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 2018 European Semester - Country-specific recommendations
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, economic growth, economic policy, education policy, employment policy, euro area, fiscal policy, investment policy, social policy, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 400 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 2018 European Semester - Country-specific recommendations  
 
 
1. 

INTRODUCTION 

The European Semester and country-specific recommendations provide yearly guidance 
for  national  reforms.  Last  November,  at  the  start  of  the  2018  cycle,  the  Annual  Growth 
Survey  (1)  identified  the economic and social priorities of the Union and its Member States 
for the year ahead. It highlighted that the ‘virtuous triangle’ of boosting investment, pursuing 
structural  reforms  and  ensuring  responsible  fiscal  policies  is  delivering  results.  This  year’s 
country-specific recommendations continue to reflect these key policy priorities while taking 
into  account  the  favourable  economic  and  social  situation.  The  recommendation  on  the 
economic  policy  of  the  euro  area  (2),  adopted  by  the  Council  on  14  May  2018,  has  also 
provided a clear steer in the preparation of recommendations for all concerned countries. 

investment  and 

Europe’s economy is growing at its fastest pace in a decade, supported by record high 
employment,  recovering 
improved  public  finances.  The  current 
favourable conditions have opened up a window of opportunity to make Europe’s economies 
stronger and more resilient. All but one Member State are now under the preventive arm of 
the Stability and Growth Pact. According to the Commission’s 2018 spring forecast, growth 
will  continue  at  a  robust  but  slightly  slower  pace,  as  global  financial  market  volatility  and 
trade  protectionism  increasingly  pose  risks  to  the  economic  expansion.  These  developments 
remind us that there is no room for complacency: now is the time to prepare the Union and its 
Member States for the challenges of the future. 

As President Juncker stressed in his 2017 State of the Union Address: Europe needs to 
fix  its  roof  while  the  sun  is  shining.  The  Commission’s  proposals  for  the  2018  country-
specific recommendations intend to take full advantage of the positive economic outlook and 
guide  Member  States  in  their  pursuit  of  the  necessary  structural  reforms  and  sound  fiscal 
policies.  Building  on  positive  recent  trends,  efforts  should  continue  towards  fostering 
economic and social convergence between and within Member States. While addressing the 
legacy  of  the  crisis  and  correcting  imbalances  remain  a  priority  in  various  countries,  the 
proposed recommendations seek to promote a more forward-looking approach and focus on 
building  the  basis  for  sustainable,  inclusive  and  long-term  growth.  At  the  same  time,  they 
encourage  the  completion  of  reforms  tackling  vulnerability  and  adaptability  to  shocks,  as 
these remain key to avoid abrupt downturns in the future. 

The  recommendations  build  on  the  comprehensive  analysis  presented  in  the  latest 
country reports, which highlight several challenges for long-term growth. Europe needs 
to  pursue  structural  reforms  that  improve  the  business  environment  and  provide  enabling 
conditions  for  investment,  especially  through  product  and  service  market  reforms,  fostering 
innovation, improving  small  and  medium-sized  enterprises’  access to  finance,  strengthening 
public institutions in full respect of the rule of law and fighting corruption. Europe also needs 
to  promote  reforms  that  prepare  its  workforce  for  the  future  and  increasing  digitalisation, 
reduce  income  inequalities  and  foster  employment  opportunities,  for  young  people  in 
particular.  Last  but  not  least,  Europe  needs  reforms  that  strengthen  its  economic  resilience 
vis-à-vis  long-term  challenges,  such  as  demographic  trends,  migration,  decarbonisation  and 
pressure  on  natural  resources.  Only  resilient  economies  can  ensure  long-term  economic 
convergence and the reduction of social disparities. 

1  Communication from  the  Commission  to the  European Parliament,  the  Council,  the  European  Central  Bank, 
the European Economic and Social Committee, the Committee of Regions and the European Investment Bank: 
Annual Growth Survey 2018, COM(2017) 690 final. 

2 Council recommendation on the economic policy of the euro area, 14 May 2018. 

1 

 
                                                 
This  year’s  country-specific  recommendations  dedicate  special  attention  to  social 
challenges,  building  on  the  European  Pillar  of  Social  Rights  proclaimed  by  the 
European  Parliament,  the  Council  and  the  Commission  on  17  November  2017  (3).  The 
Pillar is designed as a compass for a renewed process of upward convergence towards better 
working  and  living  conditions  in  the  European Union,  supporting  productivity and ensuring 
the sustainability of welfare systems. The European Semester offers Member States with an 
opportunity to foster and report progress in the delivery of the Pillar. Against this background, 
and with due regard to national competences, the Commission has recently invited Member 
States  to  set  out  renewed  priorities  and  actions  at  national  level,  through  their  National 
Reform Programmes (4). The proposed recommendations support this process and encourage 
Member  States  to  advance  national  reforms  addressing  the  three  dimensions  of  the  Pillar: 
equal  opportunities  and  access  to  the  labour  market,  fair  working  conditions,  and  social 
protection and inclusion. In this context, particular emphasis is placed on providing adequate 
skills,  effective  and  adequate  social  safety  nets  and  improved  social  dialogue  to  ensure 
sustainable outcomes. 

