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 Annual Sustainable Growth Strategy 2021
Date: 2020-09-17
Institutions: European Commission, Secretariat-General
Subjects: EU growth strategy, European Semester, competitiveness, coronavirus disease, economic and social cohesion, economic policy, economic recovery, economic reform, epidemic, investment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 17.9.2020  COM(2020) 575 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 Annual Sustainable Growth Strategy 2021  
 
 
I. 

Introduction 

The  COVID-19  pandemic  has  thrown  the  world  into  a  sudden  and  deep  recession. 
Despite  the  strong,  coordinated  and  innovative  response  at  national  and  EU  levels,  many 
uncertainties remain; in particular how long this crisis will last and how exactly it will affect 
our  lives  and  economies.  We  need  to  protect  European  citizens,  their  health  and  their  jobs 
while ensuring fairness, resilience and macroeconomic stability across our Union. While the 
pandemic  has  hit  all  Member  States,  the  scale  of  the  impact  as  well  as  the  pace  and  the 
strength of the recovery will vary significantly across regions.  

The Summer 2020 Economic Forecast projects that the euro area economy will contract 
by  8.7%  in  2020  and  rebound  by  6.1%  in  2021,  while  the  EU  economy  is  expected  to 
contract  by  8.3%  in  2020  and  grow  by  5.8%  in  20211.  Employment  also  declined  more 
than ever in the second quarter, though much less than the fall in gross domestic product in 
light of the unprecedented support put in place in the Member States and in the EU through its 
new  SURE  instrument2  and  unprecedented  flexibility  in  the  use  of  cohesion  policy  funds 
under  the  Coronavirus  Response  Investment  Initiative3.  The  economic  outlook  crucially 
depends  on  the  evolution  of  the  pandemic  and  of  the  restrictions  to  economic  activity  to 
contain  it.  Policy  support  at  national  and  EU  level  will  be  crucial  for  the  recovery.  In  that 
context,  growth  and  employment  prospects  are  set  to  receive  a  positive  stimulus  from  the 
European  Council  agreement  on  the  next  multiannual  financial  framework  and  ‘Next 
Generation EU’ reached on 21 July 2020. At Union and Member States level, we now need to 
make the best out of this landmark agreement.  

The Union’s response has been decisive. Negotiations between the European Parliament and 
the  Council  on  the  next  Multiannual  Financial  Framework  and  the  new  instrument  Next 
Generation EU are now taking place to urgently finalise the work on all legal acts. This work 
needs to be done by 1 January 2021 so that the programmes are operational on time. The full 
mobilisation  of  the  EU  budget’s  firepower  is  key  to  a  swift  and  sustainable  recovery. 
Crucially,  once  adopted  by  the  Council,  the  Own  Resources  Decision  will  have  to  be 
approved  by  all  Member  States  in  accordance  with  their  respective  constitutional 
requirements  before  the  Commission  can  start  borrowing  market  finance  to  fund  Next 
Generation  EU  programmes.  The  fast  rollout  of  Next  Generation  EU  therefore  crucially 
depends on this timely approval. 

The Recovery and Resilience Facility will be one of the main tools for the recovery, with 
an unprecedented EUR 672.5 billion of loans and grants of frontloaded financial support 
in  the  crucial  first  years  of  the  recovery.  The  Member  States  will  encompass  in  their 
recovery  and  resilience  plans  their  national  agenda  of  reforms  and  investments  designed  in 
line  with  the  EU  policy  objectives,  centred  around  the  green  and  digital  transitions.  The 
Facility  will  support  Member  States’  efforts  to  strengthen  effectively  their  social  and 
economic  resilience,  and  hence  their  economies’  growth  potential  and  job  creation,  thereby 
supporting the EU objectives.  

1 European Economic Forecast (Summer 2020), European Economy – Institutional Paper, 132 (July) 
2 Council Regulation (EU) 2020/672 on the establishment of a European instrument for temporary support to 
mitigate unemployment risks in an emergency (SURE) following the COVID-19 outbreak; EUR 100 billion of 
financial assistance in the form of loans to be provided to the Member States requesting it 
3 CRII and CRII+, Regulation of the European Parliament and of the Council (EU) 2020/460 of 30 March 2020 
and (EU) 2020/558 of 23 April 2020. 

1 

 
                                                           
The Recovery and Resilience Facility is the symbol of the EU’s determination to address 
its  challenges  with  a  joint  approach.  Preserving  the  functioning  of  the  Single  Market  has 
been  key  to  kick-start  the  recovery  as  well  as  ensuring  fair  competition  and  preventing 
disruptions  to  cross-border  value  chains  and  free  movement  of  workers  and  goods.  It  will 
promote upward convergence of living standards and prevent distorting the economic playing 
field.  Effective  implementation  of  Next  Generation  EU  can  deliver  2%  of  additional  gross 
domestic product by 2024 and create 2 million jobs, inter alia by accelerating the green and 
digital  transition.4  Over  time,  this  additional  growth  is  estimated  to  make  the  Recovery  and 
Resilience  Facility  self-financing,  through  additional  activity  and  additional  tax  revenues 
generated for the Member States and the EU. 

These EU policy measures must be deployed as quickly as possible. While the agreement 
on the recovery package helps contain the uncertainty, an effective delivery over the coming 
years  is  key  to  support  the  recovery.  The  immediate  priority  is  for  the  Union  to  work  with 
Member States to ensure decisive progress in putting together the right reform and investment 
priorities in line with European objectives, and then ensuring their effective implementation.  

