COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, economic situation, educational system, euro area, investment, labour market, macroeconomics, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 COM(2018) 120 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP  2018 European Semester: Assessment of progress on structural reforms,  prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {SWD(2018) 200-226}  
 
 
1. 

INTRODUCTION 

Europe's  economy  is  experiencing  the  highest  growth  in  a  decade.  Yearly  GDP  growth 
has  reached  last  year  a  ten-year  high.  Investment  is  picking  up.  The  positive  economic 
outlook  included  improving  labour  market  and  social  outcomes.  With  236.3  million  people 
currently  working  in  the  EU,  employment  is  at  record  levels.  The  unemployment  rate  is 
almost back down to its pre-crisis level. Continued labour market improvements are driving 
up income prospects. Public finances continue to improve. And with growth of 2.4 % in real 
terms in 2017, the EU economy and euro area are outperforming earlier expectations and are 
playing a full part in the robust growth at global level. 

This  momentum  looks  set  to  continue  on  the  back  of  positive  news  on  economic 
sentiment and domestic demand.1 Euro area and EU GDP is forecast to expand by 2.3 % in 
2018. It will  then ease somewhat off to  2.0 %  in  2019. At the same  time a number  of risks 
remain,  notably  from  the  financial  markets  as  a  result  of  high  asset  valuations  that  may  be 
vulnerable  to  less  supportive  financial  conditions.  Also  risks  related  to  the  outcome  of  the 
negotiations  on  the  United  Kingdom's  withdrawal  remain,  as  do  geopolitical  tensions  and  a 
shift towards more inward looking policies.  

The favourable conditions have opened a window of opportunity to further strengthen 
the foundations of Europe's economies. At the same time, the remaining risks remind of the 
necessity  to  do  so,  continuing  our  efforts  to  overcome  the  core  legacies  of  the  crisis.  High 
levels of corporate, household and public debt remain in some Member States. Moreover, the 
economic expansion has been uneven across and within Member States, and it will take time 
to be equally felt in all parts of Europe. 18 million people are still seeking a job, with youth 
and  long  term  unemployment  still  significantly  high  in  some  countries.  Disposable 
households´  income  is  not  yet  above  pre-crisis  levels  in  all  Member  States.  The  share  of 
people at risk of poverty or  social exclusion is just  back to pre-crisis levels.  The process of 
economic and social convergence has started again, while structural weaknesses are holding 
back some countries' potential to grow and their capacity to face future shocks. At the same 
time, technological change prompts the economies to embrace innovation while making sure 
societies remain as inclusive as ever. Now is the time to pursue the reforms needed to make 
Europe's economies more resilient and to create more inclusive growth. 

With its continued focus on the 'virtuous triangle' of investment, structural reforms, and 
responsible fiscal policies, the European Semester continues to guide Member States in 
taking  the  necessary  reforms.  The  2018  Annual  Growth  Survey  provides  this  economic 
guidance to Member States, in line with President Juncker's 2018 State of the Union address. 
The recommendation for the economic policy of the euro area in 20182 stresses the need for 
reforms to promote quality job creation, social fairness, rebalancing and convergence, higher 
investment, the quality of public finances, the completion of the Banking and Capital Markets 
Unions,  and  deepening  the  Economic  and  Monetary  Union.  The  recommendation  also  calls 
for  fighting  aggressive  tax  planning.  It  calls  on  all  Member  States  to  prioritise  reforms  that 
increase  productivity  and  growth  potential, 
institutional  and  business 
environment, remove bottlenecks to investment and foster innovation, support the creation of 
quality  jobs  and  reduce  inequality.  Member  States  with  current  account  deficits  or  high 
external  debt  should  additionally  contain  unit  labour  cost  growth  and  improve  their 

improve 

the 

1 See European Economic Forecast, Winter 2018.  
2 The euro area recommendation was adopted by the Council on 23 January 2018. It provides overall orientation 
on main economic and financial challenges for the euro area and its Member States, thereby guiding the process 
leading to the issuance to country specific recommendations to euro area Members States.  

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competitiveness, while Member States with large current account surpluses should also create 
conditions to promote wage growth, while respecting the role of social partners, and to foster 
investment to support domestic demand and growth potential.  

The European Semester has been enriched this year by building on the European Pillar 
of Social Rights. The Pillar was proclaimed by the European Parliament, the Council and the 
Commission,  in  November  2017  at  the  Social  Summit  for  Fair  Jobs  and  Growth  in 
Gothenburg. A key message of the 2018 Annual Growth Survey is the need to implement the 
Pillar for a renewed convergence towards better working and living conditions across the EU. 
This  requires  fair  and  well-functioning  labour  markets,  as  well  as  modern  education  and 
training systems that equip people with skills that match labour market needs. This should be 
supported  by  sustainable  and  adequate  social  protection  systems.  The  country  reports 
published  today  look  at  how  Member  States  deliver  on  the  three  dimensions  of  the  Pillar: 
equal  opportunities  and  access  to  the  labour  market,  fair  working  conditions,  and  social 
protection and inclusion. The provision of adequate skills and persistent gender employment 
gap,  high  labour  market  segmentation  and  the  risk  of  in-work  poverty,  the  low  impact  of 
social  transfers  on  poverty  reduction,  sluggish  wage  growth,  and  ineffective  social  dialogue 
are  areas  of  particular  concern  in  some  Member  States.  In  order  to  analyse  Member  States’ 
performances  in  a  comparative  perspective,  the  country  reports  also  build  on  the 
benchmarking  exercises  conducted  on  unemployment  benefits  and  active  labour  market 
policies and on minimum income. 

The  country  reports  published  today  will  underpin  the  Commission's  upcoming 
country-specific  recommendations  later  this  spring.  These  27  country  reports3  review 
economic  and  social  developments,  challenges  and  opportunities  for  the  Member  States.  A 
number of in-depth reviews were carried out in the context of the Macroeconomic Imbalances 
Procedure, following the 2018 Alert Mechanism Report, and their conclusions are an integral 
part  of  the  reports  for  Bulgaria,  Croatia,  Cyprus,  France,  Germany,  Ireland,  Italy,  the 
Netherlands, Portugal, Slovenia, Spain, and Sweden. The country reports also review Member 
States'  progress  with  the  implementation  of  the  country-specific  recommendations  over  the 
years,  by  taking  a  multi-annual  perspective,  as  is  now  done  under  the  European  Semester 
cycle to account for the time needed for the full implementation of critical reforms. Last but 
not least, the country reports trace progress towards the Europe 2020 targets.  

2. 

PROGRESS WITH COUNTRY SPECIFIC RECOMMENDATIONS 

Member  States  continue  to  make  progress 
in  addressing  the  country-specific 
recommendations  adopted  by  the  Council  in  the  context  of  the  European  Semester. 
Reform  implementation  has  slightly  increased  overall,  as  compared  to  the  May  2017 
stocktaking  exercise.4  This  is  encouraging  and  reflects  that  important  reforms  have  been 
carried  out,  but  sometimes  take  longer  to  implement  than  anticipated.  Since  the  start  of  the 
European Semester in 2011, Member States achieved at least 'some progress' with regard to 
more than two-thirds of the recommendations.  

Reform implementation has been solid in some key areas. Since the outset of the European 
Semester in 2011, Member States have made most progress in financial services and in fiscal 
policy  and  fiscal  governance.  This  continues  to  reflect  the  priority  that  was  given  to  the 

3 No country report is provided for Greece which is under the European Stability Mechanism Stability Support 
Programme.  
4  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  Regions  and  the 
European Investment Bank, 2017 European Semester: Country-specific recommendations COM(2017) 500 final. 

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stabilisation  of  public  finances  and  of  the  financial  sector,  following  the  economic  and 
financial  crisis.  Significant  progress  has  also  been  made  in  addressing  access  to  finance,  in 
employment  protection  legislation  and  frameworks  for  labour  contracts.  However,  more 
modest progress has been made in areas like the broadening tax bases or transport. In many 
Member  States,  progress  towards  addressing  the  important  challenges  related  to  long-term 
sustainability  of  public  finances  is  slow,  including  pensions.  Regulatory  reforms  have 
improved the business environment especially in those Member States that needed them most. 
These reforms have reduced administrative barriers to the creation of new business. However, 
entrepreneurship remains weak in many Member States. Access to bank credit and loans have 
improved  for  SMEs  but  venture  capital  is  still  insufficient  in  many  parts  of  the  Union. 
Significant  progress  can  also  be  reported  in  public  procurement.  Unfortunately,  the  pace  of 
reform  in  services  markets  is  slow  in  particular  in  business  services,  construction  and  real 
estate.   