Under the mandate of this Commission, the European Semester has become increasingly 
streamlined  and  inclusive,  as  the  Commission  made  significant  efforts  to  strengthen 
national  ownership  and  implementation  of  the  country-specific  recommendations.  The 
Commission has taken a number of measures to ensure that the process is more streamlined, 
the recommendations are more relevant and targeted, their analytical foundations more robust 
and  that  opportunities  for  dialogue  are  enhanced.  The  measures  taken  include  the 
establishment of a network of European Semester officers based in the Member States, more 
and  closer  contacts  between  the  Commission  and  the  Member  States  at  all  levels  of  the 
administration  and  at  political  level  both  in  Brussels  and  in  the  Member  States,  and  an 
inclusive  dialogue  with  social  partners  and  stakeholders.  Since  the  publication  of  the  latest 
country  reports,  consultative  meetings  with  national  authorities,  social  partners  and  other 
relevant stakeholders were held all across Europe to discuss how the key challenges identified 
in  the  reports  could  translate  into  country-specific  recommendations.  The  Commission  has 
also continued its practice of consulting Member States on the analytical parts of the country 
reports  prior  to  their  publication.  Despite  the  Commission's  efforts,  Member  States'  track-
record in the implementation of the recommendations still falls short of expectations.  

To  further  support  Member  States  in  the  implementation  of  agreed  reforms,  the 
Commission is proposing an enhanced set of budgetary tools. As of 2015, the Commission 
has  been  providing  technical  support  through  its  Structural  Reform  Support  Service  to 
improve the design and implementation of growth-enhancing reforms in the Member States. 
Since  the  Structural  Reform  Support  Programme  was  launched,  requests  for  support  by 
Member  States  have  significantly  exceeded  the  amount  of  funding  available  for  the  annual 
cycles. In 2017, requests for support were submitted by 24 Member States and a predominant 
share  of  the  projects  selected  for  funding  addresses  challenges  identified  in  the  European 
Semester  (5).  In  its  proposals  on  the  deepening  of  the  Economic  and  Monetary  Union  of 
6 December 2017,  the  Commission  advocated  strengthening  this  technical  support  and 
presented  a  pilot  tool  to  deliver  reform  that  offers  Member  States  new  possibilities  for 

3 Interinstitutional proclamation endorsing the European Pillar of Social Rights, 17 November 2017.  
4  Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European  Economic 
and  Social  Committee:  Monitoring  the  implementation  of  the  European  Pillar  of  Social  Rights, 
COM(2018)130 final. 

5  Regulation  (EU)  No  2017/825  of  the  European  Parliament  and  of  the  Council  of  17  May  2017,  on  the 

establishment of the Structural Reform Support Programme - Work Programme for 2018. 

2 

 
                                                 
financial support (6). Building on these initiatives, the Commission will present in early June a 
new  streamlined  instrument  for  the  post-2020  multiannual  financial  framework  that  will 
provide  both  technical  and  financial  support  for  the  implementation  of  national  reform 
commitments in order to further enhance the resilience of the Economic and Monetary Union. 

2.  OVERALL PROGRESS IN REFORMS AND CORRECTING IMBALANCES 

The current economic environment provides a favourable window of opportunity to step 
up reform implementation. In the framework of the European Semester, a number of steps 
have been taken to build consensus around the key economic and social challenges, increase 
national  ownership  of  the  reform  agenda  and  improve  the  implementation  record  of 
recommendations.  As  recalled  above,  these  steps  include  intensifying  the  multi-level  policy 
dialogue  before  the  Commission  proposes  recommendations,  streamlining  the  number  of 
recommendations,  focusing  on  reform  steps  that  can  be  implemented  within  12-18  months, 
making  the  recommended  policy  actions  less  prescriptive  and  communicating  more 
transparently how reform progress is assessed.  

Despite  such  efforts,  implementation  of  reforms  embedded  in  the  country-specific 
recommendations  has  advanced  slowly  and  has  not  been  satisfactory  across  all  policy 
areas. With the economic crisis firmly behind us, reform efforts are at risk of slowing down 
further and the initiation and implementation of complex reforms may face delays as external 
pressures unwind. Instead, Member States should rekindle their commitment to strengthen the 
foundations  and  resilience  of  their  economies,  not  least  since  experience  has  shown  that 
important  reforms    with  tangible  positive  impacts  on  growth  and  jobs    need  time  and 
resolve to be fully implemented. 

Since  the  outset  of  the  European  Semester  in  2011,  more  than  two-thirds  of  country-
specific  recommendations  have  been  implemented  with  at  least  ‘some  progress’  (Figure 
1). The multiannual assessment of recommendations is more positive than the assessment of 
progress  year-by-year  (see  Figure  2),  which  confirms  that  important  reforms  are  eventually 
being  carried  out,  though  in  many  cases  the  process  takes  time.  The  different  speed  of 
implementation  often  reflects  the  urgency  of  progress  in  specific  areas,  but  also  reveals  the 
need  for  consensus  building,  notably  where  reform  benefits  are  not  uniformly  spread.  For 
instance, Member States have made most progress over the years in financial services, fiscal 
policy  and  fiscal  governance,  reflecting  the  priority  given  to  the  stabilisation  of  public 
finances  and  the  financial  sector  in  response  to  the  economic  and  financial  crisis,  which 
required  determined  policy  action.  In  the  same  vein,  steps  to  promote  job  creation  on 
permanent  contracts  and  address  labour  market  segmentation  are  reflected  in  the  sound 
implementation record of relevant recommendations. On the other hand, Member States have 
not yet fully addressed shortcomings in tax regimes, such as a narrow tax base. Also, there is 
room for further action to address health and long-term care. Reforms in this field tend to take 
time,  given  the  magnitude  of  the  challenges  faced  and  potential  impacts  on  administrative 
structures (Figure 3). 

