COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy
Date: 2021-06-02
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, EU employment policy, European Semester, coronavirus disease, economic recovery, epidemic, fiscal policy, investment policy, macroeconomics, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 2.6.2021  COM(2021) 500 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy {SWD(2021) 401 final} - {SWD(2021) 402 final} - {SWD(2021) 403 final} - {SWD(2021) 404 final} - {SWD(2021) 405 final} - {SWD(2021) 406 final} - {SWD(2021) 407 final} - {SWD(2021) 408 final} - {SWD(2021) 409 final} - {SWD(2021) 410 final} - {SWD(2021) 411 final} - {SWD(2021) 412 final}  
 
 
Economic policy coordination in 2021:  
overcoming COVID-19, supporting the recovery and modernising our 
economy 

1. INTRODUCTION  

The European Union has taken unprecedented actions to fight the COVID-19 pandemic, 
cushion the impact of the crisis, and put our economy on a path of robust, sustainable 
and  inclusive  growth.  Over  the  last  year,  the  EU  and  the  Member  States  have  shown 
decisiveness and solidarity in adopting a series of policy measures to fight the pandemic, limit 
its  economic  and  social  impact,  preserve  favourable  financing  conditions,  safeguarding  the 
integrity  of  the  single  market  and  prepare  a  swift  sustainable  and  inclusive  recovery. 
According  to  the  Commission  spring  2021  economic  forecast1,  the  drop  in  the  economic 
activity  has  been  less  than  expected  earlier,  thanks  to  the  emergency  support  measures  to 
provide liquidity to businesses and protect incomes and jobs of EU citizens. 

The breakthrough development of vaccines and the deployment of mass vaccination in 
Europe have brightened the outlook since the autumn. The vaccination in the EU is well 
on track to achieve the objective of 70% of all adults being vaccinated by  July of this year.2 
According to the Commission 2021 spring economic forecast, the EU economy would reach 
its  pre-crisis  level  of  quarterly  output  in  the  course  of  2021,  with  economic  activity 
rebounding in all Member States.3 After a declining trend over the last years, the COVID-19 
crisis may lead to higher risks to macroeconomic stability. Strong coordination and effective 
deployment  of  all  EU  policy  instruments  will  be  crucial  to  address  these  risks  and  to  avert 
further divergences. 

NextGenerationEU, worth EUR 750 billion, is a key tool for the EU to foster investment 
and  recovery  in  order  to  emerge  stronger  and  more  resilient  from  the  current  crisis.  
The  roll-out  of  the  Recovery  and  Resilience  Facility  (‘the  Facility’)  will  help  make  our 
economies  and  societies  more  sustainable,  inclusive,  resilient  and  better  prepared  for  the 
green and digital transitions. The Facility, which is the centrepiece of NextGenerationEU, will 
provide large-scale financial support to Member States of up to EUR 672.5 billion in grants 
and loans to finance reforms and investments.  

The European Pillar of Social Rights Action Plan sets out concrete actions to strengthen 
the  social  dimension  across  all  policies  of  the  Union  and  will  help  ensure  an  inclusive 
recovery4.  At  the  Social  Summit  in  Porto  on  7-8  May  2021,  EU  leaders  recognised  the 
European Pillar of Social Rights as a fundamental element of the recovery and underlined in 
the Porto declaration5 their determination to continue deepening its implementation at EU and 
national  level.  This  will  strengthen  the  Union's  drive  towards  a  digital,  green  and  fair 
transition  and  contribute  to  achieving  upward  social  and  economic  convergence,  addressing 

1   European Economic Forecast Spring 2021. European Economy – Institutional Papers, 149, May 2021. 
2   Communication  from the  Commission to the European Parliament,  the European Council and the Council: 

‘A united front to beat COVID-19’. COM(2021) 35 final. 

3   The forecast incorporated the measures set out in the national recovery and resilience plans for all Member 
States. Conventional assumptions were used in cases where the details of the plans were not yet sufficiently 
known at the cut-off date for the forecast.  

4    COM/2021/102 final, available at: https://op.europa.eu/webpub/empl/european-pillar-of-social-rights/en/   
5    Available at: https://www.consilium.europa.eu/en/press/press-releases/2021/05/08/the-porto-declaration/ 

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the  demographic  challenge  and  ensuring  equal  opportunities  for  all6.  The  three  new  EU 
headline  targets,  and  complementary  sub-targets,  to  be  achieved  by  2030  in  the  areas  of 
employment,  skills  and  social  inclusion  will  support  progress  towards  a  strong  Social 
Europe7. In addition, the revised Social Scoreboard will help to monitor progress towards the 
implementation of the Social Pillar principles as part of the policy coordination framework in 
the context of the European Semester. Furthermore, the EU leaders welcomed the European 
Social Partners joint proposal for an alternative set of indicators to measure economic, social 
and  environmental  progress,  supplementing  GDP  as  welfare  measure  for  inclusive  and 
sustainable growth.8 

The  environmental  sustainability,  productivity,  fairness  and  macroeconomic  stability, 
remain the guiding principles of the EU’s economic agenda.  The concept  of competitive 
sustainability  and  its  four  axes,  identified  at  the  start  of  this  College’s  mandate9,  continue 
being  the  overarching  priorities  of  the  EU’s  long-term  growth  strategy  in  line  with  the 
European Green Deal, and thus underpinning Member States’ recovery and resilience plans. 
Furthermore, the digital transformation of our societies, businesses and economies is crucial 
to increase Europe’s productivity and competitiveness for a robust recovery, in line with the 
Digital Decade10. 
Ensuring an effective policy coordination under the European Semester remains crucial 
to set the EU economy on a stronger growth path after the crisis. While this year’s cycle 
was  temporarily  adapted  to  allow  for  the  launch  of  the  Facility,  the  European  Semester 
continues to support the policy discussions among Member States, exchange of best practices 
and agreements  on a  common way forward.  In their recovery and resilience plans, Member 
States are required to effectively address all or a significant subset of challenges identified in 
the  relevant  country-specific  recommendations,  including  fiscal  aspects  thereof.  Beyond  the 
scope  of  the  Facility,  those  recommendations  that  are  not  addressed  remain  valid  and  will 
continue to be monitored under the European Semester framework.  

2. ECONOMIC AND EMPLOYMENT SITUATION AND OUTLOOK  

The  EU  economy  is  set  to  rebound  strongly.  Since  last  autumn,  the  tight  COVID-19 
containment  measures  have  caused  the  EU  economy  to  fall  back  into  recession.  As 
containment measures are gradually relaxed and vaccination is progressing, activity in the EU 
is expected to pick up in all Member States, with acceleration as of the second half of 2021, 
also  reflecting  the  growth  impulse  stemming  from  the  implementation  of  the  national 
recovery and resilience plans. The speed of the recovery will vary across Member States and 
regions. All EU Member States are projected to reach their pre-crisis level of quarterly output 
by the end of 2022. 