Member  States  are  making  progress  towards  the  goals  they  set  eight  years  ago  in  the 
Europe  2020  strategy.5  Overall,  the  EU  is  approaching  its  targets  on  education,  energy, 
climate  and  employment.  14  Member  States  have  already  achieved  their  national  targets  in 
reducing early school leaving and in increasing the share of tertiary educated population. 11 
Member States have hit their renewable energy targets. The EU target of 75% employment in 
2020 is on track assuming the current trend continues and seven Member States have already 
attained their national goals. This is a remarkable achievement given the severe impact of the 
crisis  on  employment.  However,  the  number  of  the  people  at  risk  of  poverty  or  social 
exclusion peaked in 2012 and has since then decreased to around pre-crisis levels. As a result, 
the target of lifting 20 million people out of poverty is unlikely to be met in 2020. Likewise, 
the goal of 3% of GDP investment in R&D is far from sight and no efforts should be spared to 
reach it in time.6 Appendix 2 provides an overview of progress towards Europe 2020 targets. 

The EU has at its disposal a set of tools to support the Member States in implementing 
their reforms. The Structural Reform Support Programme (SRSP) offers hands-on technical 
support  to  all  EU  Member  States,  at  their  request,  for  the  design  and  implementation  of 
reforms,  and  especially  in  the  follow-up  to  the  European  Semester  recommendations.7  The 
EU budget, including through the European Structural and Investment Funds, is proving to be 
a powerful instrument to support investment in cohesion, education and training, connectivity 
(transport,  energy,  and  digital  infrastructure  –  also  in  the  context  of  the  Connecting  Europe 
Facility),  innovation,  environment  and  support  to  SMEs.  These  funds  have  also  crucially 
contributed  to  improving  the  investment  environment  through  ex-ante  conditionalities.  In 
2017,  the  Commission  completed  assessing  their  fulfilment;  the  very  few  cases  of  non-
fulfilment are being followed up. The European Fund for Strategic Investments (EFSI) plays a 

5 These goals include increase of employment rate of the population aged 20-64 to 75%, increase of investment 
in  R&D  to  3%  of  GDP,  20%  reduction  of  greenhouse  gas  emissions,  20%  increase  of  the  share  of  renewable 
energy in final energy consumption and 20% increase in energy efficiency, reduction of school drop-out rates to 
less than 10%, increase of the share of the population aged 30-34 having completed tertiary education to 40% 
and lifting at least 20 million people out of the risk of poverty and social exclusion. 
6 The reference year for the data is 2016. 
7 The demand for technical support from the Structural Reform Support Programme significantly exceeded the 
means available for 2017 and 2018. Under SRSP 2017, more than ten Member States were selected to receive 
support  for  over  150  projects.  Today,  a  Financing  Decision  was  adopted  for  SRSP  2018,  under  which  the 
Structural Reform Support Service will provide support to over twenty Member States through over 140 projects 
supporting  the  implementation  of  reforms  relevant  for  the  European  Semester  or  other  Union-wide  policy 
initiatives, such as the Single Market Strategy, the Digital Single Market, the Energy Union, the Capital Markets 
Union and the European Pillar of Social Rights.   

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major role in catalysing private investment, showing how the EU budget can rapidly respond 
to challenges and create substantial leverage.8  

As part of the package on deepening Europe's Economic and Monetary Union presented 
on  6  December  2017,  the  European  Commission  proposed  a  reform  delivery  tool  to 
further strengthen support to national reforms post 2020.  9 It also proposed a pilot phase 
until  2020.  The  Commission  intends  to  present  its  more  detailed  ideas  for  the  new  reform 
delivery tool as part of its proposals for the post-2020 Multiannual Financial Framework.  

3. 

ADDRESSING MACROECONOMIC IMBALANCES 

The  Macroeconomic  Imbalances  Procedure  aims  at  preventing  the  emergence  of 
potentially  harmful  macroeconomic  imbalances  and,  where  such  imbalances  had  been 
identified,  to  ensure  that  Member  States  concerned  take  adequate  action  to  correct 
them.  Harmful  macroeconomic  imbalances  can  adversely  affect  economic  stability  in  a 
particular  Member  State,  the  euro  area,  or  the  EU  as  a  whole.  This  is  why  their  timely  and 
effective correction is so important. The in-depth reviews provide a comprehensive analysis 
of  the  imbalances  experienced  by  the  Member  States,  allowing  for  the  identification  of 
remaining  vulnerabilities  and,  in  the  broader  context  of  the  European  Semester,  the 
identification of remaining policy gaps. 

imbalances  or  excessive 

The  2018  Alert  Mechanism  Report  found  that  12  Member  States'  macroeconomic 
imbalances  warranted  an  in-depth  review.  All  of  these  countries  were  considered  as 
the 
experiencing 
Macroeconomic Imbalances Procedure. This categorisation has been supported by the Council 
in  its  conclusions  on  the  Alert  Mechanism  Report10.  As  every  year,  country  reports  analyse 
macroeconomic developments, the correction of imbalances and progress with the response to 
relevant policy recommendations11, also taking into account cross-border implications.  

the  context  of 

imbalances 

in  2017 

in 

Structural reforms implemented under the Macroeconomic Imbalance Procedure have 
paved  the  way  for  the  rebalancing  achieved.  The  current  favourable  economic 
momentum  should  be  used  to  pursue  them  vigorously.  The  recovery  can  contribute  to 
sustainably  tackling  imbalances  only  through  a  continuation  of  reforms  to  support 
competitiveness,  resilience  and  higher  growth  potential.  Given  the  positive  cyclical 
conditions,  all  Member  States  should  prioritise  reforms  that  increase  their  growth  potential, 
improve  the  institutional  and  business  environment,  remove  bottlenecks  to  investment, 
support the creation of quality jobs and reduce inequality. 

3.1. 

Rebalancing in the EU and the euro area 

The  correction  of  macroeconomic  imbalances  continues  to  advance,  supported  by 
reforms and the economic expansion. Nevertheless, some vulnerabilities remain and new 
risks emerge. Progress in addressing external imbalances has been uneven, with large current 

8  As of  February 2018,  the  European  Fund for  Strategic Investments  has triggered  EUR  264.3  billion of  total 
investments. 
9  Communication  from  the  Commission  to  the  European  Parliament,  The  European  Council,  the  Council,  the 
European  Central  Bank,  New  budgetary  instruments  for  a  stable  euro  area  within  the  Union  framework, 
COM(2017) 822. 
10 Council Conclusions 5542/18 of 23 January 2018. 
11 Article 2 of Regulation (EU) No 1176/2011 defines imbalances as "any trend giving rise to macroeconomic 
developments which are adversely affecting, or have the potential to adversely affect, the proper functioning of 
the economy of a Member State or of the economic and monetary union, or of the Union as a whole". 

4 

 
 
                                                            
account  deficits  having  been  corrected,  but  with  persistent  large  current  account  surpluses.  
Stock imbalances – notably private and public debt levels – are adjusting, helped by nominal 
growth, but progress is unequal. Stocks of net foreign liabilities remain high in a number of 
countries. Given that internal and external stock imbalances only adjust slowly, despite recent 
improvements  in  flows,  they  remain  a  source  of  risks  in  many  Member  States.  Mainly  in 
countries without identified imbalances at present, there are signs of a possible overheating in 
housing prices.  

The current account surplus for the euro area as a whole has grown considerably over 
recent years. The euro area current account has stabilised and is forecast to stay around 3% 
of GDP until 2019. This large surplus has been  reflecting weaknesses in aggregate demand, 
including sluggish wage growth, associated with below-potential economic output since 2009. 
The output gap for the euro area is  however  forecast to turn positive  in 2018  but Euro-area 
wide  economic  slack  has  underpinned  inflation  below  the  target  of  monetary  authorities, 
which also reflects subdued wage growth despite tightening labour markets. The evolution of 
the  euro  area  current  account  surplus  is  also  linked  to  the  dynamics  of  euro  area  exports, 
building  on  the  competiveness  of  European  producers  and  supportive  global  demand  for 
European goods and services.  

The deleveraging of private debt is ongoing, at uneven pace. Persistently high private debt 
in  a  number  of  countries,  often  compounded  by  high  government  debt,  is  constraining 
investment  and  reduces  the  room  to  weather  potential  shocks.  Reductions  in  debt-to-GDP 
ratios,  including  government  debt  ratios,  are  increasingly  benefiting  from  higher  nominal 
growth,  while  borrowing  by  households  and  non-financial  corporations  is  edging  up. 
Deleveraging has  been faster in  the corporate than in the household sector in most  Member 
States.  Some  high  debt  countries  are  reducing  their  liabilities  more  slowly  than  low  debt 
countries. Moreover, in most high debt countries, government  debt has only recently started 
declining. 

The  situation  of  the  banking  sector  has  improved  significantly  but  continues  to  face 
challenges. Most Member States have lately witnessed notable improvements in capital ratios 
and  stocks  of  non-performing  loans  have  also  been  falling  significantly.12  Profitability  and 
market  valuation  of  banks  have  also  recovered  in  most  Member  States,  together  with  credit 
flows.  In  a  few  countries  however,  stocks  of  non-performing  loans  still  remain  high  and 
reduce  the  room  for  lending,  whilst  low  profitability  hampers  provisioning  efforts  and  the 
internal generation of capital, and reduces opportunities for raising capital in the market. 