6  Targeted  changes  in  the  Common  Provisions  Regulation  to  mobilise  funds  in  support  of  national  reforms, 

COM(2017) 826 final. 

3 

 
 
                                                 
 
Figure 1: Current level of implementation of 2011-2017 CSRs (multiannual assessment) 

Note:  The  multiannual  assessment  looks  at  implementation  from  the  time  the  recommendations  were  first  adopted  until 
publication of this Communication in May 2018. The overall assessment of the country-specific recommendations related to 
fiscal policy includes compliance with the Stability and Growth Pact. 

Figure  2:  Implementation  of  country-specific  recommendations:  annual  assessment  in  each 
consecutive year since 2011 versus implementation to date 

Note:  The  multiannual  assessment  looks  at  implementation  from  the  time  the  recommendations  were  first 
adopted until publication of this Communication in May 2018. For the years 2011 and 2012 it is more difficult to 
compare  the  annual  with  the  multiannual  assessment  due  to  different  assessment  categories  of  the  country–
specific recommendations. 

From  an  annual  perspective,  the  implementation  track-record  is  less  satisfactory,  as 
progress remains uneven across policy areas. Compared to last year, Member States made 
the  most  progress  in  reforming  their  financial  sectors,  for  instance  by  improving  financing 
conditions,  facilitating a durable resolution  of non-performing  loans and improving banking 
supervision. Sound progress has also been made in active labour market policies, which have 
become increasingly diverse and generally focused on a more tailored approach to individual 
needs.  Research  and  development  is  also  increasingly  supported  by  governments'  efforts  to 
finance public research and development activities, increased profitability in the private sector 
and improving financing conditions. On the other  hand,  fighting tax evasion, improving tax 
administration, tackling tax avoidance and fighting against corruption showed mixed results. 
Modest  progress  has  also  been  recorded  in  addressing  the  challenges  posed  by  an  ageing 

4 

 
 
 
population to the long-term sustainability of public finances. This policy area is addressed in a 
high  number  of  recommendations,  but  progress  has  only  been  limited.  Education  reforms, 
notably  those  aiming  at  improving  access  for  disadvantaged  groups  and  raising  the  overall 
quality  of  education,  continue  to  represent  a  challenge,  as  only  limited  progress  has  been 
made in a majority of the Member States that received a recommendation in this area in 2017 
(see Figure 3 and Appendix 2). 

 Figure 3: Policy areas displaying highest and lowest level of CSR implementation 

Note: The percentages corresponds to the share of subparts with at least ‘some progress’ by policy area across 
Member States with a recommendation in that policy area. 

The  correction  of  macroeconomic  imbalances  continues,  but  in  some  Member  States, 
different sources of imbalances remain unaddressed, and new risks have emerged. While 
the  large  euro  area  current  account  surplus  has  stabilised,  progress  differs  from  country  to 
country.  In  several  countries,  the  previously  large  current  account  deficits  have  been 
corrected,  while  persistent  surpluses  are  broadly  unchanged  in  others.  In  some  countries, 
levels  of  private,  public  and  external  debt  remain  persistently  high.  Deleveraging  is  taking 
place  at  an  uneven  pace,  with  faster  reductions  not  always  recorded  where  debt  is  higher. 
Keeping  the  debt  on  a  solid  declining  path  is  key  to  resolutely  reduce  vulnerabilities  in  a 
context  where  monetary  policy  conditions  are  likely  to  gradually  normalise.  Further 
rebalancing  could  be  supported  if  Member  States  with  current  account  deficits  or  high 
external debt were to safeguard recent improvements in price competitiveness. Member States 
with  large  surpluses  should  promote  faster  wage  growth  and  strengthen  investment.  For  all 
countries, measures to enhance productivity are key to promote long-term growth and support 
real wage dynamics, which remain subdued in most countries and sectors, despite tightening 
labour  markets.  More  dynamic  wage  developments,  when  translated  into  greater  domestic 
demand,  would  support  further  the  ongoing  economic  expansion.  In  a  growing  number  of 
Member States, challenges linked to strong house price movements require close monitoring, 
as  most  of  the  previous  undervaluation  gaps  are  closing.  This  points  to  country-specific 
economic and financial challenges that are of particular importance for the well-functioning 
of the euro area, due to the strong economic and financial linkages between members of the 
currency union.  

Country-specific  recommendations  issued  to  the  eleven  Member  States  with  identified 
imbalances will contribute to reducing these imbalances. Improving economic conditions 
were  reflected  in  the  Commission's  conclusions  on  macroeconomic  imbalance  procedure 

5 

 
 
categorisation  (7).  Based  on  in-depth  reviews  of  twelve  Member  States,  the  Commission 
identified  imbalances  in  eleven  of  them.  It  was  concluded  that  Slovenia  is  no  longer 
experiencing  imbalances  and  that  the  imbalances  of  Bulgaria,  France  and  Portugal  are  no 
longer excessive. Overall, eight countries are currently identified as experiencing imbalances 
(Bulgaria, France, Germany, Ireland, Portugal, Spain, the Netherlands, and Sweden) and three 
countries  experiencing  excessive  imbalances  (Croatia,  Cyprus  and  Italy).  As  in  previous 
years, specific monitoring under the Macroeconomic Imbalances Procedure will take place for 
all  countries  with  identified  imbalances  or  excessive  imbalances,  with  the  depth  of  this 
monitoring  process  reflecting  the  scope  of  the  challenges  and  the  severity  of  the 
imbalances(8).  