II.  The  Recovery  and  Resilience  Facility:  delivering  on  the  EU  objective  of 

competitive sustainability 

The Recovery and Resilience Facility is rooted in the EU’s aim of achieving competitive 
sustainability  and  cohesion  through  a  new  growth  strategy,  the  European  Green  Deal. 
Shifting towards a sustainable and inclusive economic model, enabled by a broader diffusion 
and  uptake  of  digital  and  clean  technologies,  can  make  Europe  a  transformational  leader. 
Rather than mark a departure from the pre-COVID-19 agenda, the Recovery and Resilience 
Facility  should  speed  up  action  to  address  pre-existing  challenges  while  avoiding  any  new 
setbacks  linked  to  the  crisis.  The  four  dimensions  of  environmental  sustainability, 
productivity, fairness and macroeconomic stability identified in the 2020 Annual Sustainable 
Growth Strategy should remain the guiding principles underpinning Member States’ recovery 
and resilience plans. These priorities lie at the heart of the European Semester and ensure that 
the new growth agenda does the best for people and the planet.  

Competitive  sustainability  and  resilience  are  two  sides  of  the  same  coin;  this  was 
highlighted by the COVID-19 crisis. Resilience is the ability not only to withstand and cope 
with challenges but also to undergo transitions in a sustainable, fair, and democratic manner5. 
Less  resilient  EU  countries  and  less  resilient  sectors  have  found  withstanding  the  crisis  and 
responding  to  it  harder.  Without  an  adequate  response,  this  will  affect  their  economic  and 
social outcomes in the years and decades to come. Differences in resilience across the EU also 
have  a  bearing  on  the  social,  economic  and  territorial  cohesion  as  well  as  the  convergence 
within the euro area and the effectiveness of the single monetary policy. By providing large-
scale  financial  support  for  public  investments  and  reforms,  while  fostering  cohesion  and 
convergence, the Recovery and Resilience Facility will make Member States’ economies and 
societies more resilient and better prepared for the future. There is also the need to strengthen 
the  resilience  of  some  critical  supply  chains  especially  for  sectors  most  exposed  to  external 
shocks. 

4 COM(2020) 456 final 
5 Commission Communication to the European Parliament and the Council - 2020 Strategic foresight Report, 
Charting the course towards a more resilient Europe 

2 

 
                                                           
The  Recovery  and  Resilience  Facility  will  help  repair  the  damage  from  the  crisis  and 
prepare a better future for the next generations. The higher indebtedness generated now is 
an  immediate  vehicle  to  address  the  challenges  that  the  future  generations  will  face.  The 
massive  investment  needed  to  kick-start  the  economy  must  relieve  the  burden  on  their 
shoulders, not make it heavier. This is why the Recovery and Resilience Facility must guide 
and build a more sustainable, resilient and fairer Europe for the next generation in line with 
the United Nations Sustainable Development Goals. 

Addressing  the  climate  and  environmental  crisis  is  the  defining  challenge  of  our  time 
and it is an opportunity to relaunch our economies in a sustainable manner. It requires 
urgent and sustained action by all actors in society to preserve the health, prosperity, and well-
being of people in Europe and all over the world. The European Green Deal is our political 
commitment  and  our  response  to  this  challenge.  It  is  also  Europe’s  growth  strategy,  which 
aims  to  transform  the  EU  into  a  fair  and  prosperous  society  with  a  resource-efficient  and 
competitive  economy.  The  economic  response  to  the  COVID-19  crisis  offers  a  unique 
opportunity  to  accelerate  the  green  transition.  Overcoming  this  crisis  will  require  massive 
investments  and  significant  reforms  that  the  EU’s  Recovery  and  Resilience  Facility  will 
support  largely.  Achieving  the  green  transition  requires  reforms  to  direct  public  and  private 
investments towards climate and environmental actions, and profound transformations of our 
different  policies.  Beyond  repairing  the  short-term  damage  from  the  crisis,  our  recovery 
instruments must therefore put the economy on the right track to long-term sustainable growth 
and  employment  aiming  at  reaching  climate  neutrality  by  2050  and  decoupling  economic 
growth  from  resource  use.  This  offers  a  key  opportunity  to  modernise  traditional  industrial 
models  and to  invest  in innovative green technologies and in  a more sustainable and digital 
infrastructure, thereby accelerating the transition to a more sustainable, resilient and inclusive 
Europe.  In  addition,  as  private  consumption  accounts  for  more  than  half  of  EU’s  gross 
domestic product, promoting more sustainable consumption patterns will be a key enabler of 
such transformation. 

