COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, economic situation, euro area, green economy, investment, labour market, macroeconomics, public finance, structural adjustment, sustainable development

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  COM(2020) 150 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP   2020 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(2020) 500-527 final}  
 
 
1.  INTRODUCTION  

Europe  is  serious  about  leading  the  way  towards  competitive  sustainability.  Europe’s 
prosperity and the well-being of its people ultimately  depend on the policy  actions taken in 
the coming years to address the long-term challenges transforming our economy and society.  

The  2020  Annual  Sustainable  Growth  Strategy  has  presented  a  new  economic  agenda 
and has set clear priorities for the coordination of economic and employment policies in 
the EU. Its aim of competitive sustainability fully reflects the ambition of the European Green 
Deal and rests on four dimensions: environmental sustainability, productivity gains, fairness 
and  macroeconomic  stability.  An  approach  centred  on  these  four  dimensions  allows 
exploiting  synergies,  addressing  trade-offs  and  presenting  solutions  to  ensure  the  economy 
works for people and the planet. The assessment presented in today’s country reports will help 
to ensure the translation of these objectives into concrete policies at Member States’ level. 

Building the foundation of our future prosperity also  provides responses to short-term 
challenges  and  the  current  slowdown  in  economic  growth.  The  current  low-growth 
environment underscores the importance of structural reforms that will enhance our potential 
growth and make our economies more productive. The European economy has the capacity to 
mobilise  the  financial  resources  to  enable  the  necessary  private  and  public  investments  in  a 
sustainable manner. While debt  reduction should be prioritised in  high-debt  Member States, 
those Member States in a favourable fiscal position have scope to further boost investment to 
raise  economic  growth  and  support  the  transition  towards  a  greener  and  digital  economy. 
Finally, a continued reduction of macroeconomic imbalances, both external and internal, will 
enhance the resilience of our economies. 

We can only be successful as a continent if the Union and its Member States steer their 
policies  in  a  single  direction,  putting  sustainable  development  at  the  heart  of  our 
economic  policy  and  actions.  Translating  the  new  economic  agenda  into  effective  national 
economic, social and fiscal policies across the Union will help Europe to achieve the United 
Nations Sustainable Development Goals. This will allow Europe to set a global example for 
how decisive policy action can lead to a more sustainable, prosperous, fair and secure future 
for all. 

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2.  KEY NEW FEATURES IN THE EUROPEAN SEMESTER 

To  be  successful,  the  new  economic  agenda  needs  to  be  turned  into  concrete  policies, 
such  as  investment  strategies,  responsible  fiscal  policies  and  structural  reforms  that 
advance competitive sustainability in all its dimensions. The European Semester has a key 
role  to  play  by  coordinating  and  steering  national  efforts  in  the  direction  of  long-term 
sustainable  and  inclusive  growth.  The  country  reports  published  today  present  a  thorough 
analysis  of  the  key  socio-economic  challenges  of  macro-economic  relevance  each  Member 
State faces around the four dimensions of competitive sustainability. They will inform future 
policy recommendations, staying focused on the economic and employment policies needed 
to tackle the challenges within the four dimensions.  

The 2020 country reports emphasise the challenges and opportunities for our economies 
arising  from  the  green  transition.  These  questions  are  analysed  in  a  new  section  on 
environmental sustainability. Member States recently had to submit their National Energy and 
Climate Plans which will be key reference documents for implementing  climate and energy 
policies  in  the  Member  States,  including  elements  of  macro-economic  relevance  that  are 
monitored in  the  European Semester. The Commission  will assess these  plans in  2020. The 
country reports also contribute to the monitoring of the Sustainable Development Goals and 
bring  attention  to  macro-economic  and  employment  policies  that  can  help  to  deliver  them. 
Each country report includes a summary assessment of Member State progress relative to the 
SDGs  overall  as  well  as  a  dedicated  annex  setting  out  the  performance  with  respect  to  the 
various specific goals.  

The reports also zoom in on those regions and sectors most challenged by the transition 
towards  climate  neutrality.  Based  on  this  analysis,  they  will  guide  the  use  of  the  newly 
proposed Just Transition Fund. This is just the beginning. More work is  needed and will be 
developed together with Member States, in line with the approach used for the programming 
of cohesion policy funds.  

To  successfully  address  the  pressing  socio-economic  and  environmental  challenges  of 
today and tomorrow, the European Semester of economic policy coordination will have 
to further evolve. In the coming years, work will need to continue to ensure that the various 
dimensions of the sustainable development  agenda with  macro-economic relevance are well 
integrated in the European Semester (see Box 1). 

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Box  1:  Integrating  the  Sustainable  Development  Goals  (SDGs)  and  environmental 
sustainability considerations in the European Semester 

  In  line  with  the  legal  scope  of  the  European  Semester,  the  integration  of  SDGs 
focuses  on  their  macro-economic  dimension  and  on  how  they  can  be  achieved 
through  economic,  employment  and  social  policies.  The  transformation  to  a 
sustainable  economy  is  a  defining  challenge  with  implications  for  growth  and  jobs. 
Consequently, this macro-economic dimension takes a broader perspective and SDG-
relevant  policies and challenges  are identified across  the country reports in  line with 
the  Green  Deal  and  the  Annual  Sustainable  Growth  Strategy.  It  does  it  consistently 
with  the  European  Pillar  of  Social  Rights,  which  is  a  compass  for  renewed 
convergence  towards  better  working  and  living  conditions  in  the  EU  and  its  Social 
Scoreboard, which monitors its implementation.  

  In  line  with  the  Green  Deal  and  the  Annual  Sustainable  Growth  Strategy, 
environmental  sustainability  is  being  fully  integrated  in  the  Semester  process. 
The 2020 country reports reflect this new approach via a new dedicated section. This 
further contributes to the integration of the SDGs in the Semester. The new section on 
environmental  sustainability  provides  a  more  comprehensive  analysis  of  Member 
States’ environmental and climate-related challenges, with a focus on those areas that 
interlink with economic and employment policies, including the social impact of these 
challenges and policies.  

  Each country report also includes a new annex setting out the individual Member 
State’s  SDG  performance  and  the  trend  over  the  past  five  years.  Building  on 
Eurostat’s annual flagship publication on sustainable development (Monitoring report 
on progress towards the SDGs in an EU context — 2019 edition), the country reports 
reference available statistics to track Member States performance.  

  Going  forward,  further  in-depth  analysis  to  monitor  the  implementation  of  the 
SDGs  and  capture  the  transition  to  a  climate-neutral  and  resource-efficient 
economy  will  be  developed.  As  a  first  step,  the  publication  of  Eurostat’s  annual 
flagship publication on SDG performance will be advanced in time to be ready at the 
outset of the next European Semester cycle The SDG-relevant information, which the 
Member States are invited to provide in their national reform programmes as of 2020, 
will  complement  this  assessment  of  progress.  The  Commission  is  also  working  on 
expanding  its  toolkit  to  improve  the  analysis  of  the  macroeconomic  and  social 
implications of the ecological transition in future Semester cycles. To this effect, a set 
of  key  indicators  is  being  developed  with  the  aim  of  being  applied  as  of  the  next 
Semester  cycle.  The  Commission  will  work  closely  with  Member  States  and  other 
stakeholders in its development.  