House prices are accelerating in most Member States; possible overheating risks deserve 
monitoring.  Valuations  are  below  earlier  peak  levels  after  the  downward  post-crisis 
adjustment, but in some cases indicators point to overvaluation. Signs of possible overheating 
are present and price dynamics are accelerating in a growing number of countries, including 
in  countries  not  identified  with  imbalances,  where  these  risks  appear  not  of  an  immediate 
concern.  Furthermore,  the  social  impact  of  rising  housing  prices  is  a  concern  in  some 
countries, highlighting the need for investment in adequate social housing and other housing 
assistance.  

Employment  continues  to  expand  at  a  steady  pace  in  Europe,  though  vulnerabilities 
remain  in  some  Member  States.  Labour  markets  have  continued  to  improve.  Though 

12 See Communication from the Commission: First progress report on the reduction of non-performing loans in 
Europe,  COM(2018)  37  final.  The  total  volume  of  non-performing  loans  across  the  EU  is  still  at  the  level  of 
EUR 950 billion, clearly above pre-crisis levels. It is however on a steady declining trend, and the average ratio 
of non-performing loans has decreased by one-third since 2014. 

5 

 
                                                            
declining  across  the  board,  unemployment  remains  high  in  some  countries,  notably  among 
young  people  and  the  long-term  unemployed.  Underutilisation  of  the  labour  force  is  falling 
but  remains  sizeable  even  in  countries  where  unemployment  is  low.  Wage  developments 
remain moderate in most countries and sectors. Poverty risks are generally receding but high 
in some countries.   

3.2. 

Implementing the macroeconomic imbalances procedure 

The Commission has reviewed economic developments and policy measures taken by all 
the  countries  with  imbalances  or  excessive  imbalances  in  the  framework  of  specific 
monitoring.  The  Council  has  supported  the  conclusions  of  the  specific  monitoring  reports. 
The  scope  and  format  of  in-depth  reviews  and  the  categorisation  of  imbalances  in  the 
Macroeconomic Imbalances Procedure framework has remained stable.  

The  number  of  Member  States  identified  with  imbalances  or  excessive  imbalances  is 
declining. In 2017, six Member States were identified with imbalances and six with excessive 
imbalances. These twelve Member States were retained for further analysis also in 2018. The 
in-depth reviews have found that one Member State is not experiencing imbalances, eight are 
experiencing  imbalances  and  three  are  experiencing  excessive  imbalances.  Appendix  3 
summarises the findings from the in-depth reviews by Member State.13  

Table 1: Outcome of the in-depth reviews over 2017-2018 

No imbalances 

Imbalances 

Outcome of 2017 IDRs 

Outcome of 2018 IDRs 

FI  

SI 

DE, IE, ES, NL, SI, SE  

BG, DE, IE, ES, FR, NL, PT, SE 

Excessive imbalances 

BG, FR, HR, IT, PT, CY  

CY, HR, IT  

In-depth  reviews  indicate  that  risks  are  declining  in  a  number  of  countries,  which 
implies a revision of the respective MIP categorisation. 

  Slovenia,  identified  with  imbalances  in  2017,  is  found  to  be  experiencing  no 
imbalances.  Stability  risks  have  receded  to  lower  levels,  and  progress  with  the 
implementation  of  policy  recommendations  over  past  years  has  been  overall 
satisfactory and is currently ongoing. 

  France,  identified  with  excessive  imbalances  in  2017,  is  found  to  be  experiencing 
imbalances. Economic developments and enhanced policy action have contributed to 
a  gradual  correction  of  existing  challenges,  leading  from  a  revision  of  the 
categorisation towards reduced risk. 

  Bulgaria  identified  with  excessive  imbalances  in  2017,  is  found  to  be  experiencing 
imbalances,  as  policy  action  and  a  favourable  macroeconomic  environment  are 
reducing imbalances, notably on the external side. Further efforts remain necessary to 
achieve  a  sustainable  correction  of  the  imbalances.  The  Commission  will  monitor 

13 For Greece, the surveillance of imbalances and monitoring of corrective measures has been taking place in the 
context of ESM stability support programme. 

6 

 
 
 
 
                                                            
closely  policy  commitments,  notably  the  next  National  Reform  Programme  (NRP), 
and the evolution of imbalances in the context of the specific monitoring. 

  Portugal  identified  with  excessive  imbalances  in  2017,  is  found  to  be  experiencing 
imbalances,  as  policy  action  and  the  context  of  favourable  macroeconomic  and 
financial  conditions  are  reducing  the  balance  of  risks  in  terms  of  public  and  private 
sector  debt  as  well  as  external  debt.  The  unemployment  rate  in  particular,  dropped 
considerably  and  is  now  at  pre-crisis  levels.  Further  efforts  remain  necessary  to 
achieve  a  sustainable  correction  of  the  imbalances.  The  Commission  will  monitor 
closely  policy  commitments,  notably  the  next  National  Reform  Programme  (NRP), 
and the evolution of imbalances in the context of the specific monitoring. 

Developments  are  generally  favourable  in  the  remaining  countries  analysed  in  the  in-
depth-reviews. 

  Germany, Ireland, Spain, the Netherlands and Sweden are identified, as in 2017, to be 
experiencing  imbalances.  Among  these  countries,  a  favourable  macroeconomic 
environment  is  contributing  to  the  reduction  of  stock  imbalances  in  Ireland  and 
Spain, although recent policy advancement has been modest and uneven in Spain. In 
the  Netherlands,  the  authorities  have  made  strong  commitments  to  address 
imbalances,  but  these  have  yet  to  be  implemented.  Progress  on  the  front  of  the 
correction of imbalances is limited in Germany, where private and public investment, 
whilst increasing, has still room to grow. In Sweden, progress is also limited, despite 
the first signs that house price growth might be cooling down. 

  Cyprus,  Croatia  and  Italy  are  identified,  as  in  2017,  to  be  experiencing  excessive 
imbalances.  Imbalances  are  being  reduced  in  Croatia  and  Italy,  supported  by  a 
combination  of  reforms,  favourable  economic  conditions  and  a  reduction  of  risks  in 
the  banking  sector.  There  is  however  a  need  for  more  determined  policy 
implementation, notably in Croatia. No tangible improvement is recorded in Cyprus, 
where policy implementation has also been rather limited. 

4. 

MEMBER STATES POLICIES 

The present economic situation reflects the benefits of reforms taken in the recent past 
and provides a window of opportunity to address pending reform needs. The benefits of 
structural reform in Member States in the past years are being felt across Europe. The degree 
of  these  benefits  –  in  terms  of  declining  unemployment,  raising  incomes,  and  renewed 
convergence  –reflects  differences  in  recent  reform  activity.  Further  momentum  to  reform 
economies, public administrations and welfare systems would help to improve the resilience 
of  Europe's  economies  and  societies  and  weather  macroeconomic  shocks  in  the  future. 
Adaptation  to  ongoing  structural  change  would  help  narrowing  differences  in  productivity, 
and  improve  social  outcomes.  Reforms  will  also  help  our  economies  to  sustain  the  current 
expansion  by  removing  supply  side  constraints.  The  present  favourable  economic  outlook 
must not nurture complacency.  

It might take time before the benefits of reforms are fully felt, but experience shows that 
reforms  work  and  that  today's  favourable  conditions  provide  the  right  environment. 
Many  reforms  do  not  have  significant  pecuniary  costs.  Keeping  short-term  economic  costs 
low and distributing them fairly can strengthen their efficiency and public support. This calls 
also  for  careful  sequencing  and  packaging  of  measures.  For  example,  certain  labour  and 
product  market  reforms  may  have  short-term  costs  as  compared  to  long-term  benefits,  and 
tend  to  reinforce  each  other's  impacts.  In  addition  they  can  be  supported  by  reforms  that 

7 

 
improve the quality and composition of public finances and in some Member States, by the 
use of the available fiscal space. In general, the political cost of implementing reforms tends 
to be lower during good economic times. This is yet another strong reason not to forego the 
opportunity provided by the present economic situation.  

Reforms require sound preparation and adequate administrative and technical capacity. 
Reforms to enhance administrative capacity, efficiency and quality are an enabler of reforms. 
Reforms of  public administrations  have  limited short-term costs and can be  effective at any 
point of the cycle. They can be mutually supportive for other well-designed reforms that have 
important benefits in the form of confidence effects also in the short term. Building awareness 
of  benefits,  developing  common  ground  amid  divergent  stakeholder  interests,  and  putting 
focus  on  the  common  good  is  facilitated  by  sound  preparatory  work  by  an  adequate 
administration. Timely implementation of some reforms may involve having appropriate legal 
and technical (e.g. IT) conditions in place. Achievable and measurable outcomes of reforms 
need  to  be  specified,  monitored,  and  communicated.  The  Commission's  Structural  Reform 
Support  Programme  provides  substantial  technical  support  to  Member  States  to  provide  the 
appropriate ground for successful reforms (see section 2).  