6   In line with the various initiatives aiming at building the Union of Equality. 

7   By 2030, at least 78% of the population aged 20 to 64 should be in employment; at least 60% of all adults 
(aged  25-64)  should  participate  in  training  every  year;  the  number  of  people  at  risk  of  poverty  or  social 
exclusion should be reduced by at least 15 million (compared to 2019), including 5 million children. 

the  Commission’s  ambition,  stressed 

in 

the  2020  Strategic  Foresight  Report, 

8    In 

line  with 
COM(2020)493final. 

9   https://ec.europa.eu/info/publications/2020-european-semester-annual-sustainable-growth-strategy_en 
10   Commission Communication of 3 March 2021 “Digital Compass: the European way for the Digital Decade”, 

COM(2021) 118 final.  

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Very  large  fiscal  and  a  broad  set  of  monetary  measures  have  limited  the  economic 
damage  and  are  propelling  the  recovery.  Thanks  to  the  swift  activation  of  the  general 
escape  clause  of  the  Stability  and  Growth  Pact11  and  of  the  temporary  framework  on  State 
aid,12  large-scale  fiscal  support  has  been  possible  in  all  Member  States.  In  2020,  Member 
States have provided total fiscal support estimated at above 6 ½% of GDP.13 As a result, the 
euro  area  and  EU  aggregate  government  deficit  increased  from  historically  low  levels  of 
around 0.5% of GDP in 2019 to around 7% in 2020. In addition, the ECB took a broad set of 
monetary  policy  measures  to  preserve  favourable  financing  conditions  for  all  sectors  of  the 
economy  in  order  to  support  economic  activity  and  safeguard  medium-term  price  stability. 
The  mutually  reinforcing  effects  of  fiscal  and  monetary  policies,  in  combination  with 
regulatory  and  prudential  measures  for  the  financial  sector  were  crucial  for  cushioning  the 
impact of the crisis.  

Thanks to the measures taken at EU and national level, the impact of the pandemic on 
European  labour  markets  has  been  contained.  When  the  pandemic  struck,  the  European 
labour  market  had  ended  its  sixth  year  of  expansion,  with  more  than  209  million  people  in 
employment and an unemployment rate of 6.5% in the fourth quarter of 2019. One year later, 
employment  had  dropped  by  3  million,  and  the  unemployment  rate  had  increased  to  7.2%. 
Given the size of the shock, the number of job losses has been limited. To cushion the impact, 
Member States implemented a wide range of job-retention measures, such as short-time work 
schemes  and  temporary  furloughs,  which  supported  up  to  32  million  European  jobs.  EU 
funding,  including  through  the  temporary  support  to  mitigate  unemployment  risks  in  an 
emergency  (the  SURE  instrument)  and  the  Corona  Virus  Response  Investment  Initiative 
(CRII)14  was  instrumental  in  achieving  this  outcome.  Up  to  now,  over  EUR  90  billion  of 
SURE  loans  have  been  provided  to  19  Member  States,  in  support  of  between  25  and  30 
million people and between 1.5 and 2.5 million firms.  

The impact of the crisis has been uneven across social groups, sectors and regions; the 
most  vulnerable  have  been  hit  hardest.  Young  people,  women,  low-skilled  workers, 
migrants,  persons  with  disabilities,  those  with  temporary  contracts  or  in  other  non-standard 
forms of employment, but also the self-employed, have been disproportionately affected. This 
has been aggravated by the fact that business providing services have been severely affected, 
in  particular in  industrial ecosystems  such as tourism, cultural  and creative activities. While 
income support and social safety nets have prevented a large fall in household incomes, the 
COVID-19 crisis has exposed gaps in access to social protection, highlighting the importance 
of  fostering  greater  resilience.  In  this  regard,  most  Member  States  have  scaled  up  existing 
schemes,  expanding  coverage  and  relaxing  their  eligibility  conditions  on  a  temporary  basis, 
while there is still scope to reinforce social protection for all in a sustainable manner. 

11   Communication  from  the  Commission  to  the  Council  on  the  activation  of  the  general  escape  clause  of  the 

Stability and Growth Pact, COM(2020) 123 final. 

12   Commission Communication: Temporary Framework for State aid measures to support the economy in the 

current COVID-19 outbreak, C(2020) 1863 final. 

13   Measured by the year-on-year development in their primary balances, based on data validated in April 2021 

by Eurostat. 

14  More  than  EUR  23  billion  of  EU  funds  have  been  mobilised  through  CRII  to  tackle  the  pandemic  and  its 

economic and social impact. 

3 

 
                                                           
Risks  to  the  growth  projections  are  broadly  balanced  overall.  Nonetheless,  uncertainty 
will remain elevated as long as the pandemic hangs over the EU and world economy. Despite 
the  progress  with  vaccination  campaigns,  substantial  risks  to  the  forecast  remain  from  the 
epidemiological and economic perspective. The evolution of the pandemic and the efficiency 
and  effectiveness  of  vaccination  programmes  could  turn  out  better  or  worse  than  assumed, 
requiring a different level of restrictions to activity. Economic growth could also be weaker 
than  expected  if  the  policy  support  is  withdrawn  too  early.  At  the  same  time,  a  belated 
withdrawal  could  increase  unwarranted  side  effects,  postponing  the  transition  to  a  more 
sustainable  and  future-proof  economy.  On  the  upside,  the  projections  might  underestimate 
households’  propensity  to  consume,  after  a  few  quarters  of  repressed  consumption  and  an 
increase  in  their  savings  rate.  The  recovery  outside  the  EU  could  also  be  stronger  than 
currently expected. 

Economic policy needs to remain supportive throughout 2021 and 2022.  Looking ahead, 
when  economic  conditions  will  allow,  policies  should  be  refocused  towards  minimising  the 
medium-term consequences of this crisis. The implementation of the Recovery and Resilience 
Facility  will  contribute  to  lift  potential  growth  and  employment  and  thereby  reduce 
imbalances.  In  the  early  stages  of  the  crisis  and  during  the  lockdowns,  policy  support 
measures  were  heavily  geared  towards  preventing  job  losses  and  bankruptcies.  This  has 
helped  prevent  deep  and  lasting  scars  to  European  economies.  Going  forward,  targeted 
support measures should help viable but still-vulnerable firms to adjust their business models. 
The emphasis of the support should gradually be shifted to building up capabilities, including 
by  increasing  the  focus  on  training,  skills  development,  research  and  innovation  and 
supporting quality job creation, and job-to-job transitions. The Facility will therefore support 
investments and reforms that strengthen the potential growth and employment of the Member 
States. As a result, the public investment-to-GDP ratio in 2021 and 2022 in the Union will be 
the highest  for more than a decade. The updated New European  Industrial  Strategy sets  out 
the framework to speed up Europe’s recovery and transition towards a cleaner, more digital, 
and  more  resilient  economic  and  industrial  model  as  well  as  to  build  a  stronger  and  more 
resilient Single Market15.  