3 

 
 
The  Commission  has  also  launched  an  open  debate  on  the  economic  governance 
framework.  The  economic  governance  review  recently  published1  by  the  Commission 
assesses how the current framework has worked in the past. It also takes into account that the 
economic context has materially changed since the six- and two-pack reforms were adopted in 
2011  and  2013  respectively  as  well  as  the  broader  ambition  for  a  green  and  digital 
transformation of Europe, in line with the objectives of the European Green Deal. This has led 
the  Commission  to  raise  a  number  of  issues  for  public  debate  to  gather  views  on  the 
functioning  of  surveillance  so  far  and  the  possible  ways  to  enhance  the  effectiveness  of  the 
framework in delivering on key objectives. 

In  future  cycles,  the  European  Semester  will  be  affected  by  the  establishment  of  the 
Budgetary Instrument for Convergence and Competitiveness and the Convergence and 
Reform Instrument.  For instance, the strategic policy priorities put forward by the euro area 
recommendation  will  be  strengthened  by  the  reforms  and  investments  incentivised  by  the 
Budgetary Instrument for Convergence and Competitiveness.  

institutions, 

independent  and  efficient 

The Commission will also set up a new rule of law mechanism, with an EU-wide scope 
annual  reporting  aimed  at  strengthening  the  rule  of  law  culture.  Good  governance, 
effective 
systems,  quality  public 
administrations,  effective  insolvency  frameworks,  are  important  determinants  of  a  Member 
State’s business  environment and can have an  impact  on investment  decisions. Robust anti-
corruption frameworks can also help to preserve the proper functioning of the internal market. 
Insights into the institutional and administrative performance of the Member States, including 
those related to the rule of law, which could  create macroeconomic risks  if unresolved, will 
therefore  continue  feeding  into  the  European  Semester  and  inform  the  macroeconomic 
assessment.  

justice 

1 

 COM (2020) 55 final, 5.2.2020. 

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3.  MEMBER STATES POLICIES  

The  analysis  provided  in  this  year’s  country  reports  sets  out  the  path  for  Member  States  to 
deliver  on  competitive  sustainability  and  points  towards  the  required  structural  reforms  and 
important investments needs.  

3.1 Environmental sustainability  

The  European  Green  Deal  aims  to  make  Europe  the  first  continent  to  become  climate 
neutral  by  2050,  with  more  resource-efficient  growth.  It  outlines  a  comprehensive 
approach across all environmental and climate issues – addressing in particular challenges in 
the area of climate change, energy transition, biodiversity, pollution and circular economy  – 
and across sectors, including mobility, industry and food systems. The ambition rests on both 
the  EU  and  the  Member  States.  National  and  EU  economic  policies  need  to  internalise  the 
environmental impact  of existing production and consumption models and create the proper 
incentives  to  improve  their  sustainability.  In  June  20192,  the  Commission  pointed  out  the 
remaining  gaps  between  the  combined  proposed  national  contributions  based  on  draft  plans 
submitted by Member States, and the EU-wide targets set by legislation3.  

The  green  transition  will  require  significant  and  targeted  investment,  both  public  and 
private,  as  well  as  deep  structural  reforms.  Identifying  key  investment  needs,  preparing 
high impact investment projects and matching the projects with available sources of finance, 
and accompanying the projects with the right regulatory approach, will be key to deliver on 
this objective. The analysis presented in the country reports on structural reforms and the most 
significant  investments  needs,  in  areas  such  as  energy,  transport  and  buildings,  including 
energy efficiency, can guide Member States’ policy actions in line with the priorities agreed at 
EU level. The country reports also contain information on sources of funding at EU level.  

Public financial support, including through the European Green Deal Investment Plan, 
can leverage private funds to scale up sustainable investment volumes. A greater share of 
spending on sustainable  energy,  climate and  environmental action  from  the EU budget  than 
ever before will crowd in private funding, with a key role for the European Investment Bank. 
The political agreement in December between the European Parliament and the Council on an 

2 

3 

Commission’s EU-wide assessment of the draft integrated national energy and climate  plans,  18 June 
2019, (COM(2019) 285 final). 

The assessment showed that national plans, if implemented as foreseen in those drafts, would result in a 
substantial gap on aggregate: for both primary and final energy consumption, the contribution towards 
more efficient energy consumption fell short of the EU’s targets. The Commission called on Member 
States to close those gaps in ambition in their final integrated National Energy and Climate plans, which 
the Member States were due to submit by 31 December 2019. To the extent possible, the content of the 
plans is already reflected in today’s country reports. 

5 

 
                                                 
 
EU-wide  classification  system  for  environmentally  sustainable  investments,  or  taxonomy,  is 
an important step towards tackling climate change by enabling green investments to flow4.  

Green budgeting  practices are an important tool  to monitor  the contribution  of public 
finances to the European Green Deal. The explicit identification of expenditure and revenue 
policies  in  budgetary  documents  that  contribute  to  climate  action  and  other  environmental 
goals  can help  fiscal  policies to  contribute to  the green  transition  and increase  coherence of 
policy goals and their monitoring. So far, only a few Member States (France, Finland, Ireland, 
and  Italy) implement  some  green budgeting techniques in  the  framework of their budgetary 
processes. The approaches vary significantly and, apart from Italy, green budgeting practices 
are  recent.  In  some  cases  the  green  budgeting  information  includes  additional  reporting 
elements,  such  as  environmental  impact  assessments,  a  list  of  harmful  subsidies,  and 
information on greenhouse gas emissions and wellbeing indicators. Further development in all 
Member States would be necessary to strengthen the role of public finances in the transition to 
a climate-neutral, green, competitive and inclusive economy. The Commission will work with 
the Member States to screen and benchmark green budgeting practices.  

The use of green taxation as a tool to change behaviour and generate revenue remains 
modest.  Environmental  taxes,  as  well  as  different  forms  of  carbon  pricing,  are  important 
policy  instruments  to  achieve  the  required  transition.  A  significant  price  on  carbon  dioxide 
emissions has been a key feature of Swedish climate policy since 20015 and now covers about 
40%  of  Swedish  greenhouse  gas  emission,  helping  Sweden  to  reduce  greenhouse  gas 
emissions  in  sectors  not  covered  by  the  EU  Emissions  Trading  System,  while  keeping  the 
economy  growing.  Other  Member  States,  including  Ireland,  Denmark,  France,  Finland, 
Slovenia, Estonia, Latvia, Poland and Portugal also apply a carbon tax. In Ireland all revenues 
from a recent price increase in the carbon tax (around EUR 90 million in 2020) will be fully 
allocated  to  climate-related  spending.  Part  of  them  (EUR  6  million)  will  be  used  to 
establishing  an  Irish  ‘Just  Transition  Fund’  for  the  Midlands  –  covering  investment  in 
retraining  and  reskilling  and  helping  local  communities  and  businesses  to  adjust  to  the  low 
carbon transition.  