The  involvement  of  national  stakeholders,  including  social  partners,  is  instrumental  to 
successful,  sustainable  reforms.  Stakeholders'  co-ownership  of  reforms  improves  the 
outlook  on  realisation  and  helps  attaining  appropriate  outcomes,  also  in  terms  of  fairness. 
While there is scope for going further, Member States have taken steps to better involve social 
partners in the design and implementation of reforms. Estonia, Latvia, Lithuania and Slovakia 
have  used  support  from  the  European  Social  Fund  to  enhance  social  partners'  capacity  to 
contribute  to  designing  key  reforms.  The  French  government  invited  social  partners  to 
negotiate  a  reform  of  the  unemployment  insurance.  Italian  social  partners  signed  a  new 
agreement  on  the  representativeness  of  trade  unions.  In  Denmark,  a  tripartite  agreement  on 
adult education and training aims to improve upskilling. In Portugal, following the publication 
of a Green Book on Labour Relations, the government began discussions with social partners 
on  measures  to  tackle  labour  market  segmentation.  In  the  Netherlands,  social  partners  are 
being closely involved in the reform of the pension system. Some Member States also involve 
civil society organisations in designing reforms.  

4.1 

Responsible fiscal policies, effective and fair taxation, financial stability 

Across  the  EU,  public  deficits  and  debt  continue  to  decline,  mainly  on  the  back  of 
accelerating  growth  and  low  interest  rates.  In  the  context  of  a  further  strengthened 
economic  outlook,  the  Commission  expects  the  headline  government  balance  to  improve 
further in the EU, with subsequent reductions of the debt-to-GDP ratio in almost all Member 
States in the years ahead. The current supportive economic environment provides opportunity 
to build up the fiscal buffers necessary to strengthen to resilience to shocks. 

Fiscal  governance  has  been  improved  in  a  number  of  Member  States;  continuing 
improvements  would  help  make  public  finances  more  sustainable  and  predictable.  
Bulgaria recently amended its Public Finance Act aiming to achieve full compliance with EU 
requirements.  In  the  Czech  Republic,  a  new  fiscal  responsibility  law  has  significantly 
strengthened  fiscal  governance.  Lithuania  refined  the  application  of  its  national  expenditure 
rules and accountability for meeting fiscal targets. Malta is introducing accrual accounting in 
all  government  departments.  All  Member  States  except  Poland  and  the  Czech  Republic, 
pending parliamentary endorsement of members in the latter, have in place independent fiscal 
councils.  Some  challenges  to  national  fiscal  governance  still  prevail  though.  The  financial 

8 

 
 
autonomy  of  independent  fiscal  institutions  could  be  strengthened  in  some  Member  States. 
Better coordination of fiscal planning across levels of government is needed in Member States 
with federal constitutional structures.  

Rigorously  implemented  expenditure  reviews  are  conducive  to  spending  taxpayers' 
money  efficiently.  They  have  the  potential  to  improve  the  outcomes  of  public  policy  and 
allocation  of  public  funding  across  policy  priorities,  while  maintaining  fiscal  responsibility. 
Spending  reviews  are  ongoing  in  many  Member  States.14  For  example,  Spain  mandated  its 
independent fiscal institution, AIReF, to carry out a review across government levels. Some 
initiatives are also underway outside the euro area, for example in Bulgaria where a spending 
reviews  focusing  on  maintenance  and  staff  expenditure 
in  several  ministries  and 
municipalities is ongoing. 

Both  public  and  private  investment  need  to  be  safeguarded  to  strengthen  the  growth 
potential  of  the  euro  area.  In  the  case  of  public  spending,  this  can  be  achieved  through  a 
right fiscal composition and  improving the  quality of public  finances. Some Member States 
have  adopted  multi-annual  plans  to  boost  spending  on  public  investment.  France  adopted  a 
'Grand plan d'investissement 2018-2022' to prepare the economy for future challenges. Ireland 
further  developed  its  'Capital  Investment  Plan  for  2018-2021'  to  tackle  infrastructure 
bottlenecks that have resulted from reduced public investment in the aftermath of the crisis in 
areas  such  as  housing,  transport  and  water  infrastructure.  Germany  made  progress  in 
addressing  capacity  and  planning  constraints  for  infrastructure  investments,  in  specific 
sectors,  such  as  transport.  Efforts  should  continue  to  mobilise  private  investment,  including  
through Public Private Partnerships.     

Healthcare and pension reforms are needed to maintain sustainability, accessibility and 
quality  of  the  respective  systems,  while  ensuring  adequacy.  Together  with  the  faster 
growth of the population groups over 60 and technological progress in healthcare, healthcare 
and  pensions  are  among  the  largest  and  fastest-growing  public  spending  sectors.  Informal 
payments to obtain differentiated treatment and access to healthcare are still an issue in some 
Member States and have important negative consequences for universal access to healthcare 
and the sustainability of healthcare. Most Member States have taken action in the pension and 
healthcare field in recent years, however the year-to-year progress seems to be rather modest. 
More  recently,  Slovakia  is  improving  the  cost-effectiveness  of  the  healthcare  system, 
including  by  implementing  the  value-for-money  project  which  appears  to  have  generated 
some positive, tangible changes leading to savings. Denmark adopted new incentives to opt 
out  of  the  early  retirement  scheme  in  order  to  postpone  retirement  and  also  Lithuania  and 
Portugal  undertook  reforms  to  limit  the  negative  impacts  of  some  aspects  of  their  pension 
systems  on  long-term  fiscal  sustainability.  These  good  practices  need  to  be  followed  more 
broadly  to  maintain  public  finance  sustainability  and  thus  guarantee  citizens  healthcare  and 
pension coverage, also in the interest of intergenerational fairness.  

Fair and growth-friendly tax systems can help support private investment and improve 
the business environment, encourage employment, reduce inequalities and contribute to 
an environmentally resilient economy. Belgium is gradually implementing a tax shift away 
from labour. In France, the tax credit for employment and competitiveness is to be converted 
into permanent reductions in employers' social security contributions and accompanied with a 
further  reduction  for  the  lowest  wages.  Latvia  and  Hungary  have  slightly  reduced  their 

14 Source: June 2017 Commission note to the Eurogroup based on a survey to the euro area,  
http://www.consilium.europa.eu/media/23582/eg-15-june-2017_note-on-spending-reviews.pdf 

9 

 
                                                            
relatively high tax wedge for low income earners. In Sweden, tax measures are supporting a 
greener, more sustainable economy.  

Aggressive  tax  planning  entails  significant 
losses  to  European  taxpayers;  the 
transposition  of  EU  legislation  will  help  curtailing  such  practices.  Revenue  losses  from 
profit  shifting  within  the  EU  alone  are  estimated  at  EUR  50-70  billion.  Aggressive  tax 
planning  distorts  the  playing  field  among  companies,  and  unfairly  diverts  resources  from 
governments' spending  objectives. Tax abuse can be reined in by  strengthening national tax 
legislation, increasing transparency, and cooperation among governments. Belgium, Cyprus, 
Malta  and  the  Netherlands  are  amending  aspects  of  their  tax  systems  that  have  facilitated 
aggressive  tax  planning.  In  Ireland,  the  recommendations  of  an  independent  review  of  the 
corporation tax code have been submitted to public consultation. By the end of 2018, Member 
States  have  to  transpose  the  provisions  of  the  Anti-Tax  Avoidance  Directive  (ATAD)  into 
their national law. 

Measures  taken  to  strengthen  the  banking  sector  and  tackle  high  levels  of  non-
performing loans are bearing fruit and need to be further stepped up. In July 2017, the 
Council agreed an EU action plan to reduce the stocks of non-performing loans in the banking 
sector and prevent their future  emergence.15 The actions on bank supervision, the reform of 
insolvency  and  debt  recovery  frameworks,  the  development  of  secondary  markets  for 
distressed assets, and the restructuring of the banking industry need to be pursued vigorously, 
to  improve  bank  profitability,  the  transmission  of  monetary  policy,  and  the  financing  of 
economic  activity.  Italy's  efforts,  including  the  set-up  of  a  securitisation  scheme  for  non-
performing loans, show effects. The Bank of Slovenia issued a toolkit to prevent, identify and 
manage  non-performing  loans.  Ireland  and  Croatia  also  promoted  the  clean-up  of  non-
performing  loans,  such  as  by  amendments  of  the  tax  rules.  However,  the  level  of  non-
performing loans still remains high in some Member States, and depresses the profitability of 
smaller banks in particular.  

4.2  

Resilient and inclusive labour markets, education systems and social policies  

Notwithstanding the employment rate in Europe being now the highest ever and poverty 
and  social  exclusion  having  started  to  come  down,  important  challenges  remain. 
Unemployment and the number of people at risk of poverty are still too high, which manifests 
the fact that the recovery is still not reaching all parts of society and the economy. Apart from 
having to overcome the burdens of the past, labour markets and social and education systems 
need to adapt to face challenges of globalisation and technological progress. 