Member  States’  continued  reforms  and  investments  along  the  path  indicated  by  the 
Employment  Guidelines  will  be  crucial  to  foster  the  recovery,  supporting  quality  job 
creation and smooth labour market transitions, with the active involvement of social partners. 
More  broadly,  the  Employment  Guidelines16  provide  steering  on  how  to  modernise  labour 
market  institutions,  education  and  training  as  well  as  social  protection  and  health  systems, 
with a view to making them more inclusive and fair. They integrate specific guidance aimed 
at mitigating the employment and social impact of the crisis, and achieving socially just green 
and  digital  transitions.  Given  their  continued  relevance,  the  Commission  proposes  to  carry 
over the current Employment Guidelines17 to 2021, while underlining the role of the new EU 
headline targets and the policy guidance emerging from the Porto Social Summit. 

15   Commission  Communication  of  5  May  2021  "Updating  the  2020  New  Industrial  Strategy:  Building  a 

stronger Single Market for Europe’s recovery”, COM(2021) 350 final.  

16   Mandated by Article 148 of the TFEU. 

17   The Employment Guidelines are annexed to the Council Decision (EU 2020/1512), ), adopted on 13 October 

2020. 

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In  addition,  the  Commission  Recommendation  on  an  effective  active  support  to 
employment  following  the  COVID-19  crisis  (EASE)18  provides  concrete  guidance  for  a 
gradual  transition  from  emergency  job-retention  measures  to  active  labour  market  policies 
needed for a job-rich recovery. 

3. ROLL OUT OF THE RECOVERY AND RESILIENCE FACILITY  

Swiftly  implementing  national  recovery  and  resilience  plans  under  the  Recovery  and 
Resilience  Facility  is  key  to  support  the  recovery,  while  making  our  economies  and 
societies  more  sustainable,  inclusive,  resilient  and  fit  for  the  green  and  digital 
transitions. Through the Facility, which entered into force on 19 February 2021, EUR 312.5 
billion in grants and up to EUR 360 billion in loans will be available over the next 6 years to 
support  reforms  and  investments  in  all  Member  States.  The  Facility  will  therefore  be  an 
unprecedented  opportunity  for  all  Member  States  to  address  key  structural  challenges  and 
investment needs, while embracing the green and digital transitions.  

The Commission has engaged with all Member States in intense cooperation to support 
them  designing  ambitious  recovery  and  resilience  plans.  The  plans  should  propose 
investments and reforms that reflect the country-specific challenges and circumstances in each 
Member State, building on the thorough analysis and challenges identified over the last years 
in  the  European  Semester.  These  plans  will  shape  the  reform  and  investment  agenda  in 
Member  States  for  years  to  come.  National  ownership  and  the  involvement  of  all  relevant 
stakeholders are crucial to ensure effective implementation and a lasting impact. That is why 
throughout the entire process, Member States have been strongly encouraged to consult local 
and  regional  authorities,  social  partners,  civil  society  organisations,  businesses,  youth 
organisations  and  other  relevant  stakeholders  in  accordance  with  their  national  legal 
framework. A summary of this consultation must be part of each national plan together with 
indications on how the input of these stakeholders is reflected in the plan. 

So far, 23 Member States have submitted their plans and more plans are expected in the 
coming  days19.  Once  the  Commission  has  completed  its  assessment  of  those  plans,  the 
Council will have one month to approve the plans, paving the way for the first disbursements 
as pre-financing under the Recovery and Resilience Facility.  

The  recovery  and  resilience  plans  submitted  or  under  preparation  are  expected  to 
substantially  contribute to the six  pillars foreseen in the Regulation.  As required by the 
Regulation,  each  plan  will  have  to  contribute  in  a  comprehensive  and  adequately  balanced 
manner to the policy areas of European relevance structured in the six pillars: green transition; 
digital 
inclusive  growth,  productivity  and 
competitiveness;  social  and  territorial  cohesion;  health,  economic,  social  and  institutional 
resilience;  and  policies  for  the  next  generation,  children  and  the  youth.  Overall,  the 
Commission  expects  a  significant  share  of  climate-related20  and  digital  expenditure  in  the 

transformation;  smart,  sustainable  and 

18   Commission Recommendation for Effective Active Support to Employment (EASE) | European Commission 

(europa.eu) 

19   BE, CZ, DK, DE, IE, EL ,ES, FR, HR, IT, CY, LV, LT, LU, HU, AT, PL, PT, RO, SI, SK, FI, SE 
20  This  will  also  include  measures  that  benefit  biodiversity,  the  circular  economy  and  other  environmental 

objectives. 

5 

 
 
                                                           
plans, as well as measures contributing to social and territorial cohesion  and resilience. The 
Commission also expects important reforms and investments that cut across those policy areas 
and will help  ensure that all six pillars are comprehensively addressed, such as measures to 
increase digital skills and close connectivity gaps to foster the digital transformation, support 
cohesion and benefit SMEs.  

Combining  the  funds  from  the  NextGenerationEU  recovery  instrument  and  the  new 
multiannual  financial  framework,  the  EU  financing  will  provide  EUR  1.8  trillion  in 
2021-2027.  NextGenerationEU  will  provide  EUR  750  billion  to  kick-start  the  recovery 
through specific programmes (Recovery and Resilience Facility, REACT-EU, Just Transition 
Fund,  Rural  Development,  InvestEU,  rescEU  and  Horizon  Europe).  InvestEU,  for  instance, 
brings together various financial instruments to support investment in the EU through an EU 
budget guarantee of EUR 26.2 billion. InvestEU is expected to mobilise more than EUR 370 
billion of additional investment over the next seven years. The funds from NextGenerationEU 
come  in  addition  to  the EUR  1.074  trillion  stemming  from  the  EU’s  budget  for  2021-2027. 
Within  it,  cohesion  policy  with  its  EUR  338.6  billion  firepower  is  aimed  at  supporting 
through investment the longer-term development strategies of the Member States. 

4.  FISCAL POLICY COORDINATION   

Coordination  of  national  fiscal  policies  remains  crucial  to  underpin  the  recovery.  The 
overall  fiscal  stance,  taking  into  account  national  budgets  and  the  Recovery  and  Resilience 
Facility,  should  remain  supportive  in  2021  and  2022.  Fiscal  policy  should  remain  agile  and 
adjust  to  the  evolving  situation  as  warranted,  and  a  premature  withdrawal  of  fiscal  support 
should be avoided. Once health risks diminish, fiscal measures should gradually pivot to more 
targeted  measures  that  promote  a  resilient  and  sustainable  recovery.  Finally,  given  the 
expectation of economic activity gradually normalising in the second half of 2021, Member 
States’ fiscal policies should become more differentiated in 2022, taking into account the state 
of  the  recovery,  fiscal  sustainability  and  the  need  to  reduce  economic,  social  and  territorial 
divergences.  As  the  recovery  takes  hold,  fiscal  policy  should  prioritise  higher  public  and 
private investment, supporting the transition towards a green and digital economy. 

