the  authorities  the  opportunity  to  take 
corrective action in order to avoid the opening of an excessive deficit procedure.  

Based on the assessment of the 2017 Stability Programmes, the Commission  takes a 
favourable  view  of  the  flexibility  requests  of  Lithuania  and  Finland.  In  the  case  of 
Finland,  flexibility  is  granted  in  view  of  the  planned  implementation  of  major 
structural  reforms,  notably  the  Competitiveness  Pact  and  the  pension  reform,  and 
investment.  In  the  case  of  Lithuania,  flexibility  is  granted  in  view  of  the  planned 
implementation of reforms raising the sustainability of the pension system through a 
reinforced indexation and a gradual increase of the pensionable service. 

4. 

CONCLUSION 

Structural  reforms,  together  with  the  better  use  of  public  budgets,  are 
indispensable  to  lift  the  EU  economy  to  its  full  potential.  The  set  of 
recommendations  put  forward  by  the  Commission  draws  on  both  the  European  and 
national  perspectives.  The  recommendations  follow  up  on  the  EU  and  euro  area 
priorities  outlined  in  the  Annual  Growth  Survey  and  the  recommendations  for  the 
economic  policy  of  the  euro  area.  They  also  build  on  a  thorough  dialogue  with  the 
Member States,  through the country reports, bilateral  discussions and  visits, and  the 

17 

 
 
 
reform  agenda,  as  outlined  in  the  National  Reform  Programmes  and  Stability  or 
Convergence  Programmes.  The  recommendations  address 
the  most  pressing 
challenges that hinder the creation of more jobs or faster growth.  

The Commission calls on the Council to endorse the proposed approach for the 
2017-2018  country-specific  recommendations  and  related  decisions  under  the 
Stability and Growth Pact. It also calls 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.  The 
Commission  is  also  available  to  provide  on-request  reform  support  to  the  Member 
States  through  the  newly  set-up  Structural  Reform  Support  Service  and  through  the 
best use of the European Structural and Investment Funds.  

18 

 
 
 
TABLE 1 – POLICIES COVERED IN THE 2017 COUNTRY-SPECIFIC RECOMMENDATIONS  

19 

Broad CategoryPolicy 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 & corruptionPublic finances & taxationFinancial sectorLabour market, education & social policiesStructural policiesPublic administration & business environment 
 
 
 
TABLE 2 - PROGRESS TOWARDS EUROPE 2020 STRATEGY TARGETS 

strategy 

Europe  2020 
targets for the EU 
the 
Increasing 
1. 
employment  rate  of  the 
population  aged  20-64  to 
at least 75% 
Increasing  combined 
2. 
public 
private 
and 
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  (i.e.  a  primary 
energy consumption target 
of 1483 Mtoe) 

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 

68.6% 

Latest 
data 

available 

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

71.1% (2016) 

1.93% 

2.03% (2015) 

Target  unlikely  to  be 
met 

14% reduction  22% 

reduction 

Target likely to be met 

(2015) 

12.9% 

16.7% (2015) 

Target likely to be met 

above 
primary 

11.7% 
the 
energy 
consumption 
target  of  1483 
Mtoe 
13.9% 

Target likely to be met 

above 

the 
3.1% 
energy 
primary 
target 
consumption 
of 1483 Mtoe (2015) 

10.7% (2016) 

Target likely to be met 

33.8% 

39.1% (2016) 

Target likely to be met 

0.45  million 
increase 
(compared 
to 
the  2008  base 
year) 

1.7  million  increase 
the 
(compared 
2008 
year, 
2015) 

base 

to 

Target  unlikely  to  be 
met 

Sources: European Commission; European Environment Agency. 

20