The digital transition is key to strengthen the social and  economic resilience of the EU 
and  the  Member  States,  their  sustainable  growth  potential  and  job  creation.  The 
COVID-19 pandemic has accelerated the trends towards the digital transformation: Member 
States  have  taken  measures  to  reinforce  digital  infrastructure,  provided  online  education  or 
supported  SMEs  in  their  digitalisation  efforts.  However,  the  crisis  has  also  shown 
shortcomings  and  exposed  vulnerabilities.  Divergences  persist  with  respect 
the 
to 
digitalisation  of  economies  and  societies.  Residual  barriers  and  uneven  access 
infrastructure continue to slow down progress and Europe remains largely dependent on other 
regions  for  many  key  digital  capabilities  or  services.  Building  on  Europe’s  scientific  and 
transformative  and  forward-looking  research, 
technological  expertise,  developing  a 
innovation and diffusion strategy, is the only way to ensure Europe’s productivity growth and 
competitiveness and thereby safeguard its technological sovereignty, a key aspect of its open 
strategic autonomy.  

to 

The  COVID-19  pandemic  has  highlighted  the  urgent  need  to  address  long-standing 
challenges that affect the fairness in society. This includes the preparedness and resilience 
of the national health and social protection systems as well as equal access to affordable and 
quality  health  care,  long-term  care  and  childhood  care  systems,  demographic  change, 
globalisation or the digital  and  green transitions.  The challenges to  be addressed may  cover 

3 

 
areas such as employment, skills, health, education, in particular to address rising inequalities 
and support those who have been hit hardest by the crisis, such as young generations, women 
and vulnerable groups. The COVID-19 pandemic has also shown the need to create a fairer 
and more sustainable business environment and rethink working conditions in many sectors. 
The  extended  lockdown  has  boosted  online  services  and  e-commerce,  a  trend  likely  to 
continue.  However,  the  online  environment  is  currently  dominated  by  a  few  large  players, 
with increasing market power and mobile tax bases, sometimes to the detriment of the ability 
of  many  smaller  European  companies  to  start-up  and  scale  up  across  the  Single  Market. 
Particular  attention  should  be  paid  to  supporting  sectors,  which  play  a  key  role  for  our 
democracies,  especially  the  media  sector  where  support  should  be  provided  in  a  way  that 
respects and promotes media freedom and pluralism. There is also a need to support regions, 
industries and workers most affected by the green transition and alleviate the socio-economic 
impacts of the transition. This is needed to ensure equal and fair opportunities for people and 
business.  

impacts  on 

Since the 2008 financial and economic crisis, the Economic and Monetary Union is much 
more robust to face crises, but new challenges to macroeconomic stability are emerging. 
The  COVID-19  crisis  is  very  different  from  the  financial  crisis  of  2008;  it  generates  direct 
negative 
the  economic  activity  and  entails  potential  repercussions  on 
macroeconomic stability that need to be addressed via swift and determined action. Existing 
imbalances  risk  getting  worse  while  new  ones  are  emerging.  The  immediate  priority  is 
therefore to foster a resilient recovery. Continuous monitoring and vigilance will be required 
and  Member  States  should  address  emerging  imbalances  through  reforms  that  enhance 
economic and social resilience. The Recovery and Resilience Facility will provide the means 
to help Member States address those economic and social challenges they are facing. Member 
States  should  continue  to  make  a  sound  use  of  fiscal  flexibility  in  2021  to  support  the 
economy.  Public  finances  will  play  a  role  in  delivering  incentives  for  sustainable  and 
inclusive growth,  ensuring economic stability  and the ability to  support demand and deliver 
assistance  during  times  of  need.  The  COVID-19  pandemic  puts  a  significant  strain  on 
economic  activity  with  negative  repercussions  on  government  and  private  debt.  When 
economic conditions allow, it will be time to pursue fiscal policies aimed at achieving prudent 
medium  term  fiscal  positions  while  fostering  investment,  the  twin  transitions  and  social 
inclusion. 

Competitive  sustainability  requires  openness  and  a  strong  Single  Market.  The 
participation of private stakeholders and investors is necessary to guarantee the success of the 
implementation of the Recovery and Resilience Facility. The public money should not replace 
or crowd out  private investors but  complement and steer private investments  where needed, 
i.e.  where  systemic  or  market  failures  or  damages  due  to  the  COVID-19  outbreak  and  the 
subsequent economic crisis make it impossible for the market alone to recover and to achieve 
policy  objectives.  Safeguarding  the  level  playing  field  in  the  Single  Market  is  necessary  to 
foster innovation and accelerate recovery.  

4 

 
 
III.  Key principles underpinning the Recovery and Resilience Plans: priority setting 

for Member States 

The European Semester provides a well-established framework for the coordination of 
the  economic  and  employment  policies  to  guide  the  Union  and  the  Member  States 
through the challenges of the recovery and twin transition. Member States’ recovery and 
resilience plans should effectively address the policy challenges set out in the country-specific 
recommendations  adopted by the Council.  It  will be our common interest  to  address  reform 
and  investment  needs  in  parallel;  both  need  to  work  hand  in  hand  to  achieve  a  mutually 
reinforcing impact.  

The  recovery  and  resilience  plans  will  need  to  reflect  the  relevant  country-specific 
challenges  and  be  aligned  with  the  EU  priorities.  This  includes  the  country-specific 
recommendations addressed to the Member States in recent years and in particular in the 2019 
and 2020 Semester cycles. When translating those recommendations into specific reforms and 
investments, Member States should focus on those challenges and priorities that will generate 
the most lasting impact and will strengthen the growth potential, job creation, health systems 
and economic and social resilience and regional cohesion of the Member State. At the same 
time,  reforms  and  investments  will  have  to  respect  the  ‘do  no  harm’  principle,  using  to  the 
extent possible as a reference the EU Taxonomy Regulation6.  

Green transition 

All  national  recovery  and  resilience  plans  will  need  to  focus  strongly  on  both  reforms 
and  investments  supporting  the  green  transition.  To  follow  the  commitment  of  the 
European Council to achieve a climate mainstreaming target of 30% for both the multiannual 
financial framework and Next Generation EU, each recovery and resilience plan will have to 
include a minimum of 37% of expenditure related to climate. 