The  2018  Convergence  Report  (9)  shows  that  further  progress  is  needed  for  Member 
States with a derogation to be in a position to adopt the euro. The euro, used every day by 
around  342  million  people  in  19  Member  States,  is  meant  to  be  the  single  currency  of  the 
European Union as a whole. All Member States, except Denmark and the United Kingdom, 
are  required  to  adopt  the  euro,  once  they  have  achieved  a  high  degree  of  sustainable 
convergence. Euro area accession is an open and rules-based process, regulated by the Treaty 
on the Functioning of the European Union and by Protocol No 13 on the convergence criteria. 
This  year's  biennial  Convergence  Report  covers  the  seven  Member  States  that  are  legally 
committed  to  adopt  the  euro:  Bulgaria,  the  Czech  Republic,  Croatia,  Hungary,  Poland, 
Romania and Sweden. It examines the compatibility of national legislation and the progress of 
these Member States towards achieving a high degree of sustainable economic convergence 
by looking at the convergence criteria (price stability, public finances, exchange rate stability, 
and long-term interest rates). The Report also takes account of other factors mentioned in the 
Treaty on the Functioning of the European Union that are relevant to assess the sustainability 
of convergence.  

The  Report  concludes  that  at  the  moment,  none  of  the  countries  examined  fulfils  all 
conditions  for  adopting  the  euro.  All  seven  Member  States  meet  the  criterion  on  public 
finances, with Bulgaria being the best performer by far with public debt below 30 % of GDP. 
All, except the Czech Republic, Hungary and Romania, meet the price stability criterion, with 
Bulgaria’s average inflation rate at only 1.4 %. Likewise, all examined Member States, except 
Poland  and  Romania,  meet  the  criterion  on  long-term  interest  rates.  On  the  other  hand,  no 
country  fulfils  the  exchange  rate  criterion,  as  none  of  them  has  entered  the  European 
Exchange  Rate  Mechanism  (ERM)  II.  Bulgaria's  currency,  the  lev,  is  already  pegged  to  the 
euro  since  1999.  The  Bulgarian  economy  is  therefore  used  to  operate  without  a  flexible 
exchange  rate  –  similar  to  what  ERMII  membership  requires.  The  review  of  other  factors 
shows that while the countries are generally well integrated economically and financially in 
the EU, some of them still experience macroeconomic vulnerabilities and/or face challenges 
related to their business environment and institutional framework, which may pose risks as to 
the sustainability of the convergence process. Full legal compatibility is achieved only by one 

7 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, COM(2018) 120 final. 

8  For  Bulgaria  and  Portugal,  the  Commission  decided  specifically  on  7  March  2018  that  policy  commitments 
and  the  evolution  of  imbalances  will  be  monitored  closely  as  further  efforts  remain  necessary  to  achieve  a 
sustainable correction. 

9   Report  from  the  Commission  to  the  European  Parliament  and  the  Council  –  Convergence  Report  2018, 

COM(2018) 370 final.  

6 

 
                                                 
country,  Croatia.  Thorough  preparation  for  euro  area  membership  is  essential  and  the 
Commission stands ready to help Member States on their path to joining the euro. As part of 
its  proposals  for  the  next  Multiannual  Financial  Framework,  the  Commission  will  soon 
propose a dedicated programme supporting such convergence efforts. 

3.  KEY OBJECTIVES OF THE COUNTRY-SPECIFIC RECOMMENDATIONS 

The overall objective of the recommendations is to encourage the Member States to use 
the current favourable economic momentum to further strengthen the resilience of their 
economies.  Given  the  positive  cyclical  conditions,  all  Member  States  should  prioritise 
reforms  that  increase  their  growth  potential  and  make  it  more  inclusive,  improve  the 
institutional  and  business  environment,  remove  bottlenecks  to  investment,  improve  resource 
efficiency, support the creation of quality jobs, reduce inequalities, address skills challenges, 
ensure effective, resilient and accessible healthcare and improve social safety nets. 

Public finance, taxation and financial sector 

Looking  back,  the  flexibility  under  the  Stability  and  Growth  Pact,  identified  by  the 
Commission with the support of the Council, allowed striking the right balance between 
ensuring fiscal responsibility and supporting growth in the short and medium run. The 
Commission  conducted  a  review  on  the  use  of  flexibility  within  the  existing  rules  since  its 
introduction  in  2015(10).  First,  the  modulation  of  the  required  budgetary  adjustment  helped 
preserve the recovery where it was most fragile, while supporting the achievement of a sound 
budgetary position and promoting debt reduction at satisfactory pace although building fiscal 
buffers  remains  a  priority  for  some  Member  States.  Second,  the  use  of  flexibility  to  foster 
structural reforms and public investment appears to have been appropriate and economically 
justified for those Member States that actually benefitted from it. At the same time, the full 
impact of reforms and investment on growth can only be assessed over the medium term. 