The transition to a sustainable and climate-neutral economy needs to be fair and socially 
just, which requires regular monitoring. While fighting climate change and environmental 
degradation will benefit all in the long term, and provide opportunities for all in the medium 
term, not all population groups, regions and Member States have the same capacity to respond 
in the short term. Measures taken at national level are essential to mitigating negative impacts 
on  specific  groups  and  sectors  and  ensuring  fairness.  The  EU  budget  will  also  provide  a 
substantial contribution through all instruments directly relevant to the green transition. The 
Just Transition Mechanism, proposed by the Commission, will help ensure that no one is left 
behind, by providing additional support to regions and people most affected by the transition, 

4 
5 

 Commission’s Action Plan: Financing Sustainable Growth (COM/2018/097 final) 
 Sweden introduced a carbon tax of SEK 250 (some EUR 23.50) per tonne. This has reached SEK 1,180 
(some EUR 110) in 2017 

6 

 
                                                 
especially  those  relying  on  solid  fossil  fuel  extraction  and  use  for  energy  purposes  (coal, 
lignite,  peat,  oil  shale)  and  greenhouse  gas-intensive  industries.  Today’s  country  reports 
include  an  analysis  of  the  transition  challenges  and  present  the  Commission  services’ 
preliminary views on the priorities for support by the Just Transition Fund. This will provide 
input  for  Member  States  when  preparing  their  territorial  Just  Transition  Plans  that  will 
identify  eligible  territories,  detailing  needs  for  economic  diversification,  employment 
creation,  skills  utilisation,  local-based  innovation  and  environmental  rehabilitation  as 
appropriate. The Commission will provide dedicated technical support to Member States for 
the drafting of the Transition Plans. Those plans will be drawn up by the Member States  in 
dialogue with the Commission and will be consistent with their National Energy and Climate 
Plans (NECP).  

3.2 Productivity growth  

Productivity  growth  remains  a  challenge,  even  more  so  in  the  light  of  demographic 
change.  Labour  productivity  growth  continues  to  slow  down,  with  considerable  differences 
across  and  within  Member  States.  In  2018,  labour  productivity  growth  ranged  from  6%  in 
Poland to -1.1% in Luxembourg. Differences are even more pronounced at regional level and 
productivity growth has been higher, on average, among bigger firms than SMEs. 

There  are  multiple  causes  for  this  weak  performance.  An  important  factor  relates  to  the 
availability and quality of production inputs. Insufficient investment in capital equipment, and 
in education and training, relatively obsolete production technologies, the ageing of the labour 
force, insufficient labour market integration of women and people with a migrant background 
and  skills  shortages  or  mismatches  are  holding  back  potential  growth.  For  instance,  in 
Czechia, the employment rate has reached 80% and labour shortages have become a serious 
matter of concern. In Bulgaria, a significant share of the investment effort aims at  replacing 
machinery  and  equipment,  which  are  well  below  state-of-the-art  levels.  Moreover,  new 
technologies  are  only  slowing  reaching  other  firms  than  those  in  the  technological  frontier, 
stalling the overall efficiency of most firms, particularly SMEs. 

The  green  and  digital  transformations  offer  challenges  but  also  opportunities  for 
Europe’s economy to grow, for its companies to develop new business models and better 
products and services. Currently the digital transformation of Europe's economy is hampered 
by  a  low  performance  in  many  Member  States  on  key  framework  conditions.  There  are  a 
number of conditions that determine the robustness and sustainability of the digital economy 
eco-system.  These  include  digital  skills  and  infrastructure,  funding  for  innovation,  the 
availability  of  data,  cybersecurity  and  public  services  fit  for  the  digital  age.  For  example, 
Germany, Greece, Hungary, Romania and Italy lag behind in the e-Government domain while 
Portugal  and  Czechia  improved  considerably.  In  digital  skills,  large  economies  like  France, 
Spain,  Poland  and  Italy  are  not  improving  at  the  pace  technological  change  requires.  Only 
Denmark and Sweden have a strong digital intensity levels in their enterprises, while the rest 
of Member States do not reach 10% of their companies with high levels of digitisation in their 

7 

 
 
companies. To complement efforts at national levels, the Commission has set out a vision of a 
digital society that works for all. 

Innovation and new technologies are critical  to achieve  the objectives of the European 
Green Deal. The EU’s share in the worldwide investment in R&D is diminishing. China has 
now overtaken the EU both in relative and absolute terms. In fact, in 2019, the Council asked 
all  Member  States  in  its  country-specific  recommendations  to  address  aspects  related  to 
research and innovation. Boosting productivity, in order to achieve competitive sustainability, 
will not be possible without research and innovation playing a key role in the transformation 
of  Europe’s  socio-economic  systems,  including  by  taking  measures  to  further  integrate  the 
Single Market for goods and services. The upcoming new Industrial Strategy for Europe will 
help  to  create  the  environment  for  such  innovation.  A  new  initiative  to  take  the  European 
Research  Area  to  the  next  level  will  also  be  an  important  contributor.  The  transition  to  a 
climate-neutral  economy  will  require  new  production  and  consumption  models  driven  by 
technological  and  social  innovations.  Increasing  resource  productivity  as  well  as  ensuring 
well-functioning European research and innovation systems are key in this respect.  

Stimulating  private  research  and  innovation  is  a  key  challenge  in  Europe.  In  several 
Member States, R&D efforts are increasingly concentrated in a limited number of firms while 
innovation expenditure in SMEs declines. This trend contributes to widening the productivity 
gap  between  technology  leaders  and  most  other  firms.  Country  reports  show  that  Member 
States  have  a  role  to  play.  For  instance,  in  Sweden,  a  good  technology  base  and  business 
environment have allowed a start-up to scale up, with the support from the European Fund for 
Strategic Investments, in order to become one of the first European producers of batteries for 
electric  cars.  In  Czechia,  investments  in  the  automation  of  carmakers  have  increased  their 
productivity  ushering  the  adoption  of  advanced  digital  technologies.  Unfortunately, 
improvements of business environments are slow, in particular, for access to sufficient R&D 
and  innovation  financing.  The  establishment  of  the  Capital  Markets  Union  can  greatly 
facilitate the access of innovative firms to external financing. Ways to improve SMEs’ access 
to finance will also be addressed in the Commission’s upcoming SME strategy.  

Significant  divergence  among  Member  States  impedes  Europe’s  economy  from 
achieving  its  full  potential  for  digital  services.  Member  States  differ  significantly  in  their 
progress  towards  digitalising  their  economies.  This  may  prompt  commercial  and  industrial 
users to delay the roll-out and uptake of digital technologies. Widespread deployment of 5G 
networks  should  be  pursued  without  delay  as  it  will  help  Europe  to  seize  the  opportunities 
offered by the green and digital revolutions 6.  

Productivity growth relies strongly on human capital. This requires high quality education 
and  training  systems,  including  vocational  education,  that  equip  all  learners  with  key 

6  

National  processes  for  assigning  spectrum  in  the  5G  pioneer  bands  are  expected  to  be  finalised  in  a 
number of Member States, in view of the legal obligation to allow the use of these bands by the end of 
the year. 

8 

 
                                                 
competences and the professional skills needed in a rapidly changing labour market. Yet, the 
persistently high share of underachievers in basic skills, highlighted in the most recent PISA 
results,  is  an  important  bottleneck  for  skills  development  and  later  employability.  In  its 
country-specific  recommendations,  the  Council  has  repeatedly  asked  Member  States  to 
increase investment in skills to meet the demands of qualified labour.  

Policies to foster productivity need to be tailored to national circumstances and National 
Productivity Boards can bring in such country-specific knowledge. A large number of the 
existing Productivity Boards has been appointed only recently and it is, therefore, too early to 
provide  a  comprehensive  assessment  of  their  impact.  It  is  encouraging  to  see  that  National 
Productivity Boards are already established in a majority of euro area Member States and the 
number  of  Boards  is  steadily  growing.  Fourteen  euro-area  and  four  non-euro  area  Member 
States have now set up their own Productivity Board. 

3.3 Fairness 

The green and digital transitions and demographic change will require reforms of social 
protection  systems  and  labour  markets  while  ensuring  fair  working  conditions  and 
adequate  social  protection.  These  reforms  are  needed  to  ensure  that  Europe  remains  the 
home  of  the  world’s  most  advanced  welfare  systems,  investing  in  its  human  capital  and 
supporting  innovation  and  competitive  entrepreneurship.  The  Just  Transition  Mechanism, 
together  with  the  European  Social  Fund  Plus,  will  be  key  in  ensuring  that  no  one  is  left 
behind.  