Sustainable and inclusive social protection systems are central to mitigating the impact 
of  economic  shocks.  In  line  with  the  principles  of  the  European  Pillar  of  Social  Rights,  all 
workers should have access to social protection, irrespective of the type and duration of their 
working relationship. However, increasing labour mobility and new forms of employment are 
trends  not  easily  matched  by  social  protection  systems.  Denmark,  France,  Italy,  Poland  and 
Portugal  started  reforms  in  this  field,  such  as  extending  the  coverage  of  social  rights  and 
unemployment  benefits  to  people  in  non-standard  and  self-employment.  In  Portugal,  this 
includes plans to reinforce its activation of recipients' capacity, for instance by improving the 
cooperation between employment and social services. Belgium is taking action by providing 
additional  support  for  pension  build-up  of  self-employed  individuals  and  a  reduction  of  the 

15  See  Council  conclusions  on  Action  plan  to  tackle  non-performing  loans  in  Europe  from  11.7.2017  and 
Communication from the Commission: First progress report on the reduction of non-performing loans in Europe, 
COM(2018) 37 final. 

10 

 
 
                                                            
social security contribution limit for self-employed at the start of their activities. In Sweden, 
further  to  the  compulsory  unemployment  insurance,  self-employed  workers  can  opt  for  a 
State-subsidised  top-up.  France  announced  reform  of  the  unemployment  benefit  system  to 
encourage firms' use of longer work contracts.  

Box 1: Sustainable, adequate and effective social safety nets in Europe  

In  the  European  Pillar  of  Social  rights,  several  principles,  notably  principles  12  and  1416 
underline the importance of adequate social protection. Adequate social protection, including 
old-age  pensions,  healthcare,  unemployment  benefits  and  social  assistance  is  critically 
important  for  mitigating  the  hardship  felt  by  people  and  families  when  confronted  with  job 
losses or other set-backs. This is especially important in a world of rapid transformations due 
to ageing, technology and globalisation, to support people during career transitions and help 
them  fully  embrace  the  opportunities  and  address  the  challenges  that  the  fast-changing 
economy provides. On a larger scale, adequate and effective social protection is essential for a 
thriving economy and well-functioning labour markets that create quality jobs and sustainable 
growth. The long-term fiscal sustainability of social protection systems can only be ensured if 
the risk sharing inherent in social protection is widely spread. 

Many Member States are modernising their social protection systems, by improving coverage 
and  adequacy  of  benefits  and  services,  notably  for  non-standard  workers,  and  actively 
encouraging  labour  market  participation.  Several  Member  States,  such  as  Italy,  Denmark, 
Latvia,  Portugal  and  France  extended  last  year  social  protection  coverage  for  the  self-
employed.  Member  States  are  also  taking  action  to  more  actively  support  labour  market 
participation,  often  with  a  focus  on  specific  groups.  Slovakia  is  implementing  an  ambitious 
action plan in support of Long Term Unemployed persons to provide tailor-made services. In 
Spain,  a  Social  Inclusion  Network  was  created  as  a  coordination  tool  between  social  and 
employment services.  

However,  globally  a  more  comprehensive  and  coherent  approach  is  needed  to  address  the 
challenges  shared  by  Member  States.  The  considerable  job  creation  of  recent  years  has 
already helped. Whilst having a job remains the best insurance against poverty, close to 10% 
of  workers  are  classified  under  “in-work-poverty”.  And  this  share  is  slowly  increasing  in  a 
context of changing labour markets.  

Last but not least, the depth and persistence of poverty is increasing in some Member States, 
pointing  to  gaps  in  the  social  protection  design  and  implementation.  For  example,  Italy 
introduced a universal minimum income support scheme in March 2017 and further resources 
were structurally allocated by the 2018 Budget Law. Portugal made important changes to the 
minimum  income  scheme  to  reinforce  its  capacity  to  integrate  and  protect  persons  living  in 
poverty,  without  discrimination  by  nationality.  Nevertheless,  while  social  assistance  is 
necessary to ensure that everyone lacking sufficient resources  can  live a life in  dignity, this 
should be a last resort, enabling and supporting people to get back into an active role society. 
Improving the design of tax and benefits systems, fostering equal opportunities in education 
and training, ensuring access to quality social services and healthcare, and promoting gender 
equality, can contribute to reduce inequalities and poverty, as well as their transmission across 
generations.    

16  Everyone  lacking  sufficient  resources  has  the  right  to  adequate  minimum  income  benefits  ensuring  a  life  in 
dignity  at  all  stages  of  life,  and  effective  access  to  enabling  goods  and  services.  For  those  who  can  work, 
minimum income benefits should be combined with incentives to (re)integrate into the labour market. 

11 

 
                                                            
The  emergence  of  new  forms  of  work  calls  for  an  adaptation  of  labour  market 
institutions.  Needs  for  flexibility  to  accommodate  changing  labour  demand  have  to  be 
balanced with workers' and their families' need for security, in order to avoid labour market 
segmentation..  For  instance,  Lithuania  introduced  a  comprehensive  reform  of  its  Labour 
Code,  aiming  at  streamlining  rules  for  termination  of  employment    while  reducing  the 
maximum  duration  of  fixed-term  contracts, 
increasing  unemployment  benefits  and 
encouraging collective bargaining.  

Demographic  ageing  entails  a  decline  in  the  supply  of  labour,  putting  pressure  on  the 
active population in order to ensure the sustainability and adequacy of pension systems. 
In  the  next  few  years,  large  cohorts  are  set  to  retire.  In  this  perspective,  enhancing  labour 
market participation and productivity is crucial. There is significant scope for increasing the 
employment rates of women, older workers, low-skilled workers, people with disabilities and 
people with a migrant background. The employment of people from these groups needs to be 
facilitated, including by reducing disincentives to work, providing tailor-made education and 
training, allowing flexible working time arrangements and ensuring access to affordable and 
quality  healthcare,  childcare  and  other  care  services.  Measures  to  promote  flexible  working 
time  arrangements  or  access  to  care  services  have  been  taken,  among  others,  by  the  Czech 
Republic,  Luxembourg,  Romania  and  Slovakia.  Germany  and  Austria  promote  longer 
working lives by allowing flexible transitions of older workers into retirement. A number of 
countries  took  measures  to  promote  the  integration  in  the  labour  market  of  people  with  a 
migrant background, including Germany, Denmark, Finland and Sweden.  

Workers'  skills  should  be  up  to  date  with  the  needs  of  the  labour  market  throughout 
their working life. Basic skills of young Europeans have been weakening in several Member 
States,  and  access  to  education  is  often  unequal.  Education  systems  need  to  be  further 
modernised and made more open to disadvantaged groups, to allow individuals become active 
citizens  and  make  the  most  of  their  working  lives,  and  aligned  with  labour  market  needs. 
Efforts  to  upgrade  education  systems  at  all  stages  have  to  be  taken  up  broadly  to  provide 
perspectives  for  young  and  older  people  alike.  Together  with  continuous  upskilling  and 
reskilling,  this  would  prevent  the  emergence  of  skills  shortages  and  mismatches  that  are 
hurting  small  and  medium-sized  enterprises  in  particular.  Some  Member  States  started  to 
confront  the  challenge.  In  Ireland,  public  spending  on  education  is  returning  to  pre-crisis 
levels and the education system is being strengthened. In Denmark, broad education reforms 
are aimed at improving school outcomes and raising academic standards. Croatia is rolling out 
a pilot scheme on the digital transformation of schools. In addition to previous measures taken 
in  past  years,  Portugal  recently  introduced  a  programme  to  strengthen  the  skills  and 
qualifications of the adult population. 

12 

 
 
Box 2: Empowering workers through better skills in Europe 

In the European Pillar of Social Rights, several principles, notably principle 117, underline the 
importance of access to education, training and lifelong learning. Europe depends critically on 
the skills of its workforce. Education and training are drivers of growth, jobs and resilience. 
Europe is on track towards reaching the 2020 targets on both early school leaving and tertiary 
education attainment, and Member States are taking action to modernise their education and 
training  systems  to  also  tackle  low  proficiency  in  basic  skills,  improve  the  labour  market 
relevance of vocational education and training and higher education, expand and increase the 
quality of apprenticeships, and validate the skills acquired outside the formal system. In line 
with  the  Council  Recommendation  on  Upskilling  Pathways  Member  States  are  expected  to 
outline  appropriate  measures  by  mid-2018;  the Commission  suggests  this  is  done  as  part  of 
the National Reform Programmes expected this Spring and will take stock in the framework 
of existing reporting procedures.18 

However, many challenges persist. Employers have difficulty finding people with the rights 
skills.  Low-skilled  or  low-qualified  people  are  at  risk  of  unemployment,  poverty,  poorer 
health, social exclusion and democratic participation. Only half of them work, against 80% of 
the highly-qualified, thus weighing on labour supply and productivity. A disadvantaged socio-
economic  background  remains  the  most  significant  factor  associated  with  low  educational 
achievement.  Technological  change  and  demographic  ageing  require  investment  in  re-  and 
up-skilling,  but  only  one  in  ten  adults  engages  in  learning  opportunities  and  many  do  not 
develop  the  skills  necessary  to  benefit  from  the  digital  transformation.  This  is  why  the  first 
principle  of  the  European  Pillar  of  Social  Rights  promotes  access  to  high-quality  education 
and training in a lifelong learning perspective, enabling people to participate fully in society. 