Europe heads towards climate neutrality by 2050, and is set to significantly increase its 
greenhouse  gas  emissions  reduction  ambition  for  2030.  In  order  to  reach  the  climate 
ambition  to  decrease  emissions  by  55%  in  2030  below  1990  levels,  Member  States  should 
present  reforms  and  investments  to  support  the  green  transition  in  the  fields  of  energy, 
transport, decarbonising industry, circular economy, water management and biodiversity. This 
is also consistent with the key areas of investment identified in the context of the European 
Semester.  In  doing  so,  Member  States  should  build  on  their  National  Energy  and  Climate 
Plans in which they define their national contributions to the collective EU-wide climate and 
energy  objectives,  and  outline  reforms  and  investments  they  intend  to  implement  over  the 
period 2021-2030 to  deliver them.  In October of  this  year, the Commission  will present  the 
individual assessment of each Member State’s National Energy and Climate Plan, which will 
provide  important  guidance  for  Member  States  to  rely  upon  while  preparing  their  recovery 
and resiliency plans.  

Member States should accelerate the reduction of emission through fast deployment of 
renewable energy and hydrogen and increased action on energy efficiency of buildings. 

6 Regulation (EU) 2020/852 

5 

 
                                                           
As part of their recovery and resilience plans, Member States should focus on the most mature 
and  innovative  projects  to  accelerate  the  deployment  of  renewable  energy.  Building 
renovation schemes will be essential to support the economic recovery, through job creation 
in  the  construction  sector,  savings  on  energy  bills,  healthier  living  conditions  and  reduced 
energy poverty. The Commission will support different efforts to enhance building renovation 
with  the  aim  to  at  least  double  the  annual  renovation  rate  of  existing  building  stock,  in 
particular through the Renovation Wave initiative. These investments should be accompanied 
by the necessary regulatory reforms to enable such investments and make them sustainable.  

Investing  in  sustainable  mobility  can  also  strongly  support  the  recovery.  Measures 
addressing  transport  can  bring  significant  greenhouse  gas  emission  reductions  and 
improvements to air quality, while fostering productivity growth. In designing their national 
recovery and resilience plans, Member States should consider such measures as investing in 
public  transport  and  in  infrastructure  that  supports  the  shift  towards  more  sustainable  and 
smart  mobility,  including  seamless  and  efficient  European  multimodal  networks  as  well  as 
upgrading Trans-European Transport Network networks for passengers and freight. Reforms 
and  investments  aimed  at  boosting  demand  for  zero-  and  low-emission  vehicles  and 
accelerating the rollout of recharging and refuelling infrastructure are also key for achieving 
this  goal.  This  should  be  complemented  by  investments  in  low  carbon  energy  technologies 
and  value  chains,  including  hydrogen  or  batteries,  and  on  sustainable  energy  infrastructure. 
Reforming the environmental incentives provided by the taxation of vehicles and fuels will be 
particularly  important  to  accompany  this  trend.  The  Commission’s  strategy  for  sustainable 
and  smart  mobility,  to  be  adopted  before  the  end  of  2020,  will  further  address  the 
opportunities in the transport sector. 

Member States should also take actions to promote a more circular economy, improve 
environmental  infrastructure  and  protect  and  restore  biodiversity.  Circular  economy 
creates  local,  sustainable  jobs  through  waste  prevention  and  reuse,  repair,  remanufacturing 
and  recycling.  It  increases  the  EU’s  resilience  and  open  strategic  autonomy  by  developing 
innovative  business  models  powered  by  digital  technologies  to  enhance  the  efficient  use  of 
resources and secondary raw materials. Improving environmental infrastructure, in particular 
for waste and water management and reducing pollution, protects the health and well-being of 
citizens from environment-related risks and impacts. Protecting and restoring biodiversity and 
natural ecosystems and ensuring sustainable food systems is key to strengthening the carbon 
sink,  boosting resilience and preventing the emergence and spread of future outbreaks. This 
will also create new economic opportunities in rural areas through more sustainable land use. 

Finally, Member States will need to factor in the need to ensure a just and socially fair 
transition, across  green policy areas. This means, in  particular, that national recovery and 
resilience  plans  should  be  developed  in  full  coherence  with  proposed  Territorial  Just 
Transition Plans under the Just Transition Mechanism.  

Digital transition and productivity 

Member States should ensure a high level of ambition on the digital transition as part of 
their  recovery  and  resilience  plans.  The  Recovery  and  Resilience  Facility  represents  a 

6 

 
unique  opportunity  to  foster  the  digital  transformation  of  all  economic  or  social  sectors, 
including public services. To ensure effective implementation, the Commission proposes that 
each recovery and resilience plan includes a minimum level of 20% of expenditure related to 
digital. 

Member  States  should  focus  on  those  reforms  and  investments  that  improve 
connectivity. This includes for instance fostering and facilitating the widespread deployment 
of very high capacity networks, including 5G and Gigabit connectivity among urban and rural 
households  and  large-scale  transport  corridors,  in  line  with  the  EU’s  2025  5G  and  Gigabit 
connectivity  objectives.  These  investments  are  important  to  bridge  the  digital  divide,  while 
avoiding the crowding out of private investment in cases where no market failure exists. As 
outlined  in  Next  Generation  EU,  the  fast  deployment  of  very  high  capacity  networks, 
including  5G  and  fiber,  will  have  positive  spillovers  on  the  entire  society.  These  include 
providing  the  appropriate  bandwidth  and  coverage  for  sectors  that  are  essential  for  the 
recovery and resilience, such as agriculture, transport, health and education. It will also  help 
enhancing  Europe’s  open  strategic  autonomy,  while  reaping  the  benefits  from  an  open 
economy,  by  providing  support  to  implement  the  infrastructure,  which  will  be  needed  for 
future applications and processes. 