The  European  Pillar  of  Social  Rights7  is  the  European  answer  to  those  fundamental 
ambitions.  Delivering  on  the  Pillar  –  our  strategy  to  ensure  the  transitions  are  just  and 
socially  fair  –  is  all  the  more  important  against  the  backdrop  of  prospects  of  a  prolonged 
period of slower growth in the EU, even if the employment and social situation has continued 
to improve, as indicated by the social scoreboard8.  

The  Commission  recently  set  out  the  road  towards  an  Action  Plan  to  implement  the 
European Pillar of Social Rights9 and started a first-stage consultation of social partners 
on  fair  minimum  wages10.  While  there  is  no  one-size  fits  all,  social  justice  and  social 
progress are foundations of the European social  market economy.  In 2019, minimum wages 
increased in almost all Member States that have national statutory levels; Italy and Cyprus are 
discussing  proposals  to  introduce  a  statutory  minimum  wage  by  law.  Despite  the  moderate 
wage growth in recent decades in some Member States, the situation of low-wage workers has 
worsened and wage inequalities have increased. About one in six workers in the EU earns a 

7  
8 
9 
10 

Inter-institutional Proclamation on the European Pillar of Social Rights (2017/C 428/09). 
See the Commission’s proposal for a Joint Employment Report 2020 (COM/2019/653 final). 
A strong social Europe for just Transitions (COM/2020/14 final). 
First phase consultation of Social Partners under Article 154 TFEU on a possible action addressing the 
challenges related to fair minimum wages (C(2020) 83 final). 

9 

 
                                                 
low wage. This  share has  been on a rising trend11.  In-work poverty has  also increased from 
8.1% to 9.6% between 2005 and 2018. 

Unemployment  levels  continue  to  differ  considerably  across  Member  States.  Labour 
market segmentation is a challenge in several Member States, often associated with negative 
consequences  on  working  conditions  and  feelings  of  insecurity.  Workers  with  a  temporary 
contract experience much higher risk of poverty than those with a permanent job (16.2% vs 
6.1% in 2018). Some groups, such as young people, the low skilled, people with disabilities 
and people with a migrant background, also remain at a disadvantage in the labour market.  

A number of Member States are taking actions to improve their working conditions and 
promote  the  labour  market  integration  of  vulnerable  groups.  For  instance,  following 
agreement  among  social  partners,  Portugal  adopted  measures  to  tackle  labour  market 
segmentation  and  promote  permanent  employment.  Slovenia  took  measures  to  foster 
activation and improve the social security of unemployed people. Cyprus reformed its labour 
inspectorate and adopted an action plan with the aim to fight undeclared work and bring it to 
the formal economy, including preventive measures on top of deterring ones.  

Over  recent  years,  the  employment  and  pay  gaps  between  men  and  women  remained 
stable  at  a  high  level12.  Women  continue  to  experience  lower  employment  rates,  to  work 
fewer  hours,  to  earn  less  and  to  have  more  discontinuous  careers.  This  also  has  a  negative 
impact  on  their  pension  entitlements.  Spain  introduced  parental  leave  of  16  weeks  for  each 
parent.  It  will  replace  the  maternity  and  paternity  leaves  as  of  2021.  In  Ireland,  the  2020 
Budget is to finance, among others, a programme to help women who are inactive due to care 
responsibilities  get  back  into  the  workforce.  In  most  Member  States,  parenthood  has  a 
negative impact on employment rates of women, while the opposite occurs for men. Several 
Member states are taking action to improve access to affordable and quality care services, but 
challenges persist. 

Investment  in  education  and  skills  is  crucial  to  adapt  to  structural  changes,  especially 
those  of  the  green  and  digital  transitions  and  of  demographic  change.  Equal  access  to 
high-quality education and training from an early age is also essential to promote equality of 
opportunities  and  to  foster  inclusion,  including  of  underrepresented  groups  such  as  Roma, 
people  with  a  migrant  background  and  persons  with  disabilities.  Yet,  socio-economic 
background  is  still  the  most  important  determinant  of  young  peoples’  education  outcomes. 
Several Member States are implementing measures to increase the inclusiveness of education 
and  training  and  to  modernise  research  institutions.  Slovenia  introduced  measures  amongst 
others to reinforce adult learning, and in Ireland, the review of the National Training fund was 
combined  with  additional  funding  to  reinforce  the  assessment  of  skills  gaps13.  Finland  put 

11            It rose on average in the EU from 16.7% to 17.2% between 2006 and 2014, with significant increases in 

12  

13  

some countries. 
The Commission will adopt a Gender Equality Strategy in March 2020 and address the pay gap by way 
of a legislative proposal on pay transparency later in 2020. 
The Commission will present the “Skills Agenda” in March 2020 with targets and initiatives to address 
the challenges posed by the twin transitions. 

10 

 
                                                 
forward  a  continuous  learning  reform  starting  in  2020,  which  will  increase  the  chances  to 
combine work and studies in a flexible manner and support learning at the work place.  

Poverty  and  social  exclusion  continue  declining  on  the  back  of  good  labour  market 
conditions. Still, income inequality has increased in recent years and stabilised at historically 
high levels, which risks limiting growth and threatening social cohesion. In a rapidly changing 
world  of  work,  adequate  social  protection  needs  to  be  ensured  for  all.  Last  year,  Ireland 
extended  invalidity  and  unemployment  benefits  to  the  self-employed.  Italy  introduced  a 
regulatory  framework  for  working  conditions  and  social  protection  for  workers  on  digital 
platforms,  introducing  a  minimum  standard  of  protection.  In  a  context  of  demographic 
change, ensuring equal access to quality healthcare, as well as strengthening long-term care, 
will  be  increasingly  important.  A  number  of  Member  States  are  seeking  ways  to  reinforce 
prevention services and foster accessible, efficient and cost-effective care provision.  

Reforming tax and benefits systems can contribute to sustainable and inclusive growth. 
Rebalancing the tax structure, for instance by moving the tax burden away from labour to less 
distortive  taxes,  such  as  environmental  taxes,  can  boost  economic  growth,  encourage 
employment, reduce inequalities and contribute to  an environmentally sustainable economy. 
Several  Member States  continue reforming the tax system  and in  particular reducing labour 
taxation.  France,  Italy,  Netherlands,  Greece  and  Slovenia  are  lowering  the  tax  burden  on 
labour  by  reducing  personal  income  taxes  or  social  security  contributions.  Several  of  these 
labour tax reductions are financed by relying more on less detrimental taxes. 

Progress in reforming health care and long-term care systems varies among the Member 
States. A fiscally sustainable, efficient, affordable and accessible provision of quality health 
care services contribute to preserving and restoring good health for all, thereby contributing to 
a productive and resilient work force. Moreover, there is scope for improvement in providing 
fiscally  sustainable,  efficient and adequate long-term  care.  For a number  of Member States, 
the country-specific recommendations identified healthcare and/or long-term care systems as 
requiring particular  attention. Cyprus,  Lithuania,  Latvia, Slovakia have made some progress 
in  addressing  the  recommendations.  Only  limited  progress  has  been  made  for  Belgium, 
Bulgaria, Ireland, Hungary, Malta, Austria, Portugal, Romania and Finland and no progress in 
the case of Czechia and Slovenia. 