The general escape clause of the Stability and Growth Pact will continue to be applied in 
2022 and is expected to be deactivated as of 2023. The general escape clause has allowed 
Member  States  to  adopt  very  sizeable  expenditure  and  revenue  measures  to  minimise  the 
economic  and  social  impact  of  the  pandemic.  It  has  also  allowed  them  to  coordinate  their 
fiscal  policies  in  a  more  flexible  manner.  As  announced  in  the  Communication  of  3  March 
202121,  the  decision  to  deactivate  the  general  escape  clause  should  be  taken  as  an  overall 
assessment  of  the  state  of  the  economy  based  on  quantitative  criteria,  with  the  level  of 
economic  activity  in  the  EU  compared  to  pre-crisis  levels  as  the  key  quantitative  criterion. 
Based  on  the  Commission  2021  spring  forecast,  pre-crisis  economic  activity  (end-2019)  is 
projected to be reached around the fourth quarter of 2021 in the EU as a whole and the first 
quarter of 2022 in the euro area. On the basis of this forecast, the conditions for the continued 
application  of  the  general  escape  clause  in  2022  and  its  deactivation  as  of  2023  are  met. 

21  Cf.  Commission  Communication  ‘One  year  since  the  outbreak  of  COVID-19:  fiscal  policy  response,’ 

COM(2021) 105 final, 3.3.2021. 

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Country-specific situations will continue to be taken into account after the deactivation of the 
general escape clause. 

In  2022,  the fiscal  stance,  stemming  from  national  budgets  and  the  Recovery  and 
Resilience Facility, needs to remain supportive. Expenditure financed by the Recovery and 
Resilience Facility will provide a substantial fiscal impulse in 2022 and the coming years. The 
expenditure  financed  with  non-repayable  support  will  make  it  possible  to  fund  high-quality 
investment projects and cover costs of productivity-enhancing reforms without giving rise to 
higher deficits and debt. Member States should make use of Recovery and Resilience Facility 
financing,  which  will  thus  contribute  to  supporting  the  economic  recovery,  fostering  higher 
potential  growth  and  gradually  improving  their  underlying  fiscal  positions.  In  particular, 
Member States with low debt should pursue a supportive fiscal stance, including the impulse 
provided by the Recovery and Resilience Facility. Member States with high debt should use 
the  Recovery  and  Resilience  Facility  to  finance  additional  investment  in  support  of  the 
recovery  while  pursuing  a  prudent  fiscal  policy.  Member  States  should  preserve  nationally 
financed investment. At the same time, the growth of nationally financed current expenditure 
should  be  kept  under  control,  and  be  limited  for  Member  States  with  high  debt.  This  will 
allow fiscal measures to maximise support to the recovery without pre-empting future fiscal 
trajectories and creating a permanent burden on public finances.22 

For  the  period  beyond  2022,  fiscal  policies  should  continue  to  take  into  account  the 
strength  of  the  recovery,  the  degree  of  economic  uncertainty  and  fiscal  sustainability 
considerations.  When  economic  conditions  allow,  Member  States  should  pursue  a  fiscal 
policy  aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  fiscal 
sustainability  in  the  medium  term.  At  the  same  time,  Member  States  should  enhance 
investment to boost growth potential. In view of the currently still exceptionally high degree 
of  uncertainty,  including  regarding  the  impact  on growth potential  of  the  crisis  and  the 
reforms  and  investments  implemented  with  the  support  of  the  Recovery  and  Resilience 
Facility,  this  year’s  guidance  remains  predominantly  qualitative.  More  precise  quantified 
guidance  for the later  years should  be provided in 2022, once the degree of uncertainty has 
sufficiently declined. 

The Commission has assessed compliance with the deficit and debt criteria in 2020. As 
the activation of the general escape clause does not suspend the procedures under the Stability 
and  Growth  Pact,  the  European  Commission  continues  to  operate  the  annual  cycle  of  fiscal 
surveillance. The Commission has issued a report23 (in accordance with Article 126(3) of the 
Treaty on the Functioning of the European Union (TFEU)) which assesses compliance with 
the  deficit  and  debt  criteria  by  all  Member  States,  except  Romania.24  In  this  context,  the 
Commission has taken into account the high uncertainty, the agreed fiscal policy response to 
the COVID-19 crisis and the Council recommendations for  2021. The analysis, which takes 
into account all relevant factors as appropriate, suggests that the deficit criterion as defined in 
the Treaty and in Regulation (EC) No 1467/1997 is fulfilled by three Member States and not 

22   Cf.  Commission  recommendations  for  Council  Recommendations  delivering  Council  Opinions  on  the 
stability or convergence programmes, which have been adopted at the same time of this communication. 
23   The  preparation  of  an  omnibus  report  under  Article  126(3)  TFEU  covering  twenty-six  Member  States, 
instead of country-specific reports under the aforementioned article, is a one-off approach taken in light of 
the exceptional workload related to the launch of the Recovery and Resilience Facility and the assessment by 
the Commission of the Plans submitted by Member States. 

24   The report does not discuss the situation of Romania, which is currently the only Member State that is subject 

to an excessive deficit procedure. 

7 

 
                                                           
fulfilled by 23 Member States. The debt criterion as defined in the Treaty and in Regulation 
(EC) No 1467/1997 is not fulfilled by 13 Member States. The outbreak of COVID-19 has had 
an  extraordinary  macroeconomic  and  fiscal  impact,  creating  exceptional  uncertainty, 
including  for  designing  a  credible  path  for  fiscal  policy. Taking  into  account  the  high 
uncertainty,  the  agreed  fiscal  policy  response  to  the  COVID-19  crisis  and  the  Council 
Recommendations  of  20  July  202025,  the  Commission  considers  that  at  this  juncture  a 
decision on whether to place Member States under the Excessive Deficit Procedure should not 
be  taken.  In  the  case  of  Romania,  where  an  excessive  deficit  procedure  was  opened  on  the 
basis  of  data  for  2019,  the  Commission  recommends  an  update  of  the  adjustment 
path targeting a correction  of  the  excessive  deficit  in 2024.  The  Commission  will  reassess 
Member States’ budgetary situation on the basis of the autumn 2021 Economic Forecast, and 
the 2022 Draft Budgetary Plans to be submitted by euro area Member States by 15 October 
2021. 

including 

transition. A  focus  on fiscal  structural  reforms, 

The  quality  of  public  finances  is  central  in  the  design  of  fiscal  policy. In  the  course  of 
2020, all Member States reacted very promptly with the adoption of emergency measures to 
fight  the  pandemic  and  support  firms’ and  households’  incomes.  As  health  risks  diminish, 
economic  policy  should  shift  from  an  emergency  regime  towards  recovery-oriented 
objectives. The quality of the budgetary measures should ensure a sustainable and inclusive 
recovery.  Member  States should prioritise growth-enhancing  investment,  notably  supporting 
the  green  and  digital 
to 
enhance efficient  spending  and  high-quality public  finance resource management,  is  crucial. 
On the revenue side, reforms aiming at shifting taxation from labour to environmental taxes 
that are less distortive and preventing harmful tax competition and aggressive tax planning are 
also essential. It will help provide financing for public policy priorities and contribute to the 
long-term  sustainability  of  public  finances,  including  by  strengthening  the  coverage, 
adequacy,  and  sustainability  of  health  and  social  protection  systems  for  all. After  the 
immediate  crisis  response  in  2020, several Member  States  have  resumed  plans  to  improve 
expenditure  evaluation  and  review.  Enhancing  spending  reviews,  through  capacity  building, 
governance  improvements  and  a  tighter  link  with  the  budgetary  cycle,  features  as  an 
important  reform  in  some  recovery  packages.  Stronger  policy  evaluation  and  an  increased 
focus  on  policy  priorities  play  a  more  important  role  in  budgetary planning. Some  Member 
States  are also developing  green  budgeting  practices  to  step  up  climate  and  environmental 
actions. These practices will allow them to assess the green content of their budgetary policies 
and  ensure  coherence  of  public  expenditures  and  revenues  with  environmental  goals.  The 
Commission  continues  its  dialogue  and  support  for  the  development  and  refinement  of 
processes and practices that enhance the quality of public finance. 