To pursue this principle the full implementation of the New Skills Agenda launched in 2016 is 
key. Its ten actions tackle the main challenges, by promoting the acquisition of basic skills by 
low qualified adults (the 'Upskilling Pathways' initiative), fostering investment in digital skills 
(National  Coalitions  for  Digital  Skills  and  Jobs),  reducing  the  mismatch  between  the  skills  
taught and the skills needed by the service sector and manufacturing industry ( Blueprint for 
sectoral  cooperation  on  skills),  improving  the  transparency  of  skills  and  qualifications  (the 
European  Qualifications  Framework,  Europass),  modernising  vocational  education  and 
training while increasing its attractiveness and addressing “brain drain” across the EU as well 
as  boosting  key  competences  of  European  citizens.  The  Commission  will  continue  the 
collaboration  with  OECD  in  2018  in  support  of  skills  strategies  in  the  respective  Member 
States and in relation to various actions focusing on vocational education and training with a 
view to  concrete labour market skills  needs.   In November 2017, the Commission  specified 
the  perspective  of  a  European  Education  Area,  in  which  strengthened  cross-border 
cooperation  and  enhanced  mobility  will  help  improve  the  quality  of  teaching  and  learning, 
boosting  young  people’s  skills  and  making  them  more  employable.  The  Commission  also 
presented an action plan on digital education on 17 January 2018.  

17 Everyone has the right to quality and inclusive education, training and life-long learning in order to maintain 
and  acquire  skills  that  enable  them  to  participate  fully  in  society  and  manage  successfully  transitions  in  the 
labour market. 
18 Council Recommendation of 19 December 2016 on Upskilling Pathways: New Opportunities for Adults (OJ C 
484, 24.12.2016) 

13 

 
 
                                                            
4.3 

Quality investment, enhanced productivity, competitiveness 

With favourable financing conditions and a brighter economic sentiment, partly due to 
the removal of barriers to investment, investment is picking up. Conditions for investment 
have improved lately, with declining uncertainty, receding corporate deleveraging pressures, 
supportive financing conditions, and an improved outlook on aggregate demand. At the same 
time, overall investment and public investment in particular still account for a relatively low 
proportion of GDP. Investment in intangible assets is growing, from low levels. 

The  removal  of  structural  barriers  to  investment,  in  line  with  the  Investment  Plan  for 
Europe, is being addressed. The 'third pillar' of the Investment Plan promotes the removal of 
barriers to investment and greater regulatory predictability in order to keep Europe attractive 
for  investments.  In  order  to  increase  the  competitiveness  of  the  European  economies, 
enhancing  product  market  reforms  and  reforms  fostering  innovation  is  crucial.  Though 
reduced  lately,  high  costs  of  regulation  and  administrative  burdens  constrain  the  business 
environment.  Institutional  shortcomings  to  be  addressed  include  inefficiencies  in  public 
administration, regulatory burdens, corruption, as well as the challenges to the rule of law and 
to  the  effectiveness  of  justice  systems.  Competition  in  the  services  sector  continues  to 
improve,  allowing  grasping  the  benefits  of  digitisation,  more  efficient  value  chains,  better 
choice,  and lower prices. Finland,  in particular, made  substantial progress  on improving the 
regulatory framework and reducing the administrative burden to further improve competition 
in  services,  including  progress  on  the  framework  governing  collaborative  economy  service 
providers. In Slovakia, a package of measures to improve the business environment and boost 
investment has been adopted and is to be implemented by 2019, and France in turn acted by 
decreasing the high tax burden on companies.  

Weaknesses  in  administrative  capacity  add  to  the  shortcomings  of  the  business 
environment. The public procurement framework is being improved in Spain, Hungary and 
Romania. Portugal took measures to improve the functioning of efficiency of insolvency and 
tax  proceedings.  Cyprus  and  the  Czech  Republic  are  progressing  with  rolling  out  e-
government  services  and  Slovenia  adopted  the  rules  that  are  expected  to  speed  up  the 
construction  application  procedure  and  strengthen  the  legal  certainty  of  investors,  thus 
providing more incentives to invest.   

Corruption remains an obstacle for growth in parts of Europe, creating uncertainty for 
businesses,  slowing  administrative  processes  and  imposing  additional  costs  for  society 
and the economy. 37% of companies across the EU cite corruption as a problem when doing 
business, the issue being particularly acute in some Member States.19 At national level, some 
action  has  been  taken  to  address  these  challenges.  Italy  made  efforts  to  improve  its  public 
administration and adopted important anti-corruption legislation. Spain also made progress in 
implementing  the  transparency  and  anti-corruption  framework.  New  legislation  on  whistle-
blower protection has been adopted in both Lithuania and Italy and is under consideration in 
several Member States. 

Access  to  finance,  especially  for  the  small  and  medium-sized  enterprises,  is  gradually 
improving across the Europe. Funding other than by banks plays a major role for start-ups 
and the scale-up of successful firms. Venture and scale-up funding are still only emerging in 
smaller  countries  or  even  outside  financial  centres  in  larger  countries.  Actions  taken  by 

19  All  Member  States  are  subject  to  ongoing  assessment  of  their  anti-corruption  general  policy  landscape  and 
anti-corruption  efforts.    The  Commission  has  analysed  the  key  challenges  in  the  country  reports  for  several 
Member  States,  where  there  are  particularly  significant  risks  and  gaps  that  act  as  obstacles  for  investment, 
efficient resource allocation, economic performance and growth. 

14 

 
                                                            
Portugal to improve access to capital, such as introduction of new financial instruments, serve 
as  a  good  example  of  support  to  such  efforts.  By  the  same  token,  Slovenia  is  offering  new 
financial measures to SMEs to improve their access to alternative financing sources. Cyprus is 
implementing  the  action  plan  for  growth  including  the  framework  to  attract  and  facilitate 
large-scale investments. 

Positive  examples  to  support  productivity  growth  need  to  be  followed.  Encouraging 
measures  taken  across  Member  States  respond  to  challenges  which  are,  at  least  to  some 
extent,  country-specific.  Luxembourg  strengthened  the  diversification  of  its  economy, 
including by removing barriers to investment and innovation. In Belgium, numerous activities 
are fostering investment in knowledge-based capital, in particular with measures to increase 
digital technologies adoption, and innovation diffusion. Spain took first steps to improve the 
governance  of  its  research  and  innovation  system.  Denmark  introduced  a  programme  to 
increase  productivity  and  improve  the  business  environment  and  Poland  and  Latvia 
introduced tax cuts  to  encourage  investment. In  Germany, a network of competence centres 
supports the digitisation of small and medium-sized businesses and 'digital hubs' facilitate the 
cooperation  between  start-ups,  SMEs,  industry,  science  and  administration.  To  support  the 
start-up ecosystem the Estonian government has introduced a new visa programme for non-
EU  entrepreneurs  who  wish  to  establish  their  start-up  company  in  the  country.  In  the 
Netherlands,  a  number  of  measures  are  fostering  the  uptake  of  the  circular  economy, 
including through public procurement. 

5. 

NEXT STEPS 

The  European  Semester  offers  the  opportunity  of  a  constant  dialogue  between  the 
Commission,  Member  States,  social  partners  and  stakeholders  at  all  levels  throughout 
the year. The country reports published today draw on in-depth exchanges with governments, 
national authorities and stakeholders at both technical and political level, including high-level 
bilateral  meetings  held  in  December  2017.  Their  findings  will  be  presented  in  the 
Commission's representation offices in the capitals of the Member States, and followed up in 
bilateral  meetings  as  well.  Commission  Vice-Presidents  and  Commissioners  will  visit 
Member  States  to  seek  the  views  of  social  partners,  parliaments,  governments  and  other 
stakeholders on the analysis in the country reports. The Commission will discuss the summary 
findings of the country reports with the European Parliament. 

The next step is for Member States, in the light of the challenges identified, to present 
their economic and social priorities in their national reform programmes by mid-April. 
To  provide  an  adequate  and  sustainable  response  to  the  challenges,  the  Commission 
recommends  that  these  programmes  are  drawn  up  with  the  support  of  all  key  stakeholders, 
such  as  social  partners,  regional  and  local  authorities,  and  civil  society  organisations  as 
appropriate.  