Social dialogue plays a key role in the successful design and implementation of reforms. 
Collective bargaining, as well as a broader involvement of social partners and civil society, is 
particularly  important  at  a  moment  when  policy  makers  are  developing  comprehensive 
strategies to achieve a fair and just green and digital transition and to cope with demographic 
change.  In  particular,  over  the  past  years,  there  has  been  some  progress  in  social  partners’ 
participation in policymaking in Estonia, Latvia, Portugal, Slovenia and Spain.  

3.4 Economic stability 

In  the  current  low  interest  rate  environment,  Member  States  continue  to  have  very 
different positions in terms of debt and sustainability challenges. Government deficits in 
the  EU  have,  on  average,  started  rising  again,  reversing  the  declining  trend  of  recent  years. 

11 

 
National fiscal policies remain insufficiently differentiated. Current high levels of public debt 
are  a  source  of  vulnerability  in  some  Member  States  and  a  constraint  on  governments 
delivering  macroeconomic  stabilisation  when  needed.  In  Italy,  Belgium,  Spain  and  France 
debt  ratios  have  not  declined,  in  spite  of  the  supportive  economic  and  financing  conditions 
over recent years. Member States with high levels of public debt should make swift process to 
reduce debt, while re-prioritising expenditure to provide room for additional investment. This 
should  create  space  for  counter-cyclical  fiscal  policy  in  case  of  a  downturn.  On  the  other 
hand,  further  boosting  investment  and  other  productive  spending  in  Member  States  with  a 
favourable  budgetary  situation  would  support  growth  in  the  short  and  medium  term,  while 
also  helping  to  rebalance  the  euro  area  economy.  Some  Member  States  with  ample  fiscal 
space are now using some of it. Specifically, the Netherlands and Germany plan to increase 
investment with the view to raise economic growth, adding additional support to the transition 
towards a greener economy.  

Well-designed  and  well-functioning  national  fiscal  frameworks  are  a  cornerstone  of 
sound  public  finances  in  the  EU.  Member  States  have  strengthened  their  national  fiscal 
frameworks  over  recent  years,  in  particular  in  response  to  Union  law  requirements  and 
recommendations.  For  instance,  Lithuania  and  Poland  have  continued  to  reform  their 
budgetary processes to  improve expenditure management. Hungary streamlined the national 
system  of  numerical  fiscal  rules  and  harmonised  the  calculation  of  debt  ratios.  In  several 
Member  States,  reflections  take  place  how  to  improve  further  the  framework,  as  in  France, 
where  the  National  Assembly  made  recommendations  related  to  the  design  of  the  medium-
term  budgetary  framework.  Nevertheless,  there  is  still  scope  to  improve  the  design  of  the 
frameworks, as also recommended by the European Court of Auditors14.  

Member States are still struggling to get back to their pre-crisis public investment levels. 
The majority of Member States displayed a more growth-friendly budget composition before 
or at the onset of the crisis. In particular, public investment spending remains at historically 
low levels and the ratio of public investment to GDP is projected to increase only marginally, 
especially  in  the  euro  area.  Increasing  the  growth  potential  requires  structural  reforms  to 
enhance  sustainable  growth  and  investment  in  tangible  and  intangible  capital  to  increase 
productivity.  This  would  be  particularly  important  for  those  Member  States  whose  growth 
potential is clearly lower than the euro area average. Notwithstanding the weakness in foreign 
trade  and  heightened  uncertainty  about  trade  policies,  the  current  account  of  the  European 
Union will remain in surplus. This means that Europe generates ample savings to finance its 
economic transformation provided that those savings are appropriately channelled to the right 
investment in the Member States.  

Spending  reviews  are  becoming  regular  exercises  across  the  EU  and  can  be  an 
important tool to improve the quality of public finances. Some are conducted on an annual 
basis (e.g. in Germany), others span over a multi-year horizon (e.g. in Finland, France, Ireland 
and  Portugal).  They  also  differ  in  scope  of  expenditure.  Some  reviews  are  comprehensive 

14 

European  Court  of  Auditors  (2019),  “EU  requirements  for  national  budgetary  frameworks:  need  to 
further strengthen them and to better monitor their application”. Special Report 22/2019. 

12 

 
                                                 
while  others  target  key  sectoral  policies  such  as  education  and  healthcare  (e.g.  in  Latvia, 
Lithuania and Slovakia) or very specific items (police force in Malta, business incentives in 
Germany  and  government  subsidies  in  Spain).  While  some  reviews  have  yielded  savings, 
outcomes  in  terms  of  efficiency  gains  are  not  always  clear.  The  production  of  regular  and 
independent evaluations, improved links with budgetary planning and expanding the coverage 
to  subnational  spending  can  help  enhance  the  usefulness  of  spending  reviews.  Increasing 
competition  in  public  procurement  can  also  contribute  to  improving  the  quality  of  public 
expenditure.  

Fighting  tax  evasion  and  aggressive  tax  planning  is  essential  to  maintain  sound  public 
finances and avoid distortion of competition between firms and between Member States. 
Certain  features  of  some  Member  States’  tax  systems  (i.e.  Ireland,  Cyprus,  Luxembourg, 
Hungary, Malta and the  Netherlands), may be used by  companies that engage in  aggressive 
tax planning. Aggressive tax planning practices in one Member State, have spillover effects, 
both  on  other  companies  and  on  other  Member  States,  including  tax  revenue  losses  and 
distortions of the playing field among companies. Member States, whose tax base is eroded, 
have to raise revenue from other taxes or have lower revenues for growth-enhancing reforms, 
redistribution and investment. 

Demographic change and high government debt pose significant challenges for ensuring 
the  quality  and  sustainability  of  public  finances.  In  a  medium-  to  long-term  perspective, 
more  than  half  of  the  Member  States  face  either  medium  or  high  sustainability  risks.  For 
several countries, risks are due to a significant projected stock of public debt, in particular in 
Belgium, Spain, France, Italy, and Portugal. Moreover, challenges are related to the projected 
increases  in  age-related  public  spending.  In  some  cases,  sustainability-enhancing  pension 
reforms  have  been  reversed,  adding  to  the  future  fiscal  challenge  in  Italy  and  Romania. 
Progress  in  reforming  pension  systems  was  muted  among  the  Member  States  for  which  the 
Council adopted pension-related country-specific recommendations in 2019.Policy challenges 
thus  remain  for  Belgium,  Czechia,  Germany,  Ireland,  Spain,  France,  Italy,  Luxembourg, 
Malta, Austria, Poland, Romania, Slovenia and Slovakia.  

Banking  sector  resilience  strengthened  in  2019,  supported  by  the  economic  conditions 
and the measures to mitigate remaining challenges. Overall, banking sector capitalisation 
has remained solid, with the average solvency ratio at EU level reaching 18.8% in the second 
quarter of 2019. The need to adapt banks' business models, the low-interest-rate environment 
and  increasing  competition  from  other  forms  of  finance  is  a  challenge  for  many  Member 
States that continues to exert pressure on banks' competitiveness and profitability(e.g. Greece, 
Germany, Ireland, Portugal and Luxembourg). .The process of balance sheet repair has further 
advanced,  as  the  stock  of  legacy  non-performing  loans  has  continued  to  decline.  The  non-
performing loans ratio at EU level decreased to 2.9% in the second quarter of 2019), down by 
a half percentage point, compared to one year earlier. While asset quality has strengthened in 
all  Member  States,  in  particular  in  those  Member  States  with  the  highest  ratio  of  non-
performing loans, the ratio is still above 7% in Greece, Cyprus, Portugal, Italy, Bulgaria and 
Croatia.  Diversifying  income  sources  to  further  support  banks  profitability  has  remained 
challenging, in particular for smaller credit institutions.  