As economic conditions steadily improve, it is the time to rebuild fiscal buffers in high-
debt  countries  and  use  the  fiscal  space  in  surplus  countries  to  make  their  economies 
more  resilient  and  support  growth.  Public  finances  in  the  Union  are  set  to  continue 
improving.  Benefiting  from  the  broadening  economic  expansion,  the  general  government 
deficit decreased in 2017 to 1.0 % of GDP in the European Union, and is expected to further 
decline. By the same token, general government debt fell to 83.1 % of GDP in the European 
Union and is projected to continue its steadily declining path. The fiscal stance was broadly 
neutral  in  2017  and  should  remain  so  in  2018.  With  unchanged  policies,  most  countries   
including  several  ones  with  high  public  debt    are  forecast  to  expand  or  only  marginally 
reduce  their  structural  deficit  in  2019  and  would  thus  remain  exposed  to  possible  future 
shocks.  The  country-specific  recommendations  set  a  required  fiscal  adjustment  effort 
consistent with the Stability and Growth Pact for Member States which have not yet reached 
their  medium-term  budgetary  objective.  However,  Member  States  with  adequate  scope  are 
also  recommended  to  use  fiscal  and  structural  policies  within  the  rules  of  the  Stability  and 
Growth  Pact  to  support  growth  to  facilitate  their  economic  rebalancing  and  provide  non-
negligible  spill-overs  to  other  Member  States.  The  resultant  mix  of  fiscal  policies  among 
Member  States  would  make  the  aggregate  fiscal  stance  for  the  euro  area  in  2019  broadly 

10  Communication from the Commission to the European Parliament, the Council, the European Central Bank, 
the  European  Economic  and  Social  Committee    and  the  European  investment  Bank  on  the  review  of  the 
flexibility under the Stability and Growth Pact, COM(2018) 335 final.  

7 

 
                                                 
neutral,  striking  the  right  balance  between  attaining  public  finance  sustainability  and 
safeguarding the ongoing economic expansion and pick-up in employment. 

Over the years, Member States have significantly improved their fiscal frameworks, and 
this  is  now  paying  off  in  terms  of  contribution  to  the  improved  budgetary  outlook. 
Reforms  have  to  continue  in  some  Member  States  to  reap  the  benefits  of  strong  domestic 
fiscal frameworks and to ensure that Member States collectively contribute to fiscal prudence 
at the Union level. While Croatia and Romania are recommended to enact or implement broad 
reforms to their fiscal framework, Belgium and Poland require targeted improvements, such 
as  coordination  across  levels  of  government,  improvement  of  budgetary  procedures  or 
independent monitoring.  

To  ensure  that  public  finances  are  available  for  medium-to-long-term  investment 
projects, close  attention  should  be  payed  to  their  composition.  Appropriate  allocation  of 
public  revenues  and  expenditures  across  various  policy  areas  would  result  in  a  mix  that  is 
more conducive to growth. Further efforts are also needed to make taxation and expenditure 
more  efficient  and  more  effective  at  all  levels  of  government.  Rigorously  implemented 
spending reviews are a useful tool to improve the allocation of taxpayers’ money. In line with 
this year’s recommendations, Austria, Belgium, Bulgaria, Finland, France, Hungary, Poland, 
Portugal and Romania should take action in this area.  

The impact of an ageing population on national budget warrants reforms of the pension, 
healthcare and long-term care systems. These are key to ensure long-term sustainability of 
public finances as well as adequate and accessible social security and healthcare. Experience 
has proven that this area is one of the most challenging to reform, which is why reforms need 
to  be  legislated  promptly  but  implemented  gradually,  so  that  affected  groups  are  given  the 
opportunity  to  adapt.  Various  Member  States  have  nevertheless  taken  steps  to  reform  their 
pension  and  health  systems,  and  audacity  is  needed  to  preserve  those  reforms.  The 
Commission recommends further reforms in these areas for a number of Member States, for 
example the Czech Republic, Ireland, Hungary or Lithuania. 

Further efforts are necessary to address high levels of labour taxes while safeguarding 
the  necessary  revenue  for  public  policies,  to  increase  incentives  to  work  and  support  job 
creation  for  more  vulnerable  population  groups.  Several  Member  States  continued  their 
efforts to reduce the tax burden on labour, focusing in particular on low-income earners, and 
further  efforts  are  recommended  this  year  to  Austria,  Germany,  Italy  and  Latvia. 
Nevertheless,  tax  reforms  have  to  protect  the  revenue  for  adequate  social  protection  and 
investment. In this context, a number of recommendations to broaden the tax base are issued 
for Croatia, Italy or Lithuania, for example by introducing a recurrent property tax in Croatia. 

Improving  tax  rules  and  administration  is  essential  to  ensure  the  sustainability  of 
Member  States'  tax  systems  and  secure  a  level  playing  field  and  a  positive  business 
environment for companies. A stable, simple and cost-efficient tax system can improve tax 
compliance and contribute to a positive investment climate. Recommendations are therefore 
proposed  to  simplify  the  tax  system  in  France  and  Hungary,  increase  its  efficiency  in 
Germany,  and  improve  tax  administration  and  compliance  in  Bulgaria,  Lithuania  and 
Romania.  As  indicated  in  the  2018  euro  area  recommendation,  the  fight  against  taxpayers' 
aggressive  tax  planning  strategies  is  essential  to  impede  distortions  of  competition  between 
firms, provide fair treatment of taxpayers, and safeguard public finances, thereby also helping 
preserve social cohesion and fight inequalities. Spill-over effects of taxpayers' aggressive tax 
planning strategies between Member States call for a coordinated action of national policies 
to  complement  the  Union  legislation.  Member  States  have  engaged  at  European  level  to 
enhance  tax  transparency  and  agree  on  a  minimum  level  of  protection  against  abuse.  They 
have also taken steps at national level, for example by amending or repealing their patent box 

8 

 
that  facilitated  aggressive  tax  planning,  or  changing  their  tax  residency  rules.  Despite  this 
progress, a thorough review of tax rules and relevant economic indicators shows that the tax 
system of a number of Member States continues to be exploited by multinationals that engage 
in aggressive tax planning.  