5.  MACROECONOMIC IMBALANCES IN THE MEMBER STATES    

The Commission has identified macroeconomic vulnerabilities related to imbalances and 
excessive imbalances for 12 Member States.  These Member States have been selected for 

25   The  Council  recommended  Member  States  to  take  all  necessary  measures,  in  line  with  the  general  escape 
clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy 
and  support  the  ensuing  recovery.  When  economic  conditions  allow,  Member  States  should  pursue  fiscal 
policies  aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  debt  sustainability,  while 
enhancing investment. Cf. OJ C 282, 26.8.2020, p. 1–187. 

8 

 
 
                                                           
in-depth  reviews  in  the  2021  Alert  Mechanism  Report26.  Three  Member  States  continue 
experiencing  excessive  imbalances  (Cyprus,  Greece,  and  Italy)  and  nine  others  are 
experiencing  imbalances  (Croatia,  France,  Germany,  Ireland,  the  Netherlands,  Portugal, 
Romania, Spain, and Sweden) in the sense of the Macroeconomic Imbalances Procedure. The 
roll-out of the Recovery and Resilience Facility will be key to reduce existing macroeconomic 
imbalances, as it will support reforms and investments that address the challenges identified 
over previous Semester cycles. 

The main sources of imbalances are largely the same as a year ago, but risks increased. 
While  the  COVID-19  crisis  has  not  fundamentally  altered  the  nature  of  Member  States’ 
imbalances, it has implied a setback in the reduction of those imbalances and may increase the 
risks  to  macroeconomic  stability.  Government  and  private  debt  has  increased  visibly,  to  a 
large extent explained, on the top of the recession, by policies to address the pandemic and to 
support  the  economy  and  the  recovery.  Large  current  account  surpluses  persist  in  some 
Member States. Several Member States with high debts levels also have low potential growth. 
In  these  cases,  the  efficient  use  of  the  Facility  to  foster  growth-enhancing  investment  and 
reforms will be instrumental. Debt  repayment difficulties may translate into non-performing 
loans once support measures are phased out. By contrast, some vulnerabilities related to cost 
competitiveness pressures softened during the COVID-19 crisis. 

At this stage, a revision of the classification of imbalances  does not  appear warranted. 
The COVID-19 crisis may increase the risks to macroeconomic stability, albeit not in a way 
that would require  a revision of the imbalances  classification at  this stage. Persistently high 
uncertainty calls for close monitoring of imbalances and macroeconomic stability risks with a 
strong forward-looking perspective. 

 

  Cyprus, Greece and Italy continue to experience excessive imbalances, linked to high 
government  debts  and  high  share  of  non-performing  loans  –  despite  continued  and 
significant  progress  in  this area. Cyprus and Greece combine that with  high external 
debt and, Cyprus, also with high private debt. Moreover, potential growth remains too 
low to drive debt deleveraging.  
Imbalances in Croatia, Ireland, Portugal, and Spain combine high private, government 
and  external  debts,  while  in  France  the  imbalances  are  driven  by  government  and 
private debts, which continue to rise. Ensuring productivity and competitiveness gains 
remains  important  for  these  Member  States.  In  Romania,  competitiveness  losses  are 
abating,  but  the  large  current  account  deficit  persists,  and  fiscal  trends  need  to  be 
firmly  reversed  after  years  of  deterioration.  Germany  and  the  Netherlands  record 
persistently  large  current  account  surpluses,  linked  to  an  excess  of  savings  over 
investments, compounded by high private debt in the Netherlands. In Sweden, the high 
house  prices  are  not  moderating,  and  high  and  increasing  household  debt  remains  a 
concern.  

Appendix 1 provides more details on the country-specific aspects of the imbalances analysis.  

26   Report from the  Commission to the European Parliament,  the  Council, the European Central Bank and the 

European Economic and Social Committee: Alert Mechanism Report 2021, COM(2020) 745 final. 

9 

 
                                                           
6.  ADAPTING THE EUROPEAN SEMESTER 

Given  large  overlaps  between  the  European  Semester  and  the  early  stages  of  the 
Recovery  and  Resilience  Facility,  it  was  necessary  to  temporarily  adapt  the  2021 
European Semester cycle to the launch of the Facility.  This has allowed the Commission 
and  the  Member  States  to  focus  this  year’s  cycle  on  preparing  the  recovery  and  resilience 
plans  as  the  main  forward-looking  reference  document  of  the  Member  States’  reform  and 
investment  agenda.  Meanwhile,  the  surveillance  of  macroeconomic  imbalances  continued, 
with  a  focus  on  the  emerging  risks  due  to  the  COVID-19  crisis,  that  were,  when  relevant, 
addressed in the discussions with Member States on their draft plans.  

The  forthcoming  2022  Annual  Sustainable  Growth  Strategy  will  outline  the  key 
elements  of  the  upcoming  European  Semester  cycle.  The  first  year  of  implementation  of 
the  recovery  and  resilience  plans  will  need  to  be  monitored  within  the  annual  coordination 
framework  under  the  European  Semester.  In  this  regard,  the  Regulation  establishing  the 
Recovery and Resilience Facility provides for twice-yearly reporting by the Member State on 
their  progress  in  implementing  their  plans  in  the  context  of  the  European  Semester.  The 
monitoring  of  progress  towards  the  principles  of  the  European  Pillar  of  Social  Rights  will 
need to be embedded in the European Semester, as highlighted by the EU leaders in the Porto 
Social Summit. The 2022 Annual Sustainable Growth Strategy will set out the concrete steps 
on  how  the  Semester  governance  framework  is  to  be  structured  in  2022.  On  that  basis  the 
Commission  will engage in  a dialogue  with  the  European Parliament,  the Council, Member 
States, social partners and all other relevant stakeholders. 

7.  NEXT STEPS   

The Commission welcomes the approval of the Own Resources Decision by all Member 
States.  This  approval  paves  the  way  for  the  Commission  to  start  borrowing  under 
NextGenerationEU in order to disburse funds, including the pre-financing of grants and loans 
under the Recovery and Resilience Facility. 