13 

 
The  fight  against  money  laundering  and  terrorist  financing  is  essential  to  protect  the 
integrity  of  the  EU  economic  and  financial  system.  Weaknesses  in  the  application  of  the 
anti-money laundering framework across the EU can be exploited to launder the proceeds of 
illicit  activities.  Member  States  where  legislation  is  not  up  to  speed  with  EU  standards, 
supervision is not sufficient, financial intelligence is underused and prosecutions are limited 
represent  weak  links  within  the  EU  framework.  Recent  money  laundering  scandals  have 
shown the importance of strict application of the rules. 

4.  ADDRESSING MACROECONOMIC IMBALANCES  

Macroeconomic  imbalances  can  adversely  affect  the  economy  of  a  particular  Member 
State, the euro area, or the Union as a whole15. The Macroeconomic Imbalances Procedure 
aims at detecting and preventing their emergence at an early stage to ensure that the Member 
States concerned take appropriate action to correct them.  

The 2019 Alert Mechanism Report identified 13 Member States for an in-depth review 
to assess whether they are or may be at risk of being affected by imbalances.16 Those 13 
countries  are  the  same  as  already  identified  a  year  ago  as  experiencing  imbalances  or 
excessive imbalances. The results of this cycle’s in-depth reviews are included in the country 
reports for the Member States concerned. The analysis looks at the gravity of the imbalances, 
their  evolution  and  policy  responses.  Relevant  spillovers  and  systemic  cross-border 
implications of imbalances are also taken into account. 

4.1.  

Progress with correcting the macroeconomic imbalances in the EU and the 
euro area 

Macroeconomic  imbalances  have  been  gradually  correcting  amid  favourable  economic 
conditions. Following a widespread post-crisis deleveraging process, a number of imbalances 
and unsustainable trends have been corrected, notably large current account deficits, excessive 
credit  growth  fuelling  house  prices  and,  generally,  strong  unit  labour  costs  implying  cost 
competitiveness  losses.  However,  despite  progress  with  deleveraging,  private,  public,  and 
external  debt  stocks  remain  at  high  levels  and  take  more  time  to  be  corrected.  In  addition, 
pockets of vulnerabilities in the financial sector persist in some cases.  

The  rebalancing  of  external  positions  remains  incomplete.  Only  few  Member  States 
currently have a current account deficit, but a number of Member States with large stocks of 
external  debt  need  to  maintain  prudent  current  account  positions  and  avoid  competiveness 
losses.  At  the  same  time,  large  current  account  surpluses  have  persisted  in  some  Member 
States  (e.g.  Germany,  Netherlands),  causing  the  euro  area  to  register  a  surplus  of  3.3%  of 
GDP. This means that over recent years, the European economies have consistently generated 
more savings than investments, and accumulated assets vis-a-vis the rest of the world. Weak 
export demand has recently contributed to some narrowing of current account surpluses, and 

15 
16 

 Article 2 of Regulation (EU) No 1176/2011. 
 COM(2019) 651 final. 

14 

 
                                                 
to the widening of current account deficits in some cases. In the current context, rebalancing 
of  both  current  account  deficits  and  surpluses  could  help  overcome  the  low-inflation,  low-
interest-rate  environment,  and  to  reduce  the  dependency  on  foreign  demand.  In  many  net-
debtor  countries,  reforms  to  boost  competitiveness  and  reduce  external  debt  are  needed.  In 
net-creditor countries, the window for financing further public and private investment at low 
interest rates should be seized. Strengthening the conditions that support wage growth would 
also contribute to rebalancing. 

The  resilience  of  the  EU  banking  sector  has  improved,  but  some  challenges  remain. 
Capitalisation  ratios  have  stopped  growing  from  levels  above  regulatory  standards. 
Profitability in the banking sector has improved considerably over past years. Non-performing 
loans  ratios  have  recorded  a  major  reduction  over  recent  years,  notably  in  countries  that 
accumulated large stocks of non-performing loans in past years (e.g., Cyprus, Italy, Portugal). 
Nonetheless, challenges remain in a number of Member States still characterised by relatively 
low capitalisation and profitability and high non-performing loans ratios. The outlook of low-
for-long interest rates and weakening economic growth is adding to those challenges.  

House prices continue displaying sustained growth rates, with decelerations observed in 
Member  States  where  evidence  of  overvaluation  is  stronger.  In  a  growing  number  of 
countries,  house  prices  are  above  peaks  recorded  since  the  mid-2000s,  and  are  possibly 
overvalued. However, the growth in house prices has recently moderated where the strongest 
growth  in  house  prices  was  recorded  in  some  EU  countries  that  so  far  have  shown  only 
limited  evidence  of  overvaluation  (e.g.,  Hungary,  Ireland,  Portugal).In  contrast,  prices  often 
decelerated  in  countries  where  overvaluation  concerns  are  stronger  and  household  debt  is 
high,  including  Sweden.  In  some  countries,  strong  growth  rates  of  house  price  growth  are 
accompanied by a sustained growth of new mortgage credit.  

Cost  competitiveness  conditions  are  becoming  less favourable  in  a  number  of  Member 
States. Unit labour costs have been growing at a fast pace in some Member States due to high 
wage and low productivity growth. In some central and eastern European and Baltic countries, 
continuously strong growth in unit labour costs reflects tight labour markets and skill gaps. In 
the  euro  area,  while unit  labour  cost growth  has  been  higher  in  many  net-creditor  countries 
than  in  net-debtor  ones,  this  difference  in  growth  rates  is  narrowing  since  2016,  becoming 
therefore less supportive of symmetric rebalancing. 

4.2. Implementing the macroeconomic imbalances procedure 

Imbalances  or  excessive  imbalances  have  been  identified  in  12  out  of  the  13  Member 
States  for  which  an  in-depth  review  was  carried  out,  with  the  gravity  of  imbalances 
narrowing  in  a  number  of  cases.  The  2020  in-depth  reviews  have  found  that  9  Member 
States  are  experiencing  imbalances  and  that  3  are  experiencing  excessive  imbalances.  One 
Member  State  identified  with  imbalances  last  year  has  reached  sufficient  progress  in 
economic  outcomes  and  policy  response  so  that  an  exit  from  the  MIP  appears  justified.  In 
most  other  Member  States,  some  progress  was  recorded  in  correcting  macroeconomic 
imbalances. At this stage, this did not justify a revision of their status from the viewpoint of 

15 

 
 
the  identification  and  assessment  of  their  imbalances.  Appendix  3  summarises  the  findings 
from the in-depth reviews by Member State. 