Progress has been made over the last year to strengthen the financial sector in a number 
of Member States, bringing down both the stock and the flows of non-performing loans. 
Steps  have  notably  been  taken  to  improve  the  insolvency  framework,  to  strengthen  the 
supervisory  framework  and  reduce  non-performing 
through  asset 
management companies. Further actions are recommended to Bulgaria, Cyprus and Malta to 
strengthen the supervision of the financial sector in those segments where national authorities 
remain competent. A number of Member States also continue to be affected by large shares of 
non-performing loans. Country-specific recommendations are addressed to Bulgaria, Cyprus, 
Ireland, Italy and Malta in this sense.   

including 

loans, 

Developments  in  the  housing  market  can  have  a  destabilising  impact  on  the  financial 
sector, requiring action in some Member States. Housing is generally the main asset held 
by  households,  and  real  estate  is  also  routinely  used  as  collateral  for  loans  by  companies. 
Preventing  booms  and  busts  would  thus  increase  the  resilience  of  economies  to  potential 
shocks, especially if there is correction in housing prices. On that account, Ireland, the United 
Kingdom,  the  Netherlands  and  Sweden  are  recommended  to  reduce  bottlenecks  to  housing 
supply. Reducing the debt bias, created notably by the tax system, such as mortgage interest 
deductibility, would contribute to decrease the high indebtedness of households in Sweden.  

Box 1. Update on surveillance under the Stability and Growth Pact 

Based on the assessment of the 2018 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  France. This  would 
leave only Spain, which has a deadline of 2018 to correct its excessive deficit, under the corrective 
arm of the Pact. 

The  Commission  has  adopted  reports  for  Belgium  and  Italy  under  Article  126(3)  TFEU,  in  which  it 
reviews  their  compliance  with  the  debt criterion  of  the  Treaty.  For  Italy,  the  conclusion is  that  the 
debt criterion should be considered as currently complied with. For Belgium, there was no sufficient 
evidence to fully conclude on whether the debt criterion is or is not complied with. However, in both 
countries the fiscal adjustment in 2018 currently appears inadequate. The Commission will reassess 
compliance on the basis of the ex-post data for 2018 to be notified in Spring 2019. 

The Commission also recommends the Council to decide that Romania has not taken effective action 
in  response  to  the  Recommendation  of  December  2017  under  the  significant  deviation  procedure. 
The  latter  was  opened  in  June  2017  following  the  observed  significant  deviation  in  2016. 
Furthermore, the Commission is addressing a warning to Hungary and Romania on the existence of a 
significant  deviation  from  the  adjustment  path  toward  the  medium-term  budgetary  objective  in 
2017. This is the second warning addressed to Romania. The Commission recommends the Council to 
adopt  a  recommendation  for  Hungary  and  Romania  to  respond  appropriately  with  a  view  to 
correcting this significant deviation. The significant deviation procedure provides the authorities the 
opportunity to take corrective action in order to avoid the opening of an excessive deficit procedure. 

9 

 
 
 
 
Labour market, education and social policies  

While  labour  market  conditions  are  improving  across  the  board,  further  efforts  are 
needed  to  ensure  everyone  benefits  from  the recovery  and  to  improve  sustainability  of 
welfare  systems.  Significant  gaps  persist  in  the  rate  of  participation  of  different  population 
groups  in  the  labour  market.  This  is  the  notably  the  case  of  the  low-skilled,  young,  older 
people, persons with a migrant background, or people with disabilities. Austria, Belgium and 
France are recommended to adopt measures to improve the labour market situation of persons 
with  a  migrant  background.  Austria,  the  Czech  Republic,  Estonia,  Italy  and  Poland  should 
tackle the gender gap in terms of employment rate and pay level, often caused by a lack of 
adequate  care  services,  work-life  balance  opportunities  or  disincentives enshrined  in  the tax 
and  benefit  system.  In  Spain,  the  Netherlands,  Poland  and  Portugal,  labour  market 
segmentation should be addressed, by measures such as promoting transitions towards open-
ended  contracts,  tackling  incentives  for  employers  to  hire  temporary  employees  and  ensure 
equal access to social protection for workers under those arrangements.  

In light of technological change and demographic challenges, further investment in skills 
is  essential  to  sustain  innovation  and  productivity  growth.  Reskilling  and  upskilling  are 
key  to  make  labour  markets  more  dynamic  and  inclusive,  so  that  everyone  can  participate 
fully in society or engage in entrepreneurship. Transitions from lower-skilled to higher-skilled 
career opportunities should be supported, with resolute policy action and adequate investment 
recommended for Ireland, Latvia, Slovakia or the United Kingdom. Belgium is recommended 
to increase the proportion of graduates in science, technology, engineering and mathematics. 