The  Commission  will  adopt  its  proposals  for  Council  implementing  decisions  on  the 
recovery and resilience plans starting in the second half of June.  The Commission looks 
forward  to  a  swift  adoption  by  the  Council  to  ensure  a  timely  implementation  of  the  plans, 
allowing  for  a  sustainable  and  inclusive  economic  recovery,  in  line  with  the  conclusions  of 
EU  leaders  at  the  Porto  Summit.  The  Commission  is  also  available  to  provide  on-request 
technical assistance to the Member States and help the authorities make the best use of the EU 
funds. 

The  Commission  welcomes  the  intensive  and  constructive  cooperation  between  all  EU 
institutions,  in  particular  via  the  launch  of  the  recovery  and  resilience  dialogue.  The 
strong  involvement  of  the  European  Parliament  will  be  crucial  to  contribute  to  greater 
transparency  and  accountability  in  the  Facility’s  implementation.  The  Commission  is  fully 
committed to share all relevant information with the Parliament and the Council, and to give 
due consideration to the views expressed by the Parliament in the context of the dialogue, in 
line with the requirements of the Regulation. 

10 

 
 
 
The Commission calls on Member States to ensure that the recovery and resilience plans 
are fully implemented in a timely manner and in thorough dialogue with social partners, 
civil society and other stakeholders.  

11 

 
 
APPENDIX  1  -  FINDINGS  OF  IN-DEPTH  REVIEWS  OF  MACROECONOMIC 
IMBALANCES IN EU COUNTRIES 

For the 12 Member States that have undergone an in-depth review, the classification of 
imbalances  and  excessive  imbalances  has  been  confirmed.  The  in-depth  review  (IDR) 
analysis  looks  at  the  gravity  of  the  imbalances,  their  recent  and  prospective  evolution  and 
related  policy  responses.  Relevant  spillovers  and  the  systemic  cross-border  implications  of 
imbalances are also taken into account.  

The context of the assessment of vulnerabilities this year differs from the analysis in last 
year’s  in-depth  reviews.  In  2020,  policy  efforts  generally  focused  on  addressing  and 
cushioning the impact of the pandemic and supporting a sustainable recovery, which itself is 
set  to  lend  support  to  the  correction  of  imbalances,  while  there  was  also  a  need  to  control 
macro stability risks in the medium-term. The forward-looking perspective is therefore key in 
the risk assessment. However, uncertainty  remains high,  and it is  still difficult  to  assess the 
full consequences of the crisis.  This  calls for continued and close monitoring of imbalances 
and  macroeconomic  stability  risks.  Looking  forward,  these  imbalances  were  discussed  with 
Member States in the preparation phase of their recovery and resilience plans as the Recovery 
and Resilience Facility provides a unique opportunity to address macroeconomic imbalances, 
investment and reforms needs. The analyses of policies in the present in-depth reviews were 
finalised before the formal submission of recovery and resilience plans and does therefore not 
draw  on  information  included  in  these  plans.  While  the  Commission’s  assessment  of  the 
recovery and resilience plans is ongoing at the time of publication of this Communication and 
cannot  be  prejudged,  an  effective  implementation  of  the  recovery  and  resilience  plans 
provides an opportunity to address existing imbalances.   

In general, macroeconomic risks and vulnerabilities have the same origin as previously 
identified.  The  COVID-19  crisis  has  implied  a  setback  in  the  reduction  in  macroeconomic 
imbalances observed in the past decade but not in a way to justify revising the classification 
of imbalances at this stage. Several Member States were combining high private, government 
and external debts already before the pandemic. In other cases, the debt-related concerns have 
been centred either on the government sector or the private sector. In 2020, all those debt-to-
GDP ratios increased reflecting the slump in economic activity and the significant increase in 
borrowing, especially by corporations and governments in order to cushion the fallout of the 
pandemic  and  prevent  an  even  more  severe  deterioration  of  the  economic  situation  and  of 
macroeconomic  stability.  Temporary  moratoria  on  debt  repayment  by  corporations  and 
households have kept debts performing and reducing the risk of liquidity shortages.  

Private and public debt dynamics can become more challenging going forward but  are 
expected  to  improve  with  the  recovery.  Several  countries  concerned  by  high  debts  are 
marked by low potential growth, and the crisis may be further dampening growth, especially 
where more affected sectors account for a larger share of activity, which overall will limit the 
pace  of  deleveraging.  That  highlights  the  importance  of  effective  implementation  of  the 
Recovery  and  Resilience  Facility  to  enhance  higher  potential  growth,  support  a  marked 
recovery, and help tackling these imbalances. Rising debt repayment difficulties may translate 
into  non-performing  loans  going  forward,  especially  in  those  sectors  more  affected  by  the 
crisis and once moratoria on debts repayments and other support measures expire. Thus, while 
banks'  resilience  has  improved  over  the  past  few  years,  it  could  be  hit  in  a  lagged  and 
protracted  way,  and  credit  supply  to  the  economy  could  be  affected,  in  turn  affecting  the 
strength of the recovery.  

12 

 
External accounts have been mostly stable during the COVID-19 crisis. Current account 
deficits have generally changed little, as government and private sector net savings have been 
mutually  compensating.  The  exceptions  have  been  in  countries  most  exposed  to  falling 
foreign  tourism,  where  current  accounts  worsened  more  visibly  in  2020  and  may  not  fully 
recover  this  year  or  next.  In  parallel,  large  current  account  surpluses  remain  largely 
unchanged,  as  does  the  current  account  surplus  for  the  euro  area  as  a  whole.  Negative  net 
international investment positions worsened in 2020 but are not expected to deteriorate further 
this year or next year. External financing conditions have been supportive, apart from a brief 
episode of heightened risk aversion in global financial markets immediately after the outbreak 
of the crisis and especially for non-euro area members. 

The continued expansion of the pre-crisis years led to overheating pressures reflected in 
cost  competitiveness  losses  and  strong  house  price  growth:  the  former  has  softened 
during  the  COVID-19  crisis,  the  latter  less  so.  Cost  competitiveness  developments  are 
expected to stabilise as wage growth moderates in a labour market that has clearly weakened 
with  the  COVID-19  situation,  and  a  cyclical  increase  in  productivity  is  further  relieving 
pressure on unit labour costs this year and next. As for house prices, dynamism has continued 
to  be  observed  in  some  countries,  where  risks  of  overvaluation  have  been  more  relevant. 
However,  in  some  cases,  it  cannot  be  excluded  that  expiring  moratoria  on  debt  repayments 
and withdrawal of other temporary support measures may put downward pressure on housing 
prices and especially where household incomes have been more battered. 

Countries experiencing excessive imbalances 

  Greece 

is  experiencing  excessive 

imbalances.  Vulnerabilities  relate 

to  high 
government debt, incomplete external rebalancing and high non-performing loans, in a 
context  of  high  unemployment  and  low  potential  growth.  The  COVID-19  crisis  has 
interrupted  the  adjustment  process  initiated  in  previous  years.  Government  debt 
increased sizeably in 2020 and is expected to edge down only  in  2022.  Government 
debt  is  mostly  held  by  official  sector  creditors,  which,  together  with  the  large  cash 
buffer, insulates Greece from short-term fluctuations. The current account deficit has 
widened recently and is forecast to remain large, in large part because of the impact of 
the  COVID-19  crisis  on  the  sizeable  tourism  sector.  Despite  marked  decreases  in 
recent  years,  non-performing  loans  remain  large  and  risk  increasing  once  temporary 
support  measures  are  phased  out.  Efforts  to  strengthen  growth  prospects  face 
headwinds  from  the  depleted  capital  stock,  an  ageing  population  and  outward 
migration of skilled labour. Low potential growth weighs on debt deleveraging. 