Developing  digital  skills  at  all  levels  is  a  condition  to  ensure  that  all  Europeans  can 
participate  in  society  and  take  advantage  of  the  digital  transition.  This  will  require 
reforms  in  the  area  of  basic  and  higher  education,  skills  and  lifelong  learning  to  support  a 
labour  market  in  transition  and  to  develop  and  deploy  key  digital  technologies  and  shape 
Europe’s  digital  future.  Equality  in  access  to  digital  infrastructure,  equipment  and  skills 
should  be  supported  to  prevent  a  digital  divide.  The  transformation  of  the  public 
administration,  including  digitalisation  of  justice  systems,  using  new  generations  of  digital 
tools will improve administrative processes and facilitate online interaction with citizens and 
businesses. Digitalising businesses should be accelerated, via the sustainable take-up of digital 
solutions  and  a  cyber-resilient  digital  transformation  across  all  sectors.  Developing  digital 
solutions will be a key enabler for the green transition. 

The recovery and resilience plans should also focus on building and deploying cutting-
edge  digital  capacities.  Reforms  and  investments  that  enable  artificial  intelligence,  high 
performance  computing,  cybersecurity,  quantum  technologies  and  infrastructures,  secure 
connectivity,  microelectronics  and  electronic  components,  cloud  infrastructure  and  services, 
space services or blockchain represent a unique opportunity to increase productivity over the 
long term and allow European leadership in those globally competitive sectors. To reinforce 
the  open  strategic  autonomy  of  the  EU,  the  Recovery  and  Resilience  Facility  can  help 
Member States undertake investments and reforms in these key sectors of their economies. 

Fairness 

The  recovery  and  transition  process  needs  to  be  fair  for  all  Europeans  to  prevent 
growing inequalities, ensure support from all parts of the society and has to contribute 
to social, economic and territorial cohesion. The Recovery and Resilience Facility will help 
Member States address their structural challenges that have been identified since many years 
as part of the European Semester and that have been amplified by the COVID-19 crisis. While 

7 

 
short-time  work  schemes  helped  to  contain  the  impact  of  the  crisis  on  employment,  labour 
market  conditions  are  deteriorating,  with  unemployment  expected  to  rise  sharply  in  several 
sectors  and  parts  of  Europe.  The  situation  of  the  youth  requires  particular  attention.  Every 
effort  should  be  made  to  prevent  unemployment  and  social  exclusion  from  becoming 
entrenched  and  facilitate  the  adaptation  of  the  labour  market,  called  for  by  the  green  and 
digital transitions. It will also be important to foster convergence and improve the resilience 
of the regions, in particular to reduce territorial disparities. 

In light of the European Pillar of Social Rights, Member States should adopt measures 
to ensure equal opportunities, inclusive education, fair working conditions and adequate 
social protection. Together with demographic change, the green and digital transition require 
rethinking today’s social protection systems and labour markets. In addition to the youth, the 
crisis  has  disproportionately  affected  women,  and  the  disadvantaged  groups  such  as,  low 
skilled  people  and  people  with  disabilities  and  people  with  a  minority  racial  or  ethnic 
background. This will require substantial efforts to facilitate their access to the job market, for 
instance by addressing the labour market segmentation in many Member States, strengthening 
active  labour  market  policies,  but  also  by  increasing  the  inclusiveness  of  the  education 
systems. In this regard, equal access to high-quality education and training for disadvantaged 
groups is particularly important, to compensate for the fact that socio-economic background is 
currently  the  most  important  determinant  of  children  and  young  people’s  educational 
outcome. 

Various forms of inequalities limit growth and social cohesion. Ensuring equal access to 
education,  quality  healthcare,  as  well  as  strengthening  long-term  care,  will  be  increasingly 
important  also  because the full impact  of COVID-19 on public health will  persist for  years. 
Ensuring  the  provision  of  high  quality  health  care  services  that  is  fiscally  sound,  affordable 
and accessible, contributes to a healthy and resilient society and to ensuring a productive work 
force. There is also a need to address the continuously high level of employment and pay gaps 
between men and women. Adequate support for effective work-life balance policies, ensuring 
access  to  quality  childcare,  income  support  schemes,  reforms  of  tax  and  benefit  systems 
supporting quality job creation and reducing disincentives to work are crucial in this respect. 
Reforms of the social protection system can reduce such inequalities as well as reforms of the 
tax system, for example by shifting the tax burden from labour to taxes that are less distortive.  

Macroeconomic stability  

Member  States  should  continue  to  provide  targeted  and  temporary  fiscal  support  in 
2021  in  a  context  where  the  General  Escape  Clause  is  activated,  while  safeguarding 
fiscal  sustainability  in  the  medium  term.  They  should  gradually  shift  from  a  protective 
emergency  response  to  measures  that  facilitate  a  reallocation  of  resources,  and  support  the 
recovery.  When  economic  conditions  allow,  fiscal  policies  should  aim  at  restoring  prudent 
medium  term  fiscal  positions  and  ensuring  debt  sustainability,  while  enhancing  investment. 
Replenishing fiscal buffers over time will be important to be prepared for future crises. The 
activation of the General Escape Clause does not suspend the procedures of the Stability and 
Growth Pact.  