Efforts should also focus on improving the quality of education and training systems and 
ensuring  equal  access,  including  for  disadvantaged  groups  such  as  Roma,  persons  with  a 
migrant  background  and  people  with  disabilities.  Educational  inequality,  and  its  inter-
generational transmission, represents a threat to social cohesion and the long-term prosperity 
of European societies. This year’s recommendations thus focus on quality and achievement in 
basic  skills  in  Austria,  reducing  early  school  leaving  in  Spain,  improving  the  situation  of 
teachers in the Czech  Republic, increasing labour  market relevance of education in Croatia, 
Latvia  or  Lithuania,  improving  adult  learning  in  Poland,  Lithuania,  Slovenia  and  Portugal, 
and vocational training in Cyprus, France and Italy. Recommendations have been addressed 
to  Bulgaria,  Czech  Republic,  Hungary,  Romania  and  Slovakia  to  improve  access  to  quality 
and inclusive mainstream education for disadvantaged groups, in particular Roma. 

With employment recovering, the social situation is improving in most Member States. 
However, as evidenced by the Social Scoreboard, critical socioeconomic developments such 
as  high  income  inequality  and  in-work  poverty,  low  impact  of  social  transfers  or  limited 
access  to  social  services  are  identified  in  a  number  of  Member  States.  This  year's  country-
specific recommendations devote particular attention to the inclusiveness and effectiveness of 
social  protection  schemes,  for  example  in  Spain,  Hungary,  Croatia,  Estonia,  Lithuania  and 
Latvia.  

Health  systems  need  to  be  reformed  to  offset  the  impact  of  an  ageing  population  and 
improving access to healthcare. Many Member States have recently undertaken a number of 
reforms  of  their  healthcare  systems  in  order  to  increase  cost-effectiveness,  financial 
sustainability, resilience, affordability and accessibility and improve the health status of their 
populations. Recommendations thus encourage Member States to implement recently adopted 
or  soon-to-be-agreed  reforms  for  better  cost-effectiveness  and  accessibility  in  Cyprus, 
Finland,  Lithuania  and  Slovenia,  take  decisive  action  to  ensure  adequate  and  efficient 
budgeting in Portugal, increase  fiscal sustainability and cost-effectiveness in Malta, Austria 
and Ireland, strengthen primary and outpatient care in Latvia, Lithuania and Romania, invest 

10 

 
in  disease  prevention  in  Lithuania,  improve  the  situation  regarding  health  workforce  in 
Bulgaria and Slovakia and reduce out-of-pocket payments in Bulgaria and Latvia. 

The  contribution  of  social  dialogue  when  designing  and  implementing  policy  is 
important for improving co-ownership of reforms and ensuring that they are successful, 
sustainable and inclusive. Since the adoption of the 2017 country-specific recommendations, 
some Member States have taken action to increase opportunities for structured dialogue and 
the  participation  of  employers’  organisations  and  trade  unions.  In  other  cases  such  a 
framework does not exist or only plays a marginal role. While there is no single model that 
serves  as  a  reference,  there  is  room  for  more  social  dialogue  and  a  greater  involvement  of 
social partners in policy design in Hungary and Romania.  

Sectoral policies to foster investment and productivity growth 

Good  progress  in  overcoming  the  legacy  of  the  crisis  has  allowed  focusing  on  the 
underlying  productivity  challenges.  While  most  Member  States  have  received  country-
specific recommendations in areas related to productivity growth already in the past, the time 
has now come to make more substantial progress in advancing these reforms. Investment in 
infrastructure  and  research  and  development  are  essential  in  this  respect.  Ensuring  that 
investment in innovations is channelled into the most productive areas requires various steps: 
improved  and 
Regulatory  obstacles  need 
entrepreneurship  supported.  Accordingly,  country-specific  recommendations  are  more 
targeted  at  the  specific  needs  of  each  Member  State  to  foster  investment  and  rekindle 
productivity growth. 

removed,  business  environment 

to  be 

Innovation  and  investment  in  research  and  development  and  digitisation  policies  will 
have  a  positive  and  durable  impact  on  productivity,  but  priorities  vary  significantly 
across  Member  States.  Digitalisation  levels  vary  considerably  across  countries  in  terms  of 
infrastructures  or  the  availability  of  digital  skills  and  even  those  Member  States  with  good 
overall performance may show significant internal differences across regions. Strengthening 
public  or  private  research  and  development  in  terms  of  investment  or  effectiveness  through 
better  targeting  is  recommended  for  Estonia,  Spain,  France,  Ireland,  Italy  Lithuania,  or 
Slovakia. Closer collaboration between business and research institutions should be promoted 
in France, Ireland, Lithuania and Poland. 

Sustained investment in infrastructure is necessary to improve the business environment 
and boost the potential for growth. Good network infrastructure lowers the cost of starting 
or operating a business, and interconnections between Member States and regions are key to 
capitalise  the  full  potential  of  the  Single  Market.  The  crisis  has  led  to  less  investment  in 
infrastructure, especially in the most affected Member States. In those cases, investment was 
especially  low  in  transport,  energy  and  digital  infrastructure,  which  has  significant  negative 
externalities  for  society  and  the  environment.  These  sectors  still  requires  significant 
investment, including in those Member States that fared well during the crisis. In a number of 
countries,  waste  and  water  management  infrastructures  also  require  further  investments  to 
ensure  their  modernisation  and  support  the  transition  towards  a  more  circular  economy. 
Recommendations  concerning  infrastructure  are proposed  for  Belgium,  the  Czech  Republic, 
Germany, Ireland and Romania.  