  Italy is experiencing excessive imbalances. Vulnerabilities relate to high government 
debt and protracted weak productivity dynamics, which have cross-border relevance in 
a context  of labour market  and banking sector fragilities. The  government  debt  ratio 
increased  sharply  in  2020,  reflecting  the  fall  in  GDP  and  the  fiscal  response  to  the 
COVID-19  crisis,  and  is  expected  to  edge  down  only  in  2022.  Labour  productivity 
increased in  2020 but  long-term productivity  growth remains constrained by barriers 
to private and public investment and by limits to growth of the most productive firms. 
Activity  and  employment  rates  remain  below  the  EU  average.  The  very  sluggish 
productivity  growth,  together  with  low  employment  rates,  hamper  potential  growth, 
which in turn limits the room for debt deleveraging. While the Italian banking sector 
became  more  robust  and  resilient  in  the  pre-COVID-19  crisis  years,  vulnerabilities 
remain. Notably, non-performing loans declined in recent years but are still relatively 
high and risk increasing once temporary support measures are phased out. 

13 

 
  Cyprus is experiencing excessive imbalances. Vulnerabilities relate to high stocks of 
external, government, and private debt, and still high non-performing loans, alongside 
a  substantial  current  account  deficit.  The  current  account  deficit  deteriorated 
substantially  in  2020  to  a  double-digit  reading  reflecting  a  marked  drop  in  tourism 
exports  amid  the  COVID-19  crisis  and  it  is  forecast  to  improve  only  slightly  in  the 
near  term.  External  debt  remains  high  and  the  negative  net  international  investment 
position, even when excluding special purpose entities, is worsening in part due to the 
large  current  account  deficits.  The  COVID-19  crisis  interrupted  the  private  sector 
deleveraging as the high debt ratios increased in 2020 mostly on account of the drop in 
GDP.  Non-performing  loans  remain  among  the  highest  in  the  EU,  despite  visible 
reductions in recent years and risk increasing again once temporary support measures 
are  phased  out.  The  government  debt  ratio  increased  significantly  in  2020  but  is 
expected to return to a declining path already this year. 

Countries experiencing imbalances 

  Germany  is  experiencing  imbalances.  The  current  account  surplus  persists  at  high 
levels reflecting a subdued level of investment relative to savings and has cross-border 
relevance.  Following  a  gradual  decline  since  2015,  the  current  account  surplus  is 
expected  to  increase  in  2021  and  to  adjust  again  downwards  in  2022,  remaining 
elevated but below its pre-crisis level. In 2020, public investment growth accelerated 
further  as  a  response  to  the  crisis,  while  private  investment  fell.  In  2020,  higher  net 
savings  of  the  private  sector  were  largely  offset  by  a  higher  government  deficit, 
leading  to  limited  changes  to  the  overall  current  account.  Moreover,  investment 
remains moderate as a share of GDP despite the favourable financing conditions and 
persistent  investment  needs  already  before  the  COVID-19  crisis  and  the  low  risk  to 
fiscal  sustainability  in  the  medium  term.  The  net  savings  of  households  further 
increased  in  2020  amid  absent  spending  possibilities  and  are  expected  to  broadly 
return to their pre-pandemic level in 2022. 

  Ireland  is  experiencing  imbalances.  Vulnerabilities  relate  to  large  private  and 
government  debts  and  net  external  liabilities  remain.  Government  debt  remains  high 
according  to  various  metrics,  with  downside  risks  relating  to  possible  changes  in 
corporate  taxation  rules  and  reforms  in  international  taxation.  Private  debt  remains 
high. Corporate debt  is  inflated by the presence  of multinational  companies, most of 
which have very few linkages to the domestic economy. Household debt as a share of 
household  gross  disposable  income  remains  amongst  the  highest  in  the  EU.  The  net 
international  investment  position  is  still  highly  negative  but  improving  and  mostly 
reflects the activities of multinational firms and mutual funds with little connection to 
the domestic economy. 

  Spain is experiencing imbalances. Vulnerabilities relate to high external  and internal 
debt, both government and private in a context of high unemployment and have cross-
border  relevance.  The  net  international  investment  position  remains  negative  but 
should resume its gradual improvement in 2021. The negative impact of the COVID-
19 crisis on tourism has been significant. The current account has worsened with the 
crisis  but  is  expected  to  be  around  balance  this  year  and  next.  Government  debt 
increased substantially in 2020 as a result of the recession and of the support measures 
put  in  place  to  cushion  the  impact  of  the  crisis;  it  is  forecast  to  decrease  more 
significantly  next  year  on  account  of  continuously  high,  yet  improving,  government 
deficits.  The  deleveraging  by  both  the  corporate  and  the  household  sectors  halted  in 

14 

 
light of the COVID-19 crisis. The unemployment rate went up in 2020 and is forecast 
to start falling in 2022. 

  France  is  experiencing  imbalances.  Vulnerabilities  relate  to  high  government  debt, 
weak  competitiveness  and  low  productivity  growth,  which  have  cross-border 
relevance. In 2020, government debt increased visibly with the recession and with the 
comprehensive  measures  to  contain  the  COVID-19  crisis  and  is  expected  to  edge 
down in 2022. Private debt is high and has also been growing for several years even if, 
in  2020,  nominal  debt  increases  were  matched  by  an  increase  in  firms'  liquidity 
buffers.  Despite  positive  developments  before  the  COVID-19  crisis,  previous 
competitiveness  losses  have  not  been  regained.  In  addition,  long-term  productivity 
growth remains moderate, which also prevents further competitiveness gains, hampers 
potential growth and that way limits the room for public and private deleveraging 

  Croatia is experiencing imbalances. Vulnerabilities relate to government, private and 
external  debt,  in  a  context  of  low  potential  growth.  The  current  account  turned 
negative in 2020, reflecting the impact of the COVID-19 crisis on Croatia’s sizeable 
tourism sector, and is expected to recover only slowly. The negative net international 
investment position should resume its gradual improvement in 2021. The moderately 
high government debt ratio increased markedly in 2020 as a result of the recession and 
of the support measures put in place to cushion the impact of the crisis but is expected 
to  return  to  a  declining  path  this  year.  The  private  debt-to-GDP  ratio  increased  in 
2020,  after  several  years  of  improvements,  reflecting  a  sharp  drop  in  GDP, 
accompanied  by  higher  corporate  borrowing  needs.  The  banking  sector  has  become 
more resilient, also since Croatia joined the Single Supervisory Mechanism, yet non-
performing loans may increase once policies to protect corporates from the impact of 
the COVID-19 crisis are phased out. 