Improving the quality of public finances will be important to boost growth potential and 
support the economic transformation. With the unprecedented fiscal packages adopted by 
Member  States  and  the  subsequent  increased  role  of  the  public  sector  in  the  economy,  it  is 

8 

 
very  important  for  the  public  administrations  to  be  effective  and  efficient.  Going  forward, 
those  Member  States  ensuring  a  sound  financial  handling  of  public  finances  will  rebound 
more  quickly  from  the  crisis.  Public  expenditure  will  need  to  support  the  green  and  digital 
transition,  including  through  green  and  digital  public  procurement  and  green  budgeting. 
Moreover,  carbon  pricing  and  environmental  taxation  will  be  important  environmental  and 
fiscal instruments to implement the green transition. Increasing private financing will play a 
key role to leverage on the public money mobilised for the recovery, for instance by further 
deepening the Capital Markets Union, local capital markets and sustainable finance. 

Adequate measures are needed to ensure orderly developments regarding private debt. 
The COVID-19 crisis  is taking its toll  on employment  and the profitability of the corporate 
sector.  Private  debt  is  increasing  and  the  prospects  for  the  timely  repayment  of  outstanding 
debt  are  worsening.  Against  this  background,  it  will  be  important  to  provide  the  right 
conditions  to  ensure  speedy  and  effective  remedies,  including  as  regards  the  insolvency 
frameworks, while ensuring that lending to businesses and households continues in line with 
the best practices agreed between the financial sector, consumers and businesses. 

IV.  Fostering  reforms  and  investments  to  support  a  robust  recovery:  European 

flagships 

While the plans will reflect the specific situation of each Member State, there are some 
common challenges that call for coordinated investments and reforms. The Recovery and 
Resilience  Facility  is  an  opportunity  to  create  European  flagships  with  tangible  benefits  for 
the  economy  and  citizens  across  the  EU.  These  flagships  should  address  issues  that  are 
common to all Member States, need significant investments, create jobs and growth and are 
needed  for  the  twin  transition.  The  Commission  strongly  encourages  Member  States  to 
include in their recovery and resilience plans investment and reforms in the areas listed below. 
Pursuing  these  flagships  will  ensure  the  success  of  the  recovery  of  Europe;  it  will  make 
Europe a digital and greener continent and will increase the cohesion among Member States. 

1.  Power  up  -  Future-proof  clean  technologies  should  be  frontloaded  and  the 
development and use of renewables should be accelerated as well as their integration 
through  modernised  networks  and  enhanced  interconnectivity.  The  flagship  will  lay 
the foundation for hydrogen lead markets  in  Europe and the related infrastructure.  It 
aims to support the building and sector integration of almost 40% of the 500 GW of 
renewable  power  generation  needed  by  2030,  support  the  instalment  of  6  GW  of 
electrolyser  capacity  and  the  production  and  transportation  of  1  million  tonnes  of 
renewable hydrogen across the EU by 2025.  

2.  Renovate  -  Improving  the  energy  and  resource  efficiency  of  public  and  private 
buildings will substantially contribute to achieving the EU’s climate objectives, create 
a  large  number  of  local  jobs  throughout  the  Member  States  and  foster  digital 
development  through  smart  living  and  metering.  By  2025,  it  will  contribute  to  the 
doubling of the renovation rate and the fostering of deep renovation. 

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3.  Recharge  and  refuel  -  Promoting  future-proof  clean  technologies  to  accelerate  the 
use of sustainable, accessible and smart transport, charging and refuelling stations and 
extension of public transport will make European cities and regions cleaner, accelerate 
the  industrial  transition  and  contribute  to  reaching  the  Paris  climate  objectives.  By 
2025, the flagship will aim to build one out of the three million charging points needed 
in 2030 and half of the 1000 hydrogen stations needed. 

4.  Connect - Citizens and businesses in  Europe should  have access  to  rapid  broadband 
services.  Today  only  44%  of  households  has  access  to  very  high  capacity  networks, 
capable of providing at least gigabit connectivity, with significantly reduced coverage 
in rural areas. Fast rollout of rapid broadband services to all regions and households, 
including  fiber  and  5G  networks  as  well  as  developing  quantum  encryption 
communication, will be essential to ensure the widest possible territorial coverage in 
areas  not  served  by  the  market  while  at  the  same  time  preserving  the  open  strategic 
autonomy  of  the  EU.  While  urban  areas  and  major  terrestrial  transport  paths  are 
expected  to  be  covered  more  rapidly  through  private  financing,  the  Recovery  and 
Resilience  Facility  should  ensure  that  by  2025  there  is  the  widest  possible 
uninterrupted 5G coverage for all areas. 

5.  Modernise  -  EU-ID  and  key  digital  public  services  should  be  modernised  and 
accessible to all. Secure and EU-wide electronic identification and authentication vis-
à-vis governments and private actors and access to their services, will provide citizens 
with  control  over  their  online  identity  and  data  as  well  as  enable  access  to  online 
digital services. The digitalisation of public administration and services will increase 
the  effectiveness  of  both.  This  includes  also  the  justice  and  healthcare  system.  By 
2025, Member States should ensure the provision of a European digital identity (e-ID) 
and  public  administrations  should  be  providing  interoperable,  personalised  and  user-
friendly digital public services. 