Bulgaria,  identified  with  imbalances  in  2019,  is  found  to  experience  no  imbalances. 
Important  progress  has  been  made  in  strengthening  financial  sector  governance  and 
addressing  outstanding  regulatory  issues.  Moreover,  corporate  debt  has  fallen  and  the  non-
performing loans (NPL) ratio has declined, although it remains elevated among corporates.17  

In  most  other  Member  States  identified  with  imbalances  in  2019,  vulnerabilities  have 
continued to gradually moderate, but challenges remain on the economic and policy outlook: 

 

In  Germany  and  the  Netherlands,  despite  some  correction  and  amidst  some  policy 
progress,  large  current  account  surpluses  persist.  Spain,  Portugal,  Ireland  and 
Croatia  are  characterised  by  a  combination  of  vulnerabilities  linked  to  high  private, 
government  and  foreign  debt.  These  stock  imbalances  started  receding  with  the 
recovery,  particularly  in  Ireland,  where  determined  policy  action  was  taken.  Policy 
action stalled somewhat in Croatia and Spain. In France, government debt is not yet 
declining and, despite some policy progress, productivity growth remains subdued. In 
Sweden,  notwithstanding  the  recent  correction,  house  prices  remain  at  historically 
high  levels,  while  household  debt  keeps  growing;  despite  progress,  policy  gaps 
remain.  In  Romania,  vulnerabilities  linked  to  cost  competitiveness  losses  and  a 
widening  current  account  deficit  persist  in  context  of  a  strongly  expansionary  fiscal 
policy, and would aggravate if current trends are not reversed. 

  Cyprus,  Greece  and  Italy  are  identified,  as  in  2019,  to  be  experiencing  excessive 
imbalances.  In  Cyprus  significant  vulnerabilities  remain,  despite  progress  in  past 
years. NPLs were reduced considerably in 2018 and progress since then is taking place 
at  lower  pace.  Government  and  private  debt  are  declining  and  are  set  to  further  fall. 
However,  the  current  account  deficit  widened  in  a  context  of  an  already  highly 
negative  net  international  investment  position.  Policy  progress  is  mixed,  with  some 
reform  commitments still pending. In  Greece very significant vulnerabilities remain, 
relating  to  government  debt,  NPLs  and  the  external  sector,  in  a  context  of  still  low 
growth potential and high unemployment. Progress is however visible in a number of 
areas. Policy commitments monitored under the enhanced surveillance programme are 
broadly on track. In Italy, government debt to GDP ratio is still on the rise, although 
government plans are becoming more conducive to debt reduction. Potential growth, 
albeit  improving,  remains  insufficient  to  ensure  a  fast  reduction  of  debt.  Action  to 
implement  the  reform  agenda  has  resumed.  In  all  three  Member  States,  sustained 
reform  efforts  are needed to  rebalance the  economy. They will be closely  monitored 
by the Commission. 

17  

The  commitments  of  Bulgaria  in  the  context  of  the  ERM  II  participation  will  be  assessed  by  the 
Commission and the ECB in their respective areas of competence in due course. 

16 

 
                                                 
The Commission will continue reviewing developments and policy measures taken by all 
Member  States  with  imbalances  or  excessive  imbalances  in  the  framework  of  specific 
monitoring. The Council participates in those reviews and has supported the conclusions of 
the specific monitoring reports.18 

5.  PROGRESS  WITH 

COUNTRY-SPECIFIC 

RECOMMENDATIONS 

AND 

PROGRAMMING OF COHESION POLICY FUNDS  

While  Member  States  continued  to  make  progress  with  the  implementation  of  the 
country-specific  recommendations,  the  level  of  reform  implementation  differed  across 
Member States.  From a multiannual  perspective, the level  of implementation has  remained 
broadly  stable  over  the  past  years.  In  particular,  Member  States  have  made  at  least  some 
progress  with  the  implementation  of  more  than  two-thirds  of  all  the  country-specific 
recommendations since the start of the European Semester in 2011. In terms of policy areas, 
Member  States  have  made  most  progress  in  financial  services,  followed  by  progress  with 
legislation, governing labour law and employment protection. At the same time, progress has 
been  particularly  slow  on  broadening  the  tax  base,  and  on  reforming  health  and  long-term 
care. 

Amid  the  high  uncertainty  surrounding  the  economic  outlook,  timely  and  effective 
implementation of reforms that boost growth potential is key to address the economy’s 
longer-term  challenges.  As  regards  the  Council  recommendations  adopted  in  2019,  reform 
implementation  has  been  strong  in  financial  services  and  active  labour  market  policies. 
Nonetheless,  it  has  remained  low  in  addressing  recommendations,  such  as  competition  in 
services and long-term sustainability of public finances. The Commission has taken measures 
implementation  of 
to  ensure 
the  country-specific 
that 
the  multilateral  review  discussions  on 
recommendations 
recommendations is enhanced. Overall, the uncertain economic outlook calls for reinvigorated 
reform implementation. 

the  assessment  process  of 
transparent  and 

is  more 

The implementation of investment-related economic policies takes time. Country-specific 
recommendations  regarding  investment-related  economic  policies  have  been  issued  for  the 
first time last year. Member States have been recommended to focus their policies on specific 
areas,  supported  by  national  public  and  private  resources  as  well  as  by  EU  funds.  Progress 
with  the  implementation  needs  to  be  analysed  with  a  long-term  perspective.  Member  States 
should  focus  their  policies  on  specific  areas,  supported  by  national  public  and  private 
resources as well as  by  EU funds. On the use of EU funds, indications are positive:  for the 
current  European  Structural  and  Investment  Funds  programming  period  (2014-2020),  the 
Commission carried out a performance review in 2019, showing that EUR 21.4 billion of the 
performance  reserve19  had  been  released.  Despite  the  non-discretionary  character  of  the 
performance  review,  on  average,  three  quarters  of  the  cohesion  policy  performance  reserve 

18  
19  

Council conclusions on the Alert Mechanism Report 2020, adopted on 18 February 2020  (ST 6145/20). 
The performance reserve, set aside in the overall ESI Funds allocation (6% of the budget or about EUR 
26  billion),  is  released  to  those  priorities  which  have  achieved  their  2018  milestones  set  in  the 
performance framework. 

17 

 
                                                 
amounting to EUR 15.9 billion went to areas related to the investment CSRs. For the amounts 
linked  to  programmes  and  priorities  that  did  not  achieve  their  performance  milestones,  the 
Commission services have invited the Member States to take due account of the investment 
CSRs in their reallocation proposals. Member States started submitting the corresponding re-
programming proposals in autumn 2019 for Commission’s assessment and adoption.  

Box 2: State of play on the programming of cohesion policy funds  

In many Member States, public investments are heavily dependent on EU funds. At the time 
of programming, the cohesion policy funds for the 2014-2020 programming period took into 
account  the  investment-relevant  CSRs.  Those  CSRs  are  directed  towards  areas  of  strategic 
European  importance.  For  the  2021-2027  cohesion  policy  programming,  the  Commission 
proposed  to  establish  an  even  stronger  link  to  the  European  Semester.  In  its  2019 Semester 
cycle, it put  forward investment  guidance for cohesion  policy funds and  proposed CSRs  on 
investment-related policies for all Member States, which the Council adopted.  

After the publication of the country reports in February 2019, events were held in all Member 
States in spring 2019 marking the start of the informal dialogue on programming for the 2021-
2027  period.  The  Commission’s  aim  is  to  adopt  all  programmes  as  soon  as  the  relevant 
legislation  is  in  place.  In  shared  management,  this  will  also  depend  on  the  Member  States’ 
readiness to prepare and discuss their draft programmes. 

6.  WORKING  TOGETHER  WITH  THE  MEMBER  STATES  AND  THE  EUROPEAN 

PARLIAMENT 

Trust and cooperation between the Commission, the Council and the Member States are 
essential for the effectiveness of the European Semester. The Commission offers multiple 
opportunities to exchange views with all stakeholders, including engaging in regular meetings 
with  social  partners,  civil  society,  the  European  Parliament  and  national  Parliaments.  In  the 
case  of  the  European  Parliament,  Members  of  the  Commission  stand  ready  to  come  to  the 
European  Parliament  before  each  key  stage  of  the  European  Semester  cycle.  Before  the 
adoption  of  today’s  package,  Members  of  the  Commission  engaged  with  the  Parliament  in 
meetings  of  the  Parliament’s  EMPL  and  ECON  committees.  The  Commission  also  holds 
regular meetings with social partners and civil society organisations both  in Brussels and in 
Member States. Over the years, these efforts to  establish an open and fruitful dialogue have 
helped  develop  an  increasingly  common  understanding  of  the  European  and  national  policy 
challenges and responses.  