Reforms  to  create  competitive  and  dynamic  markets  would  open  up  new  growth 
opportunities that firms could easily take advantage of in good economic times. Reforms 
that  facilitate  market  opening,  market  entry,  firm  growth,  restructuring  or  market  exit  of 
inefficient firms, and the creation of new business models stimulate productivity and benefit 
citizens  and  the  wider  economy.  Restrictive  regulation  in  the  services  sector  increases 
significantly  the  costs  for  large  consumers  of  services,  such  as  manufacturing  industries.  In 

11 

 
particular, the reforms in business services, that present an increasingly important input into 
other  industries,  will  result  in  productivity  growth  by  lowering  costs  and  increasing  the 
availability  and  quality  of  the  services  inputs  offered.  Recommendations  on  regulatory 
reform,  notably  in  services,  are  addressed  to  Austria,  Belgium,  Croatia,  Germany,  Italy, 
France, Hungary, Luxembourg and Slovenia.  

Public administration and the business environment  

The  business  environment  has  improved  due  to  the  strong  upswing  but  also  thanks  to 
structural reforms. Efforts in that direction should continue in the future, including in those 
countries with a relatively better position in order to keep their advantage at the global level. 
Recommendations  for  improving  various  aspects  of  efficiency  and  quality  of  public 
administration are issued this year for Cyprus, Croatia, and Italy. Governance and economic 
performance  of  state-owned  enterprises  remain  an  issue  in  many  Member  States  and 
recommendations  have  been  addressed  to  Bulgaria,  Cyprus,  Croatia,  Italy,  Portugal  and 
Romania.  

Further efforts to ensure independence and effectiveness of the justice system, improve 
public  procurement  and  tackle  corruption  are  needed  in  a  number  of  Member  States. 
Addressing  these  challenges  is  essential  for  improving  business  confidence  and  the  investment 
climate, and  for ensuring the success of other structural reforms.  Measures have been taken to 
improve the functioning of public procurement in several countries, including the introduction 
of e-procurement. However, competition, transparency aggregation and professionalization in 
public procurement remain areas for improvement, and also the potential of  strategic public 
procurement  stays  largely  untapped.  The  Czech  Republic,  Spain,  Hungary,  Romania, 
Slovenia  and  Slovakia  are  addressed  recommendations  related  to  public  procurement. 
Although  some  Member  States  have  adopted  new  anti-corruption  measures,  corruption 
remains an acute issue in several Member States, with negative impacts on the potential for 
economic growth and the business environment. In various cases, there is a need to strengthen 
effective investigation and prosecution of corruption and improve prevention. Whistle-blower 
protection,  lobbying  legislation,  assets  and  interests  disclosure  and  verifications,  adequate 
resourcing of anti-corruption bodies as well as transparency and public access to information 
are  also  areas  requiring  further  improvements.  A  number  of  Member  States  have  received 
recommendations  focussing  on  these  aspects.  Croatia,  Cyprus,  Italy,  Portugal  and  Slovakia 
have received a recommendation to improve the effectiveness of their justice systems. 

Access to finance has improved thanks to reforms and the economic upswing, but future 
resilience  depends  on  providing  firms  with  more  equity  financing  options.  Access  to 
finance  has  improved  considerably  thanks  to  the  tailwinds  from  the  business  cycle  but  also 
thanks  to  reforms  in  a  number  of  countries.  It  remains  however  subdued  in  some  Member 
States,  notably  as  regards  small  and  medium-sized  enterprises.  In  particular,  young, 
innovative and fast growing companies depend on venture capital and access to public capital 
markets  for  their  funding  needs  in  the  early  and  later  stages  of  growth.  Country-specific 
recommendations on access to finance are proposed for Cyprus, Italy and Portugal. 

4.  CONCLUSION 

The  improved  economic  and  social  climate  offers  a  unique  opportunity  to  make 
Europe’s economies stronger and more resilient. With its continued focus on the 'virtuous 
triangle'  of  investment,  structural  reforms,  and  responsible  fiscal  policies,  the  European 
Semester  helps  Member  States  take  full  advantage  of  this  opportunity.  As  the  economy 
expands,  it  is  high  time  that  Member  States  step  up  efforts  in  the  pursuit  of  greater  macro-
economic resilience and growth-enhancing reforms. 

12 

 
 
 
The  Commission  calls  on  the  Council  to  endorse  the  proposed  approach  for  the  2018-
2019  country-specific  recommendations  and  the  related  decisions  under  the  Stability 
and  Growth  Pact.  It  calls  on  the  Member  States  to  implement  them  fully  and  in  a  timely 
manner,  in  dialogue  with  social  partners  and  all  relevant  stakeholders.  For  its  part,  the 
Commission  remains  committed  to  maintaining  an  open,  inclusive  dialogue  with  national 
stakeholders  throughout  the  European  Semester  process.  Moreover,  the  Commission  stands 
ready to provide Member States with support, should they so request, through the Structural 
Reform Support Service. To further support the implementation of national reform agendas, 
the Commission intends to present a new Reform Support Programme as part of its proposals 
for  the  post-2020  multiannual  financial  framework.  The  programme  will  have  an  overall 
budget of EUR 25 billion and will offer financial and technical support to all Member States 
for the pursuit of priority reforms identified in the context of the European Semester.   

13 

 
APPENDIX 1: OVERVIEW OF ISSUES COVERED IN THE COUNTRY-SPECIFIC RECOMMENDATIONS FOR 2018-2019  

14 

 
 
 
 
 
  
 
APPENDIX 2: ASSESSMENT OF PROGRESS ON 2017 COUNTRY-SPECIFIC RECOMMENDATIONS BY POLICY AREA 

15