6.  Scale-up  -  The  EU  digital  transition  depends  on increasing  European  industrial  data 
cloud  capacities  and  on  ability  to  develop  the  most  powerful,  cutting  edge,  and 
sustainable  processors.  By  2025,  the  flagship  will  aim  to  double  the  production  of 
semi-conductors in Europe, to produce 10 times more energy efficient processors. This 
allows for instance the rapid take up of connected cars and to double the share of EU 
companies using advanced cloud services and big data (from 16% today). 

7.  Reskill and upskill – Unprecedented investments in re- and upskilling are central to 
supporting  the  green  and  digital  transitions,  enhancing  innovation  and  growth 
potential,  fostering  economic  and  social  resilience  and  ensuring  quality  employment 
and  social  inclusion.  Investments  and  reforms  should  focus  on  digital  skills  and 
educational and vocational training for all ages. In 2019, still 42% of Europeans do not 
have at least basic digital skills. By 2025, the share of Europeans aged from 16 to 74 
with basic digital skills should increase to reach 70%. Education systems needs to be 
further adapted to the challenges of the 21st century. Member States should ensure that 

10 

 
 
 
 
 
pupils’  digital  competence  is  significantly  improved,  in  order  to  reduce  the  share  of 
13-14  year  old  students  who  underperform  in  computer  and  information  literacy  to 
under  15%.  Member  States  should  pay  special  attention  to  disadvantaged  groups, 
women and in particular young people entering the labour market, by creating quality 
employment  opportunities,  and  supporting    adequate  offer  of  apprenticeships  and 
strengthening vocational education and training (VET). By 2025, at least four in five 
VET graduates should be employed and three in five should benefit from on-the job-
training. 

Creating  the  right  conditions  for  the  rapid  implementation  of  investment  projects  is 
crucial for a swift deployment of the recovery support. The key priority for a fast delivery 
of investments is to identify bottlenecks and their underlying reasons in the Member States as 
well as at EU level. Barriers that can pose risks to investment projects take many forms. They 
can range from administrative burdens to start a business, to skill shortages, high or complex 
taxation,  tax  evasion,  restrictive  sector  specific  legislation  or  lengthy  judicial  proceedings. 
The  successful  implementation  of  the  Recovery  and  Resilience  Facility  is  dependent  on 
effectively addressing investment obstacles and on improving the business environment. This 
again  points  to  the  importance  of  underpinning  investment  policies  by  complementary 
structural reforms.  

Member States should focus on investments that benefit the Single Market. Cross-border 
and multi country projects are essential to promote certain types of investments, for instance 
energy  interconnectors  or  transport  networks,  or  forward-looking  digital  and  green  projects, 
which  will  provide  tangible  benefits  to  the  Single  Market.  The  Commission  will  play  an 
active role to ensure that multi country projects are open to all interested Member States, to 
maximise  their  potential  to  integrate  value  chains,  strengthen  the  resilience  of  industrial 
ecosystems and deepen the Single Market, and in line with the economic, social and territorial 
cohesion goals pursued by the Facility. Multi country and cross-border projects, in particular 
involving  other  EU  programmes,  would  benefit  from  efficient  coordination  that  the 
Commission stands ready to  provide. Many of these projects  will also  enhance the strategic 
autonomy of the European economy. 

Members  States  need  to  boost  absorption  capacities  of  EU  funds  at  national  level.  In 
order  to  do  so,  they  should  focus  on  those  country-specific  recommendations  that  are 
important for facilitating the implementation of reforms and related investments. Respect for 
the rule of law and good governance, effective institutions, independent and efficient justice 
systems,  quality  public  administrations,  robust  anti-corruption,  anti-money  laundering  and 
anti-fraud  frameworks,  an  efficient  delivery  of  public  procurement,  effective  insolvency 
frameworks  and  efficient  tax  systems  are  important  determinants  of  a  Member  State’s 
business environment. All these aspects can have an impact on investment decisions and on 
the rapidity of all actors to start investment projects. Work at EU level on legal and procedural 
aspects  should  also  be  accelerated  to  complement  the  efforts  of  the  Member  States,  in 
particular  to  protect  the  Union  financial  interests.  The  Commission  will  provide  further 
guidance  on  the  key  actions  that  can  be  undertaken  to  ensure  a  swift  implementation  of 
investments  as  well  as  assist  Member  States  in  the  implementation  of  the  Recovery  and 
Resilience plans through the Technical Support Instrument. 

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The money that Member States will receive under the Recovery and Resilience Facility 
will come in addition to the funding that they normally receive under the EU cohesion 
policy  or  from  other  EU  sources.  In  order  to  ensure  consistency  and  synergies  Member 
States will be able to combine funding coming from different instruments if there is no double 
funding and if Member States indicate the various funding contributions in their recovery and 
resilience  plans.  It  will  be  important  that  Member  States  put  in  place  robust  coordination 
mechanisms, both for the planning and implementation phases and guarantee a broad dialogue 
with  stakeholders  and  regional,  economic  and  social  partners.  The  Recovery  and  Resilience 
Facility can also be used to promote private investments, for instance jointly with InvestEU or 
with Horizon Europe missions and partnerships. The Recovery and Resilience Facility will be 
of particular benefit for those projects operated at national level and of a large size. Given the 
time horizon of 2023 for committing the money under the Recovery and Resilience Facility, 
Member States can focus on those projects that are in a quite advanced phase of preparation.   