15 

 
APPENDIX  1  – 

INTEGRATED  SURVEILLANCE  OF  MACROECONOMIC  AND  FISCAL 

IMBALANCES  

Comments 

Macroeconomic Imbalances 
Procedure (MIP)20  

AT 

BE 

BG 

Imbalances 

Stability and Growth Pact 
(MTO: medium term objective / 
EDP: excessive deficit procedure) 

Preventive arm 
Not yet at MTO; subject to debt rule21 

Preventive arm 

Not yet at MTO; subject to debt rule 

Preventive arm 

Overachieving MTO 

Preventive arm 

CY 

Excessive imbalances 

At MTO; subject to transitional debt 
rule 

Preventive arm 

Overachieving MTO 

Preventive arm 

Imbalances 

Overachieving MTO; subject to debt 
rule 

CZ 

DE 

DK 

EE 

EL 

IE 

Imbalances 

ES 

Imbalances 

FR 

Imbalances 

Under a dedicated financial 
assistance programme 

Preventive arm 

AT MTO 

Preventive arm 

Not yet at MTO 

Preventive arm 

At MTO; subject to transitional debt 
rule 

Corrective arm 

Excessive deficit, deadline for 
correction:  

2018 

Corrective arm 

Excessive deficit, deadline for 
correction: 

2017 

Not yet at MTO; subject to transitional 
debt rule 22 

20 Both the 'imbalances' and 'excessive imbalances' categories entail specific monitoring, to be modulated depending on the severity of the 
challenges.   
21 Debt rule: If the 60% reference for the debt-to-GDP ratio is not respected, the Member State concerned will be put in the Excessive Deficit 
Procedure, after taking into account all relevant factors and the impact of the economic cycle, if the gap between its debt ratio and the 60% 
reference is not reduced by 1/20th annually (on average over three years). Transitional debt rule: each Member State in the Excessive Deficit 
Procedure is granted a three-year period following the correction of the excessive deficit for meeting the debt rule. This does not mean that 
the debt rule does not apply during this period as Member States should make sufficient progress towards compliance during this transitional 
period. A negative assessment of progress made towards compliance with the debt benchmark during the transition period could  lead to the 
opening of an Excessive Deficit Procedure. 
22 Conditioned on the abrogation of the EDP decision based on validated outturn budgetary data for 2017. 

16 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
HR 

Excessive imbalances 

HU 

IT 

Excessive imbalances 

Preventive arm 

Not yet at MTO; subject to debt rule 

Preventive arm 

Not yet at MTO; subject to debt rule 

Preventive arm 

Not yet at MTO; subject to debt rule 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

SI 

SE 

SK 

RO 

FI 

UK 

Imbalances 

Imbalances 

Imbalances 

Preventive arm 

At MTO 

Preventive arm 

Overachieving MTO 

Preventive arm 

Not yet at MTO 

Preventive arm 

At MTO 

Preventive arm 

Overachieving MTO 

Preventive arm 

Not yet at MTO 

Preventive arm 

Not yet at MTO; subject to transitional 
debt rule 

Preventive arm 

Not yet at MTO; subject to transitional 
debt rule 

Preventive arm 

Overachieving MTO 

Preventive arm 

Not yet at MTO 

Preventive arm 

Subject to significant deviation 
procedure 

Preventive arm 

Not yet at MTO; subject to debt rule 

Preventive arm 

Not yet at MTO; subject to transitional 
debt rule 

(*) The Recommendations under the '2-pack' (Reg. No 473/2013) regarding measures to be taken in order to ensure a timely correction 
of its excessive government deficit only concern euro area Member States. 

17 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
APPENDIX 2 – PROGRESS TOWARDS EUROPE 2020 TARGETS  

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

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

2010 data 

Latest available data 

68.6% 

 72.3% (Q3-2017) 

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

1.93% 

2.03% (2016) 

Target unlikely to be met 

14% reduction 

23% reduction (2016) 

Target likely to be met 

12.5% 

17.04 
(2016) 

Target likely to be met 

5.7% (for primary 
energy 
consumption) 
13.9% 

16.0% (2016) 
(for primary energy 
consumption) 
10.7%  (2016) 

Target likely to be met 

Target likely to be met 

33.8% 

39.1% (2016) 

Target likely to be met 

0.5 million 
increase 
(compared to the 
2008 base year) 

1 million increase 
(compared to the 2008 
base year) 

Target unlikely to be met 

18 

 
 
 
 
 
APPENDIX 3 – FINDINGS FROM IN-DEPTH-REVIEWS BY MEMBER STATE  

Bulgaria is experiencing imbalances. Vulnerabilities in the financial sector are coupled with 
high  indebtedness  and  non-performing  loans  in  the  corporate  sector,  in  a  context  of 
incomplete  labour  market  adjustment.  Meanwhile,  the  net  external  position  has  improved, 
mainly  due  to  the  current  account  surplus.  The  authorities  have  made  progress  in 
implementing  the  recommendations  addressed  after  the  asset  quality  and  balance  sheet 
reviews, but the legacy issues linked to weak governance, asset quality and supervision have 
not  yet  been  fully  dealt  with.  The  robust  growth  has  supported  continuous  private 
deleveraging  and  further  decreases  in  non-performing  loan  ratios,  but  stocks  of  non-
performing  loans  in  the  corporate  sector  are  still  high.  Labour  market  improvement  has 
continued  despite  persistent  structural  issues, such  as  the  high  share  of  young  people  not  in 
employment,  education  or  training  and  labour  shortages  and  mismatches.  Some  measures 
have  been taken to tackle the main sources of imbalances, but  further progress is needed to 
address remaining vulnerabilities in the financial sector, including further improving banking 
and non-banking supervision, dealing with hard-to-value assets and group level supervision, 
and completing the reform of the insolvency framework. 

Croatia  is  experiencing  excessive  imbalances.  Vulnerabilities  are  linked  to  high  levels  of 
public, private and external debt, all largely denominated in foreign currency, in a context of 
low potential growth. Strong growth, above its estimated potential, is helping to reduce stock 
imbalances: public, private and external debt ratios are declining at a fast pace. The negative 
net external position remains large, but has been improving due to a current account surplus. 
Strong  growth  supported  further  debt  reduction, and  the  pace  of  deleveraging  is  set  to  slow 
down, as credit flows to households and corporates turn positive. Government debt peaked in 
2014, and is currently on a declining path, driven by both strong GDP growth and a reduction 
in  the  headline  deficit.  The  banking  sector  is  increasingly  profitable  and  the  stock  of  non-
performing  loans continued to decline. Still, the foreign currency exposure (mainly euro) of 
corporations  and  households  remains  a  source  of  vulnerability.  While  the  economic 
environment  is  improving,  there  has  been  little  advancement  in  the  adoption  of  policy 
measures aimed at addressing macroeconomic imbalances, including by raising the still low 
growth potential. 

Cyprus  is  experiencing  excessive  imbalances.  A  very  high  share  of  non-performing  loans 
burdens the financial sector and high stock of private, public, and external debt hangs on the 
economy, in a context of still relatively high, even though declining, unemployment and weak 
potential  growth.  The  current  account  is  still  negative  and  widening,  and  is  not  adequate  to 
guarantee a sustainable evolution of the large net external liabilities stock. Private debt is only 
slowly  decreasing,  and  credit  flows  to  the  private  sector  are  picking  up  despite  very  high 
levels of private debt. Loan restructuring efforts by banks, the strong cyclical upturn, and the 
implementation of past reforms have allowed a  reduction of non-performing loans, but their 
stock  remains  very  high.  Poor  contract  enforcement,  inefficiencies  in  the  judicial  system,  
bottlenecks  in  the  implementation  of  the  foreclosure  and  insolvency  legislation  as  well  as 
weak  repayment  discipline  hamper  private  sector  deleveraging  and  the  reduction  of  non-
performing loans. A prudent fiscal stance and an active debt management policy accelerated 
public debt reduction. Renewed reform  momentum is  needed, notably to help reduce  public 
debt,  improve  competitiveness,  accelerate  the  reduction  of  non-performing  loans  and  raise 
potential growth. 

France  is  experiencing  imbalances.  Vulnerabilities  stem  from  high  public  debt  and  weak 
competitiveness dynamics in a context of low productivity growth, which carry cross-border 
relevance.  Moderate wage growth supports on-going improvements in cost competitiveness. 

19 

 
Subdued  productivity  growth  is  instead  acting  as  a  headwind.  Labour  market's  low 
responsiveness to changing demand and supply conditions and some elements of the business 
environment still weigh on non-cost competitiveness. The government debt-to-GDP ratio rose 
further in 2017, but it is forecast to stabilise in 2018 and 2019. Previously adverse trends have 
thus  abated,  economic  conditions  are  improving  and  reform  efforts  are  gaining  momentum. 
Recently announced and undertaken policy actions can carry both domestic and cross-border 
positive effects in the medium term. Progress on several fronts including labour markets and 
taxation has been achieved, while announced initiatives to improve the business environment, 
vocational  education  and  training,  unemployment  benefit,  and  pension  systems  have  still  to 
materialise. Further action is warranted for ensuring a better access to the labour market for 
the  jobseekers,  simplifying  the  tax  system  and  reviewing  government  expenditure  to  ensure 
sustainability of public finances and enhance growth potential. 