  The  Netherlands  is  experiencing  imbalances.  Private  debt  and  the  current  account 
surplus  remain  high,  and  have  cross-border  relevance.  The  current  account  surplus 
declined  in  2020.  Nonetheless,  it  remains  well  above  levels  justified  in  light  of  the 
country's economic fundamentals and is expected to remain high. Despite an ongoing 
pension reform and recent tax changes addressing incentives to retain earnings within 
small and medium size enterprises, the structural drivers underpinning high household 
and corporate savings remain in place. Part of the external surplus can be attributed to 
statistical  features  linked  to  the  role  of  multinational  firms  and  is  not  expected  to 
attenuate in the near future. Private-sector debt remains high, partly due to intra-group 
debt  of  multinationals,  and  increased  further  as  a  share  of  GDP  in  2020.  Household 
debt  is  increasing  from  an  already  high  level  on  the  back  of  continued  house  price 
rises. 

  Portugal  is  experiencing  imbalances.  Vulnerabilities  relate  to  large  stocks  of  net 
external  liabilities,  private  and  government  debt,  and  non-performing  loans  remain 
high,  against  a  backdrop  of  low  productivity  growth.  Government  debt  increased 
substantially  in  2020  as  a  result  of  the  recession  and  of  the  support  measures  put  in 
place  to  cushion  the  impact  of  the  crisis  but  it  is  forecast  to  decline  moderately  this 
year and next with narrowing budget deficits. The impact of the COVID-19 crisis on 
tourism is important, including for the near future. The current account turned into a 
deficit  driven  by  the  impact  of  the  COVID-19  crisis  on  tourism.  The  negative  net 
international  investment  position  worsened  in  2020  but  should  resume  its  gradual 
improvement  this  year.  After  the  rapid  deleveraging  of  recent  years,  private  debt 

15 

 
increased in 2020, reflecting a sharp drop in GDP and financing needs of corporates in 
light  of  the  crisis,  while  mortgage  growth  turned  positive  in  2020.  Non-performing 
loans risk increasing once temporary support measures are phased out. 

  Romania  is  experiencing  imbalances.  Vulnerabilities  relate  to  a  persistent  sizeable 
current  account  deficit  in  a  context  of  large  government  deficits,  while  previous 
overheating  pressures  are  receding.  The  large  current  account  deficit  is  forecast  to 
remain  high  even  if  moderating  marginally,  and  the  negative  net  international 
investment  position  is  no  longer  improving.  The  large  fiscal  deficit  is  forecast  to 
decline  only  gradually  this  year  and  next,  owing  to  the  recovery  and  some  fiscal 
consolidation.  Net  savings  by  the  domestic  private  sector  are  not  enough  to  cover 
those high fiscal deficits, and financing has become more reliant on the accumulation 
of external debt. In contrast, competitiveness losses seem to be abating as overheating 
pressures  of  earlier  years  cooled  with 
the  COVID-19  crisis.  Legislative 
unpredictability continues to weigh on the broader business environment. 

  Sweden  is  experiencing  imbalances.  Vulnerabilities  relate  to  high  and  rising 
household debt and overvaluation risks in the housing market remain. Household debt 
has increased further and mortgage growth to households has remained strong. House 
prices  have  continued  to  increase,  even  faster  than  before  the  COVID-19  crisis, 
thereby compounding the risks of overvaluation. The banking sector is resilient, with 
relatively  high  profitability,  ample  liquidity,  and  comfortable  capital  levels,  but 
elevated exposure to the commercial real estate market warrants attention. 

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APPENDIX  2  -  PROGRESS  IN  IMPLEMENTING  THE  COUNTRY-SPECIFIC 
RECOMMENDATIONS 

This  assessment of progress  looks at past policy action  taken to address  the challenges 
highlighted  in  the  2020  country-specific  recommendations.  It  was  finalised  before  the 
formal  submission  of  recovery  and  resilience  plans  and  does  therefore  not  draw  on 
information  included  in  these  plans.  The  country-specific  recommendations  were  however 
discussed with Member States in the preparation phase of their recovery and resilience plans 
to ensure they are adequately addressed. Their assessment will be presented separately in the 
Commission’s proposal for a Council Implementing Decision regarding each of the plans. 

Tackling  structural  challenges  is  crucial  for  a  sustainable  recovery  and  continued 
growth.  Implementing  reforms  to  address  structural  vulnerabilities  is  key  to  improving  not 
only the ability to withstand and cope with existing challenges but also to accomplishing the 
twin transitions in a sustainable and fair manner. More resilient Member States are expected 
to  recover  from  the  COVID-19  crisis  faster  and  with  greater  strength,  thus  showing  the 
importance of carrying-out reforms in order to be better prepared for the future. 

Looking at reform progress  from an annual perspective, Member States have made at 
least  some  progress  in  about  6  out  of  10  of  the  country-specific  recommendations 
addressed  to  them  in  July  2020.  This  significantly  higher  level  of  implementation  than  in 
previous  years  seems  to  be  closely  linked  to  the  nature  of  the  2020  country-specific 
recommendations,  which  focused  to  a  large  extent  on  the  immediate  fiscal,  economic, 
employment  and  social  challenges  of  responding  to  the  COVID-19  crisis.  The  bold  action 
taken  by  the  Member  States  to  confront  the  crisis  brought  about  by  the  pandemic  seems  to 
have led to a relatively high level of implementation. 

The level  of progress  varies significantly between policy areas.  Considering those policy 
areas  in  which  a  significant  number  of  Member  States  received  a  recommendation  in  2020, 
most progress overall has been achieved in access to finance, financial services, fiscal policy 
and  fiscal  governance  and  employment  protection  legislation.  More  specifically,  the 
concerned  recommendations  refer  to  the  need  for  continued  and  adequate  access  to  finance 
and the need for fiscal measures, in line with the general escape clause, to effectively address 
the pandemic, sustain the economy and support the recovery. Member States have also made 
good progress with the recommendations on mitigating the employment and social impact of 
the  crisis,  including  by  (i)  promoting,  developing  and  enhancing  flexible  working 
arrangements;  (ii)  implementing  short-time  work  schemes;  and  (iii)  taking  measures  to 
provide adequate income replacement and access to social protection. By contrast, markedly 
less  progress  has  been  made  in  addressing  recommendations  on  public  administration,  civil 
justice, the fight against tax evasion, education and skills and lifelong learning. 

From  a  multiannual  perspective,  the  level  of  implementation  of  the  country-specific 
recommendations  has  remained  broadly  stable  over  the  past  few  years.  In  particular, 
Member States have made at least some progress in implementing [around two-thirds] of all 
the country-specific recommendations since the start of the European Semester. However, the 
multiannual level of implementation has slightly decreased over the last 12 months, reflecting 
the fact that Member States have focused their policy action on immediate crisis mitigation. 
Overall, since 2011, Member States have made the most progress with recommendations on 
access  to  finance  and  financial  services,  followed  by  progress  with  legislation  governing 
labour relations and employment protection. At the same time, progress has been particularly 
slow in reforming health and long-term care and broadening tax bases.  

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