V.  Bringing  together  all  parts  of  the  European  Semester  to  focus  on  reforms  and 

investments 

The European Semester and the new Recovery and Resilience Facility are intrinsically 
linked. The assessment of the recovery and resilience plans will be checked against country-
specific  recommendations.  Given  that  the  deadlines  within  the  European  Semester  and  the 
Recovery  and  Resilience  Facility  will  overlap,  it  is  necessary  to  temporarily  adapt  the 
European Semester to the launch of the Recovery and Resilience Facility. 

The  recovery  and  resilience  plans  will  become  the  main  reference  document  on  the 
Member  States’  forward-looking policy  initiatives.  Given  the  complementarities  with  the 
Semester  and  in  order  to  streamline  the  content  and  the  number  of  documents  requested, 
Member States are encouraged to submit the National Reform Programme and their recovery 
and resilience plan in a single integrated document. This document will provide an overview 
of the reforms and investments that the Member State will undertake in the next years, in line 
with the objectives of the Recovery and Resilience Facility. For the Member States submitting 
their recovery and resilience plan in 2021, the Commission will accompany the proposals for 
the  Council  implementing  acts  with  analytical  documents  assessing  the  substance  of  the 
recovery and resilience plans. These documents will replace the European Semester country 
reports  in  2021.  The  package  of  proposals  for  implementing  acts  and  refocused  country 
assessments  will be published in  staggered batches, depending on the respective delivery of 
the recovery and resilience plans and the finalisation of the Commission’s assessments.  

Given  the  comprehensive  and  forward-looking  policy  nature  of  the  recovery  and 
resilience  plans,  there  will  be  no  need  for  the  Commission  to  propose  country-specific 
recommendations in 2021 for those Member States that will have submitted such a Plan. 
The  Commission  will  nevertheless  propose  recommendations  on  the  budgetary  situation  of 
the  Member  States  in  2021  as  envisaged  under  the  Stability  and  Growth  Pact.  Reform 
implementation  will  continue  to  be  monitored  based  on  previous  years’  country-specific 
recommendations. 

The major economic downturn caused by the COVID-19 crisis will generate risks of new 
macroeconomic imbalances,  in particular due to increases in the indebtedness  of firms 
and  households,  which  in  turn  can  feed  through  to  the  financial  sector.  Surveillance 

12 

 
 
under the Macroeconomic Imbalances Procedures in the coming cycle will therefore need to 
focus on these fast-emerging risks. This will be a central focus of the Alert Mechanism Report 
of November 2020. Jointly with the assessment of the Stability and Convergence Programmes 
to be submitted by the Member States by end-April 2021, the Commission will also include 
In-Depth Reviews assessing the state of play of imbalances for the selected Member States. 

Post-programme surveillance is currently in place to assess – with a view to identifying 
possible risks to their repayment capacity - the economic, fiscal and financial situation in 
Cyprus, Ireland, Spain and Portugal. This includes reporting every six months7. In the case 
of  Greece,  enhanced  surveillance  has  been  operating  since  the  end  of  the  macroeconomic 
adjustment  programme  in  August  2018.  Given  the  introduction  of  the  Recovery  and 
Resilience  Facility,  it  will  be  important  to  ensure  coherence  between  instruments,  minimise 
reporting  burden  and  avoid  unnecessary  duplication,  whilst  ensuring  compliance  with  the 
different legal and institutional requirements. The Commission will align as much as possible 
the  reporting  activities  under  both  post-programme  and  enhanced  surveillance  with  the 
streamlined  timetable  of  the  European  Semester.  From  autumn  2020,  the  Commission  will 
publish the biannual post-programme surveillance reports and two of the quarterly reports on 
Greece  as  part  of  the  broader  economic  and  fiscal  surveillance  packages  in  November  and 
May.  

VI.  Conclusion 

It  will  be  crucial  that  Member  States  engage  as  soon  as  possible  in  a  broad  policy 
dialogue  including  social  partners  and  all  other  relevant  stakeholders  to  prepare  their 
recovery and resilience plans. National ownership will be a key prerequisite to allow for a 
successful implementation of the Facility and to  ensure lasting success at national level and 
credibility  at  European  level.  The  Commission  stands  ready,  in  close  cooperation  with 
responsible  national  authorities  and  relevant  stakeholders,  to  assist  with  consultation  and 
outreach  efforts  at  all  levels  as  well  as  with  technical  support  where  appropriate.  The 
Commission  encourages  Member  States  to  closely  interact  with  its  services  to  discuss  the 
draft  plans  at  an  early  stage.  To  ensure  consistency  across  Member  States’  plans,  Member 
States will receive additional guidance from the Commission services on how best to present 
their recovery and resilience plans. The Commission will in parallel exchange views with the 
European Parliament on the state of the recovery as part of the regular economic dialogue. 

Putting  the  Recovery  and  Resilience  Facility  into  action  is  a  joint  endeavour  that 
consists of many parallel steps. The Commission calls on the European Parliament and 
the  Council  to  agree  as  quickly  as  possible  on  the  legislative  act  so  that  the  Facility 
becomes operational as from 1 January 2021.  

7 Regulation (EU) No 472/2013 

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