Germany  is  experiencing  imbalances.  The  persistently  high  current  account  surplus  has 
cross-border  relevance  and  reflects  a  subdued  level  of  investment  relative  to  saving  in  both 
the  private  and  the  public  sector.  The  surplus,  which  is  largely  with  non-EU  countries,  has 
slightly narrowed since 2016 and is expected to gradually decline due to a pick-up in domestic 
demand  in  the  coming  years  whilst  remaining  at  historically  high  levels  over  the  forecast 
horizon. While there is currently a shift towards more domestic demand-driven growth, both 
consumption and investment remain muted as a share of GDP despite the favourable cyclical 
and  financing  conditions  and  the  infrastructure  investment  needs  for  which  there  is  fiscal 
space.  While  a  number  of  measures  have  been  taken  to  strengthen  public  investment,  these 
efforts have not yet resulted in a sustainable upward trend in public investment as a share of 
GDP. Progress in addressing recommendations in other areas has also been limited. 

Ireland is experiencing imbalances. Large stocks of private and public debt and net external 
liabilities constitute vulnerabilities. However, the improvements have been substantial. Strong 
productivity growth in past years has implied improved competitiveness and a positive current 
account balance entailing a rapid reduction in the high stock of net foreign liabilities. Strong 
economic  growth  continues  to  support  private  deleveraging  but  the  stock  of  private  debt 
remains high, although the strong influence of the activities of multinational enterprises needs 
to be taken into account when evaluating corporate debt, and household debt appears broadly 
in line with fundamentals. Government debt is projected to remain on a downward trajectory, 
and the deficit is moving closer to balance.  House prices are growing at a rapid pace, albeit 
from likely undervalued levels, thereby also strengthening households' balance sheets. Banks 
are  well  recapitalised  and  their  profitability  is  improving  gradually.  The  stock  of  NPLs, 
although remaining high, continues to decrease. Policy action addressing these vulnerabilities 
has been taken, but some measures will take time to generate the expected effects.  

Italy  is  experiencing  excessive  imbalances.  High  government  debt  and  protracted  weak 
productivity dynamics imply risks with cross-border relevance looking forward, in a context 
of still high level of non-performing loans and unemployment. The government debt ratio is 
set to stabilise but has not yet embarked on a firm downward path due to the worsening of the 
structural  primary  balance.  External  competitiveness  has  improved,  but  weak  productivity 
growth,  linked  to  structural  obstacles  which  continue  to  hamper  an  efficient  allocation  of 
productive  factors  across  the  economy,  accelerating  unit  labour  costs  and  the  general  low 
inflation environment are making it challenging to reverse past large competitiveness losses. 
Market  pressures  on  the  banking  sector  have  abated,  following,  among  other  measures,  the 
government's  support  for  capitalisation  of  a  few  distressed  banks.  The  stock  of  non-
performing  loans  has  only  recently  started  to  decrease,  and  still  weighs  on  banks’  capital 
needs, profits, and lending policies. The reform momentum has somehow slowed, but some 
progress  has  been  made  in  addressing  recommendations.  Several  measures  are  now  in  the 

20 

 
pipeline,  notably  in  the  fields  of  labour  and  social  policies,  civil  justice  and  business 
environment.  

The  Netherlands  is  experiencing  imbalances.  The  high  stock  of  private  debt  and  the  large 
current  account  surplus  constitute  sources  of  imbalances,  with  cross-border  relevance.  The 
large  current  account  surplus,  which  mainly  reflects  structural  features  of  the  economy  and 
policy  settings  regarding  non-financial  corporations  and  is  partly  explained  by  deleveraging 
pressures,  has  increased  recently  but  is  forecast  to  decline  somewhat.  The  private  debt-to-
GDP ratio has only very gradually decreased in the last years, supported by economic growth. 
At the same time, nominal household debt is increasing again, as the ongoing recovery in the 
housing  market  is  driving  up  nominal  mortgage  debt  levels.  Recent  reform  announcements, 
such  as  the  speeding-up  of  the  reduction  of  mortgage  interest  deductibility  and  the  fiscal 
stimulus should contribute to support aggregate demand. 

Portugal is experiencing imbalances. The large stocks of net external liabilities, private and 
public debt, and a high share of non-performing loans constitute vulnerabilities in a context of 
low  productivity  growth.  A  prudent  current  account  position  and  the  maintenance  of 
competitiveness gains are required to ensure the adjustment of net external liabilities. Private 
debt  ratios  continue  to  decline  from  high  levels  due  to  both  resumed  nominal  growth  and 
slightly  negative  credit  flows,  and  the  government  debt-to-GDP  ratio  is  projected  to  have 
entered  a  decreasing  trend,  in  a  context  of  persistent  deleveraging  needs.  Financial  sector 
interventions  contributed  to  reduce  stability  risks,  although  banks  remain  penalised  by  low 
profitability  and  a  large  stock  of  non-performing  loans,  which  have  nonetheless  started 
declining.  Higher  productivity  growth  is  key  for  improved  prospects  in  competitiveness, 
deleveraging  and  potential  growth. Unemployment  has  been  decreasing  at  a  strong  pace  for 
several years. Policy gaps remain, notably in terms of implementing the measures outlined to 
reduce  non-performing  loans  and  to  improve  the  business  environment.  The  adoption  and 
implementation  of  several  reform  plans,  including  measures  to  tackle  labour  market 
segmentation or fiscal-structural reforms to improve the sustainability of public finances, will 
need to be monitored.  

Slovenia is experiencing no imbalances. Risks arising from weaknesses in the banking sector, 
corporate  indebtedness  and  short-term  fiscal  situation  have  receded.  Government  debt  has 
peaked in 2015 and has been on a downward trend since then. The corporate sector underwent 
a  substantial  deleveraging,  which  weakened  investment  and  potential  growth.  However, 
investment  is  now  accelerating,  and  foreign  direct  investment  inflows  have  recovered 
considerably  in  the  most  recent  years.  Banking  sector  restructuring  has  coincided  with  a 
rapidly  falling  share  of  non-performing  loans.  Policy  action  which  contributed  to  the 
unwinding  of  imbalances  has  been  taken,  but  measures  to  enhance  the  sustainability  of  the 
pension, health care and long-term care systems remain a key priority. 

Spain is experiencing imbalances. Large stocks of external and internal debt, both public and 
private,  continue  to  constitute  vulnerabilities  in  a  context  of  high  unemployment  and  have 
cross-border relevance. The external rebalancing is advancing, thanks to the current account 
surpluses  recorded  since  2013.  However,  net  external  liabilities  remain  high  and  Spain  will 
have to record sustained current account surpluses for an extended period of time before the 
net external liabilities reach prudent levels. Private sector debt reduction is also progressing, 
supported  by  favourable  growth  conditions,  but  deleveraging  needs  are  still  present.  A 
healthier  financial  sector  supports  economic  activity,  and  the  non-performing  loans  ratio 
decreased  further.  Despite  the  strong  nominal  GDP  growth,  government  debt  as  a  share  of 
GDP  has  only  just  begun  to  slowly  decrease,  with  deficits  forecast  to  narrow  over  time. 
Unemployment has continued its rapid decline, but remains very high and the high degree of 

21 

 
labour  market  segmentation  impedes  faster  labour  productivity  growth.  Policy  progress  has 
been  especially  made  between  2012  and  2015,  and  recently  only  limited  progress  has  been 
made  in  addressing  recommendations.  Challenges  remain,  in  particular  concerning  fiscal 
governance, active labour market policies and improving innovation and skills to boost non-
cost competiveness. 

Sweden is experiencing imbalances. Overvalued house price levels coupled with a continued 
rise in household debt poses risks of a disorderly correction. The already high household debt 
remains  on  an  upward  path.  House  prices  have  been  growing  at  fast  and  virtually 
uninterrupted pace for about 20 years. Negative growth has been recorded in the last quarter 
of  2017.  Still,  valuation  indicators  suggest  that  house  prices  remain  very  high  relative  to 
fundamentals.  Although  banks  appear  adequately  capitalised,  a  disorderly  correction  could 
also affect the financial sector as banks have a growing exposure to household mortgages. In 
such a case, there could be spill-overs to neighbouring countries given the systemic financial 
interlinkages. Awareness of mounting risks among the authorities is high, and in recent years 
measures  have  been  taken  to  rein  in  mortgage  debt  growth  and  raise  housing  construction. 
However, policy steps implemented so far have not been sufficient to address overvaluation in 
the housing sector, and key policy gaps  remain, particularly in relation to tax incentives for 
home ownership as well as the functioning of housing supply and the rental market. 

22