In  line  with  efforts  undertaken  in  the  past,  the  Commission  is  committed  to  a  genuine 
policy dialogue with the Member States and to ensuring its policy recommendations are 
part  of  the  national  policy  process,  including  by  strengthening  the  involvement  of 
national  parliaments  and  social  partners  at  national  level.  These  exchanges  take  place 
through technical and political missions in each Member State and bilateral meetings twice a 
year in Brussels. In addition, national authorities are consulted on the analytical content of the 
country  reports  before  their  publication.  As  a  new  feature,  this  year  the  Commission  has 
reached out to the national authorities to select a topic of common interest for deeper analysis 
in  the  country  reports.  Most  national  authorities  directed  their  interest  towards  topics  of 
relevance to the green and digital transitions and their impacts on the economy, industry and 

18 

 
workforce, a strong sign of alignment of interest and priorities with the new economic agenda 
of the Commission.  The Commission  also  aims to help  Member States step up their reform 
efforts through the Structural Reform Support Programme, which provides technical support 
to  all  EU  Member  States,  at  their  request,  to  help  them  design  and  implement  growth-
enhancing  reforms.  This  includes  as  well  reform  challenges  highlighted  in  the  country-
specific recommendations. 

7.  NEXT STEPS 

The  European  Semester  offers  the  Commission,  Member  States,  social  partners  and 
stakeholders  the  opportunity  to  engage  in  a  permanent  dialogue  with  one  another 
throughout  the  year.  The  country  reports  published  with  this  Communication  draw  on  in-
depth exchanges with governments, national authorities and stakeholders at both technical and 
political  level,  including  bilateral  meetings  held  in  December  2019.  Their  findings  will  be 
presented in the capitals of the Member States, and will be followed up in further bilateral and 
multilateral  meetings.  Throughout  the  year,  European  Semester  Officers  continue  their 
engagement  with  key  stakeholders  in  Member  States.  Commission  Vice-Presidents  and 
Commissioners  will  visit  Member  States  to  seek  the  views  of  parliaments,  governments, 
social partners and other stakeholders on the analysis and conclusions of the country reports. 
The  Commission  will  also  discuss  the  summary  findings  of  the  country  reports  with  the 
European Parliament. 

In the light of the challenges identified, the Member States will present their economic 
and social priorities in their national  reform programmes  by  mid-April. They will also 
present their multiannual strategies for sound public finances, in the form of stability (for euro 
area  Member  States)  and  convergence  (for  non-euro  area  Member  States)  programmes.  In 
their final National Energy and Climate Plans submitted under the Energy Union Governance 
Regulation, Member States set out how they plan to meet their energy and climate targets. To 
provide  an  appropriate  and  sustainable  response  to  the  challenges,  the  Commission 
recommends  that  those  programmes  would  be  prepared  with  the  involvement  of  all  key 
stakeholders,  such  as  social  partners,  regional  and  local  authorities,  and  civil  society 
organisations as appropriate. 

19 

 
 
APPENDIX 

1 

INTEGRATED 

SURVEILLANCE  OF  MACROECONOMIC  AND  FISCAL 

IMBALANCES  

Comments 

Macroeconomic Imbalances 
Procedure (MIP)20 

Excessive Imbalances 

Imbalances 

Stability and Growth Pact21 
(MTO: medium term objective / 
EDP: excessive deficit procedure) 

Preventive arm 

Achieving MTO; subject to debt 
rule22 

Preventive arm 

Not at MTO; subject to debt rule 

Preventive arm 

Achieving MTO 

Preventive arm 

Achieving MTO; subject to debt rule 

Preventive arm 

Achieving MTO 

Preventive arm 

Achieving MTO 

Preventive arm 

Achieving MTO 

Preventive arm 

Not at MTO 

Excessive Imbalances 

Preventive arm 
Subject to transitional debt rule23 

Since  Greece  was  exempt  from  submitting 
Stability Programmes while it was under the 
programme,  the  assessment  of  year  2019  is 
conducted in the absence of an MTO.  

Imbalances 

Imbalances 

Imbalances 

Imbalances 

Preventive arm 

Not at MTO 

Preventive arm 

Not at MTO; subject to transitional 
debt rule 

Preventive arm 

Not at MTO; subject to transitional 
debt rule 

Preventive arm 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

EL 

IE 

ES 

FR 

HR 

Both  the  ‘imbalances’  and  ‘excessive  imbalances’  categories  entail  specific    monitoring,    to    be  

20  
modulated depending on the severity of the challenges. 
21 The  achievement  of  the  MTO  and  the  applicability  of  the  (transitional)  debt  rule  refer  to  2019  based  
on  the Commission 2019 autumn forecast. 
22 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). 
23 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. 

20 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
HU 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

SI 

SE 

SK 

RO 

FI 

UK 

Achieving MTO; subject to debt rule 

Preventive arm (SDP24)  

Not at MTO; subject to debt rule 

Preventive arm 

Not at MTO; subject to debt rule 

Excessive imbalances 

Preventive arm 

Not at MTO 

Preventive arm 

Achieving MTO 

Preventive arm 

Not at MTO 

Preventive arm 

Achieving MTO 

Preventive arm 

Achieving MTO 

Preventive arm 

Not at MTO 

Preventive arm 

Not at MTO; subject to transitional 
debt rule 

Preventive arm 

Not at MTO; subject to debt rule 

Preventive arm 

Achieving MTO 

Preventive arm 

Not at MTO 

Preventive arm (SDP) 

Not at MTO 

Preventive arm 

Not at MTO 

Preventive arm 

Not at MTO; subject to transitional 
debt rule 

Imbalances 

Imbalances 

Imbalances 

Imbalances 

24 The Significant Deviation Procedure aims to give Member States the opportunity to correct a deviation from 

their medium-term objective (MTO) or the adjustment path towards their MTO. 

21 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
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% 

2010 data 

68.6% 

Latest available 
data 
73.8% (Q3 2019) 

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

1.93% 

2.12% (2018) 

Target unlikely to be met 

14.3% reduction 

23% reduction 
(2018) 

Target likely to be met 

12.5% 

18% (2018) 

Target likely to be met 

3c.Moving towards a 20 % 
target in energy efficiency 

5.7% (for primary energy 
consumption) 

Target unlikely to be met 

4.6% (distance to 
2020 target for 
primary energy 
consumption) 

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% 

13.9% 

10.6% (2018) 

Target likely to be met 

33.8% 

40.7% 

Target likely to be met 

5. Lifting at least 20 million 
people out of the risk of poverty 
and social exclusion 

1.4 million increase 
(compared to the 2008 
base year) 

Target unlikely to be met 

7.1 million 
decrease 
(compared to the 
2008 base year) in 
2018 

22 

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

Outcome of 2019 IDRs 

Outcome of 2020 IDRs 

No imbalances 

- 

BG 

Imbalances  

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

DE, ES, FR, HR, IE, NL, PT, RO, SE 

Excessive imbalances 

CY, EL, IT 

CY, EL, IT 

23